From the LEI Summit: Mike Rother on Toyota’s View on ROI
I really had a great learning experience at last week's LEI Lean Transformation Summit that was held here in Dallas. The event sold out six weeks in advance, so a lot of regular attendees got frozen out, unfortunately. All of the sessions were recorded and there will be a way to register to view them even if you weren't an attendee. I'll share details about that as I keep blogging about what I saw and heard from Rother, Pascal Dennis, and especially the Lean leaders from Starbucks and the great story they had to share.
I heard a profound idea from Mike Rother during his breakout session that expanded on some of the organizational concepts behind his book Toyota Kata: Managing People for Improvement, Adaptiveness and Superior Results. I could write many posts about the insights he shared, but let me just share one powerful notion today – thoughts on ROI, Return on Investment.
ROI is often a big issue when organizations start with Lean. Leaders are used to looking at a Return on any Investment. That's what we are all taught in our MBA programs – but it's often a very limiting view. “Investment” is usually much easier to calculate – and it's short-term and known. “Return” is much harder to calculate – it's long-term and going and it's often based on a prediction of the future.
I've usually coached people to not be too hung up on ROI early on – you especially cannot calculate an ROI on every little kaizen improvement that is done in the workplace. Even if you could calculate it, should you want to? Is it always worth the time? Maybe on the big things, but “don't sweat the small stuff.” As I blogged about recently (“What Are Barriers to “Kaizen” in Healthcare?“), Masaaki Imai wrote:
In Japan, the suggestion system is an integrated part of individual-oriented kaizen. The Japanese-style suggestion system emphasizes morale-boosting benefits and positive employee participation over the economic and financial incentives that are stressed in a Western-style system.”
This isn't just about ROI, it's about staff morale and engagement, giving them ownership over the process so they can improve quality, safety, and other important measures. Cost (and profitability) will follow as an end result.
So back to just one little part of Mike Rother's mind-blowing presentation:
Rother said most companies look at ROI to make “yes or no” decisions. Case in point, the American automakers did an ROI business case back in the day and decided they couldn't profitably build more small cars. So they didn't.
Rother said the Toyota approach would have been to say strategically that we HAVE to build small cars. The negative ROI calculation would have shown them how much they'd have to improve to be able to do it profitably. ROI should not get in the way of things you must do.
I had never heard that explained that way before. Does it ring true to others who have experience with Toyota?”
So back to the healthcare realm, people often assume that doing more preventive and primary care will reduce overall healthcare costs. Makes sense. Seems like the right to do for people's quality of life. There are some studies that show that, for certain preventive care – like cancer screening, doing more of it does NOT reduce total healthcare costs. But for some things, like immunizations, it clearly helps. See this Newsweek article for one view: “The Politics of Prevention: Cancer screening and other measures for heading off disease don't always reduce health-care costs.”
Maybe we should take the Toyota view on ROI. For the sake of each individual, maybe we decide we HAVE to do cancer screening. “Negative ROI” just shows us where we have to improve for it to make financial sense. Instead of just giving up after the ROI calculation, how can we innovate and improve to make it cost effective? Can we reduce the cost of cancer screening?
I think I like that view of ROI much better than what was taught in my MBA program.