A License to Steal

The behavior of Haliburton regarding service management and planning, as documented in the move Iraq for Sale, in Iraq is shocking.

[youtube=http://www.youtube.com/watch?v=6cJlJudDtVE]

This movie shows Haliburton and KBR deliberately not repairing items in order to charge the government for purchasing new items. This is because of how the contract with the government is structured. It is cost plus, and therefore, Haliburton and KBR have every incentive to increase the cost, as their profits increase in a linear fashion. Secondly, neither Haliburton nor KBR appear to have any business ethics, and therefore, they are doing what they can to increase the costs as much as possible. There are many examples, but one that really resonates is the fact that Haliburton will have semi-tractor trucks that break down on the side of the road in Iraq because they either do not change the oil, or check the tires, or even order or stock spare tires. When this happens, Haliburton sets fire to the truck, destroying them (so the insurgents can’t use it.) They then charge the government for a new truck, plus their cost plus margin. That Halibutron is simply destroying large capital equipment items is amazing, but it is supported by multiple sources. Another form of fraud is related to how equipment is leased, but that gets into a divergent area of malfeasance.

Service Parts and Maintenance: Making the Effort Service

Organizations and service parts management are in a poor state in the US. The official explanation for this is the philosophy of neglect. The standard The line of reasoning goes something like this:

“Companies want to improve in service parts planning because its good for their customers, the only issue is an issue of education.”

For some time, we personally believed this. However, the Haliburton example demonstrates this is not always the case. Other examples of service incapability are stretching the credibility of the lack of education argument. If Haliburton can charge the government $90,000 + its cost plus contract for a new truck, they would rather do that then charge the government for a new tire. When will this change? No time soon. The Pentagon is now highly dependent upon Haliburton and KBR for all types of essential functions. Secondly, they continue to contribute mighty to the political process and have hired a number of influential ex-Pentagon officials, that mean Haliburton will continue to get contracts into the foreseeable future. This is an example of two companies that operate in this manner. However, there are more. The assumption that every company cares about service parts needs to questioned in light of their institutional incentives. if a company can make more forcing a customer to buy a new product, they may prefer this over servicing an old item. More than likely some company representatives will read this post and question whether its anti-business and whether a blog like this should just focus on “the positives” of service parts and maintenance. That opinion is simply doctrinal and does not have much validity outside of the confines of a corporate PR meeting. If service management is to be understood then its underlying assumptions must be questioned. It also helps determine what companies and areas to focus upon. For instance, if I were a consulting or service software company I would not bother offering consulting or software services to Haliburton in Iraq. Lets just say, they prefer to buy new….or in fact for the taxpayer to buy new. The whole movie may be seen here. Its a few years old now, but not much has changed, so it is still quite valid.

References

http://www.publicintegrity.org/projects/entry/297/bio.aspx