McKinsey on Lean: Part 2 - Public Sector Lean

This is part of a five part series on a recent McKinsey series of article on lean manufacturing. Other posts in the series: Introduction, Public Sector Lean, Lean in IT, Lean in China, Lean in Finance.

Applying Lean Production to the Public Sector

Nina Bhatia and John Drew do an excellent job of explaining the fundamental principles of lean and then describing how they can be applied to government and the public sector in general.

Governments around the world want to deliver better education, better health care, better pensions, and better transportation services. But the funds required to meet such expectations are enormous—particularly in the many developed economies where populations are aging and the public sector's productivity hasn't kept pace with that of the private sector. The need to get value for money from governments at all levels is therefore under the spotlight as never before. But cost-cutting programs that seek savings of 1 to 3 percent a year will not be enough and in some cases may even weaken the quality of service.

To address the problem, public-sector leaders are looking with growing interest at "lean" techniques long used in private industry. From the repair of military vehicles to the processing of income tax returns, from surgery to urban planning, lean is showing that it can not only improve public services but also transform them for the better. Crucially for the public sector, a lean approach breaks with the prevailing view that there has to be a trade-off between the quality of public services and the cost of providing them.Hallelujah!  I, and many other lean pragmatists, have been preaching that last line for years.  Let's read it again.

Crucially for the public sector, a lean approach breaks with the prevailing view that there has to be a trade-off between the quality of public services and the cost of providing them.

Government spending is NOT a zero sum game!  Time and time again we've seen where a focus on waste removal will generate far more available funds than a new tax increase.  In fact, more taxes generally yields even greater waste, thereby creating a rapidly reducing level of spending effectiveness.  But let's go on.

All activities must be tested to ensure that they add value for the customer. Double-checking to be sure that they do reminds the organization of its purpose and ensures that processes are efficient. A car manufacturer or a retailer that fails to add value finds that its customers go elsewhere. But in government departments and other public organizations, putting customers first may be more difficult.

One reason is a lack of competition. Customers of the government—job seekers or patients, for example—usually have no choice of provider. The demands of the customer, who may never even appear in the office, rarely come into focus. Much of the public sector remains supplier led, not customer led.

Which is why privatization, when provided with appropriate goals and metrics usually works.  The article goes on to describe how many governments, with the notable exception of the U.S., are pushing privatization... even the healthcare systems of countries the U.S. is looking at modeling such as the United Kingdom.

The developers of a lean system identify end-to-end processes from a customer's perspective and then design and manage the system to keep information and materials flowing smoothly through those processes. However, public-sector managers sometimes lack the skills, experience, and mind-set to take this approach.

As in the private sector, the only way to understand and manage a process is to see how it works. Yet public-sector managers don't always see themselves as supervising or managing an "operation," and it is unusual for a single person to be responsibile for an entire process. In addition, top-down targets tend to focus on a single part of the operation, to the detriment of the process as a whole.

Excellent observation about the problems of top-down metrics, which are common in the public sector.  The sheer size of many government organizations creates the "blinders" problem, preventing the organization from seeing, let alone understanding, the impact of their internal processes on other organizations.

A key characteristic of a lean organization is its ability to improve itself constantly by bringing problems to the surface and resolving them. Here as well the public sector often finds itself in a weaker starting position, with gaps in skills and entrenched mind-sets.

Moving from putting bandages over problems to solving them is particularly difficult in civil-service organizations because of a skill gap. Except in the military, operations management has not traditionally been a career path leading to the top tier of public service. Moreover, high-ranking civil servants tend to be organizationally and culturally removed from the delivery of frontline services, so policies are often made without a clear understanding of their effect on customers.

Several agencies are confronting that skills gap, and the military has had particular success with creating effective lean programs. 

When improving long-term performance is the goal, changing the process or the operating system will not suffice. The organization's culture must also change. Some of these changes will be wrenching. A lean process, for example, requires a performance-tracking system that breaks down top-level objectives into clear, measurable targets that workers at every level must understand, accept, and meet. Profound cultural changes generally follow and reinforce the lean transformation.

Lean transformation is tough, very tough.  Change is always difficult, but lean change is often counterintuitive.  This particular article contains several recommendations, but one is particularly true:

A long-tenured manager needs courage to expose the waste that lies within his or her department or the deep-seated nature of its problems, especially if they can be resolved at little or no cost.  Confronting such issues will demand brave leadership.

Let's hope we can find that "brave leadership."  Leadership that understands that opportunities exist within organizations by reducing waste and leveraging respect for people.  Not just with raising taxes.