Identifying and Assessing the Economic Consequences of Coordination Waste
Identifying and Assessing the Economic Consequences of Coordination Waste
Draft Notes
Chauncey Bell
Last Updated: October 27, 2016
Call to Action
Waste is an assessment we make that resources and capacities are being expended in ways that are not contributing to advancing what we are concerned with. To the extent that a community is not explicitly articulating its concerns, what the community currently understands as wastes will be the common sense in the background – the historical habits of thinking. This means that the current pre-understanding of “waste” may well be anachronistic or backward-thinking.
The normal, traditional, simple point of departure for exploring waste in current operations is to manage the overall costs of serving customers, holding our rates in line with what competitors are going to be offering, at the same time that we are inventing new kinds of offers and maintaining ourselves as a sustainable enterprise.
As the concerns guiding a community’s actions change, however, what we consider valuable and wasteful will also change. Important examples:
The classic Western example of this is Toyota’s shift of inventories from assets to wastes. Inventories used to be considered an asset in accounting and other traditions; now it is considered waste in most traditions.
Bureaucratic moods and structures of coordination used to be considered normal and inevitable in Western businesses; as communities have developed ways of transforming and redesigning their ways of working, we come to consider these wasteful.
Mistrust used to be understood as a feature of people's personalities and of particular circumstances; as we learn to observe mistrust as a consequence of styles of coordination, and build ways of working that create trust, we can interpret mistrust as waste.
As we put language-action and systematic practices for observing the emotional dimensions of our working lives into our normal repertoire of management and leadership, we will learn how to work with an aspect of our working lives that we have long lamented without effective ways of acting.
It is not difficult to see how wasted human effort makes up an important part of the cost of running and working in all large enterprises today.
When our people are not listening to each other, as a result of mistrust, resignation and resentment, for example, accomplishing anything new or important becomes extremely difficult and expensive.
From within our traditional bureaucratic structures and styles of work, tremendous wastes — including repetition, redundant supervision and redundant roles (e.g., shadow organizations), unnecessary and obsolete actions, actions that produce the opposite of what we intended, and horrific side effects — often are not even visible.
Our information systems don't provide the information we need when we need it, and repairing that situation regularly takes longer than it is worth.
When we are unable to innovate, we are already dead and often not aware of it; without innovation we find ourselves resigned and waiting for the inevitable (mediocre or poor) results and suffering along the way.
And finally, when the joy of working to produce something that matters to our customers and to us goes out of our work — when our work becomes mere toil for the sake of making a living — then our work saps our strength and turns our working lives from a source of inspiration and contribution to a gray daily grind of waiting and tolerating.
The most important values and wastes for the Western commercial world in the last 50 years have been shaped by our concerns for financial capital and production, including the efficient application of expensive technologies, including “human resources.” Our formal accounting systems have reflected these concerns by guiding us to account for costs and expenditures for various classes of physical resources – facilities, tools, raw materials, people, and the like.
For the next 20+ years, we propose that the most important values and wastes increasingly will be shaped by concerns for building effective relationships. In the West we are currently on a steep learning curve about the extraordinarily high cost of ineffective relationships.
The exhibit below summarizes how we have traditionally recognized the most important classes of wastes, and how we are beginning to observe new classes of coordination waste.
A good place to start to look for waste is to ask, “What does not contribute to the satisfaction of our customers, or to our capacity to produce satisfaction for those customers?”
To observe waste in our own organization, paradoxically, the best place to begin is to ground ourselves in the concerns of our customers and stakeholders.
What concerns of our customers, and of the external clients served by our organization as a whole, are you addressing in the work your unit is currently doing?
What offers are you making to take care of those concerns?
What disatisfactions are these clients and/or key suppliers expressing?
Over the course of the next year, what changes to these current offers and/or new offers have you planned to make?
What waste are you going to be able to remove during coming years, at the same time keeping or increasing our reliability and quality of service to our customers?
Where do you assess we are not listening effectively to internal and external clients?
Where do you assess that the conditions of satisfaction of our offers to them are not effective for addressing their principal concerns?
Where do you see redundancies or duplications, either within the work of your own unit or between that of your own and other units?
Is there work being carried out in your area that you assess adds little or no value in terms of the customer concerns which the overall processes are intended to address (for example, bureaucratic habits and activities)?
Curiously, and in apparent contradiction to the laws of physics, reductions in the cost of coordination simultaneously eliminate various kinds of waste, reduce costs, reduce cycle times, and protect or increase quality and customers' satisfaction.
Can you see why this is the case?
Waste and Accounting
In our Western understanding of value and waste, the influence of accounting traditions is profound and pervasive. Our accounting systems teach us what to watch in order to understand value and waste, and at the same time, and indirectly, they teach us what we do not need to pay attention to.
We must avoid the temptation to start this investigation of waste with the interpretation that our accounting systems will show us the waste if we simply look for it there.
Modern accounting systems ‘have eyes only for’ things for which we can account costs and revenues. They ‘watch’ the sources and uses of funds in the form of records of purchasing and selling transactions, and the allocations of those sums to formal accounting categories. Thus we have the cost of a turbine, and the annual salary of an engineer, and we can track the application of the engineer’s time to different projects.
However, we have no capacity in our standard accounting practices to observe the effectiveness of that engineer in resolving problems or building trust with customers. Nor do we have a direct way of observing the interplay of conversations in which, for example, difficulties in building the road to move a turbine to an installation site leads directly to storage costs for the turbine that is waiting to be moved, nor a myriad of other aspects of effective and ineffective work that produces value and/or damages value in the organization.
It is true that these kinds of costs can be discovered through explicit studies aimed at answering particular questions. The problem is that the coordination costs are frequently higher than any of the costs of the physical components or the labor involved.
Eventually, as our accounting practices catch up with the world we are entering, we shall be able to interpret all of the economic consequences of coordination in accounting terms, but initially we will need to develop new ways of observing some new kinds of wastes in which we are interested.
Constructing an Observer of Coordination Waste
We are not going to develop a rigorous observer of coordination waste in this paper. Instead, in the following we point to some important places to look for coordination waste.
Breakdowns in the operational coordinations in which people start, interact with, and complete work, as they make and fulfill requests, offers, and promises.
Mistakes, breakdowns and other circumstances that appear as analogies to manufacturing rework. Much of this category is the rework that happens in the human coordination preceding, triggering, and surrounding all the other activity involved in the work.
Waste as first, second, and third-level effects of mistrust in coordination, especially including extra supervision, complexity in coordinations, organizational and strategy designs, and other devices that are put in place to address mistrust in the communities or the situation in which the coordinations are taking place.
The Conversation for Action
The Conversation for Action is the name we give to a fundamental structure we can employ for observing coordination in the enterprise. We map it with a figure that we call the Basic Action Workflow. The basic action workflow describes the coordination between a customer and a performer in which they produce a future Condition of Satisfaction.
We map the basic action workflow as the loop illustrated below. The essential coordination is between roles called “customer” and “performer.” The point of their coordination is to produce the conditions of satisfaction articulated in the conversation, to the satisfaction of the customer. The arrowheads in the map represent the speech-actions named in the map, and the arcs leading to the arrowheads represent the processes for preparing to make those speech acts. Each arrowhead then represents one of the critical commitments in which people bring forth action with each other, and the map overall shows the basic “molecular structure” of commitments as they produce coordination and action.
This version of the map shows the successful path of action in the basic action workflow. In addition to the four essential acts of a successful coordination illustrated here, another eight acts are included in the full basic action workflow to take care of circumstances such as 1) termination by customer, 2) termination by performer, 3) simple negotiation about customer’s conditions of satisfaction, and 4) declaration of dissatisfaction by the customer.
The basic action workflow maps a territory of human action that actually exists in the experience of all human beings as they work with each other to produce action in the world. It is not a model, nor is it a recommendation about how to coordinate action. The central claim here is that this illustration maps the terrain in which people make language-actions as they bring about and coordinate actions among themselves.
Many different kinds of maps are possible with these distinctions; in keeping with principles of good mapmaking, our conventions show only the essential actions relevant to the concerns of the people that will use the map. Our interpretation of language-action comprehends all kinds of actions people take to bring and coordinate action, whether we are observing a child asking for a popsicle, a conversation between the pilot of an airliner and a control tower as the pilot is landing the plane, the conversation between a clerk and a customer about a potential purchase in a store, between a doctor and nurse undertaking an operation in a surgery, an executive and a manager in a discussion about possible actions regarding a company’s future, or the billions of other conversations for action that people undertake every day.
Commitment Process
An individual workflow is a structure of commitments for a single complete transaction between two people to produce certain conditions of satisfaction. A Commitment Process is a network of workflows configured to fulfill recurrent commitments or objectives of the enterprise, such as developing and marketing new offers, delivering offers to customers, or conducting preventative maintenance. In producing such a result, the actions of a number of different internal and/or external customers and performers are coordinated through the structure of the commitment process.
The exhibit following is a commitment process map for Mortgage Lending. In this case, the purpose of the commitment process is to negotiate and close a mortgage loan between the bank and one of its clients. The central concern of the customer is to get funding for the purpose of purchasing some property, and the map is drawn from that perspective. However, like all commercial transactions, this is an exchange conversation, and the bank has concerns of its own, for example for prudence of investment, and return on capital. While the central condition of satisfaction of the process could be stated simply as “close the loan,” the map shows additional workflows meant to address concerns in a way that satisfies both customer and bank.
As with a single workflow, a commitment process can be interpreted in terms of four phases organized around the central loop of the map, each one leading up to a language act by the customer or performer. Before an offer can be made to a customer, for example, many people in the enterprise may have to work on preparing it. In the age of mass customization for even manufactured goods, this kind of up-front work is increasingly crucial. Likewise, once an offer is made, the making of the offer triggers a whole sequence of conversations in which various people negotiate with the customer about how the product or service will be delivered, and how the company will be compensated. Once agreement is reached, more workflows are triggered to meet production commitments. Finally, after the product or service is delivered there may be conversations to ensure that the customer is satisfied with what has been produced, and rectify any complaints.
We map the commitment process in terms the four phases by arranging the secondary workflows around the outline of the central workflow.
In the first phase of the Mortgage Lending process, the customer or performer prepares the request or offer they are going to make. In the case of a bank loan, the customer's request comes as an application. Filling out this application may involve a number of subsidiary workflows. In some of these secondary transactions, the bank's customer finds that their role has changed; now they are a performer filling out forms needed by a loan clerk or analyst. In other workflows, the loan officer takes the place of the customer in dealing with title companies, credit bureaus, and so on. This phase ends when the application is complete, and stands as a formal request for a loan from the bank.
In the second phase of the process, the customer and performer negotiate agreement on the substance of the loan that is requested or offered — what we call the conditions of satisfaction — and on the compensation the customer will offer in return (the repayment terms). Once the application is complete, the loan officer works with the loan committee to determine if the mortgage is good business and an acceptable risk for the bank. If this negotiation is successful, this phase ends in an exchange of promises: the bank agrees to loan the money; the customer agrees to pay back the loan on a payment schedule.
In the third phase, the bank prepares to close the deal and deliver funding to the customer. The closing documents record the relationships between customer, bank, title and other companies that are concluded in this phase. In addition, other people at the bank may get involved to prepare to administer the repayment of the loan over a number of years. Though not shown here (in this mapping, collections is interpreted as separate commitment process) this will involve many recurrent subsidiary workflows, including the customer's monthly payments to the bank.
In the final phase, the final agreement is struck, money transferred to the customer, the customer agrees that the bank's accounting for the loan is correct, and committing to the repayment schedule.
In this example, the transactions take place over weeks, perhaps even months, (and years when the repayment is included). The transactions and time offer many possibilities for mistakes, complaints, and misunderstandings. It is misleading — even dangerous for the bank — to think that satisfaction for the customer simply means getting the money they requested. The conditions of satisfaction of a workflow are more than the materials or objects delivered, the activities performed, or the information communicated in satisfying a customer. Satisfaction is an assessment, made by the customer that the transaction has given them more power to act in the world. In this case, the customer is able to purchase a property they could not have afforded with their own capital resources.
Commitment processes are about forming relationships: what kind of partner are you in helping customers address their concerns for the future? Careful listening to the concerns of the customer, and care and flexibility in handling commitments have a greater impact on customer satisfaction than does material quality. A classic example is a now-famous Lexus recall. When the brand was still new, physical quality problems forced Toyota to recall the whole line of cars. However, they did so with such exquisite attention to customer concerns and convenience that their quality ratings actually went up after the incident, even though it had been triggered by physical defects.
Our methodology for mapping these conversations as structured transactions between customers and performers brings the capacity to visualize what is going on in any existing commitment process. This is a microscope for observing the famous “white space” of enterprises. Process maps provide a common basis for discussion, in which people can reach a common interpretation of what is wrong with the way they are working together, and what to do about it. This visualization, or mapping process, provides the basis not only for analysis of the existing process, but for redesigning it too.
Commitment processes are at the heart of any business process, yet they often go unnoticed. Most often, people interpret their situations in terms of personal activities and blame. Without having a way to observe the structure of how people are coordinating their actions, people easily observe what particular individuals are doing and fall into the trap of personalizing the situation. This produces arguments, bickering and waste.
Often no one can see opportunities for improvement. Getting a more systematic perspective on the situation helps people to see things less in terms of personal blame and more in terms of missing actions. People begin to see that they may not have chosen the way they have been working together. They inherit current practices as “the way things are done around here.” People begin to see simple actions that they can take to coordinate their work more effectively. As they begin to take action, their resignation about persistent old problems begins to dissolve and they have more ambition to change things for the better.
Waste in the loop
The most effective path through a loop – a coordination between two people to produce a future condition of satisfaction – has four acts: a request, promise, report of completion, and declaration of satisfaction. Any interruption in that ‘happy path’ may be itself a waste, or may create waste: any delay in the action, any repetition of the loop or of actions in the loop, any failure to complete the loop.
In each quadrant of the loop, particular kinds of waste are more likely than others to appear:
In the first quadrant, when the parties don’t listen to each other, when people are reluctant to make requests of each other, and when the parties are unfamiliar with each others’ concerns. Look for evidence of listening and attention to each others’ concerns.
In the second quadrant, arriving at a promise serves to organize the work, the commitment of the promise fuels the work, and the commitment gives the customer a basis for confidence and getting on with other work. Coordinations based upon shallow or insincere promises, or ‘exhanges of information’ lead to a world of hopes and unfulfilled expectations. Look for promises.
In the third quadrant, responsible performers attend to the challenges of producing a satisfied customer. Of course this begins with on-time delivery of a quality result at the agreed-upon cost. But the key is the customer’s concerns and satisfaction. With that orientation, the performer will keep the customer informed about the progress of the promised work.
In the fourth quadrant, the completion of the work with the declaration of satisfaction is the opportunity for both parties to prepare to improve their performance the next time. Systematic failure to declare satisfaction is a pathological condition that leads of many important wastes.
Other characteristics of coordination in the loop that can show us where waste is or may be generated. For example, …
Is there a customer? Is the customer competent and committed to perform as the customer?
Does the work/project get recurrently stuck in some area?
Are there regular surprises in some area?
Waste from first, second, and third order effects of mistrust
Mistrust produces wasteful coordinations and merits serious investments for remediation.
When a condition of mistrust persists, individuals and organizations spend time, money, and put in place inefficient mechanisms to attempt to offset the damage of the mistrust.
When a condition of mistrust pervades an organization, community, or industry, expensive mechanisms are installed which are difficult or impossible to remove.
Waste in the background.
Some styles of working produce wasteful coordination.
Various kinds of ‘communicative incompetence’ can be endemic in organizations, where they produce pervasive waste. Building an incapacity to decline requests, confusing assertions and assessments, not taking account of competence for making assessments in a domain, and chronic difficulties or commitments not to listen are important examples.
Calculating the economic consequences of coordination waste.
Events of coordination waste are for the most part not recorded in traditional accounting systems. There are exceptions. Accounts receivable and accounts payable, as well as other elements of the accounting category working capital can in fact be used to approximate coordination waste; they are measures of the efficiency of coordination in some parts of the organization.
For other coordination wastes, an appropriate approach begins with an approximation of the order of magnitude of the waste involved, based upon sampling and rules of thumb. In most cases researchers can use the concept of manufacturing rework as an analogy for thinking about where to look for the waste. When loops continuously break, or must be redone, for example, this is a kind of rework in the service domain, and the analyst can begin to calculate the differences between work done ‘on the happy path’ and work done with communicative and coordination breakdowns.