Strategic Outsourcing a Lean Tool of Healthcare Supply Chain Management

Strategic outsourcing: a lean toolof healthcare supply chain

managementCristina Machado Guimaraes and Jose Crespo de Carvalho

Lisbon University Institute, Lisbon, Portugal

Abstract

Purpose – Considering lean thinking inside and beyond the organisation’s boundaries, in theextended supply chain, this paper aims to fill a literature gap clearly stating some outsourcingpractices as lean practices and establishing a deployment evolution parallel between both practices.

Design/methodology/approach – A literature review was carried out collecting cases of leandeployment in healthcare, from both scientific and grey literature. Cases were classified according tolean deployment taxonomy in healthcare settings, showing some differences in lean journey stages in15 countries.

Findings – There is an alignment between SCM thinking in healthcare and lean thinking that placesa SCM decision as outsourcing as a lean practice serving not only strategic intent but solvingoperational efficiency. There is a match between different outsourcing drivers (transactional, strategicand transformational) and lean maturity levels. The main constraint to deployment of both lean andoutsourcing practices are cultural differences.

Practical implications – Understanding lean and outsourcing different deployment maturity levelsunder the national cultural umbrella can open new perspectives to study lean sustainability factorsand better outsourcing relationships in healthcare organisations.

Originality/value – This paper presents a merger between the state-of-the art of both lean andoutsourcing practices in healthcare settings and suggests an outsourcing and lean evolving pathway.

Keywords Business improvement, Service design, Supplier or partner selection

Paper type General review

1. IntroductionA key strategic issue of both outsourcing and lean adoption is whether an organisationcan achieve a sustainable competitive advantage on an ongoing basis (McIvor, 2000;O’Shannassy, 2008), which implies continuously delivering value to the customer( Jørgensen et al., 2007).

The scope of lean implementation is not restricted to the boundaries of the company,but to the entire value chain, and thus to the extended supply chain (Cudney and Elrod,2011; Womack et al., 1990). However, several misconceptions surround leandeployment such as considering it a downsizing method, completed or not byoutsourcing decisions. Some studies (e.g. Cudney and Elrod, 2011) reveal the necessityof outsourcing adopters (including healthcare services) and extend their lean practicesto their suppliers in an attempt to align cultures. But was their outsourcing decision alean practice in the first place? Apart from eliminating redundant work or findingknowledge specialisation, outsourcing presents several more benefits and continues todrive organisations from vertical to virtual integration (Bowersox et al., 2000). Someclaim that through outsourcing at a strategic level, a company can do “more with less”(Insinga and Werle, 2000). Others posit that by outsourcing activities and processes,

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Strategic Outsourcing: AnInternational JournalVol. 6 No. 2, 2013pp. 138-166q Emerald Group Publishing Limited1753-8297DOI 10.1108/SO-11-2011-0035

organisations’ supply chains become more flexible, lean and agile, and deliver bettervalue to the customer (Mohammed et al., 2008).

However, the linkage between outsourcing and lean literature has not been madeclearly. This paper aims to fill that gap, clearly stating some outsourcing practices aslean practices and establishing a deployment evolution parallel between both practices.

Some lean thinking literature misjudges supply chain many constraints, in terms ofvalue appropriation, as a result of the different power structures that are visible whenmapping the value chain (Cox, 1999). By misperceiving the causal factors of successfulappropriation of the value that lies in the hierarchical distribution of power in a supplychain, panacea decisions can reveal themselves to be disastrous. However, it is crucialto understand whether each decision serves only operational efficiency or a realstrategy, even knowing that all strategies will collapse, over time, into operationalefficiency (Porter, 1996; Prasad, 2010). Considered by some to be a mega-trend insupply chain management (SCM) decisions (Bowersox et al., 2000), outsourcingevidence in the healthcare sector shows some differences and similarities amongdifferent countries with different healthcare systems (Guimaraes and Carvalho, 2011).Those differences are grounded, as we posit in this paper, on cultural aspects.

This paper presents a merger between outsourcing practices in the healthcare sector(Guimaraes and Carvalho, 2011) and lean deployment in healthcare sector. Moreover, itsets out to argue the following key points:

. only some outsourcing drivers fit into the lean concept, and therefore only somekinds of outsourcing can be a lean tool;

. outsourcing and lean, in healthcare settings, have both “hard” and “soft” sidesrelated to short- or to long-term orientation and depth of scope;

. the lean journey is a state of mind construction that starts with practices, and sois the outsourcing journey in the evolution of the relationship; and

. common lean and outsourcing drivers are related to cultural dimensions thatdistinguish the different maturity deployment stages of different nationalcultures.

The common elements of lean deployment and outsourcing practices are enhancedconsidering the usual context of both phenomena – i.e. organisational change. Thispaper is aligned with the view that short-term wins encourages change process, butwhat make change “stick”, in the long-term, is to pursue in daily basis the new sharedvalues, rooting behaviour to a culture building (Kotter and Cohen, 2002). Therefore, theculture construction is explained throughout Lean and outsourcing common culturalelements and illustrated by the state-of-the art of both practices in Healthcare settings.

2. Outsourcing as a strategic lean tool2.1 A strategic decision in supply chain managementDefinitions of supply chain management (SCM) in the literature appear mostly with astrategic frame, such as that in Mentzer et al. (2001):

. . . the systemic, strategic coordination of the traditional business functions within aparticular company and across businesses within the supply chain, for the purposes ofimprovement the long-term performance of the individual companies and the supply chain asa whole.

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In fact, and as postulated by Christopher (1997), the competition is not betweencompanies but between supply chains. Thus, organisations’ core capabilities lie in theirability to design and manage their supply chains in order to have maximum advantagein a continuously changing market (Marcus, 2010). This ability, or supply chainmanagement thinking, implies that supply chain design and management should beconsidered key strategic issues for obtaining competitive advantage.

As strategy emerges from a decision process (Eisenhardt, 1999), the result of thestrategic evaluation of “make or buy” (Ohmae, 1982) is often to transfer activities (alongwith related resource management decisions) to third parties, i.e. outsourcing (Greaver,1999). Outsourcing also refers to activities not previously performed in-house and itdiffers from subcontracting and contracting-out by having the premises of long-termrelationships and the obligation of not only means but also results (Kakabadse andKakabadse, 2003). The starting point for analysis is the disaggregation of the value chaininto pieces subject to allocation geographically (offshoring) and organisationally(outsourcing) (Contractor et al., 2010). This exercise requires a process-oriented view(Davenport and Beers, 1995; Hammer, 2007; Kohlbacher, 2010).

Outsourcing has become a multifaceted phenomenon with a broader set of issues(i.e. motivation, scope, performance, decision making, contract, and more recently,partnership) that map the evolution of outsourcing research (Lee et al., 2000), setting awide spectrum of relationships (Ballou, 2003, p. 716; Franceschini and Galetto, 2003;Sanders et al., 2007). From reviewing the literature on the conceptual background tooutsourcing and on outsourcing practices, we identified a paradigm shift (a completelydifferent mental framework for interpreting facts; Kuhn, 1970) from the classicaloutsourcing paradigm to a new outsourcing paradigm. Kakabadse and Kakabadse (2000)claim that this shift is due to the “Westernisation of the Japanese kieretsu model”, whichemphasises the flexibility of “lean and mean” structures focused on “core competencies”,leading to doing “more with less”. Each of the three different paradigms is supported by atheoretical support from transaction-cost analysis (TCA; Williamson, 1979) and agencytheory (AT; Eisenhardt, 1989), to the resource-based view (RBV; Prahalad and Hamel,1990). The RBV is in fact a knowledge- based view (KBV), especially when related to theoutsourcing of services. More recently, the transformational view (Linder, 2004a-c) hasplaced outsourcing as a strategic SCM tool, allowing the redesign of the organisationvalue creation process and also, sometimes, its mission (Schneller and Smeltzer, 2006).This change of mindset regarding outsourcing theory and practices is shown in Table I.

Despite each of these three paradigms’ relation to the specific decade of first visiblepractices, all three are coexistent nowadays, disclosing the type of mindset of eachoutsourcing organisation.

Outsourcing decisions, if only taken at the operational, level can lead todependencies that create strategic vulnerabilities (Insinga and Werle, 2000). On theother hand, at a strategic level, outsourcing can present a solution for doing more withless. Focusing on essential activities, there is the danger of losing strategic intent whenthe following are not assured at the operational level:

. alignment with business strategy;

. clarification of core capabilities and competences;

. identification of strategic gaps; and

. recognition of significant dependencies and vulnerabilities.

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This strategic intent means more than the fit between resources and currentopportunities; it seeks the misfit between resources and long-term ambitions (Hameland Prahalad, 1989). Likewise, the outsourcing decision, when serving strategicintents, brings broader results at the organisational performance level, instead of onlypursuing the tactical and punctual purposes of cost reduction (Willcocks et al., 1995;DiRomualdo and Gurbaxani, 1989).

There are yet other reasons for outsourcing that cannot be called strategic but canbe called “isomorphism” within an economic sector (DiMaggio and Powell, 1983).According to DiMaggio and Powell (1983), this isomorphism can assume threedifferent aspects:

(1) a coercive isomorphism, when driven by government stipulations such as aprivatisation program;

(2) a mimetic isomorphism, where a set of changes in environmental factorsprovokes a standard response; and

(3) a normative isomorphism, when members of a sector look at outsourcing as thestrategy to pursue.

This isomorphism can serve institutional legitimacy purposes (Martin and Bourgeois,2007) in a sort of bandwagon attitude. However, and according to Hannan andFreeman (1984), following the leader without any efficiency concerns in ongoingoutsourcing practices shows organisational inertia.

Hence, not all outsourcing arrangements can be called strategic relationships. InSanders et al.’s (2007) study in manufacturing and services settings, outsourcingrelationships can be classified according to the scope of the activities (fromout-tasking to full outsourcing) and criticality (from tactical to strategic) spectra.Thus, non-strategic transactions encompass low criticality tasks with limited scope,usually commodities with higher levels of standardisation; contractual relationshipsrefer not to tasks but activities and processes and reflect the need for greatersupplier control and dependency even for low criticality activities; partnerships nowinclude critical tasks in a narrow scope but involving a great deal of trust; andfinally, alliances are the most comprehensive outsourcing relationship, entailinghigh levels of criticality and scope involving high commitment, trust, risk andinvestment in resources and relationship management. Throughout a two-yearstudy, Johnston and Staughton (2009) defined strategic relationships as long-termcommitments of mutual co-operation, shared risks and benefits with much greaterparity and power sharing between the parties as opposed to transactionalrelationships.

Analysing the different outsourcing drivers, the kinds of activities and outsourcingagreements, one can find the evolution of the paradigm shift that led to bettersatisfaction with outcomes when the strategic intent matches the adopted practice. It isaccepted that successful business strategies result mainly from a sharedunderstanding of a particular state of mind (Ohmae, 1982).

However, a strategy’s outcomes are influenced by several constraints that aretypical of a sector or even a nation. In a thorough literature review of outsourcingpractices in the healthcare sector in different countries, Guimaraes and Carvalho (2011)present a full perspective considering the following dimensions:

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. decision rationale constraints and drivers;

. risk/benefit assessment for clinical and non-clinical activities; and

. the particular national health system context.

In this cross-national outsourcing assessment it became clear that healthcareorganisations outsource for the same reasons as in other sectors (Quinn and Hilmer,1994), mostly in an organisational change context. Healthcare has been considered alow-volatility sector (Goepfert, 2002) but one that also has riotous periods as a result ofalterations in regulations, more informed and demanding patients, and broadernetworking for a bigger care offer range. In the literature on healthcare outsourcingreviewed, the most cited outsourcing drivers were:

. cost reduction;

. risk mitigation; and

. rapid change without compromising internal resources (value mapping andvalue chain reconstruction) (Roberts, 2001).

Cost reduction expectations may not be achieved due to insufficient evaluation ofindirect costs (procurement, transition, bad contracts and monitoring) and socialcosts (low morale, low productivity and high turnover) (Kremic et al., 2006).Outsourcing is also part of a volume flexibility strategy (such as in largerorganisations like academic medical hospitals) trying to respond to demandfluctuation, increasing care complexity, and to the linkage between clinicalperformance and act volume (Jack and Powers, 2006). In fact, according to someauthors (Atun, 2006; Campos, 2004), in some European countries that are morepolitically reluctant to privatise (the UK, Sweden, Spain and Portugal) outsourcingof clinical services was a response to waiting lists. Through contracting agreementswith public and private providers (including public-private partnerships; PPPs),healthcare systems looked for access, quality, equity and efficiency advantages(Abramson, 2001; Liu et al., 2004). Apart from financial, technological, strategic andpolitical drivers, organisational and national culture were identified as influencingfactors. Hence, a well-designed strategy has to consider the organisational andnational culture contexts as deployment constraints.

2.2 Outsourcing and lean drivers in healthcare settingsThere is an alignment between SCM thinking, “a way of thinking that is devoted todiscovering tools and techniques that provide for increased operational effectivenessand efficiency throughout the delivery channels that must be created internally andexternally to support and supply existing corporate product and service offerings tocustomer”, and lean thinking, illustrated by Toyota’s way of managing relationshipswith customers and suppliers (Cox, 1999). Cox (1999) underlines the literature streamon strategic SCM through collaborative and co-opetitive relationships cohesivenesswith eight defining characteristics of the lean paradigm understood not only in termsof operational lean production and supply efficiency, but also as a different way ofthinking about business strategy. In fact, it is clear in the literature that one of Toyota’skey strategic decisions, the “make or buy” decision, is a SCM one (Ohmae, 1982; Cox,1999; Womack et al., 1990, Liker, 2004).


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Thus, when taking a broader view, “leanness” can be conceptualised in terms of aquest for structural flexibility involving restructuring and outsourcing (Womack andJones, 2003; Green and May, 2005). If, from one perspective, outsourcing serves the leanpurpose of doing more with less, meaning fewer fixed costs and fewer ownedresources, on the other hand, through outsourcing it is possible to obtain the flexibilitya lean organisation requires (Milgate, 2001). The author lists six major building blocksof a lean organisation:

(1) core competences;

(2) strategic outsourcing;

(3) strategic alliances and partnerships (sorts of outsourcing according to Sanderset al., 2007);

(4) new management disciplines;

(5) partnership culture; and

(6) technological enablers.

Similarly, other authors (Emiliani, 2004; Maleyeff, 2006, among others), discussing leanpractices in a services setting, identified outsourcing, technology initiatives andcross-functional collaboration with a perfect flow of information, as key methods toreduce cost and improve efficiency. Illustrating how to pursue lean publicadministration in the healthcare sector, Milgate (2001) presents an Australian caseof a regional hospital outsourcing project. It is suggested, in this reported case, thathaving as an initial driver accomplishing the 1994 government privatisationencouragement program, the outsourcing solution assured real added value tocustomers (both internal and external). The objectives of seamless integration ofservices, the delivery of high-quality health services, cost reduction, risk mitigationand positive externalities by encouraging health education and training were achievedand patients could choose between public or private services. In terms of added valueto the final customer, the first sceptical reactions were softened by the success of thisproject. Nevertheless, the author stresses that this success took five years of operation.

In a similar context of lack of public funds, static revenues, accumulated debt andthe need to take weight off public providers in the economy, different healthcaresystems, having more or less public weight, looked for lean solutions, sometimesthrough outsourcing. However, from some cross-national health system studies (Elling,1980a, b; McPake and Mills, 2000, Guimaraes and Carvalho, 2011, among others) onecommon conclusion is that context differences are crucial to understanding theadvantages and risks of outsourcing in each healthcare system framework.

There is, indeed, a growing pressure on public health services to increase theirefficiency by adopting concepts and methodologies more commonly associated withprivate enterprise, whether it can be called “reengineering” by some (e.g. Champy andGreenspun, 2010) or “lean management” by others (e.g. Radnor et al., 2011).

In 2003, Womack and Jones (2003, p. 289) introduced the application of lean thinkingin medical services, establishing the difference of putting the patient in the foregroundand flowing him through the system, in contrast to leaving him in the backgroundfacing a “forest too full of trees”. Some authors advocate lean practices in healthcareservices to eliminate delays, and to reduce length of stay, repeated encounters, errorsand inappropriate procedures (Fillingham, 2007; Kollberg et al., 2007; Manos et al.,

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2006). Presented as an antidote to muda (waste), converting muda into value, “leanthinking”, coined by Womack et al. (1990), stands as a five-principle improvementphilosophy:

(1) specify value;

(2) identify the value stream;

(3) make the value-creating steps for specific products flow continuously;

(4) let customers pull value from the enterprise; and

(5) pursue perfection.

Waste is defined as any element of a process that adds time, effort or cost but no valueand, in healthcare settings it can assume different forms: over-production of diagnosistests (so-called “defensive medicine”), transportation (patients, equipment, etc),inventory (clinical and non-clinical supplies) and work in progress (tests waitingdistribution), processing (excessive documentation), waiting (patients being patient),correction/defects (prescription errors, incorrect information, incorrect diagnosis) andmotion (looking for missing patient information, sharing medical equipment/tools).Attempts to reduce these wastes are described in the literature with several examples.

In his literature review, Brandao de Souza (2009) presents a taxonomy to classify theexisting published work on lean in healthcare settings. The following classificationgiven by the author to the empirical cases reported presents an evolution in the scopeof the deployment of lean:

. Managerial and support – addresses cases describing lean approaches insupport services as administrative departments, usually with a single tool (5S) asdepartment or room-tidying programs.

. Manufacturing-like – classifies those cases where there is the use ofmanufacturing techniques (single tool of set as 5S, value stream mapping,poka-yoke devices and visual control) on material management and materiallogistics, which thus cannot be called complete lean applications because they donot including the patient pathway management, the core activities.

. Patient flow – those cases of the elimination of unnecessary steps bystreamlining the patient pathway, usually leading outcomes such as reducing thelength of stay (LOS) and waiting lists as well as quality results for the realpresence of flow and pull concepts.

. Tools like 5S are used in the standardisation of healthcare practices. An iconiccase is the patient safety alert system ( jidoka) in the Virginia Mason MedicalCentre (USA) (Furman, 2005).

. “Organisational” classifies cases such as the Theda Care Impovement System(TIS) (American; Miller, 2005) and the Victoria Mason Production System(VMPS) and Flinders Medical Centre (Australian) (Weber, 2006; Kaplan andPatterson, 2008; Ben-Tovim et al., 2007), reported as having an organisationallean approach. The Bolton Improving Care System (BICS) in the UK (Fillingham,2007) also shows a broader perspective with the extension of lean to the sector,and describes the lean journey starting with the managerial and support case,passing to the manufacturing-like and then patient flow, to becomeorganisational for reporting lean deployment as the result of a strategic plan,


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thus covering the whole organisation. On the other hand, it would be misleadingto classify the case of Pittsburgh Health System’s (Grunden, 2008) good resultsas full lean deployment, according to Brandao de Souza’s (2009) classification.

If one emblematic case can serve as a reference to lean deployment in the samehealthcare national system, apparently it is not enough to define a trend or apredominant lean scope. It seems important to examine the accuracy of some authors’statements that in terms of application worldwide, “Healthcare organisations are at astage equivalent to the late 1980s and early 1990s in automotive manufacturing”(Radnor et al., 2011). The pathway described by Hines et al. (2004) clearly suggests anevolution from shop-floor based tools to a process view, and finally a holisticunderstanding of inter-organisation pathways. Hence, a systematic search in electronicdatabases (ABI/Inform, B-On, PubMed) was conducted with the purpose of gatheringinformation and examples from both the scientific and grey literatures (Farace, 1998)that could show a full picture of lean practices in healthcare. We have excluded articlesconcerning hybrid approaches (such as “lean Six Sigma”) and included all articles thatreported successful or unsuccessful deployments of lean in healthcare organisations, inpeer-reviewed and grey publications using the keywords “lean thinking”, “leanhealthcare”, “Toyota Production System” and “lean services”. A cross-reference searchencompassing the eligible first selection was carried out. Cases were classifiedaccording to Brandao de Sousa’s (2009) taxonomy showing some differences in leanjourney stages in 15 countries, as presented in Table II.

Relating lean maturity levels (LMLs) with outsourcing drivers (ODs) described insection 2.1, it is possible to establish a relation with the main drivers of transactional,strategic and transformational outsourcing and the above cases of lean outcomesregarding each lean maturity stage (Figure 1).

The diagonal darker shade in Figure 1 suggests that transactional ODs seem to bemore related to earlier stages of lean deployment, strategic ODs with the three laststages, and transformational ODs with full lean deployment or the last stages of leandeployment. In fact when analysing lean case outcomes in healthcare settings (Table II)these relations are notorious. Also, the criticality of each kind of activity outsourced,from ancillary activities (non-clinical) to activities closer to the patient (clinical), can bematched with the lean scope of each “intensity” level. Nevertheless, one possibleexercise is to consider an organisation at the beginning of the lean journey, recurring tooutsourcing as a result of a VSM evaluation and have a different outsourcingarrangement (transactional, strategic or transformational) for each activity in scopeand criticality, and conduct lean auditing of internal and outsourced activities. If leandeployment stays at a “tool and techniques” level, the hard level, it might be improvingtime or costs, for example, but it can be still far from presenting a better valueproposition. Likewise, if outsourcing presents itself as a shopping practice, as a “mustdo” because of a lack in resources, it will not bring real long-term benefits in terms ofthe value proposition.

3. Outsourcing and the hard and soft sides of lean in healthcare settingsAs reflected in (not so many) reported unsuccessful cases, the starting point of in-depthevaluation of an organisation’s value chain, common to lean deployment and outsourcingdecision-making (Contractor et al., 2010) is not per se the main success factor, although it

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0)D

eck

eran

dS

tead

(200

8),E

sain

etal.

(200

5),

Ku

llar

etal.

(200

9)B

urg

ess

etal.

(200

9),

Pap

adop

oulo

set

al.

(201

1),

Bra

nd

aod

eS

ouza

and

Pid

d(2

011)

,P

apad

opou

los

and

Mer

ali

(200

8),

Esa

inet

al.

(200

5),

Rad

nor

etal.

(201

1),

Esa

inet

al.

(200

8),

Rad

nor

and

Hol

weg

(201

0),

War

ing

and

Bis

hop

(201

0),

Bu

rges

san

dR

adn

or(2

010)

,R

adn

oran

dW

alle

y(2

008)

,L

odg

ean

dB

amfo

rd(2

007)

Th

eN

eth

erla

nd

sv

anV

liet

etal.

(201

0)S

wed

enS

etij

ono

etal.

(201

0)K

ollb

erg

and

Dah

lgaa

rd(2

007)

,Ja

cob

sson

and

Ah

lstr

om(2

010)

,M

azzo

cato

etal.

(201

0),

Tra

gar

dh

and

Lin

db

erg

(200

4)

Lin

dsk

ogan

dN

ilss

on(2

010)

Ger

man

yS

har

ma

etal.

(200

7)F

ran

ceB

alle

and

Reg

nie

r(2

007)

Sp

ain

Cor

rea

etal.

(200

5)It

aly

Por

tiol

i-S

tau

dac

her

(200

8)D

enm

ark

Nie

lsen

and

Ed

war

ds

(201

0),

Lau

rsen

etal.

(200

3)A

ust

rali

aB

en-T

ovim

etal.

(200

7,20

08a,

b),

Kin

get

al.

(200

6)S

riL

ank

aW

ith

anac

hch

iet

al.

(200

7)Ir

anR

ahim

nia

and

Mog

had

asia

n(2

010)

Bra

zil

Ara

ujo

etal.

(200

8)

Table II.Lean healthcare cases

literature taxonomyclassification


147

is the one to which both academics and practitioners have given more attention. Somelean applications to services are claimed to be “lean service”, but are just applications ofLean production to materials processing tasks in service companies. Moreover, pursuinglean principles as standardisation might seem paradoxical in service settings due to thevariability introduced into operations by customers (Kosuge et al., 2010). As reported inthe literature, healthcare organisations started the “lean journey” by the application of aset of specific tools and techniques with prominence to VSM, and “kaizen blitz” or “rapidimprovement events” (RIEs) (Radnor et al., 2011). In Virginia Mason’s case (Spear, 2005),the results if RIEsare described as “dramatic improvements in quality, customersatisfaction, staff satisfaction and profitability”. On the other hand, Radnor and Walley(2008) point out the difficulty of sustaining quick RIE wins that are not integrated intothe overall strategic objectives of the organisation. When they are part of the strategyimprovement program, RIEs themselves can be a powerful means to both engage andmotivate the workforce and allow a number of small changes to occur, producing a sortof a butterfly effect. Organisations often run a series of RIEs and call them “lean” or“process improvements”, whereas in reality it is just kaizen (continuous improvement).According to Barraza et al. (2009), in continuous improvement (kaizen) events the lengthof implementation varies according to the extension of activities. In healthcare settings,Proudlove et al. (2008), suggest that medium-/long-term achievements in leanimplementations are due to:

. standardisation training;

. measuring employers’ engagement with the company and with the customer;

. monitoring results; and

Figure 1.Outsourcing drivers (OD)versus lean maturitylevels (LML) in healthcare

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. management commitment and ownership to maintain and improve gains andalso to learn from external support how to develop internal mechanisms tosustain improvement.

Having longer (based on the traditional Japanese quality management system) orshorter dimensions, continuous improvement events are part of a journey to a leanenterprise as lean-kaizen events (Manos, 2007). Hines (2010), among others, posits thatpure and simple tool deployment to achieve quick wins lead to short-term lean resultsand often a return to “the comfort zone”, whilst systematic lean approaches of culturechanges show long-term results. Using the iceberg metaphor, the author shows thatsustainability does not come from working only the visible part of the iceberg(technology, tools and techniques and process management), but mostly work belowthe waterline with much bigger and real sustainability keys such as:

. strategy and alignment;

. leadership; and

. behaviour and engagement.

The lean literature’s focus shifting from “how to go lean” to “how to stay lean”(Hines, 2010; Lucey et al., 2005) suggests that once the technical part of leandeployment is solved it is necessary to understand lean sustainability factors. Themain reason pointed out in the literature for the failure of lean programs is theabsence of work on the soft side, the relational aspects of lean deployment such ascommunication and the leadership that is essential for building a lean culture(Brandao de Souza and Pidd, 2011; Hines et al., 2008). Working the soft sideachieves people’s involvement through mutual respect and team work (Badurdeenet al., 2011). Others address the lean maturity and sustainability issue through theedification of a proactive lean culture expanded outside the organisation’sboundaries in real lean inter-organisational network building ( Jørgensen et al.,2007). Forrester (1995) links the sustainability of Lean deployment to humanelements and advises consideration of elements such as:

. organisational style and structure (a people-centred process, with involved,motivated and accountable teams and leader empowerment, and a flat structurefocused on processes not hierarchies);

. staff selection (based on management and leadership skills, and giving clear andindividual performance targets); and

. training (solving problems and other individual continuous developmentprograms).

Womack and Jones (1996) point out the importance of lean principles when “all interactwith one another in a virtuous circle”, as the goal is not playing individual notes but atune.

This view is consistent with the relational sustainability factors of a strategicoutsourcing relationship (Dyer and Singh, 1998; Luvison, 2010). Luvison (2010) positsthat outsourcing requires the collaborative styles necessary to develop trust andcommitment and the replacement of operational behaviours by boundary spanningbehaviours. In a simplified statement, outsourcing management has two sides:


149

(1) the hard side, referring to the contract; and

(2) the soft side, referring to trust and a partnership philosophy (Barthelemy, 2003;Shepherd, 1999).

Addressing the objective/hard and subjective/soft factors in transactions, Butter andLinse (2008) distinguish between internal soft factors (the effects of decisions onexisting jobs, reputation, and corporate culture and risk aversion) and external softfactors (cultural differences, political and economic differences and environment).

In healthcare settings, where people are the key to every process, the changeissue takes on a special relevance. From analysing the literature on bothoutsourcing and lean in healthcare settings, the existence of a pathway of change isclear in outsourcing as in lean deployment, first through a tool and techniqueexperiments in several healthcare systems, with a sort of trial and error executionand evolving, in time, to the creation of a mindset where the real benefits of changeare more visible. Referring to Brandao de Souza’s (2009) lean healthcare casestaxonomy and Sanders et al.’ s (2007) outsourcing relationships classification, it ispossible to define an outsourcing and lean pathway evolution considering the scopeof phenomena and the hard and soft factors described in this section (see Figure 2).Following the arrow, the lean journey is very similar to the evolution of theoutsourcing relationship, starting on the hard side with a broad scope (severalsuppliers and ancillary services transactions), and going through a paradigm shiftof the crescent importance of the soft side.

4. The construction of a lean cultureAs stated by Atkinson (2010), “‘lean’ is a cultural issue”. The lean philosophy impliestransformations not only in processes and tools but in people and organisationalculture (Bhasin and Burcher, 2006). However, most of the literature on lean servicesdoes not properly cover “people aspects” and behaviour issues in organisations, eventhough they are crucial to lean implementation success. As Spear (2005) concludes:

Figure 2.Outsourcing and leanevolving pathway

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. . . in health care, no organisation has fully institutionalised to Toyota’s level the ability todesign work as experiments, improve work through experiments, share the resultingknowledge through collaborative experimentation, and develop people as experimentalists.

In spite of this disappointing conclusion regarding lean deployment in healthcare, it ispossible to identify in several countries a deeper extension of lean deployment inhealthcare organisations and evidence of a lean organisational culture. Leandeployment cases in the UK, USA and, with less expression, in Australia, prove thatthe lean journey in these countries achieved a higher lever, i.e. the edification of a leanculture. In fact, the cultural context can explain differences in the maturity levels oflean deployment in healthcare settings.

In order to understand the lean cultural process, some background concepts need tobe visited. Culture, “the collective programming of the mind which distinguishes themembers of one human group from another” (Hofstede, 1980, p. 25), manifests itself inmany ways, such as symbols, heroes, rituals (also labelled as “practices”) and values(Hofstede, 1998) and can be defined at four main levels:

(1) society;

(2) organisational;

(3) small group; and

(4) professional (Hofstede, 2000).

While national cultures differ mostly at the level of values, organisational culturesdiffer at the level of practices, i.e. symbols, heroes and rituals (Hofstede, 1998; Hofstedeet al., 2010, p. 347). This statement apparently contradicts some management literaturethat presents organisational culture as a matter of values (Peters and Waterman, 1982).Hofstede’s (1998) position is that within an organisation, members’ values dependprimarily on broader levels of culture such as gender, nationality, class and education,and through the socialisation process they learn the organisational practices.

Within the organisational level, the culture change issue can be seen in two oppositeways, i.e. one that takes the position that change should start at the less visible andtacit part, with assumptions and then values, until it is visibly manifested in artefactsand practices; and the other holding that first the most visible part should be changed,and through new practices and the repetition of behaviour, the culture graduallychanges. This last view is defended by practitioners in the lean literature, and also byacademics like Schein (2009). Schein himself describes culture as “the pattern of basicassumptions that a given group has invented”, discovered or developed in learning tocope with its problems of external adaptation and internal integration and that haveworked well enough to be considered valid, and, therefore, to be taught to newmembers as the correct way to perceive, think, and feel in relation to those problems”.

Examining the culture building process as described by Schein (1992, 2009) andShook (2010), lean culture construction in healthcare settings appears to have itsstarting point in “hard” deployment, using tools and techniques in less core activitiesand evolving to the activities ones, to the patient path, until the daily practices takeover the whole organisation. Contrary to this view of culture as consequence, theculture construction in the “system view” defends a dynamic top-down/bottom-upprocess across all levels of culture (i.e. global, national, organisational, group, andindividual) placing culture as a cause (Leung et al., 2005). In Hofstede et al.’s (2010)


151

work, several national cultural dimensions were studied as causes of organisationalpractices. The authors claim that although culture is a soft characteristic, changing itrequires hard measures (Hofstede et al., 2010, p. 375). Hence, considering culture asboth a cause and consequence, if in one perspective outsourcing practices contribute tothe edification of a lean enterprise, on the other hand, when only working on softaspects it will be possible to create a real lean culture in a sustainable way.

Through a thorough assessment of lean literature in healthcare settings it ispossible to identify those national cultural characteristics that are linked to thematurity stage of lean deployment:

. “collectivism” can be related to the flow concept;

. “masculinity” can be related to willingness to change;

. “power distance” can be related to empowerment;

. “uncertainty avoidance” can be related to problem solving; and

. “long-term orientation” can be related to sustainability.

These Lean concepts, that are above all lean success factors, as explained in thepreceding sections, are in fact common to outsourcing success factors. Hence, it ispossible to admit national cultural constraints in outsourcing cases in healthcaresettings in different countries (Guimaraes and Carvalho, 2011). This will be addressedin the following section.

5. Merging national mindsetsIn line with Hofstede et al.’s (2010) view that culture changes very slowly, culture hasbeen treated in the literature as a relatively stable characteristic, reflecting a sharedknowledge structure, values, behavioural norms and patterns. Hence, it seems suitableto address cultural elements to identify some deployment patterns over a large daterange in lean and outsourcing deployment in healthcare.

A common mindset can be identified in successful lean and outsourcing practices inthe healthcare sector (Guimaraes and Carvalho, 2011), and that is long-term orientation.The 14 lean management principles outlined by Liker (2004) underline basingmanagement decisions on long-term philosophy. Hines et al. (2008) suggest thatgenerally lean systems take between three and five years to develop, and between fiveand seven years to implement.

The importance of a long-term view is not only claimed for strategic planning, butalso for implementation. As outlined in the outsourcing literature, evolving from atactical to a strategic level means thinking and building relationships on a long-termbasis, as only a long history of interacting allows higher levels of trust to emerge (Dyerand Chu, 2000). The significance of “trust” in relationships is either claimed inside oroutside organisations’ boundaries. Taking the Japanese management style, trust is thebasis of supplier-purchaser partnerships, whether the supplier is an affiliated company– kankei-gaisha (bellowing to keiretsu) – or an independent company –dokuritsu-gaisha – enabled by a long-term perspective (Dyer and Ouchi, 1993). Dyerand Chu’s (2000) study of the determinants of trust in supplier automaker relationshipsin the USA, Japan and South Korea found that the social embeddedness perspective isonly important in Japan, while the process-based perspective has importance in the

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three countries studied. Thus, the sociological determinant of trust appears as aJapanese cultural mark.

In terms of the cultural dimension “long-term orientation”, persistency in hardaspects and strong relationships seem, according to the literature, to lead to successfulapproaches.

Analysing the results of the review by Guimaraes and Carvalho (2011), and themcomparing to this review’s results, is possible to find some distinctive lean marks inoutsourcing practices in the healthcare sector in Germany (GER), Australia and NewZealand (AUL), the USA and the UK (GBR) (leaving Greek results out of this merger forlack of lean cases). Taking these four countries, some results that are common to bothlean and outsourcing reviews can be summarised. For instance, in German cases costdrivers are more clearly stated, while in other countries the same driver appears as agiven. Lean purposes are more clearly stated in British cases, with frequent use ofterms such as “standardisation”, “flexibility” and “lean thinking”. Australian and NewZealand cases follow a British path, although many fewer cases show an earlier stage.Conversely, in the USA countless cases of either outsourcing or lean show an emphasison outsourcing contract management and manufacturing-like predominance in leancases, in spite of some iconic cases of full lean organisational deployment. It waspossible to match outsourcing cases with lean cases and place their nationalities in aclassification chart, as presented in Figure 3.

6. Discussion and conclusionsThis paper presents a merger between outsourcing practices and Lean deployment inthe healthcare sector. All relevant literature on both topics was thoroughly analysedwith special emphasis on the dimensions of outsourcing and lean drivers, outcomescope, and the soft and hard deployment aspects. The growing pressure on thehealthcare sector has forced the adoption of new process improvement methodologiesand a change in the supply chain management decisions paradigm. One of the majordecisions is “make-or-buy”, which, when looked at at a strategic level, has its startingpoint in the value chain analysis, just as in lean thinking. To summarise, outsourcingserves lean thinking, as it is a strategic decision to improve performance in the value

Figure 3.Outsourcing and lean

state-of-the art merger


153

chain by focusing on what the organisation does best and omitting redundant activitiesor activities that require less expertise to experts in that area. Hence, throughoutsourcing, an organisation gains flexibility and ability to be more nimble andcompetitively adaptive, and thus leaner. It is clear from the reported healthcare casesthat some outsourcing benefits, such as flexibility, access to world-class expertise, costreduction and a focus on core activities serve lean organisations in terms of reducingwaste (muda), and by reducing non-value adding activities, variability (mura) and poorwork conditions (muri ).

However, outsourcing cannot always be classified as a lean option, as it is sometimesmore of a downsizing option, a transaction option or even a mimetic practice in a sort of asector bandwagon. When looking at the drivers of each outsourcing paradigm, not alloutsourcing drivers seem to fit lean thinking perfectly. In this paper, we found aspectrum of crescent strategic intent and relationship intensity when moving from atransactional outsourcing paradigm to strategic and transformational paradigms withcorrespondence of drivers and the benefits of a crescent lean deployment maturity. Infact, healthcare organisations in the early stages of lean have the same quick-winpurposes with a bigger visibility in decreasing costs as in transactional outsourcing. Itwas also possible to identify national patterns where the matching of outsourcing driverswith lean maturity levels is almost perfect. By reviewing the reported cases in healthcaresettings, an evolution pattern in outsourcing and lean deployment from a narrow to abroader scope, from short-term to long-term benefits, is visible in a trial-and-errorlearning process. In this “losing weight” program, the risk of becoming anorexic is thesame of losing critical competences when outsourcing on a large scale.

Another important factor is the importance of hard and soft domains whenpursuing both lean and outsourcing organisational change processes. The success ofboth outsourcing and lean is associated not only with a thoroughly planed andimplemented strategy, but mostly with the people involved in the planning andimplementation. Hard aspects are tied to soft aspects of the strategy implementation. Infact, real lean is made up of two key principles:

(1) continuous improvement, reflecting the hard side of the deployment of tools andtechniques; and

(2) “respect for people”, reflecting the soft side that enables lean sustainability.

When exploring the soft side it becomes evident that outsourcing and lean outcomesare a result of cultural factors that influence people’s decisions and deployment. Inhealthcare organisations the human factor plays the most important role as adeterminant not only of performance but also of change processes. If lean deploymentstays at a tools-and-techniques level, the hard level, it can be still far from presenting abetter value proposition. Likewise, if outsourcing presents itself as a shopping practice,it will not bring real long-term benefits in terms of the value proposition.

This paper is aligned with the view that short-term wins encourage the changeprocess, but what makes change “stick” in the long-term is to pursue on daily basis thenew shared values, rooting behaviour to a building a culture where the soft aspectscannot be neglected. However, the change process behind lean deployment inhealthcare, as in building an outsourcing relationship, should be the object of deeperresearch, which, considering the idiosyncrasies of this sector’s “culture”, it was notpossible to address properly in this paper.

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The focus in this paper was national culture and its relation to organisational andindividual behaviour. Considering culture as both a cause and consequence, in oneperspective, outsourcing practices contribute to the building of a lean enterprise; whileon the other hand, only working on the soft aspects it will be possible to create a reallean culture. Lean thinking is, from its national origins, viewed by academics andpractitioners as a philosophy. The original Japanese lean concept only superficiallypresents cost reduction as its main purpose, putting the accent on sharing costs andrisks with much more than arm’s-length suppliers. In this mind set, trust plays a mainrole and not all organisations, for cultural reasons, are able to play it quite in the“Toyota way”. Building strong relationships is not only a matter of culturalwillingness but a matter of time. In the lean journey the first steps are usually made ata tool deployment level and as most learning by doing changes paths, time will help toturn those practices into culture. Similarly, healthcare organisations with longerexperience in outsourcing take more benefits from it, not only for expanding activitiesbeyond to the core and clinical activities, but also to experience a more cooperativeenvironment with their suppliers. Even the term “supplier” loses its first meaningwhen facing new forms of externalising activities and processes such as strategicalliances and joint ventures, called partnerships.

Long-term orientation plays an important role in thriving on the lean journey, inwhich practices such as outsourcing, and other lean tools, are only just the beginning.

Finally, and as our main conclusions, it can be stated that:. Only some outsourcing drivers fit into the lean concept, and therefore only some

kinds of outsourcing – i.e. those that seek long-term relationships and truecompetitive advantage – can be a lean tool by allowing focus on value-addingactivities.

. Outsourcing and lean, in healthcare settings, have both “hard” and “soft” sidesrelated to short- or to long-term orientation and depth of scope, but what makes astrategic change “stick” is the soft side, especially in healthcare, where thehuman factor, as in most services, is “the” key factor.

. The lean journey is a state of mind construction that starts with practices, and sois the outsourcing journey in the evolution of the relationship. This journeyimplies a change process as deep as the maturity stage achieved.

. Common lean and outsourcing drivers are related to cultural dimensions thatdistinguish different maturity deployment stages of different national cultures,which differ in “collectivism”, “masculinity”, “power distance”, “uncertaintyavoidance” and “long-term orientation”.

In sectors such as healthcare, where a strong public character inhibits“managerialisation”, good SCM practices allied to the construction of a leanorganisational culture result in strategic advantages. Practices such as outsourcingwill be, as this paper suggests, much stronger lean weapons and will be aligned withthe wider strategy, as far the national and organisational culture allow them to be.

It would be interesting, however, to understand the linkage between national cultureand organisational culture to explore the change process of the deployment of lean inthe healthcare sector.


155

Another area that will require further scrutiny is the construction of a lean culture inhealthcare settings, assessing the influence of hard aspects in that construction as wellas soft aspects.

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About the authorsCristina Machado Guimaraes has a degree in Business Administration and Management fromthe Catholic University of Porto, and a MSc in Healthcare Management from ISCTE-IUL (LisbonUniversity Institute), where she develops leading research on lean healthcare. Having worked for15 years in the industrial and service sectors as a supply chain manager, more recently she hasdedicated her time to consultancy projects in both industry and services settings such ashealthcare. She is also an Invited Lecturer in post-graduate programs on lean operations


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management. Additionally, she is a regular speaker at workshops and conferences. CristinaMachado Guimaraes is the corresponding author and can be contacted at:[email protected]

Jose Crespo de Carvalho has a degree in engineering from IST (Technical University ofLisbon), a MBA and a MSc in Management – Information Systems and Logistics Areas, and aPhD in Management from ISCTE-IUL (Lisbon University Institute) where, after doing hisaggregation, he has been a Full Professor since 2003. He has signed and coordinated more than50 consultancy projects in the areas of supply chain management and strategy. He has alsopublished widely in books (he has already published 22 books, including one specialising inhealthcare logistics) and journals, both professional and academic. He has also received severalprizes for his career in supply chain management and strategy and has been rewarded severaltimes with the “Best Professor of the Year” award by the Management School of ISCTE-IUL.

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Strategic Outsourcing a Lean Tool of Healthcare Supply Chain Management

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