March 2013 – HCSE Blog

29/03/2013

Now I See!

It has been a very exciting week.

Each day has been a fantastic opportunity to learn and to share.

Learning more about what many perceive as the barriers to improvement; and sharing what is possible and how to achieve it.

There has been no lack of desire to improve. There has been no lack of commitment to engage actively in creating improvement. There has been no lack of ideas.

What has been lacking is alignment. Not on the why – our shared purpose – that appears to be agreed by all. We have 100% alignment that we all want a safer, higher quality more affordable system. We all want win-win-win.

The lack of alignment has been about how we get there from where we are.

So what has been really exciting is to observe the impact of just telling stories of “How this win-win-win outcome was achieved.” Real stories. Actual improvement.

What was even more exciting was to observe the reactions of those who were active participants in a real exercise that demonstrates the “how to do it“, in real time and with a realistic problem.

The reactions were consistent …

Now I See! Win-win-win is possible!
Now I See! It is obvious how – when you know what to look for and what do do – when you know how!
Now I See! What was blocking my path before! The invisible belief barrier!
Now I See! What my part could be in a future win-win-win improvement story!
Now I See! What I can do next!
Now I See! That what I do is inside my circle of control!
Now I See! That the choice to act is mine and mine alone!
Now I See! How I can influence others through my options, my choices, my actions and my story!

And now I feel even more inspired, energised, aligned and enabled.

It has been a great week!

Thank you everyone for giving me such a great week.

23/03/2013

Time-Reversed Insight

Thinking-in-reverse sounds like an odd thing to do but it delivers more insight and solves tougher problems than thinking forwards. That is the reason it is called Time-Reversed Insight. And once we have mastered how to do it, we discover that it comes in handy in all sorts of problematic situations where thinking forwards only hits a barrier or even makes things worse.

Time-reversed thinking is not the same thing as undoing what you just did. It is reverse thinking – not reverse acting.

We often hear the advice “Start with the end in mind …” and that certainly sounds like it might be time-reversed thinking, but it is often followed by “… to help guide your first step.” The second part tells us it is not. Jumping from outcome to choosing the first step is actually time-forward thinking.

Time-forward thinking comes in many other disguises: “Seeking your True North” is one and “Blue Sky Thinking” is another. They are certainly better than discounting the future and they certainly do help us to focus and to align our efforts – but they are still time-forward thinking. We know that because the next question is always “What do we do first? And then? And then?” in other words “What is our Plan?”.

This is not time-reversed insightful thinking: it is good old, tried-and-tested, cause-and-effect thinking. Great for implementation but a largely-ineffective, and a hugely-inefficient way to dissolve “difficult” problems. In those situation it becomes keep-busy behaviour. Plan-Do-Plan-Do-Plan-Do ……..

In time-reversed thinking the first question looks similar. It is a question about outcome but it is very specific. It is “What outcome do we want? When do we want it? and How would we know we have got it?” It is not a direction. It is a destination. The second question in time-reversed thinking is the clincher. It is “What happened just before?” and is followed by “And before that? And before that?“.

We actually do this all the time but we do it unconsciously and we do it very fast. It is called the “blindingly obvious in hindsight” phenomenon. What happens is we feel the good or bad outcome and then we flip to the cause in one unconscious mental leap. Ah ha!

And we do this because thinking backwards in a deliberate, conscious, sequential way is counter-intuitive.

Our unconscious mind seems to have no problem doing it though. And that is because it is wired differently. Some psychologists believe that we literally have “two brains”: one that works sequentially in the direction of forward time – and one that works in parallel and in a forward-and backward in time fashion. It is the sequential one that we associate with conscious thinking; it is the parallel one that we associate with unconscious feeling. We do both and usually they work in synergy – but not always. Sometimes they antagonise each other.

The problem is that our sequential, conscious brain does not like working backwards. Just like we do not like walking backwards, or driving backwards. We have evolved to look, think, and move forwards. In time.

So what is so useful about deliberate, conscious, time-reversed thinking?

It can give us an uniquely different perspective – one that generates fresh insight – and that new view enables us to solve problems that we believed were impossible when looked at in a time-forward way.

An example of time-reverse thinking:

The 4N Chart is an emotional mapping tool. More specifically it is an emotion-over-time mapping technique. The way it is used is quite specific and quite counter-intuitive. If we ask ourselves the question “What is my top Niggle?” our reply is usually something like “Not enough time!” or “Person x!” or “Too much work!“. This is not how The 4N Chart is designed to be used. The question is “What is my commonest negative feeling?” and then the question “What happened just before I felt it?“. What was the immediately preceding cause of the Niggle? And then the questions continue deliberately and consciously to think backwards: “And before that?”, “And before that?” until the root causes are laid bare.

A typical Niggle-cause exposing dialog might be:

Q: What is my most commonest negative feeling?
A: I feel angry!
Q: What happened just before?
A: My boss gives me urgent jobs to do at half past 4 on Friday afternoon!
Q: And before that?
A: Reactive crisis management meetings are arranged at very short notice!
Q: And before that?
A: We have regular avoidable crises!
Q: And before that?
A: We are too distracted with other important work to spot each crisis developing!
Q: And before that?
A: We were not able to recruit when a valuable member of staff left.
Q: And before that?
A: Our budget was cut!

This is time-reversed thinking and we can do this reasonably easily because we are working backwards from the present – so we can use our memory to help us. And we can do this individually and collectively. Working backwards from the actual outcome is safer because we cannot change the past.

It is surprisingly effective though because by doing this time-reverse thinking consciously we uncover where best to intervene in the cause-and-effect pathway that generates our negative emotions. Where it crosses the boundary of our Circle of Control. And all of us have the choice to step-in just before the feeling is triggered. We can all choose if we are going to allow the last cause to trigger to a negative feeling in us. We can all learn to dodge the emotional hooks. It takes practice but it is possible. And having deflected the stimulus and avoided being hijacked by our negative emotional response we are then able to focus our emotional effort into designing a way to break the cause-effect-sequence further upstream.

We might leave ourselves a reminder to check on something that could develop into a crisis without us noticing. Averting just one crisis would justify all the checking!

This is what calm-in-a-crisis people do. They disconnect their feelings. It is very helpful but it has a risk.

The downside is that they can disconnect all their feelings – including the positive ones. They can become emotionless, rational, logical, tough-minded robots. And that can be destructive to individual and team morale. It is the antithesis of improvement.

So be careful when disconnecting emotional responses – do it only for defense – never for attack.

A more difficult form of time-reversed thinking is thinking backwards from future-to-present. It is more difficult for many reasons, one of which is because we do not have a record of what actually happened to help us. We do however have experience of similar things from the past so we can make a good guess at the sort of things that could cause a future outcome.

Many people do this sort of thinking in a risk-avoidance way with the objective of blocking all potential threats to safety at an early stage. When taken to extreme it can manifest as turgid, red-taped, blind bureaucracy that impedes all change. For better or worse.

Future-to-present thinking can be used as an improvement engine – by unlocking potential opportunity at an early stage. Innovation is a fragile flower and can easily be crushed. Creative thinking needs to be nurtured long enough to be tested.

Change is deliberately destablising so this positive form of future-to-present thinking can also be counter-productive if taken to extreme when it becomes incessant meddling. Change for change sake is also damaging to morale.

So, either form of future-to-present thinking is OK in moderation and when used in synergy the effect is like magic!

Synergistic future-to-present time-reversed thinking is called Design Thinking and one formulation is called 6M Design.

16/03/201307/09/2024

What is the Temperamenture?

Tweet
The sound heralded the arrival of a tweet so Bob looked up from his book and scanned the message. It was from Leslie, one of the Improvement Science apprentices.

It said “If your organisation is feeling poorly then do not forget to measure the Temperamenture. You may have Cultural Change Fever.“

Bob was intrigued. This was a novel word and he suspected it was not a spelling error. He know he was being teased. He tapped a reply on his iPad “Interesting word ‘Temperamenture’ – can you expand?”

Ring Ring
<Bob> Hello, Bob here.

There was laughing on the other end of the line – it was Leslie.

<Leslie> Ho Ho. Hi Bob – I thought that might prick your curiosity if you were on line. I know you like novel words.

<Bob> Ah! You know my weakness – I am at your mercy now! So, I am consumed with curiosity – as you knew I would be.

<Leslie> OK. No more games. You know that you are always saying that there are three parts to Improvement Science – Processes, People and Systems – and that the three are synergistic so they need to be kept in balance …

<Bob> Yes.

<Leslie> Well, I have discovered a source of antagonism that creates a lot of cultural imbalance and emotional heat in my organisation.

<Bob> OK. So I take from that you mean an imbalance in the People part that then upsets the Process and System parts.

<Leslie> Yes, exactly. In your Improvement Science course you mentioned the theory behind this but did not share any real examples.

<Bob> That is very possible. Hard evidence and explainable examples are easier for the Process component – the People stuff is more difficult to do that way. Can you be more specific? I think I know where you may be going with this.

<Leslie> OK. Where do you feel I am going with it?

<Bob> Ha! The student becomes the teacher. Excellent response! I was thinking something to do with the Four Temperaments.

<Leslie>Yes. And specifically the conflict that can happen between them. I am thinking of the tension between the Idealists and the Guardians.

<Bob> Ah! Yes. The Bile Wars – Yellow and Black. The Cholerics versus the Melancholics. So do you have hard evidence of this happening in reality rather than just my theoretical rhetoric?

<Leslie> Yes! But the facts do not seem to fit the theory. You know that I work in a hospital. Well one of the most important “engines” of a hospital is the surgical operating suite. Conveniently called the SOS.

<Bob> Yes. It seems to be a frequent source of both Nuggets and Niggles.

<Leslie> Well, I am working with the SOS team at my hospital and I have to say that they are a pretty sceptical bunch. Everyone seems to have strong opinions. Strong but different opinions of what should happen and who should do it. The words someone and should get mentioned a lot. I have not managed to find this elusive “someone” yet. The some-one, no-one, every-one, any-one problem.

<Bob> OK. I have heard this before. I hear that surgeons in particular have strong opinions – and they disagree with each other! I remember watching episodes of “Doctor in the House” many years ago. What was the name of the irascible chief surgeon played by James Robertson Justice? Sir Lancelot Spratt the archetype consultant surgeon. Are they actually like that?

<Leslie> I have not met any as extreme as Sir Lancelot though some do seem to emulate that role model. In reality the surgeons, anaesthetists, nurses, ODPs, and managers all seem to believe there is one way that a theatre should be run, their way, and their separate “one ways” do not line up. Hence the conflict and high emotional temperature.

<Bob> OK, so how does the Temperament dimension relate to this? Is there a temperament mismatch between the different tribes in the operating suite as the MBTI theory would suggest?

<Leslie> That was my hypothesis and I decided that the only way I could test it was by mapping the temperaments using the Temperament Sorter from the FISH toolbox.

<Bob> Excellent, but you would need quite a big sample to draw any statistically valid conclusions. How did you achieve that with a group of disparate sceptics?

<Leslie>I know. So I posed this challenge as a research question – and they were curious enough to give it a try. Well, the Surgeons and Anaesthetists were anyway. The Nurses, OPDs and Managers chose to sit on the fence and watch the game.

<Bob>Wow! Now I am really interested. What did you find?

<Leslie>Woah there! I need to explain how we did it first. They have a monthly audit meeting where they all get together as separate groups and after I posed the question they decided to do use the Temperament Sorter at one of those meetings. It was done in a light-hearted way and it was really good fun too. I brought some cartoons and descriptions of the sixteen MBTI types and they tried to guess who was which type.

<Bob>Excellent. So what did you find?

<Leslie>We disproved the hypothesis that there was a Temperament mismatch.

<Bob>Really! What did the data show?

<Leslie> It showed that the Temperament profile for both surgeons and anaesthetists was different from the population average …

<Bob>OK, and …?

<Leslie>… and that there was no statistical difference between surgeons and anaesthetists.

<Bob> Really! So what are they both?

<Leslie> Guardians. The majority of both tribes are SJs.

There was a long pause. Bob was digesting this juicy new fact. Leslie knew that if there was one thing that Bob really liked it was having a theory disproved by reality. Eventually he replied.

<Bob> Clarity of hindsight is a wonderful thing. It makes complete sense that they are Guardians. Speaking as a patient, what I want most is Safety and Predictability which is the ideal context for Guardians to deliver their best. I am sure that neither surgeons nor anaesthetists like “surprises” and I suspect that they both prefer doing things “by the book”. They are sceptical of new ideas by temperament.

<Leslie> And there is more.

<Bob> Excellent! What?

<Leslie> They are tough-minded Guardians. They are STJs.

<Bob> Of course! Having the responsibility of “your life in my hands” requires a degree of tough-mindedness and an ability to not get too emotionally hooked. Sir Lancelot is a classic extrovert tough-minded Guardian! The Rolls-Royce and the ritual humiliation of ignorant underlings all fits. Wow! Well done Leslie. So what have you done with this new knowledge and deeper understanding?

<Leslie> Ouch! You got me! That is why I sent the Tweet. Now what do I do?

<Bob> Ah! I am not sure. We are both sailing in uncharted water now so I suggest we explore and learn together. Let me ponder and do some exploring of the implications of your findings and I will get back to you. Can you do the same?

<Leslie> Good plan. Shall we share notes in a couple of days?

<Bob> Excellent. I look forward to it.

This is not a completely fictional narrative.

In a recent experiment the Temperament of a group of 66 surgeons and 65 anaesthetists was mapped using a standard Myers-Briggs Type Indicator® tool. The data showed that the proportion reporting a Guardian (xSxJ) preference was 62% for the surgeons and 59% for the anaesthetists. The difference was not statistically significant [For the statistically knowledgable the Chi-squared test gave a p-value of 0.84]. The reported proportion of the normal population who have a Guardian temperament is 34% so this is very different from the combined group of operating theatre doctors [Chi-squared test, p<0.0001]. Digging deeper into the data the proportion showing the tough-minded Guardian preference, the xSTJ, was 55% for the Surgeons and 46% for the Anaesthetists which was also not significantly different [p=0.34] but compared with a normal population proportion of 24% there are significantly more tough-minded Guardians in the operating theatre [p<0.0001].

So what then is the difference between Surgeons and Anaesthetists in their preferred modes of thinking?

The data shows that Surgeons are more likely to prefer Extraversion – the ESTJ profile – compared with Anaesthetists – who lean more towards Introversion – the ISTJ profile (p=0.12). This p-value means that with the data available there is a one in eight chance that this difference is due to chance. We would needs a bigger set of data to get greater certainty.

The temperament gradient is enough to create a certain degree of tension because although the Guardian temperament is the same, and the tough-mindedness is the same, the dominant function differs between the ESTJ and the ISTJ types. As the Surgeons tend to the ESTJ mode, their dominant function is Thinking Judgement. The Anaesthetists tend to perfer ISTJ so their dominant fuction is Sensed Perceiving. This makes a big difference.

And it fits with their chosen roles in the operating theatre. The archetype ESTJ Surgeon is the Supervisor and decides what to do and who does it. The archetype ISTJ Anaesthetist is the Inspector and monitors and maintains safety and stability. This is a sweepig generalisation of course – but a useful one.

The roles are complementary, the minor conflict is inevitable, and the tension is not a “bad” thing – it is healthy – for the patient. But when external forces threaten the safety, predictability and stability the conflict is amplified.

Rather like the weather.

Hot wet air looks clear. Cold dry air looks clear too. When hot-humid air from the tropics meets cold-crisp air from the poles then a band of of fog will be created. We call it a weather front and it generates variation. And if the temperature and humidity difference is excessive then storm clouds will form. The lightning will flash and the thunder will growl as the energy is released.

Clouds obscure clarity of forward vision but clouds also create shade from the sun above; clouds trap warmth beneath; and clouds create rain which is necessary to sustain growth. Clouds are not all bad. Some cloudiness is necessary.

An Improvement Scientist knows that 100% harmony is not the healthiest ratio. Unchallenged group-think is potentially dangerous. Zero harmony is also unhealthy. Open warfare is destructive. Everyone loses. A mixture of temperaments, a diversity of perspectives, a bit of fog, and a bit of respectful challenge is healthier than All-or-None.

It is at the complex and dynamic interface between different temperaments that learning and innovation happens so a slight temperamenture gradient is ideal. The emotometer should not read too cold or too hot.

Understanding this dynamic is a big step towards being able to manage the creative tension.

To explore the Temperamenture Map of your team, department and organisation try the Temperament Sorter tool – one of the Improvement Science cultural diagnostic tests.

09/03/2013

The Five Ages of Improvement

Improvement is not easy. If it were this blog would not attract any vistors. The data says that the hit rate is increasing. So what questions are visitors asking?

What makes improvement so difficult?

In a word – disappointment.

Or rather the cumulative effect of repeated disappointments.

Over time we become emotionally damaged by disappointment. Our youthful mountain of optimism is slowly eroded and washed away by the stormy reality that life throws at us.

Is this emotional erosion inevitable? I believe not. Some seem to avoid it with innate ability – the rest of us have to learn how. To do that we need to understand how the emotional erosion happens and with that insight we can design an anti-disappointment defense for ourselves.

I see it as a time-dependent process with five phases. The divisions are somewhat artificial because it is a continuous process; the phases overlap and we do not all progress at the same rate. Each phase lasts about 10-15 years it seems.

The First Age – Tender Idealism

The natural child-like behaviour that we are born with is curious, playful, happy, and optimistic. We arrive with no knowledge of the real world. Our starting expectation is high because all we have experienced is the safe, warm, fuzzy redness of the womb. Birth is our first big disappointment! Ouch! It is cold out here and suddenly we have to do lots more for ourselves such as breathing, keeping warm, eating, weeing, and pooing. Waaaaaah!

Some claim that we spend our whole lives trying in vain to regain that wonderful, warm womb-like feeling of security and comfort.

But after our birthday surprise we activate our innate curiosity and we learn quickly as we explore the real world. We do not forget though – we dream about how the world could be more womb-like. We are natural idealists. We all want to recreate a reliable comfort-zone. And anything that gets in our way needs to be removed! The old ideas and the old farts who cling on to them need to go! The problems and solutions are obvious; crystal clear; black-or-white; day-or-night; all-or-nothing; either-or. We start as Tender Idealists.

And we learn quickly that reality resists us.

The Second Age – Tearful Optimism

As our experience grows the perfectly sharp edges of our idealism become smoothed off: eroded by the emotional impacts of numerous small disappointments. We remain optimists but our expectations are lowered and our frustrations are elevated. We are told by the Older-and-Wiser that when we fall off our bikes or horses we should brush ourselves down, get back on and try again. “No Pain No Gain” they preach. But it really hurts when we fall off – we graze our knees and we bruise our egos. We cry tears of frustration, pain and fear. But we strive to retain our optimism. We try again, and again, and again. And we are young so we have energy and stamina. We are not too damaged – not yet. We are Tearful Optimists.

The Third Age – Tired Realism

But reality is relentless. The battering by the sunshine and storms of life continue – apparently unaffected by our strenuous efforts to create calm. And we keep slipping as the complexity mud gets thicker, deeper and stickier. We become more, and more tired. We try less and we sit on the fence more. It is less difficult, less tiring, less self-disappointing. We develop a taste for spectator sports. We adopt a team. We cheer when they win and we chide when they lose. Reality has eroded our optimism to the point where it has become so fragile that we dare not pit it against new challenges. We fear the seemingly inevitable failure and the consequent disappointment. Just one more tumble could break us completely. We have become Tired Realists.

The Fourth Age – Turgid Skepticism

Now the rules of the life-game change. We must now protect the last precious vestiges of our hope and we must defend our life-dream from despair. So we build barriers that block the new Idealists and the new Optimists from blindly generating more disappointments for themselves – and for us. We do not want to lose all hope. We exercise our intellect and our experience and we become experts in the “Yes … but” game. We dispell new ideas and we say that they are not new and they are not worth trying. We say “Yes, but we tried that and it did not work“. We create a red-taped morass of bureaucracy to slow them down and to tire them out. And we can do that because by now we have gravitated to Positions of Authority. We write the Rules. And our rules all start with the word “No”.

The Tired Realists sit on the fence to watch the New Optimists battle with us Old Skeptics. Just as they had done when they still had the energy. It becomes their favourite spectator sport. A few optimists navigate the bureaucracy swamp and have their innovations implemented. Some even succeed and shine for a while. All fade and fail eventually. The emotional erosion continues relentlessly.

The skeptics are well-intentioned though – they want to prevent avoidable disappointment – but their strategy is non-specific. It blocks all innovation – both the worthwhile and the worthless. And their preferred tool is the simple question “Where is the evidence?” No evidence means “game over” but having evidence is no guarantor of success. Evidence means rich opportunities for nit-picking. The more academic skeptics discard what cannot be proved statistically beyond all reasonable doubt and unintentionally create an unwinnable game of Catch-22. And over time their examination of the evidence becomes less and less rigorous. They become increasingly Turgid Skeptics.

The Fifth Age – Toxic Cynicism

The final age starts when the skeptic suffers dream failure and enters the Land of the Hopeless. Here any idealism, optimism and realism are discounted by default and without respect. Their Pavlovian reflex is now fully established – every one and every thing is discounted without conscious thought. This is the Creed of the Cynics. The continuous discounting acts as an oily emotional toxin. It is called cynicide – and it poisons the whole organisation. It greases the slippery slope from Realist through Skeptic to Cynic – who may be a minority but the damage they create is disproportionately large. The Toxic Cynics create the waves that trigger the storms that drive the whole disappointment process.

And Toxic Cynics are indiscriminate. A Tender Idealiss can have their fragile and nascent curiosity and optimism destroyed by just one poisonous barb fired accurately but unwittingly by a habitually cynical parent figure.

So what does an experienced Improvement Scientist do to avoid the decline to Cynicism? What strategies do they employ to deflect and dissipate the storms and to defend themselves from their emotionally erosive action?

First they learn of the weathering process and the damage it does and they actively remove themselves from the most toxic parts of their organisations. Why be exposed to cynicide for no good reason? They avoid the cynics, their congregations and their conversations. They avoid the emotional hooks-and-lines that cynics cast and use to draw others into the Drama Triangle – the negative emotional maelstrom from which the unwitting victims may never escape.

Second they learn to channel their own disappointment into improvement. They learn that after they have failed to meet their own expectation they must step back, reflect, understand what happened, formulate a new design, and then try again. Not just to blindly repeat the same action in the hope that just determination and repetition is sufficient. It is not. They also learn to do the same after a success – they reflect and understand what delivered the delight and how to make that happen more often.

Third they learn to engage the skeptics in a constructive dialog. Skeptics are useful – their sharp questions can help to improve an innovation as much as to destroy one. And they learn how to disarm the cynics. They learn how to neutralise the cynicide poison – by exposing it to the antidote – Respectful Challenge of the Cynical Behaviour.

Effective leaders are de facto improvement scientists. Effective leaders carve an alternative groove for the Idealists, Optimists and Realists – the path to Capability, Credibility, and Sagacity. Effective leaders nurture the Idealists because they are the future Optimists. Effective leaders support the Optimists because they are the future leaders. Effective leaders coax the Realists out of passive observation and into active participation. Effective leaders respect the Skeptics for their skills and restrict their bureaucracy. Effective leaders block cynicide production by offering the Cynics a simple binary choice: healthy skepticism or The Door.

The Five Ages represent learned roles not inherited attributes. We can all choose our behaviour. We can all choose to play any of the five roles at any time. We are not Saints or Sinners. We are all fallible; we are all on the same life path and we all have the same choices:

Do we choose the path of continual improvement or do we choose the path of constant disappointment?

A wise decision is required.

And for the Optimists, Realists and Skeptics out there – hard evidence that Improvement Science works in practice – even when the participants are highly skeptical – the six week update on the real example described in The Writing On The Wall – Part I

02/03/201311/01/2022

The Seventh Flow

Bing Bong

Bob looked up from the report he was reading and saw the SMS was from Leslie, one of his Improvement Science Practitioners.

It said “Hi Bob, would you be able to offer me your perspective on another barrier to improvement that I have come up against.”

Bob thumbed a reply immediately “Hi Leslie. Happy to help. Free now if you would like to call. Bob“

Ring Ring

<Bob> Hello, Bob here.

<Leslie> Hi Bob. Thank you for responding so quickly. Can I describe the problem?

<Bob> Hi Leslie – Yes, please do.

<Leslie> OK. The essence of it is that I have discovered that our current method of cash-flow control is preventing improvements in safety, quality, delivery and paradoxically in productivity too. I have tried to talk to the Finance department and all I get back is “We have always done it this way. That is what we are taught. It works. The rules are not negotiable and the problem is not Finance“. I am at a loss what to do.

<Bob> OK. Do not worry. This is a common issue that every ISP discovers at some point. What led you to your conclusion that the current methods are creating a barrier to change?

<Leslie> Well, the penny dropped when I started using the modelling tools you have shown me. In particular when predicting the impact of process improvement-by-design changes on the financial performance of the system.

<Bob> OK. Can you be more specific?

<Leslie> Yes. The project was to design a new ambulatory diagnostic facility that will allow much more of the complex diagnostic work to be done on an outpatient basis. I followed the 6M Design approach and looked first at the physical space design. We needed that to brief the architect.

<Bob> OK. What did that show?

<Leslie> It showed that the physical layout had a very significant impact on the flow in the process and that by getting all the pieces arranged in the right order we could create a physical design that felt spacious without actually requiring a lot of space. We called it the “Tardis Effect“. The most marked impact was on the size of the waiting areas – they were really small compared with what we have now which are much bigger and yet still feel cramped and chaotic.

<Bob> OK. So how does that physical space design link to the finance question?

<Leslie> Well, the obvious links were that the new design would have a smaller physical foot-print and at the same time give a higher throughput. It will cost less to build and will generate more activity than if we just copied the old design into a shiny new building.

<Bob> OK. I am sure that the Capital Allocation Committee and the Revenue Generation Committee will have been pleased with that outcome. What was the barrier?

<Leslie> Yes, you are correct. They were delighted because it left more in the Capital Pot for other equally worthy projects. The problem was not capital it was revenue.

<Bob> You said that activity was predicted to increase. What was the problem?

<Leslie>Yes – sorry, I was not clear – it was not the increased activity that was the problem – it was how to price the activity and how to distribute the revenue generated. The Reference Cost Committee and Budget Allocation Committee were the problem.

<Bob> OK. What was the problem?

<Leslie> Well the estimates for the new operational budgets were basically the current budgets multiplied by the ratio of the future planned and historical actual activity. The rationale was that the major costs are people and consumables so the running costs should scale linearly with activity. They said the price should stay as it is now because the quality of the output is the same.

<Bob> OK. That does sound like a reasonable perspective. The variable costs will track with the activity if nothing else changes. Was it apportioning the overhead costs as part of the Reference Costing that was the problem?

<Leslie> No actually. We have not had that conversation yet. The problem was more fundamental. The problem is that the current budgets are wrong.

<Bob> Ah! That statement might come across as a bit of a challenge to the Finance Department. What was their reaction?

<Leslie> To para-phrase it was “We are just breaking even in the current financial year so the current budget must be correct. Please do not dabble in things that you clearly do not understand.”

<Bob> OK. You can see their point. How did you reply?

<Leslie> I tried to explain the concepts of the Cost-Of-The-Queue and how that cost was incurred by one part of the system with one budget but that the queue was created by a different part of the system with a different budget. I tried to explain that just because the budgets were 100% utilised does not mean that the budgets were optimal.

<Bob> How was that explanation received?

<Leslie> They did not seem to understand what I was getting at and kept saying “Inventory is an asset on the balance sheet. If profit is zero we must have planned our budgets perfectly. We cannot shift money between budgets within year if the budgets are already perfect. Any variation will average out. We have to stick to the financial plan and projections for the year. It works. The problem is not Finance – the problem is you.“

<Bob> OK. Have you described the Seventh Flow and put it in context?

<Leslie> Arrrgh! No! Of course! That is how I should have approached it. Budgets are Cash-Inventories and what we need is Cash-Flow to where and when it is needed and in just the right amount according to the Principle of Parsimonious Pull. Thank you. I knew you would ask the crunch question. That has given me a fresh perspective on it. I will have another go.

<Bob> Let know how you get on. I am curious to hear the next instalment of the story.

<Leslie> Will do. Bye for now.

Drrrrrrrr

Creating a productive and stable system design requires considering Seven Flows at the same time. The Seventh Flow is cash flow.

Cash is like energy – it is only doing useful work when it is flowing.

Energy is often described as two forms – potential energy and and kinetic energy. The ‘doing’ happens when one form is being converted from potential to kinetic. Cash in the budget is like potential energy – sitting there ready to do some business. Cash flow is like kinetic energy – it is the business.

The most versatile form of energy that we use is electrical energy. It is versatile because it can easily be converted into other forms – e.g. heat, light and movement. Since the late 1800’s our whole society has become highly dependent on electrical energy. But electrical energy is tricky to store and even now our battery technology is pretty feeble. So, if we want to store energy we use a different form – chemical energy. Gas, oil and coal – the fossil fuels – are all ancient stores of chemical energy that were originally derived from sunlight captured by vast carboniferous forests over millions of years. These carbon-rich fossil fuels are convenient to store near where they are needed, and when they are needed. But fossil fuels have a number of drawbacks: One is that they release their stored carbon when they are “burned”. Another is that they are not renewable. So, in the future we will need to develop better ways to capture, transport, use and store the energy from the Sun that will flow in glorious abundance for millions of years to come.

Plants discovered millions of years ago how to do this sunlight-to-chemical energy conversion and that biological legacy is built into every cell in every plant on the planet. Animals just do the reverse trick – they convert chemical-to-electrical. Every cell in every animal on the planet is a microscopic electrical generator that “burns” chemical fuel – carbohydrate. The other products are carbon dioxide and water. Plants use sunlight to recycle and store the carbon dioxide. It is a resilient and sustainable design.

Plants seemingly have it easy – the sunlight comes to them – they just sunbathe all day! The animals have to work a bit harder – they have to move about gathering their chemical fuel. Some animals just feed on plants, others feed on other animals, and we do a bit of both. This food-gathering is a more complicated affair – and it creates a problem. Animals need a constant supply of energy – so they have to carry a store of chemical fuel around with them. That store is heavy so it needs energy to move it about. Herbivors can be bigger and less intelligent because their food does not run away. Carnivors need to be more agile; both physically and mentally. A balance is required. A big enough fuel store but not too big. So, some animals have evolved additional strategies. Animals have become very good at not wasting energy – because the more that is wasted the more food that is needed and the greater the risk of getting eaten or getting too weak to catch the next meal.

To illustrate how amazing animals are at energy conservation we just need to look at an animal structure like the heart. The heart is there to pump blood around. Blood carries chemical nutrients and waste from one “department” of the body to another – just like ships, rail, roads and planes carry stuff around the world.

Blood is a sticky, viscous fluid that requires considerable energy to pump around the body and, because it is pumped continuously by the heart, even a small improvement in the energy efficiency of the circulation design has a big long-term cumulative effect. The flow of blood to any part of the body must match the requirements of that part. If the blood flow to your brain slows down for even few seconds the brain cannot work properly and you lose consciousness – it is called “fainting”.

If the flow of blood to the brain is stopped for just a few minutes then the brain cells actually die. That is called a “stroke”. Our brains use a lot of electrical energy to do their job and our brain cells do not have big stores of fuel – so they need constant re-supply. And our brains are electrically active all the time – even when we are sleeping.

Other parts of the body are similar. Muscles for instance. The difference is that the supply of blood that muscles need is very variable – it is low when resting and goes up with exercise. It has been estimated that the change in blood flow for a muscle can be 30 fold! That variation creates a design problem for the body because we need to maintain the blood flow to brain at all times but we only want blood to be flowing to the muscles in just the amount that they need, where they need it and when they need it. And we want to minimise the energy required to pump the blood at all times. How then is the total and differential allocation of blood flow decided and controlled? It is certainly not a conscious process.

The answer is that the brain and the muscles control their own flow. It is called autoregulation. They open the tap when needed and just as importantly they close the tap when not needed. It is called the Principle of Parsimonious Pull. The brain directs which muscles are active but it does not direct the blood supply that they need. They are left to do that themselves.

So, if we equate blood-flow and energy-flow to cash-flow then we arrive at a surprising conclusion. The optimal design, the most energy and cash efficient, is where the separate parts of the system continuously determine the energy/cash flow required for them to operate effectively. They control the supply. They autoregulate their cash-flow. They pull only what they need when they need it.

BUT

For this to work then every part of the system needs to have a collaborative and parsimonious pull-design philosophy – one that wastes as little energy and cash as possible. Minimum waste of energy requires careful design – it is called ergonomic design. Minimum waste of cash requires careful design – it is called economic design.

Many socioeconomic systems are fragmented and have parts that behave in a “greedy” manner and that compete with each other for resources. It is a dog-eat-dog design. They would use whatever resources they can get for fear of being starved. Greed is Good. Collaboration is Weak. In such a competitive situation a rigid-budget design is a requirement because it helps prevent one part selfishly and blindly destabilising the whole system for all. The problem is that this rigid financial design blocks change so it blocks improvement.

This means that greedy, competitive, selfish systems are unable to self-improve.

So, when the world changes too much and their survival depends on change then they risk becoming extinct just as the dinosaurs did.

Many will challenge this assertion by saying “But competition drives up performance“. Actually, it is not as simple as that. Competition will weed out the weakest who “die” and remove themselves from the equation – apparently increasing the average. What actually drives improvement is customer choice. Organisations that are able to self-improve will create higher-quality and lower-cost products and in a globally-connected-economy the customers will vote with their wallets. The greedy and selfish competition lags behind.

So, to ensure survival in a global economy the Seventh Flow cannot be rigidly restricted by annually allocated departmental budgets. It is a dinosaur design.

And there is no difference between public and private organisations. The laws of cash-flow physics are universal.

How then is the cash flow controlled?

The “trick” is to design a monitoring and feedback component into the system design. This is called the Sixth Flow – and it must be designed so that just the right amount of cash is pulled to the just the right places and at just the right time and for just as long as needed to maximise the revenue. The rest of the design – First Flow to Fifth Flow ensure the total amount of cash needed is a minimum. All Seven Flows are needed.

So the essential ingredient for financial stability and survival is Sixth and Seventh Flow Design capability. That skill has another name – it is called Value Stream Accounting which is a component of complex adaptive systems engineering (CASE).

What? Never heard of Value Stream Accounting?

Maybe that is just another Error of Omission?