Archive for the ‘Public sector’ Category


NHS GP Comissioning – Gain or Pain?

In Public sector,UK productivity on May 5, 2011 by Tim Aikens

The UK National Health Service (NHS) is embarking on a major change.  The key objectives are to improve the quality of care provided and at the same time deliver more for less.  The plan is to transfer control of funding from Primary Care Trusts (PCTs, mostly run out of hospitals) to General Practitioner (GP) Consortia which are groups of local doctor practices.  The big debate is whether this will deliver or be an abject failure.  I am not going to go into the politics of this but rather  look at some of the issues from a pure delivery perspective.

In order to do what they did, the PCTs needed a significant infrastructure to manage the financial and supply aspects of running a very large multibillion pound business.  The GP consortia will be smaller and more of them, so their average size will be around half of a PCT.  But they will still need to manage the process of  ‘health care delivery’.  So if the new approach is to work, I believe three things need to happen:

1.  The management process will need to be more effective and the ‘bureaucracy’ that existed in the PCTs dismantled.
2. GPs will need to be very effective in their choice of care given such that it is both cost AND care effective (and efficient).
3. GPs will have to become business people as well as doctors.

This exercise is a huge transformation. It concerns over 1.4 million people employed by the NHS and countless others.  How is it going to work?

One thing is sure, there will have to be massive change and things will have to be done differently.  The same old mantra.  Yet if all that happens is that bureaucrats are moved from a PCT to a GP consortium and many of the processes are also transferred, little is going to change.  Perhaps the biggest obstacle is changing the culture of the NHS.  How do you get 1.4 million people to be more focused on care and efficiency rather than management targets and cost shifting (from one centre to another – it happens a lot in hospitals. e.g if A&E can move a patient to a ward before X-Ray the cost of the X-Ray goes on the wards costs not A&E! – regardless of whether this is the best clinical result for the patient).  So here are my tips for change that will improve the chances of a good result.

1.  In setting up GP Consortia, they need to get an external view.  Find people who have no NHS background, but do have a background in performance improvement and quality.  This goes back to the old example of SouthWest Airlines seeking advice from Formula 1 car racing on vehicle turnaround!
2. Be real about what you are trying to do.  There is a real need to cut cost and move more of the spend to patient care.  This needs to be made very clear to everyone and not camouflaged as many politicians attempt to do.
3.  Communicate.  There are 1.4 million people to get through to.  This will take an awful lot of communication and it will have to be repeated.
4. Lead from the front.  GPs, the Consortia Managers and their teams will have to demonstrate their commitment to the principal objectives.  If they don’t the whole process will fail.
5. Be clear about what is expected from everyone.  The most important aspect of this is being clear about expected changes in behaviour.  If behaviour does not change, little else will.  Those 1.4 million staff need some very clear guidance on what behavioural change is expected of them.  They also need to know that they will get help in making those changes.

There’s not really that much new here from many other major change programmes.  The concern I have is that the NHS has tried to change before and little has worked.  In large measure it is because they have not addressed the five topics above.  I hope for all of us in the UK that there is success this time around!



Effort and Reward

In Public sector,UK productivity,Uncategorized on April 14, 2011 by Tim Aikens

As I watch a TV programme about some third world country, I am often taken aback by how much effort some people are prepared to put in for very little reward.  You see very upsetting scenes of children and adults spending all day scouring a rubbish dump either for food or some scrap metal that they can sell.  It is subsistence work.  A huge amount of effort for barely enough reward to live off.  In these countries it is a sad fact of life and one that is often hard to change.

Move west to an industrialised nation and here you have people working equally hard and some making millions od pounds a year.  This is often enough to feed scores of people! However, what goes unnoticed in many organisations is a vast amount of effort for very little reward.  In many areas of business, be it manufacturing or service there are loads of folk working hard and generating little reward for their employer.  In the ‘Lean’ world of productivity these activities are referred to as non value adding.  This is something that is part of a business process or value chain that does little or nothing to add value.  For example take invoice approval.  It is very important to make sure that an invoice is correct, the goods or services to be paid for have been delivered and the contract has been complied with.  But how many people need to review and approve this?  If, say five signatures are needed , how much value does each one add? What is the reward to the business for three of the five signatures?  More for less is about removing all those activities that provide the business with little or no reward.  In re-engineering a process each activity should be challenged in terms of the reward it brings for the effort applied.  If the reward is too small either cut the activity out all together or find an alternative approach that involves less effort.

A simple principle but there is still far too much effort for little reward in both the public and private sectors.  Both sectors are making more and better use of the ‘business case’ – identifying the financial benefit of taking a particular course of action.  Perhaps there needs to be more business case analysis of effort that has little or in a lot of cases no reward.  This, of course, is one of the principles of the ‘Lean’ approach.  However, you do not need to be a Lean practitioner or a time and motion expert to ask the simple question – what is the reward for an activity and how much does the effort cost?  The biggest hurdle to jump is breaking out from the in built inertia of an existing process and challenging activities that may have been in place for years.

A couple of examples from the public sector in the UK.  The government has finally decided to look at national Insurance.  Income tax by another name, but something that requires a huge effort from tax payer and taxman alike for no extra reward than if the same sum of money were to be recovered through an increase in income tax.  The problem has always been historical inertia (and perhaps the idea that NI is not income tax, so like Mr Blair and co you can raise revenue without increasing tax?!).  The other great example is car tax – the ‘Roadfund Licence’.  Again lots of effort to collect and police this tax.  Why not bin it and increase the petrol tax. People then pay on usage (fairer) AND a vast amount of extra income would be gained AND a huge amount of police effort would be better spent.  Again, inertia seems to be the order of the day.

So get out there and start to challenge.  Where is my organisation getting minimal reward for lots of effort?


Privatisation – good for productivity?

In Productivity culture,Public sector,The board,The workforce,UK productivity on February 28, 2011 by Tim Aikens

There has been a lot of press recently about rises in water prices.  One of the Thatcher era’s ‘big successes’ was the privatisation of utilities – water, gas, electricity and telecommunications.  Of these water is the only one to have maintained a monopoly.  Water prices for the average household have gone up in real terms by about 45%  since 1989 (source; Ofwat).  Leakage is till at some 19% of supply!  Compared to the price of many other things, water has become increasingly expensive and yet the commodity has changed little as far as I can taste! (note I am talking about the cost of water, not sewage or drainage)

So is this a case of privatisation not working or are the water companies simply catching up after decades of underinvestment?  OR – does their monopoly position allow them to get away with inherently poor performance despite the existence of Ofwat?  This is not going to be a rant about privatisation or Margaret Thatcher, but simply to ask the question is privatisation necessarily good for productivity and the objective of delivering More for Less?  Another privatised utility that has had problems is Railtrack – the privatised organisation set up to manage the UK’s rail infrastructure.  Network Rail was set up to take over the remnant of Railtrack after it’s failure.  Network Rail is now desperate to introduce large efficiencies in its business.

There are some interesting similarities.  Two utility organisations, set up as private businesses yet not delivering real cost efficiencies.  They are both monopolies.  You have no choice over who provides your water and the train operating companies have no choice over who supplies track and services!  Despite government regulation neither have delivered. There are other similarities. Both have long thin infrastructure (pipes and rail tracks) with points of focus (waterworks and stations).  Both have a legacy of underinvestment.  Both like to think they have delivered a lot – but my water tastes no different and the journey time to my home town of Norwich is little different than it was in 1960!

I have talked in the past of a ‘productivity culture’.  Post privatisation, both management and the workforce stayed essentially the same.  If the people don’t change (either physically or emotionally) the culture won’t change.  If processes don’t change the outcomes won’t either.  Network Rail is being forced by budget cuts to deliver some big efficiencies.  This is an external driver acting on the organisation.  No such driver exists within water (Ofwat seems to rule with a very gentle hand).

The obvious conclusion that privatisation to a monopoly delivers little benefit will be of no surprise to students of economics .  The problem is that they can reap the benefits of a PLC and still behave like a public utility!  Things need to be the other way around,  perform like a PLC, but have the constraints of a public utility.

So what to do?  All the usual suspects come to mind:

  • have a formal and real focus on productivity (with clear, stretching, targets and objectives)
  • change the people or change the people (be both committed and ruthless)
  • processes will need to change and innovation will be vital (difficult without the previous two)
  • without real leadership in the area of productivity little will change!

Network Rail have a lot to do.  The driver for them is financial stricture.  It remains to be seen if their management and workforce can deliver.  The utilities don’t need to worry unless Ofwat really decides to use its teeth.  As well as measuring all the good stuff on water quality and availability, Ofwat needs to get back to basics.  What is the cost of a unit of water and just how efficiently is it being delivered?


Public Sector Staff – for Sale

In Public sector,UK productivity on February 21, 2011 by Tim Aikens

The UK government believes that some 330,000 public sector staff will lose their jobs over the course of the next four years.  They also believe that the private sector will generate enough jobs to soak up this surplus over the same time period.  The burning question is will the private sector want these ex public sector staff and will the latter really want to work in the private sector?

A recent survey by Barclays and the Financial Times indicates that over half the companies polled would be reluctant to take on staff from the public sector.  The most popular view is that they will be ‘ill equipped’.  To some extent you can see the obvious in terms of technology and private sector skills like sales – perhaps, but is this  taking a broad brush view.  I suspect that there are some really good people in the public sector who will lose their jobs and it will be a loss to all if they are ignored simply because their experience is not private sector.

However, I also think that there is a bigger worry and one that may be hidden.  Companies may well be reluctant to take on ex public sector staff because they do not believe they will be either as motivated or productive.  In some cases that could be a reasonable concern.  But I think that this also represents a huge opportunity to bring more people to understand the importance of self motivation and doing the best you possibly can.

It’s hard to boil the ocean – it’s just too big.  Equally one drop of cold water will not cool down a whole bath of hot water – rather the drop is brought up to the temperature of the bath (almost).  If a company chooses its ex public sector staff well and introduces them in small numbers across the business, the chances are that the business will have a much bigger influence on the newcomer than the other way around.  The question is do you believe in McGregor’s Theory X- inherently lazy or Theory Y – people want to work and do a good job.  I’m a Theory Y person myself.  The environment and conditions around much of the public sector encourage the typical picture we have of their workforce.  There are a lot of big exceptions – military, police, fire service and front line NHS for a few.  My personal experience of these people in the private sector is that they make just as big a contribution as anyone else.  Now admittedly they volunteered to leave, but there will be a lot of pragmatic people out there both willing and able to take on all that the public sector asks of them.

Bringing these people into the private sector is important for them and the UK.  This is an opportunity to boost UK productivity not weaken it!


Productivity not Price

In Public sector,UK productivity on January 10, 2011 by Tim Aikens

Towards the end of last year I wrote about price as productivity – how government and others (supermarkets especially) try to push down the rates they pay their suppliers in order to cut costs (but without improving productivity).  Here is the other side of the coin.  Businesses who push up prices in order to retain margin and hence profit.  We have a classic situation in the UK. VAT went up to 20% on January 4th and many business have taken the opportunity to ’round up’ prices.  They can recover some of the lost margin eroded by competition and weak markets over the last year.  The same thing happened in the Eurozone when the Euro was introduced.  Of course customers are not stupid, they know exactly  what is going on. In the short term there is little they can do, but over time people will find ways of abandoning the new high priced items and either find an alternative or else do without.

The Royal Mail is an interesting example. Stamp prices have risen by over 52% in the last 10 years (70% if you include the planned increase in April), whilst the RPI has gone up by some 33%.  So potentially double the rate of inflation!  Volumes are declining, so prices go up to cover the fixed costs.  However, the post office is largely a people business. Staff costs in 2005 were almost 70% of the total cost base.  Consequently a large productivity gain could do wonders for Royal Mail.  Despite a lot of new and very effective technology the Post Office has militant unions and still struggles to move its productivity.  You might argue that price increases are done reluctantly, but with almost a monopoly on post most people have little choice but to pay the higher prices.  Sadly, this year I did receive many more e Christmas Cards than ever before.

So where am I going with this?  A simple message – in any competitive world if margins are declining, productivity improvement should be the first resort not price rises!  Sometimes they are inevitable – when a commodity price increases there is little or nothing you can do.  But generally a productivity gain will last, whereas a price rise usually has a limited impact and will often reduce volume!


Price as Productivity

In Public sector,UK productivity,Uncategorized on November 22, 2010 by Tim Aikens

The pressure is on as never before to cut cost.  Hopefully most of us naturally think of improving productivity. But many organisations try to take a simpler and faster route – persuading their suppliers to cut prices!  The government has taken a significant role in this. The Efficiency and Reform Group (ERG) run by Francis Maude MP started earlier this year by asking Tier 1 suppliers (like SERCO) not only to cut rates, but also to provide rebates on past work!  ERG is now doing the same with Tier 2 suppliers – including many engineering companies.  In the private sector supermarkets are good at pressing suppliers to cut costs.  So the question is, is this a good thing?

Well, yes and no.  There is no doubt that productivity has to rise if this country is to earn its way out of debt. Increases in productivity allow prices to fall without cutting margins, so that is the good news. But simply asking a supplier to cut the price (often within an existing contract) is simply taking a short cut and is, in my view, an abuse of economic power.  It is a form of economic blackmail.  The other major problem from the government perspective is that the attack is on unit rates (usually for labour) rather than the overall cost or price paid.  One way a professional services business can cut cost is to hire less able people at lower salaries. Their hire out rate can be reduced, but often they need more hours to complete a particular job. The end result is an overall higher cost even though the unit rate is lower. So cutting price does not always work.

Maude and the ERG obviously want jam today – as well as tomorrow, so how else can he go about this?

What he should be doing is looking at how government is using these suppliers.  I would make a small wager that there is already a huge amount of waste in what is actually supplied. ERG would save more by sensibly reviewing the services and making sure that they only buy what is needed.  In the engineering world one of the major causes of cost increase is that the client (in this case government) keeps on changing their mind about what they want. This causes rework that has to be paid for and pushes up the cost.  So government and others need to look at how they use their suppliers rather than turning the screw on price.  There is another good reason for doing this.  At present we are in (or at best coming out of) a recession.  Businesses are more flexible and need all the work they can get.  They will slash prices to ‘buy’ the work  if  it keeps the business afloat.  However, once things look up, business will pick up and so will rates.  Government and other buyers will have to pay higher rates and costs will rise.  There have been no productivity gains only fairly short lived price cuts.

If you want lasting cost reduction you need real productivity increase not just a quick fix cut in unit labour rates!  Get price reductions from sensible, competitive procurement, not bullying your suppliers!


Asset Productivity

In Productivity culture,Public sector,UK productivity,Uncategorized on October 21, 2010 by Tim Aikens

Much of the time we think of productivity in human terms. How much can we get out of a manhour?  In the car industry this translates into how many cars are produced per man year of effort.  In other industries – often very capital intensive, there is a focus on the productivity or utilisation of the assets.  In the airline industry for example there is always great pressure to keep planes in the air. When they sit on the ground they don’t earn revenue (and usually incur some fairly expensive parking costs)!  In retail stores, businesses look at revenue per square foot of space.  It’s all about asset utilisation or productivity.  So what can other sectors learn from this?

Well, I believe there are quite a few areas where asset productivity has not yet been fully appreciated.  Here are a few examples.  London is very expensive when it comes to office space (and a lot of other things!), so quite naturally planning space is important and architects find ways of cramming the workers in, but still providing a modicum of comfort.  Move  further out, space becomes cheaper and the allocation of space per head grows.  I’m not suggesting that everyone should operate at London densities, but there is probably a lot of money wasted because the productivity of the available space is lower than it needs to be!  How good is your space planning?

Here is another example.  One of the major costs in large construction projects is plant hire.  How often do you go past a big site and see expensive diggers, cranes and the like sitting idle?  How much might this be costing?  If you rent expensive kit by the day, but only work one shift, the kit sits idle overnight. In some cases it may well be more cost-effective and productive to run a night shift to make the best use of the equipment (recognising that night shifts are usually more expensive than a day shift).

Perhaps one area where poor asset productivity affects many of us is in major (or even minor) road works. The concept of lane rental for motorway works helps to  drive up productivity. The idea is that the contractor has to ‘rent’ the lane(s) they are working on.  The longer they take to do the work, the more ‘rent’ they pay and less profit they make.  Yet in many cases you see swathes of motorway work with little if anything happening. In urban areas, big holes in the ground sit there for weeks with little or no activity. As well as costing the council money the cost in terms of lost time to the traveling public is huge!  Both councils and contractors need to raise their game to increase the asset productivity of both the roads and the equipment being used.  Plan the work and work the plan!  The final ‘insult’ to the road works ‘injury’ is where successive utilities organisations dig up the same piece of road in quick succession. Sadly it still happens all too often.

So how much do you really think about asset productivity as well as people productivity?  In the process industries, planning to minimise downtime of an asset for repair or maintenance is second nature.  There is a lot of scope for other industries, businesses and indeed the public sector to learn from this!