The No Tool Zone

 just read an article from Govtech.com displaying the “efficiencies” gained from a shared services strategy in the states of California (CIO – Teri Takai) and Michigan (CIO – Ken Theis).  Maybe this is the reason that these two state deficits are so large.

Shared services usually means either we are consolidating front office activities or back office activities to gain economies of scale.  The problem is that we have created front and back offices that are not designed very well to handle customer demand.  Front and back offices are designed with the assumption that all the work received is value work and thus treated as something to be processed.  The reality is much of the work is failure work, work that is rework, “status inquiries or progress chasing.

Information Technology in these situations leads to locking in costs rather becoming an enabler.  Work is broken down into tasks that can be electronically sent to the “right” people.  Managers then monitor the activity and performance to pre-determined targets.  End game:  Targets are hit, but poor service generates increasing failure demand.  The activity and performance measures take the attention away from the purpose of the activity and reality of the work.  Ultimately, leading to the need for additional staff to accommodate the increase in failure demand.

Economies of scale is a driver of the shared services strategy, but it is the economies of flow (Taiichi Ohno) not scale that will drive costs down and improve service.   Understanding the predictability of failure demand will help identify and stop the causes by redesign of services that can then provide value.  Understanding value demands will help managers design services that allow citizens to get what they demand from the service.

Some services may not require a front and back office split and by having tasks split create more waste and worsen service.  Some services are provisioned better with just a front office (especially those that have high complexity).

My fear is Ms. Takai and Mr. Theis believe that front and back office designs should be driven by IT.  IT analysts and consultants that identify the tasks to be done and the processes these tasks belong to, creating standardized work.  But the standard work is not able to absorb the variety of demand and by placing these demands ensures that information technology will lock in costs.  The costs of a shared service design is in the flow not transactions.  It is the total volume of transactions and its accompanying costs of delivering the service that are important, not the cost per transaction.  Assumptions that costs are in transactions leads to building shared services departments that deliver high cost and poor quality services.  IT guarantees locking in this waste.

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.

These same arguments exist for the private sector and not just government management.  As a former CIO in state government, I am thankful that my partners (Vanguard Consulting) and especially John Seddon pointed the difference out to me.  Systems thinking is a better way.

OK, I wasn’t going to write on this for a while until I read the article “Outsourcing ban: Who gets hurt?”.  Viral Thakker (Head of Sourcing Advisory, KPMG) and Sudhakkar Ram (CEO, Mastek Ltd.) make such knuckle-headed statements as “off-shoring is one of the most proven strategies to optimise costs” and “Studies by McKinsey have shown that outsourcing has lead to economic advantage in the US.”  Now granted this is the Indian Economic Times so I will grant them a little space for their biased opinion . . . as they have a vested interest.

I don’t oppose outsourcing in total, it is why we outsource that bothers me.  Call centers are outsourced regularly and the prevailing reason for US businesses is to reduce the cost per transaction.  Call center management rarely considers that the transactions increase with more failure demand (defined as the transactions that have to be done again because of rework and progress chasing).  By outsourcing our failure demand in call centers we increase costs as we add volume, contracts to manage, teaching the outsourcing company our business, turnover and even language lessons (heard from a tier one bank executive).  There are probably other costs I have not accounted.

IT outsourcing strategy has similar reasons as it is a business cost reduction exercise based on cost per head.  However, with software a production mentality of the development of software must exist.  An approach I whole-heartedly disagree with.  Software development is not a production line, it is not born from scientific management theory.  The value work in software development lies with the software analysts and coders, these people that have industry knowledge are routinely outsourced with great regularity in the US at great cost.  This overseas shuffle prevents the ability to work with customers to “see” the work, communicate effectively and in general work as a system to produce quality software.

We may be fooled into thinking by lowering transaction and per head costs we are winning the cost reduction game with outsourcing.  There may be times to outsource (and there are);  But when we look at transaction and per head costs as the driver . . . the end-to-end costs are frighteningly high.

I have gotten the feedback that my FREE download (Understanding Your Organization as a System) is too long (160 pages) and has way more material than be possibly consumed by one human.  I apologize for my partners (Vanguard Consulting Ltd.) that wrote the work with all the exercises and information.  They have a tendency to write on and on with disregard for command and control thinking and pointing out the problems that businesses encounter such as outdated thinking like using scientific management theory.  After all they come from the land of queuing and fly tipping.  They even go way to far talking about what to do to get started to improve your business . . . bastards!

For those of you that do better with smaller bites, I am offering links to management articles that provide the same general information on systems thinking as the download.  The Fit for the Future series is partitioned into smaller, more palatable bites (six in all).  This way you can still watch Family Guy and the Simpsons without missing a beat.  These are 15 minute reads each and for slow readers like me maybe 20 minutes.

Here are the links:

Fit for the Future – Part 1

Fit for the Future – Part 2

Fit for the Future – Part 3

Fit for the Future – Part 4

Fit for the Future – Part 5

Fit for the Future – Part 6

These management articles are pretty plain (in title) . . . after all this is the land of no ice in soft drinks and Yorkshire pudding (don’t tell them it doesn’t have any taste).

“Cease dependence on mass inspection” was W. Edwards Deming’s third of his 14 points for transformation of American industry.  When I first read this I was working for a an industrial distributor and couldn’t comprehend its meaning.  Manufacturers inspected everything before it went out the door and then the recipient of those goods would in turn inspect (again).  It was the way business was done.  Later when I was working for a manufacturers association I found that those manufacturers still inspecting at this level were going out of business.

What’s the problem with inspection?  Well, other than the fact it is too late, costly and ineffective . . . absolutely nothing!  We do it because that is what is considered good quality, but the waste is built into the system.  Command and control thinking born from scientific management theory is to blame.

I primarily work with service industry now (and have for the past 15 years).  Service industry (private and public) and especially bank management consulting I have done over the past decade has allowed me to see many types of inspection.  However, service industry doesn’t call it inspection they call it:

• checking
• review
• required for regulatory compliance
• testing (software)
• checkup
• “just being sure”
• audit

I know there are many others, but as with manufacturing, inspection in service industry is waste.  Yet I see a lot of it built into the processes they do.  This is the price paid for “dumbing down” processes and people with technology and a low cost mentality . . . this command and control thinking always costs them more.

Technology purchased to help find errors or “edits” in the system are a waste of resources.  The waste has been built into the system. 

Worse, no one is responsible for the quality of the service. It has been taken out of the hands of the service worker and passed to a “reviewer” and/or some technology.  For the command and control thinker they have to have all this infrastructure to assure quality and manage the “dumb” worker.  Building better systems that don’t create errors in the first place is a better way to achieve business cost reductions. Word of warning: if you are doing inspections don’t just get rid of them, improve the system first to avert another disaster.

This blog title is truly bi-partisan.  I am not posting for or against any political view, but to agree that services could actually be distributed for the greater cause.  I have worked in state and federal governments as a contractor and an employee.  There is no shortage of waste in the provisioning and outsourcing of government services.

Government management in agencies that I have worked with were consumed with the following types of issues:

• How much money could the agency get.
• How much did it spend.
• How the agency could get more funding.
• How does the agency avoid (unwanted) attention.

Unfortunately, at the government management level there was limited discussion of how well the services were being provisioned, unless the agency received “unwanted” attention (bullet #4).  When there was unwanted attention there was usually some knee-jerk reaction to fix the issue, or a previous administration, vendor or person to blame.  Sometimes the media or interest group with an issue got the facts wrong and those were easy to defend.  Rarely was the conversation about how well a service was executed.

The four bullet points above became the de facto purpose of the agency.  To be good stewards of the taxpayers money the purpose should have been related to how well the services were provided.  As in the private sector, the public sector believes that the provisioning of services is a zero-sum game, where costs increase as service improves.  The management paradox here is that costs actually go down as service improves.

I have seen a movement in recent years to manage the costs like a business.  The focus on the management of costs will always increase them.  I am not saying we shouldn’t know the financial score . . . we should.  What I am saying is that the total costs go down as service improves.  A systems thinking service organization (private or public sector)understands these differences.

To find out more on systems thinking go www.newsystemsthinking.com.

When I went to my first 4-day seminar that Dr. Deming conducted, he spoke about the interdependence of the components of any organization.  He compared an organization to an orchestra where the inter-dependencies were so great that an organization couldn’t have a hundred prima donnas trying to play solos.  They had to play together harmoniously to create a sound pleasing to the ear.  He believed that an organization had to work together and eliminate internal competition to achieve its purpose.  Each component had to contribute its best to the system and may be required to operate at a loss in order to optimize the whole.  This thinking is what to me is “systems thinking.”

Too many organizations have individual, department and/or “team” goals that sub-optimize the performance of the system (organization).  Some pit one against the other thinking this is good management.  Thus creating a trail of winners and losers in its wake.  The name of the game is to create value and make money (in that order), not to win or lose like a football game.

Moving out of our current crisis will require new “systems” thinking in our leadership development and our organizational change management.  The consequences of not moving to systems thinking will be decreased status in the competitive world of business.