When I first started to do organizational change management for service industry using continual or continuous improvement (A Deming based method), I was often asked if the principles and concepts applied that were used in manufacturing could be used in service. The answer was (of course) . . . yes. I still believe this, where I got in trouble was applying the tools at face value.
From those using "lean" manufacturing, I learned that the first place to start was with 5S and finding the "standard work." This seemed plausible until John Seddon (Vanguard Consulting Ltd.) wrote a book called Freedom from Command and Control that pointed out this was wholly the wrong place to start. He learned from Ohno that the place to start was studying demand and that the standardization of service is more likely to lead to institutionalizing waste because of the variety of demand. By standardizing service processes we can not absorb the variety that customers give us leading to more failure demand (rework, chase calls, etc.). Only after studying demand do we potentially find possibilities for standardization.
John Seddon references people that blindlessly apply tools as "toolheads." That must make me a "reformed toolhead" . . . but my Deming background usually gave me an early warning system. Most "toolheads" only know the tools and not the underlying concepts and principles from which they were derived. I have seen this phenomenon in "Lean" and Six Sigma, where people know all the tools, but when asked "why they are applying them?" . . . the reply is often "that was what I was taught." Complicating this thinking is the markets demand for quick fixes and tools are a sure path to doing the wrong thing righter.
Technology organizations continue to perpetuate this thinking. It is much easier to code to a standard than to have to account for variety in the demand customers want. If you add to this that command and control thinkers want standardization to achieve corporate cost reductions, you have guaranteed locking in higher costs and poor service. This creates a management paradox that command and control thinkers can not see.
Training and Tools: Not the way to Sustained Improvement
In Six Sigma, I was fortunately taught by people with Deming backgrounds in getting my Black Belt (BB)and Master Black Belt (MBB), but as I saw how Six Sigma was used in organizations it became clear that projects were the way to improvement. Constantly finding a project with projected cost savings played right into the command and control mentality of management. The focus was on business cost reduction. Management wouldn’t have to get their hands "dirty" as they could sponsor projects and have BBs and MBBs run the projects fully loaded with statistical tools. Personally, I found this structure elitist as only BBs and MBBs could run the projects. Regardless, no change in thinking by management was required . . . just support.
I have run into many situations over the years where executives wanted the improvement, but didn’t want to talk about why performance appraisals, financial targets, work standards, etc. were making their companies worse. One organization insisted I was "disrespecting" their style of management (I’d been working with the company for two years) and I came to realize that (to some degree) I really was . . . the only difference now is I own it. I can have an honest conversation about command and control vs. systems thinking. Command and control thinkers can learn better methods by understanding the work and adopting a system thinking approach, but they need to be open to changing their thinking . . . and that has to be born from intrinsic curiosity.
5 Fundamental Thinking Problems in Service Businesses
Like most service organizations, command and control thinking is the dominate paradigm in which we build and manage organizations in the public and private sectors. We really have not been taught a better way of thinking for over 100 years (scientific management theory). Our technology world has grown while our thinking has remained stagnant. In Systems Thinking in the Public Sector, John Seddon (Managing Director of Vanguard Consulting Ltd. – my partners in the UK) points to 5 important fundamental flaws in command and control thinking. Let’s look at them:
(1) Treating all demand as though it is work.
We are constantly trying to reduce talk time in call centers, process an item faster, etc. and this thinking has the fundamental flaw of treating work as units of production. We fail to separate the value work from the failure work (value work gone wrong) and therefore happily process the failure with the value demands. The reality is that this failure demand makes up 25 to 75% of all demand from customers, in the public sector I have seen unspeakable levels approaching 90%. Mr. Seddon’s fear is that people will understand failure demand and set new targets for its elimination, instead of changing the way work is designed and managed to eliminate it.
(2) Failure Demand – leverage for improvement
Our response to failure demand is even more alarming instead of its elimination we wind up adding (at great cost) call centers to handle it, IT systems to manage it, share services and outsource to cut unit costs thus institutionalizing the waste.
(3) The foolishness of managing activity
I am yet to walk into a call center without seeing individual and department statistics kept for number of calls, talk time, AHT, etc. For individuals, managers spend their time paying attention to these activity statistics, monitoring workers and doing "coaching sessions" with those that miss their targets. W. Edwards Deming taught us that 95% of the problems are systemic and the responsibility of management to fix and only 5% are attributable to the individual. The performance of the individual is the center of ire and performance to the command and control thinker. Their "proof" is when they see cheating that more controls are needed creating more waste. The focus on people’s activity is not the source of errors, it is the way work is designed and managed.
(4) Preventing the system from absorbing variety
One must credit John Seddon for this discovery. Modern day "lean" practitioners advocate standard work like "lean" manufacturing, this is a bad application for service industry. There are differences between service and manufacturing, a primary one being the variety of demand service industry receives. Most business improvement efforts focus on too narrow a focus (department) when the customers expectations are end-to-end. Government is overwhelmed with waste because of the inability to absorb this variety of demand. Government management has institutionalized this waste with information technology, best practices, work design, poor measures and the use of targets.
(5) Negative assumptions about people
How many times have I heard service executives say "we can’t let the patients run the asylum" or "workers would just give away our service." I’m sorry, but you built the asylum based on command and control principles that allow the workers to check their brain at the door. Morale is sapped in these cultures and "fun" day at work is like being treated like a 3rd grader. A little MacGregor Theory Y (trust of workers) intrinsic motivation would go a long way in improving service. These same front-line workers are the perception customers have of your organization and represent your only chance to absorb the variety of demand customers present. Managing with more controls will only add more costs and institutionalize waste.
These are good management problems for any service industry to work on in improving their system. If you want leadership change management or organizational change management this is a great place to start. Systems thinking truly begins with changing thinking.
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?
Labels, Tools and Change Management
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.
Command and Control Assumptions Challenged
Systems thinking requires us to change our thought process. Moving from scientific management theory but what does it require us to achieve this change? Business improvement does not come without a change in thinking.
There are many assumptions that command and control organizations believe are "truths." American businesses love these "truths" and manage by them, but they almost always make service worse and increase costs. Let’s look at my favorite 11:
Assumption #1: To achieve business cost reductions, there is a trade-off between costs and good service. I can have one or the other, but not both.
Reality #1: Good service always results in lower costs.
Assumption #2: Managing costs and making budgets is the way to manage an organization.
Reality #2: Managing costs and budgets is purely "keeping score" and managing with these lagging measures is like driving a car looking out the rear view mirror. Creating value for customers is the purpose of the business. By managing costs and budgets we will always increase costs and decrease service.
Assumption #3: Using targets and incentives helps improve profits.
Reality #3: This is the evil twin of assumption #2. In the 1930s at GM, it was Alfred Sloan who created "management by the numbers" as he saw it as inappropriate that executives should be involved in operations. The defacto purpose becomes making the numbers . . . and not creating value for customers or improving the flow of work. Targets are usually tied to incentives and at best sub-optimize the system (one area is rewarded at the expense of another). An example is the sales department with its quotas and commission schemes that create an "all about me" attitude where the commission is achieved at the expense of the organization with price-cutting and being unable to deliver what is sold.
Assumption #4: Outsourcing will decrease my costs.
Reality #4: The most likely department to be outsourced is the call center. The benefit is that transaction costs are lowered based on a production mentality (scientific management). One assumes all demand is something to be worked, when in reality the failure demand (calls we don’t want) are outsourced as waste. With failure demand running anywhere from 25 – 75% of phone calls (depending on industry), doesn’t it make sense to work on failure demand and its elimination?
Assumption #5: The first thing to do is standardize a service process to improve it.
Reality #5: Without a full accounting of customer demand it is impossible to know if a process should be standardized. Service has greater variety in demand than manufacturing (one reason why lean manufacturing doesn’t work for service). I have seen many organizations merge companies to a standard product without first understanding such variety, and this always leads to worse service and increased costs.
Assumption #6: "Economies of scale" will make my service less expensive.
Reality #6: That is why companies merge so this must be true. I have listened to banking pundits talk about the impending merger of banks for "economies of scale." If that is the reason, I hope that banks never merge. "Economies of flow" will trump "economies of scale" every time and if that wasn’t true Toyota would never have been able to compete against the US car companies because the US had all the volume after WWII. Prepare for worse service from the Delta/Northwest merger as the "bean counters" try to lower costs . . . hard to imagine it can get worse.
Assumption #7: Splitting tasks between front and back offices is a good design of work.
Reality #7: The design of work between front office and back office (and possibly several middle offices ) rings of the functional specialization of work. This is an inefficient design of work that almost all US service organizations have. Understanding the customer demand, value and the flow of work will lead you to a better design, lower costs and better service.
Assumption #8: Shared services results in lower costs.
Reality #8: Without IT we could not share services. The fact we have IT does not mean that we should share services. In many cases we are sharing call centers or back office functions which may institutionalize waste (and usually does).
Assumption #9: There is one "best practice."
Reality #9: No, there isn’t . . . there is always a better way to do things. A best practice assumes one best way for all to copy. An organization should never copy as each system has a unique set of customer demands and culture.
Assumption #10: If I spend more on IT, my costs will go down.
Reality #10: Unfortunately, I typically see costs go up where IT becomes entrapping rather than enabling. Seems like all the big IT organizations are driven by making sales rather than adding value. Better approach: We must first understand our system (perform "check"), improve and then pull technology. See the article Is IT Bugging You?
Assumption #11: Improvement of service takes a long time.
Reality #11: No, any change management or continual improvement program taking years to show results should be discarded. It usually means that rationalization and coercion are in place. An executive once informed me that "the improvement program had finally started to take hold after 3 years and the people that were left (after many rounds of purging) were finally starting to get it" . . . this is coercion. Too many careers lost and brains tortured for something that can be easily gained with better systems thinking.
Out with the Old and In with the “New” Systems Thinking
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.
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.
