Supply
chain earns prominent spot on the C-scape with hospital chiefs
Three top executives demonstrate why materials management matters
to them
by Rick Dana Barlow
To be an effective hospital CEO
requires a marriage of vision and execution; to be a great hospital CEO
requires a marriage of charismatic leadership and a respect for other
people, as well as the traits for an effective CEO. One could apply
those criteria to materials management professionals on the executive
track, too.
Yet few hospital CEOs dedicate the time
to fully support, understand, recognize and empower people and processes
within all facets of their organizations, let alone supply chain
management, which represents somewhere between more than a third but
less than half of their operating budgets.
Within the last decade or so, more CEOs
have placed supply chain management activities on their radar screen for
a variety of reasons. Granted, of the 6,000 or so hospital CEOs, a mere
fraction – and a miniscule one at that – truly “get it.” Thankfully,
that number is growing, albeit slowly.
In Healthcare Purchasing News’
third annual CEO-oriented SURE Award for Supply Chain Excellence, we
found three of this progressive, forward-thinking group to spotlight.
They are William Corley, president and CEO, Community Health
Network, a five-hospital system in Indianapolis; Brian KEELEY,
president and CEO, Baptist Health South Florida, a six-hospital system
in Coral Gables, FL; and Paul Levy, president and CEO, Beth
Israel Deaconess Medical Center, Boston.
To call any of these guys a “people
person” would make light of their considerable influence and
achievements. Their people obviously think the world of them and all
three genuinely returned without hesitation the credit for their
organization’s supply chain accomplishments to those in the trenches.
While each of the three may have different management styles they share
similar views on leadership and supply chain importance. They also have
a familiar connection to supply chain management success: They know just
enough about it to converse intelligently but ask the right questions;
and they employ and empower the right people to make decisions and
implement programs, so they can simply get out of the way.
In exclusive interviews with HPN,
Community Health’s Corley, Baptist Health’s KEELEY and Beth Israel
Deaconess’ Levy share insights into their leadership philosophies and
how supply chain operations factor into their strategic thinking.
Corley at a glance
For much of Corley’s more than 40-year
healthcare career he’s served in key hospital executive
leadership positions, including a tour of duty at the 3rd Field
Hospital for the U.S. Army in Saigon, Vietnam in the late 1960s.
For the last 32 years Corley has led three respectable
healthcare organizations, starting with Milton S. Hershey
Medical Center in Hershey, PA, followed by Akron (OH) General
Medical Center and since 1984 the five-hospital Community Health
Network in Indianapolis. Under his watch Community Hospitals and
a leading group of Central Indiana cardiovascular physicians
built The Indiana Heart Hospital, the first dedicated heart
hospital in the state. It opened in February 2003. Corley serves
on a variety of boards, co-chairing Groups for Renewal,
Accountability and Development of Excellence in Schools
(GRADES). He has received the highest honor bestowed on
individuals by Indiana’s governor – Sagamore of the Wabash. He
also served as the 1998 president of the Indianapolis 500 and
Brickyard 400 Festivals and in his spare time he is a high
school basketball referee.
Unlikely source of inspiration: Doing a
tour in Vietnam in 1967.
Most creative thing you’ve ever done:
Promoted people who didn’t think they could step up.
What makes you laugh? Children and the
things they say and do.
Title of the best book you’ve read recently:
"Execution" by Ram Charan
What’s the best and worst advice someone ever
gave you? Best: Feed your passion. No worst advice.
What’s a must-have accessory for you? My
black book that has everything in it.
How – not where – do you do your best thinking?
Listen to others outside health care.
What would people be surprised to know about
you? I played football for Lou Holtz.
What’s the one question you get asked the most
by materials managers? Can you educate my CEO about
supply chain management?
Favorite object you keep in your office and why:
Bubble gum – I am a closet chewer.
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HPN: From a supply
chain management perspective, by how much (in terms of percentage and
actual dollars) has your organization reduced expenses and eliminated
budget items in the last year and what were your specific contributions
to the process as CEO?
CORLEY:
Our organization set goals on supply expense reduction of $4 million,
and we will achieve this target by year end. VHA supply chain metrics
has helped us in identifying the areas on which to focus. Also
standardization of medical/surgical supplies across the Network by
working with physicians and nurses has been crucial to our success. I
have worked with Charlie Greve, our vice president of materials
management to get a direction and implement the plan.
KEELEY:
My answer is probably from 10,000 feet. I’m not really focusing
on the percentage of actual dollars. Our whole focus is to standardize
the process throughout the entire system. Our people, including the
nurses and doctors throughout our six hospitals who are independent
medical staffs know that we’re trying to standardize along best
practices and evidence-based medicine. We’ve told them we don’t care
which piece of technology you choose. Just choose one. That’s been our
entire thrust, realizing that’s what’s really going to drive value. And
also focus on quality and increasing patient safety and reducing
variability.
When you’ve been involved in the whole
quality movement for as long as I and our whole organization has been
you learn about the mathematical equation for quality, which is the
absence of variation. When I first heard that I asked, ‘what does that
mean anyway?’ But when you look at something as complex as the
healthcare arena and at the tremendous variation, there’s no reason for
it. That’s what deteriorates quality. The more you can focus on good
clinical outcomes and evidence-based medicine that you reduce the
variability you know you’re making the appropriate decisions that can
result in higher levels of quality and safety, with fewer medication
errors and problems. That even goes to equipment. Standardizing on all
the equipment, such as PET/CTs, the MRIs, the image-guided surgery
robotics, and use one [brand] as we do enables the technicians, doctors
and nurses to go from facility to facility without complications. Can
you imagine what a mess it is if you have two different types of
sophisticated technology that they have to learn? It took us a number of
years to standardize all of that process throughout [the system].
LEVY:
When I arrived as CEO in 2002, BIDMC was in a financial crisis and
had been for at least five years. The hospital had lost millions of
dollars per year and was within 18 months of running out of cash. In
addition, the staff was demoralized, patients were not happy, doctors
and nurses were leaving at a high rate, and referring doctors in the
community had pulled away from their long-standing relationships with
the hospital. Among my early tasks, therefore, was to implement a
financial turnaround to save the hospital and its important three-part
mission of clinical care, education and research.
A report prepared by a national
consulting firm had suggested that improvements in supply chain
management could bring millions of dollars to the bottom line, and we
all agreed that this should be a priority area for focus. Unfortunately,
the consultants’ recommendations in this area did not offer appropriate
action steps to set and otherwise make improvements. So our management
team set to work to improve the situation.
My role in this process was similar to
the role I play in most performance improvement/organizational culture
initiatives as CEO. I asked those in charge to set a target for cost
reduction and a schedule for achieving that reduction. I trusted them to
devise the specific approaches, tasks and milestones by which their
success would be measured. But in addition, I communicated the case (and
the urgency of that case) to our employees and perhaps most importantly,
to our physician colleagues, for working together to improve our bottom
line. There were a number of major task areas. In no particular order,
these included the following:
1. We transferred the department
responsible for contracting/supply chain improvement from our parent
organization to the medical center, allowing it to more appropriately
integrate into the fabric of our organization and create the
relationships needed to partner with departments and physicians to make
the decisions that would save dollars.
2. Rationalize of items to be
purchased. We had hundreds of listings for the same items, and we needed
to reformat our purchasing list so that a 1-inch-by-4-inch bandage was
simply that and was not defined a dozen different ways. This required
hundreds of hours of work going through our purchasing catalogue and
cleaning it up.
3. Standardize clinical procedures. We
worked with the doctors to determine which items were most efficacious
in delivering high quality patient care and to standardize, where
possible, their choice of supplies and equipment. This was not only a
function of our materials management/purchasing group. It is also a
function of our small clinical resource management staff, who work
directly with doctors to learn, explore and persuade options for
supplies and equipment. This was an area in which my communicating the
context and the urgency of our need to improve was probably most
helpful.
4. Revamp internal policies to make
clear who in the organization had the right to purchase and who had the
right to negotiate deals with vendors. Previously, an equipment vendor,
for example, might offer a doctor a good deal on an initial purchase but
then back-end load an expensive maintenance contract on the
organization. We interjected the purchasing department into all such
procurements to make sure that life-cycle costs were always considered.
5. Negotiate the best prices. Here, we
chose between direct purchase and using the GPO, depending on the actual
results we could obtain. By now, we had reduced the number of items we
were purchasing, either by rationalization or standardization, and we
had clear lines of authority with regard to negotiation, and we
therefore were able to go to vendors with larger orders and/or more
sophisticated buyer’s representatives and negotiate better pricing.
By the close of FY06, which ended
October 31, the 12-month rolling average of dollars per case mix
adjusted discharge was approximately $5,700, below the $6,000 per case
which would have been the case had there been no cost
reduction/productivity improvement efforts to affect the 4 percent
annual inflation in costs from the starting point in September
2002. LEAN methodology produced improved throughput and improved ‘case
mix’ in radiation oncology, the Cyberknife, and in MRI, resulting in
more than $500,000 of unbudgeted revenue. Clinical resource management
efforts resulted in a redefinition of guidelines for administration of
blood products resulting in a $600,000 savings. Clinical pathways were
developed and implemented for liver transplantation and joint
replacement patients. Projects to achieve standardization of supplies in
the O.R. were launched for a number of areas in orthopedic surgery.
Keeley at a glance
Under Keeley’s watch, Baptist Health gained
national recognition as one of the "100 Best Companies to Work
For In America" by Fortune magazine, of the "100 Best Companies
For Working Mothers" by Working Mother magazine, one of the
"Best Companies for Workers Over 50" by AARP and was named in
the book "100 Best Companies to Work for in America." Keeley
also has received a handful of CEO of the Year awards from a
variety of professional organizations. In his spare time he is
Chairman of the Board of the Miami Branch of the Federal Reserve
Bank of Atlanta, a member of the Governing Board of the Greater
Miami Chamber of Commerce. He also serves on the Cayman Islands
Health Services Administration Board and is the Honorary Consul
General for St. Kitts and Nevis.
Unlikely source of inspiration: Warren
Buffett. He’s one of the richest people in the world and the
most unassuming individual you’d ever meet. But he’s
straightforward, no-nonsense and sharp as a tack.
Most creative thing you’ve ever done:
When I first came here 30-something years ago, the symbol for
Baptist Hospital before it became a system was a picture of a
building in a circle. I found it to be the most uninspiring
symbol I’d ever seen. One of our key benefactors was in the
Mediterranean and the architecture included pineapples. So I’m
the guy that came up with the pineapple as our symbol., it’s the
symbol of hospitality.
What makes you laugh? Two things: "The
Far Side" cartoons and political cartoons, such as those in
The New York Times, Time and Newsweek.
Title of the best book you’ve read recently:
Without a doubt, the best book I’ve read in 10 years, in
addition to Jim Collins’ book "Good to Great," was "The World Is
Flat" by Tom Friedman.
What’s the best and worst advice someone ever
gave you? Best: Without a doubt, always tell the truth.
Especially with physicians. If you can’t do something tell them
right up front you can’t do it. Worst: The traffic in Miami
isn’t bad very early in the morning. At 6:30, it’s still
terrible.
What’s a must-have accessory for you? A
pen. I write copious notes. When I think of something I’ll make
a note of it.
How – not where – do you do your best thinking?
When I’m running in the morning. I actually get up around 3:45
or 4. I’m clear. There are no phones, faxes, radio or TV.
What would people be surprised to know about
you? I’m Mr. Fix-It. I love doing plumbing and
electrical. I can fix anything in the home.
What’s the one question you get asked the most
by materials managers? What’s the pineapple?
Favorite object you keep in your office and why:
My Federal Reserve Board plaque.
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Strategically and
tactically, who should be taking ownership of and making key decisions
about your organization’s supply chain management activities – the CEO,
the CFO, the COO or the materials management executive – and why? How
hands-on should a CEO be in this area?
KEELEY:
I’m the guy that sets the mission and the vision and the values – really
focusing on the key strategic management objectives and making sure that
everything is linked together. We’ve got all the hospital CEOs and
materials management and the physician leaders and the nursing leaders
together to understand that there’s one common vision. There’s not a
vision for each individual hospital. We’ve got one core group of
strategies and we have to make sure that everything is linked together
to support the Baptist Health mission. It’s not down going up in a sense
that we have to support individual missions. The only reason they exist
and the only reason that our organization exists is to support a single
mission. This is what Jim Collins talks about in his book “Good to
Great.” That’s our management bible. He’s a Stanford professor who
looked at sustainable organizations, ones that are truly successful over
many years and what are their common characteristics. One that they
found is that everybody had a single mission, corporate culture and
values that never change. I’ve been here 30something years now and we
have the same mission, vision and values that we had when I got here.
That’s what we drive home and that’s something that’s sacred territory
to me.
What we do change are the core
strategies and the management actions, and that’s how we link this all
together. We link it back to our core purpose and our mission and our
vision. The linkages are the most important thing. Everybody is linked
together, and we all know that everybody is moving in the right
direction. That’s when I simply get out of the way.
LEVY:
The basic steps I mentioned earlier helped our turnaround to be a
success and, equally important, served as the foundation for all
activities since then. The basic principles stay intact. Each year,
Joanne Marqusee, senior vice president, BIDMC operations and facilities,
and Joe Sheil, director of contracting, BIDMC, work with managers and
physicians across the organization to identify those items that already
have been accomplished and those that can be accomplished the following
year to be incorporated into our budget of how much in improvements they
will accomplish for the Medical Center. The COO, CFO and I adopt their
projections and include them in the budget we submit to our Board of
Directors. Then, they and their staff carry out the program and do so
very well.
The best role for the CEO is to give
people the freedom to do what they do best and to not meddle. In short,
this award you are giving me, while appreciated, is a reflection of the
team, both in contracting and well beyond, that carry out these
initiatives.
We continue to hear that
most CEOs remain out-of-touch about supply chain operations in their
facilities and merely transfer many of the functions to a GPO or
distributor. What would you tell those observers? And what would you
tell those CEOs who actually fit the general impression?
CORLEY:
I have said numerous times that the CEO, COO and CFO have often
delegated the function of supply chain management to their purchasing
agent. It is important for leaders to have a strategic and tactical
understanding of supply chain management and not just be concerned about
the best price of an item or items. The cost of the item is 40 to 60
percent of the total cost of the goods. We are working with Owens &
Minor, which has developed a Material Management 101 course, which has
been taught to all of our senior leadership. We will be setting targets
and metrics for the 11 top areas in the Network to reduce supply costs
again in 2007.
KEELEY:
There’s tremendous variation from one side of the country to the other.
There are people who are hands-on that dive into it and there are other
people who don’t even know what you’re talking about when you refer to
supply chain management. It’s not unusual to see that variation.
But from
our standpoint it’s a high priority for me because it’s a very big piece
of the pie. When we started merging our healthcare system together we
needed to understand what are some of the most important things to be
able to control and what are the least important things? We had to deal
with that from a resource standpoint. The biggest resource we have is
people. The second biggest resource is supplies and material. So that
gravitated right to the top because when we were merging our
organization together we were talking about multimillion dollar
organizations and putting ourselves at significant risk to come together
so we needed to focus on the most important things. Obviously, that was
one of the most important things by the sheer size of the piece of the
pie. We empowered our people here to understand how important the supply
chain is so that our people are equipped with the tools and the
strategies and the means to be able to get the job done.
How do you define
and explain leadership, in terms of behavior, impressions and outcomes?
CORLEY:
Leadership is about developing purpose and a vision for the
organization, setting and continuing to develop a strong culture – where
all leaders and managers mold the values of the organization – and
executing this strategy and tactics to achieve the vision. You must
continuously show, not just say, to employees that they are the most
important asset to the organization.
KEELEY:
One definition of leadership is the capacity to translate vision into
reality. The vision is the mission and the purpose and how do we
translate that into reality? Another name for that is pure execution.
It’s amazing when you look at the variability between executives – how
somebody can plan and plan and have all the strategies and a year later
nothing has been accomplished. And another person can roll their sleeves
up and get the job done. It’s a matter of how do we translate that
vision into reality? That’s called execution. I think a lot of that has
to do with communication. That’s one of the most important things I do,
in terms of communicating the vision and make sure that everyone clearly
understands in no uncertain terms what we’re trying to accomplish.
We
obviously need to inspire people. We need to encourage them. We need to
incentivize them appropriately. And we need to align the incentives. The
worst thing in the world is to have people working in different
directions. Different CEOs from various hospitals can be competing with
each other. And that was something we spent a huge amount of time on. We
stumbled on it the first couple of years. We had misaligned incentives.
That’s when we had to make sure everybody was moving in the right
direction.
And
finally, another key area is making sure you’ve got the right people on
the bus and the right people in the right seats on the bus. Specifically
with materials management, do we have the right people with the right
skills, do they have the comprehension of what we’re trying to
accomplish? Do they have the people skills to work with the disparate
group of physicians?
Levy at a glance
Before joining Beth Israel Deaconess Medical
Center in January 2002, Levy served as executive dean for
administration at Harvard Medical School. Prior to his role at
Harvard, Levy was adjunct professor of environmental policy at
MIT, where he taught infrastructure planning and development
and environmental policy for seven years. He also maintained
an independent consulting practice, providing strategic,
negotiation, and regulatory advice to firms in the energy,
water and telecommunications arenas. Levy has served as
executive director of the Massachusetts Water Resources
Authority where he oversaw the "Boston Harbor Cleanup," one of
the largest pollution control projects in the world. He also
carried out an aggressive demand management program that
decreased water consumption by 15 percent over a three-year
period for 46 communities. BIDMC is the official hospital of
the 2004 World Series Champions Boston Red Sox.
Unlikely source of inspiration: The
babies in our neonatal intensive care unit.
Most creative thing you’ve ever done:
Organizing, planning and implementing the clean-up of Boston
Harbor.
What makes you laugh? Listening to the
things 10 year-olds say to each other on the field when I am
refereeing their soccer game.
Title of the best book you’ve read
recently: "Lost in a Good Book" [by
Jasper Fforde]
What’s the best and worst advice someone ever
gave you? Both: You should run Beth Israel
Deaconess Medical Center.
What’s a must-have accessory for you? Well-padded
biking shorts.
How – not where – do you do your best
thinking? Between mile 6 and 15 on a bike ride.
What would people be surprised to know about
you? That I am a world-class figure skater. (I’m not.
That’s why it would be a surprise.)
What’s the one question you get asked the most
by materials managers? What do
YOU really do here?
Favorite object you keep in your office:
My great-uncle’s 1910
Underwood typewriter.
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As a supply chain-focused
CEO, what makes for an effective materials management director/leader
and why? What characteristics and leadership qualities do you look for?
CORLEY:
The effective materials management leader is a supply chain executive
who manages and leads the entire logistics functions. He or she must
work closely with the CFO and many department and organizational
leaders. Trying new ways of doing things and performance improvement are
keys – two keys to their success.
KEELEY:
Probably right at the top – and this is not directly related to supply
chain management because it applies to everybody that works in our
organization – is honesty and integrity. It’s part of our core values.
There are no substitutes. Either you have a high degree of integrity and
you’re an honest person or you’re not. And if you’re not you don’t fit
here and we won’t tolerate you here. That, to me, is right at the top.
It’s well above everything else.
Beyond
that, it’s about understanding the big picture and how supply chain
management fits into the organization. That goes back to the linkages I
mentioned. Business acumen is important. In our case it’s dealing with
resources in excess of $100 million. Frank Fernandez [assistant vice
president and corporate director of materials management] is managing
one of our major hospitals. When you look at the entire budget he’s
responsible for it’s a huge chunk of our business. To have the clinical
skills is important because you must understand the needs of surgery and
the [emergency department].
Also, you
need the subject matter expertise – not only in the areas of materials
management but in the areas that you’re dealing with. Frank tends to be
an expert in all of those areas. Once you spend enough time buying
image-guided surgery [technology] you become an expert. And then you
need a strong background in automation. That was probably not important
15 years ago but it’s extremely important now because we spend a very
substantial amount of money on automation technology. To give you an
idea, we spend about 7½ percent of our operating budget [on automation];
most others are around 2½ percent. We’re spending a huge amount because
we want to integrate everything together through the Internet and
through the golden umbilical cord as I call it. To be able to do that
you really have to understand automation technology.
Strategically, how
does materials management contribute to your organization’s financial
performance and market position, as well as how do you see it
contributing to the healthcare industry overall?
CORLEY:
Strategically, we developed a plan in 2005 for where we want the supply
chain management function to be in 2008, with intermediate steps at year
end for 2006, 2007 and 2008. Logistics will become even more important
in the future with the extreme shortage of professional nursing
personnel. It will entail materials management taking on more steps in
the supply chain process.
What’s the biggest
misunderstanding CEOs have with materials managers? How should it be
corrected and who should initiate it?
KEELEY:
Probably the organization’s overall priorities. When people say, ‘well,
that’s a purchasing function so I’m not going to get involved in that
and will let the materials manager take care of it,’ I think they’ve
lost something. It’s such an important component of the entire process,
not only on the cost side but also on the quality side. The biggest
challenge that most people have – and we’ve been quite successful with
it – is the whole clinical standardization process. We have a lot of
these efforts driven by the physicians and not necessarily by the suits.
When you buy into information technology, like CPOE or something like
that, a great way to generate failure is to have the [key administrator]
stand up and say, ‘okay, doctors, here’s what we’re going to buy for
you.’ There’s a very good chance that it’s going to fail. You’ve got to
let them have ownership and buy into that process. We realize how
important that is. I think a lot of people just don’t have that
understanding.
Of the top five
goals and tasks on your mind for 2007, is supply chain management on the
list, and if so, is it higher or lower than before? Why?
CORLEY:
Supply chain management is a part of our alignment and financial
management direction. Standardization, value analysis and working as a
team with physicians, nurses, and pharmacists are important for a
long-term future. Supply chain has been important for at least the last
10 years and will continue to be more important due to the number of
items that are special order and not on group purchasing contracts.
KEELEY:
It’s right at the top. We focus on integration. That goes down to how we
run the business, it goes back to the macro goal of consumer-driven
healthcare in terms of the consumers wanting to know about costs and
quality. That’s the whole idea behind transparency. But if you look at
the huge number of transactions we have at Baptist Health right now,
which is in excess of tens of millions of dollars, we can track every
one of those – even right to the unit dose – so that materials
management or the CEO can see the data. We are using Siemens with an
open architecture system that offers us the ability to be as flexible as
possible.
How do you ensure
that the clinicians (doctors and nurses) get along and work together
with materials management so that the processes for revenue generation,
expense reduction and high-quality patient care are not disrupted (e.g.,
refereeing disputes, building consensus)?
CORLEY:
We have found that having clinical people, nurses and pharmacists, on
the materials management team really improve materials management and
clinical relationships. Agreeing to disagree is not an option. I have
said ‘if you guys can’t come up with a decision then I guess I will have
to make the call – and you really don’t want someone who knows less than
you about the subject making the decision.’
KEELEY:
Getting the right people, like Frank Fernandez, and the information
technology people to work together. They work together so much on task
forces and teams, meeting once a week or something. We’ve found that
many IT people have gravitated over to clinicians, and materials
management people have gravitated over to IT people. They’ve learned
about each others’ business. I was amazed when our chief information
officer told me she was going back to get her nursing degree. When you
look at standardization you have to incorporate all of the processes in
the organization – not just purchasing and materials management. It also
involves all of the order entry, clinical, nursing and physician
processes. This is just pure collaboration.
We tell our people that ‘we’re not
telling you how to do it. You guys work together to give us the best
mousetrap, wherever it’s from. We don’t care where it’s from. We’re
asking you to make the decision to guide us.’ We have a lot of that
driven by the clinicians themselves. They understand the ground rules.
For example, we’re not going to have five different hip implants here.
We want to get it down to one. Go ahead and choose the Cadillac. We
don’t care what you choose. It ought to be based on the best protocols,
on the best value and on evidence-based medicine.
We establish the framework for decision
making; we don’t try to force people into boxes because that’s never
worked for us. That’s one of the reasons we’ve been very successful with
implementation. It’s having the right people that don’t bark orders but
are essentially collaborative and good communicators.
LEVY:
The process starts with an analysis of medical efficacy – not
cost. Doctors and nurses are driven to provide high quality care, and
all issues with regard to purchasing MUST be put in that context. Only
after agreement is reached with the clinicians do questions of
purchasing and getting the best deal come into play.
What are some practical, common sense
ways for materials managers to generate effective CEO-level support, as
well as keep patient satisfaction in mind, as they perform their roles?
KEELEY:
Understand what is strategically important to the organization. Not
what’s important for materials management but look at the overall core
strategies to make sure that you’re contributing to it. Everybody has to
be moving in the right direction.
LEVY:
Say what you are going to do, and then do it.