In today’s episode, Dr. Ivan Zak and Ryan Leech continue their conversation about value stream mapping, this time analyzing it from the perspective of the various different levels within an organization.
They cover how to transition from an idea to a business plan, the tool which makes it easy to visualize your value stream, and what the exploration phase of acquisition entails.
Welcome to Consolidate That. So excited to have another one of our one on one episodes with you, Ivan. Looking forward to talking about some unique things that we have on our Consolidator Operating Framework.
Hey, Ryan, how are you today?
I’m doing good. I’m back home, the sun is shining, the birds are chirping, nothing bad here. How about you?
Pretty good. Do you miss Ukraine?
I do. I do. I keep looking for a coffee shop at every single corner here in Dallas, but I’m in my car. So, I just zoom by them if they’re there. So, I miss out.
There you go. So, what do you want to talk about today?
I wanted to carry on some of the conversation that we had done about value stream mapping. We talked about prioritization, we talked about the overall idea of value stream, but I wanted to maybe see, depending on time, dive into as many of the different levels of value streams. There are four different ones inside of our operating framework. So, why don’t we start out with the executive one and go from there?
Yeah, it sounds good. We talked about having four levels of the organization. But if you think about the value stream, and just to sort of recap on what the value stream mapping is, it’s basically taking any process and making it visual and outlining it and with the purpose of analyzing it, measuring it, and improving it . So, essentially, yes, we are talking about four levels of organization. But then, let’s say at the departmental level, there’s two kinds that we can touch on, but then every single department, marketing, IT, inventory, management, everybody will have their own value stream. So basically, how do you as the organization deliver value to the overarching organization?
And the mapping is the visualization of that, right?
Pretty much. Yeah, you just basically understand the phases and then what does it take to – you can create a value stream of how do you get the coffee at home? What are those phases? Get in the car, drive to the shop, get into the drive thru, pay the fee, pick up your coffee, enjoy. That’s your value stream for getting coffee. So, let’s try to start from the executive level and then we’ll cascade down as far as we can maybe within this episode, or we’ll kind of split it into several.
Yeah, so for consolidation and focusing on, I guess it would make sense, it can split between groups that are acquiring clinics, as well as groups that are building their own. But I think the second half or the second two thirds of the stream is very similar on the executive side of things. But I would look at it as starting with the acquisition or building of the clinics, and then you want to be looking at your initiative creation. So, figuring out what it is that you’re going to do that is important. So, the actual thought process of that, and then actually, the implementation or the change management of that. Is that sort of the same way that you’d looked at those?
So, let’s kind of split in in slightly different ways there. So, one value stream, and if you think about it, is how consolidators delivers value, and a lot of people would argue and say that this is by hospitals that are treating the patients, that’s the hospital level value stream, but in the consolidation level, as you said, you either build and then improve hospitals to the point of a certain EBITDA revenue, or whatever your metrics are, or you acquire a hospital with an opportunity, and then you’re creating value of that hospital further event of reselling, essentially.
So, that’s sort of one value stream. When you’re talking about initiative value stream, this is something different. So, as a new organization, you have no processes, if you think about it, your level, sort of zero, our Consolidator Maturity Model. By the way, if the listeners want to refer to some visuals, it would be good to go to vetintegrations.com and open the Consolidator Maturity Model, the tactical version, as well as Consolidator Operating Framework. And so, we’re going to be going back and forth between the two.
So, when you are at level zero, one, and three, you don’t have any processes. You just started, you have sort of your investment deck, and then you’re running to raise capital at level zero. There’s no process to buying clinics, there’s no processing or improving clinics. But in that investment deck, you have a value creation plan that you outline to your investors as well as to the prospect clinics that you’re trying to get LOIs established with to raise capital.
So, that value creation plan is very important because if you are following your own thought process, then your first initiatives that have to be created within the organization are strategically aligned with what you promise your investors how you’re going to deliver value. So, one value delivery is arbitrage. You buy clinics, you consolidate them and then you resell them, that’s sort of an easy part. But the improvement part of the thesis, where a lot of consolidators talk about improving marketing, improving inventory management, vendor management, labor management, all of those things don’t exist as a process. And as a new business, you have to establish new processes. So, there has to be a process of creating processes and some people think that that’s too much process. But it’s important to know how you do it.
The reason for it, for example, let’s say we decided we are going to improve inventory in every hospital. Well, that takes many steps. First of all, you need to know what you’re doing and you have to have the right personnel in the team to design this process. So, it’s a heavy decentralized process, meaning that it involves clinics, and someone needs to go into the clinic and deploy training to someone who will be a functional lead in that hospital and doing this process beyond the training.
Now, you need to have the training in place for that. So that’s another step in creating process. So, you need to know, what are you doing? You need to explore, what do you need to do that? You need to create the budget, you need to understand, do you have the right people, do you have the process the policies and once you’ve created it, you need to capture it in the learning management system, if you’re preparing training that way, or have the team that will go to every hospital and train someone/ And you have to have the knowledge base where they can always refer back to it. And only after that you should be deploying it.
So, that’s in my mind, the sort of initiative development process that involves many, many steps. They have to be documented, because if you don’t do it repeatedly the same, then all your processes are going to be all over the place. There will be siloed pockets of knowledge that if you fire a person, it’s like a hit by bus situation, then when you don’t have that person, you don’t have the process. So, it takes time and diligence to create that process.
So, what we usually recommend as the steps in this value stream is, you have an idea. Everything is idea or hypothesis, that, “We want to improve marketing,” and you would say, “We’re changing websites for everybody. That’s what we do.” Okay, what are the steps for that? So, you present that business case, so the second phase after having an idea, and again, if you’ll go to Consolidator Operating Framework on our website, and you will find the top value streams, so it’s executive value streams, and when you click on it, you’ll find them all in there. It looks like a Kanban board. So, idea is then transformed into the business case. What needs to happen with an idea to become a business case? It needs to be validated. It needs to explain how it will deliver value. And it needs to be presented to the entire team, which is as you experienced in VIS, and you are part of it now, that is extremely important. Because if you will kick off initiative and marketing, and nobody knows about it, this is how silos form. This is how big companies are doing, every single one of the departments is doing their own thing without consideration, budget consideration, sharing and the processes could be redundant, or disconnected.
I know we’re talking about the Kanban board as a way to visualize those streams and to map them. Is there another way? I know that’s something that we’re big advocates of and big fans of. Is there another way that people could map those? Or is there another idea that might be something that people, if they’re not familiar with Kanban, maybe that they could wrap their head around how to map those and visualize them?
I never thought about the different way, because it’s just such a simple thing. You have the phases that you allow – I don’t know, you can have buckets, and then you can put sticky notes instead of the – I don’t know. But to me, it’s just such a simple thing to sit down as a team and say, “Okay, how do we create every single thing?” And what is very important in this is that this needs to be flexible for the entire organization. The reason for it is that then you can adjust any software that manages the process like Kanban. And then you can have all of the departments have their right size initiatives in front of everybody, and they can monitor them.
So, the phases that I’m going through here, they are for any department, whether you’re IT, whether you’re executive, whether you’re hospital level, they’re the same if you are kicking off a new initiative, and they’re going through logical steps of approval, alignment, and then execution and then deployment of it. So, if you go back to this sort of diagram of the initiative, so we have an initiative, which was idea, we brought it as a business case to our town hall meeting or whatever you call those in your organization, and you presented it to everybody. They can challenge it, poke holes in it, understand that this is coming and then maybe add some things that you may need in requirements.
So, once that’s kicked off, you should be moving into the phase of exploration. Instead of jumping in and starting doing something, you need to explore the budget, this software that you might need, or whatever you’re using for it. All the inputs, all the information, before you actually start doing it. Once you’ve collected all the information, all the stakeholders, everybody who could be involved, then it goes into actually developing a process. So, once you develop the process, then all the stakeholders need to approve it and then you create the training. Because none of the processes created in the organization without a plan to deploy will succeed. So, then you create the training, and then you move it into the column, done. And then done has the – there’s the definition of done in the done column, if you will, which is showing to everybody, “This is what we created,” and it doesn’t have to be exhaustive. But in the same town hall meeting, you just say, “Hey, guys, in our quarter, we had this plan to build the process of inventory management, the hospitals. I presented it two months ago, now it’s ready, we developed it, here’s where the training is, this is how we’re going to deploy it. This is what is ready.”
So, now for let’s say all regional managers and hospital managers, this is ready to be deployed for the clinics that had candidates for it, and then you deploy it. So that is a very, very important value stream at the top of our organization, which is completely, almost completely disconnected from the value stream of improving the hospitals until this is incubated in this process, it can’t be taken to clinics. And so many times you see consolidators have a half-baked process, they start doing it, it’s not documented, then there’s a regional manager who was trained on this, but then the process changed six times, and then, it’s just a mess. So, having that visual and a line among different departments is very important.
I guess part of this is, as I’m listening to you, taking it and maybe rebranding the idea of it as it’s an executive value stream. But it’s also maybe another term that the groups might be accustomed to is more of a corporate value stream. Because it’s not just your executive team. This isn’t the CTO, the CEO, the CMO, all sitting down and talking about things. This is your marketing team. This is your IT team, this is your hospital team, and all those corporate groups that are all sitting together and being able to be in one place, digitally or in person, and talk about these things so that they’re ready to go to the departments. I think that’s nice, because I know we’ve come across that, as we’ve been rolling out new marketing initiatives, new sales initiatives, and even developing new technologies within VIS.
It’s neat, because those groups in those teams are building those ideas. They’re developing them, they’re bringing them to the group, they’re then going through the full exploration phases. And it does sound like a lot of steps. But I think the point is that you have a lot fewer people involved in those initial steps at a corporate level or at a higher level than will need to be involved if you were to half bake it and send it out to 150 clinics to deal with and sort their way through.
Not only that, but you eliminate a lot of waste, because there’s two main things. You eliminate the waste, because as our internal example, we created recently some materials for a new website and then we didn’t follow the process. So, at the end, we all had to contribute during the presentation and we all had something to contribute to it. But it was not considered in the phase of requirements. So, we had to take everything that was done and redo it completely, and that’s a waste because you had multiple people working on the project and executing it without alignment of all the stakeholders.
So, this process helps to eliminate waste, therefore, resources. And also, it helps to create an alignment, because then other departments could look at it and say, “Hey, we’re also doing this. So, this would be useful there. So, let’s create that dependency or collaboration around it.” Just like our product team works with marketing, creating design assets, which works great. So that’s an important piece that I actually don’t think that any, well, at least not any of the consultancies we got engaged with that had a well-documented process of creating process. What they do have, and it’s not also, I haven’t seen it documented really well, because it’s in everybody’s mind. But again, executive team usually thinks this is in everybody’s mind, is that first value creation stream.
So, buying, let’s talk just about the acquisition, sort of – so buying hospitals, integrating them, and then adding the improvements. What happens a lot of the time, it’s sort of, yes, it’s pretty clear what is the business development part. Yes, it’s pretty clear what is the due diligence part. And then after closing, they start with the integration, and that’s kind of smeared. There’s no like, this is the stabilization period or his is the integration and then stabilization. Let’s assess what synergies we should be implying and in what sequence and which ones are fit for this clinic. So, a lot of consolidators will say, “Okay, we’re doing these three things. It’s marketing, inventory and whatever.” And then they start doing it at the time of the integration. And that is the most dangerous time to do it in terms of the burnout, and people leaving because this is where they’re vulnerable. This is where there’s a lot of emotions.
So, if you don’t pause and assess your team for change management, then you can actually lose people through it. I don’t think that we need to remind everybody how long it takes to find veterinarian these days. So, it’s up to 10 months, and losing a veterinarian can cost you about half a million dollars. So, you don’t want that to happen. So therefore, we also recommend this process between the integration and improvement implementation to have this period of stabilization, which is basically after you’re plugged in the accounts and transferred all the benefit packages and everything else, people are paid, not nervous. And then that’s a great time to pause, throw your metrics from your IT that are linked to your strategic goals and say, “Yes, in fact, the clinic that we acquired and thought that improving marketing is relevant, because they have capacity.” And this is very important.
If you just bought a clinic and through marketing, shoot from all the guns you have, let’s bring dentals and let’s bring more appointments to this clinic. But if the clinic is overcapacity, and they don’t have enough staff to manage this, then you’re going to kill them. You’re going to basically exhaust people, and they will burn out and leave because it’s impossible. So, it’s really important to have the period of cooldown, figure out if what you expected from the clinic is actually there, and then see what has the highest cost of delay, which we discussed in another episode.
Well, I think about, gosh, quite a few episodes ago, we talked about the acquisition of Whole Foods by Amazon, and the two different cultures that clash between those two companies. As someone that uses Amazon every day, and shops at Whole Foods at least once a week, if not more, it’s been several years now since they’ve been together and you can slowly start to see those things where in the first couple months, it was sort of people were talking, “Well, what’s going on? What’s changing? To then, “Oh, we’ll swipe your app so that we can get you your reward points or savings.” And now you walk in there, and it’s Amazon branding on half of the labels, and they have a whole section of the store that’s doing the Prime delivery. I think that will continue to be a really interesting business case about the difference of culture and how they’ve – I do think that they put them through a really solid stabilization period, prior to rolling out those changes. Because I think, whenever a company is acquired, that’s one of the first questions people think, whether it’s a clinic, they’re wondering, “Are we changing our name? What’s happening? Are we going to have a new practice manager come in? Are you changing our PIMS? What’s happening to inventory?” And all of those things, the same thing that happens when Amazon bought Whole Foods, “Is it going to become Amazon Foods or what’s happening?” And there’s a lot of concern.
But then as they’ve slowed that down, you can tell even by just talking to the cashiers at the front desk, like, “Yeah, things are changing here and there, but it has really changed my day in and day out work.” I think that’s where you’re going to see value in that.
Well, we took this case apart, I think we looked at it in a little more detail and the reason why they had the stabilization period is because they screwed up. Because from the beginning, they didn’t. And they just said, “Oh, we’ll just acquire this company.” And then when they went through the integration process, they realized how different the cultures are. So, they had to step back and understand what part of the culture should sort of be prevalent, and what things do they keep. This is the most important thing during the integration process. If you think about the hospitals that you acquire, maybe there are processes that are worthwhile, and maybe there’s something that they’re doing better than you’re doing in their organization and for the most part that there are those clinics because you’re buying good clinics.
I remember with Rare Breed, we traveled in Maine, I don’t remember where – the gentleman was Frank. We interviewed him on another podcast. He’s a genius. Like his whole operation was just run as a clock, he had the voice to text implemented, he was just running the whole operation by himself and it was great. He had a remote receptionist and he was just working so well. So, I think that if they took that hospital as a model and adopted the processes, then they would have much better results.
So, what is important during the acquisition integration is that you take the best from the acquired entity and you reapply it to organization, but that requires a continuous improvement culture, or the center of excellence that also needs to be functional and that’s probably the whole new episode on that. But I was just going through, sort of, exploration versus exploitation in the larger – well, in any company. Because some companies are innovative and they explore. And then some companies are more traditional and they know an existing model and they exploit. Those two terms are different. Basically, if you explore, in our context is, we’re buying a clinic and we’re saying, “Let’s explore if we can move and centralize surgical procedures.” And then it hasn’t been done but let’s explore and let’s see if the results are there. So, that would be like initiative design. And then if you’re buying clinics and say, “We’re going to improve inventory process”, that’s exploit. That’s existing process, but we just need to improve it, and then squeeze it as much as we can get out of that optimization.
The companies that succeed the most, they’re called ambidextrous companies that have both processes incorporated. So, the first one is, they are exploring, and then once, and that would be our sort of initiative creation process. And after that they implement it, they exploit. So that’s, I think that’s a good model for consolidators to follow.
Alright, so here’s a little bit of a change of a question here. Every single day, we talk to consolidation groups. And I also talk to people that want to sell, whether it’s their product or their practice, or usually it’s some sort of a technology or a practice or a product or twist on medicine that they’re coming out with and they’re asking us, “How do I approach these consolidators? How do I better go from selling one off practices, to being able to pitch to a larger group?” You obviously were successful with that with Smart Flow. It’s something that I was always working with my practice management background. But what do you think are things that outside vendors could do to introduce themselves into a value stream at the executive level to be a better partner for the consolidators?
That’s an amazing question because I was struggling with this so much as the Smart Flow vendor. And it kind of came across to me when I was at ITEX, when we’re kind of dealing with data and how we provided it to the consolidators. Because the main question that I had then was, “How are they going to use this? Why do we think it’s going to be important to them?” And then when you’re going as a vendor, you’re like, “Oh, everybody can use it.” Everybody can use it, but who cares at this point? That’s more important.
So, in order to fit into a strategy of their organization, you need to understand their strategy and this sort of in a salesy, but important question, what are your biggest challenges in front of you? It’s important, but it could be converted a little differently. Because the strategies of consolidators are quite similar. They’re buying clinics, they’re integrating them, and then they have like three things that they do. It’s like, improve marketing, improve labor, and improve inventory management and cost of goods. So, for most organizations, anything you can do to improve that, you can develop your pitch towards those strategic goals. Or even better, if you have a good relationship with them, you could ask, “What is your value creation plan?” And then whether our product fits into that or not.
So, Smart Flow was a good example that most consolidators will say that they want to buy clinics and play the arbitrage game, and improve operational efficiency. Well Smart Flow was the operational efficiency tool. So that fit nicely into their strategy. And then you could start the conversation. But if you were talking to someone who’s interested in improving marketing, but you’re selling them a workflow optimization tool, this is not on their radar. So, understanding the strategy of a larger organization, and what is the priority to that particular department or that executive will get you there faster.
Yeah, that’s helpful, because I had a great conversation a couple days ago with the team from Breed Science, which is a new animal – well, primarily dog food delivery company and it’s really, really cool product. We were talking about what some of their go to market strategies were and things like that. One of the things that I mentioned was the idea that the people they’re going to be reaching out to are going to need to be looking at the stabilization period before introducing an entirely new product line to their practices. So, it’s the understanding of when does that make sense? Does it make sense to partner with brand new de novo style consolidators to be able to roll that out from the get go? Should it be something that you pilot? Should it be something that you put in the larger focus? But I guess sitting down and getting with those executive teams or the corporate teams to discuss what their value creation plan is, is where you could slot that in and say, “Here’s where we are, we can reduce your inventory on hand of food because we deliver it. We can increase your average ticket price because it’s a recurring revenue model.” Or something like that. So that was sort of the idea I was thinking around there.
Yeah, absolutely. I think that you’re right on that. Honestly, to think about the food, like, that’s not the first thing the consolidator would be thinking about, like, “We’ve got to add another product or from food category,” because that’s not on their radar. But you were thinking in the right direction.
Yeah, it’s putting it into the terms that make sense for the corporate group to be able to think about it and figure out a way for your specific vendor to fit into the value creation plan.
Yeah. And as we talked about the strategic filter, that a lot of these things would be a shiny object. It’s something that is not within your strategy, and people are just not going to hear you.
Yeah. I think there’s a lot of other great things we can keep talking about. I do think it’s really helpful, of course, for people to be able to peek at the website, vetintegrations.com. Look at the CMM, the Consolidated Maturity Model, as well as our Consolidator Operating Framework, which is all clickable, and will give you plenty of information to read. And as a neat way to follow along with what we have here. I’d love for us to do another episode, talking about some of the next levels of value creation plans and value stream mapping. So, hopefully we can put one of those together.
Awesome. Thank you. And yeah, looking forward to the next episode.