The No Tool Zone

Not long ago I had lunch with an old friend and as the conversation progressed the subject turned to systems thinking.  I explained to him what systems thinking was all about.  His reaction took me a little off guard and he said this is one of those “religious experiences.”  I equate this to drinking the Kool-Aid at Jonestown.  Blindly following an emotional leader until death.  The glazed over look one would have seen in Nazi Germany comes to mind. 

My message has been discounted before by people.  Would it be fair to say that they still believe the world is flat or that the earth is the center of the universe?  If I were to counter this thought like Columbus or Copernicus would I be flogged or jailed for heresy?  Even though the truth is on my side.  Or would it be fair to call them closed minded to new thinking?

I read about W. Edwards Deming in the early 80s and would attend (or watch) multiple 4-day seminars.  His message was different.  In general, the way I was managing at the time was 360 degrees from what Dr. Deming was saying, I was curious to learn more.  I have spent most of my life trying to understand these concepts and learning from others that had matured his message.  Student . . . yes, passionate . . . yes, which I believe passion sometimes makes people believe it is a “religious experience.”  Dr. Deming brought a way of thinking that was intellectual and challenged the status quo.  Command and control thinkers in management positions could only accept the changes Dr. Deming proposed that required others to change and not them.  Their paradigm left unchallenged and worse spending time doing the wrong thing righter (or wronger) in their organizational change management programs. 

I could only tell my friend that he first must be curious . . . and more importantly intellectually curious.  Scientific management theory is assuming the world is flat and our over-prescribed use of technology is assuming the earth is the center of the universe.  I can’t make you curious and those that aren’t curious may call me a religious heretic, but I will know if you seek a better way one exists . . . an intellectual one.

It is alarming, not just the Bernie Madoff scandal, but the “whole ball of wax”, the banking collapse, the economy . . . all of it.  As I read about the Bernie Madoff scandal in the Wall Street Journal this morning, my eye caught one important fact.  Madoff hired (allegedly) employees that didn’t understand the securities industry and directed them to “generate false and fraudulent documents.”  The command and control thinker has functional specialism (born from scientific management theory) as its mantra where tasks are split to where no one really knows what they are making or servicing.  The tasks are so diluted that only the executives or managers could know.  

My bank management consulting experience over the past decade saw the separation of duties into front, middle and back office and many times I was told this was for regulatory purposes.  It is a management paradox to me that the very thing that they are trying to prevent (by separation of duties) . . . fraud, may promote it.  It would take a lot for a group of systems thinkers (that understand the system end-to-end) to be morally corrupt for someone not to blow the whistle. 

An added benefit with systems thinking is you would be serving the customer as the center of activity.  This leads to business improvement, corporate cost reductions and better service. Boards of Directors would be wise to take this approach in any industry.

My fear is that we will take the inspection approach with banking, penalizing those banks that did no wrong (most of them).  This will add to costs as inspection and regulation are forms of waste.  Inspection is too late and regulation is too expensive, but these are things we can expect in the coming days.  Better work design through systems thinking would be a better approach.

I actually prefer ignorant to stupid, because the only thing that can end stupidity is death.  However the title “It’s the System Ignorant” doesn’t have the same ring to it.  So I will stick with stupid and let you sort yourselves out.

I have talked a lot about command and control thinkers in my blogs.  This will be no exception these are folks that use their financial resources for technology (CRM, BPM, IVR systems, etc.), outsourcing, shared services, lean six sigma training and tools, strategic plans, PowerPoints, contract analysis, developing financial targets, organizational change management programs (new one year after year), balanced scorecards and performance appraisals.  Like sheep they follow the “leader” or best practice making assumptions that these directions make sense and copying the leader has to be good for their business.  The focus is on results and corporate cost reductions almost always leading them to higher total costs.

The systems thinker focuses on customer demands looking at the organization from the outside-in (not top-down or bottom-up).  They realize that giving the customer what they want (value) will reduce costs, not increase them.  Systems thinkers understand that studying this demand in terms of type and frequency and value/failure will lead to a better system.  They understand the concept of variation and the difference between common and special causes of variation in the analysis of data. Systems thinkers understand that the worker is responsible for 5% of the performance of the organization and 95% of performance is the system . . . stupid.

When I first started to do organizational change management for service industry using continual or continuous improvement (A Deming based method), I was often asked if the principles and concepts applied that were used in manufacturing could be used in service.  The answer was (of course) . . . yes.  I still believe this, where I got in trouble was applying the tools at face value.  

From those using “lean” manufacturing, I learned that the first place to start was with 5S and finding the “standard work.”  This seemed plausible until John Seddon (Vanguard Consulting Ltd.) wrote a book called Freedom from Command and Control that pointed out this was wholly the wrong place to start.  He learned from Ohno that the place to start was studying demand and that the standardization of service is more likely to lead to institutionalizing waste because of the variety of demand.  By standardizing service processes we can not absorb the variety that customers give us leading to more failure demand (rework, chase calls, etc.).  Only after studying demand do we potentially find possibilities for standardization. 

John Seddon references people that blindlessly apply tools as “toolheads.”  That must make me a “reformed toolhead” . . . but my Deming background usually gave me an early warning system.  Most “toolheads” only know the tools and not the underlying concepts and principles from which they were derived.  I have seen this phenomenon in “Lean” and Six Sigma, where people know all the tools, but when asked “why they are applying them?” . . . the reply is often “that was what I was taught.”  Complicating this thinking is the markets demand for quick fixes and tools are a sure path to doing the wrong thing righter.

Technology organizations continue to perpetuate this thinking.  It is much easier to code to a standard than to have to account for variety in the demand customers want.  If you add to this that command and control thinkers want standardization to achieve corporate cost reductions, you have guaranteed locking in higher costs and poor service.  This creates a management paradox that command and control thinkers can not see.

Systems thinking requires an organization to understand current performance.  This means an accounting for the variety of demand customers present and the nature of the demand (value and failure), improving and than pulling IT or standardizing comes last.

It is bad enough that we will most likely leaving a huge deficit to future generations in the US.  The baby boom generation is marked by its excesses, short-term thinking and command and control managment.  Ever making us less competitive on a world stage.  We still have an opportunity to change this before my generation leaves the corporate offices, but it will require a change of thinking from one of command and control to systems thinking.  

The payback is the baby boom generation will have to deal with these horrible service systems where technology has been over-prescribed.  My mother-in-law sent me an email where she couldn’t get an answer on her GM health plan after multiple calls, wrong or confusing answers, and IVR phone systems that require a PHD to navigate.  Only fitting that our generation suffer the consequences of the poor service juggernauts we have created.

I suspect that future generations (like those before) will laugh at our generational ignorance around command and control thinking and over use of technology.  Similar to the way they laugh at the way Charles Barkley and Larry Bird wore such “short shorts.”  Time has not completely passed us though we still have an opportunity to leave good service systems for our retirement years and future generations.

This will require a transfer of thinking to systems thinking.  Beginning to build leadership development programs that help manage organizations as systems.  Not separating the decision making from the work.  Learning how to create value instead of managing income statements.  Showing innovation leadership by understanding customer demands.  Discarding scientific management theory where sub-optimization prevails to a system that understands that service is delivered end-to-end from a customer perspective.

In my last phone conversation with Dr. W. Edwards Deming he said “you better hurry.”  I am doing the best I can.

In service organizations, the systemic relationship between purpose, measures and method are often clouded by the measures used in command and control organizations.  These measures have nothing to do with what matters to customers, but they drive all the ingenuity of the manager and worker.  They typically have to do with activity and financial targets and become de facto purposes instead of what the expressed purpose should be  . . . serve the customer.

When organizations understand their real purpose (serving customers) they will be handed a whole new set of measures that can be used to understand and improve performance.  An organization can achieve cost reductions and business improvement by studying demand in customer terms vs. the typical command and control view of demand as production units.  Managements actions become improving the system instead of paying attention to workers.  With management and worker having a shared aim and useful measures new methods can be uncovered that create value for customer demands.  Control over the work is greater than when command and control targets are used.  Working in unison (management and worker) changes the culture to something positive.  Instead of manipulating reports and measures an organization reduces waste and improves customer service.  Now that is organizational change management leadership we can believe in.

This is a bitter pill to swallow, especially for someone like myself that has done tools training for most of my career.  At first, in Deming fashion I attempted to balance the concepts and tools, but customers demanded fast results and management wanted change as long as they didn’t have to change.  Unfortunately, as time went by I was swept up like most in my field in to Six Sigma, “Lean” or Lean Six Sigma.  Don’t get me wrong the tools and training made me money and did get improvements, but thinking really didn’t change and business improvement wasn’t what it should have been.  Organizational change management became something for the front-line done through projects, training and tools while management “supported” it with words, but not action.  This method leads to unsustainable change, because every time a crisis would come up the improvement would not endure.  Management’s focus on financial targets would ultimately lead to set backs and the gains would have to be sacrificed for short-term thinking.

In Six Sigma, I was fortunately taught by people with Deming backgrounds in getting my Black Belt (BB)and Master Black Belt (MBB), but as I saw how Six Sigma was used in organizations it became clear that projects were the way to improvement.  Constantly finding a project with projected cost savings played right into the command and control mentality of management.  The focus was on business cost reduction.  Management wouldn’t have to get their hands “dirty” as they could sponsor projects and have BBs and MBBs run the projects fully loaded with statistical tools.  Personally, I found this structure elitist as only BBs and MBBs could run the projects.  Regardless, no change in thinking by management was required . . . just support.

I have run into many situations over the years where executives wanted the improvement, but didn’t want to talk about why performance appraisals, financial targets, work standards, etc. were making their companies worse.  One organization insisted I was “disrespecting” their style of management (I’d been working with the company for two years) and I came to realize that (to some degree) I really was . . . the only difference now is I own it.  I can have an honest conversation about command and control vs. systems thinking.  Command and control thinkers can learn better methods by understanding the work and adopting a system thinking approach, but they need to be open to changing their thinking . . . and that has to be born from intrinsic curiosity.

There are quite a few articles on shared services strategy and most of them are positive.  There is a better way to achieve business cost reduction and business improvement than cited in most of the articles. As an example, AT Kearney put out an report/white paper called Success through Shared Services.  The first pages of this, report that getting the advantages of shared services is like spinning “straw in to gold.”  They would have been better off stopping there. 

In a survey by Harris Interactive, the report goes on to say that on average up to 6 departments are typically consolidated and these companies are “highly sophisticated” and have Service Level Agreements and charge-back systems and are also exploring outsourcing strategies.  The report sites that “70% of executives rank their shared services efforts as successful . . . and the benefits range from reduced costs and  improved productivity to superior employees.”  A command and control thinkers dream!

The purpose of the paper is to “highlight why shared services is a proven method to deliver value.”  Doesn’t sound like people are beating the door down to share services and need convincing.

AT Kearney discusses the “Fundamental Truths of Shared Services” in this article and cite the need for a standardized model.  All command and control thinking.  My favorite in this section “many executives cling to the misconception that shared services will result in increased costs.  Examples of companies that tried shared services and abandoned them because of higher expenditures and increased operational complexity are easy to come by.”  Yes, because shared services increase costs and complexity, I’d like to talk to these executives because they get are correct.  AT Kearney goes on that costs are only increased because of a “flawed implementation.”  Of course that’s the problem it just wasn’t implemented correctly . . . it REALLY works after all it is one of the “truths.”

AT Kearney then goes on to talk about “The Three Pillars” of shared services.  All three are directly targeted at the command and control thinker . . . consolidation, standardization and automation.  All three items I find to lead to worse service for the customer and increased costs.

AT Kearney has a nine step process that is used to avoid the dreaded “flawed implementation.” In summary, it includes “setting targets, appropriate operating model, effective governance, take your time (2 years), managing rising technology costs, integrate outsourcing strategies, management tools (charge backs and SLAs), measure performance, and focus on internal customers.”  Targets and performance will always become the de facto purposes of the organization so a better way is to focus on customer purpose and measures that matter.  I find it strange that one of the nine steps is internal customer focus, without any mention of the actual external customer.  SLAs are another form of targets and charge backs add no value to the system . . . it is a form of waste.  Outsourcing strategies lock in waste without accounting for failure demand.  And technology costs rise because you have to have all types of technology software, hardware and of course consulting to make all this stuff happen, that must be the reason to allow time and two years probably isn’t enough with implementation issues.  Other than that it is a command and control thinkers dream.

What should be done?
Do we need a front and back office? Or is a front office design a better way to handle demand.  Only by studying customer demand can we be sure.

Before any shared services strategy takes place we need to understand current service performance.  This can be accomplished by studying customer demand (what customers want), capability (how well it is delivered), the value work (the service customers want efficiently), waste and its causes.  We can then improve service where it is currently delivered and then have a knowledge-based discussion on shared services opportunities.

Like most service organizations, command and control thinking is the dominate paradigm in which we build and manage organizations in the public and private sectors.  We really have not been taught a better way of thinking for over 100 years (scientific management theory).  Our technology world has grown while our thinking has remained stagnant. In Systems Thinking in the Public Sector, John Seddon (Managing Director of Vanguard Consulting Ltd. – my partners in the UK) points to 5 important fundamental flaws in command and control thinking.  Let’s look at them:

(1)  Treating all demand as though it is work.

We are constantly trying to reduce talk time in call centers, process an item faster, etc. and this thinking has the fundamental flaw of treating work  as units of production.  We fail to separate the value work from the failure work (value work gone wrong) and therefore happily process the failure with the value demands.  The reality is that this failure demand makes up 25 to 75% of all demand from customers, in the public sector I have seen unspeakable levels approaching 90%.  Mr. Seddon’s fear is that people will understand failure demand and set new targets for its elimination, instead of changing the way work is designed and managed to eliminate it.

(2)  Failure Demand – leverage for improvement

Our response to failure demand is even more alarming instead of its elimination we wind up adding (at great cost) call centers to handle it, IT systems to manage it, share services and outsource to cut unit costs thus institutionalizing the waste. 

(3)  The foolishness of managing activity

I am yet to walk into a call center without seeing individual and department statistics kept for number of calls, talk time, AHT, etc.  For individuals, managers spend their time paying attention to these activity statistics, monitoring workers and doing “coaching sessions” with those that miss their targets.  W. Edwards Deming taught us that 95% of the problems are systemic and the responsibility of management to fix and only 5% are attributable to the individual.  The performance of the individual is the center of ire and performance to the command and control thinker.  Their “proof” is when they see cheating that more controls are needed creating more waste.  The focus on people’s activity is not the source of errors, it is the way work is designed and managed.

(4)  Preventing the system from absorbing variety

One must credit John Seddon for this discovery.  Modern day “lean” practitioners advocate standard work like “lean” manufacturing, this is a bad application for service industry.  There are differences between service and manufacturing, a primary one being the variety of demand service industry receives.  Most business improvement efforts focus on too narrow a focus (department) when the customers expectations are end-to-end.  Government is overwhelmed with waste because of the inability to absorb this variety of demand. Government management has institutionalized this waste with information technology, best practices, work design, poor measures and the use of targets.

(5)  Negative assumptions about people

How many times have I heard service executives say “we can’t let the patients run the asylum” or “workers would just give away our service.”  I’m sorry, but you built the asylum based on command and control principles that allow the workers to check their brain at the door.  Morale is sapped in these cultures and “fun” day at work is like being treated like a 3rd grader.  A little MacGregor Theory Y (trust of workers) intrinsic motivation would go a long way in improving service. These same front-line workers are the perception customers have of your organization and represent your only chance to absorb the variety of demand customers present.  Managing with more controls will only add more costs and institutionalize waste.

These are good management problems for any service industry to work on in improving their system.  If you want leadership change management or organizational change management this is a great place to start.  Systems thinking truly begins with changing thinking.

Command and control management thinking is flawed in many ways.  The separation of decision-making from the work is one of these flaws and because of this separation decision-making defines management’s role.  Scientific management theory influences this separation because work is defined in “functional specialisms” and control (decision-making) is maintained by financial budgets, targets and standards.  The focus of management becomes output with the assumption that improving the numbers is equivalent to improving performance . . . it is not.  This way of thinking only assures sub-optimization, causes waste and prevents managers from understanding an organization’s performance.  In a management paradox, command and control thinkers act in ways that only make things worse.

A better “systems thinking” way is to work on how well systems and processes delivered what matters to customers and engaged capability data (measures on how well an organization serves what matters to customers).  This would give an organization the ability to learn how to improve and make better decisions.  Putting these same measures in the hands of the workers would allow them to make decisions . . . learning and continually improving the service offered to customers.

Command and control thinking will meet its demise as systems thinking is far more efficient and economical.  If it isn’t abandoned by the U.S. soon, I have no doubt that service industry will fall like manufacturing has . . . a sub-optimized organization can not compete with a systems thinking one.  Leadership innovation can only be achieved by making this transformation.