Jun 18

SMEs – Your nation needs you

Help SMEs get practical about solving the productivity puzzle

Under the above heading, Alison Rose, chief executive of commercial & private banking at NatWest wrote the following article which all SMEs would do well to consider

Businesses don’t run on theory – they are focused on the inherently practical (source: Getty)

As we gear up for Brexit, the UK’s flagging productivity performance is continually in the fore of media headlines and economic analysis

Following a further fall in productivity in the first quarter of 2018, policy experts and economists were quick to update their models and offer opinion over blame – however, this economic self-deprecation doesn’t actually make any difference

So what could?

It isn’t that British SMEs don’t have the drive and ambition – nor is it that other countries, such as Germany, the G7’s most productive, are naturally better at enterprise – Britain has an impressive history and vibrant culture when it comes to entrepreneurism – and yet the productivity puzzle persists

Part of the problem may be the academic language of productivity which not only leaves businesses cold, but can feel meaningless, especially for SMEs

In theory, productivity is a simple equation: output divided by input – but businesses don’t run on theory – they’re focused on the inherently practical

At NatWest, we recently spoke to 2,000 SME leaders about their current business priorities – raising productivity came at the bottom of the list, with only one in five placing it top

It’s clear that there is a persistent disconnect between diagnosing the productivity gap as an economic contagion at the macro level, and the treatment which has to start with businesses – especially SMEs – on the ground

We need to get better at focusing on the treatment side of things by coming up with a more practical perspective – most business leaders I speak to understand the general problem, but what our data shows is that they don’t always see how it applies to them and what they could be doing

This is where advisers and lenders of all shapes and sizes can step in, building partnerships of real value to SMEs

But it also means understanding our customers’ businesses and their needs

Most SME leaders are time-poor and have a vast range of roles and responsibilities, from finance director to the shop floor – and if we don’t make tangible suggestions, focus quickly returns to the day job

As I have learned, the key is to help businesses ask themselves two practical questions:

  • Can we cut out waste to become more efficient?

  • What are the steps we can take to become a better business?

This moves the conversation on from the theory of productivity to broader strategies that get to the heart of helping the majority of SMEs

Discussions about productivity often centre on manufacturing – we talk about investing in technology and machinery to improve efficiency, so checking that the right tools are being used to produce and sell products is an obvious first step

But for most businesses, their capacity to change, improve and innovate is interwoven with the performance and attitude of their people:

  • Innovation is not confined to the laboratory – it includes investing in staff, not just in terms of skills and development, but also their enthusiasm and satisfaction

  • Creating the right workplace culture and organisational structure, providing decent, tailored benefits packages, and focusing on employee health and well-being has the ability to improve individual performance, retain talent, and create value

It is these intangible or knowledge-based assets, often inseparable from the people who work in SMEs themselves, which can add billions to the UK economy

Getting better at business is made up of small steps, not silver bullets

And it’s the people who run SMEs who know this best

Jun 18

Communism versus Capitalism

Communism has been defined as a system where:

  • People work according to their ability and receive according to their needs

  • All big decisions are made at the centre

  • All data is processed at the centre

Capitalism, on the other hand, is an alternative where:

  • People are free to buy/ sell/ invest in whatever they like

  • They can make their own decisions

  • Good choices soon follow – mistakes are soon spotted and corrected

  • National data is made available to all

Matthew Parris in The Times made the distinction clearer:

  • Free market competition is thought by some to be wasteful

  • Competition fragments provision, duplicates services in one area, forgoes economies of scale, creates uneven provision across the country, creates an invidious incentive to outperform comrades and siphons off money to profiteering shareholders

  • Co-ordination, collaboration and co-operation are needed across all sectors

  • Different materials which are delivered by different suppliers to get a cheaper deal must be stopped – as must all performance-related bonuses

  • The state should match supply to forecast demand – it can do this better!

  • And set fair prices, fair wages and agreed standards for quality

Hence communism failed

And given “productivity is the guts of capitalism” according to Warren Buffett, capitalist supreme, it’s interesting that Deng Xiaoping, leader of the People’s Republic of China, also said: “without high productivity, socialism is nothing but a boast”

 

 

Jun 10

Competition drives innovation

That lesson should have been fully ingrained in the 1950s, when Russia beat the United States into space and permanently retained the lead in long-duration orbital flight.

And it should have been reinforced when Japanese automotive technology led the world in the 1980s on quality and customer loyalty – a lead that persists to this day.

Instead, the United States is now leaning on trade measures in an attempt to regain an imagined industrial supremacy.

In the triumphant postwar era of the 1950s and ‘60s, the Detroit-based auto industry felt no pressure to improve quality. Instead of gunning for unbeatable improvements in durability or reliability, the Big Three habitually focused on faux-aerospace styling and horsepower wars. It’s not that American industry didn’t have the know-how – the total-quality system was already proven and embodied in the country’s own wartime quality guru, W. Edwards Deming, who revolutionized military production.

Ignoring Mr. Deming was the United States’ first and biggest mistake in the past half-century. It was easy to ignore him at a time when the world needed U.S. products to rebuild, and imports to the United States were largely blocked. Mr. Deming was roundly rejected at home, based on the myth that pursuing a total-quality agenda would needlessly cost the car makers money, so car bodies kept rusting, tires kept exploding and crashes kept killing consumers. More ominously, fuel economy remained stagnant with little learning about how to rein it in. Without foreign competition, complacency flourished. No one had any idea of the coming cost.

In 1950, Japan was a new military and industrial ally that desperately needed to catch up. Mr. Deming unfortunately became the United States’ most important export, personally teaching and instilling the quality culture in Japanese industry. The United States received no payment. Instead, this singular brain drain nearly wrecked Detroit as its auto industry fell behind Japan in both production efficiency and product quality.

By 1980, two oil crises ensured that small Japanese cars would earn a large share of the U.S. market. Less well known than the vaunted reliability of Japanese cars, the focus on quality also resulted in great financial success. Waste was eliminated along with repairs in the factory and, as a result, productivity at Toyota factories outpaced GM by three times or more. Profits were stable, and even though Detroit belatedly adopted Japan’s methods, the financial cost to the U.S. economy dwarfed the supposed expense of Mr. Deming’s methods. Foreign competition in the 1950s might have forestalled the pain and the cost.

Now that Canada has grown into a major supplier of U.S. industrial metals and consumer goods such as cars, the country has also become a conduit for technological influence. In addition to factories owned by Japanese and South Korean auto makers, Canada has a significant domestic parts manufacturing sector. Combined, these continuously feed new ideas into U.S. industries through exports. President Trump’s proposed raising of tariffs simply encourages a more insular United States and reduces access to these improvements. Less competition in the technology realm means that it becomes easier to emphasize cheaper instead of better. Tariffs hold everyone back from advancements in technology.

Recalling the space race should remind us that competition spurs advancement.

Focusing on trade balances and tariffs harkens back to an oblivious era of cost avoidance in business, exactly what Mr. Deming warned against.

In a scientific and industrial economy, the best way to succeed is to improve everything we do by applying science. Looking back to an era when industry was protected by import quotas and high tariffs can only lead us down a destructive path.

P.S. Joe Atikian is the author of Industrial Shift: The Structure of the New World Economy.

Jun 10

‘Silver Army’ advances

Excerpts follow from an article about the advancing ‘Silver Army’ by Gary Rotstein in the Pittsburgh post-gazette:

The future of older workers

The speakers warned about the dangers of age discrimination in the workforce and assumptions about the so-called “silver tsunami” that focus on negatives and overlook the value of people in their 50s, 60s and beyond.

Nearly 27% of people aged 65-74 were working or seeking work in 2016, an increase of nearly 10% from two decades earlier, according to Bureau of Labor Statistics data.

And that age group’s number in the workforce will increase by a whopping 46% over the next 10 years because there will be more of them to start with and they are increasingly likely to keep working beyond 65, either from seeking continued purpose in their lives or driven by the basic need for economic security.

“People are healthy … but people are not saving for retirement in a way that necessarily lets them quit working at 65 if they want” said Patricia Buckley, managing director of economics for Deloitte.

Among the other themes stressed by speakers were:

  • The aging process has great individual variability, rendering inaccurate any statements about older adults’ inability to adapt to new technology in the workplace.

  • In mid-life and later, the brain’s processing speed typically slows in learning new tasks, but older workers often compensate for that by virtue of their greater experience, knowledge, vocabulary and other assets.

  • With the growth of telecommuting and part-time and flex-time positions, as well as reduced emphasis on physical labor, savvy employers have the opportunity to make better use of older workers than they ever could before.

“We hear a lot of doom and gloom because societies [across the world] are gaining all of these old guys and girls,” said Ursula Staudinger, a Columbia professor, lifespan psychologist and aging researcher, who countered that older adults are retaining brainpower better than was the case with prior generations.

She said:

  • “Continuing their work longer is one way they are helped”

  • “Later retirement buffers cognitive decline as active workers maintain social and intellectual stimulation and continue learning in ways that benefit the brain’s plasticity instead of letting it atrophy from disuse”.

However, a number of challenges exist for this expanded older workforce:

  • It’s not always easy to match up their abilities with where jobs are expected to be most available.

  • Some may never have received the kind of technology training that would prepare them for specialized fields, and others may become ill-suited in later years for physical trades like welding or serving as aides who assist the frail population with daily tasks.

  • Retraining to add new skills would help many workers in mid-life or later, but costs of any new private education can be prohibitive for the individuals, and their supervisors often overlook them to prioritize younger workers for company-sponsored education.

  • There are growing concerns that employers get away with age discrimination by shedding older workers in a way that would be far harder in cases of racial or sexual discrimination.

  • And once they’ve been jobless, older workers experience more difficulty than younger ones in finding new employment.

“The longer you’re unemployed, the more likely it is that you’ll remain unemployed,” stated Carl Van Horn, director of the Heidrich Center for Workforce Development at Rutgers University, who noted few programs exist nationally like one at Rutgers that focuses on assisting older, out-of-work individuals.

Multiple speakers suggested that the restructuring of the nation’s age demographics and labor pool actually calls for a societal shift in the perception of life stages. Instead of ending schoolwork in young adulthood, filling a single occupation into one’s 60s and entering non-productive retirement thereafter, people and institutions need to use continuing education programs and other means to assist transitions through various roles.

If these potential late-life contributors aren’t kept engaged, it’s society — and not just those aged members — that could end up the loser.

“You could say older adults are the world’s only increasing natural resource,” Dr. Fried said, adding that “some new thinking about it is needed.”

Jun 05

Red-tape stifles productivity

Interesting views appeared in the Daily Telegraph the other day from Sir John Timpson, chairman of the high-street services provider, Timpson. He was asked what he thought the main issues were when it comes to the UK’s productivity problem – his reply is presented below, en toto

We’re a nation of pessimists, beating ourselves up about a lack of investment, our poor work ethic and the difficulties faced by an older workforce, but none of these often-quoted factors reveals the main influence on poor productivity. It’s modern management that gets in the way by filling businesses full of governance, compliance, best practice and process.

The next time that you’re in a city at commuter time, look at the hordes of office workers who pass you by. What jobs do they all do? How many make a direct contribution to the end product of their employer? The sad thing is that at least half of their roles probably make no difference and some actually put obstacles in the way of colleagues who do the real jobs that make the money.

Twenty years ago, we scrapped the term “head office” and called our support service centre Timpson House. We changed the name to change our culture. Previously, everyone thought that head office was a group of people who ran the business and told everyone else what to do. Now we expect Timpson House to provide support to the customer-facing colleagues who really create our success. We stopped telling key cutters and watch repairers how to run a shop and trusted them to use their initiative to give customers a better service.

In the Sixties, our office was full of clerks using adding machines, Kalamazoo sheets and Kardex records that analysed our stock and sales. In the Sixties, a salesman promised that his new computer would replace our old-fashioned systems within three years.

In truth, it took two decades before all the clerks and adding machines had gone, but they have been replaced by a comprehensive and more expensive crew of compliance officers. Sticking to all the legal requirements and ticking every box is an expensive game.

Our Government and the European Parliament have developed a raft of regulations that now fill central offices with new monitoring departments that make little or no contribution to the main aims of a business.

The General Data Protection Regulation, or GDPR, is leading to the appointment of thousands of data protection officers – some of whom will want to build a new department to monitor performance against the latest guidelines. They will expect to be paid as much as the health and safety controller, the director of risk, the gender pay gap tsar and the compliance controller.

These specialist skills are in such demand that compliance managers, who have little to do with creating commercial success, are paid some of the highest salaries in the business. No doubt some companies have already responded to the plea for a more productive Britain by setting up a productivity department, headed by their first productivity controller, who will be drafting a three-year plan, creating a communications framework and recruiting a team that can cope with the extra workload.

These powerful people not only cost a lot of money, but also get in the way of success. Like many modern HR and finance directors, they believe that they have the authority to control the company. Their obsession with setting rules and regulations isn’t just a business problem; it explains why it’s so difficult to run the NHS, schools and social services.

It’s time to put these do-gooders back in their place. As entrepreneurs, we must be courageous and stand up for common sense.

Sadly, the rigid processes produced by a controlling head office can have unintended consequences. Many measures that are honestly introduced to give customers a better service can have the opposite effect; front-line colleagues, held to account by their line managers, become so terrified of breaking the regulator’s rules that they fail to give customers what they want.

Eventually, following the rules could become the only important measurement – and more important than teaching children, treating patients and giving great customer service.

I’m beginning to understand why some people suggest that the burden of regulation and cost of compliance could be a major cause of the next recession.

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