The No Tool Zone

There is an article from BusinessWeek On-Line titled JP Morgan Chase to Increase India Outsourcing 25%.  The comments attached to this article are damaging enough.  These comments are mostly related to the TARP money and losing American jobs overseas, people are outraged that their tax dollars ($400 million) are going to help India.  There are bigger problems with IT outsourcing than the heated and emotional ones.

The real issue to me is that it doesn’t make economic sense to have an IT outsourcing strategy.  Yes, Chase may lose some customers, but they are actually increasing their costs NOT decreasing them.  Let’s look at the reasons:

1. The decision to outsource is made top-down, based on costs.  These are the command and control thinkers that don’t understand the work to begin with (ala AP Sloan) but see a huge savings in taking a transaction cost mentality to reduce transaction costs while driving up end-to-end costs.  Additionally, what about the contract that is managed, turnover, and communication which are all issues in outsourcing.
2. IT is over-prescribed.  IT people can automate any process, the problem is most of it is done without understanding customer demand and the work that creates value.  This leads to IT that is not needed and usually institutionalizes waste.
3. Collaboration is needed to produce value-added IT.  The production line mentality of the IT shop assumes that the IT work can be done by gathering requirements and than “sending” the work development work away.  This rarely leads to a good outcome.  Developers need to be with those doing the work to create value.
4. Standard work and best practices don’t allow absorption of the variety of demand.  Outsourced IT demands standard work or best practices that can not let the bank absorb the variety of demand that customers demand leading to waste.
    

A better “systems thinking” way is to approach technology change management is to understand the customer demand, improve the work (without technology changes) and “pull” technology.  An IT outsourcing strategy can only prevent these things from happening and guarantee waste.

I know what you are thinking right now . . . another dinosaur that just doesn’t get it.  The problem is I have served as a CIO in state government, and consulted with Fortune 500 information technology companies.  I have not been impressed and oddly enough the customers I have seen using these technologies have not been impressed either.  Many IT projects never reach completion, costs overshoot what is planned, and never achieve financial results.  Here are some causes:

Information technology organizations have the same command and control structure as any other organization. 
This means the functional specialization born from scientific management theory (see previous blog).  How this plays out are sales quotas have to be met by salespeople and they have powerful presentations, but typically don’t have the product to back it up.  Leaving expectations from customers unfulfilled.  The promise of business improvement and corporate cost reductions never comes.  Rarely have I seen information technology achieve an ROI despite all the conversations about it.

IT companies have their budgets and targets to meet so the customer gets a project plan (typically) and a document to manage scope (can’t have scope creep).  If you are lucky, you may see a business analyst that never really sees the work or if software development you will never see the developer (too valuable a resource).  Even if these valuable resources did see the work, they don’t have the knowledge to redesign the work just the knowledge to automate it.

IT support is a zero sum game for IT organizations of this ilk.  Did you not sign-off on the requirements?  Fixing technology issues becomes a game of “cat and mouse” for the IT company, what are customers going to make me fix and what will customers tolerate.

IT customers come from this same command and control mentality.
Almost every information technology purchase I have seen came from the top.  Unfortunately, these folks (as well-intentioned as they are) don’t understand the intricacies of the work.  These same folks often asked why the front-line people have a hard time adopting new software.  Well let’s see they weren’t involved in the decision process, you made their work harder, and change that is not an improvement is forced upon them . . . not gonna like it.  This isn’t a matter of getting used to it as most executives surmise. 

IT customers want to record incoming work, sort it, scan it, route it and record how long took to do it.  In the words of John Seddon in Freedom from Command and Control (Vanguard partner) ”a command and control managers dream.  Managers can tell you where everything is, how much work is being done by each person, what work is coming in, going out and in backlog.  When you look at the work from a customers’ point of view, however, you regularly find it impossible to predict how long it will take to deal with any customer demand.  The IT system  drives the sorting, scanning, batching, counting routing and recording of work under the misguided assumption it is helping to get the work done.”  The value work is only a small fraction of this activity and worse IT customers have to consume additional costs and resources to maintain the technology.  Bottom line: managers are making investments in IT without understanding the work.

The cure: 
Understand:  Forget about IT . . . treat it as a constraint, not a solution. Perform “check” on the current system.  This means look outside-in and end-to-end from a customer perspective and learn about demand, capability, flow and waste.

Improve:  Do not change IT.  If current work uses IT leave it in place or improve the work manually.

Now, can IT enable this process?
Taking this approach will decrease your investment in IT, make your workers accepting of the changes, and give your organization what they are looking for . . . a better investment for their money.

I recently read an article from Virginia Garcia at TowerGroup that IT investment will be down some 5% in the banking industry.  I see other industries with larger drops in IT spending.  While this is going on let’s see what we can improve without IT, I believe you will find business improvement and cost reductions with real ROI and be pleasantly surprised.

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.