The fast route to mediocrity… and worse
It is normal to assume that visiting other organisation might teach us something, I used to think so too. It was Deming who first stopped me short, with his assertion that benchmarking is copying without knowledge, and thus has inherent risks. Taiichi Ohno, the man who created the Toyota Production System was even more strident: Managers who study other organisations are looking in the wrong place, he said, everything you need to know to improve performance is in your own system, but you need to learn how to look.
Consider this: Portsmouth City’s housing service delivers repairs on the day and at the time tenants want them done, and they have slashed the costs of repairs. It is a true economic benchmark, comparable to Ohno’s production system. If BT could do it we’d all cheer! Could Portsmouth have achieved it by visiting others? It’s the same joke as used to be told about Toyota: if Toyota went benchmarking it would stop improving!
The current proposal to benchmark unit costs serves up further and more pernicious risks. Leave aside the problems with definition, the bureaucracy that will ensue for measurement and reporting, and the arguments that will be had about validity, reliability and comparability: a focus on unit costs drives costs up; this ‘improvement’ initiative is more likely to make services worse.
Ohno tolerated high unit costs because he learned that cost was associated with flow, not activity. The leaders in Portsmouth know, like Ohno, that we should manage value, not cost. Managing value drives costs out of a system. Managing costs – scale thinking, shared services, activity costs, ‘channel’ costs, schedule of rates, protocols and payment for results in health – just some examples, drives costs up.
The proposals for benchmarking unit costs, in Ed Miliband’s language, represent a failure to ‘get it’. The obsession with cost was at the heart of the failure of the reform regime, these proposals carry forward the same disease. In the worst case they will drive costs up, in the best case they will drive services to mediocrity; but they will never deliver innovation. My advice is: just say no.