The No Tool Zone

Not one organization I have been in recently has had any other goal than to decrease costs.  If you work in a call center, the question is, “How do I reduce AHT (Average Handle Time) of a call; “How do I reduce my IT costs?”; “How do I make more profit” . . . the age old questions with a greater sense of urgency.  After all, Moses was given the charge (by the Pharaoh) of creating the same tally of bricks with no straw.  Regardless, this is not a new problem.

What is a problem is how organizations approach corporate cost reduction.  The command and control method is to focus on costs and come up with such original (sarcasm for those that don’t know me) ideas as RIFs (Reductions in Force), shared services, outsourcing, and focus on transaction costs seem to be the most popular methods.  I always find pursuing these is a pipe dream based on bad assumptions . . . the bad assumption, is that these methods are good assumptions.

The management paradox is that being pre-occupied with reducing costs doesn’t allow us to see end-to-end or total costs.  The focus on AHT raises costs as we go to make call times shorter, we give incomplete answers, don’t deal with customers problems which in turn creates more customer calls (failure demand in my world).  Companies then further lock these wastes in with technology, scripts, procedures, targets, standards and compliance.  Never mind all the wasteful inspection, auditing, reporting and general “supervision” of these activities.  Frustrated they turn to outsourcing and shared services to reduce costs further locking in failure demand and waste, plus reducing the value received by the customer.

A better way is to realize that the paradox exists.  The benefit of this realization is that you can actually increase customer satisfaction and decrease costs that they are not diametrically opposed to each other that it is not a zero-sum game.  An organization can reduce costs and improve service by a change of thinking from command and control to systems thinking.  The systems thinking approach involves an unlearning and relearning process that opens up new methods in pursuit of profit.  Systems thinking involves the understanding of the relationship between purpose, measures and method.  It eliminates the waste by understanding customer demand, value, and flow.  In service, the improvements are quick because the changes are immediate (weeks vs. months).

New approaches are required by service organizations.  Organizations will need to shed “economies of scale” in favor of “economies of flow” this thinking will allow the small to mid-sized service companies to compete with the big companies, because costs are in the flow . . . not in the transactions.  Service organizations not understanding these paradoxes will be flushing profits down the toilet.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

I have had a lot of mini-battles over this stance (99% from vendors that profit from outsourcing) and I am sure I am going to have more.  We need to have this discussion, it supports better thinking than the assumption that outsourcing always saves money.

Let’s begin with a look at the common thinking . . . command and control thinking.  This thinking is based on scientific management theory born from Frederick Winslow Taylor.  This thinking called for the functional separation of work.  Government and businesses have broken the work down into pieces like sales, sales support, front office operations, middle office operations, back office operations, technology, call center . . . you get the idea and probably live it.  Someone came along and said, “hey, we get 5,000 calls in the call center and it costs $20 per call.  But if we ship this to a foreign country with cheaper labor, it will cost us $8 per call.  No brainer, we can reduce our transaction cost.”   The fundamental problem with this production mentality is that we focus on reducing the costs of the transactions rather than reducing the number of transactions.  Better thinking is coming to the realization that call centers carry waste typically between 25% and 75%, this waste we will reference as failure demand (for example, failure to: show for an appointment, call back, meet customer expectations, not solve a problem, send out an application, etc).  These failure demand phone calls instead of being eliminated are outsourced.  And usually I see increases in failure demand after outsourcing because the outsourced call center winds up creating its own failure demand (one bad phone call that leads to many).  Elimination of failure demand usually requires redesign of the work and help from the people you are trying to outsource.  But elimination of failure demand both decreases costs and increases customer satisfaction, so why outsource the waste?

One of the arguments that I hear in favor of outsourcing is “we are specialists in this area and you are not, so you need to outsource.”  Maybe, but by optimizing a piece do we optimize the whole, the answer is no and in many cases it sub-optimizes the business.  The failure of organizations to look at their organization as a system can be very costly no matter what the function being outsourced.

The one argument I hear most from outsourcing vendors is that my expectation for organizations is unreasonable . . . no company is perfect.  Does this really make it OK to outsource waste?  I can hear the company motto now, “our waste does not cost you as much.”  There is a certain acceptance of waste and inefficiency, that to you, should be intolerable.  This doesn’t matter whether you are in private sector or government management.

My work is to help you understand your organizations as systems and that better thinking exists to manage your service companies be they private or public or even the service side of manufacturing.  A systems thinking organization has a huge advantage over the command and control thinker.  So before outsourcing or if you are outsourcing, I urge you to take a hard look at your system . . . the customer demands (value and failure), purpose, work design, flow and value.  If you can’t see the waste in your system, let me know, I’ll be glad to show you.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

When I first was introduced to the theory of variation (by W. Edwards Deming) back in the 1980s.  I was taken aback by what this all meant.  The realization of the differences between common and special causes of variation are simple yet profound (please read: Service Metrics: What You Need to Understand).  This theory helps us understand that performance is 95% attributable to the system (work design, measures, management thinking, constraints, policies, regulations, etc.) and 5% is attributable to the individual.  Theory of variation also taught me that setting a target will not change the system, only a change in method (e.g., a change in the system itself) could facilitate improvement of performance.  A target or goal without a method is useless.

When an organization adds in incentives (financial rewards, pay for performance, etc.) it ignores the fundamental premise learned from the theory of variation that the individual is inextricably tied to the system in which they work.  In essence, this means all this attention to the individual is working on the small problem while ignoring the big problem (the system).  I am both thankful and cursed that Dr. Deming presented this thinking to me.

Some 5 years ago I was presented something that further explained the problem of targets.  John Seddon (my Vanguard partner) had studied failed organizational change management programs.  Taking Deming’s theory he expanded upon it.  He discovered when organizations set targets that this became the de facto purpose.  Instead of working to improve service or product we work to achieve a target set by (in some order) Wall Street (dividend), executives, managers, supervisors and front-line workers.  The problem with these financial and performance targets is that they do not create the value for the customer which drives the profit and not vice versa.  He further discovered that as command and control managers used these arbitrary measures with targets, method was constrained because the work winds up getting designed around reporting requirements and not the customer.

A better method is to define purpose from a customer perspective, derive measures related to this purpose which in turn liberates method and innovation. a simple but profound systemic relationship.  One that John Seddon references as systems thinking. 

We have seen too many times where an individual hits their targets, achieves their incentive and the company goes out of business (AIG comes to mind).  This is a failure to understand the theory of variation (Deming) and the relationship between purpose, measures and method (Seddon).  Until we begin to understand this theory and relationship we will continue to send our companies down the path to reduced profits.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

I just read Mark Miles “My View – Education recession threatens state’s future” in the Indianapolis Star Sunday (June 7th, 2009).  Mr. Miles may be restating the obvious when he points to the fact that our educational gap will no doubt lead to a loss of economic power and a permanent national recession (quoted from McKinsey and Company).  Surely the fact we have fallen behind the likes of Finland and Canada (in a large way) is frightening.  Especially considering the US is as far behind Finland in math as Mexico is behind the US.  But what really frightens me is that Mr. Miles and Dr. Bennett (State Superintendent of Public Instruction) are coming up with solutions that will not benefit our State or our Country.

Dr. Bennett without doubt is doing his best and in no way imply that there is malicious intent, just wrong theory.  His proposed answer is to set targets for things like the 180-day school year and graduation rates.  All plausible ideas but totally the wrong thing to do.  There is no guarantee if we hit the targets that we will be any more competitive than we are now.  Test scores can go up, graduation targets achieved and 180-day school years guarantee us nothing in assuring that we will be competitive in an international marketplace, hopefully our larger aim.

I have stated in other posts why targets become the defacto purpose of indivdual schools.  I have already heard evidence of kids ending the school year by having 5 days of recess to meet the 180-day school year target, how does that help prepare our kids for the future?  Checking that one off the list does not help us become more competitive on an international stage.

The same for test scores and graduation rates.  By these becoming targets we only promote cheating and manipulation, to what end? Five years from now pretend we have 100% graduation rates and better test scores and still can’t compete on an international basis, but we met our target.   We manipulated or gamed the system to get those test scores and graduation rates to not get paid attention to.  This is foolishness.

Mr. Miles wants to drive more dollars from administrative and capital budgets into the class room.  This I agree with.  I disagree with focusing on “issues like accountability and teacher quality.”  Let me explain.  Teachers already have accountability, what has been taken away is the decision-making that is made from the administration and folks like Dr. Bennett.  Putting the decision-making back with the work will attract better quality teachers and liberate method (better teaching).  Having accountability without decision-making capabilities constrains method, a reason that we aren’t competitive or innovative in US businesses.  Teacher quality focuses too much on the individual and not enough on the broken system.  It was W. Edwards Deming that taught me that 95% of the performance of any system is attributable to the system (work design, purpose, measures that matter, government management thinking, regulations, etc.) and the individual is attributable to 5% of performance.

We have a disease in this country. Dr. Deming pointed it out with regards to the movement of Japan (in Post WWII) from command and control thinking (scientific management theory) to systems thinking.  The Japanese were motivated to learn a new way.  Having visited Europe on a number of occasions in the past 5 years, there are signs that they are understanding a change of thinking is in order (some more, some less).  How much further do we need to fall to change thinking?

I can only hope that Mr. Miles and Dr. Bennett learn sooner rather than later that it is the system and method and not the targets, accountability or individual teacher.  “World class educational attainment” requires new thinking.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

I recently have come across an number of management articles on different internet sites where people are advocating ROI.  I like ROI . . . it’s like a phonetic spelling of “Roy”, the measurement next door and the boy next door.  Sometimes that can be a good thing or a bad thing.  The measure (or neighbor) that is misunderstood and sometimes annoying.  I digress.

I have seen ROI used to measure projects, departments, units, sales, people, contracts, etc.  The worse use is looking at a part of the company and asking for an ROI.  A call center is easy to talk about here because most everyone believes this is a part that can be easily outsourced or shared (bad assumption), so let’s pluck this piece off and show an ROI.  This is command and control thinking at work . . . separate the pieces and optimize them. 

With call centers, a lot of their demand (calls) is not created by them.  I have submitted in other blogs and posts that between 25% and 75% of their demands are failure demands (chase calls, problems, etc.).  Sometimes they are created by the call center, but more often then not they are created by other parts of the system.  Meaning they don’t create their own demand, so why is that even important?  Because scientific management theory is all about optimizing parts.  But optimization of each part does NOT make the system better, it suboptimizes at the expense of the whole system.  You can’t have a 120-piece orchestra with 120 prima donnas (well you can, but no one would want to hear it).  Systems thinking understand this is all foolishness and what matters is the system.

OK, reality check time.  The call center is part of the system, you know the organization.  So are the sales department, operations, finance, HR, etc.  I love the one about HR being a profit center needing to show ROI.  But I have seen such stupidity and that’s why it gets outsourced a lot, it’s seen as an expense and not a valuable part of the system.

The problem is not just the stupidity, but the waste that goes along with it.  We have department chargebacks, competitions, finger-pointing, turf battles, revenue allocations . . . it’s all just waste.  There is no value in all this activity except to hire more bean counters.  The only ROI that really matters is the company ROI, meaning at the end of the day did the organization provide a product or service that had value from a customer perspective.  If they did provide a value product/service that customers wanted with little waste . . . ROI will find himself right next door where he lives and maybe just not be quite as annoying.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

Assuming most readers of this blog have some familiarity with systems thinking from my previous 100+ blogs may be a stretch, but the question came up a few times last week as to what is preventing companies from achieving business improvement by adoption of new thinking? 

Let’s start with one Ignaz Philipp Semmelweis a mid-1800s physician that worked in a Vienna hospital where almost 1 in 3 women would die after childbirth of “childbed fever.”  The reasons for the deaths were things such as “wounded modesty”, “guilt and fear complexes”, “cosmic influences” and “sudden changes in weather and temperature.”  Dr. Semmelweiss wouldn’t buy any of it and set out for a cure.  Through a freak occurrence a physician friend died after accidentally cutting himself dissecting a corpse.  the symptoms were strangely similar to that of childbed fever.  With no knowledge of infection at the time, Dr. Semmelweiss was able to conclude that physicians were commingling infection one patient to another through the physicians themselves.  His discovery was nothing short of brilliant, he found that by having physicians and other care givers wash their hands the death rate spiraled down to almost zero.  But Semmelweiss ran into a problem (even with data) he was labeled a “nut case” because of his insistence on hand-washing.  The physicians of the day just couldn’t accept that they had been killing their patients because of their lack of hand washing.  Political pressure dumped the hand washing, the death rate went back up and Semmelweiss went crazy.  Having a better way and knowing that changing thinking is hard for people to believe . . . if it was that easy they would have discovered it by now. Thus, the “Semmelweiss Syndrome” that I am coining right here in this blog.

Individuals and organizations have invested heavily into training for Six Sigma, Lean, TQM, ISO and other organization change management programs.  I can’t say they haven’t improved things, but as a “reformed” Lean Six Sigma Master Black Belt I can only say that we are doing the wrong thing righter.  Until we begin to address the fundamental thinking problem of command and control thinking, we stand little chance of sustainability or large leaps in improvement.

The organizations that deliver the training are also a barrier, they are doing quite well thank you.  The last thing they want to hear is that their training is outdated and there are better ways to achieve improvement.

I don’t know what the future holds, I am hopeful that I don’t wind up like Semmelweiss.  Despondent (and (somewhat mad) he wound up cutting his hand and thrusting it into a corpse, within three weeks he had died of the same disease he had tried so hard to defeat.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

I find it interesting that the most quoted Deming phrase on Twitter is “It is not necessary to change, survival is not mandatory.”  This is probably because Tony Robbins used it.  I have added another series of Deming phrases and one this past week drew many questions, it reads:

“For Quality:
Stamp out fires, automate, computerize, MBO, install merit pay, rank people,
best efforts, zero defects.
Wrong!!!
Missing ingredient:
Profound Knowledge.”
 

Too often I have seen folks try to fit Deming into their own paradigm rather than realizing he was on a whole different plane of thinking.  We are guilty of making Deming what we wanted him to be, instead of who he was.  Hopefully, this will encourage people to read Out of the Crisis and The New Economics. 

I first went to one of Dr. Deming’s four-day seminars back in 1987 and saw him him many times there after.  The problem with this is I (like many Deming supporters) got more enthralled by the man, rather than the thinking.  This made it easy to make him be what fit our existing paradigm where he really wanted to change our mindset.

History has shown that the “sticky” issues have long been ignored.  We still automate or overuse technology whether we need to or not.  Many organizations are still using MBO.  Merit pay and ranking people are still in place to “motivate” people.  We still try to overcome systemic business problems by best efforts and zero defects.  The thinking never changed.

I have written many management articles and blogs regarding systems thinking where hopefully I am addressing more of the thinking than the man without ignoring Dr. Deming’s tremendous contributions. Like his System of Profound Knowledge (from The New Economics): appreciation for a system, theory of variation, theory of knowledge and psychology.  They all teach us a different way to think and in a management paradox to the way management currently thinks.

This is my 100th blog. I am hopeful that we can begin to address the fundamental thinking problem that stands in the way of a majority of organizations.  The conventional wisdom of command and control thinking has all the momentum. But to quote Socrates: “You can’t find the truth by counting heads” and so our search for profound knowledge continues.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

With all the advancements in US technology shouldn’t GM, Ford and Chrysler just been kicking the daylights out of all the competition? What lessons can we glean from GM, that at one point owned EDS.  GM had all the latest in software and hardware.  I am not here to dispute there were or weren’t other factors at work that caused GM to fail.  But let’s own the fact that the US technology advantage didn’t make a difference here and won’t for service either.

With regards to GM, I have read on more than one occasion how Toyota (the nemesis of the Big 3) actually saw more failures in technology and pulled them out in favor of manual processes (from The Toyota Way by Jeffrery K. Liker).  WOW . . . that’s an eye-opener try selling technology around that philosophy.  Toyota was always behind the Big 3 in technology, because they understood that it wasn’t an advantage and in most cases a waste in resources.

It’s been a long-time since I have worked in manufacturing, which seems to be dying in the US like a dinosaur.  I have learned over the years that in working with service organizations they are in a frenzy to find the latest technology to give them (gulp) . . . a competitive advantage.  It’s like the “fountain of youth” do you really want to spend millions on something that can’t deliver?

Let’s face it . . . IBM, HP and a host of other companies are making tons of money showing lots to their bottom line.  The promise of technology just doesn’t live up to the hype.  They certainly have lots of money for advertising and boondoggles (conventions, advisory board meetings, etc.). They make you feel good, but fall short of making your service organization better.

A better technology change management program is at hand, a systems thinking approach.  Let’s take a page from Toyota and first improve processes without technology or consider technology as a constraint.  Then pull technology if it will enable the work to be performed better.  Service organizations will achieve corporate cost reductions on from not trying to automate work that is better off being done manually.  Something you will not hear from your technology vendor.

Service organizations have an opportunity to learn from both GM and Toyota.  Which would you rather be right now, GM or Toyota?

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

I have heard over and over again HR professionals fretting over the culture of their organizations.  To me it is puzzling, why is there low morale?  You mean the secret formula hasn’t made it to your ears or eyes?

OK, I’ll let you in on the secret.  The problem is that our thinking is old, not Civil War old mind you, but I consider anything pre-Titanic old.  We have based our thinking on that of Frederick Winslow Taylor and AP Sloan.  So what does that mean?  It means that we have functional separation of work and separated the decision-making from the work and the worker.  It means we have introduced entrapping technology to dumb down the worker so that they check their brains at the door.  It means we have built systems with scripts, policies and procedures that that allow little opportunity to innovate or serve the customer.  It means hitting financial and performance targets that we know degrade service to the customer, but allow the worker to achieve an award for poor service and increased costs.  All of this is command and control thinking at work.

So what if we thought differently about the work? You know, made it more interesting.  Put the decision-making back with the work instead of some management report that can’t tell you what is really going on.  Gave the worker new measures that weren’t top-down, but outside-in allowing the worker to figure out the best way to serve the customer and liberating method.  Allow the worker to pull technology that enables their work vs. the push method that entraps them. Now that would be cool for any organizational change management program to do all that!  There is a method for doing all this called systems thinking.

However moving from command and control thinking to systems thinking requires us to take a different approach then what ISO, Lean, Six Sigma, TQM or other change management programs have to offer.  Culture really isn’t that hard to change, are you ready to think differently?

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System.”   Reach him on Twitter at www.twitter.com/TriBabbitt.