Category Archives: Systems Thinking

Innovation in Practice: Case Study in Health Care (Part 2)

In my last post, Are You Ready for an Innovation Initiative?, we discussed three main capabilities that need to be in place to give innovation initiatives a chance of success.    In this piece, I want to illustrate a live example.  This one is in the field of Health Care.

First some background

Xavier just hosted a one day conference on the Future of Health Care.  As some may not be aware, this is an industry in the throes of dramatic change, driven significantly by the Congressional passage of the new Affordable Care Act (ACA).  Everyone is aware of the continuing rise in overall health care costs (which now surpass $17.6% of total US GDP).   In a nutshell, the government (which pays about 35% of this total bill through Medicare and Medicaid) is seeking to restructure the way reimbursement payments are made to health providers.  Historically, providers have been compensated per transaction.  In other words, the more patients you see, and the more procedures you administer, the more money you get.   The ACA reforms seek to reimburse based on OUTCOMES rather than on transactions.  So if it is less costly to treat someone as an outpatient, or for the hospital to reduce the number of re-admissions, then we want to create incentives to encourage lower cost solutions that produce good health outcomes.

The ACA contemplates reimbursements to health providers more on the medical conditions they are treating, than on the discrete procedures they execute.  As you may appreciate, this turns health care almost upside down.  Hospitals that have made massive investments in buildings and the latest equipment and medical technology have always thought about how they could keep them filled with patients.  Under the new law, they could be penalized for filling hospital beds if, for example, in-home health care might be as effective and less costly.

Most Health delivery systems are figuring out that they need to change, dramatically and quickly . . .  but how?

Innovation Case Study

The Centers for Medicare and Medicaid Services (CMS) in Washington first created its own Innovation Center whose mission is to educate and encourage transformation in our health delivery system.  Toward this end, they started what they call Pioneer Accountable Care Organization Model.  From a large number of applicants, CMS chose what it felt were 32 of the most innovative health systems from around the country to operate under the new reimbursement model.  The hope is that as they innovate in new delivery strategies, they can serve as examples for other health systems to emulate.

This is a good example of what I called in my last post, “A Supporting infrastructure”.

At Xavier’s conference, there were two presentations that I felt were stunning.  One was by the Dartmouth-Hitchcock ACO (one of the 32 initial Pioneers) and St. Vincent’s Health System (headquartered in Birmingham Alabama) who was not selected, but is innovating in big ways none-the-less.  You can download both presentations from the Xavier conference web site (see link above) at the first paragraph.

Here is what St. Vincent’s did (you should really read their PowerPoint slides).

1)      Engaged in an open and honest strategy process that defined a call to action.   They looked at their internal data, and the drivers shaping their industry.   They reached by themselves the conclusion that NONE of the following could be sustained:

  • The size of the growing Federal Deficit
  • Spending more than 17% of GDP on health care
  • Growing Medicare and Medicaid budgets
  • Seeking to transfer more costs to employees and employers

2)      They created a STRATEGIC GOAL – to transform themselves by changing their health delivery system – “bending the cost curve”, and creating processes that could improve quality of that delivery.

  • And they built a business plan (financial plan) that ASSUMED REDUCED IN-PATIENT SERVICES (forcing themselves to develop new revenue and cost solutions)

3)      Senior Executives decided on a three-pronged approach.    These were to  Cut Costs, Restructure the Business, and Restructure their Clinical Practices.

4)     They formed focused teams to work in physician integration, clinical integration (coordinated care) and process re-design.  These were intended to focus on shifting from what St. V’s called “Provider-Centric” (transaction based) to “Person-Centric” where the health care system was expanded to consider community and family support and deepening trust relationships between patient and care providers.

  • They also defined different care strategies based on the patient group  (elderly, healing and chronic, poor and vulnerable, young and invincible, parents with young kids)

5)  They re-defined Care Giver Roles to re-shape clinical protocols (changing the role of doctors, nurses, and other “physician extenders”.  (this was arguably the idea that caused the biggest shift in process performance.)

  • They created a position of Clinical Nurse Leader (CNL) to focus not on performing daily traditional “nursing duties” but to focus on overall patient outcomes in quality and safety – integrators of provider resources.
  • They piloted on 6-West (a 24 bed medical surgical unit)  (start small, prove concept, and build out from there)

The early results

In the pilot program the 24 bed unit demonstrated over $3.5 million in cost savings/cost avoidance benefits.   Staff, patient, and physician satisfaction scores rose to not-before seen levels.

Ensuring Sustainability

With these initial impressive results, the teams took some of the following steps to help ensure sustainability. They…

1)      Established new metrics and scorecards that helped encourage “right behaviors”

2)      Created an annual planning process – identifying new areas for improvement and setting new goals

3)      Documented and trained to new process ideas (they reduced time to discharge a patient by 50% through procedure changes – as one example – thus increasing patient throughput.)

4)      Spread the gains – (taking the new successes and implementing system-wide)

So there you have it . . . DRASTIC change in an environment that has a bias toward conservatism and caution about change.  It worked because it was a strategic imperative, with the full support of senior execs; they invested in creating teams to work on the elements of the problems they felt would have the most impact; they were willing to abandon all preconceptions about how they had done things in the past (including systems process budgets and metrics); and used inspired, passionate people to lead the initiatives.

There is much more to the story.    You might consider reaching out to Jan Radcliff and Nan Priest at St. V’s.


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Are You Ready for an Innovation Initiative? (Part 1)

Design Thinking Word Cloud

A growing number of our clients are asking for us to deliver programs around the topic of leading and cultivating innovation.   This topic covers a broad waterfront and I think people think many different things when they hear the word.

So what is innovation, and what does it take for your organization to launch a successful innovation initiative?

What is Innovation?

Many think about innovation in the context of their R&D department whose job it is to develop “innovative” new products and/or services.   This is clearly one key area where we want innovation to work (think about products like the iPad, iPhone, Kindle, or even Facebook that have dramatically altered the marketplace.   Finding a new idea that can sweep the industry by storm can bring with it massive financial rewards.  Playing catch up usually is not a good place to be.

For the field of new product/service development there is a body of knowledge, often called “design thinking,” that speaks well to an approach that can yield new design ideas.  The term is generally attributed to IDEO’s David Kelly, (see You CAN Teach Innovation, and Play . . . Seriously? ).  In general, I see Design Thinking as a process methodology that guides people to see the world better through the eyes of users, gaining deeper insights that can yield more innovative solutions. It also has a decided Systems Thinking orientation, challenging designers to see holistically – generally more broadly than they otherwise would have before zeroing in on the best design solution.

But if you think about innovation, it can also be considerably broader than just developing better design solutions.   So here is another definition to consider:

Innovation: the art of implementing a new idea or approach . . . to anything.

By this definition the idea of innovation has implications for every part of your organization, from top-to-bottom and side-to-side.  Notice also the word “implementing” in the definition.  It reminds us that great ideas alone are not sufficient.  It is the act of implementing it that morphs it into an innovation.

With such a broad definition, innovation can apply to all our jobs, changing processes, improving operations, raising quality, improving customer service, or saving money.   The general idea is that all organizations, when operating in accordance with their current status quo, produce the outputs they get today.  If we want ANYTHING to change, we must somehow change our approach.

This idea, of course, is not new, but John Kotter and others have shown compelling evidence that the vast majority (ranging from 70-90%) of organizations fail to achieve intended goals when launching new change initiatives.  So what does it take to make it work?

Here are three things I feel are vital.

1. An agreed process methodology

The truth is that there is an art to the act of innovation, and while we are not all born with the skill, most of us can learn it.  If you recall my recent post called The Marshmallow Challenge, it illustrated that the process approach you choose can in fact greatly influence the outcomes. There are some skills involved as well that promote “divergent thinking” – a key aspect of effective brainstorming. (We are generally good at this as children, but adults typically struggle.)  There are tools like “affinity diagrams” to help take a large list of ideas and establish a process of organizing them in ways that help us converge on a manageable number of solutions.

There are, of course a myriad of methods already out there.   Consider for example:

  • PDCA (Plan-Do-Check-Act) introduced by lean quality theorists
  • DMAIC (Define-Measure-Analyze-Improve-Control) developed by practitioners of Six Sigma
  • OODA (Observe-Orient-Decide-Act) a decision-making process developed by the Air Force for its combat pilots
  • FIRE (Focus-Ideation-Ranking-Execution) developed at HP by Phil McKinney

There are many similarities among these and there are people who strongly advocate in favor of one vs. the other.  From where I sit, I suppose it doesn’t matter which one you choose, so long as your team understands and agrees to follow the chosen approach.  An innovation process can be organic and even chaotic at times, so it helps to use a methodology to provide some degree of order and keeps channeling them towards an implementable outcome.

2. A supporting infrastructure

For reasons better left to industrial psychologists, not all organizations are able to follow these processes automatically.  One of my P&G colleagues tells me that after years of trying to teach innovation techniques to its employees, they concluded that most intact teams fail to use them effectively.  So Procter created a unique innovation space they call “The Gym”: a workout space for your mind where people can get away from the constraints of their home environment and work with highly trained facilitators as they grapple with “wicked problems”. They are not alone in reaching this solution.  In addition, a growing number of companies have created “chief innovation officer” positions to help infuse innovation concepts throughout their organizations.  Here are some (which you can Google on your own):

  • P&G’s “GYM”  (Innovation Center at Beckett Ridge)
  • Mayo Clinic’s “Center for Innovation”
  • Boston Public Schools “Office of Innovation”
  • The Wrigley “Global Innovation Center”

So it seems we often need help to nurture the innovation process.

3. A supportive environmental culture

This kind of leads us to the third (and I think most important) element of building your supportive innovation system – creating an environment that encourages the right level of innovation.  Wittingly or not, we can on one hand talk a good game about wanting innovative solutions, while setting in place a string of impediments that make it difficult if not impossible to find those solutions.

Yes, innovation often requires trying something new, and this has risk associated with it.  You can bias your organization to be risk-taking or risk-averse by the incentive systems you create, the way you tolerate failures, and the ways you select innovation project members.  The shorter your time horizon and the more focus you put on short-term financial results – the less risk taking you will likely invite.

You can also promote internal politics by how you manage your company promotion systems. If you hire many thoroughbreds and have them compete against each other for a diminishing number of positions at the upper echelon of the organizational pyramid, you can create all kinds of unhealthy internal dynamics where people fight each other even harder than they do your competition.  Not a good thing.

Finally, You can hire people who are all in the same mold, or who are diverse in thinking and life experiences.   It is amazing to me how many industries act like it is a mistake to hire people who come from outside the industry.  While they may lack some initial insight about the business, they can make up for it with their fresh perspectives and new insights.  Just ask Ford’s Alan R. Mulally (the industry outsider that is getting high marks for his slow transformation of that struggling auto maker.)

There is something else I have noted about people who drive remarkable change.  They possess a special kind of attitude.  They question everything and assume very little.  Their operating assumption is that “we are not good enough” instead of “everything’s fine”. They take risks, and break rules.  They have intense passion and energy.  They will rock the boat.  In some organizations, these traits are, frankly, just not appreciated.   But that’s precisely the kind of people you need . . . with egos that don’t take new ideas personally, and don’t feel obliged to defend what they have already done.

So, these are the key ingredients for success.   How does your organization stack up?

In my next post, I will describe a live case example of innovative change in health care system which impressed me at a recent conference we hosted at Xavier about the new shape of heath care in America.

Other related articles:

What is Design Thinking, Really?, by emergent by design.

The Big Ten Innovation Killers and How to Keep Your Innovation System Alive and Well, by Joyce Wycoff

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We Need a Manufacturing Base

It pains me to see how our pharmaceutical and electronics companies are rapidly outsourcing manufacturing operations overseas.  I surely understand that they are under margin pressure and low-cost Asian manufacturing seems to be the right prescription.

Since 1970, we have lost 1 out of 3 manufacturing jobs in the United States. What we have been doing, in reality, is selling off our manufacturing infrastructure and replacing it with an economy based on debt and finance.  By 2007, 40% of America’s corporate profits came from the insurance and financial sectors.

The losers have been middle-class workers.  For example, if you took a service sector job in 2012, you would earn about $610 per week — as compared with an average weekly wage in the goods producing sector of about $810.

Yet companies are under pressure to maintain their bottom lines, and cost cutting seems important.

To me, this is a short-term solution that has ominous implications.  The result will be a diminishment of our innovation capability.  Here’s why.

The Manufacturing Sector Drives the Balance of Trade

70% of GDP is based on consumption.  We buy stuff.  In response, other people make it. More and more ‘others’ outside of the U.S. are making what we buy.   They are earning the economic added value, rather than us.

What do we import?   Industrial supplies, capital goods, consumer goods, cars and parts represent 92% of what we import.  Items someone must manufacture.

What do we export?   Agricultural products, minerals, airplanes, plastics and wood products now top our list (in that order).  Do you see a pattern?

It is not just the Manufacturing, but the Infrastructure That Matters

Certainly, I get that factory worker wages may be lower overseas.   But consider that surrounding these manufacturing facilities is an infrastructure of technicians, construction firms, engineering companies, and others who make the manufacturing processes run.   These people are an integral part of the innovation chain which starts with an idea and ends with something actually being produced.  These supporting jobs are KNOWLEDGE jobs, demanding high skills and training in science, technology, mathematics, chemistry, and biology.  By outsourcing these functions, we are inviting overseas competitors to become stronger by investing in their entire ancillary infrastructure.

Places like Detroit, Toyota City (Japan) the Research Triangle and Silicon Valley became successful because they developed into meccas for all kinds of businesses that were related in some way to the area of main industry focus (autos, biotech, electronics and software).  No matter what problems you encountered, there was always someone nearby who could help.

Innovation Requires Intimacy Between R&D and Production

In my former business, R&D was a big deal.  Our R&D spend topped 7% of sales and 20%+ of our sales in any given year were from products and services we didn’t have 4 years earlier.  One of the things I learned from this is how crucial it is to have your R&D people near to your operations.   We no longer have the luxury of inventing in an “ivory tower”.  Our best designs by far were the ones where the engineers and scientists saw and understood the manufacturing processes used to produce their brainstorms.   We used to call it “designing for manufacturability”, but what it means is that the R&D people need have one eye on the customer and the other on the people who ultimately have to produce these things.  We have to be holistic.

For a time, we experimented with manufacturing in Mexico.   The number of new program launch problems grows exponentially (I think) with the distance between the manufacturing and R&D locations.  In our case, Mexico was not that far away, but translating design intent into practical manufacturing processes was not a trivial undertaking.

Don’t We Want High Skill High Paying jobs for Our Kids?

Are we, in fact, heading toward a two tier economy where the gap between the upper and lower tiers is continually growing?  Some economists think so.

China already graduates six times more engineers per year than does the United States, and now publishes more scientific papers than Germany and Japan.

Call to Action.

This is not an easy one to fix, and requires, I believe, collaboration between government and business.  For my money, I think this is a strategically vital issue that does not seem to get as much attention as does, to take just one example, the topic of contraception (which consumed a full 20 minutes of the latest Republican presidential debate).

Preserving our infrastructure and ensuring the chance for our kids to have high skill jobs ought to be at least as important.

Tell us what you think.   How optimistic are you about the future of your kids?

Other related articles:

Just How Important Is Manufacturing?, by Willy Shih

How Should We Think About the Exportation of Jobs, by James Heskett

Why We Need To Revive American Manufacturing, Institute for America’s Infrastructure

Why We Need a Manufacturing Renaissance – Economically and Ethically, by Leo Hindery, Jr.


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The Art of Consensus Building

Getting people to agree on anything is a challenge.

In crisis, you can rely on “management by fiat” (just decide on a course of action yourself and issue the command).  But, a little heavy-handedness goes a long way, and when you are not in crisis, people are prone to resent an overly autocratic style.  So, you are left needing to be good at reaching consensus if you want to move your agenda forward.  But, why is it so hard?

Let’s start by considering why people disagree, and the strategies that may help in each situation.

1. They do not see the situation in the same way We all look at any situation though our own lens.  Our perspectives are influenced by our different accumulated life experiences or are based on our organizational department (members of engineering, finance, IT, operations and sales – just as examples – all have a point of view based on the issues they face daily).   All of these views are “right”.  It helps to appreciate that they are so, based on different sets of data or assumptions.   The hard part is that the data and assumptions used by others are often hidden from our view.

Strategy:              Engage the broad group in a joint effort to collect data, define the problem, and research relevant facts.  (When we are all working from the same data set, it is much easier to find areas of agreement)  Many techniques are available to build a common platform of understanding.  Some include:  mind mapping, value stream mapping, doing joint research (on-line and by interviewing system participants) and sharing the data as you go.   Also, I like the idea presented by Steve Tobak in How to Build and Drive Consensus.  He says it is important that you use a formal process, and that all the participants understand what it is before you begin.  It should be one that is transparent and open, leading to a GROUP problem definition and action plan.   The process should include phases like: collecting information (group learning to inform everyone), defining the problem, developing alternative solutions, establishing criteria for evaluating them, evaluating the alternatives, and developing the execution plan.

2. They disagree on philosophical grounds.  Sometimes, people just disagree with an idea on principle.  Some people vote Republican, others Democrat.  Some believe in a woman’s right to choose, while others see abortion as murder.  Disagreements on principle generally run deep, and are very difficult to surmount.  Compromise is often impossible because all parties feel they cannot give up their core values and beliefs (just consider the stalemates that have been defining Federal policy making process lately in the United States).

Strategy:              Consider changing your agenda in favor of another where there is more common ground.  Or, wait for a crisis to occur, and use it as the common ground you need to gain consensus.

3. They are pursuing a different agenda.  Sometimes, while your idea or initiative has merit, other people have different agendas they feel are more important to them at this particular time.  These agendas may be driven by their boss, the company incentive system, your last performance appraisal, or promises you or your team have previously made.

Strategy:              Escalate this matter higher up in the organization to align priorities and goals. If your plan is truly for the good of the organization or the team, and you have sound, credible and compelling arguments in your favor, management will listen — especially if your plan is in alignment with their ultimate needs.

3. Interpersonal or emotional drivers.  Too often, our attitudes are colored by the way we feel about others, whether we like them, if we see them as a personal rival, how we judge their motivations, if we trust them, if we respect them and their abilities, and various other dimensions of company politics.

Strategy:              Form a guiding alliance of like-minded people before you begin, who share a common view and can form a core group with enough influence to press an idea even in the face of some resistance.  Accept the idea that gaining 100% buy-in may not be feasible, or may take more time and energy than you have.   Be willing to build enough momentum led by even a small group of passionate prophets to advance your idea.   In another helpful piece by Michael Wilkinson called Building Consensus The Art of Getting to YES,  he argues that you need to be willing to do some amount of one-on-one interfacing to help uncover the reasons for someone’s resistance, and seek to resolve them if you can.   (This article has several other helpful suggestions for managing disagreements as well.)

(Another interesting resource for those in the public sector is Consensus, Power and the Art of Getting Things Done by Otis White. White has several posts on related topics including forging a guiding coalition, the art of persuasion, and others.)

Also for those of you in the public sector, I would recommend the following YouTube video by Jeff Risley called Building Consensus: Overcoming Us vs. Them.  (It is 32 min long, and addresses the need to seek and exploit common value systems.)

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INSOURCING: Time to Come Home

So many industries have “drunk the Kool-aid”, buying the premise that the way to improve margins is to outsource raw manufacturing, customer service, and technical support, particularly to Asia.

I have personal experience in China, Mexico, and Japan, and can say that making outsource relationships work can be challenging.  Working overseas where business practices and social norms are very different can be a major hurdle.  The communications task is very problematic – especially when local norms dictate that it is impolite to say no, or where people do not want to admit they do not understand something.

I have a friend who works in the steering and suspension business, having been engaged in China and India for many years.  He told me one story that illustrates how easy it is to under-appreciate the challenges.   He has a high regard for the technical ability and work ethic of his Asian engineering partners, but he told me an amusing story about cross cultural miscommunication.

Communicating engineering design intent is not always possible purely based on conveying technical specifications or mathematical data.   The products they were testing in the US that were designed in Asia were not performing up to expectations.  My friend’s US engineers were trying to explain what was wrong using terminology like “the steering was too ‘loose ’or that the suspension was too ‘stiff’”.   These are terms most experienced drivers would understand.   Their Asian colleagues all nodded affirmatively during the video conference meeting, but the truth was that virtually NONE of these Asian engineers had ever even DRIVEN a car in their lives – they really did not understand what was being said.

When you consider the communications challenges, re-work delays, the shipping times, extra inventory, obsolescence concerns and so forth you have to wonder if overseas outsourcing is truly economically sound.

It feels like more and more companies are reaching the conclusion that it does not.

  • Deloitte Consulting released a study as far back as 2006 concluding that 70% of large companies had negative experiences with outsourcing of IT services and 25% had brought outsourcing projects back in-house.
  • Boeing was plagued by massive supplier problems with its revolutionary light weight 787 Dreamliner program that significantly delayed its introduction.  In this case Boeing outsourced about 80% of its fabrication services.
  • Our national debt has now surpassed $15 Trillion dollars and our annual balance of trade deficit is in the $725 billion dollar neighborhood.
  • Faced with rising costs at home, even some Indian companies like Aegis Communications are opening call centers in the US, suggesting a reversal of this trend which was prominent during the 1990’s.

Futurist Patrick Dixon in this recent logistics conference talk discusses reasons why manufacturing outsourcing makes less sense today.  He chastises short-sighted companies that made outsourcing decisions principally on the basis of pure cost, without consideration for the increase is associated risks and diminished agility.

If we can get tactical for a moment, here is a marvelous 6 minute video case study about how a small apparel business called School House decided to reverse its own strategy, choosing instead to move its manufacturing from Sri Lanka to North Carolina.

While the task was not easy, you can see how they did it.

Here are a few interesting points that stuck out to me:

  • They are a small business, without much market power – but that does not stop them from being very selective about choosing a supplier partner . . .  (personally calling or visiting 100 places, narrowing down the list to only 5 facilities, from which they choose one.)
  • Look at their approach to selecting their partner. In addition to having the right equipment, etc., they are also looking for an “attitude” of the management (a willingness to “bring ideas to the table” that can help School House become more successful)
  • Notice how they seek to speak with the operators at the target supplier “to see what they think and feel about working for the company”  (Here again, they are looking for an attitude, an “open minded-ness to try something new”.  There is an adage that “the Secretary knows everything about an office”, and in manufacturing, the Operators also know a lot.)
  • Notice that they have VERY specific ideas about the kind of production skills they want – they are very picky about their products and the kind of factory that can produce them

I think we can all sometimes think about selecting suppliers from a checklist (like we would normally use during an audit) and overlook the key issues of

  • Management attitude and philosophy
  • Company culture
  • Employee attitude

In my experience, if these elements are lacking, I would also expect their operating and quality performance to fall short as well.  I also think it is very difficult to assess these elements (particularly when dealing with an Asian supplier because it is difficult for Americans to overcome the language and cultural barriers).

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Systems Thinking in Pharma

In the picture at the left, a worker in a “manufacturing plant” in China is processing pig intestines to produce raw material used in the widely used blood thinning drug, heparin.  Can you imagine the quality systems being employed in this factory? (more on this in a moment.)

In the process excellence space, we often teach the idea of Systems Thinking – which challenges us to think more broadly about the interconnectedness of things that often seem, on the surface, to be unrelated.  The failure to see the interconnections greatly increases the likelihood that we miss root causes of problems or fail to address all of the factors that can make a difference – thus nullifying our efforts.  I find this is a difficult concept for many people to get, and I think it is helpful to show good case examples when we find them.

At this month’s Global Outsourcing Conference at Xavier, I heard one of the best examples of a systems approach that I had experienced in a while – aimed at addressing the global security threats to the supply chain at the pharmaceutical giant, Pfizer.   The presentation, “Supply Chain Security”, was given by Mr. Brian Johnson, Senior Director of Supply Chain Security.  (by the way, given the fact that Pfizer even has a person with that title is an important indicator that Pfizer’s senior management  sees this as an important strategic issue – a precursor of being able to do meaningful things to address problems.)

The Threat to Global Pharma Supply Chain Security

At the conference, we learned some pretty startling facts and developments that cause drug supply chain security to be an item of growing concern.

  • 50% of medicines sold online from un-certified sites are fake (World Health Organization)
  • Counterfeit drugs have become a $200-billion-a-year industry (Reuters)
  • Fake anti-malaria drugs kill an estimated 100,000 Africans a year (World Trade Organization)
  • Cargo theft is on the rise globally, with a 350% increase from 2007 to 2009 in the US alone (CBS News)
  • Some unscrupulous overseas suppliers create both SHOW and SHADOW plants.  One is “for show” where they invite FDA and company inspectors to visit, showcasing pristine equipment and facilities, spotless floors, and friendly cooperative staff.  However, the bulk of production is done in a ‘shadow’ factory – often filthy, uncontrolled, and without proper manufacturing procedures. (FDA)
  • Some greedy criminals were caught substituting di-ethylene glycol (anti freeze) as a cheaper ingredient to be used in the production of cough syrup – a lethal concoction (FDA)

I finished the week wondering if I would ever feel comfortable taking a pill again.

What Pfizer Did

If you look at Johnson’s presentation, he demonstrates many important Systems Thinking ideas.

1. Understanding the problem and drivers.  They began with a candid definition of the problem, identifying the main issues which in this case were Counterfeiting, Cargo Theft and Diversion, and finally Economically Motivated Adulteration.    When we define the issue or problem clearly, it helps us better ask the right questions to help us analyze and solve that problem.  I sometimes see that the problem is defined too generally (like “improve quality”), which can be interpreted very differently by all participants.   Everyone is trying to understand a problem that is slightly different, and that can lead to ill-focused strategy creation.

Notice also that Pfizer thought about the global industry drivers that are exacerbating the problem.  In their case, there were four main ones, including increasing globalization (making the supply chain more complex), the expiration of blockbuster patents, like Lipitor (which creates cost-reduction pressure on pharma companies leading to more outsourcing, manufacturing and subcontracting overseas), etc.   These insights also helped the project team better focus and ask more relevant questions.

2. Mapping the Current Environment.  How the problem connects to and impacts their organization was the next question Pfizer tried to assess.  You can see in the slide deck, that they identified over 100 different distinct processes, across 15 different company operating units that all were related to the security of their overall supply chain.   They looked at the complete process flow from raw materials through supplier selection, through manufacturing, then through distribution and warehousing to the market and ultimate consumer.  If you look at it this way, it should be evident that no single operating unit by itself can ever solve this problem.  It absolutely requires an integrated and aligned effort.

3. Developing a Solution (Strategy). Pfizer’s solution took all of the processes into consideration, defining action steps that involved all of the related organizations, always based on priorities predicated on how each step addressed their understanding of the problem.

4. Creating an Infrastructure to Sustain It.  Creating action steps alone is seldom sufficient.  Pfizer, to help sustain the effort, created an SCS (Supply Chain Security) Office reporting to a Senior Vice President, along with a matrix structure to help promote coordination and communication.  This is a key piece to assuring implementation success.

Check out Brian Johnson’s presentation since they document a pretty impressive effort, and see all of the presentations at our Global Outsourcing Conference website.

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Stop Telling Me It’s All About Management Commitment!

Every year, Xavier Leadership Center hosts an international conference on Supply Chain Management for the Pharma industry.  It is co-sponsored by the FDA, and is designed for the Quality, Regulatory and procurement professionals who are attempting to manage increasingly complex global supply chains while assuring compliance with emerging Federal regulations.

Pharma today is changing dramatically, and is increasingly a global sport – with some scary emerging threats in pirating, counterfeiting, cargo thefts, and outright terrorism.   There are just not enough inspectors and regulators to cover it all.

The conference speakers focused many of their comments on what it takes to assure the viability of the supply chain from a quality perspective.   There were calls for more metrics, more inspections, more audits, more formal Quality Agreements, etc.   But it seemed an uphill battle to persuade their organizations to fork over the money for these important needs.  (During one presentation the audience responded that while having a formal risk-mitigation strategy in place was important, 63% of those present did not believe their firms were providing sufficient funding to allow effective execution.)  Contract suppliers spoke about how in spite of the rhetoric concerning the desire for suppliers who add value, the main criteria that drives their customers’ behaviors is the need for reduced costs.

There was a strong sentiment expressed by many of the speakers that the element too often lacking was”management commitment”.  All the heads in the audience nodded affirmatively.  It was true . . . without management commitment, no quality system can really work. One of the FDA speakers shared – here is the slide I always use with company executives (which stated the “business case” for quality) because it is important that they “get it”.   Again, the heads throughout the attendee population nodded.   The main problem, they felt,  is the lack of management understanding, and commitment.

But how can you ensure that you secure management understanding and commitment? By seeing things from the eyes of a CEO.

Sure Quality is Important. . . But is it a Differentiator?

No Pharma CEO wants to have a quality problem or, God forbid, a product recall.   However senior executives face the problem of making investments in MANY things including R&D, marketing and branding, safety, organizational development, IT security etc.  They are ALL important, but if we have only so much investment capital, which area creates the most business success?   If our quality level was 20% better than it is today, how would that impact market share, revenue growth, net income, and return on equity?     Sure, Quality is important, but is it the “price of admission”, or the source of competitive advantage in our industry?  I would guess most CEOs think that investment in R&D and marketing yields greater returns than does spending on more quality initiatives.

Can You Really Protect Me?

No CEO would argue to eliminate the Quality or Regulatory Affairs departments from their organizations.  But, speaking from the perspective of a CEO, if I doubled our budget (or tripled it), would that guarantee we have no quality crisis in the future?  Could we even guarantee that we would cut our risk by half?  If the answer to either of these is NO, it becomes easier to see why getting management commitment is a challenge.     We recognize that today’s global supply system is dauntingly complex.  In reality, no amount of added inspections can completely eliminate risk.  (In fact, quality practitioners have proved conclusively that even a 100% inspection strategy does not work.   If 100% inspection doesn’t work, what leads us to believe that more audits will?)

Should we Shift from Quality System Enhancement to Risk Management?

Trying to argue internally to expend more resources on quality seems a hard challenge.  I think a better way to think about it is from a risk management perspective.  Accept the notion that there will never be sufficient resources to do all the things we would like.  So the real question becomes, given ANY amount of budget at our disposal, what would be the BEST things to do with it that accomplishes the most good?   We have lots of possible risks, but not all risks are created equal.  We can categorize them according to their likelihood of occurring and their resulting severity.   We need to focus on concentrating our resources on what yields the best outcome.  Intuitively, this suggests that prevention is better than detection.  Designing better processes is better than figuring out how to control existing (less well-designed) ones. Thoroughly screening new suppliers is probably more important than auditing existing ones.

CEOs often do get it.  And they are making their own judgments (whether right or wrong) about what investments do the most good.  Whatever your functional area of responsibility, that is the same mind-set we all need.  If there aren’t enough resources to do it all – we have to start thinking about new ways to approach the problem.

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