Friday, October 19, 2007

The Myth of Efficiency Savings 

So; we – the BBC – have got to save money. Big wadges of money; £2bn all told. Nobody’s debating that – it’s hard fact given the BBC’s fixed income from the license fee. If your budget is constrained you have no choice but to live within your means.

Broadly speaking, there are two ways of going about it – stop doing some activities, those where the cost doesn’t justify the benefit, and be more efficient about the ones that you carry on doing.

Stop doing activities; that’s perhaps one where justifiably only a top-down view from the exec table can make the call.

Be more efficient. Ah, now that’s trickier.

Take a look at that ‘efficiency’ word. The other side of the efficiency coin is waste. Being more efficient means working in less wasteful ways, and that already hints at why managers and staff alike can be a bit squeamish here – who wants to own up to working in wasteful ways?

There’s no black art to waste-hunting, no deep insight accessible only to the highest calibre MBAs. People simply go looking in the wrong place. They look, perhaps not surprisingly, at the financial reports. And there they find costs – salaries, assets, fees – which they go about cutting. Sack the staff, sell off the assets, stop – for the time being – paying such huge fees to consultants and contractors. Easy, huh? There are the costs, in black and white – and red – and we cut ‘em. Job done.

Whoah, baby. Those are the visible costs. Didn’t you know there are invisible costs too? What do all those people to whom you pay those salaries actually do all day?

Answer, they work within processes. And I bet not one of those processes is accurately written down or even properly understood anywhere; not in a way which truly reflects what really goes on. So how do you know whether cutting those visible chunks of cost is the only means to achieve the end? What about those mysterious, unwritten, uncharted processes?

Like I said, it’s not rocket science. There are three very simple ways in which money is wasted within processes. Duplication, rework and dead-end activities. I’m ignoring good old-fashioned laziness of course.

Duplication is about the only one ever spotted by taking a top-down view. At least the board managed to spot this one – the creation of a multimedia newsroom, with journalists working across TV, radio and online – is generally agreed to make a lot of sense and in concept genuinely addresses one clear and significant area of duplication. The same thing goes on at lower levels too though – for example, multiple reporting processes, all reporting –usually manually - on the same data in slightly different ways for different people.

Rework usually arises where processes cross organisational boundaries. The work is checked where it comes in, and if it doesn’t come up to scratch is rejected and has to be looked at again. It may not be as formal as an old fashioned QA process, thjs isn’t just about seeing whether the diameter of the flange on the widget is within production tolerances – anything which involves backing up a step through missing, inadequate or erroneous information or product means going back round a loop and so is a form of rework.

An example of Dead Ends might be reports that go no further than the filing cabinet. Bad enough when they’re prepared with in-house effort, far worse when they’re the results on months of consultants’ effort at megabucks a day. Those ends are obviously dead, but some are more subtle than that. What about those monthly reports? Does anyone actually take any action as a result of them, or are they just there to provide a comfort factor. How about that meeting? Did it change the course of anything – or are these things there just to give the illusion that we know what we’re doing and are in control? Some of this is real basic old school management stuff that’s been taught for years, yet we still get it wrong – and what’s worse, we know it yet do nothing about it.

Even so, it sounds straightforward enough, doesn’t it? So why aren’t we doing it?

Look again at those three sources of waste – duplication, rework and dead ends. Duplication is about the only one of these which can be spotted by the top-down view from the lofty mountaintops inhabited by t he corporate execs. The other two require an intimate knowledge of what really goes on, couple with a deep understanding of systems thinking.

From the elevated view of corporate executives, they’re convinced efficiency savings must be possible - and they’re right – but they’re way too far above the clouds to see the detail of what really goes on, day to day. So they target their senior managers – make X% efficiency savings; you’ll find a way.

Trouble is the senior managers also like to occupy the rarefied air of the upper slopes of the corporate mountain; they don’t know the detail of what really goes on down there below the cloud-base on the ground either. So the ‘efficiency drive’ half of the equation turns again into a mix of those two high-level options – stop activities wholesale, or drive the requirement to make efficiency savings to the next level down.

And so it goes on, down through the layers of the organisation. No-one really knows exactly how to go about making real efficiency savings. So what started as a reasonably balanced strategy – cut out those activities which deliver least value, and do the rest more efficiently – becomes more and more imbalanced; real efficiency is forgotten and only the cuts remain. The quest for efficiency has turned into a quest for sacrificial lambs.

It some companies it might be fear that means it’s in non-one’s real interest to turn over the stones of inefficiency and expose what’s underneath. I mean; of course we run a tight ship here. You think I’m gonna admit to having scope for savings and not made them? Admit to having an inefficient department? You think I’m nuts or summat? And anyway, don’t we pay our managers to know how their depts are run? It would an admission of failure to hold up our hands and say well, actually, I don’t know, I’ll have to ask the staff.

Around here though, I think the reason is much simpler. We know so little about efficiency that we don’t know how to go about looking for it and improving it. Simple as that. No-one really knows…

And to anyone who argues with that, I ask this: if you think you know about efficiency, how do you know you know?

Finding out takes a lot of work, a lot of investment in time and training. There are ways; they use the real knowledge of the staff who work these processes every day, who have seen the absurdity so many times they’re almost blinded to it. Almost blinded, but not quite. Given the right framework, that knowledge, that understanding born of first-hand experience can be tapped.

But even though the long term benefits are huge, it’s risky and it takes real skill. Much easier, much more demonstrative of knowing-what-to-do, just to take an org chart and a red pen.

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