In manufacturing, the term Lean has far too often been synonymous with layoffs. Doing so is more L.A.M.E. than Lean. People get anxious and throw around an acronym LEAN – Less Employees Are Needed.
Ironically, Toyota (the inspiration or model for Lean) doesn't rely on layoffs as a form of cost cutting the way GM and the Detroit automakers do. See this post for a clear comparison that shows how Toyota is more committed to their employees and that's a great illustration of the Lean philosophy.
In a Lean culture, we don't view employees as a cost or a necessary evil. Employees are a treasured resource and leaders are responsible for engaging them and developing them, as today's Toyota leaders teach us.
In healthcare, hospital and health system CEOs don't need Lean as a way to slash heads and fire people. That's the traditional approach in healthcare. Uncreative leaders try to balance budgets on the backs of employees, going first to layoffs instead of making layoffs a last resort.
Some hospital CEOs have seen the light and realize now that the cycles of layoffs don't really reduce costs and that Lean is an alternative (read one such story here).
There's so much waste in healthcare, hospitals have tons of options for reducing costs in a way that doesn't destroy morale or potentially harm quality.
As I've written about before, great Lean hospitals like ThedaCare and Denver Health have some variation of a “no layoffs due to Lean” or “no layoffs” philosophy.
#Lean is the alternative to layoffs & traditional hospital cost cutting Share on XChris Van Gorder, CEO of Scripps Health in California, wrote this article in HBR back in January: “A No-Layoffs Policy Can Work, Even in an Unpredictable Economy.“
I'm not sure I'd describe a no layoffs policy as “paternalism,” as Van Gorder does. I'd call it smart business that looks at the long term instead of this quarter's or this year's numbers.
Van Gorder writes:
“In the 15 years since I joined Scripps Health, we haven't laid off anyone. That isn't the norm in my industry, obviously. Hundreds if not thousands of hospitals have responded to trends such as shorter average hospital stays, fewer surgeries, a shift to outpatient and home care, and reduced reimbursements by consolidating or overhauling their operations and laying off staff.”
Does Van Gorder not care about costs? Of course not. They don't always replace people who leave voluntarily. They redeploy staff to new clinics or opportunities.
He adds:
“We believe a no-layoffs philosophy is good for employees' physical and psychological health — it's well known that job insecurity can be harmful.”
Bob Emiliani has written about how Lean, including a lack of layoffs, is GOOD for employee health.
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Van Gorder also talks about the need to “avoid the kind of blame-driven, watch-your-back culture” that he's “seen in some organizations.” That's in keeping with a Lean philosophy.
I've heard good things about people who have visited Scripps to learn about Lean. I'd certainly like to applaud them for setting a great example with this no layoffs approach. It sounds Lean to me.
He also wrote:
“I've seen what it's like to carry out mass layoffs — I had to do that in the 1990s at a hospital that was in bad financial shape. I vowed never to let myself get into that position again.”
That sounds exactly like the Toyota's history. In 1950, then-president Kiichiro Toyoda resigned in shame after 1,600 employees took early retirements, according to the Toyota website. That's part of the reason Toyota has been good about retaining employees even during plant shutdowns and hard times. They do this, again, because it's smart business, not because it's nice.
“Respect for People” is good business.
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I was impressed to learn about Toyota’s redeployment of its employees to help with community/local projects in San Antonio (e.g., community park cleanup) rather than lay many of them off due to the recession. I think it makes a huge statement about Toyota’s commitment to its employees, and its understanding that there will be business cycle fluctuations that may not make it profitable to keep all of its employees, yet they do so due to their “respect for people” and an understanding that the business trend tends to be positive in the long run.
Here’s a story about Toyota paying employees to build Habitat for Humanity homes in San Antonio.
http://www.kens5.com/story/news/local/2014/06/19/10867517/
That’s not just about PR and community service. As anybody who has done that type of volunteering knows, you’re helping people develop team skills and leadership skills.
Toyota also uses that downtime to pay employees for workplace training, quality improvement work, Kaizen, etc.
They’re investing in their employees. Why fire people in a downturn to then turn around and re-hire when things pick up?
Now, hospitals might be afraid that they’re seeing a downturn in volume that won’t pick up. Um, aging population anyone?
When you fire people, you then have an expense from having to hire and retrain. Can you balance out the short-term hit vs the long-term perspective?
If you’re running out of cash, probably not.
Toyota is flush with cash. They can afford to ride out those bad times. ThedaCare, for example, is extremely careful to not ever overhire. It sounds like Scripps does the same thing. A no-layoffs philosophy also requires a “don’t grow too quickly” approach, it seems.
Back during the tsunami time frame, GM had almost the exact same amount of cash in the bank as Toyota. It’s not just about how much money you have… it’s about your philosophy and how you value your associates, team members, employees, people, etc.
One other thing to keep in mind is that Toyota does use a lot of temporary or short-term employees who could get laid off…
http://www.14news.com/story/6435509/toyota-layoffs-shock-workers
“Toyota began trimming it’s temporary staff a year ago based in part by a decline in demand for the Sequoia SUV, which is produced at the Gibson County plant.”
I agree with a no layoff policy. If you want to view the organization as a system this is a key action that shows the organization truly values everyone.
As you mention, Toyota does get criticized sometimes for the use of temporary workers. I think that is a good model. But it does lead to a grey area when that is used as a crutch for individuals for too long. It is a tricky balancing act to commit to everyone you hire and try to balance global economic swings as well as local economic swings.
I have several posts on this topic including
http://management.curiouscatblog.net/2007/06/03/bad-management-results-in-layoffs/
(which includes a comments by me that I think is even longer than the original post)