At the heart of superior performance in organizations, whether service-based, transactional, manufacturing, assembly or processing is the idea of consistent, highly value-added, responsive, and capable processes. But the arena of services — whether a hospital, retail chain, restaurant, hotel, or theme park – presents an even more challenging shift in paradigm than for processes focused on the production of things (as difficult as that is). While high-performance processes in all sectors share common characteristics such as value-added flow with little or no defects, service-based processes have the customer as the medium of the process. Literally, rather than a car flowing through an assembly line, service situations have a customer or client experiencing the flow of service as a seamless system of processes with the customer at the heart.
Instead, most customers in a service situations find themselves having to self-navigate their way through a series of frustrating hand-offs from one person or department to another. The customer is not at the heart of the organization but is subordinate to the missions and tasks of specialists and functions to which the customer must adapt and in many cases, please. Information the customer gives to one person or department is not passed on, flowed, to the next, but is asked for again and again by each successive employee. Often, it is up to the customer to try and integrate the service themselves by telling each department of an organization what the other functions have said or to go through their own research and legwork to manage the process.
There are some positive signs that some organizations are starting to see, understand, and act on lean principles many of take for granted as “obvious” and “natural.” One organization is Saint Goran hospital in Sweden. Their website, if one didn’t know it was a hospital, talks about Process Orientation as Toyota talks about its Toyota Way (http://www.stgoran.se/sv/In-English/About-Us/Process-Orientation-of-Capio-St-Goran-Hospital/).
Saint Goran hospital is one of the glories of the Swedish welfare state. It is also a laboratory for applying business principles to the public sector. The hospital is run by a private company, Capio, which in turn is run by a consortium of private-equity funds, including Nordic Capital and Apax Partners. The doctors and nurses are Capio employees, answerable to a boss and a board. Doctors talk enthusiastically about “the Toyota model of production” and “harnessing innovation” to cut costs.
Welcome to health care in post-ideological Sweden. From the patient’s point of view, St Goran’s is no different from any other public hospital. Treatment is free, after a nominal charge which is universal in Sweden. St Goran’s gets nearly all its money from the state. But behind the scenes it has led a revolution in the relationship between government and business. In the mid-1990s St Goran’s was slated for closure. Then, in 1999, the Stockholm County Council struck a deal with Capio to take over the day-to-day operation of the hospital. In 2006 Capio was taken over by a group of private-equity firms led by Nordic Capital. Stockholm County Council recently extended Capio’s contract until 2021.
St Goran’s is now a temple to “lean management”—an idea that was pioneered by Toyota in the 1950s and has since spread from car making to services and from Japan to the rest of the world. Britta Wallgren, the hospital’s chief executive, says she never heard the term “lean” when she was at medical school (she is an anaesthetist by training). Now she hears it all the time.
The hospital today is organised on the twin lean principles of “flow” and “quality”. Doctors and nurses used to keep a professional distance from each other. Now they work (and sit) together in teams. (Goran Ornung, a doctor, likens the teams to workers in Formula One pit stops.) In the old days people concentrated solely on their field of medical expertise. Now they are all responsible for suggesting operational improvements as well.
One innovation involved buying a roll of yellow tape. Staff used to waste precious time looking for defibrillator machines and the like. Then someone suggested marking a spot on the floor with yellow tape and insisting that the machines were always kept there. Other ideas are equally low-tech. Teams use a series of magnetic dots to keep track of each patient’s progress and which beds are free. They discharge patients throughout the day rather than in one batch, so that they can easily find a taxi.
St Goran’s is the medical equivalent of a budget airline. There are four to six patients to a room. The decor is institutional. Everything is done to “maximise throughput”. The aim is to give taxpayers value for money. Hospitals should not be in the hotel business, the argument goes. St Goran’s has reduced waiting times by increasing throughput. It has also reduced each patient’s likelihood of picking up an infection. However, scrimping on hotel services means that it has to invest in preparing patients for admission and providing support after they are released.
The hospital has helped to change the way Swedes receive health care. Ms Wallgren likens it to a hare that sets the pace of a dog race. The hare can run fast because its staff think of themselves as part of a team, and because managers emphasise collective learning. But St Goran’s is also a symptom of a wider change.
Sweden has gone further than any other European country in embracing the purchaser-provider split—that is, in using government money to buy public services from whichever providers, public or private, offer the best combination of price and quality. Private firms provide 20% of public hospital care in Sweden and 30% of public primary care. Both the public and private sectors are obsessed with lean management; they realise that a high-cost country such as Sweden must make the best use of its resources.
Spreading efficiency will not be easy, however. Europeans instinctively recoil from private companies making money from health care. British placards protest against modest reforms with pictures of fat cats helping the health minister to disembowel a patient labelled “NHS” (National Health Service). Even in Sweden, the mood has grown more hostile since some private-equity companies were embroiled in scandals at nursing homes.
The public-health business is hardly alluring for investors, either. Cash-strapped European governments are striking hard bargains. Leif Karnstrom, a senior figure at Stockholm County Council, is excited about a new system of “outcome-based health care” that allows him to claim his money back if providers perform poorly. Most people in the private-equity business think there are easier ways to make money than taking over bits of the state.
This is a pity. Private health-care companies have several advantages over public organisations. They have more incentive to make services more efficient, since they typically keep some of the savings. They are better at persuading their employees to adopt new ideas. And they are better at spreading new ideas across borders. Europe should be proud of its public-health services. But if it wants them still to be affordable in the future, it should allow more private companies into the mix. (From the May 18th 2013 edition of The Economist.)