The No Tool Zone

Pestilence, War, Famine and Death . . . the four horsemen of the apocalypse.  Benchmarking, Outsourcing, Shared Services and Command and Control Thinking are the four horsemen of the business apocalypse.

Let’s begin with a brief overview of benchmarking (pestilence).  This is comparing one organization against another.  This violates a fundamental premise of systems thinking . . . that systems are the same, they are not.  Foolishly, organizations compare costs and performance against competitors or other “similar” organizations.  This usually leads to copying when systems (organizations) are designed differently by customers, technology, work design, policies, management, workers, etc.  W. Edwards Deming first warned us that “copying invites disaster” because of the difference of systems.  Also, benchmarking can be limiting by using a standard, why can’t we shoot for something better?  Like perfection, continually improving our products and services.  For more reasons please read “Benchmarking: What is it Good For?” from this link.

Outsourcing (war) has its own systems thinking problems.  Other than the pure cost, the most blatant is the outsourcing of waste (call centers).  Service organizations consistently outsource their failure demand (problem calls, follow-up calls, etc.) to other locations and countries.  Not to much of a concern other than the fact this number represents between 25% and 75% of all call center contacts.  The outsourcing separates the people that need to work together as a system to fix the problem.  Please read Think First: Call Center Outsourcing and/or 3 Things to Consider before Outsourcing.

A shared services strategy (famine) has become a favorite of both the public and private sectors.  The assumption is combining call centers, HR, finance departments, etc. will save costs when we find it usually increases them.  Service organizations become so enamored with the savings they forget the system, pushing things together like two puzzle pieces that don’t fit.  All the while after the “savings” from economies of scale and forgetting that costs are driven from economies of flow.  The information technology that enables shared services actually entraps the waste created by it.  Please read more Failure through Shared Services and/or Government Shared Services- A Recipe for Disaster.

Finally, we have command and control thinking (death).  The horseman that has been slowly deteriorating our economics since a better way was discovered by Deming, Ohno and Seddon.  This thinking involves the use of scientific management theory born from Frederick Taylor in the late 1800s a breakthrough in its time . . . now a Dodo bird.  Except the Dodo bird is extinct and command and control thinking lives on.  For more please read Command and Control Assumptions Challenged and/or 5 Fundamental Thinking Problems in the Service Sector.

The four horsemen of the apocalypse are upon us . . . economically speaking.  They promise lower costs for numbers that we can see on financials, but not the ones that matter . . . total costs.  There is a better way . . . systems thinking provides improved service and lower costs with better thinking. 

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 thinking and the termination of bad service through application of new thinking . . . systems thinking.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com.  Reach him on Twitter at www.twitter.com/TriBabbitt.

I came across an article on Govtech.com where the State of Colorado is legislating and the CIO promoting shared services to “save money.”  My blog about shared services being done in State Government in the states of Michigan and California is relevant (Government Shared Services: A Recipe for Disaster).  Unfortunately, states are focused on cutting costs which in a management paradox will increase them.

I am a former CIO for FSSA (Family and Social Services Administration) in Indiana.  We decided during my time (2005 – 2006) there to “modernize” the Welfare Eligibility system.  Consolidating the intake system to call centers, eliminating paperwork and making the application process internet friendly.  A plausible idea that I supported at the time.  The problem is the idea has been a disaster in Indiana, potential recipients are being hit with lost documents and missed appointments leading to calls to cancel the $1.16 billion, 10-year contract with IBM and its partners.  Add to that additional staff are being added by FSSA to help clear the backlog.  This is a “modernization” of outsourcing, technology and shared services that we should learn from, not cover up.  After all, you won’t find this failed implementation on IBM’s commercials and website.

What I have learned in the past 3 years from John Seddon (and my partners at Vanguard Consulting Ltd) is that this project was destined to failure from the beginning.  FSSA took the approach to automate without first performing “check“, this means an understanding of purpose, customer demand, capability, and system conditions were not a part of the original analysis.  This led to poor work design based on command and control thinking top-down vs. outside-in.  Had we studied the system we would have been able to design the work to service those individuals seeking welfare and reduced costs.  Automation, outsourcing and consolidation is not a good place to start to make improvements.  Government management needs new thinking and method to achieve better service and lower costs . . . this is not a zero-sum game (both lower costs and better service can be accomplished).

My friends in the UK have taught me that:

• economies of flow will always trump economies of scale;
• service organizations should perform check first and then pull technology, or determine the need for shared services or outsourcing;
• the hidden costs of bad or poor service are ignored by command and control thinking and understanding customer demand will help reduce costs and improve service;
• better measures can be found by looking at service from a customer perspective.

I commend Indiana FSSA Secretary Anne Murphy for suspending the roll-out of the “modernized” welfare eligibility system and taking a couple steps back.  Whether she follows better thinking and method remains to be seen.  This system now is costing taxpayers the $1.16 billion contract, additional staff and a whole lot of heartache to those seeking welfare.

For Governor Bill Ritter and State CIO Mike Locatis of Colorado.  There is a better way.  The recommendation by vendors to start with a front-back office process of sharing first and solving problems later, IT outsourcing strategies and shared services strategies are all proven non-starters. 

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.  Learn more about government services at www.thesystemsthinkingreview.co.uk.

There are quite a few articles on shared services strategy and most of them are positive.  There is a better way to achieve business cost reduction and business improvement than cited in most of the articles. As an example, AT Kearney put out an report/white paper called Success through Shared Services.  The first pages of this, report that getting the advantages of shared services is like spinning “straw in to gold.”  They would have been better off stopping there. 

In a survey by Harris Interactive, the report goes on to say that on average up to 6 departments are typically consolidated and these companies are “highly sophisticated” and have Service Level Agreements and charge-back systems and are also exploring outsourcing strategies.  The report sites that “70% of executives rank their shared services efforts as successful . . . and the benefits range from reduced costs and  improved productivity to superior employees.”  A command and control thinkers dream!

The purpose of the paper is to “highlight why shared services is a proven method to deliver value.”  Doesn’t sound like people are beating the door down to share services and need convincing.

AT Kearney discusses the “Fundamental Truths of Shared Services” in this article and cite the need for a standardized model.  All command and control thinking.  My favorite in this section “many executives cling to the misconception that shared services will result in increased costs.  Examples of companies that tried shared services and abandoned them because of higher expenditures and increased operational complexity are easy to come by.”  Yes, because shared services increase costs and complexity, I’d like to talk to these executives because they get are correct.  AT Kearney goes on that costs are only increased because of a “flawed implementation.”  Of course that’s the problem it just wasn’t implemented correctly . . . it REALLY works after all it is one of the “truths.”

AT Kearney then goes on to talk about “The Three Pillars” of shared services.  All three are directly targeted at the command and control thinker . . . consolidation, standardization and automation.  All three items I find to lead to worse service for the customer and increased costs.

AT Kearney has a nine step process that is used to avoid the dreaded “flawed implementation.” In summary, it includes “setting targets, appropriate operating model, effective governance, take your time (2 years), managing rising technology costs, integrate outsourcing strategies, management tools (charge backs and SLAs), measure performance, and focus on internal customers.”  Targets and performance will always become the de facto purposes of the organization so a better way is to focus on customer purpose and measures that matter.  I find it strange that one of the nine steps is internal customer focus, without any mention of the actual external customer.  SLAs are another form of targets and charge backs add no value to the system . . . it is a form of waste.  Outsourcing strategies lock in waste without accounting for failure demand.  And technology costs rise because you have to have all types of technology software, hardware and of course consulting to make all this stuff happen, that must be the reason to allow time and two years probably isn’t enough with implementation issues.  Other than that it is a command and control thinkers dream.

What should be done?
Do we need a front and back office? Or is a front office design a better way to handle demand.  Only by studying customer demand can we be sure.

Before any shared services strategy takes place we need to understand current service performance.  This can be accomplished by studying customer demand (what customers want), capability (how well it is delivered), the value work (the service customers want efficiently), waste and its causes.  We can then improve service where it is currently delivered and then have a knowledge-based discussion on shared services opportunities.

 just read an article from Govtech.com displaying the “efficiencies” gained from a shared services strategy in the states of California (CIO – Teri Takai) and Michigan (CIO – Ken Theis).  Maybe this is the reason that these two state deficits are so large.

Shared services usually means either we are consolidating front office activities or back office activities to gain economies of scale.  The problem is that we have created front and back offices that are not designed very well to handle customer demand.  Front and back offices are designed with the assumption that all the work received is value work and thus treated as something to be processed.  The reality is much of the work is failure work, work that is rework, “status inquiries or progress chasing.

Information Technology in these situations leads to locking in costs rather becoming an enabler.  Work is broken down into tasks that can be electronically sent to the “right” people.  Managers then monitor the activity and performance to pre-determined targets.  End game:  Targets are hit, but poor service generates increasing failure demand.  The activity and performance measures take the attention away from the purpose of the activity and reality of the work.  Ultimately, leading to the need for additional staff to accommodate the increase in failure demand.

Economies of scale is a driver of the shared services strategy, but it is the economies of flow (Taiichi Ohno) not scale that will drive costs down and improve service.   Understanding the predictability of failure demand will help identify and stop the causes by redesign of services that can then provide value.  Understanding value demands will help managers design services that allow citizens to get what they demand from the service.

Some services may not require a front and back office split and by having tasks split create more waste and worsen service.  Some services are provisioned better with just a front office (especially those that have high complexity).

My fear is Ms. Takai and Mr. Theis believe that front and back office designs should be driven by IT.  IT analysts and consultants that identify the tasks to be done and the processes these tasks belong to, creating standardized work.  But the standard work is not able to absorb the variety of demand and by placing these demands ensures that information technology will lock in costs.  The costs of a shared service design is in the flow not transactions.  It is the total volume of transactions and its accompanying costs of delivering the service that are important, not the cost per transaction.  Assumptions that costs are in transactions leads to building shared services departments that deliver high cost and poor quality services.  IT guarantees locking in this waste.

What should be done?
Do we need a front and back office? Or is a front office design a better way to handle demand.  Only by studying customer demand can we be sure.

Before any shared services strategy takes place we need to understand current service performance.  This can be accomplished by studying customer demand (what customers want), capability (how well it is delivered), the value work (the service customers want efficiently), waste and its causes.  We can then improve service where it is currently delivered and then have a knowledge-based discussion on shared services opportunities.

These same arguments exist for the private sector and not just government management.  As a former CIO in state government, I am thankful that my partners (Vanguard Consulting) and especially John Seddon pointed the difference out to me.  Systems thinking is a better way.