Having a little time on my hands for the last couple of weeks, I started reading a book every two days. One of them was a classic that I read 30 years ago. I remember it had a dramatic affect on my perception of “the business of Dentistry”, but for the life of me, I couldn’t remember a single detail. Eliyahu Goldratt wrote The Goal in 1984. I want to take a moment and dumb down the story line of the book, which was a novel with business foundations built into it. Alex is the plant manager of a manufacturing plant that will, by all accounts, fail and be closed within the next 3 months. So, he has the bean counters and all of the executives above him breathing down his neck. This manufacturing plant always runs late on orders and is always in “catch up” mode. This creates upset clients who are looking for another vender to take their business to.
Believe it or not, his home life is no better. His workaholic personality has strained the relationship with his wife and kids (this sounds to me a lot like the doctors that I speak to over the phone every day). The hero in our story is Jonah, a once-upon-a-time physics professor turned business consultant that Alex studied under as an undergrad in college. The story plays out as Jonah, who is too busy to actually be hired by Alex to help him save the company, strikes a bargain to help him on the phone and a few short in-person meetings. The fee will be whatever Alex thinks it is worth. If what Jonah teaches him will not save the business, he owes nothing. Because of the distant relationship and time constraints, Jonah helps Alex learn to think differently about his business. The catch is that Jonah refuses to just give him the answers because he knows that if he just tells him what to do, he will still ultimately fail because Alex never owned the solution or understood what got them into the mess they were in. The book is long and winding but a must read for anyone who owns a business. I will attempt to “denta-size” it in an abbreviated way to help you learn to look at things differently when it comes to challenges and resolutions of problems in your business model.
The actual “goal” in any business is to make money that will create a profit. In fact, every single thing we do is to achieve this goal. Businesses that are not profitably don’t survive. So “profit” is a word we need to get use to hearing. The traditional or conventional measurements of the profitability goal are: ROI, cash flow, overhead, and personal income. In the book, The Goal, the author lists the three things that define a business as well as the three areas that each of us must deal with to move our practice (business) into the profit arena.
1. Throughput: The rate at which the system generates money through sales. For the dentist it would be the entire process from acquisition and longevity of patients, processing, and completing the patient’s treatment at which time we would be paid for our services.
2. Inventory: All the money the system has invested purchasing things it needs to lead to sales. In dentistry it would include all the instruments, supplies, and technology we use to create the service we sell.
3. Operational Expense: All the money spent to turn our inventory into sales. For you and me that would be marketing, most of our staffing, facility costs, etc.
Let’s define the term “balanced product line” with the capacity of each and every resource being balanced exactly with the demand from the market. This would include having the right number of staff, operatories, supplies, marketing, processes, etc., to actually deliver the product (dentistry). If there is not enough capacity, we are cheating ourselves of the potential “throughput”. If we have more than enough capacity, we are wasting money and we miss the opportunity to lower our operational costs. This seems reasonable: We don’t want to much of anything nor do we want too little. We should shoot for the exact amount of each. The number one reason you don’t’ see balanced businesses is that the closer you get to balance, the closer you are to bankruptcy.
In the book the characters begin looking at the inefficiencies in this plant to determine why there is a profitability challenge. Their discussion centers on “bottlenecks” and “non-bottlenecks”. A bottleneck can be described as a resource that is greater than the demand put on it. Bottlenecks are a simple reality in every business. In dentistry, think about your inability to get a new patient in to hygiene within 4-10 days during a peak demand time. This is a huge blockage in growth. Not being able to fit needed treatment into the patient’s budget is also a bottleneck. Any process or instance where things back up and impede processing a patient from new to completed treatment are bottlenecks. Keep in mind that the capacity of a plant (your office) is equal to the capacity of the bottleneck. It’s kind of a weakest link mentality. You can’t go any faster, get any better, or produce any more than the one person with the lowest commitment and engagement in your practice. A non-bottleneck would just be any resource that is greater than the demand put on it.
While this is just a snap shot of the book and its brilliant way of finding the solutions for each bottleneck, they came up with two rules we should all understand and embrace.
1. Make sure all bottleneck time is not wasted. (Since the speed of production in the business will be held up or held at the speed of the bottleneck, make sure this bottleneck is working at full capacity. Everything depends on this.) NOTE: Too many of us deny that there is a bottleneck and run the non-bottlenecks at full speed causing more back up. This could be successful marketing in an office with a huge physical capacity bottleneck in the form of the number of ops, hours, or schedule availability to process the patients in a timely manner.
2. Take some of the load off of the bottleneck to increase capacity. This is the quickest way to work around the bottleneck. NOTE: An hour lost in a bottleneck is an hour lost in the entire system. An hour saved at a non-bottleneck is a mirage because you cannot take advantage of it.
The author made a strong argument to look at two very different things. One was “common practice” (what everybody does) vs “common sense” (what you should do).
Every dentist should ask:
1. What to change?
2. What to change to?
3. How to implement the change?
Identifying the bottleneck is just the first step. It is what you do with this knowledge that defines the level of leadership and management you truly possess. We should take advantage of two of the greatest minds in manufacturing: Henry Ford created mass production with “flow lines”. Ford, in 1926, began with mining the ore to complete cars with 5,00 parts and had the car placed on a train and shipped out in 81 hours. This was not common practice but certainly was common sense. Taiichi Ohno (Toyota) changed the same industry by moving inventory from an asset to a liability. He took what Ford did and 10x it. It was called the Toyota Production System (TPS). It was (and is) so successful that in 2003-2008 the net profit over sales was 70% for Toyota and General Motors was losing money. This system was called Kanban and stood for a “lean production” and could be the key for becoming a Tarzan in a Managed Care Jungle.
I know I have rambled on without really giving you a taste for the brilliance of this book. Let me leave you with the final solution as well as a homework assignment to really understand how bottlenecks kill any profitability in your practice.
The Five Focusing Steps of The Goal
1. IDENTIFY the system’s constraint. (Constraint = A limitation or restriction.)
2. EXPLOIT the system’s resources. (Exploit = Make full use of and derive benefit from a resource).
3. SUBORDINATE everything else to the above decisions. (Subordinate = Lower in rank or position.)
4. ELEVATE the system’s constraint. (Elevate = Raise or lift to a higher position.)
5. If, in the previous steps, a constraint has been broken, go back to step 1, but do not allow inertia to cause a system constraint.
Please take the time to read and study The Goal by Eliyahu Goldratt and immediately apply its logic to your own situation in your practice. This is how you Summit.
Michael Abernathy, DDS