A private lesson in productivity

Questions have been asked about whether an NHS trust will ever be allowed to fail and become insolvent. With Andrew Lansley beginning the legal process of applying the special administration regime to an NHS trust, answers may be more forthcoming than people expected.

And with “recession”, “failing companies” and “austerity” read all too frequently in the press, the next question should be whether the lessons learned in the private sector can be applied to the NHS.

Of course, the recession is not the only reason economics are front of mind for the NHS. It is becoming increasingly apparent that the gap between the growth in healthcare costs - which rise at around 7 per cent year on year - and the affordability of a healthcare system free at the point of delivery means the “need to save” is likely to become business as usual, rather than a short-term challenge.

We are also facing a scenario where more than 100 organisations are to become foundation trusts or find an alternative form through merger or acquisition. Making the change requires a degree of rigour and financial robustness - but this is something they may struggle to achieve, given the need to continue to their day-to- day work.

In the UK, we are not radical in considering how we will use and leverage technology to enable a step change. We are also not taking into account the fiscal backdrop and the shift eastwards in the centre of gravity with a significant chance that models of care being developed in China, India, and even Africa, will leapfrog us in terms of value delivered against spend. So the picture is anything but rosy.

You don’t have to look too far to see that much the same can be said of the private sector as firms go out of business with alarming frequency.

Yet there are some glimmers of light. Some high-profile corporates have been rescued from the brink of bankruptcy in recent months - and with that comes the hope that the NHS can learn from their experiences. There are certainly a number of actions that can be transferred from one sector to another. 

The key private sector discipline is delivering what customers want, but within the constraints of a particular financial wrapper. Hospitals should focus on customers’ (patients’) needs, counterbalanced by the financial reality: understanding the tension between the two underpins survival and success.

While perhaps an uncomfortable analogy for some, hospitals should consider how private businesses seek to understand their customers’ requirements and the markets in which they operate.

Clinicians who take personal responsibility for patient care and finance - a common dual role in the private sector - is an important way of ensuring that both sides of the service/cost equation are balanced.

Successful corporates also focus on core strengths. A company that knows where its brand, product or service strengths are can avoid the temptation to spread itself too thinly, with the likely increase in associated overheads. The same situation can be applied in the healthcare sector where a hospital could, and should, work as part of a wider health economy.

It is difficult to see how £20bn savings can be achieved without trusts sharing resources, focusing on their strengths and working as a health economy.

One of the most common mistakes made in turnaround situations is “death by one thousand cuts”. It is damaging to morale, quality and business to constantly be making cuts around the edges.

An annual cost improvement programme (CIP) can target risks creating exactly this sort of behaviour.

Our experiences of turning around private sector businesses tell us it is far better to cut once and cut as deeply as required to match available resources, with appropriate customer focus. However, no trust would want to be in the position of being given a greater CIP target in the following year after taking a one-step, deeper cut approach.

Often forgotten is the need to communicate openly - at least to a point. While sheltering employees and other stakeholders could feel like the right thing to do, sharing concerns and explanations for actions will gain alignment and support within the organisation. Some businesses we have worked with in the private sector have “CEO rooms” where progress and ideas are constantly on view for people to contribute.

We often find that people in underperforming companies are incredibly busy attending meetings that are not really essential or do not need everyone. Does it really take 15 people to make a decision? Consider 10 non-frontline activities to stop and monitor the impact on the operations of the trust - often in our experience the impact is minimal.

It’s also important to change key performance indicators and personal goals. Strong companies will change KPIs and objectives periodically to align to the current business strategy. After all if something is broken, it needs fixing. No-one is suggesting making changes every six or 12 months but, for example, aligning goals with crucial targets such as improving cash flow. l

Dr Hilary Thomas is a partner in KPMG’s healthcare consultancy and Jane Hurst is a turnaround director at KPMG.