EBB6133 Strategic Management - Assoc Prof Dr Abang Azlan Mohamad

VIRGINIA MASON

In the early 2000s, Seattle’s Virginia Mason Hospital was not performing as well as it should have been.
Financial returns were low, patient satisfaction was subpar, too many errors were occurring during
patient treatment, and staff morale was suffering. Gary Kaplan, the CEO, was wondering what to do
about this when he experienced a chance encounter with Ian Black, the director of lean thinking at
Boeing. Black told Kaplan that Boeing had been implementing aspects of Toyota’s famous lean
production system in its aircraft assembly operations, and Boeing was seeing positive results. Kaplan
soon became convinced that the same system that had helped Toyota build more reliable cars at a
lower cost could also be applied to health care to improve patient outcomes at a lower cost.

In 2002, Kaplan and a team of executives began annual trips to Japan to study the Toyota production
system. They learned that “lean” meant doing without things that were not needed; it meant removing
unnecessary steps in a process so that tasks were performed more efficiently. It meant eliminating
waste and elements that didn’t add value. Toyota’s system applied to health care meant improving
patient outcomes through more rapid treatment the elimination of errors in the treatment process.
Kaplan and his team returned from Japan believing in the value of lean production. They quickly set
about applying what they had learned to Virginia Mason. Teams were created to look at individual
processes in what Virginia Mason called “rapid process improvement workshops.” The teams, which
included doctors as well as other employees, were freed from their normal duties for 5 days. They
learned the methods of lean production, analyzed systems and processes, tested proposed changes,
and were empowered to implement the chosen change the following week.

The gains appeared quickly, reflecting the fact that there was a lot of inefficiency in the hospital. One
of the first changes involved the delay between a doctor’s referral to a specialist and the patient’s first
consultation with that specialist. By examining the process, it was found that secretaries, whose job it
was to arrange these referrals, were not needed. Instead, the doctor would send a text message to the
consultant the instant he or she decided that a specialist was required. The specialist then needed to
respond within 10 minutes, even if only to confirm the receipt of the message. Delays in referral-to-
treatment time dropped by 68% as a consequence of this simple change, which improved patient
satisfaction. On another occasion, a team in the radiation oncology department mapped out the
activities that the department performed when processing a patient with the intention of eliminating
time wasted in performing those activities. By removing unnecessary workflow activities, patient time
spent in the department fell from 45 minutes to just 15 minutes. A similar exercise at Virginia Mason’s
back clinic cut treatment time from an average of 66 days to just 12.

By 2012, Virginia Mason was claiming that lean production had transformed the hospital into a more
efficient, customer-responsive organization where medical errors during treatment had been
significantly reduced. Among other gains, lean processes reduced annual inventory costs by more than
$1 million, reduced the time it took to report lab tests to a patient by more than 85%, freed up the
equivalent of 77 full-time employee positions through more efficient processes, and reduced staff
walking distance by 60 miles a day, giving both doctors and nurses more time to spend with patients.
These, and many other similar changes, lowered costs, increased the organization’s customer
responsiveness, improved patient outcomes, and increased the financial performance of the hospital.

1|Page
EBB6133 Strategic Management - Assoc Prof Dr Abang Azlan Mohamad

Questions

1. What do you think were the underlying reasons for the performance problems that Virginia
Mason Hospital was encountering in the early 2000s?

2. Which of the four building blocks of competitive advantage did lean production techniques help
improve at Virginia Mason?

3. What do you think was the key to the apparently successful implementation of lean production
techniques at Virginia Mason?

4. Lean production was developed at a manufacturing firm, Toyota, yet it is being applied in this
case at a hospital. What does that tell you about the nature of the lean production philosophy
for performance improvement?

2|Page