TWO RECIPES for fixing the NHS were on offer in the media last week. The one that garnered the headlines – Sir Gerry Robinson’s televised attempt to galvanise Rotherham General Hospital – demonstrated that leadership and common sense are sensible and important. But it came suspiciously close to business reality TV, and Robinson’s idea that one million-dollar supermanager can kick the service into shape is dangerous and deluded – as with all calls for heroic leadership, the counsel of someone who has run out of substantive ideas.

As shareholders of American DIY chain Home Depot (where a failed chief executive has just departed with a payoff of $210m) are the latest to testify, charisma and even common sense are useless unless the owner knows what to do with them. He, or she, needs method.

Which is where the second remedy comes in. More modest, but also more encouraging, was Peter Day’s In Business programme on Radio 4, which looked at the application of Toyota’s production principles to healthcare. Some people’s hearts will sink, or swell with indignation, at the very idea. But the difficulties with the approach are not what people think they are, and they are far outweighed by the potential benefits.

The beauty of the Toyota system is that it concentrates rigorously on doing only what the customer (internal or external) wants, when they want it. Compared with Western systems, it’s tortoise versus hare: rather than seeking efficiency by speeding up individual activities, it focuses on improving the flow through the entire system by keeping those activities to the absolute minimum. Result: a race-winning combination of higher quality and lower cost. As Malcolm Jones of the consultancy Productivity Europe points out, Toyota hasn’t made a loss, or closed a factory, for 40 years.

It sounds simple, and in one sense it is. You start with the demand and design a system to satisfy it. In A&E, for example, most of the workload is minor complaints or, increasingly, referrals from NHS Direct that aren’t really emergencies at all. Often even serious incidents are predictable, like drink-fuelled injuries on Saturday night. A system designed to handle predictable demand dispenses with the need for complicated scheduling and automatically increases capacity to cope with truly urgent cases.

It takes time, but whole hospitals are gradually being converted to these principles. And as they convert, miracle of miracles, capacity increases. Firms organised along these lines habitually find that they start insourcing activities they can do better and more cheaply than others, so little headcount reduction is involved. There’s no reason why the same should not be true of the NHS.

But hang on a minute. If, as one consultant interviewed on Day’s programme put it, gaining these benefits for the NHS is ‘about putting together the broken processes’, why is government policy so intent on fragmenting them? Isn’t separating out activities and hiving them off to the private sector (what the Keep Our NHS Public campaign, www. keepournhspublic.com, calls ‘patchwork privatisation’) the very antithesis of Toyota-like flow?

Yep, that’s exactly what it is. Since the government is obsessed with traditional economies of scale, most private-sector providers are engaged to optimise activities (building hospitals, offshoring medical secretaries) rather than create economies of flow. Worse, under the profit motive, they have no incentive to streamline the activity or, God forbid, get rid of it altogether, as Toyota would.

As Vanguard Consulting’s John Seddon points out, this structure locks unnecessary activity and high cost into the system. ‘If something can be done better, it is a matter of method, not ownership,’ he says. ‘And if we can get massive savings at the same time as improving public services, why wouldn’t we want taxpayers to reap the benefits rather than shareholders?’

With its crude behaviourist belief in monetary incentives both for individuals and organisations, the government hopes the internal market will drive efficiencies into what can hardly qualify any more as an integrated health service. Yet to state what ought to be obvious, while Toyota is a private sector company, it is not a market. Its success – the lowest costs and most consistent quality in the business – is bound up with the fact that it is a single organisation unified around a shared set of values in which cooperation rates a lot higher than competition.

So the lessons of Toyota come out rather differently from what you might expect. Large size is no barrier to efficiency – although smaller than the NHS, Toyota’s 264,000 employees make it large by any other standard. You don’t need a market to lower transaction costs, but the opposite: trust and cooperation, which also lifts morale by restoring control to the front line. (Toyota swaps largely anonymous leaders with as little fuss as changing a light bulb.) And far from being dependent on the profit motive, its method – flow – is as applicable to the public as the private sector. What’s not to like?

The Observer, 14 January 2007