A Friendly Game of Rewards and Targets

I was playing a game of golf with an executive of an organization last summer.  His company was an advocate of using targets in management.  I had heard all the reasons in past debates.  His debates were:  They motivate people, they are good for setting direction (especially used when a manager fails to achieve the target), if reasonably set they help or if the people given the target help set it than it’s OK.  He believed that incentives would allow his people to achieve any target and his company was full of them to prove it.

I would counter that targets when wrongly set would sub-optimize the system, frustrate the worker, that workers will work to the target and then stop, knowing whether a measure needs to go up or down is good enough because with a target we may never know what a system is capable of achieving.  We had talked about the problems of incentives with the cheating and frustration that happens in organizations.  Ultimately, all my systems thinking knowledge wasn’t going to change his mind and I have learned that change comes from curiosity.  Curiosity about making a company better through business improvement methods (not tools or targets) that call out scientific management theory as making systems worse.

As we stepped up on the first tee, I told the executive that I would pay him $200 if he would shoot par 72 (a clear target and incentive).  I knew he had never broken 90, so I felt safe.  He laughed it off.  By the 7th green, he was 8 over par . . . I told him he wasn’t trying hard enough and offered $500 if he broke 80.  I badgered him the rest of the way with new targets and incentives until frustrated he begged me to stop.  I replied “now you know what it is like to work for your company.”

I don’t know if this command and control thinker will be curious enough to change, but I hope that our encounter at least gives him pause.  Stay tuned!

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A Little Respect for the Front-line

Not to say executives and middle managers are not important, but the people I really care about are the people that service me at the bank, grocery store, retail shop, barber, restaurant, etc.  I rarely see an executive or manager in my daily dealings.  Those people that transact I transact business are important to me and they can make my day really good or really bad.  Most interactions are good as long as they are simple, although I have some really frustrating encounters at times.  I never blame the front-line person because I know they are only as good (or bad) as the systems they are placed in.

When I receive poor service, I am often looked at by the front-line person with a sense of sorry but my system didn’t train me to deal with your demand, or my system doesn’t allow me to handle your problem because of policy, legal issues, outside my pay grade, etc.  A lot of people get mad at this front-line worker, but systems thinkers know better. 

I often listen to advertisements of how much my business is valued, but ultimately it is the front-line worker that I judge the value of the service on.  I want service delivered in one-stop fashion, timely, easily and any other criteria I demand as a customer.

So, during these tough times Mr./Ms. Executive, remember I value the front-line worker more than you.  When you start your corporate cost reduction, I would much rather see you sacrifice than be missing my favorite service provider or I may find somewhere else to go conduct my business.  I would like to see leadership development and leadership strategy from your organization that manages your organization as a system (systems thinking).  Not the worn out ideas used in scientific management theory that don’t allow me to get the service from the front-line service person I value

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Unicorns and Best Practices

The title of this blog implies a correlation . . . meaning they are myths.  However, I am open to anyone that has seen a unicorn, Loch Ness monster, Bigfoot, Yeti, etc. because there is money to be made and maybe this is the reason the term “best practice” is used.  Let’s take a look at best practice.

To me it implies there is one best way to do something and the search is over to find a better way.  I don’t buy it, and Taiichi Ohno (Toyota Production System) didn’t buy it as he believed there was always a better way.  W. Edwards Deming wouldn’t have liked it because it lead to copying.

Most myths are harmless.  However, because organizations quit learning and stop thinking the “best practice” concept can be damaging.  This means that every system (organization) has what it needs to improve and other systems “best practices” probably are not the best for your system.  Your system does not have the details of the “best practice” or the same culture, customers, technology, people, processes, etc.  Many consultants and Information technology organizations will tell you they have the “best practice” for your problem.  This seems to be a big part of technology and organizational change management programs.  A systems thinking organization knows better and that there are no shortcuts to improvement.  Further, it often leads to bad results and it is certainly bad method.

A better way to improve service and achieve corporate cost reductions is to understand customer demand, value and flow for your system.  A download for Understanding Your Organization as a system is available at www.newsystemsthinking.com and it is free.  Myths like unicorns, monsters, godzilla and best practices are best kept out of organizations trying to create profit.

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Improve the Work . . . Not Blame the Worker

The front-line worker (and by the way it is “front-line” vs. “low-level”) is continually sought for blame in organizations.  The command and control thinker has many tools in place to track performance for these poor souls like performance appraisals, coaching, technology, scripts, policies, regulations, performance/productivity measures, work standards, rewards/incentives, quality control, etc.  The problem is that the focus is on the wrong thing.  You see 95% of problems (failure demand) are attributable to the system and only 5% to the individual, so why waste resources that won’t solve the problem?  Because we all have been taught that way from scientific management theory that prevails in almost every US service business.

Our focus has been on how to get someone to do (or more of it) and not how do we make the system better.  Managements view is limited, focused on costs.  In a management paradox the focus costs, actually increases them.  The productivity mindset unwittingly forces the quality down. 

For example, take a call center with the mantra to reduce AHT (Average Hold Time) if I do not answer a customers question, will the customer not call back (failure demand) and take up more time plus be upset with the service?  Doesn’t the additional call (or calls) wind up costing more money?  What about the impact on customer?  None of these show up in the costs, but they are real and buried in the “unknown and/or unknowable” costs to the system. 

The focus needs to be on the system and will require leadership and thinking . . . systems thinking.  The system is made up of customer demand, work design and flow, information technology, training, hiring, etc. all well beyond the ability of the worker to change or influence.  W. Edwards Deming used to say “Did you hire the wrong people or just kill’em?”  I have found command and control organizations just kill them.  Most workers walk in as a new hire with high expectations and a good attitude before the system beats them down.

If you want business cost reduction, business improvement and/or organizational change you need to start to change from command and control to systems thinking.  A free download is available from my site (www.newsystemsthinking.com) to get you started.  Save a worker, get started improving the work today!

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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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The Evil of Information Technology

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

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

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

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

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

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

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

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

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

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

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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 [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt.

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