Service Paradox: Managing Costs Increases Them

Monday, June 15, 2009 by Tripp Babbitt
Not one organization I have been in recently has had any other goal than to decrease costs.  If you work in a call center, the question is, "How do I reduce AHT (Average Handle Time) of a call; "How do I reduce my IT costs?"; "How do I make more profit" . . . the age old questions with a greater sense of urgency.  After all, Moses was given the charge (by the Pharaoh) of creating the same tally of bricks with no straw.  Regardless, this is not a new problem.

What is a problem is how organizations approach corporate cost reduction.  The command and control method is to focus on costs and come up with such original (sarcasm for those that don’t know me) ideas as RIFs (Reductions in Force), shared services, outsourcing, and focus on transaction costs seem to be the most popular methods.  I always find pursuing these is a pipe dream based on bad assumptions . . . the bad assumption, is that these methods are good assumptions.

The management paradox is that being pre-occupied with reducing costs doesn’t allow us to see end-to-end or total costs.  The focus on AHT raises costs as we go to make call times shorter, we give incomplete answers, don’t deal with customers problems which in turn creates more customer calls (failure demand in my world).  Companies then further lock these wastes in with technology, scripts, procedures, targets, standards and compliance.  Never mind all the wasteful inspection, auditing, reporting and general "supervision" of these activities.  Frustrated they turn to outsourcing and shared services to reduce costs further locking in failure demand and waste, plus reducing the value received by the customer.

A better way is to realize that the paradox exists.  The benefit of this realization is that you can actually increase customer satisfaction and decrease costs that they are not diametrically opposed to each other that it is not a zero-sum game.  An organization can reduce costs and improve service by a change of thinking from command and control to systems thinking.  The systems thinking approach involves an unlearning and relearning process that opens up new methods in pursuit of profit.  Systems thinking involves the understanding of the relationship between purpose, measures and method.  It eliminates the waste by understanding customer demand, value, and flow.  In service, the improvements are quick because the changes are immediate (weeks vs. months).

New approaches are required by service organizations.  Organizations will need to shed "economies of scale" in favor of "economies of flow" this thinking will allow the small to mid-sized service companies to compete with the big companies, because costs are in the flow . . . not in the transactions.  Service organizations not understanding these paradoxes will be flushing profits down the toilet.

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 "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

Comments for Service Paradox: Managing Costs Increases Them

Saturday, June 27, 2009 by Jim Graham:
We met some people on our way out of the library, with free video rental in hand (yo, check out your library, never mind NetFlix or BlockBuster). "Sign our healthcare petition. More coverage, Universal coverage. Lower cost." "How ya gonna do that?" "Hey, that’s Congress’ problem. That’s why we elected them." "No, I cannot sign. We have enough unfunded mandates. What we need are solutions. What is your solution?" "That’s what Congress does. They said so when they campaigned for office." "Provide a solution. Then I will sign, if I agree." Greedy, selfish, and self-centered. Don’t solve the problem, or participate in the solution. Just add to the problem. Nope, just adds cost. Just like Tripp points out.

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