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June 17, 2019

The weakest link


June 17, 2019

Failing to achieve tax collection targets for years altogether, the FBR has remained under close scrutiny of all successive governments. This year has been particularly bad with a record shortfall in tax collection.

Every failure is followed by various improvement initiatives – creation of additional tax collection units, modification or revision of regulations, enhanced use of technology, hiring of consultants, induction of new leadership and so on. Then there are incentives in the form of pay bonuses for the employees, upgradation of posts etc. The FBR has probably one of the highest numbers of grade 21/22 officials in the federal government.

In spite of all this, the downslide continues unabated. Clearly a case where poor performance is being rewarded. It is not lack of competency or commitment of officials in the FBR, it is the application of a flawed and obsolete management philosophy within government departments including the FBR. This reduces to naught all the hard work and efforts of the department to ensure that their organization becomes an ever flourishing organization – an organization that is continuously improving its performance and stability while increasing value to all stakeholders.

As it stands today, the FBR has probably undertaken more improvement efforts than any other federal department. The results, of course, have been very disappointing, while a significant percentage of changes have actually deteriorated the organization’s performance.

There are typically two opposing views on the underlining causes of the persistent decline in the performance of the FBR.

The first view relates to an acknowledgment that the FBR is a very complex organization and that there are high levels of uncertainty related to identifying the underlining root causes of poor performance, or necessary conditions for success, and to predicting the impact of changes on the organization as a whole. Those consultants or managers who ascribe to this view mainly focus on reducing the complexity and uncertainty by breaking the organization or problem into simpler parts and then aiming to improve or optimize each of the parts. The assumption being that the sum of these local improvements will equal the improvement of the organization as a whole.

By believing that we can improve a system as a whole by individually improving each part, we are living and working according to a management paradigm that has been obsolete for decades. This also the reason why, in spite of repeated improvement initiatives costing both money and time, the FBR’s performance has not improved. According to Dr Deming, a quality guru 95 percent of the problems are created by the system put in place by the management and only five percent by the people. And when the management puts in place a defunct and outdated change management philosophy, the results is newspaper headlines day in and day out.

The second view acknowledges that all complex systems like organizations are governed by an inherent simplicity – that the majority of problems (or poor performances) are caused by a few underlying causes (Pareto Principle) – the leverage points in the system.

This theory postulates that a system’s performance improvement is not equal to the sum of all local improvement, but simply the result of improvements of only those few parts not performing at the level to support current performance targets.

The second view also points out that in the same way that the strength of any chain is limited by the strength of the weakest link, the performance of any organization is limited by the ‘system constraint’ (the organization’s weakest link). Improvement of any non-weakest links will not improve the organization while improving the weakest link will always result in an improvement to the organization as a whole. This insight about the system constraints can provide the necessary focusing mechanism for all levels of management to differentiate between the many parts within their area of responsibility that can be improved from the few that must be improved to help the organization to achieve its performance goals in a very short period of time.

The key to achieve ongoing growth and stability for any organization is thus in finding a way to focus their scarcest resources (management time, money and commitment) on only that part that is currently limiting or blocking improvement – system constraint, leverage point or the weakest link. The constraint could be physical – individuals – or non physical – procedures, policies or regulations etc.

Over the past 40 years this concept, under a body of knowledge called the Theory of Constraints (TOC), has been successfully applied to any type of organization imaginable. Each of the success stories has shown that when managements tried previously to improve all parts of their organizations, particularly government departments in Pakistan, the possible became impossible. In rare cases, when they started focusing their time on identifying and improving only those parts that currently constrained performance, suddenly the impossible became possible – achieving more with less in less time.

The core problem of government departments, including the FBR, is their inability to focus on identifying system constraints. On the contrary, improvements efforts based on erroneous assumptions has shackled their ability to improve.

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