Category Archives: Systems Thinking and Financial Industry

W. Edwards Deming “Unemployment is Not Inevitable . . . It is a Sign of Bad Management”

W. Edwards Deming
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Over the weekend, I was preparing my paper for the International Deming Conference in March.  I decided to look at some videos of W. Edwards Deming on YouTube and other assorted mediums. Having attended Dr. Deming’s 4-day seminar I felt the familiar pull of a lost message about American management and that the Western style of management needs to change.  That was in 1984 . . . and not much has changed.

Dr. Deming in one video outlined the 5 Deadly Diseases of Management.  They are:

  1. Constancy of Purpose
  2. Emphasis on Short-Term Profits and Thinking
  3. Annual Rating of Performance/ Merit Pay
  4. Mobility of Management
  5. Use of Visible Figures Alone

All of these things Dr. Deming warned us about in 1984 are present in almost all American businesses and government today.  The banking crisis we are finally emerging from in the emphasis of banks to seek larger and larger profits to achieve targets.  Short-term thinking isn’t just accepted, it is encouraged.

The problems with mobility of management are rooted in the lack of knowledge that management has about the systems in which they manage.  Many lack the basic knowledge of their systems and manage based on common sense.  But common sense can only be achieved by having knowledge from being in the work understanding it – outside-in as a system from a customers point of view.  Anything less is leads to waste and sub-optimization.

The financial targets in American business are highly visible to anyone who manages and in government the focus on visible costs.  A shame that very few can answer a simple question like, “what measures matter to customers?”  Most will say, “oh yeah, that too”, but have no idea from their functional perch.

And so we live with high unemployment that is firmly rooted in bad management.  Education is a top priority in the US and many states to help America become more competitive.  A noble aim, but our problem is not just education . . . it is the wrong management theories being taught that deepen our plight.

Join me for the International Deming Conference in New York City on March 21 – 22.

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

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Industrialized and Mass-Production Thinking is Still the Enemy

W. Edwards Deming in Tokyo
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To take a look at business we have to go back in time to a Post WW II world.  Manufacturing was decimated by the war, except in one country . . . the United States. The world turned to the US for products.

Because of world demand, the US focused its manufacturing on mass production and the thinking from Frederick Taylor and Henry Ford.  How many can we produce and how fast?   . . . Were the questions that US manufacturing was trying to solve.  No competition and no focus on quality.

This worked well until a meeting in Japan on July 13th, 1950.  Where W. Edwards Deming met with 21 presidents of industry that represented about 80% of the capital of Japan.  Dr. Deming promised that if they followed better thinking that the US would be screaming for protection from Japanese goods in 5 years, they did it in 3.

In the greatest upset in economic history, US manufacturing faltered . . . culminating in the 1970’s with the bankruptcy of auto industry giants – Chrysler and Ford.  This lead to some self-reflection in the US about how a small country like Japan with few natural resources could put the US on its heels.

In 2011, the design of American manufacturing and service still has that mass-production flavor.  Some have managed to change to just survive (always good motivation to do so), but service still lags in thinking.  Many technology organizations think of their software development process as a production line.  A wholly wrong approach if you hope to make good software.

I have talked about economies of flow before, but it is scale thinking that still wins the day.  Reducing costs through outsourcing, shared services leads to service designs that have the opposite outcome of what is desired . . . or unintended consequences.  In this case, the unintended consequences are increased costs, worse service and reduced morale.

Economies of flow thinking helps lead us to better design as what is good for the customer always is good for the bottom-line.  To many, this is counter-intuitive.  The prevailing thinking is that better service costs money and it is with the industrialized thinking of yesteryear.

And so as we enter 2011, we still have the fundamental thinking problems about the design and management of work.  Will this be the year that you do something about it?

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.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com  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/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Cracking Your Service System’s Code

Using infrared images from NASA's Spitzer Spac...
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All systems are different.  Like snowflakes, which I have seen a lot of lately, no two are the same.  They are different by structure, thinking, work design, measures, customer demands, and much more.  The cracking of your system’s code requires study.

The act of understanding performance will lead you to your own unique conclusions on what is best for your system.  Copying other systems for best practices leaves service organizations under-performing.  Too many improvement efforts are lost by trying to avoid “reinventing the wheel” when the wheel never fit the purpose in the first place.

Management has a head full of ideas that they believe will improve their system.  But not until they challenge and discern the current list of assumptions and the real result of current thinking can they move on.  The question of current  performance should be  . . . “do my current list of assumptions and theories about the design and management of work provide me knowledge in the form of evidence that it is or isn’t working?”

An inability to ponder how knowledge is gained is just shooting in the dark when new assumptions and theories are added.  As Dr. Deming would say off to the Milky Way we go!  It becomes a crap shot.

Too few service organizations have the correct measures to judge their performance.  They focus on financial metrics or functional metrics that drive both waste and sub-optimization.  But don’t begin with measures.

Measures need to be derived from purpose and without establishing the purpose of your system any direction you go will lead you nowhere.  Service systems need to understand why they exist . . . and the reason is related to customer demands.  Studying customer demands will allow you to define and refine the purpose of your system.

The relationship between all elements of your system and performance is inextricable.  What you will discover if you are honest with yourself is that the thinking that has driven your current performance needs an overhaul and to test new ideas related to customer measures and purpose.

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.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com  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/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Season of Dysfunction – The Budget Process

Harry Truman's poker chips
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Nothing is more wrought with waste than the dysfunction of the annual budget process.  Arbitrary targets are set during this process and management plans against corporate and government fantasies.  The process is painful, and outright delusional.

W. Edwards Deming would be correct to ask “by what method” will you achieve that 8% reduction in expenses or that lofty 16% growth in revenue?  The truth is rarely do managers know, only that they have a target to achieve and the games begin.  Naive managers play this game like a game of poker . . . “I call that 8% reduction and raise it to 11%.”  While the mature manager will negotiate the number down and immediately devise excuses that will get  the manager through the first quarter or two.

The rest of the year is spent looking at that annoying report that describes “planned vs. budget” and like a roller coaster the management ride begins. Reports are written about the variance from budget.  Display lights show red, yellow, green against budget and the psychological torment to “do something” begins.

Short-term behavior to “hit the numbers” often create a management paradox.  Resources are cut, maintenance is cut back – in a rob Peter to pay Paul scenario that one would think they would only see with “The Three Stooges.”  It is laughable, only this is real life in business and government.  The bean counters have taken over business and government.  This, I have concluded, is why accounting firms are so into consulting as one dysfunction (budgeting) can be reinforced by more dysfunction (consulting to achieve short-term numbers) . . . waste begets waste.

As targets are put in place, the whole focus of the organization turns to the numbers as this is what managers pay attention to.  It creates a defacto purpose, instead of focusing on creating value for customers everyone’s attention is on achieving their target.  And with customer purpose gone, sanity soon flys out the window.

More dysfunction of plans, milestones and schedules based on assumptions, but managers have no time for such silliness as getting knowledge.  There are meetings to have, people to bash and excuses to dream up and that takes a lot of a manager’s time.  The very thing they are trying to reduce raises the need for more resources directed at keeping the budget score and not tending to the system that creates value for customers and constituients.  Wrong focus, in a management paradox, creates more costs.

I don’t believe the budget process will die, but I wish it would.  This is a problem that will take years to undo.  The problem is literally billions will be wasted until we do.

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

Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at tripp@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.

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Customer Service is Your Brand

Not long ago The Wall Street Journal had an article called Customer Service as a Growth Engine.  The conclusion was that customer service was going to be key for service organizations to gain market share.

US companies spend close to a $1,000,000,000 (a billion) per year on improving customer satisfaction and yet the customer satisfaction peg has barely moved.  One of the biggest reasons are defections to competitors because of dissatisfaction.  Over 90% of dissatisfied customers will never purchase anything from your service organization.

Part of the problem lies in measurement.  Executives focused on bottom-line results have measures around financials and productivity.  But customers don’t care about such things, they care about what matters to them.

Unlike manufacturing, customers in the service business bring a variety of demands to be absorbed.  A talked yesterday about why this creates problems for standardization in the post – A Service Assumption:  Variety, Not Standardization is the Problem.  Customers want service organizations that customize their experience to the variety they bring . . . not droids that comply to internal mandates and audits.

What gets in the way of good customer service is focusing on the wrong things.  They spend money on marketing to change the perception of the bad service they provision to build a brand, technology to entrap front-line workers in poorly designed systems and other well-intended, but cost increasing activities.  I am not against these things, but I find it better to improve service as more cost and revenue efficient.

Happy customers talk . . . and so do unhappy customers.  These days with the emergence of social media good and bad service is communicated quickly to a lot of potential and existing customers.  Trust can be lost in one or a few errant transactions.

Building a brand should begin with the customer experience.  It is the least costly and most effective way to get and retain customers.

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

Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at tripp@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.

Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.

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Command and Control at Work- The Forced Upsell

 

USPS service delivery truck in a residential a...
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I wrote a post over the weekend about Chase having bankers pull people out of line to upsell products to them (Banks – Don’t Copy Chase on this Policy).  Then today I researched more upselling that happens in other industries at The Consumerist website.

The United States Postal Serviceapparently has to try to upsell on your packages, AMC , Verizon, Best Buy and many more.  Forced upselling has got to end.  I mean when a customer comes in the door and says don’t try to upsell me and the front-line worker continues to do so . . . we have a problem.  We have both waste and customer anger, so what’s the upside here?

The coup de grace is to follow up this madness with mystery shopping for compliance and bonuses.  It is to make stupid  . . . lethal.  Demeaning to both the customer and the worker.

There are better ways to generate revenue for companies.  Understanding customer purpose and delivering service that gives customers what they demand. 

Good service is getting harder to find as service organizations weren’t that good at providing good service in the first place, now customers have to compete with internally-focused programs like upselling that make it even harder.  This is a hard sell in many cases and increases costs and loses customers.

Service organizations that participate in upselling have been sold a bill of goods that can’t be delivered.  Trust erodes the confidence of customers to get what they want as this is over-ridden by mandates for revenue.  To me, it is the beginning of the end.

Provisioning what customers want and how they want it should be the focus, not some arbitrary financial target that leads to chasing away customers.

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

Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at tripp@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.  

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Banks – Don’t Copy Chase on This Policy

 

The Consumerist

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On occasion I like to go to The Consumerist website.  A great place to go hear about scams and customer service complaints.  This weekend I came across the posting of an article or more of a rant from a Chase employee that has to upsell – titled, Chase Banker: I Hate That We’re Required To Pull People Out Of Line To Offer Upsell.  Ah, CRM data finally has a use . . . we can review people’s private lives and offer new products.  I think I need a shower.

The approach goes like this – you go into the bank to transact business and a banker comes up to you and pulls you out of line to “help” you.  What they don’t tell you is they have no cash drawer or ability to post transactions.  They send someone else to deal with your transaction while they review your account and “sell. sell, sell.” 

The banker doesn’t reveal their name, but enough comments have been posted by former and existing customers that you have to believe it’s true.  The genius that came up with this idea must be trying to hit some revenue target for a bonus. 

Now I can imagine a few customers will buy something, but how many close their accounts, posting negative comments on consumer forums or writing/calling to complain.  Why is “push” the preferred method to actually providing good service and developing good relationships where customers want to work with your organization.  It is both perplexing and costly, but again someone hits their target at the expense of the rest of the system.

I always find that giving customers what they want both increases revenue and decreases costs.  A banker that is not forced to do dumb things will have a relationship and be able to strike up a conversation naturally and with sensitivity to customer demands on time and other factors.

In a systems thinking world, we build systems that serve customer demands.  Sometimes that takes a little work to understand outside-in when most policies are made inside-out in accordance with what our boss demands and the dysfunctional targets they are given.  However, the pay-off is huge in happier customers, lower costs and higher revenue in the end-to-end system.  Oh, and let’s not forget happier employees too.

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

Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at tripp@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.  

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The Last of the Dirty Little Secrets

Most executives don’t even like to broach the subject unless it involves the payout.  Some claim it is OK, because everybody does it.  Still others say it is the only way to motivate people or be profitable.  What is the subject . . .  incentives through rewards and bonuses.

Having worked with many service companies over 16+ years, I have seen many flavors of incentives.  But working with the 95 Method with its focus on customer has risen my awareness of the damage incentives cause.  Over and over again the same damage is done.

The incentive becomes the focus (or what I call faux targets) of organizational and individual efforts.  This thinking works to reduce the value that customers seek from service organizations.  Service companies can not serve both themselves and the customer, there can only be one master.

In the US, we have seen the destruction of wealth by some in the banking industry that had the wrong focus.  The price these companies should have paid is death, but the bailout saved them.  Now many are back to the old “business as usual” with bonuses to keep the good people (good people needs a redefinition).

Break-fix companies like plumbing, HVAC, auto repair and others that I have worked with over the years believe that they could not achieved their success without such incentives.  However, visits to customers show that they are guarded about what they are being told as inconsistent advice is given, or worse, repairs or replacement is done when not needed.

Too many owners of break-fix organizations turn a blind-eye to the reality of the damage their incentives bring to customers.  Since most in any given industry prescribe to the same thinking that incentives are good, you rarely can find anyone doing anything different.  It is the norm . . . but a norm that needs to be challenged in the face of the evidence.

In the case of the banks, the whole world is the poorer for wrong focus.  For the rest, customers pay the price as bad service leaves them with software, furnaces, repairs that are not needed.  If it wasn’t so accepted by so many, most would see it as fraud or a scam . . . many of their customers do.

The one counter-intuitive point that I have learned is that when the customer is the focus of our organizations, costs fall and revenue increases.  Think about it . . . no monitoring for cheating, no HR and accounting spreadsheets to track and happier customers.  Marketing budgets are reduced as better service replaces the hope of better service.  Innovation increases as the service organization focuses on how to provide better service.

With incentives, we call into question the integrity of the organization in the customer eyes.  It is the last of the dirty little secrets.

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

Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at tripp@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.

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Technology with a Human Touch

 

Factory Automation with industrial robots for ...
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Autonomation was originally written about by Taiichi Ohno where he discussed “automation with a human touch.”  This is a far different than the “let’s automate something because we have the technology to do it” approach. 

Unfortunately, while doing bank management consulting I observe poorly designed systems where technology has been layered on top of the system.  This leads to entrapping technology that locks in the waste of the design of the work.

Most of these designs were based on the functional separation of work and a mentality that includes eliminating people to reduce costs.  My observation has been that many banks reduced two tellers, but increased their technology spend by $200,000 annually.  The design of the work was at issue, not the teller or the technology.

More than one bank talked about how they had been able to centralize their operations into a back office in another  location through the power of technology.  But none were able to show me that this move had actually made things less expensive through this thinking.  Pride (of technology) was more important than practicality.

We don’t have fewer tellers or back office functions in banking because of this thinking.  Had banks taken Ohno’s advice to “automate with a human touch” technology may have a different and better role in banking or the service industry in general.  Instead, old assumptions about what makes a bank efficient are perpetuated.

Technology has its place in our world and can make our work easier and more productive, but we are in dire need of understanding that technology is to support people and not replace them.  This thinking will lead to better use of technology and workers.

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

Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at tripp@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.  

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Good Management Reporting is No Substitute for Knowledge

How many times do you hear – “If we had better management reporting we would make better decisions.”  And so it goes with management, better reports lead to better management.  It must be true as technology companies are selling business analytics and intelligence like iPads.

Companies spending large sums of money to get the perfect report or mine nuggets of relevant information from massive amounts of data.  This has to provide us with better decision-making . . . doesn’t it?  After all, one executive suite after another invests in these technology marvels.

Information is not knowledge, let’s not confuse the two. – W. Edwards Deming 

For information to become knowledge, management needs context.  The ability to understand the “what and why” of current performance is something best done with the work.  A financial, productivity, risk or myriad other reports are no substitute.

Decisions made from what reports tell you is even worse.  Information and data can be both misleading and not representative of what is actually happening.  Robert Loggia playing the president of a toy manufacturer in the movie Big is found walking at FAO Shwarz with Josh (Tom Hanks) and says “You can’t see this in a marketing report.”  How right he was as knowledge comes from understanding and context.

I once had a CIO of a technology company that served the banking industry tell me “I was a teller once” as an excuse to make decisions on what was good for banks.  You really can’t make this stuff up.  I am not sure if this was executive ego, ignorance or stupidity . . . but none of these options are good.

The path to knowledge begins with check even if you have untold knowledge in the industry you work in, you need to understand the system you manage.  Decision-making then becomes an exercise of experimentation with method as knowledge is gained from understanding the work outside-in from a customer’s perspective.

Executives quite often say they don’t have time to go to the work.  Taking a look at their schedule you find budget and strategic planning meetings take precedent.  This tells me that they are OK with making assumptions in their decision-making process . . . must be they got better reporting (?).

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

Make the new decade a profitable and rewarding one, start a new path here.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at tripp@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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