Six Counterintuitive Truths to Improve Service

Rethinking success

Published: Friday, September 23, 2011 - 15:49

Improvement in any organization is difficult enough, but if you don’t know about these counterintuitive truths, you stand to make things worse.

I had long searched for a way to be able to improve service organizations the same way that W. Edwards Deming did for manufacturing. No approach was giving the breakthrough performance that Deming had achieved in Japan. There were some successes, but nothing was breakthrough.

Sitting on an airplane to Budapest a few years ago, I read Freedom from Command and Control, by John Seddon (Productivity Press, 2005). I wasn’t very hopeful as I took my seat on the plane. A book written by an occupational psychologist formed visions of “balloon-kicking” and group hugs to improve culture and therefore performance. What I found instead was the Vanguard Method, a technique that would change my view on performance improvement.

My belief is that the work of Deming has been advanced. Some of the following counterintuitive truths you will recognize from his work; others are taking ideas learned through application and learning.

1. Costs are in flow, not activity or scale
The biggest upset in economic history has to be encapsulated by the “Japanese Industrial Miracle.” The post-WWII world turned to the United States for almost all its manufacturing needs. The rest of the world, devastated by the war, gave the resource-rich and unscathed United States all the scale. So how was resource-poor Japan able to conquer the United States in manufacturing? Japan learned that manufacturing was not about economies of scale, but economies of flow.

In service today, the prevailing thinking is that economies of scale still work. Wrong. Governments and service organizations perpetuate the myth. The functional separation of work into front and back offices is full of scale thinking. Passing the work back and forth increases costs.

Shared services and outsourcing that are popular today are usually managing costs and activity. In outsourcing, a cheaper labor cost assumes that all demand is work to be done, and that flow matters little. The reality is we wind up outsourcing our waste, and flow is destroyed because the function outsourced is separated from the rest of the organization.

2. Variation is in the system, not the people
Anyone with knowledge of variation understands that an in-control or common-cause set of data can only be improved by taking action on the system. Most service designs ignore this fact and instead focus efforts on the individual via reward programs and individual appraisals. This completely ignores the design of the work itself. Putting a good worker in a bad system will result in poor performance.

I reference the 95/5 rule in many of my blog posts. The original deduction that 96 percent of the performance of any organization is down to the system and 4 percent to the individual was stated by Deming. There is no empirical evidence for this—as I am often asked—but it is based on years of observation. If only service organizations were so diligent.

3. Measures are derived from the work, not arbitrarily
There are two problems here. The first is the wrong measures, and the second is the use of targets or goals for those measures.

The wrong measures are usually financial in nature. Budgets rule today’s world. This has led to the oft-quoted phrase that “managing costs always increases them,” which is counterintuitive in itself. Truly, financial measures can create no value for customers in service, and we have armies of people that track every penny. Another wrong focus is arbitrary functional measures so that each function can be measured for its effectiveness. Suboptimization occurs when the pieces (or functions) are optimized, but when the pieces are put together, they result in horrid service.

The measures that matter are those derived from knowledge of the work—between customer and worker. These measures drive value and costs, and rarely are the right ones in place.

The second problem is the use of arbitrary numerical goals (Deming) or targets. Targets set in the form of service-level agreements or performance metrics have to be the biggest jokes in service. Some are negotiated with vendors, some set direction, and still others are placed as “stretch goals.” Anyone setting targets does not understand variation or understand that improving performance takes experimenting with method.

4. Change is emergent, not planned
Look at government today, and you'll see our elected officials trying to reduce the U.S. deficit by coming up with a plan. You would be ridiculed if you did not come up with a plan in almost any service organization. The pressure is intense to come up with a plan, but too many plans are full of assumptions and copying. The result is disastrous to service.

Getting knowledge about the “what and why” of current performance is always the best method. Understanding customer (or constituent) demands, what matters to customers, the purpose of the system, and then deriving measures from purpose allows an organization to experiment with method. Change can become emergent from what you learn from studying organizations as systems.

5. Design against demand, don’t standardize
The aha moment I had on that plane to Budapest happened when I read that service is different from manufacturing because of the variety of demand in service. For years, I had been standardizing service processes and couldn’t understand why performance was getting worse. Standardization as a place to start is just wrong in service organizations.

If you standardize a process that has great variety in customer demand, you get failure demand, which Seddon defined as demand caused by a failure to do something or do something right for a customer. Failure demand can range from 25 to 90 percent for service organizations. Much of this can be caused by standardization.

6. Understand and improve, then pull IT
The most costly assumption management can make is that an information technology (IT) investment is the place to begin to make improvements. Until you get knowledge and improve flow, IT will do you little good. The amount of failed IT projects and cost overruns I’ve seen is staggering.

Additionally, technology does not absorb service variety very well. In service, people do. Customer websites and internal portals often become barriers to good service. Frontline workers entrapped by inflexible systems that destroy flow have become the norm.

I have learned scores of other counterintuitive truths by using the Vanguard Method. Learning is truly realized when you study your organization as a system. Breakthrough performance begins with a change in management thinking.

About The Author

Tripp Babbitt

Tripp Babbitt the managing partner for The 95 Method - Executive Education and Advisors. The 95 Method is about giving organizations a method to use new theories to grow business.  Babbitt can be reached at tripp@the95method.com. Reach him on LinkedIn at www.linkedin.com/in/trippbabbitt

Tripp also has a podcast and YouTube channel called, The Effective Executive.