When TQM means Totally Quack Management

When I was growing up in business, there weren’t many management gurus around. 

In fact, I think there was just one: Peter Drucker.

Drucker was the book for every student of management.

He was it.

Then I moved into industry and another book came out: In Search of Excellence.

This one was by Tom Peters – does anyone remember that Robert Waterman was the co-author? – and gave insights into the practices of the world’s best performing firms.

It was 1982 and, as mentioned, there were few business books out back then.

However, the success of In Search of Excellence saw the spawn of the modern era of business guru books and fads.

Soon after, we saw a rush towards Total Quality Management (TQM) – and the just-in-time, process re-engineering, six sigma, theory of constraints, straight through processing, lean, etc – and shaped much of the thinking of my generation of management: cut costs to the minimum by automating as much as possible, whilst aiming to have everything done right first time, every time.

It’s a laudable concept as it cries out for achieving maximum customer service at lowest cost, but there are fundamental flaws to this concept.

First, automating everything to cut costs.

This is fine, as long as it keeps humanity in the process.

Great examples of this are the majority of firms who view customer service as give the customer an internet form and an outsourced call centre.

The internet form means that you serve yourself – you’re more likely to get it right, aren’t you? – and the hope is that there will then be no further interaction.

I experienced this recently with a house move where I ordered a bundled package of telephone, internet and television.

This bundled package is far cheaper than ordering such services under separate cover.

I duly filled in all the internet order forms and got lots of emails and text messages confirming everything was on track.

Fantastic.

The automated processes worked well.

Then it all went wrong on the day of installation as the equipment was being sent by UK mail, under separate cover to the engineering install.

The equipment concerned telephones, set-top box and wireless router.

The equipment didn’t arrive.

It was lost.

Now I was in the human process and it all fell apart.

I called the network provider’s call centre, which was divided between sales (UK) and service (India).

The sales side responded brilliantly but couldn’t do anything about missing equipment.  The service side did not understand the problem, even though it was clear: I am missing telephones, television and broadband equipment.

When the service side finally got that and agreed it was missing – their systems had flagged it had been shipped and were waiting for confirmation from the UK mail that it was missing – they re-shipped the equipment … one box at a time.

This was actually a tortuous process, involving hours of telephone calls as one day a telephone arrived, the next a router and finally, a week after the start of process, the set-top box.

What it demonstrated clearly to me is that it’s all well and good to cut customer service costs to the minimum by automating as much as possible and getting the customer to self-serve as far as possible, but where the human process needs to kick in then the firms that excel are those who do this part brilliantly.

It is the reason why First Direct differentiate themselves as a bank: they focus upon the human parts of the automated process.  The firms that fail are those who apply the same cost minimisation aspects to the human side of the process as they do to the automated parts.

Then we move on to the other core tenet of Total Quality Management (TQM): getting it right first time, every time.

It is obvious that if you get it right, first time, every time, then things flow smoothly, costs are reduced and the operational efficiency and excellence is maximised.

That is the foundation of TQM.

Good in principle, but not so good in practice as we automatically think of TQM as a process movement rather than a cultural movement.

We have applied TQM far too much to our automation of process thinking, as demonstrated above, whilst forgetting the human aspects again.

This is clearly illustrated if you review the sales scandals in the UK financial markets over the past few years.

For example, the Financial Services Authority announced a clampdown on financial markets mis-selling last week.

This was at a Thomson Reuters Newsmaker meeting where the FSA's Martin Wheatley released the results of an FSA review of 22 financial institutions internal reward schemes for selling financial products.

The result, he said, is that “most of the incentive schemes we looked at were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly managed.”

In particular, the PPI schemes – these are the payment protection schemes that have cost the UK banks £11 billion in compensation for mis-selling practices – “were rotten to the core and made a bad problem worse”.

Correct.

Martin Lewis responded with a variety of constructive critiques, but specifically he said that if the culture of banks and insurers were right, then this would not happen.

If you sold the product to the customer that was appropriate to them, then you wouldn’t have to pay compensation and costs downstream for mis-selling it to them.

He said that it is far more expensive to rectify the mis-selling mistakes than if you had sold the right products in the first place.

This is true of PPI in consumer banking and potentially Swaps in small business banking.

In other words, if you have got this right first time, you wouldn’t be paying so much more for the mistakes you’ve made now.

You can watch the one-hour debate about these proposals if you want (it’s worth it if this is in your space):

But I’m posting this here as these mis-selling issues show the lack of Total Quality Management in financial markets culture.

After all, we have had mis-selling scandals many time in the past

The pensions mis-selling scandal of the 1980s and 1990s cost the insurance industry £13 billion for the exact same reasons as PPI, namely a culture of rewarding sales at the expense of treating customers fairly.

If we did this right, we would not actually need a regulation about Treating Customer Fairly.

Do we treat customers unfairly?

Sometimes, but many times not, and this is where the TQM approach to sales culture should change things as TQM is not about automating processes, but about culture.

Get the culture right and sell the customer the right product, first time, every time.

Automate processes to achieve maximum efficiency, but ensure that the parts that aren’t automated are as human and customer focused as possible. 

In other words, go back to the basics of management principles: get it right first time, every time but, when it goes wrong, make it as easy as possible to make it right again.

 

 

Comments

[Nicholas Downes]

The incentive schemes were likely to drive people to mis-sell because they measured sales numbers, not business outcome. If sales staff were aware that their bonuses could be clawed back if the product was deemed to be mis-sold, then they would pay more attention to customer requirements.