Lessons from Blair's years of delivery

"Lurching from one costly failure to another" is how opposition backbencher Josh Frydenberg described Julia Gillard's year of 'delivery and decision' last week in Parliament. He added that Gillard would be well advised to meet up with Blair on his visit "to learn some lessons as to what a reformist Labor government can actually achieve".

But there is a widespread belief in Britain that Blair's years of delivery delivered something other than intended. During Blair's tenure, expenditure on local authority services doubled and on health it trebled, with little or no improvement to match. Much evidence points to public services being worse.

So, what is the problem with 'delivery'? A year of delivery sounds a plausible ambition – who could argue with a year of fast, decisive, no-nonsense, let's-get-them-to-do-it action?

Blair would, for a start. John McTernan, ex-advisor to Blair, noted an important change in Blair's narrative on public service reform during his recent tour of Australia. Blair said "Reform is always urgent when you take power because too often your predecessors have failed to face up to fundamental issues – but speed is not as important as analysis". He added "These are complex systems. You need to understand them from end to end before you change them. The intellectual task is as important as your resolve to reform."

Blair, like Gillard, certainly had plenty of resolve. Blair and his disciples were the architects of "deliverology", a dreamt-up way of forcing central targets and requirements down onto local public services. From the centre, where the targets and service specifications were being written, for the most part everything looked rosy; people complied. For example, waiting times in health services were down, according to the targets.

But two days before the 2005 election, Blair was confronted by an angry voter on BBC's "Question Time". The voter told him she was unable to book an appointment with her doctor at a time that suited her as all appointments had to be made within 24 hours (to meet the government target). If she wanted an appointment further out than that she had to return two days beforehand to make it.

Blair was visibly shocked. He said such madness was never intended and indicated he would do what he could to ensure this kind of thing did not happen. I imagine a strong note went from Downing Street to the Department of Health and there the target-setters may have considered what to do to adjust the targets to prevent the prime minister being embarrassed by such evident madness. But nothing changed.

In the face of abundant evidence showing that targets produce dysfunctional consequences, people who believe in targets simply assume they need to refine the targets or identify the 'bad apples'. Whereas the right thing to do is drop the deliverology philosophy with its targets and instead understand the problem, and from the citizen's point of view.

Let's take an example common to Australia and Britain. Both governments have embarked on massive shared services projects over the past 10 years in an attempt to reduce costs.

Sharing services involves several public bodies coming together in an attempt to create 'economies of scale'; industrialised services with web sites, call centres and back-offices, offering standardised services controlled by IT systems. The resolve to deliver was and still is high, despite shocking evidence of failures. In the UK, our flagship failure is the Department for Transport's shared services venture. It was supposed to save the UK taxpayer £45 million, but it currently costing over £175 million. Western Australia's Department of Treasury and Finance Shared Service Centre was claimed to offer savings of $56 million, but incurred costs of $401 million.

If we take Blair's advice and spend some time on analysis, what do we learn about the failure of shared services? We learn that it is a failure in understanding, not a failure in resolve. When you study what is going on in these industrialised designs, you learn that it is industrialisation itself that is the flaw. What becomes immediately apparent is that the new shiny standardised IT-dominated factory processes fail to absorb the variety of customer demand; in other words it becomes hard for customers to get what they want. When customers can't get what they want they return, especially for public services about which they have no choice, until they do get what they want. I call this 'Failure Demand' (demand caused by a failure to do something or do something right for the customer). It represents a massive cost, failure demand can run as high as 80% of all customer demand in industrialised shared services projects, locking in costs for many years.

When you understand this and other problems with industrialisation, you learn to take a better route: putting the expertise required to solve people's problems at the place where they meet the service provider: usually somewhere local. Instead of being processed by demoralised and disengaged workers in remote computer-controlled factories, citizen needs are understood and acted on by happy, helpful people who get a kick out of providing a service that matters. Overall costs go down drastically because it takes fewer transactions for citizens to get a service. It is a lesson first learned by Taiichi Ohno at Toyota in the 1950s, far greater economy is achieved through flow, not scale.