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Social justice
18 January 2013

Heresy of the week: Cutting waste in public services could be an expensive mistake

How can cutting waste in the public sector be anything other than a good thing? The answer is by misunderstanding what waste actually is and where it comes from. 

The point is made by John Seddon in an op-ed for the LocalGov website. In particular, he takes on one of the most important waste reduction strategies – the sharing and outsourcing of ‘back office’ functions:

  • “When I was a young man the term ‘back office’ did not exist. Today it is in common parlance; it is considered axiomatic that back offices are a feature of efficiency; Whitehall extols their virtue; they are springing up all around us. Where did the idea come from? What problem was it designed to solve? Does it solve that problem? Answers to these questions will cause concern to those who have jumped on the back office bandwagon.”

The idea is that by separating itself from the ‘front office’ – the part of a public service that actually deals directly with the public – the back office can get on it with its work undistracted by service users. By pursuing efficiencies, the cost of each task or ‘transaction’ undertaken by the back office can be reduced.

The trouble with this approach, though, is that by disconnecting itself from the public the system loses the knowledge required to get customer needs sorted out first time. Thus while the cost of each transaction might come down, the savings are outweighed by the increased number of transactions required to finally get the job done.

John Seddon calls this phenomenon “failure demand”. A familiar example is when a boiler repair company has to send out a second engineer, because the first engineer didn’t have the right part. 

In the public sector, Seddon cites the example of housing benefits:

  • “About eight years ago the Department for Work and Pensions (DWP) sent local authorities a three-box set of manuals which promulgated a front-office/back-office design with associated activity targets. The design created backlogs in back offices all over the country…
  • “...back-office people took a different view of the claimant than the front-office people; a checklist took over from face-to-face understanding.”

But are there really no savings to be had through the sharing and outsourcing of back office functions? Seddon admits that there are, but that they’re superficial and distracting:

  • “If you look at business cases put forward for back offices and sharing or outsourcing the same, you see promises of two types of savings: less-of-a-common-resource (i.e. fewer managers, buildings and so on) and lower costs through cheaper transactions.
  • “The first is true, but marginal, and often happens early in the life of a venture, giving encouragement to the notion that it was a good idea; but the second is the big promise and false… It is a foolish manager who thinks it is their job to sweat the labour, who believes that costs are in transactions, who believes it is their job is to manage costs. It is the wise manager who learns to manage value, not cost.”

The distinction between cost and value is crucial. If we really want to reduce the size of Government, then we need public services that help people to become independent of the state, instead of merely trying to reduce the administrative cost of dependency.


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