Tag Archives: business cost reduction

Plan, Budget and Performance Measures

David Walker of the Comeback America Initiative that he founded is often on CNBC explaining what it will take to get America on track.  It is the same story . . . build a plan, budget the plan and institute performance measures.  To paraphrase Mr. Walker, the former US Comptroller, “this is what big, successful companies do.”

This thinking is what led us to the US decline in the first place.

Mass-production and industrialized thinking that didn’t succeed after WWII has led to retrenchment.  In this case a better word would be – retreat. Down-sizing our budget and workforce requires a plan.  Winners and losers baked in and the losers are Americans.

This does not mean that we should continue down the course of large deficits or that budgets don’t matter, it just means you are managing a retreat.  Large scale ideology leads to massive expenditures as more expense is derived from managing the downsizing.  This is not the way forward for the public or private sectors.

Finance has overwhelmed logic as the numbers are misleading.  Context is needed and so is the evidence.  However, big thinkers don’t have time for the detail and this leads to deficits.  Managing scale, flow is missed and naturally so are the causes of cost.

Political candidates are touting their road maps, plans and other non-sense without knowledge.  Voters starved for detail can get only sound bites, sappy commercials and personal attacks.  It is pathetic.

With budgets, the mantra is to cut costs.  Performance measures help keep the budget numbers on track.  In a system full of waste, just cutting costs misses addressing the waste.  A bad system with no money still leaves a bad system.  Performance measures derived from budgets and plans (without knowledge) almost always lock in the waste.

So, this political season be skeptical and demand more than just pplans, budgets and performance measures – how do we grow?

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 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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Have We Surrendered Our Companies to Wall Street?

Executives are much like a wealthy family that annually sells acreage . . . Until the plantation is gone, it’s all pleasure and no pain.  In the end, however, the family will have traded the life of an owner for the life of a tenant farmer.  – Warren Buffet, The Selling of America, Fortune Magazine 1988

If anything the past few decades have taught us is that companies the world wide have become slaves to investment companies.  Hitting the numbers promised to Wall Street has become the defacto purpose of whole publicly-traded organizations.  The dysfunction to hit these numbers is evident in moves to reduce staff or make other short-term cuts that will ultimately lead to a long-term increase in costs.

President Barack Obama and Warren Buffett in t...

President Barack Obama and Warren Buffett in the Oval Office, July 14, 2010. (Photo credit: Wikipedia)

It is without doubt an unenviable position.

I have always felt cutting staff in any form is not an optimal solution.  I have always felt the best route that shows leadership is to first cut out executive bonuses should go first and then across the board executive compensation cuts.  The next thing to do across the board cuts in compensation.  However, if cuts have to be made then the front-line staff (or those that create value) should be kept and all other positions should be cut.  Front-line staff are the only ones that can create value for customers.

If an organization is mature enough in using the 95 Method, these are good strategies to deploy.  Because to me, maturity has to be the depth that the thinking has permeated the organization (i.e., executives “get it”).  Sometimes we are lucky enough to start in this position with organizations, other times we are not.  Redesigning organizations can be construed as simple in comparison to changing thinking of executives.

No matter what when the numbers or the company is at risk, organizations either have to or feel compelled to act.  The response predictably increases long-term and total costs.  We have surrendered our companies to investment firms that drive for greater results, which in and of itself sounds OK until we get the type of actions that results in what Warren Buffett described and damage the organization.

There is a better way.

Dr. Perry Gluckman (Deming’s Profound Changes – DeLavigne) had a view on this:

“The Message is simple!

  1. Every system is broken.
  2. Being competitive in the market means improving the system faster than the competition.
  3. We are all part of the problem, and we are all part of the solution.”

Wall Street has driven us apart by class and by thinking.  The bottom-line now prevails over what is right for the system in too many cases.  Time to rethink our position.

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 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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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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Michael Barone – Frederick Taylor Drives Management Thinking Too

Frederick Winslow Taylor lived from 1856 to 1915

Image via Wikipedia

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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Dismantling the Information Technology Monoliths

Before technology was cool . . . OK, maybe that is too far back for technology.  How about before information technology (IT) was cool, there were manual processes of paper and people.  The advent of the computer and the advances of telecommunications have allowed much to be accomplished . . . and not all of it is good.

Service organizations adopting technology did so in the name of automation and modernization.  Why have paper when we can have information technology?  Or, why have people when we can have information technology?

Salient questions that have created more hype than good sense in the answers to them.  IT has become management’s monolith – huge structures that rival the pyramids for the modern day executive pharaohs.

However, the unquestioning embrace of IT as the “answer” to all things manual has led us to more bureaucracy and greater complexity.  Neither being optimal for customers or those front-line staff that have to interact with them.

Why is this so?

Two major reasons are the design of the work was never optimal and in order to make IT work we have had to expand how to manage IT.

The design of the work into front- back and sometimes even middle offices goes unchallenged.  This is more the mass-production and industrialized thinking of manufacturing . . . which, by the way, has not worked well since W. Edwards Deming visited Japan to show them a better way. The US now struggles to compete in manufacturing at all.  Wrongly thinking that cheaper labor is the key and not the design of the work.  Service has embraced this thinking of yesteryear to add costs and miss the point about the causes of costs.

The second reason for IT is the structures (monoliths) we have built to control IT costs.  Yet, they drive costs up.

The explosion of IT has brought us the project manager and projects to keep costs under control.  But no one questions the costs of project management. They do offer us ways to check up on those “always behind” developers and we all love those Red-Yellow-Green reports that tell us nothing associated with what is really going on.

Before project management, we had business analysts that in EDS were originally part of the path to become a software developer.  Now, the BA position is an end in itself to make a production line mentality complete.  BA gets the requirements and the developer codes.  Besides good developers are costly and should be hidden away and they don’t know how to interact with business folks – ahhhhh, I knew there was a good reason.

Let us not forget about governance, good management of IT means good governance.  We have to have standards, plans, priorities, reports, risk management, fiduciary responsibility, etc., etc., etc. And now one begins to wonder how it is IT is actually saving money?

Plus in many large organizations trying to get an improvement through IT or fix something is such that . . .  a snowball would have a better chance in Hades.

Maybe it is time to rethink IT, what do you think?

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
Image via Wikipedia

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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Service – Finding the Time to Improve

The age old problem of finding time to improve is one faced by every service business in search of such an endeavor.  Typically, that is why only an understanding of the activity in dealing with waste (like failure demand) can get an executive’s attention.

When workers are spending 40 – 60% of their time dealing with problems that are created by the design of the work from the current management perspective.  This shows that activity, or being busy, is not necessarily a good thing.  The penalty for this thinking is loss of business or increased expenses or more commonly both.

Sitting back any executive would lick their chops at the prospect of business improvement of 40 – 60%.  I would challenge executives that this is their job, to take action on the system to make the work better an easier for workers and customers.  A more appropriate use of time than pouring over reports and financial statements or dreaming up new ways to reorganize or set unrealistic targets.

The problem with reports and financials are that they provide no context or perspective that can only be gained when in the work.  Reorganization and targets are done in a vacuum with no knowledge of the unintended consequences of such actions.  All seem plausible, but few deliver the promise from the PowerPoint presentation.

So finding time is relative to where an executive puts the focus of their attention.  The choices are inside-out as a function or outside-in as a system.  The inside-out approach is both sub-optimizing and divisive.  While out-side-in as a system can provide a whole new design in pursuit of eliminating failure demand.

Let’s see . . . spending time improving based on better design that leads to lower costs, happier customers and less wasted activity.  What’s not to like?

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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Questions at a High School about Systems Thinking

 

I was asked to speak at a high school today and presented a historical timeline of management thinking.  The teacher wanted to be sure that I put something in about the future in jobs, which I did.  The picture I painted was probably more optimistic than I actually feel as jobs are outsourced or shipped over seas.

I gave them the usual timeline of Frederick Taylor and scientific management theory that led to the functional separation of work with incentives.  I added in the bit about Schmidt, Taylor’s worker that could increase his wage from $1.15 perday to $1.85 per day by increasing productivity.  This is the model American management still runs at great peril.

I told them about A.P. Sloan ad “management by the numbers” and the use of targets.  Sloan separated management and worker and lived by manager’s manage and worker’s work.  Management caught in the work or not making their numbers were frowned upon or fired.  Hasn’t changed  much here in the US, other than now you can get fired for making your financial targets because someone up the ladder didn’t make theirs.

I told them about Shewhart, Deming and the Japanese Industrial Miracle.  How we didn’t pay attention to what Deming taught us and we continue our decline that started in 1968.

We talked about bad service that we get in companies like Sprint, AT&T, Verizon and McDonalds ( hard to get no onions . . . this is important to a high school senior).  This led to a discussion on why companies give bad service, when it osts them more money and loses them customers.  I explained this is what happens when you manage by the financial cost, costs increase . . . always.

The hope is that these Seniors will be smarter than our generation and that fads like Lean and Six Sigma will die away in favor of better thinking.  There is great opportunity to change management thinking and redesign the work to serve customers.  The work is more interesting and the culture improves.

One student asked about an “aggressive customer” that might take advantage of the company if you do what the customer says.  Those people exist, but they are the exception.  The problem is that we design our systems as if they are the norm (common causes of variation), when they are not. Rules, procedures and inspection follow at great cost.

The teacher asked what is the one thing that a student should know.  I replied Statistical Process Control (SPC) should be required study for any student in high school.  Just the basics would be a huge differentiator.

I can only hope that an education system wraught with command and control thinking can see the way to better thinking . . . we can only hope.

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 and IQPC), speaker, and consultant to private and public service industry.

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Hilton’s Outsourcing – Unwarranted and Unnecessary?

I know there are a lot of flag-waving US citizens angry over the outsourcing of US jobs that goes beyond Hilton.  The corporate mantra of achieving business cost reductions has been the subject of many of my offerings including the Quality Digest article Paring Down to Spend More.  As US jobs are lost overseas in a time of financial difficulty the ire of many is sure to make these companies pay, but these decisions to outsource contact centers are financial . . . as in dollars and sense.

Hilton allegedly has told employees not to talk to the media or risk losing their severance.  The embarrassment of sending workers to a foreign land calls for such measures.  Especially when they have to travel overseas to train their replacements.  Could it get any uglier?

Hilton is not the only company that outsources and offshores, let’s be real.  The auto industry has done the same and even the technology industry has done similar moves to reduce costs.  People are mad in a country with now high unemployment, but the case of patriotism should not be where arguments begin.

There is a better argument than patriotism and short-sighted, dividend producing service companies need to get in touch with the fact they may be increasing costs.  You see they are managing transaction costs when they outsource.  To cost accountants it is a simple math problem – we pay US agents $9 – 15/hour and we pay overseas agents $2/hour.  We save on human resource costs.

Except the problem they are working from is based in economies of scale thinking.  But true financial economies are in the flow.  The failure of service organizations to understand true costs and their causes.

Customer demand is a leverage point for reducing costs.  Because contact centers deal with customers this represents an opportunity to reduce costs.  However, economy of scale thinking gets in the way and executives ask the wrong questions, like:

  • How many calls do we get?
  • How long does it take to handle these calls?
  • How much does it cost?

These are traditional questions for an economy of scale thinker.  But they fail to recognize the nature of demand.  Many contact centers have demands that are unwanted like call backs, unresolved problems,etc. these were coined failure demand.  When customers are upset, you get lots of failure demand . . . it is something service organizations don’t want.

Failure demand represents about 25 – 75% of all calls in most contact centers.  Instead of eliminating this waste service organizations outsource to lower its costs.  But it doesn’t end there, the flow of the work is ineffective and the people you need to improve flow are the workers that are being outsourced (and yes, this true whether outsourcing is domestic or off-shored).

The workers are more valuable than just paying low wages they can  help make your system improve, so why alienate them.  But in command and control organizations, managers make decisions like these away from the work, so they can’t see, or in most cases, understand the work.  A critical error in reducing total costs.

The backlash of outsourcing/offshoring is getting louder in social media and other circles as the roles of the unemployed continue to rise.  Hilton stands to get a lot of failure demand from upset customers.  But ultimately, it comes down to changing management thinking about the design and management of work for all organizations seeking business improvement.  Our economy and jobs depend on it.

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 “Working Software” Paradox

Manifesto for Agile Software Development

 We are uncovering better ways of developing
software by doing it and helping others do it.
Through this work we have come to value:

  • Individuals and interactions over processes and tools
  • Working software over comprehensive documentation
  • Customer collaboration over contract negotiation
  • Responding to change over following a plan

That is, while there is value in the items on
the right, we value the items on the left more.

 I am not a huge fan of information technology as my readers know.  More often I find that technology has entrapped workers rather than liberated them. 

Too many technology projects have the wrong aim . . . to save money.  The focus needs to be on customer purpose which brings us to the “working software” paradox of the Agile Manifesto.

You see in software projects we have stakeholders with different aims.  Executives are looking for project plans, contracts and revenue recognition.  The development community typically is drawn down to writing requirements, coding, testing, fixing bugs, etc. under the constraints of these executive imposed dates in the project plan.  The real customer for software should be the worker that has to deal with it on a daily basis.  But too often it is their management that is unfamiliar with the work that buys a solution that doesn’t solve the problem.  Sound familiar?

So the question becomes, how do we get to “working software?”  What works for the executives doesn’t necessarily work for the people who do the work.  Developers are caught in the middle of trying to figure out whose definition of “working software” they should embrace.

My experience with Fortune 500 technology organizations highlights this paradox.  Plans, schedules, documentation, etc. create more expense, but give managers needed information to hit the financial target.  Many of the causes of costs are instituted by the managers and executives themselves in command and control fashion.

Let’s face it, the real work is done by software developers and I believe that developers or architects should be in the work with the people that the software should be helping.  Let the developers/architects “get knowledge” by studying the system with the workers and managers.  Change can be emergent rather than planned.

I have seen too many plans made without knowledge of the work in software development.  Where business analysts write requirements and developers lose context to the software they are developing.  Lack of context creates poor knowledge and subsequently “non-working software.”

Context and knowledge are lacking because executives believe that hiding expensive resources – like developers and architects – saves money.  Again, this creates more costs as iteration after iteration fails to meet the end users needs.

In creating usable software, value can be derived by getting knowledge by those that do the work.  Developers/architects, the end user are those people.  There focus should not be clouded by command and control actions that add costs and diminish customer purpose. 

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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