Tuesday, 1 September 2015

ANOTHER LOOK FROM THE HELICOPTER



Corporate taxes. The most common way multinationals avoid taxes is through ‘transfer pricing’. Subsidiaries in tax havens buy goods cheaply from connected businesses in more demanding countries and sell them on at a higher price. This process shifts profits to the tax haven. The Organisation for Economic Co-operation and Development (OECD) is trying to combat schemes of this kind by persuading authorities to require disclosure by firms of where they generate profits and then share the information. Success is not imminent. Outright dodging is an even bigger problem. The Economist has pointed out that undeclared transfers of money, false invoices and the like cost developing countries more than $990 billion in 2012. This figure represents almost 4% of some administrations’ GDP. Maybe helping poorer countries improve tax collection and limit avoidance would do more for growth than targets on financial aid?

Getting things done. This is the test of persistence. Managers tend to confuse hopes, requests and instructions with results. There are five basics: (1) What gets measured gets done – but measure the critical few, avoid the many – when it is broken, fix it fast. (2) What gets budgeted gets done. (3) What gets applauded gets done. (4) What gets rewarded gets done – praise pays, but it does not pay the mortgage – watch out for the middle stealing the idea. (5) What gets reprimanded gets done – keep your cool. BUT, get the ‘mix’ right. All or one becomes counter-productive.

Repetition for sales. 50% of people who authorise purchases for businesses have a change each year in their lives at work. They are promoted or transferred, or might move to another employer or retire into the third age. Things happen to other consumers, too. 20% shift to a new home. And their needs alter as families grow older. All this means they make different buying decisions. Sales and Marketing Executive International suggested 81% of all sales take at least five calls. McGraw-Hill reported first-time sales use seven calls to close an order. So, talk to today’s customers to get more business now. Experience urges you to repeat your offer, benefits, message and call for action – all the time.

Uncomfortable? The Labour Party’s proper members are preparing themselves for a new world. A different universe. Strong signals suggest a new establishment from Saturday 12 September. Jeremy Corbyn MP for Islington North will be leader. The inner circle is likely to include: Diane Abbott MP (Hackney North and Stoke Newington), Richard Burgon MP (Leeds East), John McDonnell MP (Hayes and Harlington), Michael Meacher MP (Oldham West and Royton), Kate Osamor (Edmonton), Cat Smith (Lancaster and Fleetwood), and Jon Trickett (Hemsworth). They are going to be the political centre, will have responsibilities and be part of a management. The ability to pose as outsiders or insurgents will vanish.

But how? ‘Democracy means government by discussion, but it is only effective if you can stop people talking’. Clement Attlee, 1883 – 1967. Prime minister of UK, 1945 – 51.

Prophecy? ‘In the youth of a state, arms do flourish: in the middle age of a state, learning and then both of them together for a time; in the declining age of a state, mechanical arts and merchandise’. Francis Bacon, 1561 – 1626. English writer, philosopher and statesman.




Monday, 17 August 2015

BIGGER TARGETS



What’s different?  Austerity was presented initially as a crash diet to reduce financial extravagance. Prime Minster David Cameron and Chancellor George Osborne now speak of it as a permanent change in lifestyle.  Osborne is reshaping the state.  He wants to be fiscally conservative and economically liberal.  Local councils will win the freedom to repeal the laws on Sunday trading, tenants of social housing whose earnings are above average will be charged a market rent; the government will no longer pay for free TV licences to the over-75s; the redistributive system of tax credits is being unravelled. Mr Osborne’s demeanour reflects his belief that, as with Margaret Thatcher’s privatisations, the Labour Party will only return to power by accepting the reforms as part of commonsense for the age.

Crystal balls.  Economists seem to rely upon abstract models that can be useless. Many observers say they ignore the real world, and are supported by outdated and unrealistic assumptions. They cannot handle instability, complexity and change.  Such methods are unable to predict crises.  Paul Mason (theguardian.com/commentaries) is confident there must be another way.  In other fields – from neuroscience to fluid dynamics – supercomputers can simulate intricate systems. NASA, the American space agency, can tell us about climate of the entire earth over three days.  The system incorporates nearly four billion data points and the calculation takes a day. Why is it impossible to have something similar for economics?  The idea is not over-fanciful. Professor J Doyne Farmer of Oxford University advocates ‘agent-based modelling’, which goes some way towards it. The Bank of England has sponsored studies along similar lines. We ought to be able to gather and analyse information from every corner of the economy – including prostitution, drug deals, cybercrime and flight of capital. We could then avoid wasting tons of newsprint debating what will happen if Greece defaults on its debts, or the results of a programme of public housebuilding.

Will technology hit banks?  When small firms need cash to get off the ground and/or expand, they increasingly put their ideas on one of the crowd-funding sites. They will almost certainly find the financial support by this route.  The costs are likely to be lower than fees from banks, venture capitalists and publicly-funded bodies.  The terms and regulations can be less complex and less onerous too.  Mainstream lenders have a lot of thinking to do.  Matthew Lynn has pointed to estimates suggesting that. In the United States, more money will be raised soon for new companies from crowd-funding rather than traditional sources.

Everyone is biased. Most people believe they are less biased than their counterparts. Researchers have concluded there is a ‘bias blind spot’. In a recent survey, only one person out of 661, thought s/he held more biases than others. This ‘blind spot’ has disadvantages. It prevents a person from accurately assessing her/his own abilities. This leads to the belief they are better than most at simple tasks but not so good with challenging ones. It also damages working relationships. Irene Scopelliti, of Cass Business School and leader of the study, says: ‘We think the ‘bias blind spot’ is a critical determinant of misunderstandings, mistrust and pessimism when attempting to reach agreements in interpersonal, political and professional relationships.’  Those with a bigger ‘bias blind spot’ are also more likely to ignore advice and might be less responsive to training.

Doers are not new, but still scarce. ‘It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them.  They went out and happened to things.  Leonardo da Vinci, 1452-1519. Italian painter, sculptor, architect and engineer.

We know.  ‘History is littered with wars which everybody knows would never happen.  Enoch Powell.  1912-98.  English politician and scholar.

Monday, 3 August 2015

HERE AND THERE FOR MANAGERS



Interest rates.  Katie Allen noted in The Guardian that Britain might experience another dip into deflation. The price of oil has slipped again recently and the strong pound will avoid inflationary pressures. There is no sign of stagnation. Real increase in wages is around 3% a year, good news for retailers. Surveys of employment remain consistent with an increase in the number of jobs. Well- informed economists are confident the Bank of England will not go for dearer money until February 2016.

New habitat. The world of electronic commerce is an uncertain one. There are no fixed rules and boundaries. Managers face journeys into the unknown.  It is clear they will have to cope with enormous upheavals if they are to reap any benefits from e-commerce.  The challenge is to put into place the ‘right’ strategy, supported by agile supply chains capable of satisfying new demands from customers. Many existing businesses will fail. When the mists of uncertainty become clearer, only those companies committed to learning the many painful lessons from trading in the digital era will retain their prospects for a profitable future. The special hurdle is to obtain a place alongside the teeming mass of new suppliers untrammelled by a traditional organisation.

Quick summary of impact.  Information technology (IT) has delivered three big changes.  First, it has reduced the need for work. Second, it has become possible to provide an abundance of goods and services which disrupt sectors founded on scarcity. Third, it encourages collaborative production, outside the dictates of markets. Just think, Wikipedia is produced by unpaid volunteers and has abolished the sales of encyclopaedias.  Almost unnoticed, major parts of economic life are on the same route.  The so-called ‘sharing economy’ may well replace what we know as capitalism.

Persistence will be a major factor. Members of elected governments in the western world will be having sleepless nights. There is evidence of a widespread and popular discontentment with conventional stances and their advocates. Upstart candidates and parties seem to be challenging political establishments all over the place. The anti-austerity party, Syriza, dominates Greece and Podemos, its counterpart in Spain, has made gains. Bernie Sanders, a declared socialist prospect for the presidency in America, is drawing record crowds. Donald Trump is making an impact in his campaign for the Republican party’s nomination. He relies on the toxic rhetoric of ultra-nationalism. There have been worrying shifts in Denmark, Finland, France, Germany and the Netherlands.  In the UK, Jeremy Corbyn MP continues to shock by outpolling his three centrist rivals for leadership of the Labour Party. The United Kingdom Independence Party (UKIP) delivered a few frights in the recent general election. Peter Bloom (Open University) points out that despite political differences, these movements reveal dissatisfactions with ‘respectable’ offerings and proposals. They are challenges to the comfortable political class and their beliefs. The ‘blame train’ is gathering speed. Sporadic attacks will not deal with the many issues.

Sounds correct. ‘If you can’t explain it to a six-year-old, you don’t understand it yourself’. Albert Einstein. 1879 – 1955. German theoretical physicist.

And then it’s too late. ‘Inside every old person is a young person wondering what happened’. Sir Terry Pratchett. 1948 – 2015. English author of fantasy novels. Best known for his forty volumes of the Discworld series.

Monday, 6 July 2015

OUTSIDE THE REPORTED TROUBLED TIMES

On every commentator’s lips.  Britain’s economy looks OK from the outside, ticking over nicely. It grew by 2.8% last year. This is more than any other member of the G7 club of rich countries. Employment has never been higher. Nonetheless, ‘low productivity’ is said by economists to be the biggest risk to prospects for growth. In using this term, they generally mean the value of goods and services per hour of labour. The calculation is made usually by dividing gross domestic product (GDP) by the number of hours worked.  Why this stagnation? There are three components.  The pain of recession was spread widely, through lower wages. So there is slack in terms of under-employment at workplaces and low investment in technology and other equipment. The Bank of England suggests that ‘zombie’ businesses may have been kept alive by low interest rates. This has slowed the reallocation of resources to new and dynamic firms.  Also, there are substantial structural changes. For example, John Redwood MP has pointed to a rapid drop in output of North Sea Oil leading to the loss of high value-added activities. Others have asserted that labour intensity in services is seen often as better customer-care rather than poor performance.

What is to be done? There is broad agreement when ‘talking the talk’.  Rebalance the economy away from services (75% of GDP), towards making things (10%). Reverse the long record of low investment in plant, machinery and physical infrastructure.  And take serious and substantial action to create a climate for businesses based upon innovative products and processes which produce high productivity jobs. And the big last item is to improve the skills of people.  There are no quick fixes in ‘walking the walk’.

What is GDP – a reminder?  Mostly this is the measure of output. The value of the goods and services produced by all sectors of the economy.  That is, agriculture, manufacturing, energy, construction, services and government. Note: this includes everything, including clearing an oil slick or collecting litter.

Expenditure by government on health was 3% of national income in the early ‘60s. It rose to 5% in the mid-1990s and hit 7% by the early 2000s. Its share of the government’s spending went up from just over 8% to 18% and outgoings on state pension increased from 7% of the total to 12% by 2013. These significant changes were ‘managed’ by sharp falls in outlays on defence, housing and other economic support – especially that associated with nationalised industries. The current situation is described as fiscal austerity. A more accurate portrayal would be accelerating transition towards a state focused on the needs and expectations of an older population.  The Office for Budget Responsibility (OBR) and the Institute for Fiscal Studies (IFS), seem to be saying that this is a trend which will continue for the foreseeable future.  It will be difficult to sustain these ‘promises’ without raising taxes and/or cutting costs on ‘protected’ health and pensions. There is a strong case for transparency and discussion. 

Confronting paradoxes. Managers like to congratulate themselves by declaring we face unprecedented challenges.  There is a temptation to advocate all kinds of compelling, novel and heroic deeds.  Your scribe suspects our jobs today are not radically different from ten years ago.  Of course, there is stiffer competition, global marketplaces and faster change.  But our task remains the same.  Managers have to steer their companies along often-uncharted routes into an unknowable future.  They must make sure their businesses perform at least as well as their competitors do.  This means not only serving customers and satisfying owners, but also keeping employees happy.  And the hard fact is that there can be serious conflicts between these groups.  There are tough decisions to be made sometimes.  Managers find themselves in a troubling paradox.  At the moment we need to shape keen, agile and low-cost organisations – with the consequential redefinition of relationships with employees – we seek also unprecedented participation, creativity and loyalty from the same people.  That is, those attributes which are likely to thrive best in an atmosphere of mutual commitment and trust.  These are real issues.  They will not go away.  We cannot return to the producer-driven economy of the 60s and 70s.  There are no simple answers.  We can start with some primary objectives.

Nothing replaces persistence.  Talent is not enough.  The world is full of unsuccessful people with talent. Genius is not enough.  The unrewarded genius is proverbial. Education is insufficient. Our society is full of educated derelicts. Persistence and determination are omnipotent.

Be careful.  Wise managers are a bit wary of ‘commonsense’, educators and exporters.  ‘The earth is flat’. ‘Iron ships won’t float.’  ‘Human beings not meant to fly.’ ‘Impossible to have a horseless carriage.’ ‘Space flight is hokum’, said the Astronomer Royal, 1956. ‘There is no reason why anyone would want to have a computer in their home’, Ken Olsen, president, chairman and founder of Digital Equipment Corporation 1977.  Even Bill Gates of Microsoft said in 1981: 640K ought to be enough for anybody.’ Not me guv! ‘People are always blaming their circumstances for what they are. I don’t believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can’t find them, make them.’ George Bernard Shaw (1856-1950). Irish dramatist and critic.

Personal fears. ‘I have not been afraid of excess:  excess on occasion is exhilarating.  It prevents moderation from acquiring the deadening effect of a habit.’ W Somerset Maugham. (1874-1965). English writer.

Be careful.  ‘The moment politics becomes dull democracy is in danger.’ Quinton Hogg (Lord Hailsham.  1907-2001. English politician and lawyer.

Monday, 22 June 2015

ANOTHER SIDEWAYS LOOK



Deflation.  Lasted for one month.  Just.  The Consumer Price Index (CPI) went from -01 in April, the lowest for fifty-five years, to +0.1 in May.  The major concern of Government and budgeters was that businesses and consumers would delay purchases and investment and create falling demand and prices. But wages in the UK rose faster than predications and unemployment remained at a seven-year low.  These two factors and a strong sterling point to higher prices. Inflation is unlikely to be the cause of economic difficulties. The cost of food fell 1.7% in May, compared to last year. Big ticket items went down 2.5%.  Citibank suggests it is reasonable to assume low inflation (0.3%?) this year and 1.3%(?) next.

MEPs and boredom.  Renaud HonorĂ© in Les Echos (Paris) and The Week says we should be sorry for new Members of the European Parliament.  They are ‘bored’. Their hopes for an exciting future are not coming to fruition. The ‘Europhobes’ were encouraged by the successes of Eurosceptic parties in 2014 and thought they would be able to paralyse proceeding of the European Union. But they are so fragmented they lack even ‘nuisance power’.  Their only achievement has been to bring a censure motion against Jean-Claude Juncker, President of the European Commission.  This move related to alleged corrupt behaviour when he was prime minister of Luxembourg.  It was defeated overwhelmingly. Those MEPs who wish to extend the responsibilities of the European parliament thought the new President would give them more say.  Not so. The Commission listens to governments, not powerless MEPs. The endless resolutions and reports - for example, on Greece and Ukraine - end up on the proverbial shelf. The Commission’s appetite for regulation has waned, also. MEPs’ biggest challenge right now is finding things to do.

Cash downwards. Figures from the UK Payments Council reveal that transactions through cash fell below 50% in 2014. The continuous increase in credit and debit cards and other non-cash payments have overtaken spending by notes and coins. The Payments Council estimates that cash-based transactions will fall to less than 30% by 2020. The Republic of Ireland has given notice of its intentions to avoid cash.

Reward poor performance?  The Chartered Management Institute’s recent survey of managers’ salaries covered 317 organisations with 72,206 employees. Its results confirmed suspicions that poor performers have continued to receive a bonus. 48% met expectations/targets, 30% did not. 45% of underperforming senior managers were paid a bonus in 2014. Overall, managers’ basic salaries are rising ahead of inflation. The blunt truth is likely to be that it is easier to reward poor results than to face difficult corrective direction/action. Change has to start at the top.

Stupid question? No. Researchers at Harvard Business School and The Wharton School have concluded that those people who ask for help are regarded as more, rather than less, competent. The new study suggests reluctant questioners commonly believe colleagues and contacts expect them to be more knowledgeable than they are. The report’s authors float the idea that this is a particular obstacle for new employees. Often they are unclear what is expected from their work. Professor Francesca Gino says, ‘Seeking advice encourages exchange of information, learning and meaningful connection between people. And it creates a surprising positive impression for our mentors.’ Maybe an approach of this kind ought to be built into internal communications?

Customer-share. Getting a bigger share of customers’ expenditure is getting serious attention at last. There has to be a disciplined method for discovery. This emphasises answers to crucial questions:

what drives this customer’s performance?
what is this customer’s strategy?
what major issues face this customer?
what is your presence with this customer?
how can you and this customer combine goals?
what is the top-to-top relationship with this customer?

So there. ‘Mathematics may be defined as the subject in which we never know what we are talking about, not whether what we are saying is true.’  Bertrand Russell (1872-1970).  English philosopher and mathematician.

Of course. ‘I am the most spontaneous speaker in the world because every word, every gesture, and every retort has been carefully rehearsed.’  George Bernard Shaw (1856-1950).  Irish dramatist and critic.