Monday, 13 April 2015

ONE OR TWO REFLECTIONS FOR MANAGERS



Why do we listen? Economists had a collective failure to predict the financial crisis and unwisely ignored John Maynard Keyne’s advice to make sure they were thought of as humble, competent people. Nonetheless, they are an influential group. They are retained as expensive consultants, advise politicians, and write articles for respected publications. As the subject has become more mathematical, their confidence has grown.  The Economist magazine has pointed to the ‘odd thing’ that we believe in economists almost as much as they believe in themselves. Journalists and politicians like strong argument and clear answers. Most academics are diffident. An economist talks with all the confidence of a witch doctor.

Inflation.  0% has been declared as good news by the Government.  In truth, it is a sign of failure. The target is 2% and for good reason.  This objective allows room for rising prices which help to stimulate demand.  If periods at below the target become prolonged deflation, then purchase of goods and services could fall as a result of a combination of delayed expenditure by consumers and a rise in the real value of debt.

Unaltered perception.  Hilaire Beloc and Cecil Chesterton wrote in their 1911 book, The Party System: ‘The House of Commons has ceased to be an instrument of Government.  Its ancient functions have been killed under the prolonged and continuous actions of hypocrisy.  It affords today ... no more than an opportunity for highly lucrative careers.  That career is founded upon the bamboozlement of the public (whose faculty for being duped these professionals hope to prey upon indefinitely), with the complicity of nobodies content to write MP after their name as a sufficient reward for supporting the Party System; to whom, of course, must be added the lawyers and businessmen for whom Parliament offers definite financial rewards, and that in proportion to their indifference to their representative duties.’

Wealth and inequality. Thomas Picketty is the author of the best-selling book on economics, ‘Capital in the Twenty-First Century’. He is not the first person to suggest that wealth assures increased assets.  This tends to bring unsustainable inequality. Nonetheless, when his conclusions were published last year, they received a warm reception. Earlier, Barack Obama said economic inequality is the ‘defining challenge of our time’. Moreover, the issue was seen as a major threat for the world at the recent World Economic Forum in Davos. Financial inequality has been regarded as a social topic for many years. However, there is evidence now that its effect on economic growth and employees’ well-being is quickly adding this subject to agendas for managers. It’s essential this awareness does not become a resentment of wealth.

Tribal politics going, going ...  Loyalty to a particular political party has decreased in the UK.  The major ones have converged ideologically in recent times. Scandals seem to be a constant feature. These factors make electors feel there are difficulties in finding distinctions between the offerings and understanding why their votes matter. The Conservative, Labour and Liberal Democrats have lost large numbers of members. Yet, there was a remarkably high (84.6%) turnout in the recent referendum in Scotland.  So, it is reasonable to conclude that voters can be motivated into participation when there are clear electoral choices and important consequences. But it might be too late.  There must come a time when decay of political parties will be followed by dilapidation of the structure of power they inhabit and preserve. Change is on its way. This can revive, as well as undermine.  The main opponents will be present politicians of all shapes, colours and sizes.  They will protect their over-populated chambers.

Dangerous complacency.  Those who travel the country lanes of industry and commerce will have noted a whiff of complacency. Just the odd comment : ‘our economy performs relatively well in periods of slow growth elsewhere’ or ‘we are responding well by reducing costs’ or ‘we have been so bad that we do not have to do very well to do better’.

Doers.  ‘What we think, or what we believe is, in the end, of little consequence.  The only consequence is what we do.’  John Ruskin (1818 – 1900).

And.  ‘So much of what we call management consists of making it difficult for people to work.’  Peter Drucker;  American academic/economist, born in Austria.

Monday, 30 March 2015

HERE AND THERE



General election in May.  Chancellor George Osborne stood up in the House of Commons on Wednesday 18 March and described a wonderful country.  It is removing risks by reducing the size of the state to a sum that can be funded by collected taxation.   The economy is being rebalanced away from financial and other services towards businesses which make things.  Political and economic emphasis has shifted from the south to the north.  The priorities of social expenditure encourage productive citizens. Budgets based upon gimmicks have been replaced by fiscal discipline.  The sun is starting to shine on the UK, Mr Osborne said, ‘and we’re fixing the roof’.  The opening sounded good and the jokes were amusing, too.  But the actual budget did not satisfy the promise.  In 2014, the central government’s expenditure was £765 per person more than tax revenues.  That figure does not include the state’s unfunded liabilities and at some point we have to lower the debt.  The foundations, as well as the roof, are important.  George Osborne took potshots at disarming the Conservatives’ critics or charming wavering voters.  Farmers got some tax relief.  English voters in the North got a nod to devolution and the growth of a ‘northern powerhouse’.  Waving SNPers in Aberdeen received tax cuts for North Sea oil.  ‘Help to Buy’ Isa, no personal taxation on the first £1,000 of savings interest, a flexible Isa on withdrawals and repayments, reiteration on freedom for holders of annuities.  Certainly, we may now have a more complicated tax system.  The intentions were well-presented electoral pragmatism.

Too big to manage.  Past and present senior managers and directors at HSBC have claimed they do not know what all their employees actually do and have no personal responsibility for decisions or actions.  This is a sad story.  They receive generous salaries and conditions.  The bank has around 6,600 offices in 80 countries and a quarter of a million, or so, staff.  Take a step back and think about that for a few seconds. Martin Parker, University of Leicester, points out that this is the same as everyone in Stoke-on-Trent having the same employer.  Then imagine these people dispersed around the world, working in different languages, legal systems, employment practices and cultures. We must expect HSBC’s top brass and their peers to know what’s going on.  Maybe we ought to reconsider the discussion?  Is it possible that ‘too big to fail’ is really ‘too big to manage’?  Beyond the major banks and accountants, Tesco employs nearly 600,000 people, Walmart 2.1 million, Foxconn (Apple’s products) and so on.  It is hard to avoid the conclusion that super-large organisations are, by the standards of normal firms, dysfunctional conglomerates which struggle to allocate their resources.

New incentives. The Professional Manager magazine has attempted to rate effective non-monetary motivators in businesses.  These are:  Flexibility; people are looking for elastic arrangements relating to employment.  An increasingly vocal opinion is that this is easier to install with relatively new technologies, and most companies are services or knowledge-based products.  Autonomy; according to Daniel H Pink, the wish to direct our own lives is our ‘default setting’, undermined only by ‘outdated notions’ of what management is all about.  Mastery;  this is defined as ‘the urge to get better at something that matters’.  It is an impulse, where improvement is the goal, far more than ultimate reward. Gratitude; many managers manage by finding faults, not by deserved praise.  To be told one is doing a good job is a motivator. Conditions;  a large number of staff spend most of their working day at a desk or bench.  Managers must focus on the physical place, along with communication, feedback and interpersonal relationships.   

England’s national sport?  England’s cricket team returns from the World Cup with defeat and humiliation.  They were thrashed by Australia, New Zealand and Sri Lanka.  Then a bouncy Bangladesh hit the final nail in their coffin.  Even the mildest of observers knows that English cricket is the architect of its own misery.  The England and Wales Cricket Board is greedy and smug.  The heavy schedule to which it committed the national team has worn out and bored the players.  The coach seems to speak a mysterious managerial language.  Eoin Morgan, captain of the one-day team, is an Irishman who refuses to sing the national anthem and keeps getting out for a duck.  Maybe the saving grace is that the public does not seem to care much.  Is it possible that cricket in England is a dying game?

Sounds right. ‘Imagination was given to man to compensate him for what he is not, and a sense of humour to console him for what he is’.  Francis Bacon (1561 – 1626); English philosopher and statesman.

Change is everywhere. ‘Like all weak men, he laid an exaggerated stress on not changing one’s mind’.  W Somerset Maugham (1874 – 1965);  English writer.

Tuesday, 17 March 2015

UNCERTAINTY THROWS A DARK SHADOW



Benefits! There is a feeling that any economic recovery is not trickling through to lower income groups, but higher earners are gaining from faster growth. The financial results of supermarkets emphasise this trend. Intense competition from discounters such as Aldi and Lidl have taken sales from the likes of Sainsbury and Tesco. Even premium outlets, for example Waitrose, have felt the pinch on margins, but not so severely on turnover. However, a lot of businesses complain about shortages of skills and this is leading to faster increases in pay. In certain sectors, notably construction and the financial sector, these issues are stimulating significant changes. They will not stop at the present points of pressure. Confidence of businesses has taken a dip in early 2015 according to the Institute of Chartered Accountants/Grant Thornton Business Confidence Monitor. However, performances have been reasonably good. There is universal reticence relating to the general election on 7 May. Uncertainty is in the air. Buoyant spending by households, fuelled by higher credit, will help consumers to drive economic growth this year.

Rising to the predicted circumstances. Several managerial plans must be in place for the expected rises in interest rates: (1) reduction in working capital to compensate for earlier assumptions of consistently low interest rates; (2) additional determination to increase productivity and reduce labour costs; (3) preparation for pay awards in the knowledge that inflation (retail price index) will then start to move upwards; (4) acknowledgement that the targets for public sector pay are unlikely to hold, with the consequential impact on costs; (5) on a more nitpicking point, devise an exhaustive examination of transport and distribution costs. They will be subjected to particular pressures; and (6) awareness that the private sector will need to restore profits and might well risk increases in prices.

Home ownership. In just ten years, the proportion of people aged 25 – 34 who own their own dwelling went down from almost 66% in 2003 – 2004, to 36% in 2014. Nearly half that age group now rents from private landlords. At the other end of the ‘property ladder’, the number of asset-rich households who own their principal residence outright, without a mortgage has grown rapidly to 7.4 million. For the first time, the number of mortgage-free occupants exceed the number (6.9 million) repaying a loan. One method of accumulating some wealth in a lifetime has diminished dramatically. These figures indicate a country on a road to a more insecure, unstable and unequal future. Ownership of a home is becoming the preserve of richer and older citizens.

Some are from above? Everyone has seen political leaders who give the impression of a thirst for being living gods and having the associated authority. These oddities have not made much progress in the last hundred years. However, Finance and Management has reminded us that some enthusiastic supporters of Narendra Modi, India’s new prime minister, say he is a god and have built a temple dedicated to him. Mr Modi has declared his dismay and announced ‘This is shocking and against India’s great traditions’.

The Mentor Charles Handy is 83. He has written a new and essential book, ‘The Second Curve – thoughts on reinventing society’ (Random House Books). The high standard remains. Charles Handy has a gentle, but incisive voice, probing questioning and wondering. For forty years, he has been the UK’s leading observer of the world of work. ‘Work is what we do, not where we go’, he says and then considers that employment itself has become more precarious: it may only be a matter of time before the contractual organisation becomes the norm. However, flexibility should be embraced to make working life better. ‘Growth should always be the means to greater purpose, rather than an end in itself’. The unifying theme of this book is that change is needed. However, he has retained the stance that companies should be concerned with creating wealth for all, not only shareholders.

We need more. ‘People don’t believe in ideas, they believe in people who believe in ideas’. Scholar Zeev Mankowitz; quoted in The Guardian.

Feeling important. ‘All governments like to interfere; it elevates their position to make out that they can cure the evils of mankind’. Walter Bagehot (1826 – 77); English economist and journalist.

Monday, 2 March 2015

CHANGE IN OUR SIGHTS


Speed in the UK.  Changes are everywhere.  Digital products and services account for an increasing part of our economy.  Only the first unit requires capital and labour.  Subsequent output is almost free of cost.  These products are immediately global, and the best one takes all after effective marketing.  Look at the dominance of Facebook, Google and Microsoft.  Digitisation and automation remove more jobs than they create and drive demand for highly skilled people and competition for scarcer and middle and low-grade jobs.  BINC is on our lips – biotech, infotech, nanotech and cognitive sciences.

Inefficiency in the City?  Our financial sector is supposed to move money to where it is needed for our economic health.  London’s Square Mile is the world’s leading financial centre.  It employs around 8% of the working population and produces 10% of the UK’s income.  Anthony Hilton has pointed to Thomas Philippon’s work which established that it is no more efficient today than it was 120 years ago.  By measuring the proportion of national income moved in any one year and the financial sector’s share of Gross Domestic Product (GDP), Phillipon found the ratio between these two figures has remained the same.  It is as if one banker is still looking after fifty borrowers.  This is astonishing, given the innovations over the past century.  The only reasonable explanation is that the benefits of progress have been retained by those in the industry.  Not only do we not get better service, major information from the US suggests the financial sector’s expansion has been accompanied by lower trends in economic growth.  These observations will stimulate closer examination.

And more changes.  The PR China simplified the process for registering businesses in February 2014.  According to the State Administrations for Industry and Commerce, there were 3.65 million new registrations in 2014, an increase of 46% on 2013.  China had moved by 2012 from having an economy based upon the public sector.  At that time, the country had 50 million active and registered private firms;  40 million of them were smaller ’household enterprises’.  Andrew Atherton (University of Lancaster) notes that this is a huge shift from 1978, the year reforms began, when only 140,000 registered private concerns generated less than 1% of economic activity.  The private sector is at least three-quarters of China’s economy now.  These businesses account for 90% of new jobs and are the major employer in many parts of the country.  State-owned establishments have dropped from over 70% of total employment during 1990 to 26% in 2012. Phew!

Know thyself.  Research in America showed that eight out of ten subordinates have a better idea of a manager’s performance than their own boss.  The survey questioned 1,100 employees in 70 firms, many of them in Fortune’s 500.  None of this is new.  Only protective pyramids in structures have prevented better access to informed comments.  A manager has to earn the mandate.  It’s not about popularity.  Leaders make us feel different, not always better.

Maybe?  ‘We become moral when we are unhappy.’ Marcel Proust (1871 – 1922);  French novelist. 

Strings and bows.  ‘Most of us find it difficult to play second fiddle.  If, on the other hand, all the second fiddles in an orchestra stopped playing, we would be well and truly sunk.’ Sir Georg Solti.