There’s an old story about a Soviet-era factory that made bathtubs. Plant management was measured on the total tonnage of output produced–and valves & faucets don’t add much to the weight, certainly not compared with the difficulty of manufacturing them. So the factory simply made and shipped thousands of bathtubs, without valves or faucets.
The above story may be apocryphal, but the writer “Viktor Suvorov” tells an even worse one, based on his personal experience. At the time, he was working on a communal farm in Russia:
The General Secretary of the Party set a task: there must be a sharp rise in agricultural output. So the whole country reflected on how best to achieve this magnificent aim.
The fertilizer plant serving the communes in Suvorov’s area resolved to do its part:
A vast meeting, thousands strong, complete with brass bands, speeches, placards, and banners, was urgently called at the local Chemical Combine. To a man, they shouted slogans, applauded, chanted patriotic songs. After that meeting, a competitive economy drive was launched at the Chemical Combine to harvest raw materials and energy resources.
The drive lasted all winter, and in the spring, on Lenin’s birthday, all the workers came in and worked without pay, making extra fertilizer from the materials that had been saved…several thousand tons of liquid nitrogen fertilizer, which they patriotically decided to hand over, free of charge, to the Region’s collective farms.
The local communes were told that all fertilizer must be picked up in 24 hours–the factory’s product tanks were full, and if the bonus fertilizer was not removed, production would come to a standstill. Suvorov was the truck driver for his collective, and it was his task to go to the plant and pick up the farm’s allocation. Problem: the truck could only carry 1.5 tons at a time, and a round-trip to the plant would take about 10 hours. The commune’s allocation was 150 tons. There was also a shortage of fuel for the truck. And Suvorov knew that if he didn’t complete his mission, the director of the commune would be replaced. While the man was not to everybody’s liking, his expected replacement was much worse.
What to do?
When Suvorov arrived at the plant with his truck, he saw that the other communal farms had faced the same problem, and had hit on a solution.
There was a long queue of trucks of different makes, dimensions, and colours standing outside the Chemical Combine. But the queue was moving fast. I soon discovered that lorries, which had only a moment before been loaded, were already returning and taking up new places in the queue. Every one of these lorries ostensibly needed many hours to deliver its valuable load to its destination and then to return. But they rejoined the queue in a matter of minutes. Then came my turn. My tanks were rapidly filled with the foul-smelling liquid, and the man in charge marked down on his list that my native kolkhoz had just received the first one and a half tons of fertilizer. I drove my lorry out through the Combine’s gates and followed the group of lorries which had loaded up before mine. All of them, as if at a word of command, turned off the road and descended a steep slope toward the river Dneiper. I did the same. In no time at all, they had emptied their tanks. I did the same. Over the smotth surface of the great river, the cradle of Russian civiliztion, slowly spread a huge poisonous, yellow, stinking stain.
The great fertilizer production drive was undoubtedly marked down in government records as a tremendous success.
Don’t be too smug, though, fellow capitalists. My next example of institutional stupidity comes from the American private sector.
Kevin Meyer, who blogs at Evolving Excellence, was paying bills and noticed that when he put the return part of a certain credit card statement into the envelope, the address sat too high to be seen through the window. After several months of folding over an eighth of an inch at the bottom of the statement so the address showed correctly, he called customer service. The agent had obviously heard of this issue before, because she immediately told him what the problem was: The margin at the bottom of the statement was an eighth to a quarter inch too wide, thereby pushing the address upwards.
Kevin is focused on process improvement in manufacturing and other aspects of business, using “lean” methods such as those developed as part of the Toyota Production System, so he was curious enough to pursue the matter further. Here’s what was going on:
An unknown glitch in the bill-printing program added a blank line of text at the bottom of the statement, thereby creating a wider margin. The I/T people at the bill-printing location didn’t think the problem was important enough to prioritize a fix very highly, even though the effort to do the fix was trivial.
Payments were not processed by the bill-printing group, but by a separate, outsourced organization. This group found itself receiving hundreds of thousands of payments folded in such a way that the account number was now not visible to the automatic scanning equipment. Kevin explains how this problem was solved:
They bought some monster pieces of equipment to straighten and flatten bills at high speed, then set up a separate bank of automatic readers with the camera offset from normal.
This outsourced operation processes bills for many companies, so in effect they had to create, procure equipment, and set up a separate processing line. So much for flexibility. And I’m betting the company did a great job of adding up the extra cost and passing it on to the credit card company… who then feels the need to raise my assorted fees or find something more to outsource overseas.
So, because one group in a company was unwilling to make a programming change that would have required maybe ten minutes, people elsewhere in the business process were forced to make additional, and basically useless, capital investment, and to change their own processing flow in a way that reduced flexibility and efficiency. Most likely, the people running the payment processing center either: (1) tried to get the printing software changed, and were unable to get their request sufficiently prioritized, or (2) knew from previous experience that the company’s IT group was unlikely to respond to their request, and didn’t even bother to make it, or (3) knew that their business was measured and paid in such a way that they had no incentive to improve efficiency or to avoid reducing eficiency.
This is an especially vivid example, but things like this happen with dismaying frequency in American companies. (And a disproportionate number of them seem to involve the Information Technology function.)
Of course, this example isn’t really as bad as the Soviet example. In a market economy, the damage done by inefficiency and incompetence in a particular corporation is automatically limited by the financial consequences to that corporation, rather that being allowed to spread uncontrollably throughout the entire economy as tends to happen in a socialist system. It’s still pretty bad, though. And both cases, though, demonstrate the way in which institutions can exhibit strange and counterproductive behavior if incentives and divisions of authority are not carefully thought out and intelligently managed.
(“Viktor Suvorov” is the pseudonym for Vladimir Bogdanovich Rezun. The fertilizer story is from his book “The Liberators,” which is primarily about his experiences in the Soviet Army–which he joined largely because he didn’t see much future as a Soviet-style communal farmer.)