The No Tool Zone

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.

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.

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.

Most of us have connected with the service sector (public or private) and felt like we have been “worked.”  That burning feeling that what matters to you does not matter to the service company you are interacting with. 

The source of this feeling might be the IVR system you have to go through with its multiple layers of questions and feeling like you won the lottery that day by saying the right words or pushing the right buttons to get to a person that can actually help you.  The multiple follow-up calls you have to make to get an answer can be both frustrating and time consuming.  All along you think in the back of your mind either “how can I quit using this company” or “how do these companies stay in business with such poor service?”  A lot of us tolerate the poor service because we figure the next service organization will be just as bad as this one and the switching cost is too high.

The sad part is that service organizations could provide really good service at a lower cost, but command and control management doesn’t think that way.  The command and control mentality prevents good service and promotes higher cost.  They just don’t see it.  They manage their businesses in a zero-sum game believing there is a trade-off between costs and good service.  One can only be achieved at the expense of the other.  And guess which loses most of the time . . . good service at the expense of some financial or performance target typically for some financial reward that customers would cringe at if they knew about.  The leadership strategy of command and control organizations is to do as little for the customer as possible and maybe they won’t recognize or complain about the bad service.

The problem is customers aren’t stupid and the tolerance for poor service is at boiling point.  Social and business networks are now offering mediums to communicate poor service in an on-line instantaneous fashion that is viral in nature.  People will know about a company’s poor service much faster than before and avoid using those organizations that are guilty.  Recovery will be too late and the costs that don’t show up on the financials will already be incurred.

The management paradox here is that all this is unnecessary.  The zero-sum game is a loser’s mentality.  More costs are incurred through bad or poor service than are incurred when the service is good.  Command and control thinkers do not account for failure demand, multiple calls from the same person to get a problem corrected, or chase the status of a previous call.  All failure demand is waste.  Imagine how much costs would fall if customers got what they want and the corresponding system was re-designed to give the customer what they want and eliminate this failure demand.  Costs would fall and service would improve.

The systems thinking organization understands that value drives profit and not vice versa.  The command and control organization only knows the zero-sum game that is a guaranteed loser.  A change in leadership strategy is imminent, where will your service organization wind up?

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 terminating 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.

I am always fascinated by the actions of call center management efforts to attain cost reductions.  Bank management efforts are no exception. 

At a large customer service (call) center for a tier one (large) bank I spent time listening to some phone calls and understanding what customers hear when they reach the bank’s IVR (Interactive Voice Response) system.  I started with the IVR system and listened to all 8 options and none of the options allowed the customer to talk to a service representative. The exception was the customer who wanted to open a new account or loan.  The amount of button pushing required to get to a person by listening to their “tree of options” was mind boggling.  A person calling in with a problem had to follow a path that had no end.  I was assured by the call center manager that this was saving them money . . . huh?
 
Next, I started to listen to value calls (open account and loans), but those lines were being clogged by the customers who had problems as the customer had figured out from the IVR that the only way to talk to a person was to hit the option for opening a loan or an account.  Customers have a way of figuring things out to get what they need.  The really interesting part is that the executives were tracking the new account and loan calls and wondered why they were getting so many calls to open accounts and loans but not very many accounts or loans were being made in proportion to the calls.  The data from their reports didn’t tell them what was really happening (calls were problems not sales).
 
The executives could only look in the mirror as the source of the problem.  They put in the IVR system to “save money.”  I suspect it cost them money not only for the IT but for the customers they lost.

The IVR systems have created a whole sub-culture culminating in a website to tell you how to speak to a person at major service organizations.  Check out the website www.gethuman.com.  Customers can be very creative, but why make it so hard to get value?
 
Some management articles to delve deeper into Systems Thinking and better methods for call centers.  They include: Transforming Call Center Operations, Design Against Demand, A Better Way of Motivating People, A Better Way of Thinking about Technology, Better Thinking about Demand, and Better Thinking about Managing People.