how market leaders outdistance the competition

© Steven J. Spear 2008

Chasing the Rabbit:How Market Leaders Outdistance the Competitionand How Great Companies Can Catch Up and Win

Steven J. SpearSenior Lecturer, MITSenior Fellow, IHI


World Class Competitors

Back office operational efficiencies -->management fees fraction of industry.

Vanguard

34 years of operating profit.Southwest

57,000 reactor years without a singlecausality or fatality

US Navy, NuclearReactor Division

Safest large employer in United StatesAlcoa

Quality, efficiency, product variety -->market share growth, profitability, andmarket cap.

Toyota

Cited from: Spear, Steven J. Chasing the Rabbit, McGraw-Hill, Oct. 2008, citing other sources.


Productivity of Auto Producers in N.A.

5.5%$1,488.27.9Toyota (*)

(4.8%)$1,60329.4Nissan

0%$1,25032.0Honda

2.5%($2,231)34.3General Motors

4.2%$62037.0Ford

4.2%$18635.0DaimlerChrysler

Gain inproductivity

Profit pervehicle

Hours pervehicle

Source: Jeremy W. Peters, “U.S. Carmakers Falling Farther Behind Asians,” International Herald Tribune, Page 15-16, Sunday June 5th

,

2005.


Achieving Great Position:High Velocity Improvement and Innovation


Good News, Bad News


Failure Examples

• Medical Errors

• Challenger and Columbia

• 9/11


Failure Modes

• Functional Focuswithout process view

• ContinuousWorkarounds ofKnown Problems


Failure Modes

• Functional Focuswithout process view

• ContinuousWorkarounds ofKnown Problems

Performance

Time


Alcoa’s Pursuit ofPerfect Workplace Safety

Workplace Safety at Alcoa

1.91.5

1.2 1.1 1.00.8 0.8 0.8

0.5 0.50.5 0.40.2 0.30.3 0.1

4.44.2

3.93.5

3.3 3.22.9

2.52.4 2.32.22

0

1

2

3

4

5

1985 1990 1995 2000 2005

Year

In

cid

en

ts p

er 2

00

,00

0 h

ou

rs

wo

rked

Alcoa US Manufacturing


Capabilities of the Market Leaders

• Manage work to see problems• Solve problems when and where they

are seen.• Share what is learned broadly.• Develop those for whom you are

responsible.


Success Modes

• System ViewComplementsFunctional Expertise

• Continuous ProcessImprovement andInnovation


Success Modes

• System ViewComplimentsFunctional Expertise

• ContinuousImprovement andInnovation

Performance

Time


The Toyota Temple


The Toyota Temple2,374 articles with “lean” keywords.


The Toyota Temple2,374 articles with “lean” keywords.5 of (0.5%) mentioned jidoka


The Leadership Imperative

• HIGHLY SPECIFIED:Output: What product or service is being provided to whom.Pathway responsibility: Who does what task in what sequence.Connections/Handoffs: How information (including requests for something),products, and services are exchanged.Methods: Work content, sequence, timing, location, and output of a task.

• Imbedded tests refute assumptions implicit in the designs.

• Problems are solvedas fast-paced, low-cost experiments.

• New knowledge is sharedsystemically by collaborativeproblem solving.

• The more senior people are, the morecapable they are at designing work,improving work, sharing knowledge, anddeveloping the capabilities of those forwhom they are responsible.

C1

C2

C3

C4

Adapted from: “Learning to Lead at Toyota,” Spear, Steven J.,Harvard Business Review, (2004)


A Tale of Two Auto Plants

Plant can’t keep upwith demand.

Not manySales

FineDrug and alcohol abuseOn the job

Few grievancesRecord grievancesLabor-Mgt.

Industry leadingAbysmalProductivity

Award winningAbysmalQuality

2%-3%25%Absenteeism

UAWUAWUnion

Plant 2Plant 1


Selected Publications• Chasing the Rabbit: Why Market Leaders Outdistance Their Competition

and What Great Companies Can Do to Catch Up, McGraw Hill, (Fall 2008)

• “A New Design for Health Care Delivery,” with Don Berwick Boston Globe op-ed (November 2007)

• “Learning from the Masters: By learning from Toyota and Alcoa how to manage complex work processes, hospitals can improveperformance,” Cerner Quarterly, (2006).

• “Fixing Healthcare from the Inside: Teaching Residents to Heal Broken Delivery Processes As They Heal Sick Patients,” AcademicMedicine. (2006).

• “Using Real-Time Problem Solving to Eliminate Central Line Infections,” with Richard Shannon and other co-authors. Joint CommissionJournal on Quality and Patient Safety, (2006)

• “Operational Failures and Interruptions in Hospital Nursing Work,” with Anita Tucker,Health Services Research, (2006).

• “The Health Factory,” New York Times [op ed], (2005).

• (#) (*) “Fixing Healthcare from the Inside, Today,” Harvard Business Review (2005).

• “Ambiguity and Workarounds as Contributors to Medical Error,” with Mark Schmidhofer,Annals of Internal Medicine (2005).

• “Medical Education as a Process Management Problem,” with Elizabeth Armstrong and Marie Mackey, Academic Medicine (2004).

• (*) “Learning to Lead at Toyota,” Harvard Business Review, (2004)

• “Driving Improvement in Patient Care,” with Debra Thompson and Gail Wolf,Journal of Nursing Administration (2003).

• (*) “The Essence of Just in Time,” Productivity, Planning, and Control, (2002).

• (x) “When Problem Solving Prevents Organizational Learning,” with Anita Tucker and Amy Edmondson, Journal of Organizational ChangeManagement, (2002).

• (*) “Decoding the DNA of the Toyota Production System,” with H. Kent Bowen,Harvard Business Review, (1999).

(#): McKinsey Award, One of top two articles in Harvard Business Review, 2005.(*): Shingo Prize winning articles.(x): Best paper proceedings, Academy of Management conference, 2001.


Speaker ProfileSteven Spear has written extensively about how exceptional organizations create competitiveadvantage through the strength of their internal operations, managing complex design, production, andadministrative processes for unmatched performance. His first book, Chasing the Rabbit, will bepublished by McGraw Hill in Fall 2008. His articles, “Decoding the DNA of the Toyota ProductionSystem” and “Learning to Lead at Toyota” have been widely read, and Spear's “Fixing Healthcare fromthe Inside, Today,” won a McKinsey Award as one of the best Harvard Business Review articles in 2005and his fourth Shingo Prize for Excellence in Manufacturing Research. He has published in Annals ofInternal Medicine and other medical journals as well.

Spear works actively with a variety of organizations. He played an integral role in developing the AlcoaBusiness System, which has been credited with saving hundreds of millions of dollars in Alcoa's annualreport, and the Perfecting Patient Care program of the Pittsburgh Regional Healthcare Initiative, whichhelped raise quality and safety of care in area hospitals. He has worked with organizations such asLockheed Martin, John Deere, Intel, Intuit, Brigham Women's Hospital, Massachusetts General Hospital,and Memorial Sloan Kettering Cancer Center. He consulted for the MacArthur Foundation, and workswith Toyota on supplier development efforts. At MIT, he teaches a course about lean manufacturingand six sigma in the Leaders for Manufacturing Program.

Spear’s academic degrees include a doctorate from Harvard Business School, masters degrees – inmanagement and mechanical engineering – from MIT, and a bachelors degree in economics fromPrinceton. He worked for the investment bank Prudential-Bache, the US Congress Office of TechnologyAssessment, and the University of Tokyo, and he taught at Harvard Business School for six years. Heand his wife, Miriam, an architect, live in Brookline MA with their three children.


Good News, Bad News


Simple Science,Simple Processes


Complex Science,Complex Processes


Success Examples• Allegheny General Hospital

Eliminating Central Line Infections• South Side Pharmacy

Medication Administration• Massachusetts General Hospital

Primary care• Shadyside Hospital

Patient Falls• Virginia Mason Medical Center

Institution wide transformation


Why Doesn’t Healthcare Get it Right?

• Organized by discipline, without process ownership.• Training centered around discipline without systems training.


Why Can’t Healthcare Get it Right?• Organized by discipline, without process ownership.• Training centered around discipline without systems training.


Patient Flow—West Penn Allegheny

07 out of 42patients

Incomplete lab results

010 to 11per day

Unnecessary blood bankreports

070 minutesTime reworking charts

2 1/4 hoursper day

9 hours perday

Chart assembly

3 minutes12 to 60minutes

Registration

0Up to twohours

From sign-in toregistration

AfterBefore

Cited from: “Using Real-Time Problem Solving to Eliminate Central Line Infections,” RShannon and co-authors. Jnt Comm J on Qual and Pt. Safety, (2006)


Central Line Infections at Allegheny General

FY 03

(Baseline)

FY 04

Year 1

FY 05

Year 2

FY 06

Year 3

(10 months)

Intensive care unit

admissions

1,753 1,798 1,829 1,832

Central lines employed 1,110 1,321 1,487 1,898

Line day s 4,687 5,052 6,705 7,716

Infections 4 9 6 1 1 3

Patients infected 3 7 6 1 1 3

Rates (infections per

1,000 line days)

10.5 1.2 1.6 0.39

Deaths 19 (51%)

1 (16%)

2 (18%)

0 (0%)

Cited from: “Using Real-Time Problem Solving to Eliminate Central Line Infections,” RShannon and co-authors. Jnt Comm J on Qual and Pt. Safety, (2006)


Central Line Infections atAllegheny General Hospital

Problems

• Femoral lines left in place rather than being relocated.

• Procedure breaks in line placement and maintenance.


PLACE FEMORAL LINE

MOVE FEMORAL LINE

NIGHT SHIFT

DAY SHIFT

????

Resident

Goal: No femoral lines

Goal (short term): Femoral lines removed next day


Goal: No femoral lines Goal (short term): Femoral lines removed next day Who is responsible for what task (Pathway):

• Resident places femoral line. • Fellow moves line.

Handoffs and Exchanges (Connections): • Signals from resident to fellow to move line.

PLACE FEMORAL LINE

MOVE FEMORAL LINE

NIGHT SHIFT

DAY SHIFT

Fellow

Tag on patient,

Tag on chart

Resident

Tag on patient,

Tag on chart


PLACE FEMORAL LINE

MOVE FEMORAL LINE

NIGHT SHIFT

DAY SHIFT

Fellow

Tag on patient,

Tag on chart Resident

Tag on patient,

Tag on chart

Goal: No femoral lines Goal (short term): Femoral lines removed next day Who is responsible for what task (Pathway):

• Resident places femoral line • Fellow moves line Handoffs and Exchanges (Connections): • Signals from resident to fellow to move line How to do individual tasks (Methods):

• Changes in materials (kits, fast vaporizing cleaners, etc.) and methods.

Nurse


MGH Revere Flu Clinic

30.214.26.1Flu Shots per Hourof Staff Time

2.52.53.5Clinical Support StaffFTEs Involved

1517143Flu Shots Administered

222Hours/Session

Session3

Session2

Session1

how market leaders outdistance the competition

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