The astonishing cost of failure demand, and why fixing it should be your next priority
Updated: Apr 8, 2022
It should have been an easy task. Enjoyable, even. We were saying goodbye to the battered, pint-size drawers and bookcases that my daughter had climbed over and crayoned on since she was a toddler, and buying new bedroom furniture fit for a tween.
But it ended up as a textbook example of how failure demand is almost certainly frustrating your customers, increasing your service delivery costs, and reducing your capacity to meet your citizens' needs. Fortunately, we've got some proven recommendations to help you tackle it.
My daughter needed a wardrobe, a chest of drawers and, for the first time, a proper desk. Naturally, everything had to match. We shortlisted, placed an order and, after an epic weekend of allen key-ing, we called our daughter to her room to admire the transformation.
She eagerly looked around, but after a few moments her delighted smile slipped a little. “I love it," she said quietly, “But it doesn’t match”.
Surprised, I asked her to explain.
“It’s the handles on the desk,” she said, pointing. “All the other handles are a lighter wood. And they’re kind of a different shape, too”.
She was right. They were different. Subtly but undeniably different—and that was clearly going to be a problem.
At this point in my story, I'm guessing you are already in one of two camps.
You might agree with my daughter: of course the handles should match!
On the other hand, you might be thinking it is (to coin a phrase) something of a first world problem. You can't imagine getting worked up about some handles, and you are probably wondering why I'm bothering to tell you about it in the first place.
What if I told you that our different expectations are precisely why this story so important, and that what followed next would cost the company hundreds, if not thousands, of pounds?
Computer says No
The handles had the same fixings, so I figured it would be simple to swap them out.
“So, you’d like me to get a new set of desk handles sent to you? That’s not a problem at all,” purred the customer service advisor who had answered my call.
“Yes—actually, no. Maybe. What I need is a set of the handles like the ones on the chest of drawers, so I can put them on the desk”.
“Let me check the website”. I heard her quick tapping. “Yes, I see. That desk is an older model. If you look at the pictures on the website, you can see that the handles are different”.
I found the page, zoomed in—and zoomed in again. She was right: you could just about tell that the desk handles weren't the same as the rest of the range.
“OK,” I replied. “But that doesn’t fix my issue. They don’t match. If you could send me some of the drawer handles, I can pop them on the desk, no problem”.
“Unfortunately, that's not possible,” said the agent, smoothly. “You see, there isn’t a fault with the desk, and I can only order replacement parts if there is a fault”.
I wasn’t sure I did see.
“Can I help you with anything else?” asked the advisor, pleasantly.
“Well, yes,” I replied, trying to keep the frustration out of my voice. “Everything is all from the same range—it should match. You can’t expect customers to examine every photo to see if corners of the handles are round instead of pointy”.
“If you’re unhappy with the product, you can return it for a refund,” she replied. “Returns are free of charge,” she added, helpfully.
This seemed like a crazy solution. We wanted the desk. We needed the desk. We had invested several hours assembling the blasted desk.
“All I need are the four wooden handles,” I pleaded.
“I’m sorry, but the only option I have available is to return the item. Would you like me to request that for you?”
Returning a perfectly good desk over some mismatched handles seemed something of an overreaction, even for me, and so I (politely) declined the offer and ended the call.
But I really wasn’t happy. I was left disappointed with an expensive purchase that I had carefully planned for and hoped would last many years. The more I dwelt on it, the more irritated I became by the company’s refusal to engage with the simple resolution I had suggested. My experience of interaction had moved my dial from cooperation to belligerence.
The next day, I called the company back and arranged the return of the desk.
A (very) costly failure
I had put the Saga of the Wrong Handles behind me, but I was reminded of it again recently when (re)listening to a podcast by seminal management thinker John Seddon. Building on the work of Deming, it was Seddon who first articulated the phenomena of failure demand over thirty years ago. Since then, his company Vanguard has worked with service organisations across the private and public sectors, redesigning services around customer demand and delivering indisputable results.
failure demand the demand caused by a failure to do something or do something right for the customer.
I started thinking about my experience in terms of failure demand. How expensive had the episode been for the retailer? Any why did it happen in the first place?
I’m not an expert in the flat-packed furniture industry, so I made a few conservative assumptions. The result was a sobering figure for the company:
Customer solution: Replacement handles
Handles x 4
Handling & shipping
Supplier solution: Product return
Lost profit on order
Handling & shipping
By my estimate, refunding the desk was twelve times more costly than my request to swap the handles.
If you also factor in the consequential impact, the figure gets even higher. We needed new furniture for my son’s room, but I wasn’t going to give them my business again. Add to that potential lost revenue due to reputational damage (I wouldn’t be recommending the company to anyone else) and you arrive at a startling sum.
Loss of future orders
That's a staggering £420 per handle, without considering the environmental impact of such a wasteful policy.
What went wrong? Three likely culprits.
According to Seddon, failure demand is always systemic, stemming from a “command-and-control” style of leadership that uses standards, procedures, and statistics to manage the organisation. I couldn’t see inside the company, but I could make an intelligent guess about the problems that such management failings would lead to.
Inability to handle variation
The origin of failure demand in service organisations is decades old, stemming from the false assumption that the process design which revolutionised modern manufacturing could be transferred to newly-emerging service industries.
But manufacturing and service delivery are fundamentally different.
Manufacturing demands uniformity and consistency, but people aren’t uniform or consistent. Standardised services that can't absorb the inevitable variety of customer needs are a major cause of failure demand.
The advisor I had spoken with understood what I wanted, but the rigid process she was following could only cope with a high-frequency demand (replacing a faulty part with the identical part from the same item). I had a low-frequency demand (replacing a problematic part with the equivalent part from a different item). This request didn’t fit the process, leaving her with only one option—to return the product.
To drive out failure demand, it is essential to understand customer need to ensure both high- and low-frequency demands can be met. Most service organisations do a decent job at meeting high-frequency demands but are poor at handling more uncommon requests.
These low-frequency demands often end up being referred on within the organisation, adding cost and delay, and increasing opportunities for things to go wrong. Alternatively, the request can fail altogether: at best, this leaves you with a frustrated customer; at worst, it can lead to a formal complaint, expensive redress, and a damaged reputation.
(Related to this is the concept of simple demand vs complex demand, which we will explore in a future blog).
To return to Handlegate. The company’s inability to handle my non-standard request was clearly a problem. But has the failure started there?
No. I had called them because I had already experienced failure, caused by an inconsistency in their products.
The source of the problem is difficult to pinpoint from the outside. There may have been failure in communication between the design team and the manufacturer, or procurement may have mis-managed a change of supplier. There was gap in quality control, and the content team responsible for product images had failed to pick up on the issue.
There is a common theme here—silos. Seddon observes that in siloed organisations, failure demand in one system is frequently hidden from other systems. In this example, did any of the back-office functions experience the customer pain? No—and they probably didn’t even get to hear about it.
To properly understand and address the causes of failure, Seddon urges organisations to follow real customer cases through the entire system, focussing at all times on the customer perspective. Services can then be redesigned and integrated to work together effectively, centred around the demand of the customer instead of the demand of the process.
Failure to understand customer expectations
Up to now, we've assumed there was an unintentional oversight somewhere in the system. But what if it was deliberate? Could it be that someone in the business was aware of the issue, but assumed that it didn't matter—perhaps because it didn't seem important to them?
Time and again, our work with public sector organisations has revealed that failure to understand customer expectations and then act and communicate accordingly is one of the leading causes of failure demand. It doesn't matter how good you think your service is—if it isn't delivering what customers are expecting, it's not fit for purpose.
Does failure demand matter in the public sector?
Returning to my personal experience as a consumer, you might be struggling to understand how it relates to public sector service delivery. After all, concepts like profit and customer loyalty don't translate easily into public sector monopolies.
Reframe the problem in terms of cost and capacity, and it becomes clear why failure demand is one of the most important challenges facing the public sector.
Seddon estimates that in a typical organisation, failure demand routinely runs at 40 – 60% of total customer demand. In some organisations, particularly health and social care, it can be as high as 80% or more.* With UK health and social care spending set at over £150 billion per annum, the cost to the public purse of failure demand in these services alone is eye-watering.
Furthermore, the organisational capacity that is wasted in servicing failure demand can't be used to deliver value demand—the services that citizens need and want.
In the public sector, resources are typically finite and fixed: you can't increase revenues by winning new customers or hiking up prices, and you can't just ditch those customers who are difficult and expensive to serve. This means that reducing failure demand is the single most effective way of increasing your capacity to deliver better outcomes for citizens.
How do you fix the problem of failure demand?
This is a point on which Seddon is uncompromising.
Because the cause of failure demand is always systemic, Seddon believes that the only way to eliminate it is to change the system.
I don’t disagree. But most of us are trying to do our best work in an imperfect world, without the authority or autonomy to tear-up an entire organisational structure and rebuild it from the ground up. What then?
According to Seddon, attempting to address failure demand by fixing people and processes will only deliver efficiency savings of around 10% to 15%. Only 10% to 15%? To me, 10% of a really big number still sounds like a pretty big number. An improvement worth making.
Understanding the citizen experience is an obvious place to start. You can use a platform like GovMetric CX to capture the voice of the customer across all your access channels, at any point in the customer journey.
When analysing negative feedback, try not to jump to conclusions about what went wrong. Instead, reframe feedback in terms of the original customer demand—what need was the customer trying to fulfil, and how? Are there any patterns in unmet needs? These may signal lower-frequency but recurring demands that could be accommodated by adapting existing processes, delivering specialist training, or simply improving access to information.
Many of the organisations we work with have significantly reduced failure demand by making simple changes based on the feedback they get from platform.
Another important source of insight is the voice of the employee. Your frontline staff are ideally placed to tell you about the simple changes that could make a significant difference to failure demand. Try to incorporate an employee feedback channel into the same system that you use for customer feedback. Again, think about the responses from the perspective of the original customer demand.
When you’re making changes, try to measure the impact of the improvements you make. It isn’t always easy, but there are models emerging that can help you to quantify your achievements in financial terms. You never know—it could be the catalyst your organisation needs to embark on true systemic change.
I’ll finish with these words from Seddon. The cost of helping people is tiny compared to the cost of not helping them. Happier people, families, communities—this is what public service should be about.
We couldn’t agree more.
Alix Cunnell is the Marketing Lead at GovMetric, home of the leading Citizen Experience Management solution for the public sector.