Written evidence submitted by Vanguard
Consulting
This submission is concerned only with oversight
and inspection of local authority performance. I have no expertise
in audit of expenditure but would consider it important that financial
expenditure should be assured for probity.
SUMMARY
— Audit
is not without value judgement.
— The
idea of "best practice" should be abandoned.
— The
"value for money" methodology has little to do with
value for money.
— "Better"
is a more constructive lodestar.
— Responsibility
for innovation must be with the innovator.
— Inspection
of performance should be limited to one question.
— Citizen
redress should be given teeth.
ABOUT VANGUARD
Vanguard helps service organisations change from
a "command-and-control" design to a "systems"
design. The Vanguard Method enables managers to study their organisation
as a system and on the basis of the knowledge gained, re-design
their services to improve performance and drive out costs.
AUDIT IS
NOT WITHOUT
VALUE JUDGEMENT
When the Audit Commission's role was extended to
include performance management it inevitably began to formulate
views of what "good practice" is. The adoption of service
models including shared services, back-offices, choice-based lettings,
schedule of rates, targets, service-level agreements, customer
service standards and many other similar features have been promulgated
as necessary for compliance through the oversight and inspection
processes.
Many of these features fit with politicians' predilections;
thus the Audit Commission became an instrument of government.
For example, Audit Commission inspectors have encouraged, some
would say coerced, the adoption of shared services, despite there
being no evidence as to their efficacy and plenty of evidence
of expensive failures which have cost the public purse.
The features listed above do not constitute "best
practice". Worse, they cause sub-optimal performance of the
service involved. For example, "economy of scale", often
assumed to be a "no-brainer" by those specifying and
inspecting services, is in fact shown to be a myth when applied
to the design of services. Industrialised services create their
own ("failure") demand. Recent revelations about HMRC's
performance illustrate: The failure of the industrialised design
(call centres, back offices, standardised work, IT-dominated processes,
etc) has led to what must be the majority of PAYE taxpayers' payments
being found to be wrong or not "closed" (meaning HMRC
is not sure). This and other failures of industrialising services
ought to provide caution to those who now seek to provide the
newly proposed Universal Credit on-line and through a single national
call centre.
While politicians have placed faith in Audit Commission
ratings of local authority performance, our studies of Audit Commission
performance ratings show problems of validity. High ratings are
given for compliance with specifications developed by DCLG, the
Cabinet Office and the Audit Commission. When studied as systems,
1-star performers look little different to 4-star performers to
their customers.
In summary, the processes of oversight and inspection
are replete with value judgements about "good" or "best"
practice. The judgements are not grounded in evidence but are
based on ideological beliefs about service design. Oversight and
inspection activities have contributed directly to sub-optimising
performance.
THE IDEA
OF "BEST
PRACTICE" SHOULD
BE ABANDONED
Vanguard's work with local authorities has identified,
in practical terms, how oversight and inspection activities have
made performance worse in each and every local authority service.
Three examples:
Housing Benefits service
In 2008 the Audit Commission published a "research"
report[48]
which claimed the greatest potential efficiency savings in Housing
Benefits services would be made by "partnerships", meaning
either sharing services with other local authorities, or out-sourcing
to private-sector providers.
By the time of this report most local authorities
had adopted the DWP's mandated design for benefits processing,
a front-office/back-office design with associated targets. From
this position it was an easy step to share or out-source a "back-office".
Sir Peter Gershon's report into government efficiency
also concluded that local authorities should share or out-source
Housing Benefits processing.[49]
Local authorities that have studied the Housing Benefits
service as a system have found that a front-office/back-office
design, with associated targets, creates enormous waste. They
have also shown that the best design for Housing Benefits is to
design the service against demand (or, to use the parlance, a
"front-office-only" design). Benefits are processed
in a matter of days and typically efficiency gains of 20 to 40%
are realised. More importantly because claimants are seen, these
local authorities solve the whole problem for people, diminishing
demands on other services but most importantly, providing services
that work.
Housing Repairs
Local authorities that have studied housing repairs
know that the schedule of rates (introduced to control costs),
the menu of repair targets, the use of standard times and procurement
on the basis of cost—all features rated highly by inspectors—drive
costs up and worsen service.
Portsmouth City Council's housing service, to take
just one example, has been re-designed. Today it provides repairs
to tenants on the day and at the time the tenant wants it. The
cost per repair has been halved. It is, by anybody's standards,
an economic benchmark. However, Audit Commission inspectors visited
and down-graded their rating of Portsmouth because the features
inspectors had been sent to see were not present.
Adult Social Care
Adherence to the specifications developed by CSCI
and now maintained by the CQC means the time it takes to determine
an adult's needs is extraordinarily long, requires multiple visits
by different functions and is confusing for the adults requiring
help. For example, in one local authority it was learned that
for every £100 spent on care £1,000 was spent in administration
(establishing the need for this care to be provided). While all
of the functions within this service may be meeting their targets,
and the service may be highly rated by inspectors, the customers'
experience was dreadful. Often those who need care suffer deterioration
in their conditions.
Local authorities that have studied their systems
have used this knowledge to design the service against demand
and hence improve the service—people get their problems
solved in short times—and this reduces costs in three ways:
the costs of administration, the costs of equipment provided and,
by far the largest saving, the costs associated with driving people
into care homes.
At this time care services are still subject to the
specifications originally developed by CSCI. The Munro review
into children's services will report on regulation. Professor
Munro's findings will be relevant to all care services.
The above observations are true for all local authority
services. The idea of "best practice" being promulgated
by the centre and reinforced through inspection must be abandoned.
THE "VALUE
FOR MONEY"
METHODOLOGY HAS
LITTLE TO
DO WITH
VALUE FOR
MONEY
The Audit Commission's "value for money"
methodology is based on the measurement of cost, with a particular
focus on unit cost. It is both misleading and damaging. Managing
costs creates costs.
Consider, for example, local authorities' compliance
with the 2005 target to establish call centres. It was based on
the notion that telephone calls are a cheaper way to provide a
service. In every case studied, compliance led to a rise in the
volumes of calls (failure demand). The true costs of service are
represented by the total number of transactions it takes customers
to get a service. The pursuit of lower transaction costs drives
costs up.
The "value-for-money" calculation for museums
and galleries is the percentage of the population that has visited
divided by the cost of the services per head. It teaches us nothing
about value and will lead to dysfunctional decision-making.
In housing repairs, service "costs" are
measured through the schedule of rates. Very often the low-cost
providers are also those that have to visit tenants repeatedly.
The schedule of rates was introduced to control costs but in practice
it only drives costs up. The same phenomenon is found in health
commissioning, it is inflating costs.
The Audit Commission's Key Lines of Enquiry for housing
repairs encourages the use of "modern procurement methods
and partnerships". The "professional" procurement
industry which has grown around out-sourcing repairs ensures that
only the larger providers that employ the schedule of rates, targets,
standard times and workforce management systems—all considered
"best practice"—will get the work. All of these
features have been abandoned by housing organisations that have
adopted the systems approach because they have learned how these
things only drive costs up.
To know about the cost of anything is to know nothing
useful; any action risks making things worse. Studying local authority
services as systems has given managers knowledge about quite different
things: the nature of demand (what do people want from us?), the
capability of the organisation in providing it and the costs of
failure to do so. By designing their services against citizens'
demands and managing value they have driven costs out of their
organisations.
The "value for money" methodology has nothing
to do with value and, with its focus on cost, serves only to reinforce
poor-quality management thinking. While the Audit Commission regards
"value for money" studies as "can-openers"
on management's problems, I regard them as leading to a misunderstanding
of the problems.
"BETTER"
IS A
MORE CONSTRUCTIVE
LODESTAR
"Best practice" is a static idea. It leads
us to think we should copy others. Father of the Japanese post-war
revival W. Edwards Deming taught that copying without knowledge
is dangerous. The genius behind the development of the Toyota
Production System Taiichi Ohno taught that visiting others was
looking in the wrong place. He showed how everything you need
to know to improve your organisation is within it; you simply
need to learn how to look at it differently.
Benchmarking "best practice"—comparing
to and visiting others—is the fastest way to mediocrity.
Anything can be improved, even the best. "Better"
is a dynamic idea and is therefore a better lodestar for local
authorities' performance management.
RESPONSIBILITY FOR
INNOVATION MUST
BE WITH
THE INNOVATOR
The vital feature of the coalition government's removal
of targets and central specifications is the shift in the locus
of control. The previous regime ensured only compliance with the
centrally-set specifications. To innovate we need responsibility
in the right place, where the services are provided. To that end
local authority managers must be completely free to choose on
all matters of method and measures when designing and managing
their services.
INSPECTION OF
PERFORMANCE SHOULD
BE LIMITED
TO ONE
QUESTION
If there is any inspection of performance, and in
my view it should not be necessary, the inspector should be limited
to asking one question:
"What measures are you using to understand and
improve performance?"
The question maintains the locus of control with
the local authority manager. Having been told the answer, inspectors
should then look for the use of the same measures in the work-place.
This will radically increase the validity and reliability of inspection
while also reducing its costs.
The same measures should be published locally.
CITIZEN REDRESS
SHOULD BE
GIVEN TEETH
Citizens want services that work. With most services
citizens do not want to be asked to design them or control them;
they just want those services to work. When they don't work the
citizen's first port of call should be their local representative
who, after all, was elected to do exactly this. If that fails,
redress should be provided to a body with the power to investigate
and take whatever action is required. Both steps should be given
teeth.
Professor John Seddon
Vanguard Consulting
January 2011
48 Audit Commission research into Housing Benefits
services: "The Efficiency Challenge: the administration costs
of revenues and benefits" November 2005 http://www.audit-commission.gov.uk/localgov/nationalstudies/efficiencychallenge/Pages/Default_copy.aspx
(accessed 23/11/2010) Back
49
Gershon, P 2004 "Releasing resources to the front line: Independent
Review of Public Sector Efficiency" HMSO, Norwich. See for
example the recommendation on page 43 to "rationalise the
number of providers of the same transactional services, such as
housing benefit, thereby delivering significant economies of scale" Back
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