I know Default Settings sounds like the name of a character Trevor Howard might have played in a black-and-white film from the 1940s, but it’s got nothing to do with the golden age of British cinema.
Let me explain.
A default setting is where you set out a course of action which will be the right answer >99% of the time, but leaves open the possibility that very occasionally that won’t be the right answer and builds in an “override switch” in case it’s needed.
In most organisations, people use bureaucracy to deal with issues like this, even when that’s not the best way forward.
They try to consider every eventuality, and write 80-page procedure manuals spelling out in excruciating detail every circumstance they can think of, which leads to a detailed set of rules about what to do in each of the gazillion options they’ve managed to think of.
Bureaucracy creates problems, not solutions
This traditional bureaucratic approach brings many downsides.
The first and most obvious is that nobody knows enough about everything to consider every eventuality, so sooner or later something will come up that the 80-page procedure manual hasn’t catered for.
That usually leads to hours of meetings, lots of internal machinations, and possibly an opinion from the lawyers, before someone decides that the organisation can’t possibly admit to not having considered every possible eventuality, and launches a pointless fight about some irrelevance rather than admit their error.
Secondly, can you imagine how much training and time goes into making sure everyone in your organisation needs to be able to recite that 80-page manual off by heart? (And if that’s not at least an aspiration for your organisation, why are you bothering to write it in the first place?)
And then there’s the enormous cost of having highly-paid people spend days on end holding workshops about all the things they need to put into their 80-page manual, role-playing all the scenarios in which they might need to add some more conditions to the already-confusing smorgasbord of options in the other 79 pages, together with designing and operating the checking and enforcement mechanisms required to ensure compliance and report on what’s happened.
While some element of process and review is important in any organisation, bureaucracy is a self-sustaining, empire-building part of many organisations.
Beyond a threshold level, it rarely adds much value. It nearly always adds a considerable amount of cost. And it helps cheese off your customers and your people more effectively than just about anything else you could do.
No customer or employee likes to hear “I’m sorry, we can’t. It’s company policy.”
Yet those 80-page procedure manuals are set up to make sure that’s the answer, at least some of the time, even when everyone knows it makes very little sense in that situation.
We don’t need to be hippies
I’m not a starry-eyed hippy. Nor am I advocating anarchy or free love. Well, not anarchy, at least.
But I’ve got news for you. You can get the same results that 80-page procedure manuals claim to deliver at a tiny fraction of the cost, without cheesing off your customers and your people in the process.
That’s where default settings come in. Here’s how they work.
You set a desirable outcome, then make sure as few things as possible – especially bureaucracy – get in the way of delivering that desirable outcome for as many of your customers and your people as possible.
I heard a fantastic example of how to do this effectively several years ago, which I’ve since applied in “real world” settings – keep reading if you’re interested in the benefits of this approach.
The example I heard originally was from the CEO (at the time) of Ritz-Carlton Hotels.
His company had a policy (or a default setting, in other words) that their staff always said “yes” to guest requests, up to a monetary limit of, from memory, something like $2000.
Anything a guest asked for which would cost less than that threshold, the staff member – no matter how lowly – was empowered to do. Not just were they allowed to do it, they were expected to do it on the spot.
For items above $2000 they had to ask a manager for approval. Below that amount, they only had to ask a manager’s approval if they wanted to turn down the customer’s request.
The default setting was that the staff member would always say “yes”.
Sometimes when I tell people about this approach they go pale at the amount of cash even someone like a chambermaid is authorised to spend, but that’s part of the genius of this approach too.
The reality is that nobody…or almost nobody…made $2000 requests.
They might want someone to pick up the bag they forgot at the airport or find an express dry-cleaner after spilling their drink on an expensive dress.
As I remember the CEO’s talk, most customers never asked for anything. For those who asked for something, the average cost was under $100.
The occasional more expensive requests they received were regarded more as helpful PR collateral for Ritz-Carlton’s very public service-orientation than anything else.
But ask yourself:
How many hugely expensive internal meetings to develop 80-page procedure manuals did this approach render unnecessary?
How much time do you need to train your people before they understand “for anything up to $2000, the answer is always yes”?
How much do you think the policing and oversight of this policy costs relative to the usual bureaucratic approach?
In every case, I think you’ll agree, the “default setting” approach is vastly better, vastly cheaper, and vastly more likely to lead to excellent customer service.
Of course, it’s not quite that simple
Before you get all hot under the collar about this, of course, it’s not quite that simple.
Just because the Ritz-Carlton can afford a $2000 limit, it doesn’t mean that’s where you should set the limit too.
And Ritz-Carlton do put a lot of effort into hiring really good people and training them well.
If you employ ne’er-do-wells off the street, pay them minimum wage, and manage them in ways that even prison inmates might think was a little harsh, don’t expect this approach to be as effective for you.
But you can most certainly adopt the principles, as I did when I ran a factory for a large publicly-quoted company a few years back.
Naturally, we needed the factory to run at maximum efficiency for as much of each 24 hour period as possible. But our utilisation wasn’t as good as it might have been.
Digging into the reasons, I found that was often because the people running the machines were waiting for parts or repairs after something had broken.
However their manager was in a meeting, or was off-site for the day to visit a supplier, and the requisition form said the department manager needed to sign it off before procurement would process the purchase order to get their machine fixed.
Digging into a bit more detail, it turned out there were basically two sorts of parts/repairs events.
Nearly all of them were for something trivial. A bolt, a washer, or a belt needed replacing. The value of this sort of repair was mostly under £50.
Occasionally, perhaps once every few years, something like a drive shaft would blow and that would cost several £1000s to fix.
However, £1000+ repairs were, thankfully, incredibly rare.
So I adapted the “default setting” to give the machine-operators authority to spend anything up to £250 direct with our approved suppliers without needing to get their manager or procurement involved.
The old policy had been set up by the previous management “because we can’t trust our machine operators to spend £1000s on a new drive shaft correctly”.
I’m not sure that was true, by the way. I found our machine operators knowledgeable, customer-orientated, and eager to please. But that’s a separate issue.
That was, however, their rationale.
This might not be a surprise
If you’ve been following along so far, this might not be a surprise, but that switch from “don’t do anything without your manager’s approval” to “get your machine fixed as fast as you can, up to a spend of £250” did wonders for our utilisation.
Did anyone buy a part for their machine and sell it on to someone else, or take it home for their own use from time to time? Well, not that I ever noticed. And even if they did, the increase in utilisation added vastly more to our bottom line than the occasional “mis-applied” purchase cost us.
But the reality is that, by treating the machine operators like the skilled, trustworthy professionals they were, and by not getting in the way of fixing the problem as fast as possible, the business generated vastly higher profits than it did previously.
And, after all, even if a part broke on their machine which needed a £10 bolt to get it fixed, neither their manager nor the procurement team was ever going to say, “No, you can’t have a new bolt. We’d rather the machine stood idle.”
So all the previous policy had done was introduce delay and cost, without leading to better outcomes.
With a default setting of “get your machine fixed as fast as you can, up to a spend of £250” we eliminated pointless bureaucracy, reduced administration costs (after a while we only needed one person in procurement instead of two), and increased our chances of making on-time deliveries to our customers.
So next time someone in your organisation says you need a new procedure for X or you need to update the rulebook for Y, ask yourself – do you really need a new procedure, or might this be the time to try a default setting instead?
PS: if you’re wondering about the Trevor Howard reference, he was a big movie star once upon a time, most famously (to me) in the beautiful film Brief Encounter from the mid-1940s. It is one of my all-time favourites.
I won’t spoil the story, but how two actors (Trevor Howard and Celia Johnson) can, more or less single-handed, hold an audience’s attention for an hour-and-a-half with no props and no action to speak of is a masterclass in writing (thanks to Noel Coward) and acting.
Alastair Thomson
Bottom-line focused CFO, CEO and Chairman
This post originally appeared on LinkedIn.