In my last post “Sick bureaucracies and mere technicians” I talked about Edward Giblin’s analysis back in the early 1980s of the way senior managers had become detached from the real work of many corporations. Not only did this problem persist, but it has become far worse. The reasons are many and complex, but I believe that major reasons are the linked trends of globalisation, a drive towards standardisation through an updating of the Scientific Management theories of Frederick Taylor for the digital age, and an obsession with hiring and rewarding star employees at the expense of most employees. In this essay I’ll look at how globalisation has given fresh life to Taylor’s theories. I will return to the star employee problem in my next post.
The impetus for standardisation
Over the last 20 years the global economy has been transformed by advances in technology and communication combined with rapid improvements in education in developing countries. Non-manufacturing services that were previously performed in Europe and North America can now be readily transferred around the world. There is no shortage of capable, well educated knowledge workers (ie those who can work with information) in countries where wage levels are far lower than in developed countries.
There is therefore huge economic pressure for corporations to take advantage of these trends. The challenge is to exploit “wage arbitrage” (ie shift the work around to follow lower wages) whilst improving, or at least maintaining, existing levels of quality. In principle the challenge is simple. In practice it is extremely difficult to move knowledge work. You have to know exactly what you are moving, and it is notoriously difficult to pin down what knowledge workers do. You can ask them, but even if they try to help they will find it impossible to specify what they do.
Dave Snowden summed up this problem well with his Seven Principles of Knowledge Management. Principles 1, 2, 6 and 7 are particularly relevant to the problem of outsourcing or offshoring knowledge work.
- Knowledge can only be volunteered, it cannot be conscripted.
- We only know what we know when we need to know it (i.e. knowledge is dependent on the context of its application; we can call on the full range of our knowledge only when we have to apply it).
- In the context of real need few people will withhold their knowledge.
- Everything is fragmented.
- Tolerated failure imprints learning better than success.
- The way we know things is not the way we report we know things.
- We always know more than we can say, and we always say more than we can write down.
Tacit knowledge is far too large and complex a subject to deal with in this blog. For a brief overview and some pointers to further reading see the section on lessons from the social sciences in my “Personal statement of opposition to ISO 29119 based on principle“.
So corporations were under economic pressure to transfer work overseas, but found it difficult to transfer the knowledge that the work required. They seem to have responded in two ways; attempting to codify what tacit knowledge they could extract from their existing workforce (and by implication assuming that the rest wasn’t relevant), and redefining the work so that it was no longer dependent on tacit knowledge.
Here is an extract from an interview that Mike Daniels, head of IBM Global Technology Services, gave to the Financial Times in 2009.
IBM set out to standardise the way it “manufactures” services, so that exactly the same processes determined how an assignment was carried out in Egypt as in the Philippines. “The real scale comes out of doing the work in a codified way”, says Mr Daniels. “The key breakthrough was to ask ‘How do you do the work at the lowest level components?’”
The clear implication of defining the work at a base level and codifying it is to remove the dependence on tacit knowledge. I was led to this Financial Times article by “The Global Auction” a fascinating and enlightening book by Phillip Brown, Hugh Lauder, and David Ashton. This 2013 paper summarises the book’s arguments. The book was a major inspiration for this series of articles and I’ve drawn heavily on it. This striking passage is worth quoting at length.
…Suresh Gupta from Capco Consulting foresees the arrival of the “financial services factory” because as soon as banks or insurance companies begin to break tasks into a series of procedures or components that can be digitalized, it gives companies more sourcing option such as offshoring. If these trends continue, “tomorrow’s banks would look and behave no differently to a factory”.
This is part of a new vocabulary of digital Taylorism that includes components, modules, and competencies. The way these are combined to create a new model of the modular corporation was revealed to us in an interview with the female head of global human resources for a major bank with operations in 85 countries. Until 2000, the bank adopted a country-based approach with little attempt to integrate its operations globally. It then set up a completely separate business to manage its high-volume, low-value transactions using operations in China, India, Malaysia, and the Philippines. She commented, “So what we were doing is arbitraging the wage costs”, but this initial approach to offshoring based on “lift and shift” did not go according to plan. “We had errors, we had customer dissatisfaction, all sorts of bad stuff”.
She recalled that it took time to realize it is not easy to shift a process that has been done in the same place and in the same way for a long time. When people are asked to document what they have been doing for many years, there are inevitably going to be blind spots because they know it so well. As a result, “The semi-documented process gets shunted off while the process itself is dependent on long-term memory that is suddenly gone, so it really doesn’t work”.
Thus, the bank recognized the need to simplify and standardise as much of the company’s operations as possible before deciding what could be offshored. “So we go through that thinking process first, which means mapping these processes, changing these processes”. She also thought that this new detailing of the corporate division of labor was in its infancy “because you need the simplicity that comes with standardisation to succeed in today’s world”.
“You need the simplicity that comes with standardisation to succeed in today’s world”. Just roll that thought around in your mind. Standardisation brings simplicity which brings success. Is that right? Is it possible to strip out tacit knowledge from people and codify it? Again, that’s a big subject I haven’t got space for here, but in a sense it’s irrelevant. I’m very sceptical, but the point is that many big corporations do believe it. What’s more, senior managers in these corporations know that success does indeed come through following that road. Whether or not that makes the corporation more successful in the longer run it does unquestionably enhance the careers of managers who are incentivised to chase shorter term savings.
There is an interesting phrase in the extract I just quoted from “The Global Auction”; digital Taylorism. This is an umbrella term covering this drive for standardisation. Digital Taylorism describes a range of fashions and fads that go a long way to explaining why the advice of people such as Edward Giblin was ignored and why so many corporations are trapped in a state of bureaupathology.
In my last post “Sick bureaucracies and mere technicians” I talked about Giblin’s analysis back in the early 1980s of the way senior managers had become detached from the real work of many corporations. Not only did this problem persist, but it has become far worse.
In the late 19th and early 20th centuries Frederick Winslow Taylor developed the idea of Scientific Management, or Taylorism as it is often called. That entailed analysing and measuring jobs, decomposing them into their simplest elements, removing discretion from workers, enforcing standardisation and best practice. It also advocated differential treatment for workers; the most productive should receive bonuses, and the least productive sacked. Taylorism was initially reserved for manufacturing jobs, but in recent decades technology has allowed it to be extended to services and knowledge jobs. Digital Taylorism had arrived and it was closely linked with the drive towards standardisation I discussed above.
Taylorism was successful at increasing manufacturing productivity, though at great cost as factories became dehumanised. Workers were not allowed to use their initiative and their creativity was stifled. That might have made sense with routine manufacturing work, but the justification was always suspect with knowledge work where the loss of creativity is a far more serious problem. Was the drive towards standardisation strong enough to overcome such concerns? Perhaps not on its own. There may have been more discernment when identifying the jobs might be suitable for such treatment, and those which should be exempt because the loss of creativity would be too damaging. However, the trend towards Taylorised standardisation was greatly reinforced by a related trend, a feature of Taylorism that took on its own life. From the 1990s corporations became increasingly obsessed with the need to attract and lavishly reward the most talented employees, and then to treat them very differently from the mass workforce. I shall return to this in my next post, “Permission to think” and discuss how this swamped concerns about a loss of creativity.