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Hostess – A Reflection of What’s Wrong with American Business

Another American icon bites the dust.  Sure, we still have our auto manufacturers even if they are a shadow of their former selves.  We are a divided country . . . haves and have nots, 1% and 99%, management and labor, Republicans and Democrats.  The list can go on.  Winners and losers, except in the case of Hostess it is clear that everyone losses.

Who didn’t grow up eating Ding-Dongs, Cupcakes and Twinkies?  Not the most nutritional of snacks, but they were really good.  They just never continued to get better.  The product was a cash cow and I can not find one new product.

English: A Hostess CupCake, shown whole.

English: A Hostess CupCake, shown whole. (Photo credit: Wikipedia)

This is a management problem.

A declining market in what would be like trying to sell buggy whips in an age of cars.  The cash cow, suddenly becomes a boat anchor.  The ship sinks under the weight of management and labor taking advantage of past successes through pensions, increased salaries and other balance sheet and income statement busting actions.  Who would get most of what is left of the wreckage?  Not a question designed for a going concern.

These difficulties are exacerbated by six different leaders in the past 10 years.  The last CEO being a “turnaround expert.”  This, however, was a liquidation or more so a demolition.

This is a management problem.

As Americans, we have grown used to having managers going through a revolving door.  Leadership needs to be stable, so they can learn.  The misfits in management instead know how to manage a balance sheet and income statement but no little about growing a business or in this case how to build a Ding-Dong and not be one.  For American management this is what it has come too.

Management and labor are need of working together to end the madness.  The change needed is that management must first respect the worker and together work with them to improve the system.  Not just to reduce costs, but to improve culture and work on innovation.

Lesson learned?  We can only hope.

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.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the The 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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A Different Look at Health Care Fraud

Doing my weekly review of articles at Governing.com, I came across an article written by Jonathon Walters.  Titled “The Right Way to Fight Fraud” Mr. Walters does a pretty good assessment of the problems and perks of fighting fraud.  The perks he describes under the heading of “the three horsemen of the public-sector apocalypse ‘waste, fraud and abuse'” that leaves us short a horseman (there are four), but we are talking about government where perfect is the enemy of good enough.  My personal four horsemen of the apocalypse are benchmarking, outsourcing, shared services and command and control thinking.

I certainly agree with Mr. Walters that the amounts of fraud are great in Medicaid, Medicare, TANF, and SCHIP and the amounts of $27 billion in “leakage” is staggering.  But to me this is a political red herring as politicians build programs to avoid waste . . . only to add more cost and waste to the system.  The State of Indiana and FSSA can serve as an example.

Indiana set out to modernize Indiana Welfare Eligibility where the Secretary of FSSA was out to eliminate abuse through technology.  What we got instead was a lesson that I am not sure anybody has learned (after all, Indiana is the not invented here state).  The modernization took functions of the work and separated them believing that more separation of function would reduce fraud and with technology all the pieces would work together with checks and balances at each step.

The result was recipients, legislators, providers and special interest groups coming together to complain about processing times in one of the most bi-partisan efforts I have ever seen in government that . . . this modernization wasn’t working.   Billions of dollars wasted on bad theory that will take years to recover from the mess.  Politically the heat is off as Governor Daniels killed the contract with IBM, but the waste continues.

The current secretary is stuck with a 30% increase in personnel from this debacle.  But no lessons have been learned I fear as the pilot program running today includes even more people.  The reason is more checking because the secretary says that $1 million of fraud has been committed over four years in the old system and so we spend millions more to prevent this in eligibility (read Indiana Welfare Modernization, Costs and Cynicism).  Politically correct . . . maybe, hugely wasteful . . . definitely.

Part of the problem is the belief that any system with paper is antiquated and needs technology to automate.  But this is to ignore our biggest opportunity to improve . . . the design and management of work.  Poor work design is at fault for fraud, not people.

In fact, technology only makes things worse.  Technology locks in the waste of a poor work design and management thinking that technology is the answer continues the downward spiral.  Just because we can automate something doesn’t mean we should.

Further, with all the checks and balances and separation of the work into functional specialties, we lose who is responsible and accountable for the work.  More hand-offs through technology or paper always increases waste in a system.  The work loses context as it moves from person to person and the queues it creates increases service time on a large scale.

There is one other thing that functional separation of work and technology creates and it is called fraud.  People bent on committing fraud learn that when no one is responsible that it is easier to game the system.  I see algorithms in technology to catch people committing fraud, edits, audits, etc. where the answer is really much simpler.

The answer is to design the work by getting knowledge about the what and why of current performance.  Understanding customer demands, deriving measures from these demands and experimentation with method.  This means government management must first understand the actual work without technology (either ignore it or turn it off). 

Additionally, this means decisions about the work have to be made with the work and not top-down.  Workers can only be made accountable when decisions are made with them, not to them.  For the political hacks out there with their preconceived notions about fraud prevention, my suggestion is to get knowledge for your ignorance.

The answer is in the work with the people that perform the work and not in the inspection, monitoring, technology, etc that sounds promising but continues to add fraud and waste.

Leave me a comment. . . share your opinion!  Click on comments below.

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.  For government please link to www.thesystemsthinkingreview.com.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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How to Get Systems Thinking Started in Service Organizations and Governments

A question often asked to me is how we can get started being a systems thinking service organization (or government entity).  No easy answer here, but I do have lots of suggestions.

  • You have to be curious (required).  If you are doing well (either real or perceived) you won’t be interested in getting better.  Unless of course you understand that things can change at any moment because of an economic downturn, new competitor or just a never satisfied feeling.  The first step is always the hardest, but for a change in thinking about the design and management of work the rewards are huge.
  • Read the Books (suggested). Freedom from Command and Control or Systems Thinking in the Public Sector.  Both are excellent reads full of paradigm busting, counter-intuitive truths and management paradoxes.  They will challenge your thinking.
  • Read the Fit for the Future series six parts in all.  This would be the abbreviated version of the thinking for someone trying to get a feel for systems thinking.
  • Read the Blog (suggested).  The Bryce Harrison blog can be found here.  It is full of short reads on a better way and challenges assumptions ranging from shared services to standardization.
  • Free Download – Understanding Your Organization as a System (suggested).  Almost 200 pages of background information on systems thinking.  The document is a workbook to help with the thinking.  Your email address is required and you have an option to sign-up for the newsletter (or not).  We do send updates to those that download on systems thinking articles and significant events.
  • Sign-Up for Our Newsletter (suggested).  This monthly publication can be signed up for at www.newsystemsthinking.com and let’s you know what is happening in the systems thinking world.
  • Check Out the Systems Thinking Review (suggested).  This is primarily for the public sector, but you can learn alot here.
  • Find us at Twitter, LinkedIn or Facebook (optional).
  • Email us at info@newsystemsthinking.com (optional).

I hope this gets anyone started in learning more or at least being curious.

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6 Things to Learn Before Starting a Government Modernization Initiative

US Government
Having witnessed the demise of the Indiana Welfare Modernization project and other Modernization projects in the US, we have a learning opportunity applicable to any level of government (federal, state, city or local).  With former Indianapolis Mayor Stephen Goldsmith (a long-time proponent of privatization) admitting in Governing magazine that his drive for privatization early in the Bush administration was ill-advised we all need to take a step back.  Here are some things I believe we can or should learn.

  1. A Focus on Costs Increases Costs.  The flawed belief that economies of scale reduce costs prevails in government management thinking.  We have found that costs are in the flow (economies of flow).  There is a dire need to end the fallacy that reducing costs as an objective works, governments need to find the causes of costs and they are in the flow.
  2. Standardization Can Make Things Worse.  A difference between manufacturing and service is variety of demand.  Standardization can (and usually does) lead to the inability to absorb variety of customer demand.  This leads to increased costs and worse service in the form of failure demand (demand caused by a failure to do something or do something right for a customer) which increases when services can’t absorb variety.
  3. Technology can lock in Waste.  Too many modernizations get kicked-off with faulty assumptions that technology and automation will improve things.  There are some things that technology is good at and some things that humans are good at . . . and in service humans are better able to absorb variety.  Further, standardization locked-in by technology is to institutionalize waste in government. 
  4. Perform “Check.”  Before making changes of any type government management must get knowledge about the service they want to change.  This means understanding the “what and why” of current performance.  No plans, schedules, milestones, projects, cost-benefit analysis, etc. can precede getting knowledge.
  5. A Big Lever for Improvement in Government is the Design of the Work.    The reality is that the design of the work to be done is flawed and needs to be redesigned against customer demand eliminating hand-offs, redundancy and other wastes. 
  6.  Sharing Services and Outsourcing without Knowledge is to Invite Trouble.  In desperate attempts to cut costs quickly these two methods are deployed as “no-brainers.”  Without knowledge gained from “check” these methods are typically disasters.  They ignore the causes of costs and focus on visible costs. 
     

There are many more of these management paradoxes and counter-intuitive truths that have been learned that should be communicated.  Many before us like W. Edwards Deming, Taiichi Ohno and others laid the foundation for learning.  This is not best practice or tools as these stagnate learning, but theories of management that have universal application. 

Please join us in making government better through better thinking at www.thesystemsthinkingreview.co.uk where you can learn more about advances in improving thinking and method.

Leave me a comment. . . share your opinion!  Click on comments below.

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 or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Indiana Welfare Eligibility – The Thinking is the Problem

Indiana State Government
An interesting week in Indiana.  Governor Daniels canceled the Indiana Welfare Eligibility contract with IBM.  I have to say it took guts to do that as the political fallout already has his enemies seeking his political head.  This is unfortunate as I would much rather have a leader that admits when there is a problem than one that keeps their head buried in the ground.

The problem now is that the eligibility system is still a mess.  It was before and still is.  A group comprised of Representatives of United Senior Action, Hoosiers First, The Generations Project, Indiana Alliance for Retired Americans and other groups is calling to restore a “personal touch” and legislation to rebuild the eligibility system.

Further, FSSA is putting together a detailed plan for a hybrid system that includes:

  • Client Choice of access into the system
  • Face-to-face contact in county offices
  • Case management in county offices
  • Paperless case files
  • Fraud prevention
  • Consistent determination of benefits

All of these ideas (personal touch, legislation, and the items listed above) seem plausible, the problem is so did modernization.  We are left with a fundamental thinking problem that is not unique to Indiana.  The focus to reduce costs and improve productivity is the problem.

This “economies of scale” thinking has been perpetuated over time into our belief systems.  The problem is that it is a fallacy.  Costs are in the flow, end-to-end from a customer perspective (economies of flow).  A counter-intuitive truth that if followed will give Indiana cost savings beyond what IBM had hoped for using technology (as proven in the UK and other countries).

The management paradox is that when we focus on reducing costs, we increase costs.

Why?

All of these good folks, the Governor, Indiana legislature, special interest groups and FSSA have lots of information about the program from reports and anecdotal evidence.  But they lack knowledge of the system as a system.  Government management requires knowledge.

In order to determine what the next steps should be there should be an effort to get knowledge.  This means performing “check” in my world or understanding the “what and why” of current performance.  Additionally, the decision makers need to go to the work and this must precede any projects, deliverables, timescales and milestones.

Performing “check” means getting knowledge so that they don’t make assumptions other than knowing that they don’t know what the performance is.  A pre-determined outcome with corresponding plan spells trouble as prescribing improvement this way will drive up costs . . . guaranteed.

Here are somethings they should do from the 95 Method©:

  1. What is the purpose?  What is the purpose of the service from the welfare recipient’s perspective.
  2. What are the type and frequencies of demand?  This requires decision-makers to go to the work where the agency transactions occur.  Here they can understand: why they call, what they want, what would create value for them, what matters to them?  They must understand the major types of value and failure demand and their predictability.  To design for the unpredictable is costly.  You stand to entrap the workers delivering the service with technology if this is not understood (raising costs).  Understanding demand will also shorten the training cycle for workers as you train for only predictable (high frequency) demands.
  3. How well does the system respond to demand?  You will discover the measures that matter are end-to-end from the customer perspective and NOT the ones currently used.
  4. Study the flow.  Demand will tell you what to flow and measures related to purpose will tell you what the priorities are to flow activities.
  5. Understand the systems conditions.  All the waste and sub-optimization is man-made.  The result of poor work design, structure, contracts, roles, technology, measures, etc.  Failure to remove the system conditions will lead to improvements that are unsustainable.
  6. Management thinking.  Understanding the “what and why” of current performance draws the decision-makers in as this means that they must change too.  The actions they take can create more or less waste depending on their degree of knowledge.

Warnings:
Legislation can lead to entrapping the system worse than technology and should be avoided.  Systems change over time and to undo legislation is virtually impossible.  Variety of demand can not be absorbed by either technology or legislation.

Going back to the old way or planning without knowledge (as outlined here) can lead to missed opportunities or additional waste.

I am hopeful that other government agencies trying to improve their services will see the value in the approach.  This thinking transcends all partisan approaches.

Leave me a comment. . . share your opinion!  Click on comments below.

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 or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Disney: Another Disturbing IVR Customer Experience

Don’t get me wrong, I visit “the House the Mouse built” at least once every year.  This time of year I attend the Food and Wine Festival at EPCOT (Experimental Prototype Community of Tomorrow) as it coincides with my wedding anniversary.  I make my reservations through the Disney World Central Reservations line.

This time however I got a bit of a surprise.  The IVR system is voice activated now and combines reservations for Walt Disney World and Disneyland.  In addition, the IVR asks “why you are calling?”  When I responded “reservations inquiry” (as I wanted to inquiry about resort reservations) the system said “Oh, Dining Reservations” and proceeded  down the wrong track.  Some will say I am at fault for not being explicit, but who is the customer here?  Apparently, I have to adjust to their system.

So, I call back adjusting my response to fit their system.Poison Apple

Me:  Resort reservation inquiry

IVR:  OK, Resort reservations (not really what I wanted as we’ll see later) What would you like to do? Would you like a new, modify, . . . or ask a question?

Me: Ask a question.

IVR:  Are you calling about a Disney Vacation package?

Me:  No (wasn’t sure how to answer this, I was afraid of the response “maybe”).

IVR:  Does your party have 8 or more people?

Me:  No.

Have you been to Walt Disney World before?

Me:  Yes.

IVR:  Have you visited at least once since 2004?

Me:  Yes.

IVR:  Have you visited 5 or more times in your lifetime?

Me:  Yes.

IVR: OK, please enter your resort reservation number.

Me (to myself):  Oops haven’t deciphered the new system yet, resort reservation inquiry = existing reservation . . . hang-up.

When I eventually reach an agent on the phone, they want more information about me and my family.  This must be CRM at work . . . you know, more intrusive.  I am not sure I got the “specialist” I was promised, but I eventually got the information I needed . . . about 60 minutes later.

More entrapping technology that adds no value to the customer, way too many branches. And a perceived 5 – 10 minute phone conversation turns into almost an hour with two call backs.  This IVR system neither saves money or improves service. 

  • How many misroute themselves? 
  • How many people would give up after the first 2 calls? 

Unknown and unknowable, but the cost accountants think putting off customer demand or self-routing saves money.

I have better, systems thinking call center management and IVR solutions.  These are counter-intuitive, but would save Disney (and any other service organization) huge sums of money.   The steps are:

  1.  Understand customer demand and the variety posed by customers.
  2.  Get measures associated with these demands.
  3.  Design against demand.

In many cases, we find no need for an IVR system . . . a management paradox.  Also (a free-be for Disney), combining Disney World and Disney land call center calls doesn’t necessarily decrease costs and in most cases, increases them.  This step-by-step method will help lower costs profoundly and increase customer satisfaction.

Share your experiences with IVRs and call centers.  Comment below.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 or LinkedIn at www.linkedin.com/in/trippbabbitt.

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

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Indiana State Welfare Eligibility: Time to Turn Lemons into Lemonade

At this point everyone understand the debacle of the Indiana Welfare Eligibility program run by IBM and its partners.  Currently as it stands there are no winners in this situation.  All the stakeholders IBM (and its partners), applicants/recipients, FSSA, executive/legislative branches of Indiana government and most of all taxpayers.  The damage has been done and each of the above stakeholders stand to lose something of value.  So . . . as much as we may dislike our situation, we need IBM to succeed.  After all, they are now in the best position to improve things and save taxpayers from more wasted money.  Here is a suggested formula for turning lemons into lemonade and what each stakeholder should be asking for:

The Taxpayer.  There is one thing the taxpayer needs . . . transparency.  If things are going well we don’t need transparency, but when things are going badly we need to be both educated and informed on what is happening.  So here is what the taxpayer should be asking for:

  1. The corrective Action Plan submitted by the vendor IBM.
  2. The measures with operational definitions that will be the indicators that things are getting better (or worse).
  3. The criteria for keeping or cancelling the contract.
  4. The FSSA plan if the contract is terminated.

The Governor and Legislators.  Other than making sure the taxpayers get the above four items . . . nothing.  They don’t understand the system enough to legislate improvements and audits at this point will just add costs and more confusion.  One thing that might be helpful is to have a small group of legislators that would take some phone calls and walk the process end-to-end so they can speak intelligently about what is actually happening instead of hearing anecdotal testimony alone.  Note: I did this as CIO for FSSA and it was eye-opening. 

FSSA.  Three things:

  1. What are the criteria for cancelling the contract?
  2. If you are forced to terminate the contract, what is the plan?
  3. Lessons learned.  We have a learning opportunity here.  What have we learned that we can leverage moving forward for the State of Indiana (regardless of party affiliation).

IBM and partners.  I have spent some time gathering information from reporters, legislators, caseworkers and recipients/applicants acquired from many different mediums from many different states.  It will not do us any good to pick through all the detail, but I have some basic elements that should be addressed.  Learned from my 95 partners in the UK, here is how to turn lemons into lemonade:

  1. Study the demand.  The calls coming into the Marion call center is a good place to start understand the type and frequency of the demand.  Understand whether these demands are statistically predictable or not.  The demands should be separated into value and failure demands.  Failure demands are all follow-ups, repeat calls, chase calls for status, or any failure to do something or do something right for the applicant/recipient.  The failure demand % of calls should be one number to pay attention to and reported to FSSA, legislators, the Governor and the taxpayer.  You will need to engage the call center worker for this activity, they understand the demands better than a report or manager.
  2. Understand the value created by type of demand.  Examine the current response to each type of demand.  Rate the response in terms of value created for the applicant/recipient at the point of transaction (where the applicant/recipient meets the call center).
  3. Understand the flow and eliminate the waste.  How the applicant/recipient demand is dealt with through the system.  Is the demand dealt with in one-stop or handed-off?  Map the flow, walking it end-to-end (from the customer perspective) identifying the waste.  Eliminate the waste.

Lemons to get rid of:

  • Unnecessary forms, paperwork and reports
  • Handling progress chasing requests
  • Working with unreliable or inaccurate information
  • Dealing with mis-routed phone calls and documents
  • Inspection, logging, batches and queuing
  • Duplication
  • Dealing with problems caused by hand-offs
  • Obtaining authorization
  • Firefighting – Symptoms rather than causes
  • Targets and incentives (pay per call)
  • Entrapping technology
  • Standard work and scripts that don’t absorb variety of demand

The one lesson I hope any state will learn is that technology should not be pushed, it needs to be pulled.  Just because the system is manual doesn’t mean that an automated system is better.  We need to improve the systems (structure, work design, measures, management thinking, constraints, etc.) and then pull in technology as needed. 

One former case worker pointed out to me that although the previous system was labor intensive working with the applicant/recipient allowed a relationship to develop.  This was important in helping to head off fraud or gaming the system something that a report or data can’t do.  The new system (not just the technology) separated the work with more hand-offs, quotas and focus on efficiency that was misguided.  I recognized this as scientific management theory and the functional separation of work that leads to sub-optimization and waste.  Every piece optimized does not make a good end-to-end system.

My wish for all stakeholders is that the Indiana Welfare Eligibility system works well moving forward and whatever system that comes out of this will serve the State well and be more than just doing the wrong thing, righter.

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 or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Zappos' Achilles Heel

First of all, let’s not look at the cup as half empty for Zappos, because I believe it is two-thirds full.  At the Economist Marketing Forum held in San Francisco this year Tony Hsieh (pronounced Shay) and two CMO’s from Del Monte and Frito Lay discussed the role of marketing in their organizations amongst other things (watch: Ties That Must Bind: Why CEOs Rely on CMOs More Than Ever).  The poor guys in the traditional roles of CMOs (by function) had to listen to Tony say that they really didn’t have a marketing function at Zappos.  They reinvested into customer service and the better service was the marketing for Zappos.  I thought the others would spontaneously combust.

So yes, there is much to like about Zappos.  Let me highlight a few other comments Tony Hsieh made that got my attention:

  • Our culture (of customer service) is our brand
  • Investment of surprise upgrades to customers
  • Repeat customers from word-of-mouth (pull, not push)
  • Investment in culture is not an immediate benefit like cutting costs, long-term thinking is necessary
  • The use of the telephone as a branding device
  • Allowing new hires to weed themselves out by offering significant money ($2,000) if they quit
  • A lot of emphasis in getting the right people in the organization
  • Leadership development and training

So why the heading about the “Achilles Heel”?  What could possibly better than this.  I got concerned when Tony started to talk about:

  • Low Performers (and how they weeded out “Jack Welch” style the low 8%).  I don’t know the nature of the 8% and it could be they hired the wrong people before they “improved” the hiring process.  But it brings up questions about having already invested in training and Tony said they were profitable when they did it and didn’t have to do fire the 8%.  Who says that if they dip back into the pool of people available that they will find better employees than the ones they just let go and now they have to be trained.  This “renewal” process is expensive.
  • Call Monitoring.  Call monitoring has a useful purpose if the agent is new or if the monitoring is for improvement efforts.  Regulatory compliance is waste, but required and doesn’t always require monitoring that’s just they way people interpret it.  Otherwise, call monitoring used as inspection comes too late and is costly.  if the other elements like culture, hiring the right people, management thinking, etc. are correct do I really need to inspect?
  • Performance Appraisal.  I was disappointed to hear that performance appraisal was being used.  My fear is that the worker is being managed command and control style. If I understand purpose “to serve the customer” what possible good can come from an appraisal of performance.  It distracts the worker from “serving the customer” to “serving my supervisor or manager” or could over time . . . this is a type of waste.
  • Financial Goals.  If this means targets for profits  that lead to scorecards, MBO or the like trouble is not far away.  The targets (financial or performance) will ultimately become the defacto purpose of the organization and customer service will become secondary to the target.
  • Failure Demand.  How many phone calls are they getting that are follow-ups, wrong shipments, wrong billing, problems with the product, etc?  This is failure demand and even if you have nice people and good service if failure demand runs high customers will eventually erode their advantage and go elsewhere.  So, what percentage of calls are failure demand?
  • Do they understand variation?  Do they understand when a worker is statistically different from other workers?  Do they understand how to use data for prediction?  Do they understand the difference between “special” and “common” causes of variation that will help them continually improve their organization.
  • How will they achieve continual or continuous improvement?  “By what method” will they improve.  Will command and control or will systems thinking prevail in their business improvement efforts?

I know he didn’t talk about the last three, but these are things that will play themselves out over time.  There is much for Zappos to be proud of in its inception-to-date achievements and I can only hope that continue to maintain that innovation leadership that they have on their side now.

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 or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Service Metrics: What You Need to Understand

I overheard a fellow say “I’ve got Deming’s principles down pat, now all I have to do is understand this variation thing.”  Hmmm, Dr. Deming was a statistician and his philosophy did come from his understanding of variation as taught to him at the Western Electric plant (Chicago, IL) in the late 1920s from Dr. Walter Shewhart.  What W. Edwards Deming learned was how to evaluate data using a statistical process control (SPC) chart.  To me, the difference between knowledge and tampering or guessing.

Early in my career I was a corporate director of operations where I learned to evaluate income statements and compare last months revenue, expenses, etc. to this months and all types of dictates and commands came from this naive view of data.

After attending Dr. Deming’s 4-day seminar and learning from the likes of Dr. Don Wheeler and Dr. “Frony” Ward, I learned a better way to manage with data.  In statistical terms understanding the differences between common and special causes of variation.  Let’s pretend we have sales of 15, 19, 14, 16, 12, 17, 15, 17 and 11 (in thousands).  A manager might conclude that the month with 19,000 in sales is a celebratory moment best month on record and the last month with 11,000 is reason to “bark” at the salespeople for poor sales. 

By plotting data using the SPC chart (below), we can tell that we can expect anywhere from 5.1 (LCL-Lower Control Limit) to 25.1 (UPL-Upper Control Limit) with an average of 15.1.  A manager celebrating 19,000 or getting upset over 11,000 is foolishness.  In a matter of fact, we can expect between 5,100 and 25,100 (the control limits) in sales and it wouldn’t be unusual.  This is called common cause variation.

Common Cause Variation

Conversely, if the next month showed 28,000 in sales (see chart below) this would be outside the UCL (Upper Control Limit).  The $28,000 month is unusual (outside the limits) meaning we have a special cause.  Something unusual has happened.  Now is the time to investigate the reason there is overwhelming evidence that we should investigate the “special cause.”  There are other indicators of special causes (run of 8 and others) that need to be accounted for, but this is a blog.

Not understanding the differences between common and special causes leads a manager to tamper with the system.  Dr. Deming outlined two types of mistakes:

  1. Reacting to an outcome as if it came from a special cause, when it came from common causes of variation.
  2. To treat an outcome as if it came from common causes of variation, when it was from a special cause.

A systems thinking organization (or any other organization) must understand the differences between special and common causes of variation in order to manage effectively.  Leadership development, organization change management programs and even technology implemented devoid of these basics are keeping service organizations from making better decisions.  This isn’t just for Lean Six Sigma Black Belts and Master Black Belts, we all use data.  We must know how to use this data to make better decisions and avoiding the mistakes Dr. Deming warned us about.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  He is focused on exposing the problems of command and control management and the termination of bad service through application of new thinking . . . systems thinking.  Download free “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.

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3 Things to Consider Before Outsourcing

I spoke to a reporter from India (Reed Business Information) this morning regarding outsourcing and more specifically the impact on Infosys.  He informed me my view was “different” than everyone else and I could only reply that I was used to that comment.  Most Americans want “in-sourcing” because they want to bring jobs back to North America, I want service organizations to realize it is a poor financial decision to take this call center or IT outsourcing strategy. 

Decisions are made in command and control fashion from the financials without knowledge of the work and/or based on scientific management theory that has long proven . . . outdated.  So here are 3 things to consider before you outsource:

  1. The Work.  For a call center what is the type and frequency of demand.  More importantly is the demand value or failure?  Most call centers have between 25 – 75% failure demand in their call centers and after outsourced lock in the costs of this failure demand.  For software development it is the realization that software is not developed in a production line, software is developed from knowledge about the work.  When developers are separated from the work it almost guarantees a poor outcome in what is coded leading to multiple rounds of rework that quickly lose their “cost advantage.”
  2. Economies of Flow.  Economies of scale drives American business.  Few understand “economies of flow” is the real driver of costs.  Trapped in this wrong paradigm service organizations separate functions of work outsourcing pieces leading to sub-optimization (improving the cost of one area at the expense of all others increasing total costs).
  3. Ancillary Costs.  There are technology costs, contracting costs, turnover costs, training costs, meeting costs, customer impact costs, etc.  Look hard at what really is involved and you will probably find other hidden costs.

Evaluating these 3 areas before outsourcing can lead you to better decision-making about what your service organization should do when considering an outsourcing strategy or even an in-sourcing strategy. 

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  He is focused on exposing the problems of command and control management and the termination of bad service through application of new thinking . . . systems thinking.  Download free Understanding Your Organization as a System and gain knowledge of systems thinking or contact us about our evaluation of in-sourcing or outsourcing strategies at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

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