Category Archives: Shared Services

Technology – A History of Increasing Costs

The problem isn’t technology alone when it comes to costs, but more the thinking behind it that increases costs.  The transaction costs are very visible and for the gullible represent quick savings for companies.  And companies laden with rewards and pressure to reduce costs “quick” is an embraceable proposition – it becomes a way to achieve instant gratification and survival in organizations.

I recently had a phone call with a technology company that assured me that IVR systems – that I loathe – were saving companies millions.  No evidence but the reduction in visible transaction costs – this means each transaction cost is lower.  Systemic or total costs are completely ignored.

No one asks about how many transactions that come in the form of customer demands are actually value or failure they just look at the transaction alone . . . not whether the transaction should have occurred in the first place or not.

Reducing failure demand (demand caused by a failure to do something or do something right for  a customer) becomes a huge area to make improvement and does not involve any IT.  As part of reducing failure demand, we are improving the flow . . . as economies come from flow and not scale.

Looking at the history of reducing transaction costs with a flawed mindset, we see that in the good old days we would get service face-to-face.  Telephony advances in technology allowed for a cost reduction in centralizing customer demands through contact centers.  Now, we have websites to reduce transaction costs and avoid the contact center.

The result has been worse service and more costs.  A natural extension of when the focus is on reducing costs . . . costs increase.

Outsourcing and shared services have been enabled by technology – couldn’t have either without technology.  However, both perpetuate the reduction of transaction costs as a form of improvement and ignore the systemic customer demand and flow that really are behind reducing costs.  The management paradox is that the transactional mindset is increasing costs in the form of lost customers and acceptance of a poor service design.

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 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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Asking the Wrong Questions to Improve Service

A client recently forwarded me an invitation from a company promoting a seminar titled “How to make off-shoring work?”  He rightly pointed out that if your asking the wrong question, you will get the wrong answer.  After all, it isn’t about getting off-shoring (or outsourcing, shared services, etc.) to work, it is about getting the work to work better.

The problem is (as with most fads) they are based in assumptions.  Here is the one that caught my attention in the promotion:

“Most major corporations have embraced offshore delivery of IT and are moving to the next stage of a global delivery model, in which the location of both supplier and internal resources are decided from a business perspective, with very few duplicate roles across the world. With major economic benefits, this transition has been accelerated by the economic developments of 2009. What are the challenges? What are the opportunities? And how can you make it work for you?”

Obviously someone with a vested interest in convincing an audience that off-shoring is the right thing to do and you would be ignorant or stupid to have not embraced it as this point.  No evidence, just a lot of hype from a major consulting firm that is trying to sell the mirage.

Too many companies will fall into the cost trap of such claims.  They will do this because they see a reduction in activity costs . . . a very short-term thinking proposition.  But with executives salivating over bonus potential in the next quarter, reducing activity costs sounds appealing.  They miss huge improvement opportunities with this thinking by not addressing the design of the work BEFORE considering off-shoring, outsourcing or shared services.  This is the fundamental thinking problem that management must overcome to improve service.

Off-shoring, outsourcing and even a shared services strategy have gone from a snowball to an avalanche without proof of total cost reduction.  If companies would see that they are off-shoring the waste that is in the design of the work, I believe a different approach would be in order to achieve business improvement.

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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How to Do Shared Services

I was recently reminded that shared services isn’t always bad, but shared services done with industrialized thinking is always bad.  The industrialized piece is rooted in the functional separation of work where the unwary see cost reduction opportunity by combining like functions.   Voila – instant savings to your service or government.

If it were only that easy.

I wrote about shared services in a couple of posts one called The Case Against Shared Services and another post called Shared Services in Government: 4 Reasons Not to Share.  Both articles hit on problems, but didn’t completely describe the huge missed opportunity to redesign services.  You might get some savings sharing services, but while looking for the penny on the floor we miss the golden 6-foot statue the coin is under.

The rush to savings leaves out the counter-intuitive – if not obvious improvement.  When we study our organizations as systems, outside-in from a customer perspective and end-to-end we begin to question the original design.  When we question design, we can begin to question our thinking that created that design.  Rooted in what matters to customers, we get efficiency and effectiveness in delivering services.

Studying our systems and redesigning services before sharing them helps us locate the golden statue of cost savings without ever looking at costs.  It just happens.  But you have to know how to look, but more importantly you have to know to look rather than assume.

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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Facts are Stubborn Things

“Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.”   – John Adams

John Adams:

Image via Wikipedia

While watching the HBO John Adams series for the third time, I was impressed by many things that happened before the Revolutionary War.  Most notably that John Adams made the above quote in defense of British soldiers that fired during the Boston Massacre.  The provocation by the crowd was what caused the British soldiers to fire.  The sentiment of the day was that the American settlers were being taken advantage of by the British and King George III.  But the facts brought forward by John Adams during Boston Massacre trial helped shape law in the new land.

Today, instead of resentment of the homeland hierarchy that taxed goods, we are faced with a management hierarchy that concerns itself with position and not evidence or facts.  The ability to make a decision is more important than basing it in fact.  We are left in government with ideology and in business misguided thinking based on history, neither based in facts.

The problem with the management hierarchy is that they have lost touch with what is actually happening.  Management reports and analytics have replaced knowledge instead of enhancing it.  This is the price of technology, lots of information . . . but know knowledge.

Scant evidence exists that business improvement is achieved through work designs filled with front office and back office, shared services or even outsourcing.  In fact, much of the evidence is that these things are poor designs based in promoting the existing hierarchy.  That is management based in assumption rather than fact.

The current sentiment is toward those things that are outdated and changing thinking requires discomfort of management position.  When hierarchy becomes more important than facts we have not only injustice, but reduced profits.  Workers languishing in poorly designed systems that make little factual sense are perpetually stuck in a cycle of despair.

John Adams had it right in the face of unpopularity.  Facts are truly stubborn things.

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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Michael Barone – Frederick Taylor Drives Management Thinking Too

Frederick Winslow Taylor lived from 1856 to 1915

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Michael Barone, a Fox News Channel contributor, recently wrote an article called Who’s to Blame for Union Woes? This article is somewhat accurate as he points out that unions still operate as if Frederick Taylor thinking still dominates businesses and government.  The problem Michael Barone misses is that Tayloristic thinking still dominates management thinking too!

Manufacturing and service still follow the premise of Frederick Taylor that the functional separation of work is a good thing.  You don’t have to look far for the evidence . . . functionally separated sales, operations, front, offices, middle offices, back offices, etc. sewn together by entrapping technology that seals in the waste.

Management is responsible for the design of the work.  And with management focused on costs by outsourcing, sharing services and reducing unit costs we have lost our competitive position in the US.  The management paradox is that a focus on costs always increases them making us less competitive as other countries create value.  Unions may have embraced yesteryear thinking of Tayloristic thinking, but it is management that continues the outdated design.

Unions were created by management taking advantage of workers.  First for working conditions and later for reducing salaries while executive salaries have sky-rocketed.  This management thinking has created a gap where in order to get more profit in the private sector we have to milk the worker . . . the ones that actually do the work and create value for customers.

Undercover Boss (TV show) provides evidence that executives and management don’t know much about the work and make decisions, plans and projects without knowledge.  Management making decisions without knowledge creates much waste and poor decisions like the banking crisis.  Management with incentives and no knowledge are destined to create poor work designs and decisions.

I do agree with Michael Barone that unions have “clung to an adversarial model,” but that model is perpetuated by management.  If workers mindsets are to change to create a better tomorrow than so does managements.  The bottom-line is that management must change too.  We need to embrace the worker to help to solve tomorrow’s problems, not persist to call them “the problem.”

If union membership is down to 6% as Mr. Barone says, then when they are all gone . . . what will management’s excuse be?

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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Management vs. Labor – Bad Omen for the US

Anyone hoping that the US is on the road to recovery has to take a step back.  Governors blaming government workers for “outrageous” salaries and pensions.  Management blaming unions for the ills of being uncompetitive . . . if that were only the case.  Each own some responsibility, but the lion’s share of the problem is with management.

Unions and workers bear some responsibility, but management has hacked and sawed its way through cost-cutting to international uncompetitiveness and large government deficits.  Management bears the burden of creating work designs with waste and sub-optimization, and unions have locked in the waste with contracts based on poor design.

In a country that now, more than ever, needs cooperation between management and workers to compete against more savvy international organizations (like China, Japan, South Korea, etc.) we have instead pointing fingers of blame.  This will go nowhere and while other countries grow, we are left fighting and blaming each other for the shrinking pie of prosperity.

The fact is management needs labor and labor needs management.  The two are inextricably tied together and the fortunes of the US rely on better management thinking and work design and an engaged workforce that can make decisions and identify opportunities.  Both elements have skin in the game and until they realize this, the US has little chance to be a player on the world stage.

Where management needs to change thinking is being so fixed on costs that they miss the causes of costs.  Too many management decisions begin with a plan rather than knowledge.  Knowledge of the work is with laborers and decisions need to be made with knowledge.

Pointing fingers as if labor is to blame is a bad start for any management .  The adversarial and long-term hard feelings are sure to make the task harder for cooperation needed to reverse the trend.  Management and laborers now have new reasons to hate each other.

Labor has been under fire with stupid management tricks like outsourcing and shared services, looking to reduce costs they increase them.  Misguided by mass-production-, industrialized- and economy of scale-thinking.  They miss the real costs associated with flow (or the lack thereof).

Indiana, Wisconsin and more state governments will follow the wrong strategy to reduce labor costs assuming the government work designs are optimal.  Government and private industry would do well to engage workers to help fix flow and eliminate waste rather than pick fights.  The pot of gold they seek from benefit and wage cuts is much smaller than the hidden huge opportunity to fix their systems.

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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Why Apple Really Isn’t Cool

Recently, I was reminded of the plight of the worker as America is saddled with high unemployment.  As an American icon, Apple has become what is wrong with our labor picture.  The innovation giant and its success has not had the trickle down affect of labor employment.  They, like so many others, have shipped their labor overseas and the accompanying lack of manufacturing job creation leaves America both less wealthy and less innovative.

Without labor to make Apple products, we are missing future opportunities to innovate from knowledge gained from making the products.  Maybe antenna-gate would never have happened.  Labor is an integral part of the system as the Apple Genius Bar.

Our elitist mind-set has us believing that management, lean six sigma black belts and project managers are more important than those that do the work.  Labor is treated as a commodity that should be negotiated for the lowest price.

And it isn’t just traditional labor that is getting the shaft.  Contact centers, software developers, HR, finance and even research scientists are being outsourced, shared and marginalized.  This leaves no labor that can actually create value in the eyes of the customer in manufacturing or service.

This is a disturbing trend and the root of some of the unrest we have seen in the Middle East.  When jobs aren’t available, political upheaval is in the future.  The problem is . . . the future is now.

Apple for all its success is a beacon for what is wrong with America.  They return high profit with cheap labor and their success has created a whole new generation of misguided thinking.  The economy of scale and mass production thinking blinds them to better ways to design and manage work.

It is American management that has marginalized the worker with poor work design and thinking.  Apple, as the great innovator should have long come to understand and embrace this as fact.

This creates a paradox for Apple as their biggest customers are right here in America.  With all their labor outsourced, who will be able to afford their products in the future?

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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Rivlin-Domenici Plan – The Problem is the Approach

Here we go with another “plan” to reduce spending in government.  I plan to post a more in-depth piece to the Rivlin-Domenici Plan.  Not bad people, but the same old worn out approach where politics takes precedence over method.

One of the first things you read about from the Debt Reduction Task Force is the word compromise.  The minute we read this word we should realize that we are in trouble.  Compromise means that we aren’t going to get something that works, it means that we get something that can be agreed to.

The second glaring problem is the word plan. The traditional approach to improvement is putting a plan together.  The Task Force may understand the size of debt, but to put a plan together without knowledge is misguided.  This doesn’t mean they didn’t spend some time studying, but the report indicates  high-level learning that leads to assumptions.

The plan is devoid of evidence that any of the measures will work.  Big plans based on compromise rather than knowledge and method is sure to make the deficit bigger.  This plan will kick off legislation and other plans that will cost billions before we ever see any action.  And when action comes, we have no idea whether the Deficit Reduction Plan will work.

Other troubling keywords are modernization and shared services.  The word modernization tells us that we can expect people to want to get rid of paper and automate things.  Too often in government we make the assumption that information technology will make things better, when in reality it increases costs as poorly designed work is the problem, not automation.  We wind up with entrapping technology that locks in the poor design.

Shared services typically only looks at functions and not the demands that are placed on government.  An agency might have the different demands going into each function, just combining them won’t reduce costs.  In fact, once shared we are seeing shared services departments spring up that cost us more money and adds more to the deficit.

To win this battle against the deficit, we need all hands and brains and to keep the political players from compromising, modernizing and planning us to bigger deficits.

We need to engage those that are going to improve the system and must include those that have knowledge of the work . . . as for the rest they need to get knowledge by performing “check” with those in the work.

By understanding customer purpose and the demands constituents place on the system we can develop an understanding of the causes of costs.  Taking direct action on the system we can experiment with method and redesign the work to eliminate failure demand (demand caused by a failure to do something or do something right for a customer) and improve flow.

Having worked in government management, I have seen the massive amounts of waste and sub-optimization that exist from poor design and outdated thinking.  Politics and compromise have no place in improvement, we must have method.

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 columnist (Quality Digest, PSNews and IQPC), speaker, and consultant to private and public service industry.

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Shared Services in Government – Increased Costs Hidden from View

I am not against reducing government costs . . . but I am not for increasing them mindlessly either.  I have written about this before (Shared Services in Government: 4 Reasons Not to Share and Dos and Don’ts of a Shared Services Strategy), but election time brings craziness and promises to balance budgets.  Many like to provide financial evidence that this works, rarely have I found this to be true.

Where is the evidence?

Supporters will show you that they had two or more “like” functions and combined them.  The financial savings are obvious.

But are they?

Not really.  Here is what we have found in the United Kingdom on some IT-led shared services projects:
• The shared services programme for the UK Research Councils – sharing IT, HR and finance – which was bought at £40m and is now forecast to cost £120m (and it ain’t over till the shared services work, which they don’t and probably won’t).
• Much the same has been reported with the shared services initiative at the Department for Transport. Sharing HR and finance was supposed to save the taxpayer £57m, but it is now on track to cost £81m.

Economies come from flow, not scale and too many political wags have got it wrong.  They want to reduce costs,  but pull all the wrong strings because they appear to make sense.  It is the ultimate waste of tax dollars.

Further, the financial and/or technology companies leading the charge to shared services are locking in waste.  The curious will read the articles above to understand why . . . as for the rest quit wasting taxpayer dollars.

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 columnist (Quality Digest, PSNews and IQPC), speaker, and consultant to private and public service industry.

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