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Work and Pensions Committee - Universal Credit implementation: meeting the needs of vulnerable claimantsWritten evidence submitted by Vanguard Consulting

About Vanguard

1. 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. Professor John Seddon is the leader of the Vanguard organisations, providing consulting services around the world. He has received numerous academic honours for his contribution to management science.

Previous Discussions with DWP

2. This submission follows a series of interactions with the Department for Work and Pensions (DWP) ministers and officials in the past two years. In January 2011 I wrote an open letter to the Secretary of State for Work and Pensions and the Minister for Welfare Reform outlining the failings of the proposed design of the Universal Credit, namely that high-variety services cannot be delivered through “cheaper” transaction channels (ie through call centres or online). I subsequently met with Terry Moran, Chief Operating Officer at the DWP. I arranged for Mr Moran to visit some large private sector clients who had learnt at first hand the problems with attempting to implement large-scale IT-led changes, and instead discovered that a simpler, systems-based approach was both cheaper and more effective for customers. After these visits took place, a meeting was held with other DWP officials where we offered to run an alternative, back-up design in a local authority setting that could be used as a low-cost insurance policy in case the predicted problems with the government’s proposed design became a reality. The opportunity to experiment with a systems-based design still exists.

“Digital by Default”: Command-and-Control Service Design

3. The delivery of the Universal Credit would appear to be based on a simple proposition: take costs out of service provision by putting the provision online and/or in a call centre. Indeed, the government wishes this to be the first major service that exemplifies its “digital by default” mantra. That these “access channels” represent cheaper transactions is not in doubt. However, it does not follow that overall the service will be cheaper to deliver. The crucial factor is the complexity of the service. When what is being delivered is simple and unvarying, moving it to telephone or internet channels may be effective. When it is complex and variable, however, it is an expensive mistake, driving costs up and the quality of service down. We can show many examples to prove this, of which the most relevant is in work with local authority housing benefits offices. Housing benefits are not simple and unvarying; the Universal Credit will be even less so.

4. Many local authorities have studied their housing benefits service as a system and redesigned it, and can now deliver a high-quality service in days whilst realising 30 to 50% efficiency gains as a consequence (Middleton 2010, Zokaei et al 2010). These gains represent the kind of results one might expect from taking the same approach to taxation and benefits.

5. The essence of the new design is: i) to provide the necessary expertise at the first point of contact to satisfy all of the predictable “value” demand (I have a claim, I have a change of circumstances); ii) to allow agents to “pull” expertise for the less predictable demand, using measures that relate to the purpose (right money to right people as soon as possible); and iii) to switch management’s focus from managing activity to managing the whole system’s achievement of purpose. Using these joined-up principles, benefits offices have subsequently learned another lesson. People’s needs and problems come in a variety of interlocking forms and guises; solving them all at first point of contact offers huge potential (if usually invisible) cost savings since it reduces demand on other services. In contrast with “command-and-control” (Seddon, 2003) designs, morale in services organised along these lines is invariably high because people are intrinsically motivated, illustrating once again the old saying that the best way to get people to do a good job is to give them a good job to do.

6. The Universal Credit’s design is unfortunately based on the flawed assumptions of conventional management theory. These assumptions lead to services being designed with the common features of standardisation and specialisation, separated and “optimised” front and back offices, and “access channel management” (pushing customers to transact with the organisation through cheaper channels such as by phone or online). Management is thus primarily concerned with managing activity on the assumption that activity represents cost. To that end, management is focused on what I have described as the “core management paradigm” (Seddon, 2008, p51)—they want to know:

How much work is coming in?

How many people do I have?

How long do people take to do things?

However, studying service organisations reveals that these types of industrialised designs have an unexpected Achilles’ heel: paradoxically, attempts to manage (unit) costs only create greater (total) costs.

7. As a simple illustration, consider what happened when English local authorities were set a target to establish call centres by April 2005. When consultants were hired to help them move “telephone work” from council departments to centralised call centres, call volumes shot up. Why? The increase in call volumes was due to a phenomenon called “failure demand”—“demand caused by a failure to do something or do something right for the customer” (Seddon, 2003, p26). The assumption that telephone work can be treated as a specialised activity separate from the core service provision is an example of misplaced faith in scale and centralisation; as a direct result, call centres were besieged by people wanting to know what had happened to their application or enquiry. Installing more IT in the shape of “customer relationship management” (CRM) systems only served to institutionalise this waste, compounding the error. Unfortunately, these “solutions” are aggressively marketed by the major management consultancies which have developed lucrative businesses providing the necessary IT.

8. A study by Advice UK (Advice UK, 2008) showed that as much as 60% of the demand occurring in advice centres comes from citizens, often the most vulnerable in society, trying to rectify mistakes or find ways around the failure of DWP and HM Revenue and Customs (HMRC) to provide a proper service. Costs imposed on advice centres by these failures are conservatively estimated to be £500 million a year. The costs to DWP/HMRC of re-work and legal appeals (most of which are won by the appellant) will be much higher. This is before the imposition of the new “digital by default” Universal Credit.

IT and Standardisation: That Way Disaster Lies

9. Under current proposals, the Universal Credit will take many years to deliver. The plans are for massive investment in IT and standardisation. This is a hopeless formula for absorbing variety and will—as it always does—generate massive amounts of failure demand, citizen dissatisfaction and cost. By contrast, if what constitutes the Universal Credit could be defined today, housing benefits offices redesigned using systems principles could provide it quickly and efficiently tomorrow—guaranteed. Furthermore, to ensure that the Credit is fit for purpose, these housing benefits offices should be used to develop the rules, taking risk out of the solution.

17 September 2012

References

Advice UK 2008, It’s the System, Stupid! Radically Rethinking Advice, AdviceUK: London

Middleton, P (ed.) 2010, Delivering Public Services that Work (Volume 1): Systems Thinking in the Public Sector Case Studies, Triarchy Press: Axminster

Seddon, J 2003, Freedom from Command and Control, Vanguard Press.

Seddon, J 2008, Systems Thinking in the Public Sector: the failure of the reform regime and a manifesto for a better way, Triarchy Press.

Zokaei Z, Elias S, O’Donovan B, Samuel D, Evans B and Goodfellow J 2010, Lean and Systems Thinking in the Public Sector: Report for the Wales Audit Office, Lean Enterprise Research Centre: Cardiff University

Prepared 21st November 2012