A Profit-Killing Assumption – Economies of Scale
- July 13th, 2010
- Posted in Outsourcing . Shared Services . Systems Thinking Concepts . Systems Thinking and Contact Centers . Systems Thinking and Education . Systems Thinking and Financial Industry . Systems Thinking and Government . Systems Thinking and Healthcare . Systems Thinking and Measures . Systems Thinking and Technology
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John Seddon and my Vanguard partners have written a very important white paper on economies of scale titled Why do we believe in economy of scale? If management is to change thinking, here is a great place to start. The mass-production, economy of scale thinking has outlived its usefulness.
This paper challenges the assumptions around our management thinking from costs to the causes of costs. The leap from economies of scale and the design of work that is resultant from it is destroying value and creating waste. Economies of flow are driving both work design and management thinking.
I am commited to finding ways for service organizations and government to understand the impact of this thinking in improving profits and reducing costs. This paper is lengthy, but should be reviewed and digested several times as its significance is unequivocal.
I am writing in both columns (Quality Digest and IQPC) about the importance of economies of flow. Additonally, I am working on a speech to present to associations, government entities and service companies on this topic.
Leave me a comment. . . share your opinion! Click on comments below.
Make the new decade a profitable and rewarding one, start a new path here. Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about how to get started at [email protected]. Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.
Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.
Tripp,
I just finished reading the John Seddon’s white paper “Why Do We Believe in Economy of Scale?” and I could not agree more with his observations! My last engagement involved facilitating the improvement of a street maintenance organization for a large Midwestern city. The organization was driven by its centralized call center and IT system for tracking complaints. They were so obsessed with responding to complaints (failure demand) that they forgot all about the taking care of the flow of work (value demand) and had not even considered that they could actually prevent complaints by applying a little preventative maintenance such as crack sealing their roads. We attacked the problem from two angles, improve the flow of work by saturating a geographic area before moving on to the next area which increased productivity and as a side result reduced costs, while adding an aggressive cracksealing program which prevented potholes and complaints about potholes from occurring. The improved design of work was not provided by a consultant or even a manager; it was designed by the crews who actually do the work. The result was a 77% decrease in cycle times for satisfying complaints, a 40% decrease in costs, and a 50% reduction in complaints (failure demand) about potholes the following year (reversing a trend dating back to 2003 that had increased by 265% over that time). This whole flow thing drove the command and control director of the department nuts, he couldn’t believe the reports that he was reading from his 23rd floor office! Systems thinking really works, keep leading the charge!
Todd