The Machine that Changed the World

The tale of the superior performance of Toyota over its mass-producing competitors was first brought to widespread Western attention by ‘The Machine that Changed the World’ (Womack, Jones and Roos 1990). This book also coined the term ‘lean production’. The Machine’s focused much attention on finding ‘a better way to organize and manage customer relations, the supply chain, product development, and production operations’. It documented the history of management thinking in the automotive industry, from the early craft manufacturers to the mass production techniques exemplified by Ford/GM, before telling the story of the TPS’s creation (circa 1950) and that of Toyota’s ‘production genius’ Ohno. Through necessity, Ohno had developed a contrasting approach to the mass production of the US firms. Competitive advantage could not be won by Toyota through taking on the American giants at their own game – by competing to achieve economies of scale. Through experimenting firstly with simple die-change techniques (ways of stamping metal sheets), Ohno found a way of reducing the time taken to change a die (and thus leave the machine idle) from one day to three minutes. In doing so, he made the first of a series of counter-intuitive discoveries: it cost less to make small batches of stampings than to produce in large batches. How could fewer units and greater variety actually result in lower costs? Ohno discovered that the true costs of production were end-to-end, and that more variation in his line left fewer parts tied up in inventories and work in progress. While the unit cost for each product was higher, total production costs were considerably lower. Through his experiments Ohno learned that economy of flow was superior to economy of scale, and to see this flow, he needed to understand his organisation as a system.

Taiichi Ohno’s Story

It is worthwhile exploring a bit more about Ohno’s story. Born in Manchuria, China, in 1912, Ohno graduated from Nagoya Technical High School as a mechanical engineer before joining Toyota in 1932. He initially worked in Toyota Spinning and Weaving before moving to Toyota Motor Company in 1943 where he became machine-shop manager six years later. Then, during the formative period of the TPS (roughly 1945-1965 when Toyota was fighting to survive) Ohno came to the fore. The day World War II ended, Toyota’s then president Toyoda Kiichiro set a remarkable challenge:

‘Catch up with America in three years. Otherwise, the automobile industry of Japan will not survive.’

Toyota was verging on bankruptcy during much of this period and could not afford major investments in new equipment or massive inventories. Despite these constraints, Ohno’s leadership instituted a new way of thinking and a new work culture in the company. Appointed director in 1954, he rose through the senior ranks of the company to become executive vice president in 1975. In the early 1980s, Ohno retired from Toyota and became president of Toyota Gosei, a Toyota subsidiary and supplier. Taiichi Ohno died in Toyota City in 1990.

By all accounts, Ohno was a difficult character. He was described as a ‘doer’s coach’ as opposed to a consultant or professor, and he was certainly not a conventional manager. He preferred a role close to the action, disliking the office. It took Ohno 25 years to get the TPS accepted throughout Toyota and its first tier suppliers. Jim Hutzinger describes him as a ‘relentless S.O.B. who struggled tirelessly (yet was often frustrated) to PUSH his ideas throughout Toyota and its supply base’. Even in the machine shop that he directly managed, it took him eight years to get things finally moving. The workers were not cooperative with what they called his ‘goofy’ changes. Rumour has it that they would groan and say, ‘Oh no, here comes Mr Moustache!’ when they saw him. Cardiff University lecturer John Bicheno agrees that Ohno was not the great paragon that people may have thought. In fact, he was the ‘engineer’ who had relentlessly translated the concepts of Sakichi Toyoda, the founder of the Toyota group.

Ohno had a reputation for creating fear in others. Bicheno says that ‘there are still some older Japanese that worked with Ohno around – and virtually all who have worked with these guys say that they give orders, are highly critical, and expect it to be done’. His desire to drive out waste from the Toyota system was ruthless. There is a story that one day Ohno walked into one of the large warehouses and said to the staff of managers around him:

‘Get rid of this warehouse and in one year I will come back and look! I want to see this warehouse made into a machine shop and I want to see everyone trained as machinists.’

When he returned a year later, the building had duly become a machine shop. Ohno had not told them how to do it. Instead, he just demanded that they do it. As he matured, he became a mentor to Toyota’s TPS leaders one-on-one, or in small groups, sending them out to see reality, understand it thoroughly, and in turn to develop supervisors and working people to improve the processes around them themselves. All of Ohno’s students remember thinking that they had mastered the TPS only to have another penetrating question send them out to learn more. It is said that later in his career, his manner had remained so challenging that it caused him to be politely pushed aside by Toyota.

Near the end of his life, Ohno was asked by a journalist from The Economist why the TPS had developed. Being a down-to-earth type, he responded that it was ‘the last fart of the ferret!’ (when a ferret is cornered, it emits a powerful odour like a skunk). The TPS emerged as a structured, systematic response to the challenges that Toyota faced after 1945. Over time the internal and external context (strikes, Korean War, oil shocks) for Toyota changed greatly, but Ohno’s approach remained unwavering: his focus was always on eliminating waste and improving the system. When he was asked, ‘What is Toyota doing now?’ Ohno responded:

‘All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value adding wastes.’

Ohno’s leadership method

Ohno’s method is described as placing people first and foremost in the company, instead of the conventional assumptions that companies are mechanisms which need capital, generate cost and attract revenue. His method was radical in assuming that machines and systems should serve the people, their masters, rather than the other way round.

Figure 1 Ohno’s Method (from Nakane and Hall 2002)

Ohno’s favourite word was ‘understanding’, meaning ‘to approach an objective positively and comprehend its nature’. His method was developed as the way of achieving such understanding of his work as a system. Ohno described the workings of business as systemic and similar to the human body where the nerves ‘cause us to salivate when we see tasty food’. It is the recognition of the systemic nature of an organisation that led him to try and fashion the TPS as the equivalent of a nervous system, responding to external stimuli by ‘making judgements autonomously at the lowest possible level’. He emphasised that ‘Management’s role is leadership, developing all the people to autonomously work toward common ends.’ He also advocated that all should ‘strive for a targeted ideal system’, but to remember that conditions change and that ‘all systems are transient, so people and systems must be flexible and adaptive, not just ‘optimal.’

Ohno’s method leads to organising for people and process flows, around problem seeing and problem solving, rather than for control. Proximity to the direct action is a requirement for the support workers and managers, so that internal processes can be linked back to the customer’s perspective. Nakane and Hall compare the workings of Toyota to what a military organisation calls ‘readiness’: the development of first-line people to run and to improve processes autonomously, so that everyone’s contribution is maximised within the umbrella organisation. This enables the organisation to be excellent by conventional measures, but also to retain the ability to be nimble and flexible when required.

Reclaiming Ohno

Throughout ‘The Machine that Changed the World’ by Womack, Jones and Roos and ‘Toyota Production System’ by Ohno, there are examples that document where the development of the Toyota Production System broke with conventional thinking, and consequently saw counter-intuitive results. Subsequently, however, the more recent purveyors of ‘Lean Thinking’ have forgotten that the principles behind the TPS required these consistent dramatic rethinks and have reverted to the assumptions behind conventional theory in their further developments of ‘Lean Thinking’. Kate Mackle of Thinkflow has noted that Ohno called the Toyota Production System ‘mõkeru’ or ‘profit making industrial engineering’. Mackle calls for a return to these values, implying that the tools and techniques of the TPS were just Ohno’s way of solving Toyota’s specific problems. These problems are not the same in a service environment. One example of the unthinking misapplication of ideas from the TPS is the search for Ohno’s ‘Seven Deadly Wastes’, which include:

Overproducing

Waiting

Transport

Overprocessing

Inventory

Motion

Defects or correction

The search for such waste, applied without a change of managerial mindset, does not make sense in a service environment. In his manufacturing environment, Ohno was able to ‘see’ the waste in his system (for example inventory stockpiled in a warehouse). In a service, the biggest causes of waste are hidden in the flow: for example, ‘failure demand’ cannot be ‘seen’ in the same way. It is necessary, therefore, to go beyond a superficial analysis of Ohno’s discoveries and the tools developed in the TPS. Ohno understood that the Toyota Production System is just that – a system; the failure to appreciate that starting-place leads many to fail to grasp what is, without doubt, a significant opportunity for learning and improvement. Indeed, Vanguard’s whole raison d’être is to help managers see service organisations as systems. With different knowledge gained from this insight, Vanguard’s solutions differ from the ones Ohno invented for the TPS. Ohno should therefore be seen in the tradition of the systems thinkers, who recognise how the parts of an organisation combine to produce the whole and who constantly search for feedback on how they are performing. It is only when this systems perspective is understood that service organisations can realise their potential to perform like Toyota.

What we have witnessed in the last 20 years is a series of programmes of change failing to achieve their intended outcomes. Customer Care, ISO 9000, TQM, ABC, BPR. All the research and experience show that the latest panacea does no better than its predecessors. Over and over again improvement programmes are thwarted by commonly-known but illusive forces. The problem labelled as ‘organisation culture’, which typically leads to rationalisations like ‘change takes time’, or ‘each programme is an element in the total change programme’.

Rationalisations prevent learning. Why does behaviour not change as was intended? How much time should change take and how do we know? How should each element of a change programme impact performance and why? If we don’t ask and answer these questions we are unlikely to learn. If we do not learn we are more likely to continue to waste resources on ineffective programmes of change. The cost of failure goes far beyond the price-tag of the programme. Demoralisation of staff is a frequent and costly consequence of failure.

To understand change in organisations we must understand what influences people’s behaviour within an organisation and how it does so. Behaviour is conditioned by the information people have, their knowledge of what it is they are to do and the means provided to them to do it. It is also conditioned by the prevailing norms – people know what is expected of them, what is acceptable and what is not acceptable. Experience shows that there is a myriad of influences on people’s behaviour, but it also shows that some factors have far more influence than others.

To improve our methods of change, therefore, we need to understand more about what actually governs people’s behaviour. When no change occurs, it is the pattern of behaviour that remains unchanged. Deming and Juran demonstrated that people’s behaviour is governed by the system they work in. It was a finding which went against the accepted wisdom of their time and remains outside prevailing management thinking. Yet this is the single, common cause of the failure of programmes of change. When programmes fail it is generally because the attempt was non-systemic. Change in performance requires a change to the system.

The failure of many programmes of change is masked by the plausible aspiration to ‘do things right’. For example, the focus of registration to ISO 9000 is often ‘what do we need to do to achieve registration?’, regardless of whether these are the ‘right things’ to do. Training everybody in customer care assumes that if people do ‘as they should’ with customers, customer service would improve. In practice, their behaviour in front of the customer is governed by their system. So many programmes of change, even when we give them the right labels (‘co-operation’, ‘teamwork’) fall far short of success because they don’t change the system.

There is a critical difference between doing things right and doing the right thing. Much of the effort in programmes of change is given to doing things right: there is not much questioning whether these are the right things to do. Perhaps the labels are the first line of defence against such programmes being questioned.

The organisation as a system?

Doing the right thing means we have to learn how to view an organisation as a system and understand the implications of that view for what it means to manage. It is what Deming taught the Japanese in 1950.

A system is a whole made up of parts. Each part can affect the way other parts work and the way all parts work together will determine how well the system works. This is a fundamental challenge to traditional management thinking. Traditionally we have learned to manage an organisation by managing its separate pieces (sales, marketing, production, logistics, service etc.). Managing in this way always causes sub-optimisation, parts achieve their goals at the expense of the whole.

The ‘compartmentalisation’ logic of traditional thinking is not limited to the design of organisation structures. A systems view of organisations shows the fallacy of conceptualising performance problems as people problems (‘if only they would do it’). They should not be considered separately from other ‘task’ features. Failures in co-operation, poor morale and conflicts in our organisations are symptoms, their causes lie in the system. Training in teamwork or co-operation will only treat the symptoms. The causes usually remain. Managers have been encouraged to think of the ‘human’ (or ‘soft’) issues as distinct from hard or ‘task’ issues when they might be better understood if they were seen as interdependent.

Managers of ‘traditional systems’ impose conditions which limit, constrain or in other ways control people’s behaviour in ways which result in sub-optimisation. Being prevented from doing their work as they could, people become demoralised. Managers then treat people as though they are the problem. Lack of empowerment, for example, is a pre-occupation of ‘traditional’ management. Unwittingly, they have created systems which dis-empower people. Sending people on empowerment training does not solve the problem. It frequently produces greater cynicism. Only changing the system solves the problem.

A systems view of organisations leads to a different collection of problems to address. Traditionally, managers manage with output or financial data. Their view of the organisation is thus conditioned by the data they use. Problems are thought of as variations from budget and such variations attract management attention. While such a view will show up problems of cost, the causes of costs is a different question and can only be addressed from a different perspective. Only a systems view will illuminate the opportunities and scope for improvement.

For example a tele-marketing team was measured on number of calls, contacts, and ‘sends’ (a sale subject to trial). Daily and weekly targets were set. Making target resulted in a bonus. The people were demoralised. They had to experience going home having failed to meet their target. They knew in their hearts they had done their best but their performance had been governed by their system. Success depended on the quality of the lists. Lists had duplications, unused parts were batched and stored for re-use. As all lists came from the same source this resulted in much wasted time and customers being re-called frequently (and not being happy). Product knowledge varied between operators, the time taken to process orders depended on other departments and the type of product, there were frequent ‘fire-fighting’ interruptions to the working day.

People learned to do whatever they had to do to make their target. They hid good quality lists, falsified activity records, ‘bounced’ incoming customer calls to others so as not to get tied up with a customer problem and so on. Not because they were bad people; they were working in a bad system. Having to behave this way causes further demoralisation.

The performance of this system didn’t depend on how the parts act independently (getting lists made ‘on time’ and meeting activity targets for calls), it depended on how the parts interacted. It is management’s role to manage the interactions (or process), not the activity.

Attention to the system would improve performance. Improving the quality of lists, product knowledge of operators and removing the causes of customer problem calls would improve the performance of the system. It is not unusual to find such ‘traditionally managed’ tele-marketing systems under performing by half.

Management of the tele-marketing team was focused on activity, not purpose. The measures they used encouraged them to explain differences in performance as people differences and the management job was thought of as ‘motivating’ people. Yet they had designed a system which robbed people of pride, the most important source of motivation. The managers assumed people would be motivated by targets and bonuses. People will do, in these conditions, whatever it takes to get the bonus, but the consequences are that the wider system is put at risk and the task loses its intrinsic value. Pride is lost.

Coming to terms with how the traditional system causes sub-optimisation is a powerful way of learning – it is important to learn why something is wrong as well as simply that it is wrong. Managers who had relied on measures of activity to (mistakenly) manage productivity would recognise the need to give them up if they understood just how such measures are damaging productivity. They would give them up with confidence if they knew which measures to use instead (measures which relate to purpose) and they knew how best to use such measures (to learn from variation).

Understanding the causes of failures introduces the user to the fundamentals of systems thinking. The tele-marketing example is a relatively simple system. Similar phenomena occur throughout organisations which are managed in a traditional way. ‘Management by the numbers’, whether these are output data or standards, causes sub-optimisation.

Studying failure is a good way to learn how to understand an organisation as a system. For example, customer care programmes fail when people are put back into a system which won’t support their delivery of service. A system is a whole made up of parts. Each part of the system can effect the way a system works. Managing for improvement starts with understanding the relationship between parts.

Managers who appreciate this view act on the features of the system which govern quality of service, and consequently improve the behaviour and attitude of front-line staff – and improve service. The behaviour and attitude of front-line staff is governed by the system – it is frustrating and demoralising to work at the front of a poorly designed service organisation. Knowing that the manager is adding value, and seeing the results of changes to working practices is motivational. People like to learn.

To take another example: A customer service office took thousands of customer calls every day. Their purpose was to create value for customers and, when appropriate, sell the customers services. Managers had been measuring ‘time to answer’ and number of calls taken. Investigation showed that more than half the incoming customer calls might have been described as ‘calls we don’t want’, that is, calls which, in an ideal world, would never have occurred and which were caused by a failure to do something the customer expected (billing queries, complaints, progress-chasing).

Marketing was the source of many of the unwanted calls. Customers would respond to a direct mail campaign but would not qualify for the service (and in very obvious ways). Marketing was not learning how to improve its processes, they were working to budget.

Finance included credit control. Their failure to resolve customer queries immediately, and their larger failure to run a billing service which did not cause queries, meant a flood of calls into customer services. The productivity of customer services was governed by the system. Managers were doing no more than making things even worse by managing activity.

‘Traditionally’ minded managers see the organisational world in parts. They put in place reporting and accounting procedures which account for, or report on, parts of the organisation separately. The prevailing thinking would have it that if each part of a system performs as specified (to budget), then overall the system will perform as expected. It is assumed that looking at the parts gives us the means to manage the whole. Nothing could be further from the truth. It may be true in many cases that the numbers add up to the intended budget, but managing in this way guarantees sub-optimisation. This is the first step in changing a manager’s thinking. It is not a step to ignore. If a manager does not know what was sub-optimal about the old system and why, he or she is likely to repeat the mistakes of the past (management attitudes are as strongly held as any others). Change in organisations begins with a change in thinking.

Change means changing the system

Change for improved performance means changing the system. When features of a traditional management system are left in place, they undermine (or, minimally, compete with) quality principles and practices. If change doesn’t change the system, the system doesn’t change.

Any intervention in a system which does not change the thinking will produce no change. This is why training in quality techniques fails to improve performance over the medium term (and sometimes even in the short term). The principles and practices of traditional, hierarchical, functional management, which today constitute the accepted norm, are antithetical to quality principles and practices. This is not just a matter of attitude and belief. The everyday practical matters which managers work with are different in a quality organisation in very real ways. A systems view of the organisation leads to different measures used in a different way. It means designing work according to different principles.

A systems view of an organisation starts from the outside-in. How does this organisation look to its customers? How easy are we to do business with? (One company used this as its slogan but was very difficult to do business with,. It was the customers who had to manage them to get anything done). The starting place for understanding the organisation as a system, is to be able to predict what will happen next week if nothing changes.

Implications for management

It is only when people’s view of how to do work changes that their behaviour changes. Changing the system means taking out things which have been limiting or damaging current performance. For example, removing activity measures, arbitrary targets and ceasing to manage performance through budgets; changing structure and processes to enable them to better achieve their purpose. Managers will only take such radical action if and when they appreciate that their traditional means of control in fact give them less control: managing costs causes costs.

When the organisation is understood as a system, the inappropriateness of such practices becomes stark. It is a major source of motivation for action. Action means ‘doing the right thing’, putting in place the right ‘system conditions’ to ensure that performance is managed from a strong base of understanding.

Deming taught the Japanese to manage their organisations as systems. In four years they out-achieved his expectations. When people work from theory they learn. What Deming gave them was a theory of management which started from the premise that the organisation is a system. Organisations of the future will be learning because their people, the people who do the work, will be learning. But that will only happen as fast as we change the way we run organisations. Without doubt it is the right thing to do.

John Seddon is an occupational psychologist and management thinker.

Public sector targets: doing less of the wrong thing is not doing the right thing

John Seddon Managing Director, Vanguard Consulting Visiting Professor, LERC, Cardiff University Villiers House 1 Nelson Street Buckingham MK18 1BU  January 2 2007

Are targets improving performance?

The White Paper asserts that targets have led to improvement:

6.8 There is strong evidence of rising performance within local government across a wide range of services and functions.

6.9 A basket of Best Value Performance Indicators (BVPIs) designed to give a balanced picture of performance over time, shows councils have improved by 15.1% between 2000/01 and 2004/05

I am reminded of Nick Raynsford’s conundrum. Speaking to public sector managers he observed that while BVPIs were showing improvement, public satisfaction data were showing otherwise. He rationalised this dissonance by saying the public took time to change their views and their expectations were rising.   The truth is improving achievement of targets has actually been making services worse. I know this to be true for every service Vanguard has studied. One might think it remarkable that, for example, a target to see people who want housing benefits within fifteen minutes is the cause of poor service and high costs. The target results in people having to visit their local authority a significant number of times to get the service they want and deserve.

Ministers equate activity with service. To focus on how quickly people are seen, or letters responded to, might appeal as a political sound bite, but these and other arbitrary measures drive waste into public services.   I have illustrated these problems in some detail with respect to Housing Benefits and Adult Social Care in previous correspondence. Vanguard’s work in Housing, which showed the same problems, and demonstrated profoundly better solutions, has been the subject of evaluation and reports from your own department.  In these and every other service we have studied, we are able to show how targets are the cause of high costs and poor quality service. We have also shown how taking measures derived from the work, based on what matters to citizens, can lead to astonishing levels of improvement.  What is the evidence?  The evidence relied upon for the White Paper’s assertion (that targets have led to improvement) comes from CPA and Best Value inspections. CPA and Best Value are neither reliable nor valid methods of assessment.  In my earlier criticism of Best Value (“The Better Way to Best Value”, March 2001) I remarked how the majority of Best Value reviews determined that ‘more resources were needed’. It illustrates the validity problem, for most public services are replete with waste; it is simply that Best Value’s lack of any coherent and efficacious method prevented anything useful from being learned. You should be congratulated for removing some aspects of Best Value from statute.  Nowhere in the Audit Commission’s work do I find evidence of, or concern for, investigating of the reliability of either method of inspection; that is to ask: if a series of inspectors conducted CPA or BV inspections in the same authority, would they come to the same conclusions?  Inspectors may, for example, on their judgement of BVPI attainment, but the attainment of targets is not a reliable nor valid indicator of what the citizen experiences, I shall return to this problem.   These days inspection goes far beyond targets; inspectors seek evidence of adherence to mandated features for the design and management of services. Thus in some gross observations (for example, do you have a call centre and a CRM system?) we may find that successive inspectors could make reliable (the same) judgements, but this takes us back to the validity problem: does having a call centre and CRM mean the authority delivers better service?   Ministers equate access with service. All of the call centre ‘beacons’ I have studied exhibit large volumes of ‘failure demand’ (demand caused by a failure to do something or do something right for the customer) and related waste in their service flows. Thus while an authority can get ‘ticks in boxes’ for having a call centre and CRM, the citizens’ experience of service provision is dire. Moreover, creating the call centre (front-office / back-office) design has locked in waste and made the organisation more difficult to improve. The mandated CRM system effectively institutionalises the waste (progress-chasing failure demand) and managers become preoccupied with managing the activity that has been created, blind to the fact that they are managing waste, for it remains invisible to inspectors and managers alike; instead both focus on adherence to specifications and achievement of mandated targets; which are, paradoxically, central to the performance problem.   The only acknowledgement of the lack of validity in inspection I have been able to find is in CSCI’s publication ‘The state of social care in England 2004 – 05′ Para 12.33:  “There is no statistically significant correlation between a council’s star rating and the performance of local services”.   But nowhere is this thought followed up. Knowing that the measures are not valid does not stop star ratings being used. We reported the same in our paper on Adult Social Care, despite wide variations in star ratings Adult Care services in a group of authorities all showed the same dysfunctional features and had similar sub-optimal performance. There is no indication given of what CSCI think would be useful data or any indication that they desire to collect more useful data.   The people at CSCI, like the many other specifiers, are just doing their jobs, as directed by their ministers. It is the ministers’ responsibility, not the specifiers, to change things. People in the specifications industry don’t now what they don’t know. They don’t know, for example, that many of the things they mandate undermine performance; they don’t know that measures of capability would be both valid and reliable measures and therefore be much more useful in understanding and improving performance. I shall return to this. Some appear to know that their current ideas cannot be relied upon, but they are unable to do anything about it.  Why do we believe in targets?  People tell me there is now a general consensus that targets have failed to achieve their purpose but the idea of doing away with them is said to be inconceivable. I think this position shows a lack of understanding of the extent of the problem; for if you had seen what I have seen over the last few years you would abandon all targets with confidence you have at least stopped doing the wrong thing. The position also reflects peoples’ beliefs in some ill-conceived notions.   The most common beliefs are:  Targets motivate people. They do, they motivate people to make the target, regardless of the impact on the system. This some people acknowledge, but then they turn to the idea that it comes down to being able to set the right target. I shall return to the question of whether there is a reliable method for setting a target shortly. People also claim that ‘cheating’ or ‘gaming’ is limited and deviant whereas I am confident it is ubiquitous and systemic.   Targets make people accountable. They do, but who should be held accountable for the fact that achieving targets makes services worse?

Targets provide a sense of direction. They can if stated in general terms, but as soon as you attach an arbitrary number to any statement of direction and send that down a hierarchy, you are in trouble.  When Deming first taught me how and why targets made performance worse, I had no difficulty following his logic so I reproduce it here in a simple form:  There is no value in having a target, as it is an arbitrary number; by its nature it will drive sub-optimisation into a system. It is, however, vital to know how the system actually performs – its capability (a real as opposed to arbitrary number). Lets say, for example that a system regularly performs at a capability of ‘10’. If a target is set beyond the current capability, say 15, managers have to either re-design the work, distort the system (for example, through arbitrary cost cutting) or cheat to ‘make their numbers’. If managers do have the know-how to re-design the work, might they stay at 15 when they discover that they could get 25? If they did have that know-how, why had they not done this before?   If a target is set at or below the current level of capability (10 or less) what incentive is there for managers to improve? Might there be a disincentive to stand out from the crowd? Many people would ‘slow down’.   In truth, all systems exhibit variation. So our capability might be an average of 10 but it could do as little as 7 and as many as 13, and all results in this range are just as predictable, this is normal variation. To set a target within this range would mean sometimes you win and sometimes you lose. It is this lottery style management that has created the ‘sweat shop’ phenomenon in call centres and ‘back office’ factories. Sadly this disease has now arrived in the public sector. To avoid failing their targets managers learn to cheat. Their ingenuity is focused not on improvement but survival.   While managers may indeed survive, their attention to variations in data points, treating them as different when they are, in fact, just as probable, means they inadvertently increase the variation in the system – so they survive even as performance gets worse.  But managers do not ‘see’ that what they are doing is having such an effect, for they do not measure their organisation’s capability – what it is predictably achieving from the customer’s point of view and the extent, and causes, of variation; instead they are preoccupied with managing performance against targets. So I return to the question:  Is there a reliable method for setting a target?  If you ask managers by what method one should set a target, you find the following:  Base it on experience. Take last year’s performance and add/subtract 5 or 10%. But if the system includes 40% waste, this is not a reliable method. An analysis of waste might reveal there is scope for 100% improvement.  Set a ‘stretch’. It is to put one’s finger in the air. The diametrically opposite view to ‘base it on experience’. How can this be argued to be reliable?

Yet consider this: local authorities employing the systems approach achieve, for example, all planning applications and benefits processed in times that would never have been conceivable, even as ‘stretch’ targets. The managers responsible for these improvements know that the improvement followed a change in their thinking about measurement.   Let the subordinate decide. Some have the idea people should set their own targets. This inevitably leads to speculation that the subordinate, the one responsible for achieving it, will try to make it ‘soft’; the superior party will seek to make it ‘hard’. This is not a dialogue based on knowledge; it will lead to a culture of mistrust.  Ask the customer. A way to create a rod for your back. Police forces, obliged by the Home Office, asked citizens what they wanted from police and found the ‘wish list’ (policemen visible at all times of my public activity) led to forces spending time being visible, not the same as being productive. Local authorities spend vast sums on opinion surveys, seeking opinions from those who have little interest in or first-hand knowledge of their services. It can only lead to unreliable data and invalid conclusions.  Becoming citizen-centred  People take their view of any public service from the transactions they have with it. It is incumbent on police and other services to understand the nature of customer (citizen) demand and design their system to respond to that efficiently. West Midlands Police, to take just one example, transformed the citizen’s experience of call handling in a very short time using the systems approach, it is to design the service(s) against demand – citizens want services that work.   Many of management’s targets are derived from their budgets. Public sector managers have been persuaded (wrongly) to the belief that service management is concerned with solving the following operational equation: How many people do I have? How much work is there to do? How long do people take to do it? It follows that targets are set on the basis of trying to improve activity. It is to assume that the worker’s activity is the key to productivity. But, as Deming taught, at best this is working on the 5%, for the true levers for performance improvement lie in the system – the way the work is designed and managed. Working on the system, Deming showed, is to work on the 95%.  Citizen-centred measurement  Instead of being managed with activity data and arbitrary targets, workers in front-line services and their managers need measures of capability – what the service is actually achieving for the customer, from the customers’ point of view. It is an essential system measure; it enables working on the 95%.  What you always learn, when you first establish capability measures, is that achievement of targets is an entirely unreliable and invalid indicator of performance. It is unreliable, in that, for example, to know that 80% of things get done in say 8 weeks (a common target) is to know nothing about how long it predictably takes from the customer’s point of view. It is invalid for it always measures service from an internal point of view – how each function achieves activity targets. It is to know nothing about the customer’s experience of the service.  The customers’ experience of the service is usually dire. The 8 week target will mean some customers being refused or being sent away to do something (both of which stop the clock on the target); it is not unusual to find the customers’ end-to-end time to be in the hundreds of days. It follows that in getting the service the customer has had to make successive representations, visiting or writing many times. All of this activity represents unnecessary cost. The targets are driving up variation, extending end-toend times and increasing costs. It is a counter-intuitive thing.  To return to the housing benefits example, it is not unusual to find a service that is achieving all of its BVPIs but its true capability from the customer’s point of view is in excess of 150 days. Taking out the causes of variation (measures as well as many others, driven by the DWP’s specifications) means authorities can deliver this service in less than a week.  To achieve such a transformation managers first have to learn that their preoccupation with managing activity is part of the problem. Ministers have promulgated the same thinking through emphasis on IT as central to the change strategy, creating ‘economies of scale’. It is to manage service transactions and processes as activities. The primary measure is cost, but managers cannot see that managing with costs drives up costs. The true cost of a service is end-to-end from a customer’s point of view. If it takes a series of transactions to get a service, the experience is poor and the cost is high. When services are designed against demand, they improve and the associated costs fall, it is, by comparison, to achieve economies of flow. As the Toyota System exemplified, and as many public sector adopters have shown, economies of flow are far superior economics.  Doing less of the wrong thing is not doing the right thing  Deming taught us how arbitrary numbers driven down a hierarchy distort the system; they make performance worse, always. It is not a matter of finding the ‘right target’; this can only amount to doing the wrong thing righter. The right thing to do is to use measures that help in understanding and improving the work. The White Paper proposes to reduce the number of targets. It is to do less of the wrong thing; it is not doing the right thing.  The right thing would be to remove all targets and to limit the role of only one inspector to ask only one question of local authority managers:   “What measures are you using to help you understand and improve the work?”  Replacing the imposition of arbitrary measures with the requirement for managers to determine for themselves what measures they need for understanding and improving their services places the locus of control where it should be – with those who have to change, not with the specifiers and inspectors (which, even if the requirement was right, would generate compliance rather than learning).

Lifting the burden, and removing massive costs  As well as putting the energy for change in the right place, you also remove five types of waste that are a real and massive burden on the public sector:  The costs of people spending time writing specifications. The specifications are, most often, based on opinion, not knowledge and, like targets, drive the wrong activity. As I have indicated, I can provide you with evidence of the specifications being ‘wrong’ for every service we have studied.   The costs of inspection. Inspecting against specifications is costly as well as inappropriate. It means building protocols and checklists. Asking inspectors to start with only one question means they would have to find evidence to support or otherwise the claims of those being inspected. This would mean studying the work, where all evidence must be found if inspection is to be reliable. Hence we would get greater reliability and validity in the inspection process, a big step forward.  The costs of preparing for inspection. Local authorities spend inordinate sums preparing for inspections. The self-assessment methods also lack validity. This proposal would mean no time being wasted preparing for inspection, for all of the work on understanding and improving should be assumed to be going on as part of the work. There should be no need for additional work.  The costs of the specifications being wrong. Perhaps the highest cost: compliance to specifications actually results in worse performance, poor service at high costs. To repeat, I can provide evidence this for all local authority services for which Vanguard experts (local authority personnel and consultants) have knowledge.   The costs of demoralisation. The most pernicious cost. If your goodness or badness is judged by your compliance with specifications you are bound to become demoralised, especially when the specifications and associated inspections leave you with doubts. People’s goodness or badness should be judged by whether they are able to show they are working to understand and improve the work they do. It is to shift from ‘extrinsic’ motivation (carrot and stick) to intrinsic motivation, a far more powerful source of motivation.  I hope you find food for thought in these ideas, the recommendations would provide the conditions you need to deliver the purposes of your White Paper. In my next paper I shall return to the question of measurement and its role in delivering citizen-centred (and improved) services.   John Seddon

How has this happened? The essential problem is that Call Centres have been set up using the principles of scientific management. These ideas are plausible but fundamentally flawed. The research showed that every consultancy involved in establishing Call Centres based their advice on these principles.

What are the ideas associated with scientific management? That service agents should be managed by measuring their activity. That planning should be based on volumes of call demand and averages of agent activity. That management’s role is to manage budgets and motivate people. Yet people who work in Call Centres are demoralised. The extent of the problem has led to Call Centres being called the ’sweat-shops’ of the Nineties.

Why are people demoralised? There are four inter-related reasons:

1. Measuring call activity ignores variation. People can ‘lose’ what is, in effect, a lottery – they can get adverse work measurement numbers when the causes of variation are outside of their control.

2. To survive in such an environment, people often learn to ‘cheat’ – it is the only way to avoid adverse criticism. When people have to cheat to survive they are further demoralised. Most people want to do a good job; they know what they are doing is wrong but they feel they have no choice.

3. Managers pay attention to people for the wrong reasons. Being unaware of the extent of variation attributable to the system and the extent of variation attributable to service agents, managers pay attention to people when they should not and they do so in inappropriate ways. Service agents feel as though they are obliged to put up with this sort of (inappropriate) management attention.

4. Managers are focused on internal issues – they are primarily concerned with matters of productivity. As a consequence, service agents lose sight of their purpose and managers are out of touch with opportunities to make significant improvements in productivity.

How can the problem be solved? The solution lies in changing the way managers think. Scientific management is flawed, managers need to know why. The best way to learn is to find out the extent of sub-optimisation caused by this thinking in their own case. The extent of sub-optimisation is exposed when managers take a systems view of their Call Centre. Taking a systems view is to look outside-in and to understand demand, value and flow. As a consequence, managers see the value of changing their methods for:

1. Understanding demand. When demand is understood from the customers’ point of view, it usually results in immediate opportunities for improvement. Much of the demand on Call Centres is what we would classify as ‘failure demand’ – caused by the organisation not doing something right. ‘Scientific’ managers respond to this demand in the same way as they respond to any demand, by adding resources. Quite a number of organisations we studied thought that adding resources – more Call Centres – would solve their problems. It was the wrong approach – only adding to costs. The manager who takes a systems view works to turn ‘failure demand’ off. Service and efficiency improve immediately. A second opportunity comes when ‘value’ is understood from the customers’ point of view. Managers with a systems perspective realise that the faster a customer can ‘pull value’ from their system the better the service and the lower the costs. Finally, understanding demand exposes the risks in using IVR systems (where customers route their call). There are very few conditions under which IVR systems result in better routing and lower costs.

2. Understanding variation. To get away from the demoralisation associated with being in a ‘lottery’, managers with a systems view appreciate the importance of finding out the extent of variation attributable to service agents (which leads to training or information needs) and the extent of variation attributable to their system – not all customers are the same, not all customer calls are the same. When managers use measures of variation to work with service agents, a climate of learning is established.

3. Working on the system. Managers who think with a systems view remain focused on their purpose – to create value for customers by the most efficient means. Adopting the methods outlined above is an essential prerequisite to managing the Call Centre as a system; the methods give managers confidence that they are doing the right thing instead of ‘doing things right’ – the preoccupation of scientific management. As a consequence of managers changing the way they manage, service agents become clear about their purpose and see themselves as capable of contributing to improvement.

John Seddon is the author of “The Vanguard Guide to Transforming Call Centre Operations”, available

from www.systemsthinking.co.uk

Tell that to most Call Centre managers and they will give you a strange look of disbelief. Managers are conditioned to believe that improvements in service and costs must be traded – you cannot have both.

Managers have a problem understanding these ideas because their fundamental approach to the design and management of work in a Call Centre is based on a production view of work. And this production view is no more than a view; it does not represent an understanding of how the work of a Call Centre works. The Call Centre ‘production manager’ is pre-occupied with how many things his people do; he thinks the more they do, the better the Call Centre will perform. It might seem crazy but this is just wrong, to equate activity with performance is at the heart of the sweat shop phenomenon.

Only when managers learn to see the Call Centre as a system do they learn the weaknesses of the sweat shop model. The first requirement is to understand demand from the customers’ point of view. This is not ‘what we do with it’ but ‘what did the customer want?’ This simple distinction has a profound impact on the design of Call Centre work. The traditional factory design uses the idea of functional specialisation – people are experts in narrow specialisms; in the systems design people are trained against demand. The first time managers hear this idea they assume this means people need to be experts in everything – it is because they hear this argument from their current point of view. The starting-place for changing management thinking is the same as the starting-place for re-designing the work of a Call Centre, managers must understand demand from the customers’ point of view.

A powerful exercise for establishing the need for change is for managers to follow customer demand through their current system. Having identified demand from the customers’ point of view and then established whether it is predictable or unpredictable, managers take a predictable high-frequency demand and ‘walk the flow’ to see how the current system responds to the demand. If and when this produces a diagram that looks like spaghetti, managers begin to understand the need for change.

The next step in change is to identify the ‘value’ work – what actually needs to be done to satisfy the customers’ demand. Managers should re-trace the flow to find out where the value work is done; more importantly they should identify what else is done – and all of this will be waste. Sometimes you find more resources expended on waste than doing value work. It is at this time that managers start to realise that costs can fall as service improves, for it becomes a simple proposition of doing only the value work. To do that you have to re-design to cut out all waste.

There are two kinds of waste. Type 1 waste is waste that can be removed immediately with a beneficial impact on flow. For example we often do not need work to be counted, duplicated and so on. Type 2 waste is waste that cannot be removed without re-designing the work, for example changing the way IT works when handling calls.

These methods need measures to guide their application. Instead of the normal production measures (calls per man per day and the like), managers need measures of capability and flow. Such measures can be used by managers and workers alike – they lead everyone in the Call Centre to engage their ingenuity in improving the work. The consequences are improvements in performance and morale.

By working to understand their organisation as a system, Call Centre managers achieve a true understanding of how the work works and from that position they can improve it. It is far better than having a ‘view’, it is to work with knowledge – something that is distinctly lacking in most Call Centres today.

John Seddon is the author of “The Vanguard Guide to Transforming Call Centre Operations”, available from www.systemsthinking.co.uk

Call centre workers believe as their managers do that they can be held accountable for performance. When, as will be inevitable, they risk becoming losers, people ‘cheat’ – they do anything they need to do to keep the boss happy. Peoples’ ingenuity is engaged in surviving rather than improving performance; it is a tragic waste of human talent. The human costs of demoralisation are incalculable. The obvious costs are recruitment and training as these conditions encourage high turnover. But the real costs are higher – poor service and high costs are associated with customer dissatisfaction and staff dissatisfaction.

The Call Centre manager sees his or her job as setting and monitoring work standards, productivity and procedures. It is an uncritically inherited assumption of traditional management thinking that people are the primary cause of poor performance rather than the system in which they work. As a consequence, management becomes concerned with managing people’s productivity. Paradoxically, managing productivity undermines productivity.

Based on their resource plans, managers set their service agents work standards and targets. It is a rational idea. In reality, however, the performance of any one individual will be subject to variation and the extent of that variation must be established before any action can be contemplated, otherwise managers can make the situation worse. Managers (and service agents) need to know whether variation in performance is attributable to agents or the system. Current approaches to people management in call centres ignore this important question.

Figure 1 shows a Call Centre service agent’s work activity every day for twenty days.


Figure 1: Call centre service agent’s calls taken by day

If you accept the theory of variation – and I recommend you do, for it helps connect ends with means and thus can be used to guide improvement – the chart shows that we can expect the service agent to take as few as twenty and as many as ninety calls on any one day. The variation is caused by the service agent’s system.

What does this mean? There is always variation, in anything that we do. In a call centre, variation will be caused by customers, products, procedures, availability of information, knowledge of the service agent and so on.

Most managers look at such a chart and express either disbelief or panic. Their attention is always drawn to the lower limit – they are terrified at the prospect of all service agents taking as few as twenty calls. However, one wouldn’t expect a series of observations at the lower or, for that matter, the higher limit of the chart. The chart simply illustrates that the variation existing within the observations (numbers of calls per day) would lead one to expect values as high or as low as the limits. Most, however, would occur around the mean.

Ignoring this fundamental truth, managers set work standards and police peoples’ performance. If the work standard is set at a high level, say seventy calls, service agents may only be able to achieve it by ‘cheating’. And they do; they close a call before the customer is finished, and sometimes before the customer has started; they tell customers to call back; they re-route difficult calls, in short they do all they can to avoid missing work targets or standards. These are not bad people, they work in a bad system.

Behaving this way causes demoralisation. Most people in customer-contact jobs want to serve the customer. When their system won’t let them and they have to ‘cheat’ to survive, they become unhappy.

The better way to think about managing people is to lead them in understanding and acting on the system. It harnesses service agents’ ingenuity towards contributing, learning and improving, rather than engaging their ingenuity against the system. Systems thinkers appreciate that all performance is subject to variation. The first-level manager should address the question: what are the causes of variation? Those identified that are within the team’s control can be actioned by the team. Those beyond the team’s control should be actioned by the manager.

In transforming a call centre, management’s focus changes from managing people – ensuring that people do as they ’should’ – to managing the system – understanding and improving how well the work flows, end to end, to fulfil the customers’ demands.

It is a revolutionary step away from the current pre-occupation with managing people. It is a step that managers are only prepared to take when they have first learned that their current performance is governed by the system and not the people. Once managers make this conceptual leap they stop wasting time doing ‘one-to-ones’; the impact on productivity is enormous.

John Seddon is the author of “The Vanguard Guide to Transforming Call Centre Operations”, available from www.systemsthinking.co.uk

Managers use call volume data to plan resources, but this is to ignore why their customers call from the customers’ point of view. This simple and fundamental mistake can and does add alarmingly to costs. For example, one financial services organisation I worked with planned three call centres and, because of higher than anticipated demand, got to five before the chief executive started to express concern about costs. Managers rationalised the reason for the unanticipated volume of calls, comparing their experience to the unexpected volumes of traffic on the M25: because it was there, they claimed, it was attracting more traffic. But in fact the managers knew nothing about what was causing the increased demand. Analysis of the calls showed they had caused the problem themselves, for calls included an enormous volume (46% of the total) of what I call ‘failure demand’.

The distinction between ‘failure demand’ – demand caused by a failure to do something or do something right for the customer and ‘value demand’ – what the call centre exists to provide, is a distinction that few call centre managers make. I find that many call centre managers do try to determine the reasons for a customer call, but they do so with an ‘internal’ – ‘what we do with it’ – perspective; when I look at call coding I find the codes make no distinction between value and failure demand. Worse, call coding is often ‘compulsory’ – it is a forced part of the wrap-up. This only encourages operators to put in any code that will move them on to the next call (after all, too much time in wrap-up will mean you get paid attention to).

In some cases I have found managers who are wise to the enormous potential for working on removing failure demand. But what means do they have at their disposal? Report writing and meetings across the hierarchy – probably the best way to prevent any learning and change. Working in the right way with demand data is just one component of a better system of managing call centres – roles have to change from managing through the hierarchy to managing ‘flow’, a subject I shall return to in a later issue.

Is there an economic prize associated with the removal of failure demand? Consider the following statistics: In financial services I have found failure demand to run from 20 to 50% of demand; in police forces I have found failure demand to run as high as 70%. Imagine the cost associated with such levels of waste – for that is what this represents. Top management will often be heard to say things like ‘if only we could reduce our average call length by 30 seconds, we could improve our bottom line by…’ It is to focus on entirely the wrong thing. Of course, top management has no other view than cost data.

It is from a cost view that managers find out-sourcing an attractive idea. To hand over calls to an agency, whether in the same country or, more lately, in other countries is to out-source waste. These organisations are paying someone else to work on their ‘muda’ (a Japanese expression for waste). Moving calls to another country just makes the understanding of what is going on all the more difficult. Should we praise these leaders for operating in a global economy or embarrass them for missing the obvious?

It is not only managers of call centres that treat failure calls as part of the normal workload. So do IT consultants. In one organisation I was working in, a major consulting firm was conducting an analysis of call demand. I asked how much failure demand they had found and the answer was none. The consultants didn’t think that way, they took an internal focus on the nature of demand, being concerned about what agents had to do with calls, rather than what the calls represented to the customers. In fact failure demand was actually running at a predictable 65% of call volume. What were they paying for such misleading guidance?

The better way to work with demand

The first step in working with demand from the customers’ point of view is to establish type and frequency of demand. Type – why do customers call in from their point of view? Frequency – how many of such types do we have and how predictable are they? The predictability question is crucial. If demand is predictable, you can act and you act in different ways with each type of demand.

With failure demand you act to turn off the cause(s). The impact can be seen immediately on measures of productivity and customer service.

With value demand you act to design against it. You want customers to experience ‘pulling value’ from the organisation. If you design the work to do the ‘value work’ and only the value work, costs will fall as service improves. Something that most call centre managers find counter-intuitive, for their whole world is based on production assumptions – equating service with cost.

John Seddon is the author of “The Vanguard Guide to Transforming Call Centre Operations”, available from www.systemsthinking.co.uk