A House Divided . . . Creates Sub-optimization

Sunday, March 1, 2009 by Tripp Babbitt
When I went to my first 4-day seminar that Dr. Deming conducted, he spoke about the interdependence of the components of any organization.  He compared an organization to an orchestra where the inter-dependencies were so great that an organization couldn’t have a hundred prima donnas trying to play solos.  They had to play together harmoniously to create a sound pleasing to the ear.  He believed that an organization had to work together and eliminate internal competition to achieve its purpose.  Each component had to contribute its best to the system and may be required to operate at a loss in order to optimize the whole.  This thinking is what to me is "systems thinking."

Too many organizations have individual, department and/or "team" goals that sub-optimize the performance of the system (organization).  Some pit one against the other thinking this is good management.  Thus creating a trail of winners and losers in its wake.  The name of the game is to create value and make money (in that order), not to win or lose like a football game.

Moving out of our current crisis will require new "systems" thinking in our leadership development and our organizational change management.  The consequences of not moving to systems thinking will be decreased status in the competitive world of business.

Balanced Scorecard . . . MBO in Sheep’s Clothing

Friday, February 27, 2009 by Tripp Babbitt
A well-known bank management consulting organization for small to mid-sized banks advocates the use of the balance scorecard.  I have never found the balanced scorecard to be anything other than Management by Objectives in sheep’s clothing.  It looks innocent enough, sounds new and is expensive to implement, but still contains the old command and control measures (and targets) separated into 4 perspectives (or more appropriately the four perspectives of the apocalypse).  The same old measures born from scientific management theory are used, which of course make the command and control thinkers happy.  Which means more bureaucracy, more waste and more sub-optimization.

My partners in the UK (Vanguard and more specifically John Seddon) outline a better way for systems thinkers to establish measures based on 3 principles in his book Freedom from Command and Control:

"Principle 1:  The test of a good measure is: does this help in the understanding and improving of performance?"
–  Targets are arbitrary numerical goals (W. Edwards Deming); capability measures (Seddon) are derived from the work, increase order and allow workers to apply ingenuity in achieving them.

"Principle 2:  Measures must relate to purpose"
– And the purpose of service organizations is to serve customers.  So what matters from a customer perspective?  Timeliness, accuracy, reliability, etc.

"Principle 3:  Measures must be integrated with the work"
– The people doing the work are best equipped to improve the work, so put these measures in their hands and you will be shocked how much your business and their work-life (your culture) will improve.

Organizational change management must include measures based on these 3 principles to attain business improvement and cost reductions.

A Little Respect for the Front-line

Friday, February 27, 2009 by Tripp Babbitt

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.

A Friendly Game of Rewards and Targets

Friday, February 27, 2009 by Tripp Babbitt
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!

Improve the Work . . . Not Blame the Worker

Thursday, February 26, 2009 by Tripp Babbitt

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!

Unicorns and Best Practices

Thursday, February 26, 2009 by Tripp Babbitt
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.

The Evil of Information Technology

Wednesday, February 25, 2009 by Tripp Babbitt

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

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

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

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

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

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

The cure: 
  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.

Collections: Better Thinking

Wednesday, February 25, 2009 by Tripp Babbitt
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.

Out of the Crisis – Part 2

Tuesday, February 24, 2009 by Tripp Babbitt

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?

The Cost of Everything and the Value of Nothing

Tuesday, February 24, 2009 by Tripp Babbitt
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.

Get the #$%# Out of the Office

Tuesday, February 24, 2009 by Tripp Babbitt
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.

Labels, Tools and Change Management

Tuesday, February 24, 2009 by Tripp Babbitt
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.

I credit John Seddon of Vanguard with taking us back to 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. 

I will no doubt be challenged that John Seddon has labeled the change management program  . . . systems thinking.  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.

Our New “Get Tough” Policy

Tuesday, February 24, 2009 by Tripp Babbitt

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.

Interview with a Reporter

Monday, February 23, 2009 by Tripp Babbitt
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 commonest 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?

Death by Call Center

Monday, February 23, 2009 by Tripp Babbitt

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.

Command and Control Assumptions Challenged

Monday, February 23, 2009 by Tripp Babbitt

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.

Out with the Old and In with the “New” Systems Thinking

Monday, February 23, 2009 by Tripp Babbitt
I 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.  
I have found advancements in this "new" thinking from Vanguard Consulting Ltd. from the UK.  They have taken the "new" thinking of Deming and Ohno added intervention theory and have had success throughout Europe.  John Seddon (Managing Director) is an occupational psychologist which was a red flag for me because I thought he would be getting people in a room kicking balloons (or something like that).  I was pleasantly surprised that John had spent his time studying "change programmes" and what worked and didn’t work.  From Deming, we (John and myself) both learned that to improve performance in an organization we had to improve the system. What John further discovered was that you have to change the thinking, and that intervention theory can aid in this process.  His method – the Vanguard Method- has been tested and refined over the years to help service organizations benefit from the "new" thinking or more appropriately move from Command and Control thinking to Systems 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.

Targets are Killing US (US Business)

Monday, February 23, 2009 by Tripp Babbitt

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).

My Brand of Insanity – What is it? or What it is.

Friday, February 20, 2009 by Tripp Babbitt
My brand of insanity can be characterized as a management paradox – a different way of thinking if you will.  I personally have been  known as:
  • The sand in the oyster
  • The note that goes sour
  • The ant in the picnic
  • The fly in the ointment
  • The snake in the woodpile
  • The hitch in the giddy-up (my wife’s favorite)
  • The pain in the neck
  • The run in the stocking
  • The snag in the zipper
  • The crimp in the writing
  • The hole in the sidewalk
  • and the gum on the shoe.
A tag not aspired to . . . but one that goes with the territory.

See I abhor bad service.  Not because of the employees that are typically blamed for bad service, but because of the systems they work in.  Let’s refer to them as command and control systems.

What is a command and control system?
Organizations that have a top-down hierarchy, work designed in functional areas (scientific management born from Frederick Winslow Taylor), decision-making separated from the work (from Alfred P. Sloan), the use of measures with targets (budgets, activity, productivity, standards, etc.) in management decision-making.

What organizations use the command and control management style?
Well, let’s see.  I would say just about every red-blooded U.S. service organization (public and private sector).

So what is wrong with command and control management?
It doesn’t work very well.  Not anybody’s fault, it is just the way we have all learned to manage.  The problem is we haven’t changed our management methods in over 100 years.  Are we dinosaurs or what?

Are there better methods?
Yes, and I will reference it as "systems thinking" in future blogs.  A combination of W. Edwards Deming, Taiichi Ohno and intervention theory as developed by John Seddon.

What’s the difference between command and control vs. systems thinking?
Every thing that you have learned from scientific management theory and change management programs . . . do the opposite.  OK, that might be a little severe, how about 95% opposite.

I hope you will find my blogs challenging, controversial, infuriating, and enlightening.  My aim is to achieve this by making you curious to learn more.  It’s my only hope . . . before the people in white uniforms find me.