The No Tool Zone

I came across an article on Govtech.com where the State of Colorado is legislating and the CIO promoting shared services to “save money.”  My blog about shared services being done in State Government in the states of Michigan and California is relevant (Government Shared Services: A Recipe for Disaster).  Unfortunately, states are focused on cutting costs which in a management paradox will increase them.

I am a former CIO for FSSA (Family and Social Services Administration) in Indiana.  We decided during my time (2005 – 2006) there to “modernize” the Welfare Eligibility system.  Consolidating the intake system to call centers, eliminating paperwork and making the application process internet friendly.  A plausible idea that I supported at the time.  The problem is the idea has been a disaster in Indiana, potential recipients are being hit with lost documents and missed appointments leading to calls to cancel the $1.16 billion, 10-year contract with IBM and its partners.  Add to that additional staff are being added by FSSA to help clear the backlog.  This is a “modernization” of outsourcing, technology and shared services that we should learn from, not cover up.  After all, you won’t find this failed implementation on IBM’s commercials and website.

What I have learned in the past 3 years from John Seddon (and my partners at Vanguard Consulting Ltd) is that this project was destined to failure from the beginning.  FSSA took the approach to automate without first performing “check“, this means an understanding of purpose, customer demand, capability, and system conditions were not a part of the original analysis.  This led to poor work design based on command and control thinking top-down vs. outside-in.  Had we studied the system we would have been able to design the work to service those individuals seeking welfare and reduced costs.  Automation, outsourcing and consolidation is not a good place to start to make improvements.  Government management needs new thinking and method to achieve better service and lower costs . . . this is not a zero-sum game (both lower costs and better service can be accomplished).

My friends in the UK have taught me that:

• economies of flow will always trump economies of scale;
• service organizations should perform check first and then pull technology, or determine the need for shared services or outsourcing;
• the hidden costs of bad or poor service are ignored by command and control thinking and understanding customer demand will help reduce costs and improve service;
• better measures can be found by looking at service from a customer perspective.

I commend Indiana FSSA Secretary Anne Murphy for suspending the roll-out of the “modernized” welfare eligibility system and taking a couple steps back.  Whether she follows better thinking and method remains to be seen.  This system now is costing taxpayers the $1.16 billion contract, additional staff and a whole lot of heartache to those seeking welfare.

For Governor Bill Ritter and State CIO Mike Locatis of Colorado.  There is a better way.  The recommendation by vendors to start with a front-back office process of sharing first and solving problems later, IT outsourcing strategies and shared services strategies are all proven non-starters. 

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  He is focused on exposing the problems of command and control management and the termination of bad service through application of new thinking . . . systems thinking.  Download free Understanding Your Organization as a System and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt.  Learn more about government services at www.thesystemsthinkingreview.co.uk.

I spoke to a reporter from India (Reed Business Information) this morning regarding outsourcing and more specifically the impact on Infosys.  He informed me my view was “different” than everyone else and I could only reply that I was used to that comment.  Most Americans want “in-sourcing” because they want to bring jobs back to North America, I want service organizations to realize it is a poor financial decision to take this call center or IT outsourcing strategy. 

Decisions are made in command and control fashion from the financials without knowledge of the work and/or based on scientific management theory that has long proven . . . outdated.  So here are 3 things to consider before you outsource:

1. The Work.  For a call center what is the type and frequency of demand.  More importantly is the demand value or failure?  Most call centers have between 25 – 75% failure demand in their call centers and after outsourced lock in the costs of this failure demand.  For software development it is the realization that software is not developed in a production line, software is developed from knowledge about the work.  When developers are separated from the work it almost guarantees a poor outcome in what is coded leading to multiple rounds of rework that quickly lose their “cost advantage.”
2. Economies of Flow.  Economies of scale drives American business.  Few understand ”economies of flow” is the real driver of costs.  Trapped in this wrong paradigm service organizations separate functions of work outsourcing pieces leading to sub-optimization (improving the cost of one area at the expense of all others increasing total costs).
3. Ancillary Costs.  There are technology costs, contracting costs, turnover costs, training costs, meeting costs, customer impact costs, etc.  Look hard at what really is involved and you will probably find other hidden costs.

Evaluating these 3 areas before outsourcing can lead you to better decision-making about what your service organization should do when considering an outsourcing strategy or even an in-sourcing strategy. 

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  He is focused on exposing the problems of command and control management and the termination of bad service through application of new thinking . . . systems thinking.  Download free Understanding Your Organization as a System and gain knowledge of systems thinking or contact us about our evaluation of in-sourcing or outsourcing strategies at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt.

OK, I just took Chase out back and gave them a blogging.  Now IBM has a turn.  In the WSJ this morning (IBM to Cut U.S. Jobs, Expand in India), it was announced that IBM was eliminating 5,000 jobs. Those that read my blogs know this isn’t the typical pushback, but I can certainly understand why Lee Conrad is trying to organize the Communications Workers of America.

The really distasteful part is that decision is made by executives and bean counters that have no understanding of the work or their understanding is tainted by command and control thinking.  This means they have financial targets to hit and whoosh 5000 jobs are gone. 

What about the damage to employees that are training their replacements.  Like the WSJ says IBM had them do.  I can hear it now, “I want you to work with someone that will be replacing your job in a few months and tell them every thing you know.  Oh, and you can keep that job if you are willing to take say a 40% pay cut and live in a foreign land.”  WOW . . . is my job meaningful.  This is something only out of Dilbert.

The whole IT outsourcing strategy works off the premise that software is a production line of functional separated work “where we can take this piece and move it over there and this piece over here and . . .”  I have never found this idea to work well in software development.  The developers need to see and understand the work of their customers in order to build good software.  This is no place to apply scientific management theory.  Doesn’t this industry already have a bad reputation for missed timelines, overdue projects, cost overruns and the corresponding results lead to increased costs for the customer rather than lower.  Now we are going to take the developer and move them 1000s of miles away from the customer and get better software?

This is technology change management, we can’t believe in and in reality will wind up costing IBM more in total costs that the bean counters can’t see in the financials and the executives can’t see in the work.  There is a better way . . . systems thinking.

OK, I wasn’t going to write on this for a while until I read the article “Outsourcing ban: Who gets hurt?”.  Viral Thakker (Head of Sourcing Advisory, KPMG) and Sudhakkar Ram (CEO, Mastek Ltd.) make such knuckle-headed statements as “off-shoring is one of the most proven strategies to optimise costs” and “Studies by McKinsey have shown that outsourcing has lead to economic advantage in the US.”  Now granted this is the Indian Economic Times so I will grant them a little space for their biased opinion . . . as they have a vested interest.

I don’t oppose outsourcing in total, it is why we outsource that bothers me.  Call centers are outsourced regularly and the prevailing reason for US businesses is to reduce the cost per transaction.  Call center management rarely considers that the transactions increase with more failure demand (defined as the transactions that have to be done again because of rework and progress chasing).  By outsourcing our failure demand in call centers we increase costs as we add volume, contracts to manage, teaching the outsourcing company our business, turnover and even language lessons (heard from a tier one bank executive).  There are probably other costs I have not accounted.

IT outsourcing strategy has similar reasons as it is a business cost reduction exercise based on cost per head.  However, with software a production mentality of the development of software must exist.  An approach I whole-heartedly disagree with.  Software development is not a production line, it is not born from scientific management theory.  The value work in software development lies with the software analysts and coders, these people that have industry knowledge are routinely outsourced with great regularity in the US at great cost.  This overseas shuffle prevents the ability to work with customers to “see” the work, communicate effectively and in general work as a system to produce quality software.

We may be fooled into thinking by lowering transaction and per head costs we are winning the cost reduction game with outsourcing.  There may be times to outsource (and there are);  But when we look at transaction and per head costs as the driver . . . the end-to-end costs are frighteningly high.