Monday, 20 June 2016

KEEPING THE MANAGERIAL EYES OPEN



Confidence.  The report for the second quarter (2016) from Grant Thornton and the Institute of Chartered Accountants in England and Wales contains some uncomfortable key points.  Business confidence remains on the downward trend of the last two years.  Domestic sales continue to ease and exports have started to rise.  As a result, overall growth in turnover has stabilised but at a slower pace than a year ago.  Profit margins are under pressure as businesses are able to achieve only modest increases in prices.  Capital investment and research and development are still sluggish because of uncertainty in the wider economy.

Remain cautious.  The Organisation for Economic Co-operation and Development (OECD) has warned that the world’s economy is stuck in a low-growth trap.  It said monetary policy alone could not be relied upon to deliver growth and governments ought to use other available fiscal tools, such as additional investment in infrastructure to stimulate demand.  OECD pointed to several risks for global growth.  The immediate one is if the UK votes on Thursday to leave the European Union.

Blair is still around.  The continuing attraction of the former prime minister’s ‘third way’ to politicians in Europe was spotted by George Eaton in the New Statesman.  It confirms the failure of critical social democrats to establish and advocate an alternative. Tony Blair said recently of Jeremy Corbyn’s supporters: ‘It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.’  Mr Blair’s lack of attention to the former task enabled a revival of the left. Alastair Campbell summed-up the situation:  ‘We failed to develop talent, failed to cement organisational and cultural change in the party and to secure our legacy.’ New Labour did not outlive its creators. Some of Corbyn’s allies privately fear Labour will one day re-embrace Blairism. Any new adherents would not dare to use the name.

Higher education and better pay.  Politicians have encouraged the notion that the offerings of higher education will make individuals richer and the economy more productive. The Times (Alison Wolf) has wondered why it is that eight years after the financial crisis and with more graduates than ever before, we have ‘low growth, falling or flat productivity and stagnant wages?’ Also, around 33% of graduates are in ‘non-graduate’ jobs. Of course, graduates do, on average, earn more than non-graduates, but if the real incomes of both decline, the pay gap between them can stay the same, while students’ fees and debts remain fixed. We could fund higher technical education by providing skills the labour market demands and stop favouring teenagers over adults for loans. But above all, we could stop treating universities as having a narrowly economic purpose. This would mean an intensive and new think about what a university ought to be.

Corporate personality.  An organisation’s self-perception plays only a minor part in its personality. Almost everything in better results is about what the customers believe or feel about the business, brands and services. These come from experience and observation. Snippets – even if hearsay – on a product’s performance, price, availability, design, delivery and after-sales service are fragments in the mosaic. But the product is not everything. What is conveyed by telephone, letters, emails, salespeople, a receptionist’s greeting? The signals transmitted by the group (team?) with which a customer has contacts bellows volumes.

Sad reality.  ‘We have more ability than willpower, and it is often an excuse to ourselves that we imagine that things are impossible.’ Francois La Rochefoucauld, 1613-80, French writer.

Process. ‘Between saying and doing many a pair of shoes is worn out.’ Proverb.

Monday, 6 June 2016

LOOKING UNDER THE CARPET





More figures.  John Ashcroft made a shrewd observation in The Saturday Economist (28 May).  The Office of National Statistics released the second estimate of Gross Domestic Product last week. The overall figure is largely unchanged with 2% growth year-on-year. Household consumption is still driving the UK’s recovery with spending up 2.6%. Investment increased by 1.1%. The trade figures (imports and exports) continue to disappoint. Most analysts expect growth of just 2% for 2016. The trade deficit (imports in excess of exports) and the current account deficit (difference between the nation’s savings and investment) are the country’s major problems. This is not a time to take risks with flows of capital, international confidence and foreign direct investment..

The national debt.  Our Chancellor’s promise to reduce the UK’s national debt has gone wrong. It continues to go up.  There are three ways out of this trap. Two of them are out of the question. The first option is to pay it back by outgrowing it. This is not available right now. We cannot hope to have sufficient growth to get rid of such a large debt. The second possibility is to default. This would end the financial system and is unthinkable for a major economy. So, it will not happen. Government wants inflation.

Interest rates have been at near-zero for more than seven years.  Not many people benefit from this policy.  Pensioners reduce expenditure and young people are discouraged from saving. Paul Kupiec pointed out in The Wall Street Journal that low rates stimulate risky investments to chase higher returns and they do not boost economic growth.

Houses on the move. Registrations of sales went down by 46% in May. ThisIsMoney.co.uk noted that the average price of a residential property reached £234,069 in April. Now there is a reduction is demand. This is partly due to buy-to-let investors pulling out of the market after the surcharge on stamp duty came into effect. There are fears associated with the impact of a possible ‘leave’ vote in the referendum on the European Union. Sellers will have to be more realistic with asking prices and lenders might refuse to authorise high loan-to-value mortgages. Many British buyers of holiday homes in the European Union have asked for a ‘Brexit clause’. This will allow them to withdraw if the referendum leads to edginess in the market.

Managers could do better. The Chartered Institute of Personnel and Development’s research points to issues for managerial action. Giving feedback is a weakness. Only 41% of the employees said their line manager always or usually gives them feedback. We cannot expect someone to keep doing a good job if s/he does not know what ‘a good job’ looks like. 25% of the participants said their boss never coaches them at work. Just 9% replied they always do. More than half (53%) recorded that their line manager only sometimes, rarely or never keeps them in the loop about what’s going on. This weakness on communication can leave employees feeling alienated. Little more than half of the respondents said their manager could always or usually be relied upon to keep her/his promises. 18% reported that their boss never or seldom treats them fairly. Conclusions of this kind deserve attention.

Ouch!  ‘Leadership is like rugby. It requires you to put your head where it hurts.’ Mark Evans, chief marketing and communications officer at Direct Line Group.

It’s good to know. ‘The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.’ Economist Joan Robinson, quoted in a newsletter from PFP Wealth Management and in MoneyWeek (3 June 2016).


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.