Globally, the low productivity of the service and knowledge work sectors is causing governments and economies a major concern, given that they now account for over 80% of GDP and the bulk of employment growth.
According to the OECD (2020), "Productivity growth in the United Kingdom has consistently underperformed relative to expectations and was more disappointing than in most other OECD economies since at least the global financial crisis. Sluggish productivity growth in the service sectors was the main factor behind this weak performance. https://www.oecd-ilibrary.org/economics/boosting-productivity-in-the-united-kingdom-s-service-sectors_78f4022e-en
In 2021, the Australian Government stated that "Today, to be a high productivity, high income country it is necessary to have a high productivity services sector. But how well do we understand what drives productivity in the services sector? At the Productivity Commission, we think that is the core question of the times."https://www.pc.gov.au/media-speeches/speeches/services-productivity
"In Germany (2022), the productivity of professional services, a sector dominated by SME, declined by 40 percent between 1995 and 2014. Similar developments can be observed in several other European economies." https://link.springer.com/content/pdf/10.1007/s11187-022-00625-6.pdf
Washington Post, October 2022...."U.S. workers have gotten way less productive. No one is sure why. Bosses and economists are troubled by the worst drop in U.S. worker output since 1947. Employers across the country are worried that workers are getting less done — and there’s evidence they’re right to be spooked."
Over the last 20 years, we have worked with over 3,000 teams in more than 50 service and knowledge-work organisations to help them successfully address this problem. In doing so, teams in client organisations typically improve productivity by between 20% and 80% within 4-6 months. So confident are we in achieving these results, we often guarantee at least 15% without even seeing the teams. We can do this because the core problems are the same regardless of the function or sector. Then, when this problem is solved, the insights unleash a raft of other opportunities across teams which in turn enables effective and efficient processes that t deliver further productivity improvements. More importantly, the satisfaction of front-line teams and their team leaders grows dramatically, and their levels of frustration reduce enormously, given the newfound sense of control and empowerment the teams achieve.
Before looking at these underlying causes and their solutions, it is necessary to understand some of the important difference between the high productivity organisations (predominately found in the multinational manufacturing sectors) and the lower productivity organisations in the service and knowledge-work sectors.
Common Gene Pool
All organisations are sociotechnical systems in that they consist of two main subsystems, the social system populated by people and the technical system populated by processes and technologies. The management methods being used in most organisations of any significant scale have evolved from a common gene pool, the military/church/government bureaucracy and the early waves of management innovations occurred to address the new challenges being encountered in the railroad, auto and industrial sectors in general.
The dramatic improvements in productivity achieved by these sectors were driven primarily by scientific management where the focus was mainly on improving the technical system. In these high productivity sectors, the strong technical system acts as a scaffold (https://www.youtube.com/watch?v=3Q2YgeKbbt4) to support the coherence of the social system. Anybody who has ever worked in a high-performance manufacturing facility will be aware of the focus that all people have on "the process" whether it be running the process (operations), feeding the process (supply chain), maintaining the process (engineering), costing the process (finance) or improving the process (everybody but quality in particular).
The World Gets Complicated
These organisations are managed primarily as complicated (https://thecynefin.co/about-us/about-cynefin-framework/) or mechanistic systems where the links between cause and effect are highly engineered and optimised to the extent that the vagaries of customers, one of the main bugbears of service and knowledge-work organisations, has been removed from the system. The involvement of the customer in the production process is one of the major contributors to the additional complexity inherent in service and knowledge-work organisations. Manufacturing organisations solved this problem by the simple expedient of defining product quality (small q) as "meeting the products specification" and separating it from Quality (big Q) or "meeting the customers' expectations". Quality (big Q) has effectively been outsourced to marketing and customer service. The management of Service and Knowledge-Work organisations continue to torture themselves by trying to use Quality (big Q) to measure productivity and have yet to learn the trick of separating Quality and quality and managing them accordingly.
The World Turns Complex and Workers Expectations Change
The mid 1970's saw the dominance of the industrial sectors being displaced by the growing service and knowledge-work sectors that emerged from the bureaucratic gene pool. Similar to the industrial sectors, these bureaucracies used their technical system of command-and-control management methods to scaffold the coherence of the social system, and this worked well where work was ordered or moderately complicated but failed to cope as the work and world became more complex.
The revolutionary and increasingly innovative technologies that emerged from the 19th century onwards, when combined with the provision of free second level and subsidised third level education, dramatically improved the skills and capabilities of the workforce. This in turn drove the emergence of increasingly complex world and increasingly complex work. The expectations of this better educated and better paid workforce grew far in excess of the traditional factory worker and their tolerance for poor working conditions dropped significantly. The confluence of these two factors, particularly in the service and knowledge work sectors where the social system dominates, changed how organisations need to be managed however, traditional management methods and the management education institutions failed to keep pace with these new challenges. When economists, academics and governments bemoan the low productivity of the service and knowledge work sectors, they are unwittingly commenting on a symptom of a problem and not a root cause. As such, the biggest challenge facing modern day organisations and their management is not low productivity per se, which is a symptom, but the challenges of managing and cohering organisations in this new complex world.
Complicatedness versus Complexity
Modern management methods have their roots in Newtonian science and emerged to address the challenges of effectiveness and efficiency in organisations that were designed to manage complicatedness. Complicatedness assumes that organisations are similar to machines where the links between cause and effects can be known and managed, although the complicatedness will likely require the knowledge and expertise of "engineers" to design and improve its performance. This works well in organisations where the technical system is dominant and the workforce are in the main, tasked with ordered or complicated tasks. In such organisations the social system is scaffolded by the dominant technical system and follows its lead. This balance between the social and technical systems has worked well for the traditional industrial sector organisations and contributed to the dramatic improvements in the cost, quality and availability (productivity) of the appliances that drive our modern lifestyles.
Service and Knowledge-Work Organisations have as yet, failed to find a balance between their social and technical systems such that the complexity infused work they do can be performed with high degrees of effectiveness and efficiency, i.e., high productivity. One of the main reasons for this is the belief, pervasive across most service and knowledge -work sectors, that all their work is complex and therefore, the tools and methods that underpin high productivity in the industrial sectors are not applicable to their work. While it is true that aspects of service and knowledge-work are complex or even highly complex, the evidence from our work is that much of the complexity found in service and knowledge-work organisations is self-inflicted and due to the weaknesses of the technical system.
Strengthening the Technical System
As discussed, all organisations are sociotechnical systems and finding the appropriate balance between these two main sub-systems is key to the effectiveness and efficiency of organisations. Because of their roots in bureaucracy, service and knowledge-work organisations have used traditional command and control, procedure driven methods to manage both sub-systems. Again, this worked well when work was ordered or moderately complicated and people were happy to do routine jobs. Ironically, much of the order required for bureaucracy to work was achieved by measuring work output using quality (small q, "conforming to specification") but ignoring Quality (big Q, "meeting the customers' expectations"), much to the dissatisfaction of customers, citizens and patients.
Three things have changed that prevent this approach to managing service and knowledge-work:
- The world and the work have become more complex
- Worker's expectations have changed dramatically
- Customers, citizens and patients' expectations have changed dramatically
To meet these new challenges, service and knowledge-work organisations have experimented with the best practices of the industrial sectors such as Lean, Six Sigma and Agile with varying degrees of short-and-medium-term success but generally achieving poor sustainability. The evidence from our work suggests that the main reason for this is the failure to strengthen the organisations technical system and provide a scaffold to cohere and sustain the changes required of the social system whose mindset gene pool is bureaucratic and not engineering.
Three Steps to Unravelling Complexity and Unleashing Productivity
Step1: Recognising That Not all Work is Complex
Left to its own devices, service and knowledge-work becomes a thicket of simple, complicated and complex work much like the opening graphic above and to the untrained eye, all work looks complex. Furthermore, work that is inherently ordered or complicated can become complex in the absence of appropriate constraints. Unfortunately, the word "constraint" gets a lot of bad press in the service and knowledge-work sectors where unconstrained freedom gets too much good press.
Constraints can be both restrictive and enabling and the appropriate use of enabling constraints can transform what appears to be complex work into more manageable ordered or complicated work. A simple example of this the unconstrained nature of inter-team emails where few if any constraints are imposed resulting in the proverbial "how long is a piece string" response to sizing the work involved in answering them. How much more productive would it be to manage emails if Outlook or Gmail told you how long it will take to answer an email? Teams that agree some modest constraints such as including a meaningful subject in the subject line and/or confining an email to a single query/request, can reduce the ambiguity of email effort, improve the effectiveness and efficiency of handling emails and double the productivity of managing email tasks.
Step 2: Putting the Fundamentals in Place "Team by Team"
The industrial sectors have been making and delivering "things" effectively and efficiently for hundreds of years, well before the more modern and better-known methods such as Lean and Six Sigma emerged. These core skill of "making and delivering things " are generally referred to as "operations management", a discipline that permeates much of what industrial organisations do on a day-to-day basis. So pervasive and embedded are these skills, managers in industrial organisations often take them for granted until they come across organisations where they are weak or missing. This is one of the reasons why managers from industrial sector organisations find it difficult to make the transition to service and knowledge-work organisations which in turn limits the adaption and adoption of these management technologies to service and knowledge-work.
Work teams (as distinct from project teams) are the core building blocks of organisations, it's where things get done, hour by hour, day-by-day at the coalface of where the organisation engages the outside world. If work teams are not well skilled in the basics of demand and capacity management and bring order to what they are doing, then the ripples of complexity that they face on a day to day basis, will develop and expand to become tsunamis of complexity that will ultimately engulf the organisation. Better known as the bullwhip effect, it generally applies in the industrial sectors to the amplified impact of small variations upstream or downstream of the factory/plant. Again, the service and knowledge-work sectors have failed to learn the lessons from their industrial sector colleagues and modularise variation/complexity management. When work teams are in control of their own demand and capacity, they are empowered and enabled to play their key role in managing and improving business processes and value streams.
Step 3: Pivoting from Vertical to Horizontal: Joining the dots
When work teams are in control or their work, it empowers mid-level managers, to whom they report, to play their key role in optimising the horizontal coherence and performance of the organisation (the processes and value streams), which is ultimately how value is delivered to customers. Mid-level managers need to move from being reactive firefighters to becoming process custodians. To do this effectively, they need to have a senior management team in place who truly understand the value of process ownership, process management and the concepts that underpin system dynamics and complexity science.
Process Ownership and Process Management
It is truly difficult to understand why there is not an urgency to put the structures in place in all service and knowledge-work organisations to manage processes, particularly by IT whose effectiveness and efficiency depend on well managed and optimised organisational processes. There is some light on the horizon here as IT's flirtation with Agile and Lean exposes them to the need to apply process and value stream management within IT. At some stage the penny will drop in IT that the same needs to happen across the organisation and may need to be led by IT, if not owned by them, given their engineering skills and competences and the deficit of these same skills and competences (and general disinterest in developing or acquiring them) across the rest of the functions.
In the absence of these structures, organisations end up trying to manage a thicket of complexity where tasks and processes are allowed grow wild like an untended garden. One of the phrases I use a lot is a paraphrase of Deming, "todays problems come from yesterday's solutions". In the absence of constraints, entropy, the lack of order or predictability, increases. Ironically, as entropy feeds on energy, the harder organisations try the more likely they are to be making things worse. Unless they understand complexity and its management or more correctly its disposition and what the adjacent possibilities are, they end up playing whack-a-mole at the expense of increasing employee and customer frustrations. Fundamentally, people like order and will follow processes that are effective, efficient and generally make sense. The industrial sectors have proven this a long time ago.
Task management needs to happen and happen at the team level, task interaction/interdependence (SIPOCs) management needs to happen at the mid-manager level and processes/value streams management needs to happen at the senior manager level. When this framework is in place and working well, customer satisfaction, employee satisfaction, productivity and overall performance improves dramatically, it's a no brainer!