Ask any CFO for his or her Top 3 wishes and driving down operating costs will always be amongst them. I am therefore constantly perplexed why organisations are solely fixated with the excessive unit costs associated with resources and surplus capacity and the time taken to perform activities and transactions. If you throw in an unhelpful over-reliance on economies of scale for good measure, this approach to controlling costs, which seems to have been the only show in town for years, seldom delivers on its promises.
The problem with conventional cost management is that it fails to offer an holistic explanation of what drives costs in an organisation. Why? Because it overlooks the other principal causes of unnecessary costs, namely system waste and behavioural waste. Allow me to try and persuade you…
The Systems Thinking approach is based on an in-depth understanding how work “flows” internally through an organisation from the point of receiving the initial request for a service from a customer through to the delivery of that service. System waste is any disruption or distortion to this internal flow of work; it is also any activity that does not contribute to organisational purpose. It manifests itself in any number of ways, all of them avoidable, including:
- The remedial work associated with mistakes, defects or omissions
- Doing something having failed to do it when it was originally requested or required
- The duplication or contradiction of activities arising from too many interfaces or confused roles and responsibilities
- The introduction of unnecessary complexity through over-specification or over-regulation
The costs of all of the associated corrective actions are entirely wasteful – the cost of the additional resources required to service these failures, the cost of non-productive time, the cost of investigations, the cost of legal or contractual claims and so forth. It is conventional unit cost waste plus system waste that drives bloated operating costs and destroys productivity.
Behavioural waste is a subtle but still very damaging form that is often overlooked by Systems Thinking and completely overlooked by traditional cost management theory. Systems Thinkers tend to put insufficient emphasis on behaviour as a cause of waste because W Edwards Deming, the American statistician and academic considered the founding father of Systems Thinking, believed that 94% of organisational performance was attributable to “system conditions” (i.e. an organisation’s control measures, standards, processes, rules etc.) and only 6% was attributable to the people working within that system.
I am not qualified, nor do I have the evidence, to challenge Deming’s numbers. In fact, I agree that the majority of performance problems are caused by the constraints imposed by an organisation’s system conditions and also let’s not forget that Deming’s observations were based on his experiences in manufacturing over half a century ago. However, I think there is a need for Systems Thinkers to give greater acknowledgement to the important contribution of behaviour to performance.
According to Bill Benjamin of the Institute for Health and Human Potential (who stopped traffic at a Corenet event a couple of years ago), intelligence manifests itself in three ways: your Intelligence Quotient (IQ); your technical skills and competencies; and your Emotional Intelligence (EQ). Benjamin contended that of these three, there is now an overwhelming body of evidence that EQ has the greatest impact on human performance and in a work context, he argued that people giving of their best is a key indicator of the health of an organisation. In my view, giving of your best (GOYB) cannot be artificially contrived and it is directly related to EQ. Let me illustrate this with a few examples of what GOYB looks like:
- Empathy – the ability to understand a situation from someone else’s perspective or to appreciate that another person is likely to look at it differently from you because their internal frames of reference are not the same
- Expectation Management – if you say you are going to do something, do it as promised or re-calibrate expectations
- Being able to communicate effectively by conveying meaning with clarity and without ambiguity. This includes the ability to simplify complex issues but many people fall into the ‘over-elaboration’ trap because they do not want to be seen as dumbing down so they over-complicate matters instead, leading to a loss of meaning (the ubiquitous and mystifyingly tolerated use of business speak is an example of this)
- Stephen R Covey’s principle of seek first to understand, then to be understood. Sometimes the over-elaboration trap is triggered because John from Sales hasn’t got his head around an issue so he wings it instead and flannels ‘til the cows come home. Most of the time he gets away with it either because no one wants to challenge him lest they look stupid or because John from Sales is Someone Very Important and no one dares challenge him…
- Conducting oneself authentically and with integrity and humility / a fierce work ethic back up with good humour / being reliable during tough times / valuing a wide range of inputs / treating others as you would want to be treated yourself…
These GOYB behaviours have a very significant impact on organisational performance. If you don’t believe me, imagine what would happen to your organisation if they were lacking.
Behavioural waste is therefore the absence of the GOYB behaviours as well as any behaviour (usually negative) that does not contribute to organisational purpose or values. The causes of behavioural waste will of course vary. Some will be attributable to individuals’ beliefs, attitudes, motivation and states of mind; others will be because of the work itself, including how people are managed, and/or the working environment. Often it will be because of a combination of all of these. In the spirit of controlling the controllables, organisations need to examine very carefully how they can create the conditions that encourage GOYB behaviours and allow employees to flourish.
The difficulty with behavioural waste is that it is hard to measure in a meaningful way but that does not mean it is not there. What can be measured more readily is the impact of low morale, stress and depression and it is estimated that these have led to levels of absenteeism and attrition that are costing the UK economy £14 billion a year or £29 billion a year depending on whether you believe the CBI or the CIPD.
It is high time we declared war on waste not only in its traditional unit cost form but also in its system and behavioural forms. So come on my fellow Workplace professionals, let’s draw our swords and lead the charge…