A License to Steal
The story behind Halliburton is well known and has been documented in many articles, books and movies as a company that constantly defrauds the US government. The behavior of Halliburton regarding service management and planning, as documented in the move Iraq for Sale, in Iraq is absolutely shocking.
This movie shows Halliburton 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, Halliburton and KBR have every incentive to increase the cost, as their profits increase in a linear fashion. Secondly, neither Halliburton 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 of this, but one that really resonates is the fact that Halliburton 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, Halliburton simply 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. They are motivated to not repair even the most expensive items because they make more money this way.
That Halliburton 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, and I want to keep this article focused on service topics.
Service Parts and Maintenance: Making the Effort in 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 Halliburton example demonstrates this is not always the case, and not the only explanation. Other examples of service incapability are stretching the credibility of the lack of education argument.
The Math of Destruction
If Halliburton 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 plus the margin. When will this change? No time soon. The Pentagon is now highly dependent upon Halliburton and KBR for all types of essential functions. Secondly, Halliburton continues to contribute mighty to the political process and have hired a number of influential ex-Pentagon officials, that mean Halliburton will continue to get contracts into the foreseeable future no matter what they do and how much fraud they commit, they have a blank check to rip of the government.
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. Automotive repair shops are known to replace parts that are not necessary to replace. 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 Halliburton 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. It’s a few years old now, but not much has changed, so it is still quite valid.