The economics of value and localism

In a posting on the economics of value and localism Professor John Seddon argues that centralisation of services, rather than reducing cost, generates failure demand that pushes cost up.

…. managers assume that standardising work cuts costs, yet when they study their services they find that standardised processes prevent the system from absorbing variety. In simple terms, it makes it hard for customers to get what they want, and the organisation consumes more resources as a consequence. It is a hard lesson. But studying the work obliges managers to confront the evidence of their own eyes: while specialisation and standardisation of work lower transaction costs, overall costs of service go up because the factory design creates more handovers, fragmentation, duplication and errors and hence re-work, and generates massive failure demand. Studying the work, they understand a paradox – managing costs creates costs.”

There are useful insights from the comments on his article.