Saturday, March 21, 2009

Pay by Results - Service Efficiency

Redmonk's James Governor reports from a Logica briefing

"nice! UK Medical Research Council pays more money to its call center supplier Logica the fewer calls it takes! good service = fewer calls!"

In other words, service payment increases as service utilization goes down. This is a very interesting example - somewhere between output-based pricing and value-based pricing - and may well be deliberately based on John Seddon's concept of "Failure Demand".

Seddon's concept is based on the observation is that there are two reasons why a service is invoked.
  • Sometimes because the consumer actually wants something of direct value - Seddon calls this Value Demand.
  • But more often because something has gone wrong somewhere, and the consumer wants it fixed. Seddon calls the Failure Demand, and observes that much of the activity of service-based organizations (especially call centres) is coping with Failure Demand.

Clearly the answer is not to design services so that they can handle Failure Demand more efficiently and cheaply. The answer isn't even to automate the Failure Demand, so that the User can get a status report without talking to a real human being. The answer is to design joined-up systems that don't generate so much Failure Demand in the first place.

A number of management consultants/consultancies have latched onto this concept.

And here is the concept From the Horse's Mouth (via Benjamin Mitchell)

What does this concept mean for the design of service-oriented systems? One thing I draw from this is that it provides yet another argument why you shouldn't start the design from a set of use cases. And I am also interested in the implications for service pricing and governance of the arrangement between MRC and Logica. If you know of any similar examples, please comment below or contact me.

1 comment:

Anonymous said...

Hi Richard & thanks for the link.

My experience of failure demand was at a contact centre (where much of John Seddons venom is directed).

They could produce statistics on number of calls, time of call, call spread over days, time per call per agent, agent time off line, at the toilet, wiping their nose. But they hade NO CLUE as to WHY people called up. And you would think that to be pretty basic and useful to know when planning a service