Fixing the problem, not the system

Back in the early part of the 20th Century the US railroads - the pre-eminent long-distance transport networks of their day - were offered opportunities to invest in fledgling airlines and automobile manufacturers.

They all declined and, in the next few decades, railroads became largely irrelevant to people who wanted to travel long distances across the US. Instead, they drove or jumped on a plane.

With 20/20 hindsight it's easy to criticise the railway companies for missing an "obvious" opportunity...although I suspect the opportunity was a good deal less obvious in 1910 than it would be today.

Airlines and car companies back then were like hot tech stocks are today - mostly long on promise and short on the chances of surviving.

But at its heart, the railroad companies' collective decision gives an insight into a something I call "fixing the system, not the problem".

All aboard!

All the railroad companies competed with one another to take rail passengers to far-off destinations as quickly, comfortably, and conveniently as possible.

Which was fair enough when the railroads easily outpaced the experience of making same journey by mule train or covered wagon in all those respects.

Railroads worked hard to become the best railroad they could be, but along the way, they forgot that their customers weren't just buying the best railroad experience, they were actually solving a "how to get from New York to LA as quickly as possible" problem.

It just so happened that, for most of the time between the invention of the steam locomotive and the inter-war years, a railroad was the quickest, most comfortable, most convenient way to get from New York to Los Angeles.

During that time, the railroads worked to improve the system of running a railroad but, although some gains were made, they did very little to improve solving the problem their customers had of getting from New York to LA as quickly as possible.

As a result, they ended up with a great system - according to its own narrow terms of reference as a purely railroad-based experience - but only the second or third-best way of solving the problem of how people could best make a long-distance journey across the United States.

Silos

The experience of the US railroad companies 100 years ago isn't that dissimilar to the world we live in today.

Many organisations and many tech solutions suffer from exactly the same problem as those railroad companies did.

They follow the biggest lie businesses have every swallowed lock, stock, and barrel, which is that the best way to solve any problem is to break it down into its component parts and then optimise each of those independently.

There are a couple of problems with this approach.

Firstly, it means you need to define what the system is supposed to achieve - for example, convey passengers as quickly as possible across the United States by railroad. Once you've inked that in as the objective, it's very hard for any non-railroad options to get a look-in - even if some of those options would be a better for their customers.

Setting out to running the best railroad system might lead to better railroads but, after a while, the gains to be made from improving how a railroad conveys its passengers from the East Coast to the West Coast as quickly as possible becomes marginal the closer the railroads get to delivering their maximum potential under the laws of physics.

The second problem with this approach is that it shifts the focus to individual elements of the experience and takes it away from solving the customer's problem.

(There is also the often under-appreciated side issue that improving aspect A in a system can lead to a deterioration in aspect G when there is undue focus on a system's individual elements instead of the whole end-to-end system. This is usually phenomenally costly, but that's for another day.)

You see this every day in customer service operations. Someone is optimising the website. Someone else is optimising the mobile phone app. Someone else is optimising social media messaging. Someone else is optimising responses in the call centre. Someone else is optimising the chatbot. Someone else is experimenting with AI...the list goes on and on.

Normally, the end result is a terrible customer experience even though in theory all this focus on the individual elements should have resulted in a much better system than whatever the organisation did before.

Focus on the customer

Whether we're talking about 20th Century railroads or trying to sort out a problem with your bank in 2024, organisations get themselves into situations where they get worse results for their customers at a higher cost than they needed to incur all the time.

While, of course, you need to manage the details too, at a strategic level this is ultimately self-defeating.

There would be no such thing as "disruptive innovation" if existing solutions continued to solve customer problems in as efficient and cost-effective way as possible.

In the UK at the moment we have a swathe of "challenger banks" which are trying to tempt customers away from the legacy High Street banks, which have - not always fairly - acquired a reputation for poor service and high costs.

Challenger banks only exist because the people who set them up thought they could provide a service that's twice as good as a legacy bank at half the cost, and still make a profit. Because if they can't do at least that, their "challenge" is unlikely to move enough customers into switching for their new bank to be financially viable.

Time will tell how successful those challenger banks are. I have used both legacy banks and challenger banks in my days as a fractional CFO, and I've got to say there are some great legacy banks and some terrible challenger banks. The bank’s status is less of an indicator than the quality of the people working there.

And that's generally because the banks who do things well - whether legacy or challenger - are at least trying to solve their customer's problems first and foremost.

Their systems and processes, their whizzy tech (or lack of it), the authority they give their relationship managers, and 101 other things are all trying to solve their customer's problems.

They're not trying to blindly implement "the system" in a series of silos and thinking that, by doing so, they've automatically delighted their customers.

It's not just banks

I've used banks as an example, just because most people have a love-hate relationship with their bank and will recognise the problems.

But the exact same challenges pop up in all sorts of other places too.

We widen always-clogged, slow-moving motorways to let more traffic use them when a better solution might be to build a clean, efficient, reliable high-speed railway track alongside the 4 lanes of nose-to-tail traffic. That might be a better way for citizens of some of our major cities to solve their problem of how to get to work each morning as quickly and cheaply as possible than adding an extra couple of lanes to a motorway would be, even leaving aside the likely environmental benefits.

Government efforts to make the NHS more efficient have been hampered by the fact that people end up needing hospital treatment because a range of other issues, outside the control of the NHS, such as poor housing and poverty, have increased the NHS's workload dramatically in recent years, to the point where people wait in ambulances outside hospitals because there aren't enough hospital beds, doctors, and nurses to treat them.

That's because "fixing the system" of the NHS has been the focus, and not nearly enough effort has gone into solving the problem of how to stop so many people getting sick in the first place.

Recently, one of the world's largest aircraft manufacturers has had an unfortunate, and highly publicised, set of experiences where doors have fallen off their planes in mid-flight.

From press reports, a lot of the reason behind that is that there was a siloed focus on driving down costs to the point where component failure became slightly more likely than it was before. Not dramatically so, only marginally so.

But that was enough to tank that particular manufacturer's reputation and knock $billions off their profits and market capitalisation. They were working on "their system" and not giving as much attention as they should have to how to solve their customer's problem of flying from A to B without the doors of the plane they were flying on disappearing in mid-flight.

Systems thinking

While I'm a big fan of systems thinking, many organisations don't define their "system" widely enough.

They conceptualise it as the jumble of policies, procedures and processes they use to run their business. But that's not what a system is at all.

When systems thinking is deployed well - which mostly it isn't - the system is defined in such a way as to solve the customer's problem in the best way possible.

And that's the key difference.

You can spend endless resources on fine-tuning details your customers don't care about and convince yourself that you're doing a great job.

But when an organisation thinks a system is just their internal structures and admin, and works purely within that frame of reference, it's almost always a high-cost, poor service organisation.

When the organisation thinks their main job is to solve customer problems in the best way possible for the customer, and works back from there, that's likely to be an extremely efficient, high-service operation that will be hard to disrupt.

If, 100 years ago, the US railroads had taken that approach, we might still be buying tickets from them today, even if those ticket might not be for railroad travel as someone in the 1920s would have recognised it.