Back to the Future

If Japan can... Why can't we? was a white paper broadcast by NBC in 1980, credited with beginning the Quality Revolution and introducing the methods of W. Edwards Deming to American managers (producer: Clare Crawford-Mason [1], reporter: Lloyd Dobyns [2]). During the 1980's Japan was seen to be a manufacturing powerhouse and American Industry was struggling to keep pace. The release of the white paper showed everyone that in fact the techniques being used in Japan were espoused by an American W. Edwards Deming who had been largely ignored in American management until the white paper got everyone to sit up and listen. In the following years, it prompted a major change in the way many businesses operated. The report details how the Japanese captured the world automotive and electronics markets by following Deming's advice to practice continual improvement and think of manufacturing as a system, not as bits or pieces.

Move to 1991, Quality or Else: The Revolution in World Business, the 1991 PBS series and book, clarified the practice of the new methods. It reported that some U.S., Japanese, Korean, and European companies help employees improve themselves and thereby get their commitment to the organization's mission. This relationship was just as important as systems thinking, customer focus and databased decisions. The series also reported how this new management philosophy of continual improvement could be used to improve service, health care and educational organizations

At the same time, major companies prospered under visionary leaders into the 1990's and then slid back into old practices with corresponding loss of profitability and product/service quality.

Move to 2000 and beyond. The new era started out with the Dot.com bubble burst. Today much of the theory of "systemic thinking" have now become new initiatives with many different consultant labels. While "Quality" is still a component of major corporations the fundamentals have been loss and "Quality" has been delegated to a department rather than being practiced in the executive offices. While quality has improved in many industries its philosophy and practice at the top of organizations is no longer evident as a driving force of American competitiveness.

What are the factors that led to failure of the vital role of systems-thinking leadership?

1) Generational Changes: The leadership of many corporation, large and small, were in their 20's when Deming and his management theories appeared on the American business landscape. The leaders of the past have retired and today’s leaders have reverted back to traditional linear thinking when viewing and solving problems.

Traditional decision-making tends to involve linear cause and effect relationships. By taking a systems approach, we can see the whole complex of bidirectional interrelationships. Instead of analyzing a problem in terms of an input and an output, for example, we look at the whole system of inputs, processes, outputs, feedback, and controls. This larger picture will typically provide more useful results than traditional methods. Education of today's leadership is required to go "back to the future".

2) Management by Results: Today's manager is measured by financial results i.e. budgets, sales, headcount and other final outcomes. If the results are not what the "boss" expected then a simple resolution is to cut budgets, blame other people or hide expenses by shifting them over to other departments. This method brings no improvement rather further complexity and increased cost. What are the true numbers? Who would know?

Today's manager is also measured by monthly or quarterly results. A timing factor that does not allow a true picture as to how people, processes and customers are behaving over time.

System thinking helps us integrate the temporal dimension of any decision. Instead of looking at discrete "snapshots" at points in time, a systems methodology will allow us to see change as a continuous process. Systems’ Thinking is a worldview based on the perspective of the systems sciences, which seeks to understand interconnectedness, complexity and wholeness of components of systems in specific relationship to each other. Systems thinking is not only constructivist, rather systems thinking embraces the values of reductionism science by understanding the parts, and the constructivist perspectives which seek to understand wholes, and more so, the understanding of the complex relationships that enable 'parts' to become 'wholes'.

3) Short Term vs. Long Term emphasis: The stock market operates around quarterly results. Corporate accounting systems operate around monthly results. Many organizations are driven by their budgets, not by how to improve or innovate product and service thus increasing customer satisfaction and market share. Improvement drives down cost, creating market differential and increasing customer satisfaction drives up sales. Short-term thinking does not enable either to happen effectively.

4) Politics: Many colleges still teach organizational design by breaking the organizational 'whole' into components, calling them functions and departments, 'strengthen' each of these components, and hope that together they will produce the whole. We have seen many "unintended" but "logical” consequences of this approach in many organizations. One of them was that the departments conflicted with each other to such an extent that "internal politics" has become the cultural norm.

The Political factor drives many employees to focus on "how to keep in good standing" with their immediate boss. Never questioning his/her methods, always learning to give the "politically correct answers" rather than simply speaking the truths. Political factors are a dominant cultural trait of organizations that manage by results.

There are many other factors that have driven American Management back into old practices with corresponding loss of profitability and product/service quality. In order for companies to go forward they must go "back to the future" and learn from mistakes that are robbing their shareholders value, their employees pride and their customers satisfaction.

Thought Leadership

From Wikipedia, the free encyclopedia we find a definition of Thought leaders as:

Thought leader is a buzzword or article of jargon used to describe a person who is recognized among his or her peers for innovative ideas and demonstrates the confidence to promote those ideas. The term can also be applied to companies.
According to commentators, a distinguishing characteristic of a thought leader is "the recognition from the outside world that the company deeply understands its business, the needs of its customers, and the broader marketplace in which it operates."

A web site titled "leadersdirect.com" defines Thought Leadership as

What is thought leadership?

"Whenever you advocate a new idea to your colleagues or boss, you show thought leadership. It isn't necessary to have inspirational influencing skills, which is necessary for senior executives because they need to win over the entire organization and beat off their internal competitors for top jobs. Also, to initiate organization-wide change, it helps to be inspirational. But a thought leader focuses on smaller scale changes - ideas for a new product or changes to an existing one. Thought leaders can persuade others using logic, evidence or an actual demonstration of a prototype to win support.

To be a thought leader, you need to immerse yourself in your professional domain and search for new things to say that add value to your organization's objectives. Traditional, top-down leadership depends on personal credibility or character because such leaders are asking people to join them on a difficult journey and they have a great deal of power over their followers. Hence, we need to trust them. Conversely, the thought leader could have weak interpersonal skills and an indifferent character. They could be loners or eccentrics. All that counts is the credibility of their new idea. This is why we can buy innovations offered by odd creative types who we would not entrust to manage any part of an organization. If you can demonstrate the value of your idea and explain it with conviction, you might not need inspirational influencing skills.

Thought leadership is based on youthful rebelliousness - the willingness to risk group rejection in the pursuit of a better way of doing things. Hence, thought leadership is not a learned skill. Only the content of your discipline or field is learned. Traditional, top-down leadership is portrayed as a collaborative effort between leaders and followers to achieve shared goals. But thought leadership has a more competitive edge. Thought leaders are saying, essentially, that they know of a better product or way of doing things than anyone else in the team or organization. Thought leadership ends when the target audience accepts the idea. It may be that you are using hard evidence to persuade others to avoid dumping a current process for a passing fad. In this case, your leadership does not result in any action taken. This is an important point because it enables us to define leadership as the initiation of new directions and categorize the implementation of new ideas as a managerial activity. This is important because we tend, traditionally, to focus on the PERSON in charge of a group as the leader who may both champion a new direction and implement it. Hence we think that leadership is about managing change. The real value of examining thought leadership is that it helps us to see that there is a critically important distinction between leadership and management. When executives move from championing a new idea to its implementation, therefore, they are switching hats from leadership to management. The bottom line is that leadership is about the initiation of new directions. Implementing them is a managerial undertaking."


Consider IBM as a innovative thought leader. Most of us would think of computers but when you look at IBM's revenue growth it comes from IBM Golbal Services not hardware and software. What has IBM done? They have harnessed a lot of knowledge about "how" people and companies use technology and they have instituted "consulting processes" to share that knowledge to the benefit of their customers. One example strategy is to expand tech’s borders by pushing users—and entire industries—toward radically different business models. The payoff for IBM would be access to an ocean of revenue—estimates suggest $50 billion a year —that technology companies have never been able to touch.” —Fortune

“Another example: Big Brown’s New Bag: UPS Aims to Be the Traffic Manager for Corporate America” —Headline/BW/2004. UPS is now offering Supply Chain Management services, not just brown trucks delivering goods

IBM released a study this year of 765 CEO globally and solicited their thoughts on innovation and thought leadership. go to http://www-935.ibm.com/services/us/bcs/html/bcs_ceostudy2006_flat.html for a full copy of their report.

The summary of their findings show:

• Business model innovation matters. Competitive pressures have pushed business model innovation much higher than expected on CEOs’ priority lists. But its importance does not negate the need to focus on products, services and markets, as well as operational innovation.

• External collaboration is indispensable. CEOs stressed the overwhelming importance of collaborative innovation – particularly beyond company walls. Business partners and customers were cited as top sources of innovative ideas, while research and development (r&D) fell much lower on the list. However, CEOs also admitted that their organizations are not collaborating nearly enough.

• Innovation requires orchestration from the top. CEOs acknowledged that they have primary responsibility for fostering innovation. But to effectively orchestrate it, CEOs need to create a more team-based environment, reward individual innovators and better integrate business and technology. In our conversations, we found a persistent, worldwide, sector- and size-spanning push toward a more expansive view of innovation – a greater mix of innovation types, more external involvement and extensive demands on CEOs to bring it all to fruition. Based on these CEOs’ collective insights, we offer several considerations that can help organizations sharpen their own innovation agendas:

• Think broadly, act personally and manage the innovation mix – Create and manage a broad mix of innovation that emphasizes business model change.
• Make your business model deeply different – Find ways to substantially change how you add value in your current industry or in another.
• Ignite innovation through business and technology integration – use technology as an innovation catalyst by combining it with business and market insights.
• Defy collaboration limits – Collaborate on a massive, geography-defying scale to open a world of possibilities.
• Force an outside look...every time – Push the organization to work with outsiders more, making it first systematic and, then, part of your culture.

The last point of the IBM study is revealing, Force and outside look...every time. So when you think about your business plans for 2007 and beyond have you engaged an outside look or are you just repeating traditional thinking processes as it relates to your own business growth and objectives?

Beyond Supply Chain Thinking

Demand for rapid improvement and technological innovation are driving the creation of the connected enterprise -- a network of inter-connected processes and “systems”, from supply chain management, enterprise risk management, enterprise resource planning and many other “systems” which work collaboratively to bring value to the organization and its customers. These new, customer-centric “systemic” chains have accelerated the convergence of information flows, product flows, and payment flows, and are transforming the ways that companies produce goods and provide services.

Managing the “connected enterprise” provides insight into new ways of doing business. It moves beyond the linear thinking of incremental, short-term improvements in productivity and efficiency to address the longer-term, exponential changes that organizations must make in order to manage the complexity of today's fluid network of processes, systems, suppliers and customers.

Optimizing the performance of the different parts of the “systemic” chains within any organizations requires a holistic approach to the use of technology and critical information flows in timely manners at the least amount of cost. The opposite of optimize is sub-optimization and such increases cost and complexity. Many organizations today have different technology initiatives and suppliers to address Supply Chain Management, ERM and ERP. SCM, ERM, ERP all require database driven technologies with robust interfaces into multiple “organizations” internally and externally. Creating a free flow of information across organizational boundaries can increase learning, reduce decision cycle times and advance knowledge between departs and with key suppliers.

The problem today is that most organizations do not view the organizations needs holistically rather departmentally thus creating silos of cost and improvement initiatives. The silo approach only creates cost down the road and a lack of inter-connectivity of vital data and information necessary for long term strategic improvements.

There are many barriers within any organization that create constraints to viewing and building “systemic supply chain management”. Unless these barriers are addressed, maximizing the value of a “connected enterprise” cannot be achieved nor can the maximum value be obtained. The barriers are primarily a lack of thought leadership provided by executives whereas they are the ones who approve or disapprove of initiatives and related budgets. Executive management holds the power of change and create subsequent improvements. Thought leadership drives everything.

Systemic Supply Chain Management

Consultants are offering a host of "Supply Chain Management" servcies aimed at a numerous industries. Healthcare seems to be the primary target given that 20 - 30 percent of Healthcare System expenses are centered around "materials acquisition". Much is being written about "Healthcare Supply Chain Management. Numerous companies have introduced technology to enable ecommerce assessment, procurement, Enterprise Resource Planning, Enterprise Risk Management and Logistics Management to name a few.

Companies like UPS, Federal Express, Yellow Frieght and DHL to name a few have established entire Supply Chain Management practices. The big six consulting firms have established entire divisions centered around providing "Supply Chain Management" practices and services. Billions are being spent in the pursuit of optimizing "Supply Chain Management" as a process to reduce expenses and maximize inventory control. Several market leaders are positioning themselves as "Supply Chain Management Guru's" and there has been several associations established to facilitate learning and cooperation around "Supply Chain Management". So is Supply Chain Management a new process given all the attention and discovery being proclaimed? No, it is not rather it is nothing more than the labeling of Profound Knowledge as a new discovery as it applies to Logisitics Management and Supplies acquisition interaction with the end customer, the buyer.

Pround Knowledge was first introduced in the early 40's by a consultant named W. Edwards Deming. Demings premise was based on four elements of Profound Knowledge which included:

1) Appreciation for a system
2) Knowledge about variation
3) Theory of knowledge
4) Psychology

The four elements of Profound Knowledge are all interrelated and cannot be separated without suboptimization of the total impact of making changes either to a single process or and entire industry. Much of what is being written and pursued as it relates to Supply Chain Management is not being done "systemically" rather it is being approached in "silos" of improvement.

An example would be while using technology to procure materials. This process surely provides benefits to the end user however unless it is connected with a "delivery" mechanism" the opportunity for improvement and cost reduction is sub-optimized.

Another example is lets say one supplier uses a "Transportation Management Solution" while another supplier does not. Would the end customer gain optimal benefit from the mechanics of "Supply Chain Management"?

When one examines the 'System" of Supply Chain Management one can see numerous interactive components including:

Materials procurement
Material Delivery
Inventory Controls
Distribution
Technology
Database Management
System Assessment
Score Carding
Planning
etc. etc

The list of interactive processes and related systems goes on and on yet connecting all together for the improvement benefit of all parties seems to be the missing criteria for todays "Supply Chain Management" practioners. Systemic improvement requires cooperation and profound knowledge. Two elements that should be driving entire Supply Chain Management efforts.

Next we will examine the "Theory of Constraints" as it applies to todays "Supply Chain Management" practices.

Supply Chain Conflicts

The following six generalized operational problems have been identified with Healthcare's existing supply chain. Many of them are caused by the visible and invisible conflicting goals.

1) Service levels. Because Healthcare supplies can be a somewhat seasonal business, there was a constant battle between too much and then not enough inventory. When there was too much inventory, there was often the need to force products out to the hospitals regardless of their rate of sale. Stock outages occurred throughout the year with both core and non-core products. The cost-driven, inventory-reduction actions of the various suppliers and distributors contributed to the increase of Healthcare managerial costs, as well as the reduction in operational efficiency. Correcting these types of problems benefits everyone in the supply chain.

2) Expanding assortment. The product assortment carried by Healthcare providers has grown significantly because of an expansion of new products and suppliers and to accommodate the ever changing healthcare landscape The constant flow of new proprietary products and seasonal products is in conflict with distributors that operate most efficiently with a predictable product flow and stocking of only a few proprietary items for their customers.

3) Shelf-life. Additionally, healthcare providers constantly had to contend with shelf-life issues: Products often were delivered with little remaining shelf-life and, in some cases, they were expired. Ordering too much at one time is the major cause of this problem. Whether the distributors had bad forecasting information or were attempting to minimize their purchasing costs, this action was clearly not in sync with the needs of the healthcare industry. The costs that Healthcare providers incurred to dispose of short shelf-life products were invisible to others in the supply chain, yet they unfavorably impacted the total costs associated with the supply chain.

4) Delivery capacity. The delivery system was not adequate to ship the amount of products needed during seasonality of use. There were not enough trucks, trailers, drivers or warehouse capacity to service the needs of Healthcare providers during these times.

5) Information gap. Much of the true cost information was not available to all parties due to the visible conflicting goals between supply chain members. Examples of this include inbound and outbound freight, storage costs, volume purchasing discounts and rebates. What the Healthcare industry lost is what the supplier or distributor gained. Supply chain partners were protecting their own interests by keeping information secret and making their actions invisible to outsiders.

6) Lack of collaboration. As various supply chain problems occurred in the system, the supply chain was slow to react. The ability to identify the root of the problem, develop options, choose the best option and then implement that option were all hampered because the supply chain did not collaborate to solve the problem. The difficulty was largely due to the fact that supply chain members had conflicting operational goals.
Mitigating Inefficiencies in Healthcare Supply Chains

Clearly, these inefficiencies were caused by many of the conflicting goals among suppliers, distributors and the Healthcare Industry. In order to influence the behavior of other supply chain partners in ways that are best for everyone, Healthcare providers need to developed a different approach. The following strategic solutions could mitigated the inefficiencies that occur within the Healthcare supply chain. The ultimate goal was to increase the overall size of the supply chain "cake" by increasing revenues. And only then could everyone improve their profitability.

1) Strategic thinking. As the leader of the supply chain, Healthcare providers need to learned to strategically "think earlier" and tactically "plan earlier." Strategic decisions such as selecting a supplier or distributor have a long-lasting effect on Healthcare's operational performance. They must be made based on a careful, systematic analysis that considers factors such as potential conflicting goals. For example, one of the major initiatives of many Healthcare suppliers is to negotiate a consolidated contract with a major freight carrier for dry goods. This contract enabled the suppliers, distributors and Healthcare providers to save costs on both inbound and outbound shipments.

2) Benchmarking. Benchmarking is an effective way to learn from others. In the logistics area, difference in managerial style and culture does not affect the performance substantially. In many cases, learning from industry leaders serves as a more relevant way to make improvements. For example, benchmarking could help the Healthcare Industry improve turnover by converting some items to limited-time offers, which was a successful technique of other industries.

3) Performance measures. Healthcare providers and suppliers better (timely and accurate) information about its supply chain performance. A new "supply chain system" could allow suppliers and Healthcare providers to collect and analyze the required data such as costs and on-hand and on-order inventory as well as delivery information in a timely manner. The Healthcare Industry could develop a fully integrated costing tool that calculates at the item level the distribution costs for its various methods of distribution in each of the markets that it operates. A "what if" spreadsheet could be developed to precisely calculate the cost of one distribution option over another.

4) Information sharing. When one company cannot observe another company's actions, it will find it hard to design, implement and justify changes necessary to improve the relationship. The Healthcare Industry need to work with its supply chain partners to identify the information needed to make better long-term decisions that benefit everyone. For example, the distributors could develop detailed analyses of their costs for each activity, and by working with the industry, they would be able to fine-tune assortments and delivery schedules to take costs out of the system for everyone.

5) Inter-company collaboration. During the different stages in the supply chain, distributors and suppliers frequently have conflicting goals. For example, in order to save ordering cost, distributors tend to place a large order, which can create shelf-life issues. Performance measurement, information sharing and close collaboration between Healthcare providers, suppliers and its distributors could all been effective in mitigating these problems.

6) Contract-based monetary incentives. Supply chain contracts detail the requirements for the procurement of goods, transportation of products and distribution of the products to the customer. Based on the visible costs and other operational information, some incentives can be offered to supply chain members for synchronizing their decisions. Financial incentives must be properly structured and aligned in order to drive and sustain the behaviors during all supply chain stages. After all, a win-win situation materializes only if everyone finds their share of revenue increasing.

As the supply-chain world evolves, companies are finding that the practices of yesteryear do not guarantee them success in the marketplace. Technology has allowed us to understand our business actions in real time, and it has become incumbent on all of us to share that information to reduce cost inefficiencies in the supply chain and deliver better service to our customers. If we don't, someone else will.

What are the Factors?

a) An issue that actively contributes to an accomplishment, result, or process.
b) A quantity by which a stated quantity is multiplied or divided, so as to indicate an increase or decrease in a measurement.

For Healthcare there isn't one factor that contributes to success rather a series of factors that are all interrelated. Many organizations put significant emphasis on the economic factors as the key measure of success. The problem with this approach is like playing tennis by watching the scoreboard. The score is not the game it is the result of the game dynamics. Business results are outcomes of hundreds of moving factors and processes. Given the state of Healthcare, strategic factors are moving targets and require a constant measurement on developments that could alter an organizations performance.

The Healthcare Industry has numerous factors that are influencing its future. These include, but are not limited to the following:

1. Economic factors
2. Market factors
3. Consumer factors
4. Enterprise Resource Planning factors
5. Enterprise Risk Management factors
6. Regulatory factors
7. Technology factors
8. Supply Chain Management factors
9. Competitive factors
10. Supplier Factors
11. Industry factors

Successful companies have a "system" to constantly monitor the "vital few factors" that influence the business. Effective feedback mechanisms and process measures insure accurate data collection and analysis that can provide keen insights into changing dynamics that impact end results. Many businesses react to change by adjusting processes, people and performance without the benefit of understanding underlying dynamics. The more changes that occur the more management tries to adjust only to find out later that the efforts did not improve results rather added resources, expense and complexity to organizational processes which perpetuates further complexity and cost. This method create a negative cycle of business performance which is usually met by layoffs, budget cuts and constant reorganization.

Many mature organizations need reinvention. If you are helping your company reinvent itself as needed, you need to go beyond merely being flexible and responsive. Reinventing a mature company often means changing its mental model, including its approach to customers, suppliers, employees, and everyday working habits. It means constant evaluation and awareness of the big picture, as well as awareness of the details of getting everyday business accomplished. It means being ahead of change instead of being behind it.

There is a great untapped potential in revitalizing mature organizations within the Healthcare Industry. If tapped, mature organizations could become more relevant and valuable to their customers, they could enjoy greater growth and profitability, and they could create more and better jobs for their staff.

The potential remains untapped:

Mature organizations tend to think that they already make the most out of their potential -- that is, they believe they are doing the right things. They behave like they are deaf when their fundamental beliefs are questioned. The more successful they are or have been, the worse their hearing becomes.

If mature organizations somehow realize that they have a problem (or an opportunity) to improve, they lack the tools to carry through the necessary change, particularly because the transformation that they need is different from what they know. Mature organizations are highly experienced in improving the way they do things, but they lack the capability to question whether they do the right things at all.

You may well be part of the problem: Are you so much a part of your organization's success that you have lost the ability to step back and look upon your organization at a distance? Managers in particular need to remind themselves constantly that their mental model must never become one of tradition -- it should be one of necessity, oriented toward the future instead of the past.

There are three factors that make mature organizations easy targets for the virus that turns success into failure. The three factors are size, age, and success . While organizations grow, they get more management layers, they establish more departments, and they introduce more and more rigid procedures. As they mature, they establish routines and traditions that tend to make business as usual the norm rather than the exception. Although they enjoy success, they become complacent, lazy, and even arrogant, eventually forgetting the needs of their customers that were the initial source of their wealth and success.

One surprising observation is that mature organizations normally don't realize the progression of their transformation from success to failure. They watch their core business become a cash cow business -- that is, a stagnating business that generates income and cash -- and they apply their surplus cash to acquire other businesses that they may consolidate into the existing business. The acquisitions add to the short-term top line and also improve short-term bottom line through downsizing and rationalization. If there are no such acquisition opportunities available, mature companies pay out larger dividends or buy back shares from the market.

Mature organizations also become increasingly blinded by their current mental models:

1. They fail to discover changing customer needs.
2. They are bound by marketing and sales channels that gradually become obsolete.
3. They stick to product/service concepts because they fit existing business models.
4. They treat employees the same way their managers were treated in their early years.
5. They use their bargaining power to put unfair pressure on suppliers and intermediaries.
6. They increasingly focus on management bonuses and other incentive programs.
7. They believe in short-term financial performance and shareholder value creation as the only genuine criteria for success.

For many organizations, this process has happened in parallel with the overall change from the industrial era to the knowledge-based society, and many of their shortcomings have become more serious because of this change in society.

Just like industrial corporations were not created top-down by government decree, the transformation of organizations toward innovative, knowledge-based, and networked partnerships will grow from below. Visionary leaders will inspire peers and other associates to break the rules of conventional business and jointly move their organizations into second cycles of innovation and growth.

Jay Deragon & Associates service starts by providing an assessment of the factors influencing your business results. From this assessment a plan for improvement can be developed that insures improved results and effective transformation.

Future publication of analysis and insight into each of the factors defined will be available in the future. To receive these publications please email JRounds@jayderagon.com and be sure to add "Healthcare factors in the subject line.