Seven counterintuitive truths for managers
Manage value not cost.
Most managers assume that improving service increases cost. Wrong. Cost reduction is a by-product of focusing on value as defined by the customer. By working to deliver the right service at the right time with minimum effort managers release capacity, boost productivity and reduce overall cost. Directly trying to manage cost drives cost up; managing value drives cost out.
Economies of flow not scale.
Economy of scale is inseparable from standardization and mass production. Even in manufacturing, it’s obsolete, killed off by Japanese companies that do quality, volume and variety on the same assembly lines. In services, where demand is infinitely variable, it’s just irrelevant. Service economy is in flow—reducing the time taken from taking the order to collecting the money, as Taiichi Ohno, the architect of the Toyota Production System, bluntly put it. Mass production of services, as in back-office and shared-service factories, generates huge internal waste because people have to come back time and time again to get their individual needs addressed – and even greater knock-on inefficiencies throughout the wider system. Professor Tom Johnson: "There is no longer any reason to rule out localisation of economic activity on the grounds of scale economies. Scale economy, beyond very small volumes, is a concept that should be discarded."
Think end-to-end not unit costs.
Most service managers focus on unit or transaction costs as their measure of efficiency. But unit costs only measure activity, which has no necessary connection with value/purpose. Offshored contact centres may boast low unit cost of calls, but that’s the reverse of helpful if they’re creating waste or just redoing stuff that someone got wrong in the first place. Service costs that matter are end to end; reducing them may mean raising transaction costs if that makes it easier for customers to get the right service at the right time.
Study before you plan.
Contrary to convention, change can’t be planned: it’s emergent, the result of doing the things necessary to improve service to customers. That can only come from joint investigation by workers and managers of the what and why of current capability and experimenting with what works to make it better. Planning change before you know what it should be … doesn’t make much sense, does it?
The opposite of top-down is not bottom-up but outside-in.
Jack Welch called hierarchies places where "everyone has their face toward the CEO and their ass toward the customer." Exactly right: it’s the customer not the CEO or front-line employee who defines the organization’s purpose and thus the value work it exists to carry out. And it’s the customer’s reaction that keeps the score.
Make decisions in the work not the management factory.
In traditional organizations, managers make decisions, workers carry them out, and since rarely the twain shall meet no one gets any wiser. Hence so many stupid and so few learning organizations. The variety of service demand can only be absorbed by switching the brains back on that most organizations insist are deposited at the door. Giving people the decision-making authority to do what they signed up for is a prerequisite for innovation and learning: soaring morale and engagement come free.
Manage in the work not the management factory. The job of managers is to make it easier for their people to respond to customers—and that only happens where those two meet. To underline the message, one leader summoned his managers to a meeting and while they were there changed the locks on their office doors. His point: if managers aren’t getting their hands dirty, figuratively speaking, every day, they don’t deserve an office in the first place.
The bouquets? They’re real, and they came from stressed citizens astonished to receive benefits or municipal services in days rather than the weeks or even months that they were resigned to. As for cost reduction, that’s shorthand for something incomparably more profound: focusing on value removed so much waste, freed up so much capacity and released so much energy that hard-up organisations suddenly found to their amazement that they didn’t have a resource problem after all.
As festive wishes go, it doesn’t get much better than that.
It is fascinating to read what and how all these organisations (5 public, 3 private, 1 voluntary sector) are accomplishing!
Simon, thanks so much for writing it.
P.S. We have just last week started a 3 day programme at work called the 'Challenging Minds Crash Course', and systems thinking / John Seddon figures heavily in it. The reflection paper is mandatory reading for all attendants (together with 'Rethinking Lean Service' and 'A Tool too Far: A Systems Perspective on Targets'). To say this is an eye opener for them would be an understatement....
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