The Most Energetic Area of Lean Practice

by admin on 06/19/2011 1:42 PM

James Womack: The Lean Movement

With the current activity to increase the minimum wage, we need to review what James Womack said in 2008 when he was reflecting on the progress of the Lean Movement: “One critical indicator is our success in extending lean thinking to new industries and activities. In recent years I have been greatly encouraged that lean thinking is moving far beyond its origins in manufacturing to distribution, retailing, maintenance and overhaul, consumer services, construction, and – perhaps most striking – healthcare. Indeed, the latter may be the most energetic area of lean practice today.”

“There is much consolidation going on in the health care industry. Groups are merging; Hospitals are merging, ancillary facilities are merging; all in the name of efficiency. What is over looked, is that no value is created with like firms merge.  These actions quickly shift wealth from customers, employees, suppliers, and former owners to the new owners. This may do more good than harm, because otherwise the firm in question may completely fail. But it is often unclear that any additional value has been created in the sense of better satisfying customer needs with a given amount of human effort and capital investment. And, from society’s standpoint, the only way to increase living standards is to change the ratio of human effort and capital going into firms to the amount of value coming out. Otherwise the outcome is basically zero- sum, with some winners and some losers.

“By contrast, the objective of a lean transformation is to analyze the core value creating processes of organizations in light of customer needs (which may have changed), then figure out how to create more value with the same resources so the organizations can grow and society can prosper. It’s the difference between shifting wealth from one party to another and creating more value, ideally value that can be shared with customers, employees, suppliers and owners.”

(Note that Womack never uses the term “adding value” because this is an accounting convention for the difference between the input costs of a firm and its output prices. Often Womack finds that only cost is added by the firm as inputs are converted to outputs, not value from the customer’s [or patient’s] standpoint.)

Managers (and owners) will try anything that is quick and easy even if it doesn’t work before they try anything long and hard that does work (e.g. intense process analysis linked to customer needs to create more value from the same resources.)

We thank James Womack for keeping us informed of the lean enterprise goals and will follow through with relevance to health care, which he feels is one of the “more energetic areas of lean practice today.”

Please peruse the Lean Enterprise Institute, at www.lean.org.

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