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.

Monday, 8 June 2015

RESPONSIBILITY IS PERMANENT



Recovery is fragile.  The UK is unlikely to see a rapid recovery from the low growth in the first quarter.  Weakness in manufacturing and construction has spread to services. Markit’s Chris Williamson says this ‘effectively kills-off the chances of any imminent hiking of interest rates’. The main source of upward pressure in the economy will be consumption, which is 60% of Gross Domestic Product (GDP). The labour market is still relatively buoyant, increases will continue in earnings and inflation has gone away for the present. With strength of sterling squeezing manufacturers, this country once again relies upon expenditure by households to keep the show on the road.  Chancellor George Osborne told us in 2011 about his determination to ‘balance the economy’.  Manufacturing was 12.8% of GDP; it is 10% now. Of course, our economy is dominated by services. Perhaps the next budget will tell us when the promised high-tech exporters will come out of the cupboard?

Devolution.  All that it seems?  The Greater Manchester Combined Authority (GMCA) has taken a big step in moves towards additional localised decision-making. An agreement promoted by George Osborne, chancellor of the exchequer, will devolve the budget of £6 billion for the region’s National Health Service. That is, to complete responsibilities relating to health and social care. Sam Warner and Max Lempriere, both from University of Birmingham, have made an important commentary. There will be a new board bringing together NHS England, twelve clinical commissioning groups (formerly the primary care trusts), fifteen providers of services to the NHS and the ten constituent local authorities of GMCA. Its main functions are to allocate funds and take decisions associated with personnel, estates, sharing information, regulation and the commissioning of clinical services.

Quite a task.  The initiative is seen as part of a broader trend in governance for the public sector.  It is reasonable to suspect the true scope of central control is hidden from view. The agreement between HM Treasury and GMCA makes the point:  ‘In the context of the wider fiscal-consolidation agenda, the City Region will be required to take a fair share of any reductions that are made to any of the devolved funding streams’.  Moreover, central government retains substantial control beyond the purse strings.  It is clear in a memorandum of agreement between GMCA and NHS England that government will have the ultimate say over the strategic direction of health services in Greater Manchester. Any major additions to the estate will be agreed nationally and there will not be much local discretion to deviate from prescribed arrangements on governance.  The most interesting question concerns accountability and, specifically, where the electorate sees it lies under these plans. Who/what will be deemed at fault if there are failures?  The NHS has a unique position in the minds of British voters and remains a political hot potato.  Of course, these changes are a move in the right direction.  Maybe it would be wise initially to treat this deal with caution.  It is the guinea pig.

Ten principles of success.  Jack Canfield, author of 'Chicken Soup for the Soul', suggests ten principles of success.  They deserve more than a passing thought.

Take 200 percent responsibility for your life and the results you produce.
Avoid blaming others.  If you do not like your outcomes, change your responses
Decide what you really want
A lot of the time, we let our past determine our future
Unleash the power of goal-setting
People without goals work for people with goals.  Think about your breakthrough goal
Visualise the outcomes you want to achieve, every day
Before you go to bed or early in the morning, go through and visualise quickly what you want, one by one
Commit to constant improvement
Always exceed expectation and keep your promises.  Go for excellence
Take action
Get started now.  The conditions are never perfect
Take risks and respond to feedback
Solicit a response and do not be offended by it
Practise perseverance
Do not give up too soon
Learn more to earn more
Self-help and motivation
Redefine time
Divide your week into three types of day.  Best results, preparation and rest and recuperation.

There are so many.  ‘I’m a nice customer, no matter what kind of service I get.  I’ll go into a restaurant and sit quietly while the waiter gossips with her/his friend.  It’s the same when go into a shop.  I don’t throw my weight around.  If I get a snooty sales assistant who gets nettled because I wish to look at several things before making a decision, I’m as polite as can be.  I never kick, I do not criticise and wouldn’t dream of raising my voice, as I’ve seen some people do in public – I think that’s uncalled for.  NO, I am a pleasant person.  But I’ll tell you what else I am – I’m the buyer who never comes back!’

Together. ‘Grief can take care of itself, but to get the full value of joy you must have someone to divide it with.’ Mark Twain, 1835-1910, American novelist and humorist.

Can we wait? ‘Between saying and doing, many a pair of shoes is worn out.’  Proverb.

Tuesday, 26 May 2015

KEEP MANAGING


George Osborne is back as Chancellor.  Pity him, says James Meadway, neweconomics.org/blog. He has inherited a mess from the last government.  Here are five of his major problems. 1. Spending cuts will not work.  He had to slacken harsh austerity as the economy slumped.  So, he missed the targets on reduction of deficit. Things have not changed much.  2. The easy reductions in expenditure have been made; for example, capital expenditure on buildings and some benefits. There will now be difficulties in avoiding politically damaging cuts. 3. Household debt is rising again.  Maybe a crisis looms? 4. We are less productive. Since 2002, productivity of labour has slumped.  There is little scope for raising pay. 5. The current account deficit – the gap between what we earn from the rest of the world and imports – is nearly 6% of GDP.  If interest rates in America go up and/or credit in the PR China collapses, then there would be reductions in exports accompanied by trouble.

A different place.  It’s easy to forget the changes between 1950-51 and 2010-14.  The figures were started by David Butler, the psephologist. Remember him? He appeared on television and radio during the results of every general election.

This information is important to marketers.


1950-51
Total UK population
 51 million
2010-14
Total UK population
 64 million
Top rate of income tax
90%
45%
Women in the workforce
31%
65%
Life expectancy
67
80
Population over 65
11%
19%
Non-white population
0.4%
16%
17s – 19s entering higher education
6%
47%
At school after leaving age
31%
76%
Airline journeys
2 million
160 million
Owner-occupied households
29%
69%
Car-owning households
12%
77%
Telephone-owning households
12%
99%
Computer-owning households
Nil
76%
Television households
1%
99%
Armed forces regulars
688,000
174,000
Self-described working class
47%
31%
Mining and heavy industry jobs
39%
10%
Unemployed
1.5%
8.1%
Criminal convictions (England and Wales)
17,100
352,000
Prison population
20,000
83,000
Major party members (combined)
4 million
476,000

Do as we say, not as we do.  It is crucial that politicians and other public officials do not commit acts of corruption or behave unethically.  But it is just as essential they are not seen as unscrupulous and immoral. With the recent suspension of Malcolm Rifkind (Conservative) and Jack Straw (Labour) from their political parties for allegedly offering influence for money, questions are being asked again about whether members of parliament should be allowed to sell their services to individuals or groups. Simultaneously, the UK presses other countries to stamp out corruption of all kinds. Our government has a long history of trying to prevent unethical activities by people in public office.  However, the laws passed to prevent them are not enforced effectively. There is nothing wrong in principle with trying to influence politics and using money to do it. Practitioners include single-issue lobby groups, campaigners of all kinds, trade associations, non-governmental groups and trades unions. They spend their funds on compiling briefings and other materials to persuade decision-makers who can make or reject changes which affect them.  Problems arise when the relationship becomes a direct transaction.

The British public has, for more than 10 years, been urged by politicians and public officials to pay their taxes, work harder, take responsibility for their children, respect the environment and support the government’s military actions overseas. There seems to be questionable connections behind these moral advocacies. This country needs to demonstrate it insists upon good governance at home. Jon Moran, University of Leicester, has done valuable research on this topic.

Paying the price.  John Ruskin (1819-1900), gives a warning. ‘It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money – that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.  The common law of business balance prohibits paying a little and getting a lot – it can’t be done.  If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.’

Experience tells. ‘Live by the sword, die by the sword.  I just didn’t realise there’d be so many swords.’ Rt Hon Nick Clegg MP, deputy prime minister of UK, 2010-2015.

Predictions. ‘Nothing is more fickle than people in a crowd, nothing harder to discover than how men intend to vote, nothing trickier than the whole way in which elections work.’  Marcus Tillius Cicero (106-43BC), Roman statesman and orator.