How "Lean" thinking is turning services delivery on its head
Add bookmarkIf you deliver what you'd promised to deliver, or if you set expectations properly, you'd never get calls into your SSO. This is the simple premise that Jacob Austad, a Lean expert, lives by. Said differently: It's your system that's causing the call backs – what he terms "failure demand." In any shared service center, no matter where in the world, Jacob believes 70-80% of the work coming in can be avoided. He's sure to ruffle some feathers when he speaks at SSON's Nordic Forum next month ...
What’s the role of a Lean office?
Our Lean team is based at corporate headquarters. We are basically responsible for Lean activity throughout our organization – that’s 470,000 people around the world. Lean office, focus on service and administration – or what we call beyond manufacturing, and we are responsible for developing the methodology that is being rolled out across the organization, and training and coaching our people. When we select an area for implementation, we look at the end-to-end issues related to the problem. For instance, in finance, we consider: what’s the business need in terms of finance in this market? We then focus on a small area of that end-to-end process and build up competence in our people so that they’re capable of running it themselvesves.The process expands from there, in a ripple effect. It’s like throwing a pebble into a pond – the rings spread out slowly.
What are some of the business benefits of having a Lean agenda?
On a generic basis, the business benefit, of course, is that you increase your capacity. But in terms of Shared Services, where Lean contributes is in making sure that you are doing the right things. That is not the same as doing things right. Translated into business speak: what this means is that you need to critically evaluate what is being pushed into the shared service center. Responding to everything that comes to you is not necessarily good for business. Consider why work comes into a SSC. It’s because you failed to so something right at the first point of contact. It’s the rework that comes back to you. According to my calculations, up to 80% of the work coming into shared services is the result of incorrect resolution or faulty processing. And that tells you that most systems or processes running in SSCs are inherently not up to scratch. So you should re-evaluate them. That’s what should be done. It’s about doing it right the first time, and doing away with rework.
This holds regardless of whether you are in a shared services center or an administrative environment – most of the work that comes to you is because you failed to do it right the first time, at the initial point of contact. A simple example is a newspaper subscription. Say you subscribe to the Times, by phone. After, say, a week with no newspaper you call them again to ask: where is my paper? That is basically a signal to the Times that something is wrong in the system. If they had delivered what they’d promised to deliver, or if they had set your expectations properly, you would never have called them again. So, their system actually caused you to call them back. That’s what we call "failure demand," and in any shared service center, no matter where in the world, 70-80% of work that comes in could have been avoided …
A bold statement – and one which I’d love to try out on some of the shared services leaders I know!
Yes it is – but I’m quite controversial on this point because I believe in it. If you want a shared services center, you need to be clear on why, on what you hope to gain. People say, well, economies of scale. I’d like to see just one example from anywhere in the world where economies of scale have worked anywhere but on paper – especially when you talk about service. There is no proof that economies of scale have ever delivered what was expected.
I would beg to differ. Surely there are hundreds of SSCs that have been set up to benefit from economies of scale? And are thereby saving costs?
No – because cost saving is the result of what you do. Look at it like this: SSCs deal with all kinds of demands from different sources. It could be about pay checks, about phones, about office supplies etc. The assumption is that the Shared Services is designed like a factory. And in a factory, by definition, there’s an order to follow for everything that needs to be processed. But the problem is that not everything that comes into an SSC is an order. As I said earlier, about 70-80% of what comes in relates to unnecessary queries for repair, or status, or rework. And what’s happening is that you are building up a system, within shared services, that is capable of dealing with failure demand.
My argument is – No! You need to eliminate failure demand by designing the right system. And this comes back to my earlier point: "doing things right" can be plain wrong, and only makes things worse, because the system may be inherently at fault. You need to do the right things.
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Could you share an example of where Lean led to changes in your operations?
I can’t share specific examples from my organization as that is against company policy; but I can share examples from my pervious organization, where I turned around several departments. That company handled insurance, and in one case I worked with the group that was responsible for sending out insurance quotes. Brokers would send requests for quotes to this department. The problem was that 83% of everything that came into this group was caused by us not replying to customers as they expected: We didn’t acknowledge that we had received the customer’s request for a quote; we didn’t acknowledge that the customer wanted feedback. We did, however, stick to the target of responding to the request within two weeks. So as far as we were concerned, we were hitting targets.
Of course our customers didn’t know that. We’d field emails from brokers every other day asking for updates. You’d check on that account, figure you still had 10 days, and shelve it. The fix was simple: we simply committed to responding within a shorter timeframe – say two days, and thereby avoid all the follow up queries. By doing so, I worked out that we actually increased capacity in that department by 60% – because we took out all the reminders and all the questions; the call rate dropped off significantly. We also communicated this process to the customers.
By taking out failure demand, you actually increase your capacity. What can you do with capacity? You can handle more customers without actually increasing your cost base. Or you can give your customers a better service. So, it’s important to understand demand. And if you deal with it at the first point of contact, you create a system that actually eliminates failure demand.
The bigger question is not, do you set up a shared services center? The question is, do you understand demand? I let the CEO of my previous company listen in to calls for three hours, and then asked him: What did you learn? And he said: More than half of all phone calls were related to on-going cases. They might have been hitting set internal service levels or agreed lead-times – but in the meantime, the customer was waiting, and calling back, interrupting added value work.
What happens is the bullwhip effect that people in the supply chain know so well: a small variation at the beginning is multiplied as it travels down the supply chain. So I’ll say: you are wasting your money in setting up a shared services center if you don’t at the same time rethink the end-to-end process, and look at outcomes. What you should definitely avoid doing is institutionalizing demand; you don’t want that.
How does Lean thinking influence sourcing?
If you’re thinking of outsourcing, then you’re doing it to cut costs. But the fact is, you’re then still thinking in terms of silos, so outsourcing will actually drive your costs up on this.
It does this because you are not taking into consideration all the trouble that you create. If you outsource a process that is not done right, then you will increase your costs – and the company that you outsource to will make loads of money. If your process is not perfect, you are passing sub-quality data to your outsourcer; and every time they have to raise an issue with you, you’ll get a separate invoice. Anything that deviates from the contract will cost you. So I would never ever outsource anything until I was sure that I had cleaned it up. Because if I outsource failure demand, what comes back to me? – The cost of the outsourcer handling failure demand! And that is just money out of my pocket.
I think that outsourcing is approached the wrong way. It’s seen as the solution to a problem, but you haven’t even understood the problem yet. So outsourcing drives costs up. I’m confident that I could show any CEO that there is inherent waste in their processes, in the way their processes are set up. Lean makes you look at all these things. It’s not popular, I know; it ruffles a lot of feathers – but it’s all about thinking. And it’s also the difference between leadership and management. There is no advantage in managing failure demand. You need to lead your business out of this habit.
A last point I want to make: If you fixate on financials, I mean, on measuring financial metrics, you’re always looking at the cost per unit. It may look like the cost per unit is going down, but what I’m saying is, your number of units is actually increasing – so you’re just being more productive but you’re still doing the wrong thing. From a financial perspective, it looks like things are getting better, but in fact, they’re getting worse – because most people don’t understand demand.
I do have these kinds of discussions with a number of HR leaders, who are running Shared Services, because their focus is increasingly on Tier Zero resolution. They want to automate query resolution. I don’t generally hear this from the Finance and Accounting folks, though.
Of course, because F&A works according to set standards, and according to these standards, they’re right. But the problem is they are in a different world. I have worked with Lean accounting and I have seen the light bulbs go on in the CIO’s or CFO’s eyes when I told them, look, here are your measures today, here are your targets, here is your financial report. Now, let me show you something else. And I showed them the throughput of their system and how it was self-propelling, wasting money…
So, if you measure things differently, you can actually track how capable your organization is in meeting customer demands. Suddenly, you don’t need a sales unit because your products or services are being "pulled" by the customer instead of you pushing them. What does that do to your financials?
It’s a different way of thinking. I look forward to sharing this with delegates at the Nordic conference. I think half of them will hate me, because I’m telling them that they are dead wrong; 25% will say, ha, interesting; and the last 25% will think, yes, that might work – I want to know more. That’s what happens every time.
