Tag Archives: W. Edwards Deming

SLA = Stupid Limiting Agreements

SLAs seem to be the staple for the customer management process for contracts, performance and operations.  The first time I heard the word SLA I was consulting for a Fortune 500 IT company and they needed to have a group of metrics because of the poor service they had been delivering to their banking customers.  I already was a student of the statistics of Shewhart and Deming, meaning I understood the difference between “common” and “special” causes of variation and also understood that having a service level agreement (SLA) didn’t improve the performance of the organization.  I used SPC (statistical process control) to determine the differences in variation.  All basic to improving the system.

The problem . . . I was the only one focused on improving the partnership.  The IT vendor and the customer were focused on the service level and not the system.  The customer wanted penalties and the IT vendor wanted rewards (and to avoid penalties).  The two groups spent an inordinate amount of time dickering over what the rewards and penalties should be and I (working for the IT vendor) was to be sure that the operational definition of the metrics was such that the vendor could not fail.  The slew of waste (manipulation, reward/penalty setting, etc.) between the IT vendor and the customer was astonishing.  No one was interested in working together to improve method or even discuss the validity of the original measures. 

SLAs are no more than targets and create what I believe to be adversarial relationships and distrust, focusing on results not method.  This is no different when the SLAs are internal. I see this between departments and units. “I will get you my work in 2 days or less.”  The problem is the measure is not tied to any customer metric it is all internally focused.  Additionally, the amount of manipulation begins when you hear things like “the clock doesn’t start until I open your request” and they don’t open their email for a week . . . did they really hit the SLA?

A better “systems thinking” way is to understand purpose from a customer perspective, derive measures and then find “new” methods.  This avoids the waste associated with measures that do not matter.  Workers that understand good customer metrics and expectations can be creative in changing method.  Partners (like my Fortune 500 IT company and their customers) can achieve continual or continuous improvement by working together on method, not SLAs.

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.

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Think First: Call Center Outsourcing

Let’s assume that we already have a call center, as opposed to the question of whether we need a call center (different blog).  In command and control thinking organizations they see an expense of $s for personnel or $s per transaction and say if I outsource this to India, Philippines, etc. (doesn’t really matter where) I will save 50 to 75% of my per head costs.  Call center management or some executive thinks “I would be an idiot not to reduce these costs on my financials.  After all, I want to hit that performance target  and get that bonus to take the wife and kids to Disney this year.”  OK, I have embellished a little here, but I promise I am not far from the truth.

This argument is plausible to the command and control thinker.  What they don’t consider is looking at their organization as a system.  Scientific management theory is the root of this thinking where we have the functional separation of work to optimize production.  Economies of scale for that function.  Taiichi Ohno and W. Edwards Deming taught a better way Ohno to thinking in terms of economies of flow and Deming in terms of viewing an organization as a system.  By optimizing one part we stand the chance of sub-optimizing the whole (and usually do) with command and control thinking.

Further, what no one accounts for is failure demand that call centers receive from customers.  These are the number of phone calls that a call center receives because of a failure to do something, chase calls, errors, etc.  This failure demand accounts for between 25 and 75% of all calls into a call center (and if you are in the public sector even higher).  Essentially by outsourcing call centers we wind up outsourcing our failure demand or waste. Locking in the costs that can’t be seen by the command and control thinker.  Also, we lose our feedback loop to help optimize economies of flow which usually leads to finger pointing between the outsource vendor and it’s customers.

Wrong metrics are used in outsourcing.  Outsource vendors talk about their functional measures like talk time, abandon rate, etc that appeal to command and control thinkers without considering broader system measures.  In one bank, talk time was reduced at the expense of additional failure demand making customer service worse.  We can take more calls by reducing talk time, but in a management paradox increase failure demand leading to more calls and escalations.

You also have to deal with additional costs to manage a contract with the outsource vendor, sometimes hiring someone to help with this, SLAs, performance metrics and a slew of seldom talked about costs.

We live in an outsourced world, but service organizations need to run their organizations as systems as Deming outlined and have consideration for economies of flow.  In addition, technology has enabled our ability to outsource . . . at great cost to service organizations.  Failure to recognize these aspects leads to increased costs and poor service.

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.

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A Systems View

The first signs of systems thinking came in the middle of the last century in Japan.  This is where W. Edwards Deming influenced the Japanese to start to understand their organizations as systems.  They learned that the functional separation of work and budgetary controls led to sub-optimization and reduced performance. 

When economies of scale first enlightened Frederick Winslow Taylor in the late 1800s it was a breakthrough for its time.  The Japanese breakthrough was about taking a systems view to manage economies of flow an advancement so large it had US manufacturers pleading for protection.

Taiichi Ohno and Shigeo Shingo further developed these ideas at Toyota and Matsushita.  As a whole this the work of these two and Deming largely made up the Japanese Industrial Miracle.

US service companies still follow the economies of scale approach in command and control fashion.  Functional separation of work and budgetary controls that lead to sub-optimization.  The problem with command and control is the design and management of the work.  This thinking features separation of the decision-making from the work.  The worker works and management makes the decisions.  Work is broken into functions and decision-making (control) is achieved through financial goals and performance targets.  Management focuses on output for business improvement and cost reduction.   This focus assures sub-optimization by causing waste and preventing learning about the “what and why” of organizational performance.  Another drawback is the damage it does to culture when those that understand the work can’t make decisions about it or when they are forced to targets they know damage the customer and create internal competition.

This command and control thinking will be abandoned eventually.  John Chambers of Cisco says it will happen in 5 – 10 years.  Will your organization be ready?  What can be done.

Taking a systems view we can overcome this sub-optimal thinking.  To improve performance we must change the system to change the system we must change thinking to systems thinking.  Management thinking must change to improve the system . . . they are the owners of the system.  The good news is with the right approach this thinking can change in a short period of time in service industry. Months rather than years to achieve business improvement, culture change, and business cost reductions.

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.

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The 95/5 Rule

As I have entered discussions on Linkedin and other business network sites, I am alarmed by the number of people that are focusing their energies on things like how to find employees that are nice vs. kind and whether a person’s past performance is a good predictor of future performance.  It gets to some of the fundamental problems in our thinking and/or believing that our emphasis on the individual will make an organization better.

Dr. Deming taught me that 95% of the performance of an organization is attributable to the system (processes, technology, work design, regulations, etc.) and 5% are attributable to the individual.  During his 4-day seminars he would use the analogy of an business needing to be run like an orchestra.  Where we can’t have a 200-piece group of prima donnas trying to play a solo.  To achieve great sound pleasing to the ear, each needs to understand the broader aim and system.  As opposed to a bowler that only needs to be concerned with himself or herself.

This fundamental change in thinking is crucial to be a systems thinking organization.  Organizational change management means moving to this type of system.  The management paradox here is that this not the way command and control thinkers think.  They spend an inordinate amount of time coming up with performance appraisals, incentive schemes, performance targets and the like that wind up making the system performance worse.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  He is focused on service design through culture and customer. Reach him on Twitter at www.twitter.com/TriBabbitt and LinkedIn at www.linkedin.com/in/trippbabbitt/.

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"Religious" Experience or an Intellectual One

Not long ago I had lunch with an old friend and as the conversation progressed the subject turned to systems thinking.  I explained to him what systems thinking was all about.  His reaction took me a little off guard and he said this is one of those “religious experiences.”  I equate this to drinking the Kool-Aid at Jonestown.  Blindly following an emotional leader until death.  The glazed over look one would have seen in Nazi Germany comes to mind. 

My message has been discounted before by people.  Would it be fair to say that they still believe the world is flat or that the earth is the center of the universe?  If I were to counter this thought like Columbus or Copernicus would I be flogged or jailed for heresy?  Even though the truth is on my side.  Or would it be fair to call them closed minded to new thinking?

I read about W. Edwards Deming in the early 80s and would attend (or watch) multiple 4-day seminars.  His message was different.  In general, the way I was managing at the time was 360 degrees from what Dr. Deming was saying, I was curious to learn more.  I have spent most of my life trying to understand these concepts and learning from others that had matured his message.  Student . . . yes, passionate . . . yes, which I believe passion sometimes makes people believe it is a “religious experience.”  Dr. Deming brought a way of thinking that was intellectual and challenged the status quo.  Command and control thinkers in management positions could only accept the changes Dr. Deming proposed that required others to change and not them.  Their paradigm left unchallenged and worse spending time doing the wrong thing righter (or wronger) in their organizational change management programs. 

I could only tell my friend that he first must be curious . . . and more importantly intellectually curious.  Scientific management theory is assuming the world is flat and our over-prescribed use of technology is assuming the earth is the center of the universe.  I can’t make you curious and those that aren’t curious may call me a religious heretic, but I will know if you seek a better way one exists . . . an intellectual one.

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Command and Control: Not the Legacy We Want to Leave Behind

It is bad enough that we will most likely leaving a huge deficit to future generations in the US.  The baby boom generation is marked by its excesses, short-term thinking and command and control managment.  Ever making us less competitive on a world stage.  We still have an opportunity to change this before my generation leaves the corporate offices, but it will require a change of thinking from one of command and control to systems thinking.  

The payback is the baby boom generation will have to deal with these horrible service systems where technology has been over-prescribed.  My mother-in-law sent me an email where she couldn’t get an answer on her GM health plan after multiple calls, wrong or confusing answers, and IVR phone systems that require a PHD to navigate.  Only fitting that our generation suffer the consequences of the poor service juggernauts we have created.

I suspect that future generations (like those before) will laugh at our generational ignorance around command and control thinking and over use of technology.  Similar to the way they laugh at the way Charles Barkley and Larry Bird wore such “short shorts.”  Time has not completely passed us though we still have an opportunity to leave good service systems for our retirement years and future generations.

This will require a transfer of thinking to systems thinking.  Beginning to build leadership development programs that help manage organizations as systems.  Not separating the decision making from the work.  Learning how to create value instead of managing income statements.  Showing innovation leadership by understanding customer demands.  Discarding scientific management theory where sub-optimization prevails to a system that understands that service is delivered end-to-end from a customer perspective.

In my last phone conversation with Dr. W. Edwards Deming he said “you better hurry.”  I am doing the best I can.

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Collections: Better Thinking

My partners in the UK recently had a bank management consulting engagement in the UK. It was in their collections department. Just as with another UK bank, as soon as the customer misses a payment, the IT system starts a predefined lettering campaign. If this does not prompt the customer to pay then the computer pops the account onto an agent’s screen and the agent’s job is to get money right then and there over the phone. Details of the payment taken are fed into the computer and it decides when to make the next call with the same (‘collections’) purpose. What was most frustrating for customers was that if they called to say they had a problem paying before they had missed any payments there was nothing agents could do to help because the customers weren’t in the correct IT system.

You only had to listen to calls to learn how awful this was from the customers’
point of view. It wasn’t unusual for customers to avoid the call, knowing it
meant grief and in their words ‘to be treated like a criminal’. Agents were
measured on calls made, money collected and were incentivized to collect the
most money. No surprise there.

What had been completely forgotten was why customers were in arrears. The
reality was most of these people had experienced either a minor cash flow
problem or had a major life changing event (divorce, serious
illness, etc). Yet the system was designed to treat them all the same.

We helped them redesign the service, to make it work from the customers’ point
of view. The first contact was a problem-solving contact: Hi, you missed a
payment, is there a problem, can we help? Instead of following rules, agents
were to help the customer solve the problem, and there were no constraints;
they could re-structure debt, repossess the item bought (for example the car)
and so on.

The results were astonishing. The agents collected more money and the customers were happier – without prompting, many told the agents how impressed they were with the service. What’s more we showed this design could be delivered with only 30% of the agents. Delivering the service against customer demand meant the removal of massive volumes of failure demand and other types of waste. So, a major change: massive improvements in collections, vast improvements in
efficiency and huge improvement in customer service. Furthermore agents were
happier, for now they were doing a much more interesting and worthwhile job.

The only down side was the solution meant the computer system would be redundant, it meant managers would have to confess to their board that last year’s
multi-million pound investment in technology was a waste. What did they do?
Nothing. The redesign was dropped.

Deming used to say doesn’t anybody give a hoot about profit? All the customers
wanted was a conversation that would help them solve their problem. But banks seem to be designed on the assumption customers are delinquent.

The customer management process was improved without changing technology.  The move from a command and control environment to systems thinking can bear fruit and save on technology that is not needed.  However, this will require new thinking and innovative leadership.

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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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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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