Funnel Lean Savings into More Customer Value (Not Lower Prices)
People focus too much on Lean as a way to reduce costs. Yes, that’s frequently one result, but Lean, at its core, is about creating more customer/patient value.
Show ‘Em the LUV
The perfect example is Southwest Airlines (NYSE: LUV). You’ll never see the word ‘Lean’ on their website or any corporate communications. And to my knowledge they’ve never presented at a Lean conference. But, continuous improvement and low operating costs are thoroughly ingrained in their culture.
You see it in their airport employees moving between jobs and locations and in their modern, fuel-efficient fleet. You feel it in their unique booking and boarding process. You read about their impressive gate efficiency in aviation journals.
The result is Southwest announced its 43rd year of consecutive profitability. Every other airline in existence over this period has posted staggering losses and consequently filed for bankruptcy, been acquired, or gone out of business.
Lower Airfare Prices? Heck NO!
So, what has Southwest done with all these profits? Increased customer value!
Here are just two examples. First, you can change airline reservations for free. The other airlines charge $200. If you’re a frequent business flier on a tight travel budget, this is HUGE customer value. You could save thousands of dollars a year.
Second, two checked bags are free. The other airlines charge $25 per bag. If you’re a sales person transporting product samples or family of four going on vacation, this is HUGE customer value. You could easily save $100 or more on a trip.
Now, Southwest could follow the herd, charge big bucks for changes and bags and be even more profitable in the short term. Or they could forego some profit, lower prices and try to steal marketshare from other airlines. But, their strategy is to grow by offering more customer value. And this is much more difficult for inefficient competitors to match.
The Machine That Changed the World (aka Lean)
The Japanese car companies knocked the Big Three US automakers silly in the 1980’s doing this very thing. They plowed the greater profits generated by their Lean-based, lower cost operations into features that customers wanted. Power windows used to be an expensive option. The Japanese made it a standard feature. The same with air conditioning; came with the car at no extra charge.
This strategy slammed US automakers hard. It stole customers from their showrooms and lowered revenue from both sales of vehicles and options. This, in turn, reduced their profits and deprived them of funds for new car R&D and plant improvements. The Japanese went on to gain a huge chunk of US marketshare. The upside is that we’re all driving much better cars today.
Lean is a Funding Strategy
Stop thinking of Lean as a cost reduction method. Rather, view it as a strategy to fund your efforts to improve patient outcomes and increase customer value.
What does your customer or patient value that you “can’t afford” to provide them today? How could Lean help you reduce operational costs to fund those offerings? Remember, small wastes get big quickly!
Todd Hudson, Head Maverick