Bypass Surgery for Businesses with Constricted Information Flow

heart rhythm 2

Implementing new technology can be a useful exercise for companies that want to improve their ability to accomplish measurable business objectives.  Unfortunately, that same technology can be frustrating to work with as companies that want to customize their software are met with passive resistance from vendors who want to keep that software standardized. What can a company do when it possesses the underlying data in its network of systems, but cannot effectively extract it?  We compare the options with those utilized by heart surgeons to treat heart disease.  In many cases, for both patients and businesses, bypass surgery is the best option.  We then explain how bypass surgery works to correct constricted information flows.  We encourage and greatly appreciate your comments!

Over 50 years ago, a remarkable medical procedure called Coronary Artery Bypass Graft Surgery (CABG) was introduced that has saved numerous lives since.  In fact, the procedure is so common today that it is performed around 500,000 times each year in the United States.  To understand why the procedure is performed, we must first remember how the heart functions.  The heart pumps oxygen and nutrients throughout the body.  To function well, the heart itself must be supplied with oxygen and nutrients, which is done through coronary arteries.  Over time, these coronary arteries may become constricted due to a variety of causes resulting in plaque buildup within the interior walls.  At a certain point, a heart specialist makes a decision that correcting the problem either through medication or by widening / stenting the artery (angioplasty) will be less effective than bypassing the coronary artery itself.  When CABG is performed, an artery from another part of the body is grafted to portions of one or more coronary arteries to bypass the narrowings.  The end result is improved blood supply to the heart and more reliable circulation in general.

Just as the heart nourishes the body by pumping oxygen and nutrients through the circulatory system, companies use software systems to circulate information and feedback throughout their organizations.  The information circulatory system not only carries information from the strategic apex (where senior leadership resides) to the rest of the organization, but also collects information from the organizational structure comprised of divisions and departments and returns it to the strategic apex.  The primary role of an information system is to nourish the organization with the right information at the right time for the right people so they can make the right decisions.

What does a company do when it has the underlying data in its network of systems, but cannot effectively extract it?

Some companies fruitlessly attempt to work with their existing software vendors to improve decision-making capability only to find those vendors are not in the business of customizing their software.  The unspoken truth is these vendors just don’t make enough revenue catering to the custom needs of clients; their money is in the standardization of the information workflows.  They need their customer base to pay recurring license fees based on standardized functionality.  Companies that want to improve their ability to extract meaningful information by working with their existing software vendors often do so in vain.  In our heart metaphor, this is akin to an angioplasty or medication option when the bypass option would have been more effective.

Often for companies that have constricted information flows, the recommended procedure is bypass surgery.   Rather than declare the software system dead and in need of replacement—we recognize the software limitations and then we bypass those limitations.  Due to the inability and lack of desire of many software providers to solve these data integration problems, a whole host of companies have cropped up that gather data, combine it in uniquely meaningful ways, and serve that information back to those who need it most.  Prior to the surgery, we ensure the organization is aligned correctly and measuring the right behaviors.  During the surgery, we graft in the 3rd-party software that specializes in data extraction and use that software to integrate that data from disparate databases and create effective data visualizations.

In a recent example, we encountered a company that had compartmentalized information into nine silos – [1] order fulfillment and production scheduling, [2] time management, [3] hr / payroll, [4] inventory, [5] production quality, [6] fuel system, [7] GPS tracking and delivery quality, [8] repair & maintenance, and [9] finance and accounting.  As part of our project with them, we demonstrated the value of tying metrics together from different subsystems so that better decisions could be made.  The diagnosis was made and the bypass surgery was scheduled, but we still had to implement.   Although the implementation is not yet complete, we have begun to realize a dramatic increase in their company net profit—from 7 percent to 12 percent.  That means for every $100 dollars in revenue, the company now makes $12 dollars in profit instead of $7 dollars.

Constricted Information bypass surgery is a relatively new procedure and carries business disruption risks, but done by the right team of business surgeons, the disruptions can be managed and even eliminated.  If you know of a business that has constricted information flow, then we would appreciate an opportunity to diagnose and treat the condition.


The Time is NOW for Hospitals to Enhance Revenue and Reduce Cost through Emergency Department Optimization

The Emergency Department (E.D.) process is critical for any hospital. On average, approximately 5-10% of a hospital’s total revenue can be attributed to the Emergency Department. And, indirectly the hospital’s Emergency Department accounts for approximately 40-50% of a hospital’s total revenue when considering admissions, laboratory tests, and radiology and other departmental procedures. Frequently, the Emergency Department is a patient’s first experience with a hospital. Short wait times and a positive experience represent important drivers of patient satisfaction. Meanwhile, inefficient processes can result in lost revenues, higher costs and poor community image, not to mention concern over patient safety. Thus improving the E.D.’s patient throughput efficiencies is paramount to both customer satisfaction and a hospital’s bottom line.

Patient throughput time impacts a number of critical differentiators:

• Impacts Quality of Care as long wait times correlate to negative outcomes as well as increase the potential of patients leaving without being seen.
• Impacts Economics of Hospital as patients leaving without being seen is lost revenue, problems with throughput times create overcrowding which could result in patient diversions, and profitability is impacted by service value.
• Impacts External Customers as longer throughput times result in dissatisfaction of patients and families. Satisfied patients become loyal customers who will return for future services AND who will refer friends and family members. Patient satisfaction and loyalty are driven by service value.
• Impacts Internal Customers as service quality is unsustainable without staff satisfaction. Staff retention and productivity is driven by staff satisfaction.

Service value is high when outcomes are excellent and service is caring, safe, complaint and timely. The Emergency Department (E.D.) is the hospital’s front door – making it essential to implement performance management best practices. The current economic conditions are further impacting emergency departments as more and more people lack health insurance or are on government assisted programs and turn to the E.D. as their only source of care.

The increasing demand for E.D. services may result in:
• Long wait times
• Crowded treatment rooms
• Patient boarding in hallways
• Diverted nursing care
• Variable outcomes
• Decreased satisfaction for patients, physicians and staff

The challenge for executives is how to realize and then sustain high levels of performance of an increasingly complex operation without jeopardizing quality, safety and increasing costs. Transformation coupled with performance management provides the framework for a hospital to address these challenges and improve the hospital culture, improve operations, build stronger staff skills, and create visible leadership.

Several things must occur in order to transform your E.D. into the highest quality, most efficient, and patient-centered in the geographic area. They include:

1. Implementing a set of balanced metrics, set goals, and link actions to results through these metrics:
Access: Left Without Being Seen (LWBS); Length of Stay (LOS)
Service: Satisfaction (patient, physician, and employee)
Clinical Quality: Outcomes, deviations, complications; Nursing Turnover; Safety incidents
Value: Expenses per patient day; Charge per case; Pathway variance

2. Changing the operating paradigm
Monitor leading indicators of adverse trends
Show demonstrated improvement in metrics; Launch corrective actions to remove barriers
Perfect performance through continuous improvement
Begin internalization of culture needed to “hold the gains”
Treat this as transformational rather than incremental change

3. Aligning metrics, processes and organizational roles and responsibilities
Ensure process goals and metrics reflect top-level goals and metrics
Align individual responsibilities with key metrics
Provide near real-time information that supports drill-down analyses and automates corrective efforts

Greater Yield can help create a success story that spurs adoption of a new operating paradigm with excellent governance, well-trained, fully compliant staff, a well-resourced, capable E.D. and an environment that focuses on performance and continuous improvement/adaptation. We can help deploy a variety of tools to transform your Emergency Department into the highest quality, most efficient, and patient-centered in the area. We drive reduction in door-to-physician, door-to-discharge, and door-to-inpatient cycle times, while simultaneously improving patient and staff satisfaction. Let us work directly with you to design an approach unique to your E.D. intended to resolve your challenges and yield greater success while expediting the time necessary to complete it.

Do you want to INCREASE your EBITDA?

What keeps you up at night?

Is the accelerating rate of change and the current economic environment forcing you to rethink the way you manage your firm and portfolio companies?

Would you like to create an environment in your firm and portfolio companies that drives the best performance and obtains the highest EBITDA possible without adding any more cost to the company?

In today’s rapidly changing environment, investors are looking for every opportunity to improve performance and increase the value of their portfolios.  Investors, business owners, and company executives need expert resources to manage complex projects related to major business events including transformation, acquisition, mergers, and preparation for company sale.

Greater Yield was created 14 years ago to serve your market and stands apart in its ability to create value for investor funds, middle-market businesses, in family- and entrepreneur-oriented environments as well as small cap public and private companies.  We work with you and your team to achieve exceptional shareholder value through the development and execution of critical operational and IT initiatives.  At Greater Yield we believe that Operational and Information Technology excellence are the enterprise strategies necessary for growth.

With a focus on identifying risks during due diligence and driving EBITDA expansion, we apply proven processes to ensure our clients achieve the competitive advantage they need in today’s marketplace. Our unique cross-functional operations and IT expertise allows us to consistently provide clients with critical knowledge and resources.

Greater Yield can help drive performance for you and your portfolio companies through Operational Due Diligence, Performance Improvements, Global Supply Chain Management, Process and Data Governance, Strategic Sourcing & Procurement, Change Management, Quality of Operations review, Cultural Change and Impact management, Risk Management, Human Capital, Organizational Transformation and Solutions Architecture just to name a few.

Greater Yield ensures you can resolve your challenges and reduce the complexities that surround them.  That is why you should learn more about how we can help you and your portfolio to yield greater success.

Please feel free to Download Greater Yield Fact Sheet  – Greater Yield Facts for Investors

ACG Flyer 2013.pptx

Imposter at the Conclave [as Applied to Business Owners]

Have you heard the story about the man who impersonated a Catholic cardinal at Vatican City?  We learn the man had gained access to a closed-door ecclesiastical meeting only to be exposed as an imposter and hastily ushered out of St. Peter’s Square.  The somewhat amusing imposter story reminds us of the not-so-amusing consequences that business owners face when failing to meet their obligations with government entities, which obligations may include federal (income and payroll tax), state (sales and franchise tax), and municipal (property tax and utilities). To the government, non-compliance to financial obligations merits ‘imposter’ status and a corresponding harsh response. We occasionally encounter small-to-medium-sized business owners (SMBs) who are struggling to meet their government obligations. We share a few observations of what can happen when the government as an important creditor is mismanaged.  We then encourage business owners to adopt a few proactive management techniques designed to increase the likelihood that government obligations can be met on a consistent basis.  We encourage your comments, which are always greatly appreciated!

Recently as over 100 cardinals of the Catholic Church assembled in preparation for electing their next Pope, a mysterious ‘cardinal’ was discovered in their midst.  He had arrived at St. Peter’s Square at Vatican City dressed splendidly wearing a dark clergy robe or cassock, a purple sash, a crucifix, and a well-fitted black fedora hat.  For a few moments, he fluttered around greeting other dignitaries and then gained access to a closed-door, pre-conclave meeting.  Security guards were less impressed. The man’s cassock was too short, his sash was really a scarf, the crucifix was of unusual design, and his fedora out of place – he should have been wearing a zucchetto, the traditional skullcap of bishops.  Upon further inquiry, the man was found lacking the right credentials and identified as an imposter.  Despite the man’s protests, a contingent of Swiss Guards forcibly escorted him away from St Peter’s Square.

Allow me for a moment to ask some silly questions.  Should the man have been allowed to stay?  What right did the Swiss Guard have to escort him away from such an important meeting?  Shouldn’t his vote have counted in electing the next Pope?  I hope we can all agree the man did not belong and as one who attempted to deceive others and who may not have had the organization’s best interests in mind, this man was labeled an ‘imposter’ and rightfully escorted out.

It is the right of organizations to use their power to defend themselves from those who do not follow the rules and who may try to do harm.

Some business owners occasionally forget this principle in interactions with their stakeholders.  By stakeholders, I mean those other entities that can help or harm a particular business.  The most obvious stakeholders are customers and suppliers – they influence the ability of the business to sell products and services and, ideally, to generate a profit.  In the fractional CFO business, we always encourage our clients to diversify their customer and supplier base so that no supply chain member has sufficient power to disrupt our client businesses – even if everyone seems to be playing nicely now.  Not all stakeholders fit this diversification strategy template.  One important outlier is government institutions.  We encourage business owners to respect and prioritize those relationships.  Government entities have no competition and are well equipped to protect themselves from perceived threats.  The IRS has little patience with businesses that habitually fail to pay their income and payroll taxes.  The State wants to see its sales taxes and franchise taxes paid regularly and on time.  The Municipalities like their property taxes and utility bills paid consistently.

So what happens when business owners fail to pay their obligations to these government entities?  A clear and certain process is followed which is by its very nature—punitive.  Though the process varies slightly by government entity, the end game is usually very expensive and disruptive to the business owner.  To protect itself, the IRS will begin a formal legal process that includes late-filing penalties and late-paying penalties and interest.  Fraud and accuracy errors are penalized heavily. The IRS can and will levy a company’s bank account, which may come at an inopportune time for the company and completely disrupt business operations.  Company payroll and vendor payments may be unexpectedly delayed, which is a major aggravation for all involved.  When collecting state taxes, the state operates in a similar manner as the IRS.  With regard to municipalities, it is common to have an immediate 20% penalty imposed for late payment of property taxes.  The liability is further compounded by interest until paid in full.  Utility companies typically charge a hefty fee for late payments and they stand ready and willing to shut off electric and gas power as necessary to encourage the company to catch up on paying its utility bills.  Taken as a whole, these government entities tend to be equally punitive or more punitive than other company stakeholders.

Occasionally, I encounter the triple-whammy effect, in which a company is delinquent in paying at least three government obligations, which may include payroll taxes, property taxes, and utility bills.  When I find companies with these problems, I have a simplistic solution that may not work in every situation, but it gets the conversation started with the management team.

  • If you cannot afford to pay your payroll taxes, then your company payroll is too high!  Recommended course of action is to lower the payroll.
  • If you cannot find the cash to pay your property taxes, then you have too much real estate and / or personal property.  Work to eliminate or consolidate your holdings.
  • If you cannot pay your utility bills, then shave energy costs.  I would rather shut the power off myself than have the utility company shut my company’s power off at an inopportune time.

I have probably oversimplified a complex situation, but I felt a need to get these pent-up recommendations off my chest.  Just some thoughts from one who has worked with many business owners in many different situations with the objective of facilitating their financial success.

On Gridiron Greed, Employee Embezzlement, & Management Misappropriation

Are you keeping up with the news story about the prominent college athlete who was either cruelly duped by a perpetrator pretending to be his girlfriend or who conspired with the perpetrator to generate publicity for his gridiron career?  Assuming the football player’s version of events is the correct one, at what point should he have suspected his virtual girlfriend to be imaginary?  Perhaps we will never know what happened here and I don’t pretend to know what happened; however, I do believe that distinguishing between ‘what is real’ and ‘what is not real’ can be extremely difficult for entrepreneurs who tend to be very optimistic people.  Being an optimist is a great strength! Optimists move forward with their ideas and business ventures despite encountering a myriad of naysayers along the way.  Being an optimist can also be a humbling weakness.  Optimists can be easily duped by others if the appropriate safeguards are not in place.  The football story reminds us of the vulnerability that business owners and investors face when entrusting others with their cash.

The cost of business fraud is enormous.  According to one study, “Fraud eats up 5 to 6 percent of a company’s revenue each year and hits small businesses the hardest.”[i]  Another study determined: “Small firms can suffer more than their giant counterparts. A 2012 study by the American Association of Certified Fraud Examiners (AACFE) found that businesses with fewer than 100 employees that were affected by fraud suffered a median loss of $147,000, compared with $100,000 for companies with 1,000 to 9,999 employees.”[ii]  As a CFO who typically works with privately held, family-owned businesses, I have seen my share of business greed.  These cases often involve embezzlement and misappropriation.  What hurts most is the perpetrators are usually caught too late and they are rarely punished.  The victim, sometimes a business owner and sometimes an investor, is left holding the bag – an empty money bag I might add!  It can take a long time to financially catch up from a bad situation.  Here are two recent, personal experiences of business fraud:

An interior design company was positioned to grow its customer base.  The ownership team hired a confident bookkeeper to manage the financial records.  He was well compensated and highly trusted.  After several years of his involvement, I was asked to provide strategic oversight to the company.  To gain a clear understanding of the financial condition, I convened the team regularly to discuss finance structure and performance.  During the meetings, the bookkeeper agreed to action items, but would not complete those items afterwards.  He defended his inactivity with excuses.  Eventually, the ownership team became very frustrated and investigated the bookkeeper’s workspace.  They discovered the bookkeeper had been embezzling company funds by creating expense reimbursements to fictitious vendors.  It was also learned he spent a good portion of his workday surfing inappropriate websites.  A difficult situation could have been averted if only the proper controls had been in place.  The bookkeeper was fired, but the damage had already been done.  The President suffered financial losses and, for a long time thereafter, suffered from an inability to trust anyone else with her books.

A specialty electronics retailer was anxious to grow its number of nationwide locations.  To open each new store, the management team, which consisted of the majority owners, sought investment dollars from investors whose individual store investment was rewarded based on that store’s performance.  The management team aggressively committed to a growth plan that relied on new stores being routinely added and every store being profitable; the only problem was only half of the stores were profitable.  The company was bleeding cash.  Investment dollars were routinely misappropriated to cover store losses, fund project overruns, and pay excessive management salaries.   This comingling of funds made it difficult for the management team to keep agreements with the investors who had invested in profitable stores.  Dividends were owed, but cash was insufficient to pay the dividends.  A growing chorus of impatient investors wanted to understand why their dividend checks were not forthcoming.  Once the facts were on the table, the investors, some of whom were attorneys, threatened to file criminal charges against the management team; ultimately, the investors took control of the business.

The examples of business fraud are plentiful.  What can business owners and investors do to minimize the likelihood and severity of financial fraud?  They should create an environment that includes a mix of fraud controls in the areas of employee due diligence, bottom-up accountability, top-down oversight, and risk mitigation:

  • Employee Due Diligence—runs a background check on new hires.  Interviews past employers.  Look for inconsistencies on resume.  Avoids hiring the cheapest resources on the market.  Enforces company policies on drug screening, internet usage, etc.
  • Bottom-Up Accountability—creates and enforces finance department procedures that focus on maintaining transparency, separating work duties (invoice entry, check writing, vendor/account reconciliation), and building employee competency.  Outsources transactional and reconciliation work.
  • Top-Down Oversight—ensures clear cash oversight comes from the top.  What checks did I write? To whom? Was there anything unusual to investigate? Uses 3rd parties to review the books and look for fraud.
  • Risk Mitigation—considers purchasing employee theft insurance.

As an entrepreneur, or as one who works with entrepreneurs, you have every right to be optimistic about the future!  Just remember to temper that optimism with pragmatism because when money comes along, greed may soon follow.   We would like to hear your experiences with business fraud as well as any safeguards that you have put into place.

How wonderful would it be to have a strategic map of the potential impact of change on your organization?

Healthcare organizations vary in their annual goals, their starting points, and their readiness for change. Understanding the readiness of a healthcare organization to accept change, identifying and agreeing on the issues needing to be addressed, and then addressing them effectively and efficiently during implementation is key to a successful architecture transformation. This is often referred to as a Transformation Readiness Assessment. Often, the transformation readiness assessment is underestimated and undervalued. Organizations want to move forward with a sense of urgency to change but may not have taken into consideration the readiness factors that will impact the organization. Examples of readiness factors include: case for change, sponsorship and leadership, accountability, ability to implement and operate, etc.

Events that may create a burning platform for enterprise transformation include a change in leadership, a decline or gap in performance relative to peer organizations, a recognition that the status quo is no longer acceptable, patient and family or user needs and expectations, the changing economic environment, and/or regulatory changes on the horizon.

Some important steps when conducting a transformation readiness assessment may include:
• Assessing the current baseline maturity level for each element on a healthcare maturity model,
• Determining the target maturity level that would have to be achieved to realize the target architecture,
• Determining the intermediate targets achievable in a shorter timeframe
• Assessing the readiness factors, and
• Assessing the risks for each readiness factor and identifying improvement actions to mitigate the risk

When preparing for change an organization must define its change management strategy, prepare its management team, and develop its sponsorship model. There are several tools available to help assess readiness, as well as qualitative information from internal or external staff and consultants. If an organization can start building a positive and supportive environment prior to a change, they will have a great head start on the transformation implementation. The change vision can be turned into an overall plan and timeline with input solicited from people who “own” or work on the processes that are changing. Gathering information about and determining ways to communicate the reasons for the change is critical to securing understanding and support for the vision, goals and objectives. People have to understand the context, the reasons for the change, the plan and the organization’s clear expectations for their changed roles and responsibilities.

The most successful transformation occurs when executives mobilize and sustain energy within their organizations and communicate their objectives clearly and creatively. Executives further improve their chances for success if they significantly raise employee expectations, actively change people’s behaviors, and engage the attention of individuals at all levels of the organization, from top management to the front line. Preparation, engagement and leadership are pivotal to implementing a roadmap to success. Business transformation will entail new ways of working, reconfiguring of people and competence to delivering strategic objectives, new ways of influencing and supporting business change, and ultimately a way of thinking and operating.

Confusion soars when people deal with enterprise change. Tasks, work outputs, organizational structures, relationships, business process links, skills, roles, responsibilities and technology across multiple business units are all affected. A correctly done transformation readiness assessment will ensure an organization has assessed the potential impact of change to their organization’s processes, systems, patients, physicians, customers and staff. If you are interested in learning more about transformation readiness assessment or have some experiences to share we would like to hear from you.

SMB Trends – Bimbos, Twinkies, & Rising Labor Costs

Food manufacturer Hostess ($3 billion sales; 18,500 employees) recently announced plans to liquidate its assets after years of struggling with rising labor costs in an increasingly competitive market space.   Mexican food giant Grupo Bimbo ($11 billion sales; 127,000 employees) is hungry for some of the most valuable Hostess assets including Twinkie.

How did an iconic U.S. brand become prey to a flagship Mexican brand?  Perhaps the answer lies with the labor pool.   Although Grupo Bimbo is not entirely a Mexican company—having some bakeries in the United States and other countries, the overall labor cost structure of the two companies is different.  Unlike Grupo Bimbo, the Hostess compensation structure includes funding expensive pensions, generous medical benefits, and operationally inefficient work rules.  The lesson here is that rising labor costs in a global market are sure to make companies less competitive.

How do the struggles of a large company like Hostess apply to small-to-medium-sized businesses (SMBs)?   Like large companies, labor costs in SMBs are projected to rise for at least two reasons related to the Affordable [Health] Care Act.  First, the cost of employer paid health insurance is projected to rise substantially to pay for a nationwide increased population of insured (some 30 million newly insured).  Second, many employers will be required to cover more employees than they had covered before or face a free rider surcharge of up to $3,000 per employee.

Let’s assume we are owners of a $10 million revenue company with a 10 percent net profit margin.  We have just learned our health care costs are increasing by $50 thousand per annum thereby decreasing our net profit from $1 million to $950 thousand.  Our response will be based on at least four options:

Accept Less Profit – we could choose to accept less profit.  Investments are all about risk and return.  It will be difficult for many business owners to accept less reward for the same amount of toil and sacrifice.  They will seek ways to preserve their profit.  Inflationary cost pressures will not be the only pressure on business owners.  The threat of rising personal income taxes will discourage business owners from accepting less profit inherent with an increased cost structure.

Increase Sales – to overcome a $50 thousand increase in labor costs, the company would need to increase its sales by 5 percent or $500 thousand.  Many SMBs experienced sales downturns several years ago with slight upticks in sales since, but no real recovery.  Revenue growth in many SMBs is currently stagnant.  We expect industry supply chains to raise prices, but those price increases will be passed down the supply chain and have a negligible effect on company cost structures.  Business owners who expect sales increases to pay for rising employee costs are utilizing a risky strategy.

Decrease Employee Wages & Benefits—like Hostess, there will be pressures to lower employee wages and benefits, but these efforts will have mixed results.  The best employees will go elsewhere for better compensation; the worst employees will stay.  After several years of a recessionary environment with frozen pay in the private sector and an increased consumer price index, we think lowering employee compensation will be a difficult, last option.

Leverage Outsourcing Solutions—companies will scour their financial statements for cost savings opportunities.  Eventually, the focus will turn to headcount justification.  Each position will be evaluated for its ability to add value to the business according to three criteria: [1] Are important relationships being nurtured?  [2] Is company-specific intellectual property and / or know-how being developed and preserved?  [3] Are problem-solving skills required to resolve ever-arising, unique problems?  Positions that do not meet these three criteria and instead include highly proceduralized work that includes work papers that can be readily digitized will become candidates for either outsourcing or automation.  These labor categories include human resources, information technology, finance and accounting, legal services, purchasing, and reception.  SMBs that implement these types of outsourcing options may very well realize savings that overcome the costs associated with rising labor costs.

In summary, business owners must proactively respond to the increasing labor cost environment.  As they consider the practicalities associated with increasing sales and decreasing costs, many can and should consider the wide range of outsourcing solutions available on the market.

How Important is it to Measure Physician Practice Performance?

Efficient processes require less time, effort and resources to produce better outcomes.  Recognizing that staff in medical practices are already running very slim, and the labor of additional projects may be difficult to take on, it is important that practices create lean physician practices by examining processes, eliminating waste, using the most highly trained staff members to perform tasks only they can perform, and identifying revenue opportunities to yield gains in productivity, patient satisfaction, and quality of care.  Most problems within a practice can be traced back to a process problem as opposed to a people problem.

There are several opportunities to improve financial performance through practice transformation.  Some may include practice profitability (revenue and cost), practice referrals, practice “right sizing”, IT strategy, improved payer positioning, service portfolio by market, fee schedule/price negotiations, and best practice sharing.

Revenue is optimized by increasing and balancing both capacity and demand.  Provider productivity is the lever on capacity.  Revenue events and capture are the levers on demand.    Three major strategies for driving enhanced revenue performance are improve productivity of billable resources, increase billable events and capture rate, and add new billable services. There are a variety of levers in the practice that are used to execute these strategies.   These include ancillary services, billing and collections, coding standards, income distribution, physician extenders, population management, process optimization, and resource utilization.

There are three primary strategies to address the two major components of practice cost.  Practice cost management strategies include expense management of general operating cost, process optimization and resource utilization of support staff cost.

Physician practices face significant challenges with execution:  Prioritizing physician strategic goals, objectives and allocation of funds can create conflict during the implementation process.  Needs of the primary care physicians and specialists may vary.  Objectives such as growing margins, expanding the funding base for future needs, changes to governance and structure, market share growth, increased patient referrals, utilization, expanded clinical services, information technology infrastructure, and improved community access emphasize the need for physicians to enhance high quality and efficient patient care.

Successful physician practices understand and measure their practice performance and are mindful that there are four perspectives on Value in a Practice that should be considered.  They include: 

  1. Patient View:  Convenient access, Caring Environment, Efficiency, and Health status
  2. Physician View:  Quality of care, Practice income, and Personal time
  3. Health Plan View:  Quality of care, Access, Cost of care – both short-term impact and long-term trend
  4. Health System View:  Quality of care, Referrals to system, Practice profitability, and Competitive position with payers

 How does your practice measure in these perspectives on Value?

Meaningful Business Metrics


Meaningful business measurements are essential and critical management tools for success. If you don’t know where you are, or where you have been, how can you know where you are going?  You can’t manage what you can’t measure. A very applicable quote by Albert Einstein, “Not everything that can be counted counts, and not everything that counts can be counted.This thought needs to be fully understood when talking about measurements.


If there is a thoughtful approach to measures, many times a “Balanced Scorecard” approach is taken aspiring to attain meaningful measures for the business. What occurs more often is that most of the scorecards end up being financial measures with a few measures on people development (training) and some aimed at business development (new customers or new markets). When examined for effectiveness, we find most results being measured are lagging indicators. This approach is similar to driving down the highway at 70 mph but only looking in the rear view mirror and not ahead to see where the business is going. What is missing is a meaningful set of Driver measures which can predict if the business is on track. What are Driver measures? These are usually Business Process measures such as Order Fulfillment Cycle Time, Product/Service Development Cycle Time, New Product time-to-market and key measures of Quality – First Pass Yield which quantifies doing things right the first time.

Too often we find the prevailing conditions and state-of-measurements within companies are:

  • Business managers are frustrated by measures that are hard to interpret and use,
  • There is an unreasonable amount of effort expended in data collection,
  • There are long delays before measurement metrics are available,
  • Too often there is little correlation between business strategies, goals and performance measures,
  • High cost of measurements create strong dissatisfaction,
  • There is a heavy emphasis on financial measures unrelated to operational realities, and
  • In many cases there are too many measures and too little time.

These points are verified by testimonies from executives who require accurate and undistorted views of their business to make critical decisions. Some of their statements are:

  • “We use 2% of what we measure; the rest is CYA.”
  • “We measure the wrong things to four decimal places of accuracy.”
  • “We are masters of the micro.  We measure paper clip acquisition times.”
  • “We measure far too much and get far too little for what we measure because we never articulated what we need to get better at and our measures aren’t tied together to support higher level decision making.”


The pertinent question that should be asked is, “What metrics are relevant and meaningful to business success?” There are four axioms of meaningful performance measurements:

  • The goal of measurement is not to measure, but to improve business performance
  • You must know what you want to measure and why before you worry about how
  • Strategic clarity must precede measurement
  • Processes are the key inflection point of an organization

All business executives and managers, at every level, have a critical need for accurate, timely and meaningful performance data to navigate through the highly demanding environment to successfully compete, grow and sustain profitability. Foremost, whatever strategic goals and purposes exist for the business, the product(s) and/or service(s) delivered must align economically with the resource capabilities and facilities to deliver them. The delivery resources must also produce them with an acceptable quality, at an affordable price and with timely availability to meet customer needs.


Fundamental business metrics generally fall within three overall major categories: Financial, Operational and Quality.  Within each of these major categories we find three essential attributes of cost, quality and time associated with each task. And traditionally, we find most business measurements are designed to measure functional results which lack one or more of these attributes with a focus on history. The major disadvantage with managing operational performance with historical data is that results have already been experienced. This is similar, as previously stated, to trying to drive a car looking into the rear view mirror.

When we analyze functional results, we find they are generally aligned with the structure of most financial budgets. Their shortfall is that they do not provide a true operational performance picture of business processes. Functional results give poor visibility, if any, to current or future delivery capabilities. True operational performance results can only be attained by focusing on business processes and their associated attributes. Ideally, the best visibility is attained from real-time data; however few companies have this capability. Even fewer companies are equipped to provide predictive forward projections based on current business conditions.


This white paper illustrates the importance of understanding the hierarchical relationships and linkage of meaningful process measurements to business success. Every action in a business is achieved through the execution of a process. Business processes can be simple or complex, inexpensive or costly, slow or fast, inefficient or efficient, poorly designed or well designed and can achieve results in one location or in multiple locations. Every process has common elements (as shown figure 1) with three basic meaningful process measurement attributes, cost, time & quality which are drivers of performance.  The metrics shown of productivity (cost), time (cycle time – CT) & quality (first pass yield – FPY) attributes are the drivers, which if measured and managed will provide the control and visibility of true operational performance. Often within the diagram block “Process” are embedded replica process sub-task blocks with identical attributes which are individually monitored, depending on the criticality, or they are grouped as progressive steps in the overall process.

Figure 1

Every action in a company, whether it is white collar or blue collar related, fits within a business process. There are many key performance indicators (KPI’s) which are important quantitative measurements to know about the product or service related status, such as meeting the schedule, performance to budget, raw material inventory, WIP and FG inventory, customer needs met, pipeline, etc. However, these are not indicative of the measure of operational efficiency of process tasks.By closely examining the three major categories of business process metrics, financial, operational & quality, we find that the foundation and driver of financial and quality results squarely rests on acceptable operational performance of business processes. When business processes are designed, measured and managed appropriately, the financial and quality metrics will follow with positive results. There are other factors which can impact business financials and quality, i.e., outside uncontrollable costs and material quality, etc. However, in every case the controllable actions within a business entity will be driven directly by the effectiveness and efficiency of business processes. Using driver measurements immediately identify problem areas at the time when they are occurring and can be fixed. No more waiting until historical data is analyzed and effort is expended trying to discover what happened.

Each task:

  • Has a Process Flow that can be Developed
  • Has History that can be Analyzed
  • Has a First Pass Yield
  • Has a Theoretical Cycle Time
  • Has a Performance Baseline and a Realizable Performance Level
  • Has Activities that are Non-Deterministic (unpredictable)
  • Can be Measured by Cost, First Pass Yield (FPY), and Cycle Time (CT)


Holistically, when we analyze business entities, we find four core sets of processes, as shown in figure 2.

Figure 2

A simplified example of a set of Strategic Thrust associated processes is shown in Figure 3. This set of processes is shown to illustrate that the flow of more intangible white collar work tasks are as identifiable and measurable as those involving substantial hands-on work activities. The major task blocks, from the creation of a Vision to completion of the Strategic Plan, all have multiple sub-tasks which can be measured, by time to complete, invested costs and a required level of quality which produce a corroborated and acceptable forward direction for the business. The aggregate of these process measurements summarize the financial costs, the responsiveness and the approved quality of the Business Plan.When core business processes are interconnected, analyzed, measured and managed, the full process performance capabilities can be determined and monitored. This also provides clear visibility to all the sub-sets and any constraints and barriers which restrain attaining full performance. This approach provides executives and managers with timely and accurate information from which they can manage effectively for desired results.

Figure 3

Business entities with meaningful business measurements have demonstrated the value of these essential and critical management tools for achieving and sustaining business success. These tools which contain true performance results and actual business process capabilities provide not only clarity in decision making, but timely management intervention when needed. The measurements of cycle time (CT), quality (FPY) and costs ($) are proven key attributes which provide the mechanisms to steer, correlate and directly link operational performance to business financial results. With these measurements, effective business controls can be implemented and monitored with an added measure of performance and delivery predictability which in most cases is available without the investment of costly real-time IT systems. These measurements provide business executives and managers the capability to determine if they are maximizing current business performance against their full realizable potential. Unobstructed visibility also exists to drive continuous operational improvements. Ultimately, the ability to successfully compete, grow and sustain profitability is critically dependent upon accurate and timely meaningful measurements in order to maximize asset utilization and provide all stakeholders the returns they expect.


To further investigate how to determine your full operating potential, apply these meaningful business measurements to improve your business performance and manage for success, call Greater Yield at 972-308-8533 or email at