04 January 2013

The back office: a train crash coming to a town near you

Arguing for an end to back offices and target driven approaches, John Seddon outlines theories that could permanently alter management approaches.

When I was a young man the term ‘back office’ did not exist. Today it is in common parlance; it is considered axiomatic that back offices are a feature of efficiency; Whitehall extols their virtue; they are springing up all around us. Where did the idea come from? What problem was it designed to solve? Does it solve that problem? Answers to these questions will cause concern to those who have jumped on the back office bandwagon.

It began in 1978. Richard Chase, writing in the Harvard Business Review, lamented the failure of service organisations to be as technocratic as manufacturers. His view – and a view still widely shared amongst managers of services – was that the job of management is to optimise the use of resources – get people working all day – and in services that can be difficult because the customer comes in and ‘interrupts’ the workers.

Chase proposed that we design services to have front offices, where customers are seen or spoken to over the phone, which then send the customers’ requirements to back offices where now, because the activity has been ‘de-coupled’ from the customer, efficiency can be pursued, resource can be optimised, labour can be sweated.

Housing benefits was the first back-office design mandated in local authorities. About eight years ago the Department for Work and Pensions (DWP) sent local authorities a three-box set of manuals which promulgated a front-office/back-office design with associated activity targets. The design created backlogs in back offices all over the country and the DWP ‘help team’ recommended that local authorities buy back-log busting services from the private sector. I labelled them the ‘no help’ team, for that didn’t help; it was the wrong answer, adding cost to cost.

As Mark Radford – a housing benefits leader in Swale Borough Council – observed at the time, the problem was not in the back office, it began in the front office. By worrying about seeing people quickly, individual claims became fragmented.

Studying the service also revealed that back-office people took a different view of the claimant than the front-office people; a checklist took over from face-to-face understanding.

Radford was one of the first public-sector managers to learn the error of working to reduce transaction costs, for the true cost of any service is end-to-end: the total number of transactions it takes for someone to receive a service could be as many as ten transactions. In short, he discovered that complying with DWP guidance only served to create failure demand: demand caused by a failure to do something or do something right for the customer.

To compound the error, the Audit Commission then bullied housing benefits managers to share their back offices. A problem shared is, in this case, a problem exacerbated.

To further compound the error, we see back offices being outsourced to the private sector, locking in high costs for the long term. Birmingham City Council has, thankfully, woken up to the truth that they are paying their outsource provider, Capita, millions every year for Capita to service failure demand. That’s the good news. The bad news is they don’t know the causes.

And these are they: the separation of front and back-offices, the standardisation and specialisation of work, the management of activity and, in general, the obsession with sweating the labour. Add to this the fact that back-office services outsourced to the private sector are contracted on the basis of transaction volumes and you can see that we have monumental train crashes in the making. South West One, the outsourced back-office deal between Somerset, Taunton Dean and IBM, which is now too expensive to get out of, according to the leader in Somerset, is merely a harbinger.

If you look at business cases put forward for back offices and sharing or outsourcing the same, you see promises of two types of savings: less-of-a-common-resource (i.e. fewer managers, buildings and so on) and lower costs through cheaper transactions.

The first is true, but marginal, and often happens early in the life of a venture, giving encouragement to the notion that it was a good idea; but the second is the big promise and false. Chase was wrong. It is a foolish manager who thinks it is their job to sweat the labour, who believes that costs are in transactions, who believes it is their job is to manage costs. It is the wise manager who learns to manage value, not cost.

No back office, no targets, no activity management, but instead a thorough understanding of citizen demand and staff with the wherewithal to deal with it.

You can buy John Seddon’s book of case studies - Delivering Public Services That Work Volume 2 - from Triarchy Press.

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