Our New "Get Tough" Policy

You figure in life if you live long enough, you will hear something so ridiculous that it defies all comprehension.  So here we go . . .

An executive once told me that they were going to enforce a new “get tough” policy with customers and they would be enforcing the letter of the contract because customers were trying to take advantage of them.  This executive sees good service as a zero sum game where good service and costs have to be balanced.  For command and control organizations their attitude to customers is to seek out the contract for fear of losing money or exposing themselves to risk.  These organizations build gigantic legal departments, risk managers, project managers, and accountants to ensure that no money is lost in a contract.  Did anybody mention the cost of these people and the waste they produce? . . . just in legalese, project plans, PowerPoints and spreadsheets to avoid “scope creep” and those darned customers that are so demanding.  They believe business cost reduction is only achieved through more non-value added activities like inspection and reporting. 

A systems thinking organization knows better.  They know that providing good service always leads to lower costs and happier customers.  A management paradox that command and control organizations can’t comprehend.  A systems thinking organization understands who does the value work for their customers, and what their customers value.  They understand that not meeting customer demands lead to more costs in increased failure demand, poor reputation and many unknown and unknowable measures that suck the life out of an organization.

So, if you hear about any “get tough” policies with customers, please send the offending party here to think about a better way.

You can read more about the distinctions between command and control and systems thinking through this link.

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Labels, Tools and Change Management

In our last major crisis, the car manufacturers were on the ropes because they were unable to compete against the Japanese manufacturers.  This was not last year this was in the 1970s and eventually culminated in major changes to the way manufacturing was done.  However, the change never hit the executive ranks and here we are again in 2009 (my opinion). BTW, we have been through a financial institution crisis before and I’m not talking about The Great Depression, I am talking about the Savings and Loan crisis in the 1980s.

So what mistakes did we make that places in our current position, some are outlined between command and control thinking vs. systems thinking.  I see something more subtle that has happened.  When people started to investigate W. Edwards Deming and Japanese manufacturers with visits and questioning of “how they do it” they came back with a label and ideas.  The label was TQM (Total Quality Management).  A label that did not come from the Japanese or Dr. Deming, but a label founded by the consultants that wanted to profit from the new movement.  Worse, in manufacturing visitors from the US saw JIT (Just-in-Time) manufacturing, quality circles, etc. as the “secrets” to improving manufacturing.  Many manufacturers rushed to copy these ideas without understanding the underlying concepts that created these innovations.  What I learned from this time period was you can not copy results and labels are meaningless except to market to organizations.

As the “Lean” movement got underway, I saw a repeat of the same mistakes.  Taiichi Ohno never labeled what he did in the Toyota Production System “Lean” . . . he had concepts from watching a Ford manufacturing facility.  This movement has taken a similar path to TQM in that the focus has been on the tools.  “Lean” has tools like 5S, A3s, Value Stream Mapping, etc. that has watered down the change in thinking required to not only sustain the changes, but to discover new tools and ideas that can take an organization to the next level.

Understanding the basics of changing thinking and speaking to the fundamental concepts that Deming spoke/wrote about in his 14 points and 7 deadly diseases (later System of Profound Knowledge) and Ohno’s Toyota production System.  This has helped gain new learning in service industry in achieving business cost reductions and service improvement.

I will no doubt get push-back from those that aspire to tools that they have achieved gains in their change management programs, and I will not dispute that they have achieved business improvement. I believe there are limitations to this approach without the fundamental change in thinking required at the leadership level to sustain these improvements.

What I do see is a difference in method,  one of changing thinking vs. use of tools as a lead to making organizational change.  A method that has a greater chance of sustaining an organization’s continual (Deming’s preferential term) and continuous improvement process.

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Get the #$%# Out of the Office

I read an article (A Scion Drives Toyota Back to Basics)  this morning in the Journal about Akio Toyoda whose grandfather started the company. Mr. Toyoda will be taking the reigns as President of Toyota.  In the article, there is mention of a traditional Toyota  practice called genchi genbutsu a traditional Toyota practice that means “get out of your office and visit the source of problems.” 

Now imagine this, an executive of your service organization getting out of the office to say . . . listen to phone calls from customers, open a checking account, see treadmills get repaired, observe the software development process, or (in general) look at how customers use their product or service.  I remember asking a bank executive what would happen if the CEO of a regional bank showed up at a branch to observe branch activities.  Her reply, “the employees would pass out or otherwise be faced with an assortment of medical conditions.”

What causes US executives to stay in their offices over going to where the value work (and failure work) is done?  Some of this thinking has to do with Alfred P. Sloan who in the 1930s advocated “management by the numbers” and that management should not be involved in the work.  Too many executives today follow this leadership strategy by sitting in their offices and managing their businesses from spreadsheets and PowerPoint presentations.  This is a scary proposition and reports and financials don’t fully tell the whole story (see the blog Death by Call Center).

Although many executives have been on the front-line before, few dare venture out into the front-lines.  The sad part is they make a lot of assumptions about the work from when “they used to be there (on the front-lines).”  Many decisions are made either based on this thinking or what is reported off of the spreadsheets and PowerPoints from subordinates or consultants. 

Conversely, I have seen executives of service organizations that have never been in the industry (usually information technology) that have never written a line of code or understand anything about the industry the software serves.  Yet these same executives stand in front of an audience with silver tongue and PowerPoint to tell customers what direction the industry is heading and what they should do . . . buy more software!  An effort especially by these (not from industry) executives should be to get out of the office and see the work.  

Here are some things that don’t count as “getting out of the office.”  Anything that involves delegation of the activity, social activities with customer (dinner, golf, sporting events, etc.), a one-time leadership development program, or I used to do that so I know everything thinking.

I find systems thinking to be a participative sport where change management leadership has to be conducted with an understanding of the points of transactions (where the customer meets your front-line people).  There is no substitute and a word of warning when you do get out of the office to see all the things that are happening.  Do not over-react or try to fix things, make this a learning experience.

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The Cost of Everything and the Value of Nothing

My wife recently read The Last Lecture by Randy Pausch and read me Chapter 50.  Dr. Pausch writes about an experience he had at Walt Disney World when he was twelve and his sister was 14.  His parents had allowed the two to go off on their own and explore.  While they were exploring they got the idea to pool their allowances and purchase a salt and pepper shaker as a thank you for recognizing their maturity.  While walking through the park with their purchase, the bag carrying the gift dropped and broke.  The two were devastated by the turn of events.  A stranger noticed their despair and suggested they take the package back to the  shop where they purchased the gift.  They followed this suggestion and took the gift back explaining what had happened and admitting their carelessness.  The cast member (Disney employee) replaced the shakers and told the two that the store should have packaged it better.  Dr. Pausch explains that this small act of kindness was repaid Disney with $100,000 in subsequent visits to Disney World.  Decades later in speaking with Disney executives he asked them if workers still would be able to replace the item?  He says the executives would squirm and the answer would be probably not.

Command and control thinkers don’t understand value and where it is derived from . . . the customer.  Instead they fill the organization with mandates from financial budgets that are penny-wise and dollar foolish.  Playing the zero-sum game where there are winners and losers, fighting over the piece of the pie instead of finding innovative ways to make the pie bigger.  The customer management process becomes just that a way to manage customers.  The story above creates a management paradox to their way of thinking.

 The “unknown and unknowable measures” as Dr. Deming would refer to those things that can not be measured, but were important.  No one knows the cost of a dissatisfied customer, but command and control thinkers can only understand what comes out on the income statement or balance sheet in the short-term.  Business improvement comes from their ability to manage these financials in everyday work by making front-line employees adhere to scripts, mandates, policies, standards, etc. so they can make sure $50 doesn’t go out the door without their knowing.  Meanwhile all the complexity and waste they build into the system winds up costing them more and they wind up being the ones that make the big mistakes for their short-sightedness.

Command and control thinkers can be seen by the fruit they don’t bear . . . They know the cost of everything, but the value of nothing.

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.  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.

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Out of the Crisis – Part 2

I am reading (again) Out of the Crisis by W. Edwards  Deming and his prescription for US businesses from our last crisis.  Let’s give US businesses a grade of pass, fail or incomplete for each of the 14 points.

1.  Create constancy of purpose for improvement of product or service.

Grade: Fail
Comments:  Dr. Deming asked us to not put the quarterly dividend ahead of the company existence decades from now.  Our search for bigger dividends in the short-term helped contribute to our current financial crisis.  We are still slaves to defacto purposes like budgets and dividends.  We judge management by what they can do for us in the short-term.

2.  Adopt the new philosophy.

Grade: Fail
Comments:  I never heard Dr. Deming once mention tools found in Lean, Six Sigma or Lean Six Sigma to be part of the new philosophy (other than control charts).  Many manufacturers are gone, some have adopted the new philosophy.  The largest part of the US economy is service and little evidence exists that we are still anything but command and control thinkers.

3.  Cease dependence on mass inspection.

Grade: Fail
Comments:  The mass inspection in manufacturing that Dr. Deming referenced is certainly better, but I suspect because they either had to because of competition or those manufacturers are gone.  Service industry is still full of this form of waste with inspections, re-inspections, reviews and double-checks.

4.  End the practice of awarding business based on price tag alone.

Grade:  Incomplete
Comments:  Manufacturing: Pass; Government: Fail; Service: Fail, especially when purchasing technology.

5.  Improve constantly and forever the system of production and service.

Grade:  Fail
Comments:  See comments for #1 and #2.

6.  Institute Training

Grade: Fail
Comments:  Dr. Deming is talking about training to understand the organization as a system or systems thinking.  Few organizations are viewed this way.  This is not scientific management style functional training.

7.  Adopt and institute leadership.

Grade: Fail
Comments:  The command and control style of management in force today is still the style of management.  Dr. Deming was clear that management by the numbers (Alfred P. Sloan), MBO, performance appraisals, work standards, etc. had to be replaced by leadership.

8.  Drive out fear.

Grade: Fail
Comments:  Decision-making is still in the hands of the manager, the worker has little say in the work they do.  Technology has been created to dumb them down and keep them in line even more.  Check you brain at the door.

9.  Break down barriers between staff areas.

Grade:  Fail
Comments:  OK, there are more birthday parties, balloon-kicking, pancake days and group hugs.  However, systems thinking is still missing and scientific management theory still prevails.  The end-to-end work is still segmented and managed that way.

10.  Eliminate slogans, exhortations, and targets for the work force.

Grade: Fail
Comments:  Ever walk through a call center and you will see lots of all three.  The targets one is killing our competitive position.

11.  Eliminate numerical quotas for the work force and numerical goals for management.

Grade:  Fail
Comments:  Are you kidding? . . . the worker has been torn down to the smallest iota and there is plenty of technology to allow this to happen. Sales still have quotas.  Management numerical goals are in the form of budgets and targets.

12.  Remove barriers that rob people of pride of workmanship.

Grade:  Fail
Comments:  As long as command and control thinkers separate the decision-making from the work and have a problem with the first 11 points we will fail.

13.  Encourage education and self-improvement for everyone.

Grade:  Incomplete
Comments:  Individuals that are intrinsically motivated are filling the void.  Encouragement is often lacking.

14.  Take action to accomplish the transformation.

Grade: Fail
Comments:  We never really started.

Obviously, this is my opinion.  What is yours?

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Targets are Killing US (US Business)

I am always amazed at what executives (senior and junior) do to “manage” their organizations.  Are they brain-washed into a command and control mentality?  Or maybe it is a gene that has not been mapped yet.  Regardless, targets are the principle tool that executives use.  Maybe it is something in the leadership development program.

Budgets become the basis of all decision-making.  Executives claim that this is to ensure shareholder value.  In reality, it creates more unstable systems and sub-optimal performance.  Middle managers stuck with objectives that if achieved (by all) don’t guarantee that the company will make money.  Business improvement based on managing costs will almost always increase them.

Measures become focused on targets that are related to productivity and activity instead of purpose.  Management edicts of these top-down measurements/targets usually result in cheating.  For example:

“When I was the corporate purchasing manager for an industrial distributor.  I had the opportunity to increase my bonus based on soemthing called GMROI (Gross Margin Return on Inventory).  I could more than double my salary based on a high gross margin and a low inventory level.  I was not able to effect gross margin (sales function), but I was able to lower the inventory around bonus time.  I achieved an 80% bonus one year, but almost put the company out of business.  We had no inventory, customers were pissed.  I achieved my target at the expense of the organization.”

Unless measures are related to purpose they have no use and the purpose has nothing to do with the top-down, “command and control” hierarchy.  People’s engenuity is engaged in survival, not business improvement.

A better way is to take a systems thinking view, starting from the outside-in (customer view) they can then begin to see waste in their current system.  Systems thinking leads to an approach that allows design against demand instead of demands from the executive suite.  As waste is removed, flow improves lessening costs and providing opportunities for growth (innovation).

A systems view creates a compelling case for change and better design of work, measures and the elimination of targets.  Why eliminate targets?  A lot of reasons . . . they distort the purpose of the organization, create sub-optimization, prevent cooperation, promote cheating, and are typically focused on activity (wrong measures).

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Out with the Old and In with the "New" Systems Thinking

will be the first to tell you to remain skeptical of any “new” thinking.  However, what we have here is not “new” per se.  Our prevailing management style in the US is born from Frederick Winslow Taylor called “Scientific Management” that gives us the structure of functional specialization of work (assembly line).  This original thought has been the staple of our management philosophy from the late 1800s to present.  A time period that spans the invention of the Zepplin, teabags and the first flight of the Wright Brothers to walking on the moon and the iPod.

Nothing changed much until the American W. Edwards Deming was successful in post WWII Japan in the 1950s in what would become known as the Japanese Industrial Miracle.  All of a sudden the US had a staunch competitor in manufacturing.  Add to this “new” thinking Taiichi Ohno and the Toyota Production System, and we have a whole new management system.

When you look at service organizations (private and public sector) you will find precious few that have ever tried such “innovative” thinking.  The list is long as to why . . . competition (no one else pressuring service organizations), “we’ve always done it this way” thinking, lack of understanding, unwillingness to give up control, technology, etc., etc.  For what ever the reason, not much has changed in management since Frederick Winslow Taylor.  Business Improvement programs (Lean Six Sigma, TQM and many others) have become more of the same.  However, “new” thinking challenges this stale sameness.

The economy has changed now.  Maybe we need to be looking for better ways.  My continual search for better methods has led me back to Deming and Ohno. Instead of tools in our continual (continuous) improvement, we need new methods and to change thinking.
To read more on systems thinking with practical exercises, I would urge you to read the Fit for the Future management articles (six in all).  These articles are good reads for your organizational change management and leadership programs.
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Command and Control Assumptions Challenged

Systems thinking requires us to change our thought process.  Moving from scientific management theory but what does it require us to achieve this change?  Business improvement does not come without a change in thinking.

There are many assumptions that command and control organizations believe are “truths.”  American businesses love these “truths” and manage by them, but they almost always make service worse and increase costs.  Let’s look at my favorite 11:
 
Assumption #1:  To achieve business cost reductions, there is a trade-off between costs and good service.  I can have one or the other, but not both.
Reality #1:  Good service always results in lower costs.
 
Assumption #2:  Managing costs and making budgets is the way to manage an organization.
Reality #2:  Managing costs and budgets is purely “keeping score” and managing with these lagging measures is like driving a car looking out the rear view mirror.  Creating value for customers is the purpose of the business.  By managing costs and budgets we will always increase costs and decrease service.

Assumption #3:  Using targets and incentives helps improve profits.
Reality #3:  This is the evil twin of assumption #2.  In the 1930s at GM, it was Alfred Sloan who created “management by the numbers” as he saw it as inappropriate that executives should be involved in operations.  The defacto purpose becomes making the numbers . . . and not creating value for customers or  improving the flow of work. Targets are usually tied to incentives and at best sub-optimize the system (one area is rewarded at the expense of another).  An example is the sales department with its quotas and commission schemes that create an “all about me” attitude where the commission is achieved at the expense of the organization with price-cutting and being unable to deliver what is sold.
 
Assumption #4:  Outsourcing will decrease my costs.
Reality #4:  The most likely department to be outsourced is the call center.  The benefit is that transaction costs are lowered based on a production mentality (scientific management).  One assumes all demand is something to be worked, when in reality the failure demand (calls we don’t want) are outsourced as waste.  With failure demand running anywhere from 25 – 75% of phone calls (depending on industry), doesn’t it make sense to work on failure demand and its elimination?  
 
Assumption #5:  The first thing to do is standardize a service process to improve it.
Reality #5:  Without a full accounting of customer demand it is impossible to know if a process should be standardized.  Service has greater variety in demand than manufacturing (one reason why lean manufacturing doesn’t work for service).  I have seen many organizations merge companies to a standard product without first understanding such variety, and this always leads to worse service and increased costs.
 
Assumption #6:  “Economies of scale” will make my service less expensive.
Reality #6:  That is why companies merge so this must be true.  I have listened to banking pundits talk about the impending merger of banks for “economies of scale.”  If that is the reason, I hope that banks never merge.  “Economies of flow” will trump “economies of scale” every time and if that wasn’t true Toyota would never have been able to compete against the US car companies because the US had all the volume after WWII.  Prepare for worse service from the Delta/Northwest merger as the “bean counters” try to lower costs . . . hard to imagine it can get worse.
 
Assumption #7:  Splitting tasks between front and back offices is a good design of work.
Reality #7:  The design of work between front office and back office (and possibly several middle offices ) rings of the functional specialization of work. This is an inefficient design of work that almost all US service organizations have.  Understanding the customer demand, value and the flow of work will lead you to a better design, lower costs and better service.
 
Assumption #8:  Shared services results in lower costs.
Reality #8:  Without IT we could not share services.  The fact we have IT does not mean that we should share services.  In many cases we are sharing call centers or back office functions which may institutionalize waste (and usually does).
 
Assumption #9:  There is one “best practice.”
Reality #9:  No, there isn’t . . . there is always a better way to do things.  A best practice assumes one best way for all to copy.  An organization should never copy as each system has a unique set of customer demands and culture. 
 
Assumption #10:  If I spend more on IT, my costs will go down.
Reality #10:  Unfortunately, I typically see costs go up where IT becomes entrapping rather than enabling.  Seems like all the big IT organizations are driven by making sales rather than adding value.  Better approach: We must first understand our system (perform “check”), improve and then pull technology.  See the article Is IT Bugging You? 
 
Assumption #11: Improvement of service takes a long time.
Reality #11: No, any change management or continual improvement program taking years to show results should be discarded.  It usually means that rationalization and coercion are in place. An executive once informed me that “the improvement program had finally started to take hold after 3 years and the people that were left (after many rounds of purging) were finally starting to get it” . . . this is coercion.  Too many careers lost and brains tortured for something that can be easily gained with better systems thinking.

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Death by Call Center

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.

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Interview with a Reporter

I am being interviewed for an article today.  I thought I would blog the questions and my response for preparation.  Here are the questions we will discuss and my corresponding answers:

Q1:  What are the business issues that typically drive companies to set up call centers?

A1:  Costs – The idea is all work on telephones should be handled in one place to get economies of scale.
Improve Service – However, this is typically translated to mean “standardized service.”  Standardizing service makes service worst (not better) because the system is not capable of absorbing the variety of demand that customers receive in service.  Creating a management paradox:  Failure demand increases (meaning customers have to keep calling to get what they want).

Q2:  What types of mistaken assumptions or arguments do you see used in justifying this move?

A2:  3 Big Mistakes

  1. Treating all works as units of production (like manufacturing).  This means we don’t distinguish between demand we want (value demand) and demand we don’t want (failure demand).  Failure demand in call centers runs from 25% to 75% (sometimes higher).
  2. Believing workers can be held accountable for the work they do, when the system (work design, technology, management, measures, etc.) is responsible for 95% of the variation in performance and only 5% is attributable to an individual.
  3. Managers act in ways that inhibit the systems ability to absorb variety (e.g., scripts, adherence, quality monitoring, AHT, etc.)

Q3:  What are the pros and cons of serving customers via a call center in your view?

A3:  Thinking from a customer point of view . . . If you design the call center to provide service the customer will love it and that is wholly a different approach then sending calls to get economies of scale.  To achieve this an organization has to ignore the standard call center mantra of AHT, GOS, etc. and instead learn how to serve customers at the first point of contact.  It means making the call center agents “smarter” not dumbing them down with technology and scripts.  Only people can absorb the variety of demand in service.

Q4:  What are the most common mistakes made in the way call centers are set up?

A4:  See Q4 above and . . .

Work design – Treating all demand as work and managing the call center as a separate function instead of part of the system.  Customers view their demands end-to-end . . . organizations do not.

Outsourcing the organizations failure demand or not accounting for an organizations failure demand – Why pay to have failure demand as part of your outsourcing strategy and why keep having failure demand at your call center if you keep it in-house.

Q5:  What should businesses being doing instead?

A5:  Understanding the nature of demand on their system (the type and frequency of demand and the value and failure of that demand).

Designing roles to create value and providing training on demand to increase one-stop resolution or increase flow by optimizing the value work and eliminating waste.

Redesigning the role of call center management to act on the system rather than the worker.  This will require redesigning our leadership strategy and development.

In two words . . . Systems Thinking.

Add lib question from the reporter:  Do you believe you are “spitting in the wind?”
Maybe . . . but if I am unsuccessful where do I work?  The US doesn’t manufacture much anymore, because we didn’t listen to Deming after WWII.  If service is poor, what is left?

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The 95 Method