Andreas Whittam Smith: A simple way to greater efficiency

Call centres are really just factories modelled on the car plants established by Ford

If you look at the underlying reality of public services and keep away from the political debate, some aspects of the overspending problem become clearer. It is best to start with the notion that many of the services that government and local authorities offer are not, as an activity, intrinsically different from the provision by the private sector of, say, financial facilities or internet connections. Seen in this context, inefficiency – more truly waste – becomes easier to identity.

You telephone your bank and you are immediately asked to "press one" for something or other, two for something else and so on. You ring a government office or your local authority with a query about, say, welfare payments and the same thing happens. Press one for "X"; press two for "Y". By pressing one or two you are being sorted electronically into a queue ready to enter a call centre. And these call centres, whether in the private sector or the public realm, are in effect factories.

They are modelled on the assembly lines for manufacturing automobiles originally established by Henry Ford almost 100 years ago. Her Majesty's Revenue and Customs (HMRC) manages one of the biggest of these. For instance HMRC's task of supplying child tax credits and working tax credits to nearly six million families requires the use of 9,000 staff. It costs more than £500m per annum to run. Compared with this factory dispersed over many sites, the Honda plant in Swindon, is a third the size in terms of numbers of employees.

The idea of applying manufacturing techniques to services was first developed in the early 1970s. Soon after came the notion of separating the "front" office from the "back" office. The front office is where customers are encountered; the back office is where their business is processed. It is the back office that can be run as a factory.

One of the most acute observers of what is involved is John Seddon, who has a background in psychology (www.systemsthinking.co.uk/home.asp). He writes that taking a factory view of service work forces managers to assume that employees need to be commanded and controlled. Scripts, procedures, targets, standards, inspection and compliance govern the way these organisations work.

In one section of the HMRC, for instance, workers were prohibited from keeping personal items on their desks. Instead, they were given red tape to mark out where they should put their pens and pencils, their computer keyboards and their phones. That is the office as factory.

Not surprisingly, staff criticised the efficiency drive as "demeaning and demoralising", saying that it reduced them to little more than machines. That, if the truth were told, is the idea. No wonder a recent a survey of more than 20,000 HMRC staff showed that morale had hit an all-time low, with fewer than a third of respondents saying they are proud to work there.

Unfortunately, the HMRC system of paying child tax credits is subject to vast overpayments and underpayments. A provisional award based on information held on the claimant's income and circumstances is made. The award can be adjusted if a claimant reports a change in circumstances during the year. After the year-end, claimants are asked to confirm their circumstances to allow their actual entitlement to be accurately calculated. Differences between the provisional award and actual entitlement give rise to overpayments or underpayments that HMRC then seeks to adjust – from which flow numerous disputes between the department and low-income families.

You can get a flavour of what is involved from reports by the Parliamentary and Health Service Ombudsman. In a case recently quoted in Parliament, the Ombudsman said of Mr and Mrs P's situation: "I see the Tax Credit Office has been singularly unable to back up what they say about Mr and Mrs P's tax credit application with any documentary evidence. They have been unable to provide a copy of the award notice they sent to Mr and Mrs P, a copy of Mr and Mrs P's initial application form or the letter they claim to have sent to Mr and Mrs P."

Thus, inside these service factories, despite the rigorously logical lines upon which they are run, there is a substantial amount of chaos.

More precisely, there is a considerable amount of waste. In Mr Seddon's analysis, there are two types of customer demand: "value" demand and "failure" demand. Value demands are the ones organisations want customers to place on the system, such as: "I have recently lost my job and I wish to apply for a job-seeker's allowance".

Failure demands are demands caused by a failure to do something right for the customer, such as: "I am unhappy with the decision you have made regarding my application for a job-seeker's allowance". Failure demand is pure waste. In financial services, failure demand can account for anything from 20 to 60 per cent of all customer demand. In police authorities, telecommunications and local authorities the proportion is often higher.

Any campaign to cut the cost of public services without reducing their effectiveness would start from this point. It would recognise that arbitrary measures such as standard times, cost, targets and standards can have negative result since workers learn how to "game" them. Going back to the automobile analogy, this might be called the Ford or General Motors approach.

But there is also the Toyota example where everything starts with customers' demands, rather than with production schedules. Using the Toyota method in a services context would mean that employees would deal with each demand as it enters the system, right through to resolution for the customer, before beginning with another demand. Thus, each staff member would be responsible for an entire transaction rather than feeling they were cogs in a machine.

Recent experience shows the outcomes would be much better and the process, paradoxical as it may sound, much cheaper to run. The workers, too, would be happier. A painless way to cut public spending? Not exactly, but much more effective.