Apr 12

Beware taking the IT plunge

Professor John Seddon, CEO of Vanguard Consultants (with whom I have no connection, only admiration) has just issued the following wake-up call for business leaders investing in the digital bandwagon

The Big Consultancies (mea culpa – I was once a member of one of them – Ed.) too often peddle unnecessarily complex solutions to business problems, often not fully understanding the problem causes in the first place

For example, Western quality problems in the 80s/ 90s were addressed with TQM (Total Quality Management) which focused on culture change (and produced negligible if not negative results) when its very founders (Crosby, Deming and Juran) had shown  the solution was a process driven by simple statistical controls which never even got a mention

And now it’s complex IT solutions which are being peddled as the panacea, albeit written by back-room techies and purporting to save money and improve overall performances but which end up increasing costs and worsening customer service 

You might ask why intelligent people, both customers and suppliers, should allow such products to persist – perhaps another example of few people liking to admit they got it wrong?

Read on, about what Seddon says is happening on the front-line nowadays

 

I was astonished to receive a report from The Institute for Government telling us how Digital Public Services will save £46bn! Leave aside my frequent criticisms of Universal Credit (‘digital by default’) where I have explained why the service will never work in a digital mode (newsletters passim ad infinitum), except to say: why didn’t the authors have anything to say about why this digital ‘flagship’ is failing? Do they really think, as they imply, that public services are akin to Amazon, Uber and Google?

Unfortunately the public sector has no rudder of profit. So they should listen carefully to what private-sector organisations have discovered by jumping on the bandwagon; how it has driven costs up and had a deleterious impact on customers. As a result these companies have completely changed the way they tackle the design of digital services.

First off: why are we doing this? Again, leave aside the marketing blurb from the Big Consultancies that says ‘everyone is doing it, you’d better catch up’, ‘you don’t want to be a Blockbuster’ and ‘people expect to be able to do everything on their smartphone’. The true answer: because digital channels are cheaper. Well they are if they work. But all too frequently they haven’t worked. The first sign, as ever when any service is ineffective, is an incredible rise in the volume of failure demand – as customers are pushed down the digital channels, more and more call the service centres because the digital service isn’t helping them get what they want. This startling realisation – shockingly big numbers – opens private-sector leader’s minds to the problem.

Unfortunately recognising the problem isn’t the same as understanding how to solve it. Typically people jump to these assumptions: Failure demand is a cost (correct), the types of failure demand should be counted and investigated, in order to assign causes, and, as well, customers’ behaviour needs to be changed. Plausible but wrong. Failure demand is a signal of ineffectiveness; you won’t get far by blaming people or processes. The current rush to digital is not, as is often argued, like getting customers to change their behaviour to using ATMs instead of going into branches. In any event, ATMs worked for customers. Why?

The signal is telling us that the services, whether digital or not, aren’t working, are ineffective. The solution is to redesign the services. When you do that failure demand drops like a stone and you get a massive increase in capacity. Happy days.

As we got to work with leading financial services organisations on this problem we found the first step had to be repairing many newly-created digital services. Why spend millions building a ‘mortgage tracker’ digital app when the focus ought to be designing a mortgage service where the customer would never have cause to get in touch? Only by understanding customer demand can you begin to understand where digital services can work for customers (as ATMs did) and where you’ve created digital services that are institutionalising failure demand or created services that simply will never work with customer demands.

The latter takes me back to Universal Credit. Digital media are useless at dealing with high-variety demands. Yes, this means some of the newly-created digital services have to be abandoned. But easy to do when it comes down to a simple choice: stick with a costly endeavour that isn’t working for your customers and is driving your operating costs up or solve the problem by making the service effective in a non-digital way.

When you get over the repair work you can move on to the question of method: how are these new digital services being designed? Typically teams of designers, software engineers and Big Consultancy suits, costing eye-watering amounts, have been dreaming the services up, taking things the organisation does or could do and developing digital ‘solutions’. Something few people know is that as much as 80% of the coding that gets done never gets used (but you pay for it).

But the bigger problem is that the method is ‘IT first’. We help them adopt a method that puts IT last. Only when you understand demand in customer terms with knowledge about its context, its variety and its predictability can you then set about designing a service that works and then, lastly, you can consider what of this can be digitised. It’s not about changing customers behaviour to make them comply with our ambition to cut costs, it’s about changing the way we serve customers.

Effective services = Happier customers and lower costs.

And that’s the thing – focus on cost and your costs go up, focus on value and you drive costs out.

Apr 05

Time to change time at work

An interesting article by Business Leader columnist James Phipps, a ‘serial entrepreneur and investor’ and Exec Chairman of the Excalibur Group, about effective ways to improve employee productivity 

We see relatively little about how to improve the awful productivity we have in the UK.

We in the UK have a business culture which says you should work every hour available – indeed, if you do not, then you cannot be a committed employee, manager or owner?

I have worked my entire adult life between 50-90 hours a week until a few years ago – I always felt pressured to just “slog it out” every day, working many hours, as so many people told me that was the answer. No lunch breaks, no relief from work emails, calls or texts regardless of what holiday time you had. I had to take my laptop away with me on every holiday, sneak my Blackberry into the toilet so my long-suffering wife would not see it whilst I worked away.

I look back now in absolute astonishment at what an idiot I was.

Sure, when I took on the management buy out years ago there was a peak in efforts required – when your entire world is on the line you need to make it work – but suddenly a one off event became the normal routine and inevitably family and social life takes a dent along the way. But I could never see it for many years, until around three years ago – then, I did start to see it more clearly.

I have two daughters and a good mentor of mine told me from his personal, painful experience that his relationship with his daughter (now at university) has never recovered from the lack of attention he gave her growing up. Even legends of the last few decades such as Steve Jobs had regrets about their lives and it just led me to think how can I and my teams work smarter, not harder.

So began a cultural change that had to come from the leadership, from me. I closed the office down at 6pm and kicked everyone out if still there – I told them I didn’t care if they were going home to spend time with their spouse, partner, pet, hobby,  or favourite tree – but if they could not spend quality time out of work they would never be focused inside work:

  • I didn’t want emails flying around all hours of the day and night and especially not when people are on their sacred holidays.

  • We increased the holiday allowance by three days a year and gave everyone their birthday off each year.

  • We invested nearly £500,000 in a new end-to-end salesforce software deployment, transforming how we worked and engaged with our customers and each other.

  • We changed our telecoms, enabled everyone to have a laptop and got rid of all the desktops and encouraged working from home where possible.

I remember managers telling me it would be the end of the world, we would get no work done and productivity would fall through the floor.

I proved the point of leadership by announcing that each summer holiday I was taking eight weeks away with my family to spend quality time with them, the hours I had worked for so many years, I had built up a lot of holiday to take, I told everyone. I admit to being nervous and lots of logistical issues to resolve, but it forced the team to run the business without me and look at how they ran their own teams and become more efficient.

What happened instead in the last three years is the exact opposite of all the worst fears:

  • The team has flourished in the summers without me.

  • The business became far more resilient without me, far more productive and the cultural change has been transformational.

  • We gained ISO 9001.

  • We became Investors in People.

  • We became a Times Top 100 Employer (just retained it).

  • We have won numerous local, national and regional awards to the point our cabinet in reception is utterly full.

  • We have had record staff and customer feedback, industry leading, and all against a backdrop of having a lot less staff than all our competitors we look at for our size.

  • Our profitability has gone from £1 million to £1.5 million EBITDA over the same period.

  • There is not a single area of the business which has not been transformed.

And not on the back of everyone killing themselves for their employer, but getting 100% dedication, focus and a maximum productivity out of the team.

At national level, the UK is said to be 20% less productive than Germany, so they get things done by Thursday afternoon that we get done barely by the end of Friday. France ban work emails out of office hours, yet are nearly 20% more productive. The OECD said in 2013 that British workers worked an average of 1,669 hours a year, compared to 1,388 in Germany and 1,489 in France. How crazy.

The answer for me in our poor UK productivity lies with us business leaders – we are the busy fools.

We set the culture, we lead from the front. I was there and had to change and the business changed with me – the work/life balance is there now that was so lacking over my entire career. I could not have had my career without my wife, yet it’s so easy to take your family and friends for granted as you focus solely on business successes and I know I did.

Invest in your team, your technology and your infrastructure as I did

It’s painful but gives the competitive advantage we are all looking for in business.

Apr 02

International trends for main sectors

As economies develop, their three main sectors – agriculture, manufacturing and services – tend to follow specific patterns:

  • The agriculture sector shrinks

  • The manufacturing sector grows initially, and then begins to decline in favour of the services sector

  • The services sector grows

In particular, a study of trends in 24 countries over the period 2000-14 by economists Ana Maria Santacreu and Heting Zhu came up with the following results

                                         % CONTRIBUTION OF EACH SECTOR

                                           Agriculture   Manufacturing   Services

Share employment                2                     17                        81

Share value added                 5                     17                       78

Share exports                          7                    92                         1

Share R&D spending             1                    65                      34

Productivity growth             33                   42                      25

 

Whilst the first broad observations ring true about the courses each sector will take as an economy develops, the above specific figures, interesting though they may be, raise more questions than they answer – for example:

  • Which 24 countries were sampled?

  • What was the size of each economy?

  • What was the mix of undeveloped, emerging and developed economies?

And the productivity growth claims offer further proof that productivity measurement at the national level is not only flawed but misleading

However, we do know that, as nations climb the skills/ economic development ladder, they tend to offload their basic industries – i.e. those needing more hands than heads such as the manufacture of steel, shoes or clothes – such sectors often clock well as high-productivity sectors

But many of the service sectors which replace them have relatively low productivity levels – and are lower paid

So inevitably, as nations develop along this path, their apparent productivity and average wage levels stall

Apr 01

Absentee leaders are worst of all

 A surprising insight by Scott Gregory, CEO of Hogan Assessment Systems, was recently published in the prestigious Harvard Business Review – extracts follow

______________________________________________________

  • A young friend recently remarked that the worst boss he ever had would provide him with feedback that always consisted of “you’re doing a great job” but they both knew it wasn’t true — the organisation was in disarray, turnover was excessive, and customers were not happy.

  • My friend was giving it his all, but he needed more support and better feedback than he received – he wanted a leader who would be around when he needed one, and who would give him substantive advice, not platitudes

  • As a measure of his frustration, he said, “I would rather have had a boss who yelled at me or made unrealistic demands than this one, who provided empty praise.”

  • His manager was not overtly misbehaving, nor was he a ranting, narcissistic sociopath – rather, he was a leader in title only — his role was leadership, but he provided none

  • My friend was experiencing absentee leadership – and unfortunately, he is not alone

  • Absentee leadership rarely comes up in today’s leadership or business literature, but research shows that it is the most common form of incompetent leadership

  • Absentee leaders are people who were promoted into management, and enjoy the privileges and rewards of a leadership role, but avoid meaningful involvement with their teams

  • Having a boss who lets you do as you please may sound ideal, especially if you are being bullied and micromanaged by your current boss – however, a survey of 1,000 working adults showed that eight of the top nine complaints about leaders concerned behaviours that were absent – employees were most concerned about what their bosses didn’t do

  • Research shows that being ignored by one’s boss is more alienating than being treated poorly

  • The impact of absentee leadership on job satisfaction outlasts the impact of both constructive and overtly destructive forms of leadership:

    • Constructive leadership immediately improves job satisfaction, but the effects dwindle quickly.

    • Destructive leadership immediately degrades job satisfaction, but the effects dissipate after about six months.

    • Absentee leadership takes longer to appear, but it degrades subordinates’ job satisfaction for at least two years:

      • Also, it’s related to a number of other negative outcomes for employees, like role ambiguity, health complaints, and increased bullying from team members

      • And it creates employee stress, which can lead to poor employee health outcomes and talent drain, which then impact an organisation’s bottom line.

  • Most organisations don’t confront absentee leaders because they have other managers whose behaviour is more overtly destructive

  • Indeed, because absentee leaders don’t actively make trouble, their negative impact on organisations can be difficult to detect, and when it is detected, it’s often considered a low-priority problem

  • Thus, absentee leaders are silent organisation killers:

    • They clog an organisation’s succession arteries, blocking potentially more effective people from moving into important roles while adding little to productivity

    • They rarely engage in unforgiveable bouts of bad behaviour, and are rarely the subject of ethics investigations resulting from employee hotline calls

    • As a result, their negative effect on organisations accumulates over time, largely unchecked

  • Indeed, the chances are that your organisation is unaware of its absentee leaders because they specialise in flying under the radar by not doing anything that attracts attention whilst slowly harming the company

  • Given it’s organisations with the best leaders which usually win, then the war for leadership talent is ongoing and serious

  • Reviewing your organisation’s management positions for absentee leaders and doing something about them can significantly improve your talent management arsenal and so overall performance

  • Doing nothing about them is easy – just ask any absentee leader

Mar 28

Higher wages lead to higher productivity

According to Marshall Auerback, a market analyst and commentator, after a year-long analysis of seven developed countries and six sectors, global management consultancy company McKinsey reported that: “Demand matters for productivity growth and increasing demand is key to restarting growth across advanced economies.” 

If deficient demand is not considered relevant as far as productivity goes, fiscal policy is diminished because there’s little point wasting limited financial resources on fiscal stimulus or higher real wages

And economic inequality doesn’t even factor into the equation. Rising inequality, growing polarisation and the vanishing middle class have all been seen as unfortunate, but inevitable, byproducts of globalisation rather than drivers of slow potential growth

However, there is a historical basis to support the authors’ view that demand does matter when considering the issue of productivity:

  • The post-WW2 period until the OPEC induced recessions of the early-1970s was a time during which wage gains grew in line with productivity increases

  • The resultant higher wages provided an incentive for firms to invest in labour-saving machinery, with the upshot that productivity growth surged as a result

  • After then, the link between productivity and wage gains was severed – more national income went to corporate profits whilst wage gains were suppressed because labour was seen as a cost input, not a source of demand

  • This redistribution of national income in favour of corporations and away from the workforce removed the incentives businesses had to invest in the modernisation of their capital stock, ultimately impacting productivity growth

  • Even as profits rose, incomes remained stagnant for a large proportion of the population

  • Globalisation and offshoring entrenched this new low wage-growth orientation of businesses, in combination with domestic labour market deregulation and de-unionisation.

The problem of deficient demand and wage stagnation was masked for a time as the use of financial engineering pushed ever-increasing debt onto the household sector as they used borrowing to compensate for stagnant growth in income

 A Bill Mitchell wrote:

  • “Riskier loans were created and eventually the relationship between capacity to pay and the size of the loan was stretched beyond any reasonable limit”

  • “The household sector, already squeezed for liquidity by virtue of non-existent wage growth, was enticed by lower interest rates and vehement marketing strategies of financial engineers to take on more debt.

The new global economy enabled the rich to have their cake (profits) and eat it (by channelling them to offshore tax havens)

Corporate CEOs, the so-called risk-takers, increasingly negotiated to have their compensation packages tied to stock price appreciation, which incentivised companies to use cash flow for stock buybacks rather than invest in plant and equipment

The scale of these buybacks was analysed by economics Professor William Lazonick, who documented that between 2003 and 2012, the 449 companies who comprised the S&P index used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market

As stock prices rose, so too did the CEO/directors’ overall compensation packages

The authors of the report cite the famous example of Henry Ford in the early part of the 20th century. Ford had the rare insight among entrepreneurs of his day that workers were not simply a cost input, but an important source of demand for the products they were producing: “When other employers followed suit, it became clear that Ford had sparked a chain reaction. Higher pay throughout the industry helped lead to more sales, creating a virtuous cycle of growth and prosperity.”

But Ford was not the originator of this insight.

John Atkinson Hobson, a British economist in the latter part of the 19th century and first part of the 20th century, was one of the first to champion a high wage economy:

  • He argued that wage suppression was unhealthy and immoral

  • He advocated redistributing income to low earners—i.e. moving toward greater equality— to reduce the capacity of the wealthy to save and place more spending power into the hands of those with higher consuming propensities

  • He also supported greater labour unionisation and was one of the early advocates of social welfare and public education

  • He thus promoted the notion of a “high-wage economy” to mitigate the problem of “an accumulation of capital in excess of that which is required for use”

Hobson and his co-author, A.F. Mummery, made the case that if productivity growth outstripped real wages growth, you would have “under-consumption,” the upshot being that overproduction would ensue

Such insights are finding resonance today

We have an economy where workers who traditionally relied on real wages growth to fund consumption growth now find themselves increasingly cut off from the fruits of national prosperity as their wage gains have been suppressed in the interests of securing higher profits.

The usual justification for this shift in income away from workers to corporations is that the latter use the resultant profits to stimulate investment, which will ultimately benefit the company as a whole, including its workforce – but corporate profits historically used for productive ventures have instead gone into stock buybacks, fuelling the speculative asset bubbles that have percolated across the global economy.

The substantial redistribution of national income toward capital over the last 30 years or so has undermined the capacity of households to maintain consumption growth without recourse to debt, and so increasingly hindered the economy’s growth capacity

Conclusions:

  • Economic stagnation and sluggish productivity are the outcomes of conscious policy choices

  • They reflect a profound failure of sensible macroeconomic demand management

  • McKinsey are only the latest to affirm this economic reality

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