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.

If a service company has been around long enough, there will be some story about how someone manipulated the system and embezzled money or committed some type of fraud. The story is often anecdotal, and the longer it has been since the actual criminal event, the bigger the tale becomes. A thousand dollars becomes a hundred thousand dollars, and as time passes, a million dollars. Pinocchio would have a hard time with some of these stories of manipulation.

However, an embellished story (or not) misses the point. What’s important is how service organizations react to such events to prevent them. Executives who have been burned commit themselves to a knee-jerk reaction. Fraud, whether it happened to them directly or to another service company they read or heard about, becomes something to prevent. Audits and inspections are implemented with the executive’s hope that “this will never happen under my watch.”

In search of a solution, a predictable outcome from an audit is that too much control is put in the hands of one individual. This control can be over computer systems, processes, people, money, or any combination of these things.

My first job was in industrial distribution, and with distribution came learning to count inventory. An annual inventory tax was levied, so an accurate count was important. I was given a computer list of items to count. An important lesson I learned was that to get an accurate count, there was a right and wrong method.

Given the computer-printed inventory sheet with item description, bin location, and the inventory count shown in the system, I found myself verifying the sheet rather than counting what was actually on the shelf. This led to a huge disparity in the inventory count.

The reason for the wrong count was that as I read the sheet, I would look for the item on the shelf. If the sheet matched what was on the shelf (e.g., description, quantity), the count was reported as accurate or else adjusted to the appropriate number.

However, items had been misplaced when shipments were received or accidentally moved for a variety of reasons. Items reported missing during the inventory count when counting sheet-to-shelf were actually there in many cases, just not where they were supposed to be.

So the problem for my inventory was counting sheet-to-shelf rather than shelf-to-sheet.

The hordes of companies and governments moving to shared services are dizzying. So many have combined back offices, human resources (HR), information technology (IT), finance, and contact centers that most companies assume this is a good thing.

But where is the evidence?

The theory behind most shared services claims that if an organization combines two similar functions, it can achieve economies of scale. It is why many organizations maintain that simplification, standardization, and centralization are all the right things to do. Certainly budget and financial folks salivate at the prospect of combining “like functions.” But this is yesteryear thinking based on mass production and industrialized service design.

Service organizations see the visible cost savings that can be achieved through shared services. What they don’t see are the hidden costs of poor design, and the poor flow that results. The problem is that costs are not in scale, but in flow.

This is the truth given to us by Taiichi Ohno, mastermind of the Toyota Production System. Economies of flow are superior to economies of scale. Whereas scale focuses on reducing transaction costs, an  economy of flow focuses on end-to-end value as defined by the customer.