What a Difference a Day Makes!
- a little
modelling added value for managers tackling performance problems in out-sourced
activity
-oo0oo-
Out-sourcing is on the increase, and the need for contract management
capability is challenging diverse organisations. The ideal of contracts which
provide both a framework for a mutually rewarding partnership, and a structure
for handling disputes between the client organisation and their out-source
service provider, is not easily achieved. In many cases, performance and
financial pressures stress the client / service-provider relationship and the
contractual arrangement proves to be flawed in practice. Such was the case
here. Further, what appeared to be an appropriate management response to
performance problems had proved unhelpful: reinforced contracts were introduced
but performance levels continued to fall, costs rose, and relationships were
becoming increasingly strained.
A small group met to review their combined management of performance in the
out-sourced activity. Their workshop-style meeting was spread over two days,
with a daylong break between - during which time a simple model was developed
for their use. When the group reconvened (day 3), within a couple of hours they
found that working with this model added further insights and ideas for
implementing changes to their operation of out-source contracts. Their
understanding of the dynamic system linking contractors with their business clients
may be valuable to others who seek an effective relationship with out-sourced
service providers. In addition, the process that helped them may provide food
for thought to management science practitioners who must be pragmatic in
matching their support to the time and cost budget of their client group whilst
leveraging this contribution to maximum effect.
Managing out-sourced activities
The client for this work was a major corporation that used engineering
contractors to carry out specialised works on projects around the world. A
number of different contractors were used and a reduction in performance,
accompanied by increasing contract management problems, was widely apparent.
The small group whose meetings are reported here comprised multiple perspectives
on the problem and included a contractor representative, an engineer, a
technical specialist, and an area contract manager. Given the history of
falling performance levels and strained relationships, the group was uneasy at
first. There was some distrust of the client organisation’s motives in holding
these meetings, and considerable cynicism about the likely value of any
outcome. The use of independent management science consultants to facilitate
the group provided a tentative foundation for a ‘fresh start’. One-to-one
meetings between each prospective participant and a consultant in advance of
these sessions were helpful in surfacing specific concerns and increasing the
chances of a constructive outcome. These interviews were used to inform the choice
of workshop process. The group’s discussions started with the identification of
the various symptoms of problems in the business arrangements between the
contracting organisation and the contractors who provided services. The
numerous problem symptoms were clustered into key themes or factors. The
summary extracts below are given in general terms to protect the client’s
confidentiality but are sufficient to indicate the scope of the discussion:
- Increasing Challenge for
the Industry
Competitive pressures lead
us to undertake more challenging projects which are increasingly complex and
vulnerable to technical problems. The new problems are not properly understood:
unanticipated incidents often go to costly operational stoppages. Tough
performance targets aggravate the problem. At the same time the dramatic
increase of activity serves to dilute experience; inexperienced people get into
stupid problems. Impact of a shift to suppliers’ market.
- Conflicting Business
Pressures
Contract managers are
constrained and can get caught out by short notice changes. Project managers
have a short-term view of the relationship with a contractor. Because
there is not enough project planning time the amount of consultation is
reduced, details are not thought through etc.
- The Business Issue
The training &
awareness benefits have trailed off. Costs associated with technical problems
and stoppages are escalating.
- Contractor Engagement &
Quality
Contract teams are not
pro-active. Variable ownership of the problem, motivation is an issue. Some
contractors have their teams on incentive payment schemes – but the
arrangements vary and don’t all match the overall project objectives. Do we
have a sound basis for assessing contractor competence?
- Organisational Defects
There is a disconnect
between project planning & operations. Plans might be compiled and
performance targets set without knowing which equipment will be deployed. The
contractor should become more responsible for avoiding technical hold-ups. We
want them to build a multi-disciplinary team. A disproportionate number of
technical problems arise when a contractor team assigned to the project hands
over to a relief team. There is inadequate mutual briefing of planner &
doers. We need to look to the design of the whole project programme. Could the
planner for a project be part of the team that makes it happen?
- Contract Structure
The structure of contracts
is not encouraging. We interfere in contractor industrial relations - we should
be using contractors who invest in their people.
- On-Site Supervision and
Experience
More inexperienced teams.
Variable application of training. Stretching of contractors' organisations.
Diminishing quality of engineering supervision. We have learned to react better
to problems when they arise, but haven't reduced their incidence. The training
given is becoming out of date; based on experience of problems we were aware of
5-6 years ago.
The group went on to explore the ways in which the factors identified
impacted one another, a discussion where they joined in creating an influence
diagram of the main interconnections. Their diagram described a situation that
was clearly dysfunctional with the basic pattern of interaction bringing to
mind the ‘shifting the burden to the intervenor’ systems dynamic archetype
described by Peter Senge. This is reproduced below in the form of a causal loop
diagram where the factors are described in the terms used by this group.
The group saw the financial costs of delay to projects as the signal of the
extent of performance problems in the specialised engineering activity carried
out by the outsource contractors. In the past, increasing costs had led the
corporation to impose ever-tighter contract terms which, in the short term,
succeeded in keeping costs down. However, a knock-on effect of these contract
changes was deterioration in relationships with the contractors and with morale
in the contractor teams. Turnover of contractor staff was high, and there was
negligible collaboration between the separate contracting companies used for
similar work on different projects. Thus there were adverse longer-term effects
of the changed contractual relationships. The interventions made by the client
organisation (the externally imposed solution) were seen to be impeding action
that would otherwise have been taken by the contractors themselves (the
solution internal to the system) – with greater long-term benefit.
S:change in same
direction
O: change in opposite direction
Shifting burden to the intervenor
(in the context of managing outsource contracts)
This interpretation of the problem and its symptoms helped the group to
produce more detailed causal loop diagrams of the present interaction between
their organisations. They also generated a ‘wish list’ for an improved pattern
of interaction, identifying the criteria to be used to assess whether a
sustainable solution had been identified. Finally, they set about making
suggestions for changes that would satisfy these criteria. At the end of this
one-day meeting the group had resolved to move towards a greater participative
role for contractors:
- using contractors as
consultants at the project planning stage,
- joining together for
benchmarking and to capture learning from experience that would be fed
into updated training programmes, and
- collaborating to set
ambitious but achievable performance targets and then sharing the
- financial benefits of
improved project management.
The group’s suggestions for change, along with all their diagrams, were used
to inform the development of some simple system dynamic models during the
following day. When the group reconvened on day 3 they revisited their earlier
thinking – testing their assumptions against the formulation and operation of
the models provided. A number of additional insights emerged:
- The trend to ever more
challenging projects would always stretch contractor teams and it would be
difficult to counter this even with improved training. New suggestions
were:
1. collaborative
research might help to identify future needs.
2. reduced
contractor turnover would help to build more experienced teams. Low turnover
should become one of the criteria for selection of a service provider.
- To some extent the
incidence of technical problems which could escalate to delay a project
was random and outside contractor control. Improved monitoring procedures
supported by statistical analysis would enable both contractor and client
organisation management to better distinguish between random (intrinsic)
variation and adverse performance trends.
These additional insights and change suggestions were carried forward from
the meeting and were taken up by a wider change programme in the organisation.
Feedback from participants was positive:
- they had found the
workshop enjoyable and thought-provoking;
- they were leaving with
an enhanced appreciation of how problems were arising and they would seek
to spread this understanding;
- the process had been
very powerful and should be used more widely across the business; and
- they were surprised by
how much had been achieved in a short time.
Leveraging the management science
contribution
The use of independent consultants was helpful in getting the necessary people
into a meeting. Having got the right people together, facilitation, and
particularly the use of a pragmatic problem structuring approach (hexagon
mapping), helped to establish a constructive tone for the meeting. With each
participant making a contribution from their own perspective, the group as a
whole then had the information needed for a better understanding of the
problem.
Influence diagramming provided a useful mechanism for catalysing the group’s
appreciation of the dynamics of the problems that were arising. It also
prepared the way for the introduction of relevant system dynamics archetypes.
The ‘shifting the burden to the intervenor’ archetype was offered to the
group Blue Peter style (here’s one I made earlier) with the disingenuous
suggestion ‘we wonder if this is relevant’? Clearly, the preliminary meetings
with prospective participants had helped us to anticipate some of the
archetypes that might be useful to the group. It seemed very helpful to them to
have this simple dynamic structure laid bare.
However, the archetype structure was not imposed on their subsequent causal
loop diagramming (though they referred to it) and neither were they obliged to
include all the factors highlighted in their earlier discussion. In
fact, with the changed emphasis upon the dynamics of the process of interaction
between client and contractors, some new insights emerged at this stage. These
included recognising shortfalls in the information the client organisation
collected about contractor performance, and the extent to which contractors had
a greater understanding of the project risks than did staff in the client
organisation. In spite of now being on new territory, the group’s causal loop
diagramming went quickly and easily. They were beginning, quite naturally, to
formulate ideas for the more effective management of technical problems that
might delay projects. The momentum generated carried them through the review of
what they wanted from an improved contract and project management process and
on to the diagramming of what this might look like.
Our process design for this first day borrowed a number of elements from
David Kreutzer’s documented approach (FASTBreak) for accelerated entry to
systems thinking in a group. Things went reasonably well and the group’s
diagrams provided a good starting point for model building: in particular, they
identified which factors would be central to a useful representation of the
contract management process. Even with a streamlined and tested methodology for
getting this far, it was something of an experiment for us to set up an
expectation of a model to be produced on the day following this one-day
meeting. We believed that a model could add value to the group’s thinking, but
we lacked the confidence to build the model in collaboration with them. The
‘time out’ solution was proposed as a less stressful route. Even then, as ‘the
modeller’ in our team, I felt suitably challenged by the limited preparation
that it was possible to do beforehand and the very firm deadline that existed!
For obvious reasons therefore, the two system dynamic models (using iThink)
that were produced were kept simple. They shared the same basic structure and
were tailored to represent the current and redesigned project/contract
management processes. The models had four stocks the levels of which varied as
indicated below.
|
STOCK |
INCREASED by a flow linked to |
DECREASED by a flow linked to |
|
1. Potential incidents leading to
project delay |
The probability was maintained at
a constant level throughout (generated by a Poisson distribution) |
Level of contractor's ability in
relation to technical problems |
|
2. Contractor's ability in relation
to technical problems |
Training |
Pace of technology change |
|
3. Satisfaction with project engineering
performance: |
Low costs through delays |
High costs through delays |
|
4. Accumulated technical know-how
& learning in the total system |
Investment in learning |
Pace of technology change |
A number of the qualitative factors in the models were represented by simple
indices and some crude calibration ensured that the derived costs associated
with project delays were in the right ball-park.
In introducing the models to the group, we first talked them through the
structure using a projected image of the computer-based stocks and flows
diagram. Being a simple model with uncomplicated connecting logic, it was easy
for the group to engage with and they readily accepted that the logic reflected
their own thinking as articulated at the first meeting. Second, the behaviour
of the model was explored - initially by trying it out in an environment where
the technical challenge and risk of a project delay was constant, and then in
an environment with step changes in the risk. The model of the redesigned
management process was then introduced and run under a range of conditions. As each
computer run was carried out, the group watched key parameters being plotted
over time, reviewing the results and comparing them with their expectations.
The results stimulated some discussion and some fresh insights: for example,
the group noted that the current system was slow to respond to change and left
the client organisation vulnerable in an environment where the pace of change
is increasing. Moreover, the improved contract management process as formulated
was not always as effective as the group had expected: it reduced, but did not
contain, the increased costs of delays under more challenging technology. Thus,
exploring the behaviour of the models led to the group questioning their
original thinking and going further. This was in line with what Jay Forrester
would have predicted for a group exploring their understanding of a dynamic
system through a model of their thinking: he suggested that many organisational
policy failures have occurred because people’s expectations about the behaviour
of a dynamic system do not match what is known about that system. In this case
the group formulated new ideas and suggestions that they wanted to explore
through a modified model. Some small changes were carried out and tested
successfully on the spot; some other changes were beyond the scope of what
could be tackled in the time available.
The group’s feedback has been given above. The session reinforced my belief
that even very simple system dynamic models can add value to thinking about
systems. Thus I’d want to encourage others to take the modelling step even when
time is short and only the simplest of models is possible. I suggest that
modelling does not have to be either time-consuming or expensive. In fact,
making a distinction articulated by Arie de Geus in his foreword to ‘Modeling
for Learning Organisations’, a model designed to support learning rather than
one intended to have predictive capability might be more effective for being
simple and transparent in its logic. For pragmatists, it is reassuring to
recognise that there is no simple linear relationship between ‘development
time, model calibration and complexity’ on the one hand and ‘usefulness in
application’ on the other!
Rachel Bodle, January 1999
Acknowledgement
My partner and mentor on the work described
here was Tony Hodgson of Idon Ltd. His skills as a facilitator both simplified
my modelling task and gave me confidence that, whatever I produced, he’d help
the group to extract maximum value from it!
For the interested reader
Chawla S and Renesch J (ed) (1995) ‘Learning
Organizations: Developing cultures for tomorrow’s workplace’, Productivity
Press. See in particular FASTBreak: a facilitation approach to systems
thinking breakthroughs by David Kreutzer.
Dixon N (1994) ‘The Organizational Learning Cycle: how we can learn
collectively’, McGraw Hill.
Forrester J W (1987) ‘Lessons from system dynamics modeling’, System Dynamics
Review 3 (No.2 Summer 1987): 136-149.
Morecroft J D W and Sterman J D (ed) (1994) ‘Modeling for Learning
Organizations’, Productivity Press. See in particular Foreword: Modeling to
Predict or to Learn? by Arie de Geus, and Hexagons for Systems Thinking
by Tony Hodgson.
Richardson G P and Andersen D F (1995) ‘Teamwork in Group Model Building’,
System Dynamics Review 11, 2 summer: 113-137.
Senge P M (1990) ‘The Fifth Discipline: the art & practice of the Learning
Organization’, Doubleday Currency.
Vennix J A M (1996) ‘Group Model Building: facilitating team learning using
system dynamics’, Wiley.