Author: Charlotte Pell

Raiders of a lost art

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Dougal Mather, Vanguard Consulting

‘Hello… hello… anyone…?’ The customer’s voice reverberated into space. Jack Travers sighed. He had done this many times before. For all his skill at navigating the automated system, he found himself thinking ruefully of Indiana Jones trying to gain access to the Temple of Doom.

Travers had no need for more doom in his life. He had plenty already and it was in his kitchen after a pipe had burst five weeks ago. The receiver sputtered to life…’Good morning, Mr Travers, you’re speaking with Sean. How can I help you?’

Odd question. Travers had made it clear the help he needed the first time he’d called to alert his insurer to the flood. It wasn’t that unusual: his kitchen was inundated, and he wanted it back as soon and as tidily as possible.

What he got instead was a crick in the neck from phone marathons and a procession of people traipsing through the front door with measuring tapes, dictaphones, mobile printers and cameras. Lots of work had been done in the shape of notes taken, trips made, reports written, photographs checked and saved, but nothing so far in the way of making good damage or laying tiles. It had taken a week for the drying equipment to be brought in for a start.

In his darker moments, Travers wondered what proportion of insurance premiums go to pay for this kind of busyness. It’s a good question.

What drives this travesty of helpfulness? Not malice or indifference. Most people working at the coalface of insurance claim systems are eager, at least at first, to help callers in need (whether that’s still true after years of fighting the above might be a different matter).

The driver is, in fact, not unique to the insurance sector, but one linked to the fundamental archetype of the system, and a very common one: the ‘complex project environment’.

The importance of archetypes

When thinking about services as systems, it is useful to consider some basic archetypes. Understanding the archetype helps guide towards likely points of leverage for improvement.

Along with complex projects, two other basic archetypes are:

● Transactional systems. For example, making a one-off payment. Here, the most direct route to improvement is bettering one-stop capability.
● Flow-centric systems. For example, the bank bereavement centre described in Will Pyke’s recent post, ‘Casino Banking.’ In flow-centric systems much can be leveraged from studying processes and redesigning to eliminate non-value creating waste.

The complex project environment differs from these simpler systems in a number of ways.

First, projects or cases deliver individual and unique outcomes to the service user. The Travers kitchen is unique in size, shape, damage and materials; a bespoke approach is required for its restoration.

Second, they entail processes that cannot (by traditional means at least) be completed quickly. Satisfying demand is not a matter of a one-stop phone conversation; multiple interactions are the norm and a succession of actions must be put in place, generally involving third parties and subcontractors – in this case Sean and his colleagues, a surveyor, a firm with drying equipment, and later carpenters and other tradespeople to make good the damage. Some form of IT workflow system is generally used to control the work. It hasn’t escaped Travers’ notice (how could it?) that despite copious computerisation every new person he speaks to requires another full briefing on his situation and previous contacts. Who out of this list truly creates value is a worthy question to reflect on.

Neither claims systems, nor even wider financial services, have a monopoly on the attributes above, which in the wild may be met in a wide variety of businesses and services, in both public and private sectors – for example, housing allocations and voids; general and life insurance claims; mortgage fulfilment; legal work; town planning; social work; environmental health systems; installation and repair programmes; pension claims; and IT development.

Why does this matter? Here’s the thing. Disguised within what many people consider to be ‘regular’ operations, complex project environments are rarely recognised as different. And this lack of recognition may go a long way to explaining why conventional performance indicators and improvement schemes fail to yield the hoped-for results or staying power. They are not typical transactional or flow-centric systems, and treating them as if they were will stymie their performance every time.

To understand why, let’s look at the prevailing leadership beliefs within complex project environments and how they create shared norms.

Belief 1: The sooner we start, the sooner we finish
Unpicking this belief is key to unlocking performance in complex project environments. Flooding operatives with new work is the number one driver of ‘bad multi-tasking’ – the continual picking up and putting down of work without completing it.

The consequences are cherry-picking, leading to mushrooming failure demand: In any service where many cases are open and few get completed, people constantly get in touch to check on progress. This kind of communication may consume 80 per cent or more of a system’s contact capacity, turning it into a kind of Petri dish in which ‘work’ breeds.

Belief 2: Showing progress on a variety of tasks is important and worthwhile
It’s a purpose thing. What’s the purpose of the system? To show progress or to get cases closed to the satisfaction of the customer? All too often ends and means are confused. When clarity is wanting, workers sink beneath the waves of bad multi-tasking, little knowing that they are expanding the workload in the process. Far from improving throughput, multitasking slows customer resolution, damages productivity and drives up frontline stress.

Belief 3: Workers need targets to make them effective
Targets take many forms: due dates, SLAs, KPIs, call answer times. Each of these pushes activity towards easy cases to make the numbers, piling fresh cases on the front line.

The core issue lies with what they are conceived to do. The focus is on getting work started, only to neglect closing cases efficiently and happily. No one measures the massive effects of this apparently minor difference in focus in terms of increased failure demand, lost man-hours, executive-level complaints, distress and inconvenience in pay-outs, cost of revisits, let alone the huge cost to morale of keeping people busy but not effective.

Many managers swear that people love targets. The truth is that they crave to know where they stand. When a target is the closest thing to that feedback, people cling to it. It is vitally important to inform both business and employees where they stand by replacing arbitrary performance indicators with measurement that relates to the purpose of the system and what matters to its customers, and is sophisticated enough to take into account the natural variation inherent within it.

Belief 4: Functionalisation equals productivity
Ever since Henry Ford, managers have divided work into segments to facilitate control, quality, ease of training and replacement, to name a few. Anyone having a studied a service as a holistic system knows it is folly.

In complex project environments, functionalisation distorts priority and focus. Operatives become more concerned with “is this my department, or can I pass it on?’ than with “how do I resolve this from the customer’s point of view?” Process has become more important than service user.

As ever, the absence of end-to-end measurement contributes to the dysfunctionality. Splitting measures by function invariably inflates time and cost and in so doing buffers those in the system from the realities of the customer’s actual experience.

Workflow systems linking separated front and back offices compound these difficulties by paradoxically making the work that counts invisible – most commonly by adding cases to queues to make the targets for getting them “on the system”, or by leaving them to languish as open allocated cases that are not being driven forward to completion. Conventional management will have the mechanics in place to sweep up the latter from time to time, scouring reports for “deadwood” or cases about to breach service agreements, but only after the event (and cost).

Making a complex project environment work
So how could you choose to act differently in a complex project environment system? What would need to change in order to benefit performance, cost and morale?

As in any other context, change is dependent on the ability to let go of accepted conventions in the face of counterintuitive truths. Thus, pushing work at the front line doesn’t change the reality that a team can only deal with allow what capacity allows. The purpose of these systems is to close cases efficiently and to the satisfaction of the consumer, not to keep people busy for the sake of it. Targets should be replaced by measures related to purpose. And with due respect to Henry Ford, functionalisation is actually the problem, not the solution.

Some new goals to help break from the damaging norms are shared in the table below:

ConventionGoal
Keep everyone busy fire fightingFocus on unblocking and closing cases
Functionalise and split tasks Develop your resource to a position of case ownership and an end-to-end understanding of the service
The sooner they’ll start, the sooner they’ll finishExperiment with limiting or choking the release of cases to operatives
Pick off easy cases firstDevelop a clear and enforced policy rule and stick to it
Drive work by targetsSwitch to a programme of capability measures directly relating to purpose and what matters to customers
Attend to cases dictated by workflowMake visible all open cases and ensure that everyone knows who’s responsible for which. Focus managers on unblocking and problem solving
Accept problem cases will take longerInsist on escalation of blocked cases removing the option of going on to something else without it

Replacing the misguided management initiatives discussed above can lead to transformational leaps in service, cost and morale.

Making that initial step change, is not, however, the whole extent of the challenge. It has got to last. Better still, keep improving. An enormous part of sustaining this change is keeping resolutely in mind the new operating principles and goals. In addition, though, there are two key areas to sustainability that leaders should pay special attention to.

Making change sustainable

First, stringently measure and re-measure throughput (volume of cases in versus volume of cases out). If public enemy number one is bad multi-tasking caused by employees being flooded with open cases, constant vigilance is needed to ensure that those toxic conditions aren’t being recreated.
If new projects or cases are coming so fast that even slowing their release is incapable of preventing a backlog, consider whether there is a real capacity issue. If there really is more work than can be absorbed, piling it on will not get it finished faster, however unwelcome that may be to those up the line.

Conversely, if raw capacity is not the problem, there is a need to take aggressive action to rid the system of all feasible waste.

Second, repurpose all managers away from the usual functions of allocating, report writing and target maintaining. Send them out into the work with those involved in live cases, learning how to unblock them and stop other cases from becoming blocked in the first place. Managers may initially not thank you for it, but customers will. So will others as durations shorten, satisfaction rises and costs fall, while a bond forms between the front line and managers who get to grips with the barriers preventing them from providing the service they know they should be capable of.

What if…

Now, none of these beneficial impacts can be realised unless we recognise that we’re in a complex project environment in the first place. Fall at this first hurdle and the all too likely consequence is the familiar vicious circle of ‘stretching targets’, shorter handle times and when that fails, big-ticket spending on non-value-creating IT that on the contrary worsens service performance.

But what if an insurance company were to take the measure of the archetype and design a claims process that was customer-shaped at its heart, set up with capacity to meet predictable demand and staffed against it?

…Discovering his kitchen disaster, a future Jack Travers gets in touch with his insurer. He is pleased to connect directly with a human being, who seems to understand the urgency of the need to get his kitchen up and running again — he or she also being confident that the more effectively the purpose is met, the lower will be the indemnity spend and operating cost for the company.

First and most importantly, the agent listens, with the sole aim of understanding what Travers is most concerned about and putting together a course of action that meets that need. Of course, in real life things aren’t simple: not every claim is legitimate. But in that case the agent can ‘pull’ the necessary support and expertise to make the decision on the spot, rather than leave it hanging for later.

Once Travers has explained his needs and the initial steps have been determined, it is all about execution: getting the right resource to the right place at the right time for the client, with a single-minded focus on completion. No more photos, recorded interviews, reports or duplicated measurements – only what furthers safety, drying out and making good, all having regard to the daily imperatives of family life.

As the relieved Travers family gets back to normal, the agent at the contact centre who has handled the case end-to-end has only to enquire if the claim could have been handled better and store the lesson for the next time. At the same time, managers studying flow are working to identify further scope for joined-up action that will continue to reduce failure demand. Instead of beating up on subcontractors, they are working with them on issues to reduce end-to-end time and recall rates and improve their ability to arrive with exactly the right materials and tools to perform the job.

A pipe dream? No. Many companies have seen just such results with many services bold enough to seek the benefits of a different approach. But you do have to be able to recognise a complex environment when you see one.

dougal.mather@vanguardconsult.co.uk

The assumption presumption

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Steve Thorne

Why do businesses make key decisions based on assumptions rather than actual data?

It is a question I find myself regularly asking, particularly when working with clients in the financial services sector. Commonplace as it is, the practice is misleading and inherently risky.

Dangerous assumptions

For example, a common assumption relates to service level agreements. The assumption is that the agreed service level equates to a good level of service, thus if the specified service level is being hit, performance must be good. Data on the achievement of service levels is almost always readily available.

However, when I ask for actual data on what customers predictably ask for, what matters to them and how well the system currently achieves it, it’s a different story. In fact I’ve yet to work with an organisation that could provide that information without an intensive exercise to collect it from scratch.

That’s alarming enough. Even more alarming and damaging is that when customers complain of poor service, the organisation frequently responds by arguing that it must be the customer’s problem – after all, the service level is being met so how could it be the organisation’s fault?

Another common operating assumption is that higher volumes will automatically translate into better results – for example, more outbound calls will result in increased sales or more arrears collected from customers in debt.

In these systems, data is readily available about activity – the ‘dialer spin rates’ (the number of calls made by automated dialer IT systems), how many times the phone is answered and such like. Yet tying together actual data about the type and frequency with which customers bought or if not why not, or the type and frequency with which customers paid and if not why not, often requires a whole new exercise to learn about these important levers for understanding and improving the system.

Assumptions vs data

How and why does this perilous over-reliance on assumptions arise?

One common response is that in a large and complex business real data is hard to collect and calculate. That may be true, but even so it should set alarm bells ringing. Shouldn’t the organisation be focused on learning how to capture and use actual data to make informed decisions, rather than presuming that untested assumptions are the right ones?

Another less obvious and more alarming possibility emerged from a conversation in which a friend relayed to me a question his science-student daughter had posed over dinner: ‘Dad, why is it that in the world of science most hypotheses are disproven, yet it seems from our discussions that most hypotheses in the business world somehow find a way of being proven’?

Good question.

Is there so much pressure in modern business to make the budget and hit the targets that organisations prioritise ‘proving’ hypotheses over doing the hard work of learning how to improve the real data? In other words, if the data suggests that the decision to use the assumption was wrong, the temptation is either to adjust the assumption or manipulate the system based on it to make the outcome come out right.

Thus, if the system is failing to hit the service-level target, the easiest solution is to adjust the service level or stop the clock. Or if the ‘abandon-rate’ target is not met, the temptation is to adjust the average handle time – and then be surprised that call volumes increase, because more and more customers call back to pursue problems that were not properly fixed the first time round.

Far from leading to better understanding and hence improvement of performance, this manipulation of the assumptions just serves to further sub-optimise the system.

Worse, the assumptions get translated into apparently objective ‘data’ which seemingly show the organisation achieving the goals it has set itself. As it is passed up the line, the fudged ‘data’ becomes the basis on which more and more management decisions are made.

This is dangerous territory, and much more common than might be expected.

Please don’t misunderstand me. I’m not saying that testing a hypothesis is not important or useful. Quite the contrary, it’s a fundamental principle for a learning organisation.

A better alternative

So what’s the alternative to proceeding by assumption?

The first priority is to get clear about the real purpose of the system, from the customer’s point of view (‘outside-in’, in Vanguard parlance). The second is to adopt measures that are directly linked to this purpose.

In the case of a claims-type system such as motor insurance, measures might include the end-to-end time, from the claimant’s point of view, it takes to fully settle a claim, and the type and frequency of barriers to settlement. In many cases settlement delays create extra costs (in additional need for hire cars, for instance), so linking these measures to the actual consequences for cost is crucial.
If measures are unrelated to purpose, they will not only not reveal how well the system is doing what it is supposed to do, they will create a new, de facto purpose that distorts and sub-optimises the system, as above.

Measures to connect actions with consequences

It is also essential to learn how to capture and use actual data to learn what your system can predictably achieve and the variation within it, usually involving capability charts (for more on this see the Guide to Creating Capability Charts).

This will suggest opportunities for action that can be tested and measured to understand the relationship between action taken and consequences for performance. It provides a scientific and systematic means for identifying ways to improve performance, by connecting actions with consequences.

For example, in an arrears-type system, why and how often do customers go into arrears, and what kind of customers have done so in the past? Understanding why customers have fallen into arrears enables the organisation to make decisions based on data, not opinion or assumption, about where to act. For example, the underlying cause may often lie elsewhere in the system – for example, problems with statements or direct debits. In that case the obvious point of intervention would seem to be pro-active work to reduce the number of customers falling into arrears, and requiring expensive chasing, in the first place. Data over time will show the consequences of trying different prevention methods.

Ending the numbers game

Acting this way challenges the organisation to use its ingenuity to interpret and act on actual data, rather than spending its time developing elaborate assumptions that risk clouding rather than clarifying opportunities for improving performance. The predictable result is learning where and how to improve performance systematically and sustainably.

So ask yourself, how much of your organisation is spending its time playing numbers games that hide real performance, rather than helping you to learn?

An inside job

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Keith Bennett

Good things come in threes….

It looked like the perfect job.

It had everything I was looking for:

1. A bank that wanted to be a systems thinking organisation, using the Vanguard Method

2. An opportunity to use my knowledge and experience to help to improve service, reduce costs, increase capacity and work towards achieving the corporate goal

3. An excellent package: competitive salary, award-winning pension scheme, share scheme, generous holiday allowance…

I had been a Vanguard consultant for five years, working with leaders and the front line as an ‘external’ consultant, helping my clients to ‘see’ from the customer’s point of view and to understand the ‘what and why’ of service delivery. While every job was different, for me there were two common themes: first, the enthusiasm and passion for change generated by teams using the Vanguard Method, and even more the excitement when they witnessed the results; and second, my heavy-heartedness at leaving in the knowledge that I wouldn’t be there to see them develop and to witness their continued drive towards ‘perfect’. If I took up an internal permanent role, I reasoned, I could experience similar enthusiasm at the successes, at the same time as helping with the challenges that the organisation would normally face in my ‘external’ absence.

I got the job. I was to be an internal consultant, helping leaders, managers and frontline staff to understand their current performance and redesign their systems to achieve their purpose and do what mattered to customers – the consequences of which would be better service, lower costs, greater capacity and improved morale.

I couldn’t wait to get started.

On hearing my news a good friend and colleague at Vanguard offered me some words of wisdom: Remember, he said, if you’re an internal consultant you’ll have all the knowledge required to help the bank study and redesign its services – but you won’t have the full authority to make it happen, and that can be, well,…challenging. I thought I understood what that meant.

Three days in

For the first three days I was immersed in the bank’s values induction programme. I had played the induction games, did the encounter group stuff, fell backwards into a colleague’s arms, participated in the cathartic ‘drama’ which had been designed to demonstrate how we’d all learnt what the values meant and so on. This was all, of course, in the full knowledge that learning to live the values wouldn’t make a blind bit of difference to the customer’s service experience. But I had to give the organisational development folks their due – they didn’t know what they didn’t know and had, undoubtedly, designed the induction with the best of intentions. And, after all, the values were completely focused on the customer; the customer was to be at the heart of everything the bank did.

With the induction box firmly ticked, I had an opportunity to meet those that I’d be working for and with.

Three Directors

There were three key directors. I met with Directors 1 and 2 soon after starting. They had apparently worked with the Vanguard Method before and had ‘hands-on’ experience in previous roles. They were looking forward to working with my colleagues and me. Based on their approach and enthusiasm so was I. They both talked eloquently of the corporate goal – to be a systems thinking bank – and how this bank was going to be different. A bank that would have the customer at the heart of everything we did, that had clarity of purpose from the customer’s point of view, that had measures that would show how well we achieved purpose and did what mattered to customers, and managers who spent time in the work.
And you’ll be helping the teams to study their work and dropping in regularly to understand what they are learning and to assist with some of the analysis; and helping to remove obstacles to the redesigns; and helping to make the redesigns sustainable? I asked. Absolutely, they said. Fantastic.

Director 3 was harder to pin down. Two scheduled meetings were cancelled at the last minute. OK, these things happen. Finally a third meeting was arranged. He didn’t show. When we did eventually meet it was by chance on a train journey to another of the bank’s sites. We were both speaking at a welcome event for new starts. He was to talk about leadership, I was to talk about working on the work. Our messages could not have been more different. He talked about targets and working on the people, I talked about demand and measures that related to purpose and what mattered to customers. It was the first red flag.

I’d long known the absolute necessity of having an ‘engaged’ leader to head a successful intervention. Like all Vanguard people I knew that commitment is fine, but if leaders don’t spend time in the work they just won’t get it. When leaders don’t get it they see our work as a project, something that they can delegate to an ‘improvement team’, something they’ll get reports for, and updates on, at meetings…

I mentioned my observations about Director 3 to my own manager. She assured me that Directors 1 and 2 ‘got it’, having had previous experience of the work. Director 3 might take a bit longer.

But soon more red flags started appearing…

The bank was in the throes of migrating customer and service data from an all old IT platform to an all new one. But the new IT platform had a very traditional design. Hang on, I thought; surely we were going to be a different bank, not one that did a lift-and-shift IT system design? That’s what Directors 1 and 2 had told me – and part of Director 2’s remit was IT. Traditional IT designs get traditional results, not different ones.

Under the plan, each of the bank’s services would in turn migrate from the old platform to the new. The first would be Savings, which is where my work would start – helping an internal consultant colleague and team to study the new business Savings ‘system’ before the IT migration took place. We were to do ‘check’.

The three-legged stool

Vanguard people know that getting knowledge about the what and why of current performance requires what is referred to as a ‘three-legged stool’ – a leader, a manager, and a team of frontline staff – to study their system. Everyone needs to arrive at the same learning place at the same time. Without any one of these three legs the stool will fall over and the work likewise.

We had agreed a team design: it would consist of a manager and a group of frontline staff, and the leader would be the ‘Head of Service’. The directors agreed that they would brief the Head of Service on her role in participating in and supporting the team.

The Head of Service was one of those people that cuts a swathe through an open-plan office, gesticulating wildly as they go, leaving a trail of fluttering papers in their wake. She was too busy to talk when we first met, but suggested I organise a ‘catch up’ for later. That ‘catch up’ took some time…

The check team started its work. There was just one problem – the Head of Service never turned up. The team was not surprised – the members had already worked ‘for her’ before I joined. Still, the data was compelling and the team were lapping it up. As with all check teams they had learned that not all demand represented ‘value’ – in fact, in Savings they discovered that in telephony every other call was failure demand, that is, the knock-on demand created by a failure to do something or do something right for the customer the first time round.

Learning a method to study the system had invigorated the team, as it always does. Members said they couldn’t believe how broken the system was and, more importantly, how easy most of it would be to redesign. I had to keep reminding them: we’re just here to learn, to get knowledge, before we even start to think about redesign.

But their enthusiasm never faltered. One team member commented that this was amazing stuff – this bank was going to be different to everywhere else that he’d worked! Even in the study phase, they could see instantly that by making a simple change to a document they could ‘turn off’ a significant number of calls. That’s what the Head of Service needed to experience too, at first hand, by listening to calls.

Despite repeated requests, however, the answer was always the same: ‘Sorry, I’ve just been too busy. I’ll try to pop in next week’.

Directors 1 and 2 agreed to have a word and get the Head of Service ‘in the room’ with the team. They also undertook to see the team and understand more about what they were doing themselves – as had been promised many weeks ago.

It didn’t happen. The directors did have a word, but the Head of Service didn’t turn up, and nor did they.

They had all been too busy. Another red flag.

I was starting to become concerned. I wasn’t seeing what needed to happen. There wasn’t a lot of commitment, never mind understanding. Had I made a mistake? One night I wrote down the pros and cons of staying with the bank. I focused on the pros: I really should hang in there, it was still early days. In the months to come I referred to the list so often that I had to laminate it to stop it wearing away.

It became a habit: every night I’d do a quick review of my ‘Why I need to stay at the bank’ list in an attempt to persuade myself not to walk away. I mentioned my laminate habit in a ‘What have I done? I think I’ve made a mistake’ call to another friend and former Vanguard colleague. He laughed… a lot.

I made a last-ditch attempt to get the Head of Service to experience just some of what the team was learning. I explained that if she hadn’t ‘seen’ it for herself the team’s subsequent work of redesign wouldn’t make sense. She would simply end up rationalizing, justifying and defending her position.

Saturday mornings were good, she said – so we chose one on which to spend time together listening to calls from savings customers. The lines opened at 8.00am. I arrived at 7.45am, coffee in hand. But 8.00am came and went, as did 8.15am and 8.30am. She didn’t show. I asked a couple of managers when they thought she might be in – they told me I’d be lucky, they’d never seen her on a Saturday…
Why was it so important that she listened to live calls? What did I want her to hear?

Well, I wanted her to experience first hand the large number of unnecessary calls that customers were having to get something done that should have been done before: failure demand. Of course we could have listened to recorded calls together – but I already knew from the team’s work that the failure demands were predictable, and I wanted her to hear them live. This would have been a start, making her curious, leading her to spend time and discuss with the team, getting her to understand that the issue was the system, not the people, and that the real culprit was the management thinking that had created the system.

But it didn’t happen.

And there was no sign of the directors either.

Three little words can make a massive improvement

When customers deposited money in their new savings account they were informed that a Certificate of Deposit would be issued by return. But, predictably, customers would call a week or two weeks later to ask where the certificate was. Now you might think they were right to feel that was quite a long time – but that wasn’t the real reason we got the demand.

If and when customers got through the security questions and actually spoke to an agent (many didn’t), the conversation would go like this:

Customer: Hello, I’m just wondering when I’ll be getting my Certificate of Deposit?
Agent: Certainly, I can help you with that. When did you make the deposit?
Customer: On 1 August
Agent: OK. Yes, I can see it was sent to you on 3 August.
Customer: I have a letter dated 3 August but I haven’t received a certificate…
Agent: Isn’t there a print-out with the letter?
Customer: Yes, so there is.
Agent: That’s your Certificate of Deposit.
Customer: Oh. I was expecting a certificate – that’s what my welcome pack said and it’s what I was told on the phone when I opened the account.
Agent: No, the print-out is your certificate. Now, is there anything else I can help you with?

You get the picture. Adding the words ‘Certificate of Deposit’ to a print-out would eliminate at a stroke tens of thousands of calls that were a waste of everyone’s time and effort. That would free up capacity to deal with the calls that we did want. You know, the calls that sounded like: I want to open an account, I want to make a deposit, I want to withdraw funds and so on. That’s right, the ones that we really were here to deal with.

Easy. A no-brainer.

Well, not quite.

Monday morning arrived. No apology from the Head of Service – but she did say she would be interested to see my report on my findings from Saturday. I politely explained that a report wouldn’t help her get it – on which she walked away.

And that was that. As I knew she would, when the Head of Service, having spent no time studying the work from the customer’s point of view, heard what the team had learned studying the system she rationalized away the findings. And when it came to the simple step of turning off the highest frequency failure demand by using a principle of ‘sending customers documents that they can understand’, she told the team it couldn’t make the change ‘because there’s a freeze on all IT changes’.

The addition of three words – Certificate, of, Deposit – would cost too much money.

The bank’s new IT platform had been developed by a third party which had control of all changes. Because of the contractual set-up any change to an existing document would attract a charge.
So who put the freeze on IT changes?

The directors. They had implemented a total stop because the budget had been exceeded.
But how much was this perceived saving actually costing us in unnecessary calls serviced, capacity uselessly consumed and value calls going unanswered? The perceived saving was costing money.

I spent more depressing evenings staring at my laminated card. As part of the feedback to the directors on what the team had learned, we listened to recorded calls. The directors nodded their heads and winced in all the right places. Afterwards they said that while they understood the team’s excitement about what it had found and wanted to fix, they had to temper the enthusiasm – they had undoubtedly done a great piece of work, but these things would take time to fix.

One team member asked about labelling the print-out ‘Certificate of Deposit’. The directors reiterated that IT changes were frozen – the document would not be changed.

The disappointment was palpable. The team was told that its high-level redesign would be given ‘due consideration’. One member asked me ‘Why have we done all this work? I thought it was to make changes, improve our service, give us better work to do? Why won’t they do it? Why can’t they see how stupid they’re being?’ Another team member said, ‘I wish I’d never ‘seen’ at all, I’d rather still be in the dark and not know how easy this can all be’.

I watched the team members go back to their work. In the days that followed, they admitted they were starting to think the bank was no different to any other – and their leaders and managers were just like all the others they had worked for.

My heart sank. I consulted my laminated ‘Reasons why I should stay at the bank’ – and tried again not to give up.

Then it happened. The final red flag.

It wasn’t so much that the first migration of customer data fell over, dramatically – it was the response to the crisis from the directors. It transpired that the ‘robust pre-migration testing’ had involved no more than 100 accounts. No, really, 100 accounts. The bank’s telephony system was haemorrhaging with failure demand: I can’t access my account, why has no one phoned me back? Waiting times went skyward. The crisis lasted weeks. I had heard many, many distressing calls.

The directors’ solution was to bring in additional resource in the form of non-banking personnel. What mattered in their view was just answering the phones, not providing the expertise required to meet the demand at the point of transaction. The net result was tantamount to: ‘Hello, how can I not help you?’

The non-banking personnel were trained in the basics – they were taught to offer platitudes such as:

● Yes I’m really sorry to hear that
● I understand how you feel
● We have a lot of customers experiencing difficulties right now.
And finally an in-built handoff:
● I’m really sorry (again), but all I can do is pass a message on to my colleagues to phone you back.

Needless to say the handoff resulted in more work, an even larger backlog – and because it took so long for colleagues with expertise to get back to the customer, another round of failure demand in the form of: why has no one phoned me back?

As the crisis broke I sat down with Director 2. I had an outline plan that would help stem the flow of calls. It involved analysing the type and frequency of calls, understanding the knowledge required to deal with the failure at the point of transaction and then rapidly equipping colleagues with the skills to deal with it, meanwhile establishing the root cause and how to fix it.

After listening briefly, the ‘committed’ director told me that ‘what I had to understand was that in times of crisis, systems thinking and all that stuff is out the window – we just need to satisfy the regulator that we are answering calls, end of’.

That evening my laminate went in the bin. A ‘competitive package’ was no longer enough to keep me at keep me at a bank that was otherwise just like all the rest. I left and was fortunate enough to be able to return to Vanguard.

What would have kept me at the bank?

If I’d worked for leaders – directors who spent time in the work, understanding what prevents perfect and working tirelessly with their management and frontline teams to remove the obstacles that prevent delivery of real value to customers

If that had been in place, everything else would have followed – I and my colleagues could have helped leaders, managers and frontline staff to improve service, reduce costs, and create capacity, thus achieving my purpose – what I had been hired to do.

Three main learning points

What did I learn from the experience? Probably nothing completely new – but it did confirm that the principles for a successful intervention remain the same, whether the change agent is internal or external.

1. Just because an organisation says it will be different doesn’t mean that it will be. ‘Commitment’ by leaders is not enough – it must lead to action and action must lead to learning and understanding. Only then can decisions then be based on knowledge

2. If leaders won’t spend time truly understanding the links between their thinking about the design and management of work and performance – then don’t start work with a team. Once people have learned to see, they can’t unsee. There is nothing worse than helping frontline staff to ‘get’ what’s wrong and why and then have leaders not change the system because they don’t understand that it is their own thinking about the design and management of work that is the invisible barrier to change

3. Never take a leader’s understanding for granted – only believe it when you see it.
And maybe just one more…. a laminated list of ‘reasons to stay in your job’ really is a strong signal that something is seriously wrong.

We need to change the way we think about banking

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Patrick Hoare, Vanguard Consulting

I started working for The Leeds Permanent Building Society in 1992. It was a different time and now feels like a different world. I was happy in work, as pretty soon I’d learnt to deal with most of the customers’ requests on my own. We didn’t measure it, but I’d guess that 99% of customer demands were dealt with at the first point of contact; efficiency was high, costs were low and service was good. Low costs – now that was something that was measured.

In the early 1990s, the only measure I remember receiving attention was the cost : income ratio (cost per pound of revenue made) and, for those interested, we kept it below 40%; if memory serves, we got it down to 38.6% in 1993. This was an explicit drive for the whole company that everyone bought into, and we used it to rate ourselves against other banks and building societies.

From being the one explicit driver, the cost : income ratio has now disappeared from view into the notes at the back of the annual accounts. In 2014, KPMG reported cost:income ratios at five major banks of between 51 and 87%, with the depressing long-term trend set to continue. Between 2009 and 2014, the UK banks’ cost : income ratios deteriorated faster than in any other developed nation.

Patrick graph
KPMG 2015 ‘Banking results 2014: A paradox of forces’ April 2015, p11

How can this be when banks spend so much time, effort and, yes, money on controlling costs? What strategies are being put in place to bring about improvement, and is there any evidence that they work? Let’s look at some of them and the thinking they are based on.

1. Reduce costs by setting up ‘centres of excellence’ where roles are specialised and risk can be carefully managed and mitigated

The skills I used in 1992 have largely been transferred to remote service centres, ever bigger in size and smaller in numbers. This trend is based on a belief that economies of scale will reduce costs, a belief that has also led to service centres increasingly being outsourced and offshored. But we’re missing something here.

Something that used to involve one person (for instance agreeing and processing a secured loan) now requires input from up to 10 people, lengthening the time to complete the transaction and driving up customer frustration beyond recognition. The result is mushrooming failure demand (knock-on demand caused by the organisation doing something wrong or incompletely for the customer the first time), which is then dealt with by drafting in extra resources. Needless to say, the cost: income ratio soars. ‘Economies of scale thinking’ needs to be replaced by ‘economies of flow thinking’.

2. Drive change and cost control through central functions like IT

Large IT and change programmes designed to reduce long-term costs command huge budgets and are run by central teams remote from the reality of what happens on the front line. The programmes have plausible intentions, but 90% of IT projects fail to deliver. IT and change teams drain money and resource, while headcount is removed from a bemused and harassed front line. Since the initiatives are never used to study the system from a customer’s perspective, the real issues go unearthed and undealt with. In sum, the return from the massive IT spend is disappointing at best. Once again the current thinking – putting IT first as an instrument to drive change through to the customer – is exactly back-to-front, creating huge extra costs.

3. ‘We can drive improved performance by strengthening support functions’

IT and change programmes aside, I have seen a big increase in bank ‘support’ areas. Organisations have come to believe that the key to improvement is through performance management – managing people. Back in 1992, in an environment of low-cost : income ratios and flat-rate bonus schemes for all, six ‘personnel reps’ were sufficient for an entire company. Compare that to today’s small army of people dedicated to HR, performance management and bonus calculations. In some places, HR teams are outsourced and/or offshored and re-christened HR Direct. I see a similar growth in risk, audit and compliance teams, all adding substantial cost but no value. The problem is not the people, stupid; it’s the system!

4. Cost cutting by channel management

The thinking here is that moving customers to cheaper channels will reduce costs. If a transaction costs 67p online, £2.81 by phone and £9.50 face-to-face, pushing the online offering seems a plausible response. Yet it fails to take into account two things.

First, not all customers want to use online banking channels exclusively, and those that don’t will take their business elsewhere. Second, unless it is informed by understanding of demand and what matters to customers, the design of the banks’ internet offering is likely to be poor, meaning that frustrated customers have to visit the branches anyway to get what they require. Better to design against demand and free up customers to use the channel of their choice. Concentrate on creating value for customers, not cost per transaction.

5. ‘We need help – we can’t do this for ourselves’

As a consultant myself, I’m flabbergasted at the number of consultants employed by the banks these days. Some of the big consultancy firms have had teams in some banks for years. What is the return on these contracts? The justification must be that it will save money in the long-term – but is that really happening? With a different level of thinking, banks can learn to study their systems from a customer’s perspective and unlock massive potential for themselves, at the same time-saving a huge bill from the men and women in sharp suits – a double benefit.

6. Increase revenue by selling more products

What about increasing revenue while reducing costs? The preferred strategy in banking has been to increase marketing budgets to build better products which will bring in more customers. This done, the next stage is to incentivise staff to sell more of these products, the primary aim being to increase product holding per customer – for example, if the holding is currently 1.3 products per customer, the goal is to increase it to 2.5. Customer Relationship Management tools are then acquired at large expense to prompt colleagues to push products to customers, turning off many while persuading politer ones to accept the products only to regret it afterwards. Or ‘project teams are established to work with ‘Products’ to dream up ‘the best offering in the marketplace’. In my experience, this tends to be people swapping amazing ideas against a backdrop of wanting to at least match what their competitors are offering.

So, what’s the impact here? Once again, the key point is that decisions are made away from the front line. Analysis usually reveals that customers want products that work, rather than sing, dance and salute. Then, there’s the cost of incentivising people to sell the products. Banks are currently taking a hit of £40 billion – yes, that’s right, £40 billion – in compensation and fines for the mis-selling of endowments, personal pension schemes and PPI. After the endowment fiasco of the 1990s, you might think the banks had taken on board the dangers of incentivising people to meet sales targets, but experience suggests otherwise. Fines and costs of mis-selling packaged bank accounts are just starting. There are other hidden costs. Many ‘sold’ products are never used. In one study I carried out, 54% of new accounts opened in one of the major banks were never funded – so all the work selling the accounts and providing cards, PINs and statements to fill them was money tipped straight down the drain.

The startling upshot of all this? Overall, the major banks show a 227% increase in costs between 2000 and 2012. Meanwhile the cost : income ratio, at best stable, for most banks continues on its merry upward trend.

And, it’s set to get worse.

I recently had the dubious pleasure of spending six weeks with a project team tasked with the digitization of a bank. The top line was this. A team of 45 was put together in London, more than half of them external consultants and most of the remainder bank colleagues from areas such as ‘change’, ‘compliance’ and ‘risk’. The two token frontline colleagues were largely marginalised. We were asked to imagine customer journeys using personas, dream up what a perfect journey would look like and then play that journey out in front of ‘live’ customers (paid to come in and answer loaded questions). The ‘creative’ consultants drew up storyboards and imagined how a customer could walk past a bank and be sent a phone alert telling them about the latest products available online, while a business case was drawn up to show how many frontline staff could be culled on the back of these great ideas. So, huge costs and no study or understanding of demand or how the current system works for customers.

Doesn’t anyone care about profit?

When I began work in 1992, I had no targets and I worked with a set of principles based around ‘Customer First’. Morale and customer advocacy were high; staff turnover, fines, complaints and cost : income ratios low. Since that time, the drive for standardisation and centralised control and a fierce focus on reducing costs has perversely driven up costs inexorably. My conclusion: instead of worrying about costs, volumes of customers and market share, banks need to move back to a focus on the measure that says it all: the cost : income ratio.

The past 20 years have seen a wholesale destruction of banking morale, reputation and cost : income ratios. In the next 20 years that needs to be reversed by a return to customer-shaped profit centres where potential and innovation are unlocked, central support is available on a subservient ‘pull’ basis and the system is governed by principles and measures related to customer purpose. Using the right principles alongside 21st century technical and other advancements, properly employed, makes a return to cost : income ratios of 38.6, or perhaps even lower, entirely feasible. What’s needed to achieve them is not transformation through large investment programmes, but a change in management thinking. Are the banks prepared to embrace it?

This article appears in Edition One of The Vanguard Periodical: The Vanguard Method in Financial Services. Ask for your FREE hard copy or PDF.