Monday, 23 May 2016

A LITTLE MORE CRITICAL THIS TIME


Payroll mistakes cost businesses more than £700 million a year.  Research by accountancy firm UHY Hacker Young found that HM Customs and Excise collected £737.3 million from investigations into compliance. Much of this sum related to cases when firms declared individuals to be self-employed but HMRC decided they should be counted as employees. The businesses were liable for national insurance and often higher tax charges than would have been paid if these people had initially been declared as employees. Small and medium-size enterprises were hit particularly hard by a crackdown on tax deductions from payrolls. They accounted for about half of the collected cash, despite being responsible for only ten percent of the UK’s payrolls.

Capital expenditure. Your scribe has to enter sometimes the lion’s den of investment decisions. He notes a consistency of reasons (excuses?) permitted by sloppy companies:

- ‘It’s the biggest’ (or the best)
- ‘We must allow the production manager to sleep at night’
- ‘We need the capacity’, which is usually at the top of a
    fragile sales forecast
- ‘We must expand or die’.

Assets need to sweat.  Investment is for opportunities and increased margins.

Worth thinking about. William Feather told a story in the New York Evening News (1933).  He said an old man once observed that in every successful organisation there is a thoroughly mean person who exercises a good deal of authority. The founder and president of the company, he suggested, might be the soul of geniality, a pillar of the church and a leader in all civic enterprises, but in deciding hard and ugly questions the mean man is given his way.‘Mean problems must be met’, continued the old man. ‘Suppliers become indifferent. Salespeople  grow lazy. Faithful but useless employees must be discharged. Expenses rise. Profits dwindle.’ The mean man says what he thinks and insists faults be corrected. Perhaps someone must be demoted? Or dividends have to be suspended. Or salaries cut. The mean man may or may not have initiated this unpleasant business, but to him is passed the nasty job of effecting these new policies. Success is partly the consequences of willingness to undertake unpleasant duties. Postponement of the difficult operation can send sick people to an early grave, and by the same process, sick businesses drift into receiverships. The mean man, who may be president, vice-president or a director, refused to put off until tomorrow what should be done today. His meanness keeps the business healthy and is a great asset to the firm.

Does your bonus scheme for managers work? The Chartered Management Institute’s survey in 2016 collected data from 105,000 managers and 425 organisations. The results show that more than one in five (23%) who fell short of expectations on performance still received a bonus in addition to basic pay. The average underperformer received an extra £4,270 (12% of salary). 57% of managers were paid a bonus over the last twelve months compared to 54% in the previous year. The problem of rewarding failure is more acute with senior managers/directors. 43% of those who fell short of forecasts still banked a bonus.

Really? ‘I am amazed at those people who say MPs’ salaries are hopelessly inadequate. We had a good family life, the kids went to good schools, and we had good family holidays and didn’t stint on them.’  Sir Vince Cable, former MP (1997-2015).  Quoted in Moneyweek.

Hard work.  ‘The most formidable weapon against errors of every kind is reason. I have never used any other, and I trust never shall.’ Thomas Paine (1737-1809). English/American political activist.  One of the Founding Fathers of the United States.

Monday, 9 May 2016

SHARPEN THE THINKING



Earn our keep? Some sociological panaceas are coming back into fashion.  Of course, companies must review constantly the organisation of their resources to meet changing markets and technologies.  But let’s avoid the managerial magic of the ‘60s.  Management is not complex, it’s just difficult.  There is a shift from the statement that individuals are the most important factor in a business.  The more realistic stance is they are one essential part in the process of economic performance, whose effective contribution varies under moving conditions.  Employees are not stupid.  They are not fooled by talk of their ‘importance’, especially when they experience the pressures and frustrations in the production bogies, budgets and so on, and this is not always bad.  Many of them understand and are willing to accept the organisational demands made upon them.  Frankness of the truth works wonders.  At best, employees often view a constant ‘you are our most valuable asset’ protestations as whims of managers who might feel guilty about being in charge.  At worst, as conscious manipulations which betray a lack of confidence.

Sudden fall.  There has been a reduction in output from manufacturing.  Uncertainty caused by the UK’s referendum in June on membership of the European Union is said to be the primary reason.  The purchasing managers’ index dropped to 49.2 in April, its lowest level since March 2013.  Any figure below 50 indicates contraction.  Open Europe quotes Lee Hopley, chief economist at EEF (the trade association) as saying these figures are ‘the clearest sign yet that referendum uncertainty is starting to weigh on the real economy’.

The age of apprenticeships.  Research by the Chartered Management Institute shows that 61% of parents would rather see their children embark on a degree apprenticeship with a leading British employer, than take a traditional Oxbridge degree.  72% support the Government’s planned apprenticeship levy.

Corporate clangers.  A poll of more than one thousand business owners and professionals revealed a dislike of certain buzzwords.  The top ten are: Think outside the box.  On the same page.  Low hanging fruit.  Synergy.  A window in my diary.  Reaching out.  Starter for ten.  Close of play.  Moving forward.  Can I just pick your brain?

Negotiations.  Every problem can be resolved at a cost.  Negotiation concentrates on differences between parties.  Preparation matters, always.  Challenge all assumptions and clarity of the business’s plans.  Homework, persistence and knowledge of intentions assist removal of fears about the face-to-face component of a negotiation.  But do not use a representative who needs to be liked by the other side.  If you feel pleased, leave the room.  Improve decisions during implementation.

You get what? . . . ‘One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors.’  Plato (428 – 348 BC).  Greek philosopher.

Methods.  People ask the difference between a leader and a boss . . . ‘The leader works in the open, and the boss in covert.  The leader leads, and the boss drives.’  Theodore Roosevelt (1858 – 1919) 26th president of the United States and winner of Nobel Prize.

Monday, 25 April 2016

MORE THOUGHTS



Free markets. Economic orthodoxy has been telling us for forty years that market forces would clear the dead wood from manufacturing; financial deregulation would make sure funding is available to young, thrusting start-ups; and free trade would keep British industry competitive. Industrial policy would create an open door to inward investment and low corporate taxes. The political decision-makers have not been successful. Larry Elliott has described how they have sat back and watched as the economy has stumbled from one housing/consumer-driven boom/bust to another. The UK has been here before, but the figures are more frightening. Rebalancing the economy and solving the country’s deep-seated problems is a bigger issue than simply devaluing sterling. There is no shortage of ideas and an important, but ignored link between them. Britain needs a considered and determined industrial strategy. The starting point has to be an awareness that the current model – low investment and competing on cost rather than quality – has failed and will continue to fail.

Costs of living wage.  Few people would say that the living wage is a bad idea. It has been clear for some time that our economy has become too reliant on cheapish labour. Matthew Lynn has emphasised the connection between the system of tax credits and the labour market. It meant tax payers were subsidising employment on a huge scale. Things will change. We can expect more automation.  As the cost of labour rises, use of information technology will become more cost effective. Immigration is likely to fall. Low-skill jobs was one key reason for many people coming to the UK, especially those from eastern Europe. The wages were not generous, but better than at home. Productivity will start moving upwards at last. The increases in pay will stimulate incentives to invest in capital. Of course, those with the least valuable skills will be unable to get a job. The outcome might be higher productivity, but additional unemployment. The trade deficit is high at above 5% of gross domestic product. It will increase. Some manufacturing will not be viable with higher wages. This kind of work will move to other countries. We will import these products, making the deficit worse. There will be closures, especially of retailers, which have the highest concentration of poorly paid staff.

Engagement. Giving information matters. Planned and consistent communication puts managers in the driving seat. Regular dialogue with shareholders, employees, customers and suppliers creates an atmosphere of understanding and builds trust. It enables the inspiration of confidence in the business and integrity of its management. Such an approach is essential in setting expectations and guidance for all stakeholders relating to values.

Value for money? There are strong suggestions that our Government is convinced that some top universities are not worth the £9,000 in annual fees most of them charge. The Russell Group of higher education institutions has demanded ministers provide proof of the allegations. A study by the Institute for Fiscal Studies has found that male graduates from twenty-three universities earned less, on average, than men who had not been to university at all.

Fair day’s pay for ...  ‘I wonder if BP’s Bob Dudley, whose £14m pay package has angered shareholders, could walk into a room of 30 Royal Navy admirals, 30 Army generals, 30 Crown Court judges and 30 NHS consultants and say: ‘I am so good at my job that I should be rewarded better than all of you put together.’ Christopher Knight in The Week (23 April).

Being misled. ‘Can there be a more horrible object in existence than an eloquent man not telling the truth?’ Thomas Carlyle (1795-1881). Scottish historian and essayist.

Monday, 11 April 2016

MANAGERIAL ISSUES

A worry.  Too big to fail.  The Financial Stability Board is chaired by Mark Carney, governor of the Bank of England. It advises the G20 group of countries and has said that the world’s thirty biggest banks should raise up to $1.2 trillion in loss-bearing debt, in addition to their equity capital. The goal is to make creditors liable for a bank’s failure, rather than taxpayers.  The proposals recommend that a bank would fund at least 18% of its risk-weighted assets with such a debt and equity by 2022. Mr Carney said that the plan would ‘support the removal of the implicit public subsidy’ of banks that are ‘too big to fail’.

Productivity and?  Forecasts for the UK’s economy indicate that a growth will be anywhere between 2% and 2.5% this year and slightly above the higher end for 2017. HM Government continues to tell us things are tough, but with defined reform and hard work we can expect the economy to move ahead. Against this background, including Tata and steel, Markit’s Purchasing Manager’s Index registered last month one of its weakest performances in the last three years. Production was flat after February’s seven-month low and according to Markit, any increases in output reflected better inflows of new business.

This is regarded as confirmation of a major problem associated with productivity, units per hour. Registration of motor cars seems to be a notable exception. An offering of solid and practical support to manufacturers must remain firmly on the Prime Minister’s agenda.

Watch your step at the top. There is a law of marketing fallibility. This says that when a business pauses to enjoy the view from its hilltop is just the moment it will slide down the other side. In ‘Competing with Information’, Xavier Gilbert argued that being better at doing more of the same leads to competing solely on costs. This is a short cut to annihilation.  Winners are likely to be those who renew themselves constantly by listening to, learning from and acting on what the weakest signals in their market places are telling them. Businesses are more open to these indicators when they are fighting to deliver stretching targets, even for survival. They know they have to react quickly. But once they make it, all too often their judgement begins to suffer. Success is not a good school. It tends to filter challenges and discourages experiments. Too few firms understand why they have flourished and what they must do to sustain that trading position.

Ladders have gone. Several analysts have examined the change of jobs by UK’s managers since 1980. They switch employers more often, make more moves sideways and downwards and have fewer promotions. Managers are likely now to be mobile because of necessity. They have to leave. A steady progression upwards is no longer on offer. Managers are finding their skills and careers are obsolete. They have toiled long and had to climb the corporate ladder only to find it pulled from under them. These are permanent alterations to working lives. A ‘career’ will mean the experience of each person, not one path in one industry.

More time.  ‘There is no pleasure worth forgoing just for an extra three years in the geriatric ward.’ Sir John Mortimer, English dramatist, novelist and barrister.

Tuesday, 29 March 2016

DIG A BIT DEEPER



Differences and pensions.  Jane Parry (University of Southampton) has unpicked that in the UK we have never lived so long as we do now.  Public Health England announced recently that life-expectancy has risen again.  With baby boomers (born between 1946 and 1964) moving into retirement, the number of pensioners is exploding once more.  We may be living longer, but many are not reaching old age in good health.  Quality of life is a growing concern for institutions of all kinds, with three-quarters of us likely to reach the state pension with compromised health.  Also, the age for payment edges upwards but early or forced retirement remains a norm for the majority.  The option of working longer is not open to everyone.  Shouts that we will have to carry on earning into our 70s fail to recognise how impossible this is for many.  Policy-makers must review those outdated formats of retirement based upon the professional male notion of an upwardly moving career in a single workplace.  The breadwinner model has almost gone, few families can live comfortably on a single income and women now enter the labour market at least as well-qualified as men.  The country needs pension schemes that reflect these demographic changes and amended working patterns.  The challenge is not so much how to keep the well-off saving, but how to open up the possibility of saving to those focused on surviving in the new approaches to work and employment.

Spotting poor managers.  Is as important as discovering talent.  Alastair Dryburgh has considered the characteristics.  Here are seven.  (1) S/he has to be right always.  (2) S/he distorts reality.  Any error is someone else’s fault.  (3) The really ineffective manager raises the jumping to conclusions into an art form.  (4) S/he needs to stay in his/her comfort zone. Moves outside it are denounced. (5) These people are masters of the vicious circle.  Do not bother with diagnosis.  There are complaints and threats, which lead to paralysis.  (6) They hate uncertainty.  Most of us do.  But the incompetent manager denies the possibility.  Success demands that uncertainty is dealt with by the manager and those who report to her/him.  Denial/cover-up explodes.  (7) Outdated habits and assumptions are sustained by a lack of self-awareness.  Let someone you trust hold a ‘mirror’ to you.  Accept the discomfort.  The results can be transformational.

Failure in the marketplace.  The biggest cause of marketers’ disappointments is lack of information.  It is seldom that the facts are unavailable.  Rather, for whatever reason, managers do not wish to find them.  Indeed, missing facts not only contribute to a demise, they hide its imminence and sometimes its presence.  Some managers tend to defend the marketing status quo with might and main.  This is done even though the one unchanging factor with markets is that they change.  Suggest a little research might not come amiss and one can be met with irrelevant appeals to long and arduous years of experience in the sector.  These may be accompanied by grumpy observations about dubious assumptions being ‘obvious’.  In short, with refusals to contemplate the painful process of thinking and acting anew.

Third sector under fire.  Everyone knows that charities, especially the big ones, are having a hard time.  There has been a long list of accusations.  Several come to mind quickly. The crash of Kids Company.  Beat Bullying and the British Association of Adoption and Fostering. Chuggers – ‘charity muggers’ have had their activities cut back by more than a hundred local authorities. Merryn Somerset Webb has stressed how badly much of the £17 plus billion flows from HMRC (the taxpayer) to charities is used.  Over 1,000 senior managers are paid six figure salaries.  Eleven executives at a planned parenthood charity receive an average annual salary of £144,000. Of course, we can change rules and regulations and give sharper direction to the Charity Commission. But charities must remain independent from interference by government if they are to offer a proper alternative or addition to services provided by the public sector. They must also remain free to innovate. After all, charities gave us the first schools, libraries and hospitals.  This should not distract them from regaining the trust of the UK’s citizens. To think the sector’s problems can be solved by becoming simply more like orthodox businesses is misleading. A recent report from Sir Stuart Etherington’s review of self-regulation recommended essential moves.  Trustees are urged to take greater responsibility for their charities’ policies, actions and results.  They have legal duties and obligations.

A bit of wisdom.  “Behold’, the fool saith,  ‘Put not all your eggs in one basket’ – which is but a manner of saying, ‘Scatter your money and your attention’, but the wise man saith, ‘Put all your eggs in one basket – and watch that basket”. Mark Twain (1835-1910).  American novelist.

Keep looking.  ‘Visionary people are visionary partly because of the very great many things they don’t see.’  Berkeley Rice (1937-), in the New York Times Magazine (1968).


Monday, 14 March 2016

MORE THOUGHTS



Things going on.  Trade figures of PR China in February showed the highest one-month decline since 2009.  This situation disturbed a rally in the prices of equities and commodities.  Brent crude oil was $40 a barrel. There are indications of a turning point. The Bank of England announced contingency plans to protect the UK’s banks from running out of funds if the forthcoming referendum on the European Union (EU) leads to a withdrawal. Commercial Banks will be able to borrow heavily in the days before and after the vote in June, to offset any threat of a run on them. Mark Carney, the B of E’s governor, had a bad tempered meeting with MPs.  He said the prime minister’s renegotiation with the EU had addressed the issues which will assure Britain’s monetary and fiscal stability. He added that leaving would heighten risks in the short-term. Mr Carney denied his opinions were influenced by Downing Street.  Microsoft has announced the first big step beyond its Windows operating system.  The Department for Transport told Volkswagen to compensate motorists in this country who were hit by the emissions scandal.

Government targets. The UK’s public sector net debt is 80% of national income. The Institute for Fiscal Studies (IFS) points out that this is high by recent standards and compared to most advanced economies. But it is not particularly excessive in a longer-term historical context. The chancellor of the exchequer has stated a requirement for a budget surplus in each year from 2019-20, unless growth drops below 1%. The first official figures showing whether Mr Osborne has met his target should be published days ahead of the general election in 2020. Britain has not had three consecutive years of surpluses since 1952.  The chancellor has also set an expectation for debt to fall as a percentage of national income through to 2019/20, but is meeting it by selling assets.  These actions might be sensible, but satisfying the rule in this way contradicts his underlying principle.  The cap on welfare expenditure was intended to constrain the bulk of outgoings on benefits and tax credits, but is being breached already. Therefore, there are legitimate doubts that there have been changes of policy.

Managers’ delivery van. The way we deliver strategies and plans has altered over seventy years, after sameness for a century. 1940s: run an organisation like an army. 1950s: meet the budget. 1960s: predict the future. 1970s: think strategically. 1980s: one best way. 2000 plus: no one best way. No strategy. The vision thing. Then ... There are two schools of thought. One sees strategy as a wish-list, rallying cry or stated mission. Strategy is a vision, not a plan. Luck, opportunism, intuition and inspiration are the essentials in commercial success.  The other group argues that strategy is not a vision, but about knowing how to exploit key sources of internal competitive advantage. It should be defined and applied by each business through an impartial logic and rigorous analysis.  The choice will determine success.

Inequality. Oxfam has calculated that the world’s wealthiest sixty-two people – who could just about fill a double-decker bus – are collectively richer than the poorest half of the population (3.5 billion). For some, being rich and conventionally successful keeps them in the headlines.  Others keep a lower profile.

Cheerio.  ‘Las Vegas is the only place I know where money really talks – it says ‘Goodbye’.’ Frank Sinatra (1915–98).  US singer and film actor, quoted in Moneyweek (4 March).

A pity.  ‘The tragedy of modern man is not that he knows less and less about the meaning of his own life, but that it bothers him less and less.’  Vaclav Havel, Czech dramatist and statesman.

Care.  A business must have a conscience, as well as a counting house’.  Sir Montague Burton, English tailor and manufacturer.