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.

Monday, 16 February 2015

A FEW ISSUES



Stop-start.  Ray O’Donoghue of Barclays says there has been growth across a broad range of industries in most regions of the UK.  He predicts six hotspots for 2015.  Birmingham, because of production capabilities and automotive sector.  Bristol, on account of strength in specialised engineering and position as a service centre.  Cardiff, due to the quality of its manufacturing.  Manchester, by virtue of creative strengths, pioneering scene of innovation and a strong base for financial services.  Thames Valley and Cambridge, through their progress in technology and sciences.  And, the oil and gas industries in Scotland. 

However, there are good reasons to expect ups and downs in the short and medium-term.  We are slowly coming out of the worst recession in living memory.  Britain is trying to get back on top of the deficit and funding difficulties.  The general election is soon, with the accompanying uncertainties.  There are global worries about the West’s relationship with Russia and instabilities in the Middle East.  We are in a digital revolution now.  It is a case of being part of it or left behind.  These changes will bring new business models and industries.

Legacy stuck in the past.  Back in the fifth century, Pseudo-Dionysius wrote the definitive book on angelic hierarchies, Ecclesiastical Hierarchy.  He said there were nine orders of hierarchy.  Obviously, God was at the top.  Then there were the most elevated archangels down to the humble messenger angels.  This analysis has filtered down to the way that management structures exist today.  Hierarchy was a principle of nature.

We now have management schools in universities across the world which teach the modern version of hierarchy.  Ideas on social order no longer begin with God, at least not explicitly.  But they certainly trade on the same assertions about where authority comes from: the top.  The teachings echo the medieval stances in many ways.  As Martin Parker says, it is safe to discuss empowerment, flat organisations and 360° appraisals, as long as the structures of power are not challenged.  Careful observers will have noticed that things are moving along.  For example, co-operatives, mutuals, social enterprises, community interest companies are on the tables for discussion.  Even by Government.

Plans to get another job.  A new survey by the Institute for Leadership and Management suggests that more than a third (37%) of workers plan to leave their jobs this year.  The key to minimising staff turnover is not as simple as throwing money at the problem.  The biggest reason people cited as a motivator for leaving was opportunity for progression (59%).  The eight major factors in decisions to seek other employment are:
  •  greater opportunity for progression (59%)
  •   higher pay (56%)
  •   more interesting job (50%)
  •   better management (30%)
  •   increased chance for training/development (27%)
  •   additional flexible working (18%)
  •   nicer people (5%)
  •   extra options for parental leave (3%).
‘I name this milk float ...’   One of the UK’s electronics firms reckon some time ago that it had developed a system to camouflage the ‘signature’ of a Challenger tank and a Land Rover to make them appear on an enemy’s radar as a milk float and a wheelbarrow.  Maybe a solution to the Government’s concern about expenditure on defence would be to make a milk float and a wheelbarrow look like a Challenger tank and a Land Rover?
That’s it. ‘Advice is what we ask for when we already know the answer but wish we didn’t.’ Erica Jong.  Quoted on The Browser and in The Week.

This is a surprise.  ‘Land monopoly is not the only monopoly, but it is by far the greatest of monopolies – it is a perpetual monopoly, and it is the mother of all forms of monopoly.  Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public.’ Winston S Churchill, 1909.

Monday, 2 February 2015

MANAGING REMAINS DIFFICULT



Interest rates into 2016.  The Bank of England’s Monetary Policy Committee (MPC) is showing concern about deflation. With bills for petrol and utilities falling, the Bank suggests there is a real chance of a drop in prices generally. Also, there is a risk of deep-seated low inflation. This prompts a wariness of raising interest rates in case such a decision would reduce momentum in the economy and push the downward trend in prices. Deutsche Bank has observed that there is a ‘considerable uncertainty for Western economies’. It is reasonable to assume central banks will use any signs of weaker results, including inflation, as grounds for retaining low interest rates. The Bank of England is unlikely to move before mid-2016. MoneyWeek has noted the fall of unemployment in December and that the number of claimants was down by 30,000. Wages moved up for a third month, with exclusions of unskilled/untrained people.  Inequality remains a drag on economic growth.

The board is broken? Jay Vaananen (Banker’s Umbrella) reckons if shareholders do not get a grip on companies’ power, there will be more Tescos. His conclusion deserves amplification and possibly action. Ever since the changing 80s, corporate managers have been successful in removing power from shareholders. Simultaneously, they preached the message of ‘shareholder value’ as their goal.  There were some positive outcomes. However, a look at the owners of listed firms shows that the largest shareholders are investment and pension funds. They rarely take an active stand on issues. The textbooks and specialised commentators argue that corporate boards keep a check on management of a business. This is not true. Closer examination reveals that there has been cross-pollination by chief executives and managing directors from other corporations.  Top managers oversee other top managers. This not a recipe for good governance and how do they find the time? There is beginning to be evidence that increased shareholders’ representation brings better results.  Moreover, the financial sector has given many examples of breakdowns in corporate governance and the sad impacts on employees and shareholders.

The internet affects economies.  The dramatic expansion in the use of the internet is a major factor in economic success.  It doubles every 100 days, says America’s government. Economists estimate that without the internet, inflation in the US would be higher than the present figure.  Consumers employ the internet for everything from buying shares and holidays to weekly shopping. Analysts predict an enormous rise in tax revenues as a result of these transactions.

Shifts in colleges and universities.  The PIE News (for professionals in international education) sets out seven emergent trends for this year.  These are:

1      More industry consolidation.
2      Increase in public/private partnerships (PPS).
3     Significant growth in access to higher education via pathway programmes and foundation courses.
4      Retention strategies will be more ‘professional’.
5  Elections in Denmark, Nigeria, Spain and Britain could signal changes in policies.
6      Apps in mobile education will rise.
7      Greater scrutiny of agents.

We all see it. ‘This is the terrifying paradox of zealotry: no one hates humanity more than those who believe they know what’s best for it.’ Howard Jacobson, in The Independent.

Preparation for a job.  ‘He knows nothing and he thinks he knows everything. That points clearly to a political career.’ George Bernard Shaw (1856-1950) Irish dramatist and critic.