Failure Demand - are you ignoring one of the greatest levers you have for improving performance?

The current narrative on services is that demand is rising and budgets are threatened. Not a week goes by without more talk to support that point of view. This narrative is no more than that – a point of view. We have a different point of view, one that is grounded in evidence.

Demand is rising, but the thing that contributes almost wholly to the rise is what we call failure demand. To put it at its bluntest: our services don’t work well for people – that is why demand appears to be ‘rising’.

An example of services not working very well for people is an article* penned this month by Dan McCulloch, Australian Associated Press, titled “Centrelink phones ‘busy’ 28 million times”. In his article Dan writes

Qoute Callers trying to contact Centrelink have been met with “busy” signals 28 million times in just seven months.

For those who do get through … Centrelink’s average call wait time stands at 14 minutes and 10 seconds. If a call is answered and then transferred to another operator, the time the caller spends languishing on hold is wound back to zero.

Greens Senator Rachel Siewert said … “Behind those 28 million attempts are exasperated and struggling Australians. It should not be this hard to access Centrelink, the government should wake up to how broken the system is,” she said.

The focus of the article is the volume of contacts and how long people had to wait i.e. treating incoming contacts (demand) as work to be done. It is to ignore failure demand; one of the greatest levers for improving performance.

In service organisations, whether in the private or public sector, failure demand often represents the greatest lever for performance improvement. In financial services it can account for anything from 20 to 60 per cent of all customer demand, in utilities as much as 80 per cent. In the public sector it is generally as high as in utilities; in local authorities and police forces as much as 80 or 90 per cent of contacts are avoidable and unnecessary. Imagine the impact of turning them off: better service and much lower costs.

What is failure demand?

We often point out that failure demand is easily understood and just as easily misunderstood.

Vanguard invented the concept of failure demand when we discovered that the movement of ‘telephone work’ to contact centres from local bank branches in the 1980s caused an explosion in the volumes of demand – the number of phone calls soared. We found that the rise in call volumes was attributable to the creation of failure demand, i.e. people ringing back because they did not get their problem solved the first time. The same phenomenon also occurred in the public sector as local authorities and housing associations moved telephone work into contact centres. It is also evident today when organisations go ‘Digital by default’ – resulting in more phone calls come into the contact centres.

It took us seven years before we settled on a definition of failure demand:

Failure demand is demand caused by a failure to do something or do something right for the customer.

We found this definition works in every type of service organisation. Although each type of service can create its own distinct kinds of failure demand. Defining failure demand this way is to recognise that it represents a failure of either commission or omission from the customers’ point of view. In either case, it means that the customer is obliged to call again if he or she wants to get the service as desired, the corollary being that service provision costs more (rectifying mistakes, duplication, etc).

Removing failure demand

Removing failure demand represents a great opportunity to increase capacity. Ignoring the nature of demand is to ignore one of the greatest levers you have for improving performance.

We meet some leaders who have heard of failure demand, and have conducted exercises to collate measures of failure demand coming into their organisations. They tell us the same story; we know how much failure demand is coming in, but don’t know how to remove it. These leaders have been let down by bad method. What is required is a method to design failure demand out.

As well as explaining why services don’t work very well, we understand how to design services that actually work. When European services have applied our methods their costs fall dramatically. But that’s not all. The wider consequence of providing services that work is that demand falls. Not only do you wipe out the strangling effect of high failure demand, you learn that fewer people experience problems.

With method, failure demand can be designed out in months, not years. After studying their organisation, one of our financial sector clients learned that they had over 50 per cent failure demand coming into their organisation. In a matter of months, their re-design reduced it to 4 per cent.

We have learned a series of tactics that are essential to exploit in order to design out failure demand.

Essential tactics: Understand demand in customer terms

It is understanding demand in customer terms that is the first essential requirement. When studying demand, it is common for people to translate the customers’ need into internal classifications – ‘what we do with it’ or ‘where we send it’ – rather than what the customer wants. This is to miss the point. Classifying failure demand in customer terms means you are learning what does or does not work for the customer – you ‘see’ the service from their point of view.

Another common error is to treat failure demand as ‘value’ demand because we acted to solve the problem, for example we were able to tell someone where their planning application is in the process. But just because the demand is responded to, and the customer in that sense was ‘satisfied’, does not change the fact that the demand is avoidable and in an ideal world would not have happened.

Essential tactics: Understand predictability

The second thing we learned is that things will always go wrong; the crucial thing is to find out what is going wrong predictably. If we treat the unpredictable as predictable we can increase the complexity of the system – something many managers (and government guidance) are prone to do.

We have learned there are two ways to establish predictability: time-series data and identifying cause-and-effect relations.

Time-series data mean just that, studying demand over time, understanding a typical day, a typical week, keeping the analysis of demand running until you can predict the demand you will get going forward.

Establishing cause and effect requires studying the service system: the process, roles, measures, rules and so on. You discover, for example, that if a claimant’s council rates is not sorted out alongside their housing benefit arrangements, you will predictably receive calls asking why they are being chased for council rates – when they have been told by benefits staff that their rates are going to change. Similarly, you find people predictably being asked to bring in documents to their housing benefit office that they have brought in before. This is because the widespread use of document processing workflow systems and the requirement to meet service standards in the front office fragments the processing of the work, with the predictable loss of people’s documents as a consequence. The relationship between cause and effect is identified by studying the service as a system.

It is only the predictable failure demands that are preventable. And given that they are predictable, it follows that they are a product of the current service design.

Essential tactics: Understand systemic causes

This is the really hard part – hard because managers (and ministers, if we are lucky) will learn that the primary causes of failure demand are systemic. Getting value from the concept of failure demand requires understanding it as one of a collection of systems ideas. Its causes are to be found in the way work is designed and managed.

Thus, failure demand is often caused by managing workers’ activity rather than how well the service meets the customers’ needs; for example, keeping within prescribed ‘handling times’ in a service centre often means ‘closing’ the customer’s problem rather than solving it, ensuring that it comes back again later. Managers manage worker activity on the assumption that activity equals cost, yet the counterintuitive truth is that cost is in flow – the number of transactions it takes for a customer to get a service.

For these reasons some private sector organisations have withdrawn from ‘low-cost’ overseas service centres in favour of learning to solve customer problems at the first point of transaction in the UK. Counterintuitively they have found capacity increased and it was less expensive.

In the same vein, local authorities employing new thinking reject the use of ‘back offices’ in favour of designing their organisations to solve more service problems at the point of transaction – maximising the use of ‘front-office-only’ designs to deliver services – rejecting the notion of ‘economies of scale’ in favour of achieving real economies through better flow.

As with housing benefits, described above, service designs are often fragmented; the notion is that breaking work into standard pieces to be completed in batches by different people will lead to greater efficiency. The counterintuitive truth is that this creates waste in the shape of duplication, delays and handovers, and the consequence is more failure demand.

In short, the causes of failure demand all lie in work design. It reminds us that waste – and failure demand is usually the largest form of waste in service organisations – is man-made.

Theory into application

Let’s look at an example of a complex service in the private sector: Engineering services, where engineers fix faults on power or phone lines.

True to form, managers traditionally manage activity: they worry about ‘jobs per person per day’ and measure the productivity of workers on that basis. To motivate workers, they often award points for the various types of fixes (‘different joints, different points’). The consequence is that workers focus on maximising their income rather than fixing the network. And the further predictable consequence is more faults.

By contrast, a systems approach to design focuses on purpose – ‘maintaining the availability of the wires’ – and method – ‘ensure the engineers are responsible for their own geographies’ – and measures – ‘give all fault data directly to the engineer to enable them to decide what is best to do’. When a systems approach is taken, faults fall by about 40 per cent, demonstrating that the traditional design was creating more work i.e. failure demand. It illustrates the point that failure demand is a systemic phenomenon and thus cannot be removed without re-designing the system.

The parallel in local authorities is potholes. Here too the work is fragmented and managers manage workers’ activity. The (often) massive amounts of failure demand are associated with the system design, the way the work works. Imagine the typical design: if you were a pothole, how many people turn up to see you, what do they do, who does the ‘value work’ (fills you in)?

When you study potholes as a system, much of the crazy behaviour you discover is driven by measuring, recording and sorting potholes into their relevant target category, and management’s perceived need to control the people who do the work. The alternative is to design the pothole service against predictable demand, organising workers into geographies, capturing data on potholes when the work is done (thus once only and accurately) and ensuring that the workers use their own data on potholes to manage their own work. The result is as much as a five-fold increase in productivity and, most importantly, massive reductions in failure demand. The systems design for potholes also reveals that much of the reporting of potholes by citizens, while thought of as value demand, is actually failure demand in as much as potholes in certain geographies are entirely predictable.

The causes of failure demand

The causes of failure demand lie in the design and management of work. In the public sector, managers are obliged to follow guidance that is ill-conceived. In public services the causes of failure demand are in the design and management of work created by following central guidance, in particular, managing by targets. This explains why politicians get grief in their surgeries despite their authority’s services being rated ‘good’ by the auditors.

To set targets for the removal of failure demand is profoundly ironic, since it is the targets and specifications governing the design and management of services that caused the failure demand in the first place. It drives behaviour such as reported* by Dan McCulloch

Qoute “A transfer to a new line becomes a new inquiry, and as such, the clock would start again,” Human Services staffer Barry Jackson told a Senate estimates hearing in Canberra on Thursday.

“It becomes a new call coming into the system.”

This isn’t unusual. One organisation in the UK set their IT system to only allow in the number of calls they could pick up, to met their service level target.

It is the same for all services that we have studied, which reinforce the point that failure demand is a systemic phenomenon; you cannot get rid of it without understanding the causes, which invariably leads to the need to change the system, re-design the service and change the measures-in-use.

Beware the bandwagon

The concern is that the obvious appeal of the failure demand concept will lead managers to miss the real opportunity. Unfortunately they will be aided in that by all who know how to sell to someone who is preoccupied with costs. The bandwagon now following failure demand includes IT providers offering new or upgraded IT systems for monitoring and tracking failure demand.

Managers don’t need IT systems to get the benefit of working with failure demand; indeed they will only get in the way. The snake-oil providers make beguiling use of cost-benefit analyses to make the case for investing in a programme of change to tackle failure demand – and a case for huge savings is easy to make. But do they know anything about method? Do they know the causes are systemic? Many plausible ideas will come to nothing, except greater waste.

The good news is that leaders from across the globe are discovering that no one can equal Vanguards’ expertise or track record, and no one else has Vanguard’s methods for designing out failure demand:

Qoute We knew there was failure demand. In many cases we knew how much failure demand was there. But we didn’t know how to solve it … We just could not get rid of it.

What I found really powerful with the Vanguard Method, it taught me how to take out failure demand.

Katharina Haase, Chief Operating Officer, Barclaycard Germany

Designing and managing organisations to deliver against customer demands – costs fall naturally, and failure demand with them. Why not pull that lever?