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 / Spring 2014 / Issue 74(originally published by Booz & Company)


Cut Your Company’s Fat but Keep Some Slack

Why excess capacity leads to greater efficiency.

In 2002, the operating rooms at St. John’s Regional Health Center, an acute-care hospital in Missouri, were at 100 percent capacity. When emergency cases—which made up about 20 percent of the full load—arose, the hospital was forced to bump long-scheduled surgeries. As a result, according to one study, doctors often waited several hours to perform two-hour procedures and sometimes operated at 2 a.m., and staff members regularly worked unplanned overtime. The hospital was constantly behind.

Administrators brought in an outside advisor, who came up with a rather surprising solution: Leave one room unused. To many, this seemed crazy. The facility was already being squeezed, and now comes a recommendation to take away even more capacity? Yet there was a profound logic to this recommendation, a logic that is instructive for the management of scarcity.

On the surface, St. John’s lacked operating rooms. But what it actually lacked was the ability to accommodate emergencies. Because planned procedures were taking up all the rooms, unplanned surgeries required a continual rearranging of the schedule—which had serious repercussions for costs and even quality of care. The key to finding a solution was the fact that the term unplanned surgery is a bit misleading. The hospital can’t predict each individual procedure, but it knows that there will always be emergencies. Once a room was set aside specifically for unscheduled cases, all the other operating rooms could be packed well and proceed unencumbered by surprises. The empty room thus added much-needed slack to the system. Soon after implementing this plan, the hospital was able to accommodate 5.1 percent more surgical cases overall, the number of surgeries performed after 3 p.m. fell by 45 percent, and revenue increased. And in the two years that followed, the hospital experienced a 7 and 11 percent annual increase in surgical volume.

We All Need Breathing Room

Many systems require slack in order to run smoothly. Old reel-to-reel tape recorders needed an extra bit of tape fed into the mechanism to ensure that it wouldn’t rip. Your coffee grinder won’t grind if you overstuff it. And consider roadways: In principle, if a road is 85 percent full and everybody goes at the same speed, all cars can easily fit with some room between them. But if one driver speeds up just a bit and then needs to brake, everyone behind that car has to brake as well. Thus, at 85 percent there is enough road but not enough slack to absorb small shocks, and traffic grinds to a halt.

Still, slack is routinely undervalued. Perhaps you used to have an amazing administrative assistant always ready to do the tasks you needed on short notice. But he wasn’t always busy. In the interest of efficiency, the department was reorganized, and now you share the assistant with two other people. The office’s time-use data revealed this new system to be a success; now the assistant’s schedule is packed as tightly as yours. However, your last-minute requests can no longer be handled immediately. This means that with your heavy schedule, even the smallest shock sets you back. So you start to juggle, and fall further and further behind. The assistant had been an important source of slack. The fact that he was “underused,” like that room at St. John’s, is what made his role valuable.

When you have a lot to do, the standard impulse is to pack tightly to fit everything in. Otherwise, you are left feeling that you’re not doing enough—that you could be more efficient. But it’s a vicious circle. When your schedule is crammed, getting stuck in a traffic jam throws you into disarray. You are late to meeting number one, and with no time in between meetings, that delay pushes into meeting number two, and so on. You finally have no choice but to defer one of today’s obligations to tomorrow, except, of course, that tomorrow’s schedule is packed too, and the cost of that deferral ends up being high.

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