Lean manufacturing is a business performance improvement methodology that focuses on eliminating waste and enhancing quality, cost, delivery and people. It provides for continuous improvement and strives to produce only to meet customer demand and improve overall customer value.

Park Nicollet Health Services, a $1 billion health services provider headquartered in a suburb of Minneapolis, led by senior vice president and CFO David J. Cooke, has transformed its business performance management systems guided by lean principles.

Steve Player: Park Nicollet's story is very interesting, both in terms of what you've accomplished on your lean journey as well as how, in conjunction with that lean journey, you've really transformed finance. Can you take us back to the beginning?

David J. Cooke:
I joined what is now Park Nicollet Health Services just over seven years ago. David Wessner, our president and CEO, whom I worked with earlier in my career, invited me to take on the CFO role here. David and I have always been students of process improvement throughout our careers. We needed to bring a fresh set of eyes, as Park Nicollet had never achieved an operating margin prior to 2000.

Initially, in the early 2000s, we got involved in Six Sigma, and we originally started on that journey. After about a year or so, we just weren't seeing the results. Maybe it was just the way we were going about it -- it seemed like "paralysis by analysis" for us. Though we had some very significant early success, we just weren't seeing the rapidity of improvement we felt we needed to see in health care. We agreed with the studies that say $0.30 of every dollar spent in health care is wasted on non-value-added activities. At about the same time, we learned about the Beyond Budgeting concepts and lean manufacturing.

The budget process here normally began in July. If we were lucky, we had a budget to present to the board by mid-December. A lot of time and energy and effort went into preparing a budget; it was nothing more than a political process. And the budget was anything but predictive. If anything, it guaranteed additions to our expenses without guaranteeing new revenue sources to pay for them.

I had begun promoting the idea of transforming the annual operating budget process but I didn't get any traction until David Wessner came across lean manufacturing at Virginia Mason Medical Center in Seattle. They had been involved in lean activity for about a year. After some initial study, we started our initial project here about three years ago. We had major success, and we've since begun our transformation to a lean organization.

We now have over 140 rapid processing improvement workshops scheduled for this year. On direct costs of about $45 million a year, we expect to see at least a 3- to 4-time payback.