The good news, sort of, in this story is that it demonstrates why technology doesn’t work without humans. Hurrah. The bad news is that that doesn’t stop people from trying to do just that – and thanks to new technology they can get away with the dismal results for quite some time.

As you can see from the website, the Park&Suites Prestige hotel is a smart-looking new hotel in the business district that has sprung up around the Bibliothèque Nationale de France, the French National Library, in Paris. The rooms are compact and full of self-catering gadgetry to minimise the need for staff – a Nespresso machine, microwave and micro-washing up machine. They’re neatly designed (I took a couple of admiring photos). But in the room we occupied a couple of weeks ago the blind didn’t work, which mattered since the room was overlooked, and there were no instructions, so we phoned the desk. Or we would have done, except the phone was dead.

Without fuss, the receptionist moved us to another room. (We later decided she was unfussed because she was so used to doing it.) At that point it was time to go out to eat. Next morning, we discovered that there was no hair dryer in the bathroom, as promised; in its place there was a loose piece of plastic covering the wires that it should have been connected with. To cut a long story short, by the end of the day we had counted seven things missing or not working in the room, including the TV, which a technician came to fix but couldn’t. The heating in the large and glacial breakfast room had also broken down. If we could have eaten breakfast wearing gloves, we would have.

The bed was comfortable, the room clean and warm, so we weren’t seriously inconvenienced by the shortcomings – the catalogue of failure became almost comical. All that was lacking was a hotel manager called Basile. But €140 a night, supposedly a special ‘university rate’, was less funny, and even though the four-star status claimed was indeed a joke, it was a poor one. Even in a one-star establishment you’re entitled to expect it to fulfill its side of the contract. As it was, a glance at TripAdvisor confirmed that our experience was by no means unique, and among some satisfactory reviews were others that were almost unprintably rude.

Hence the first inescapable conclusion. It’s all very well designing a business to run with minimal staffing, but you still need someone in charge who cares. In fact you arguably need the human and management element even more.

So how do they get away with it? The answer is, confusion marketing. Looking at TripAdvisor, we made a disconcerting discovery. The ‘spot’ price for our room the night we were staying was not €140 but €99. As the young woman on the front desk confirmed, as in the case of airline or Eurostar seats, there is no ‘normal’ price for the rooms – it varies according to demand and timing. When we were offered the university rate for an extra night we naturally assumed it was the best available. But no: the university had done an annual block deal with the hotel at the fixed rate of €140. And no, although she accepted we should have been offered the lower rate, she was not empowered to make a refund, even taking account of the additional litany of failure. We’d have to write in for that.

So this is a small but comprehensive market fail of the sort that is just not supposed to happen in this day and age. To work for a customer, technology still needs a complement of human brain and affect – sympathetic management, in fact. Here, when technology went on the blink (as it does), humans weren’t empowered to put things right either literally or figuratively. The vaunted price transparency and thus informed choice supposedly enabled by the internet – customer empowerment – was an easily manipulated sham. If, as seems likely, Park&Suites had done similar block deals with other inattentive organisations in the area, the disconnect is complete and accountability reduced to nil: individual customers can rant and raving all they like on TripAdvisor or Twitter without making the slightest dent in the hotel’s monumental indifference. Never mind new technology: the old principle of caveat emptor still applies. And no, we wouldn’t recommend you staying at this hotel.

Stuart Gulliver’s extraordinary ‘not me guv’ self-defence in the HSBC tax evasion scandal shines a dazzling light on a lot that’s brazenly wrong with modern management. ‘Can I know what every one of 257,000 people is doing? Clearly I can’t,’ Gulliver protested plaintively about the practices of HSBC’s Swiss private bank, before going on to defend holding his annual bonuses in a Swiss private bank account via a Panamanian company on the bizarre grounds that ‘being in Switzerland protects me from the Hong Kong staff. Being in Panama protects me from the Swiss staff.’

Where to begin? No, of course he can’t know what everyone is doing. But that doesn’t mean he wasn’t responsible for what was done in the bank’s name. As Andrew Bailey, a deputy governor of the Bank of England, put it recently, ‘At the heart of this is a very simple principle. You can delegate tasks and work, but you cannot delegate responsibility for the safety and soundness and conduct of your firm.’ As for the argument that bankers are being held to higher standards than bishops, that’s just laughable. A former merchant seaman who came up the hard way to become HR director of a subsidiary of a US multinational reminded me recently that a ship’s captain is responsible for what happens on his ship, full stop. That’s it.

Or try it another way. No, of course he can’t know what everyone is doing. But too big to manage isn’t and can’t be an excuse. Responsibility for safety and conduct requires that either a company does not expand beyond the size that can be managed, or, if scale really is essential, it must have measures in place that allow managers to be confident that its integrity, and their responsibility, remain intact, despite not knowing what everyone is doing.

One precaution is structural. W L Gore, the exemplary private company that invented Gore-Tex, just keeps on growing, but at the same time keeps its units small. When a Gore unit reaches around 200 people in size, a new one is split off, often as part of a cluster of similar-sized companies close enough to foster knowledge synergies, but formally separate in order to encourage ownership and identity.

But while favourable structure can make proper management easier, it’s not in itself sufficient. The number one guarantor of integrity is purpose and values. These are two notoriously slippery characters, but – and a contrario in the case of HSBC’s tortured secrecy – you know them when you see them. Values, as someone wisely once said, are what you are willing to enforce. Values and culture do scale, but like light or computer memory, they need constant current to keep them operative. They are also subject to contamination, which is yet one more reason why acquisitions of companies with different value systems should be handled as carefully as high explosive – as HSBC, if it thinks about such things, is now discovering to its cost.

‘Management’ in the modern sense has several midwives, but one of the most influential was the railway. Predictable and regular dispatch and arrival of cargoes of people, over distance, required rules and basic standardisations (including time, which previously varied from city to city, and safety and other protocols). It also meant that many rules were simply non-negotiable, in some instances trumping status – in matters of safety a signalman or driver had to be able to overrule everyone else, however senior. Shared values of this kind are how Gore works. Unlike the railways, Gore operates largely without rules or bureaucracy, but governance is ensured by militant adherence by associates, who are co-owners, to the company creed of innovation, peer pressure and shared purpose – a much better way of keeping top management accountable, in the view of CEO Terri Kelly, than box-ticking or relying on outside rules.

The benefits of size are habitually exaggerated, and the incentives to achieve it – higher pay for senior managers, greater market power and weakened competition, greater influence over politicians – mostly perverse, benefiting the same senior managers at the expense of society as a whole. Numbers may count in military encounters, but not inevitably; there are no necessary economies of scale in human terms. That said, I don’t buy the ‘too big to manage’ fatalism. Big doesn’t have to be ugly, just as small isn’t automatically beautiful (from experience, ‘my conclusion was, you need two people to make a bureaucracy,’ Henry Mintzberg remarked recently). Just as it has been said that there are no mature markets, only mature management, so here the real issue is not that the company is too big (although it may be) but that management is too small.

As a business writer, it’s hard work being an optimist these days. It’s not that there aren’t potential good news stories out there in both public and private sectors, nor that creative thinking – and thoughtful practice – aren’t going on in the background. But you wouldn’t know it because the pall of the dominant narrative is so heavy, so all-blanketing, that no hint of an alternative can leak out.

And despite the cynical political boasting of economic and employment growth, the tone of the underlying ‘official’ narrative is overwhelmingly pessimistic. It takes the form of gloomy variations on Mrs Thatcher’s notorious TINA (‘there is no alternative’), constantly repeated until anyone querying them risks being ferried away by men in white coats. Thus in the public sector the conventional wisdom tells of remorselessly increasing demand and sense of entitlement, leaving authorities no option but to beat it back by rationing, reducing service levels and cutting costs, not to mention importing the ‘discipline of the market’. In the private sector, it’s the pressure of capital markets that is adduced to justify paying fortunes to bankers and CEOs, while the firms that they run can apparently no longer afford first pensions, then career, now full-time employment or even a living wage (the narrative glosses over the fact that 80 per of the £6.5bn paid out in Working Tax Credit goes to subsidise poverty wages in the private sector, mainly in retail, care and hotels and restaurants).

In fact, none of the conventional wisdom is true, or at least not that it is inevitable. What we see is actually the result of poor choices, whether made by politicians or business or both. Thus it’s not underlying demand for public services that’s ramping inexorably up; it’s failure demand inflicted by an outdated, unfit management model. Excessively high and low pay in firms does not happen by virtue of natural law; on the contrary, they are reverse sides of a single coin, directly linked by the incentives that have been deliberately (mis)designed to align the interests of managers with those of shareholders.

If choices are made, they can be unmade too. Unfortunately, unpicking them is made harder by two powerful second-order grounds for pessimism. The first is that today’s prevailing management model, being based on a fundamentally dark view of human nature, is itself gloomy, justifying sharp top-down application of carrots and sticks to oblige opportunist workers to do their jobs. The second reason is that these and other perverse assumptions the dominant narrative is based on remain hidden because of the media’s shameful failure to question them or the vested interests that they serve, let alone construct a more convincing alternative narrative. In an excellent recent article in the London Review of Books (it takes a literary journal to do a proper sceptical job on economics, apparently), Oxford economics professor Simon Wren-Lewis shows how to a man the media have bought the government’s ‘no alternative to austerity’ line in the face of compelling evidence that it is being deployed not for economic benefit (we are all £1500 worse off as a result) but as an excuse to shrink the state. Austerity, he says bluntly, is a con.

At least economics gets a hearing; the idea that there are choices to be made in the way companies are run and directed is raised only tangentially in the press, if at all. Thoughtfully reviewing Will Hutton’s new book, How Good We Can Be, Peter Wilby correctly describes the nature of New Labour’s historic betrayal: after a brief flirtation with the idea of stakeholder capitalism, he writes, ‘far from bringing the public interest to bear on the private sector,… New Labour brought the private sector and its values to bear on the public sector’ through measures like PFI and the NHS internal market. That’s spot on. But even the perceptive Wilby falls for the prevailing determinism, adding that instead ‘Labour preferred to leave the free market undisturbed’ – as if there was anything free or given about a market consciously rigged in favour of shareholders during the arch-ideological Thatcher and Reagan years. That too was a choice, an audacious and foolhardy one, whose results we are not only still living with but doing nothing to challenge.

Testimony to the corrosive effect of the gloomy narrative and its accompanying determinism is the meek acceptance of another bogus inevitability, the race to the bottom. So ingrained is the notion of private good, public bad, and so strong the cognitive dissonance from asserting that there is an alternative, that instead of reacting logically – demanding that companies live up to their responsibilities to all itheir employees, not just CEOs – there are increasingly strident media and political calls for ‘feather-bedded’ public-sector workers to be reduced to the private sector’s pitiful levels.

The same divisive rhetoric is used to depict a supposed war for society’s scarce resources between the generations. But here again the blindingly obvious answer is not to rob granddad Peter to pay teenage Paul, setting society against itself, but to work to boost the available outputs (private enterprise) and distribute the resources created more effectively (public). It’s the supply side, stupid.

Let’s face it, if the private sector, the engine room of capitalism, is now too feeble to keep people in work, in food and shelter and in decent retirement, then either capitalism ceases to be defensible, or the engine room needs a complete and urgent overhaul.

That’s good news because despite the institutional pessimism the latter is perfectly possible – if we choose to do it. The bad news, of course, is you’d never guess it from the dominant narrative, incessantly parroted and almost never challenged by the mainstream media, which have thus, even the parts of it that think themselves ‘progressive’, become part of a de facto alliance against optimism, action and change. For journalists and everyone else alike, that is not a happy thought.

If the government was responsible for the UK’s whelkstalls, here’s what it would do. It would commission McKinsey or PWC to do an expensive study. Next, it would outsource national whelkstall management to Capita or similar, which would then subcontract whelkstall operation to regional providers, either new organisations or consortia of existing local operators cobbled together to bid.

The first result of whelkstall reform would be a cut in the revenues of local operators, which would now be supporting two extra layers of management overhead. Some localities would find themselves whelkless, since their local operator had gone bust, not been selected for one of the consortia, or refused to prepare whelks to the recipe of the hated regional rival up the road. The government would declare the reform ‘a success’, although not releasing any figures to support the claim; the outsourcer likewise, as well it might since it was making 20 per cent on its contract revenues. A whelkstall regulator would be set up to ensure targets for hygiene and quality were met and whelkstall whistleblowers protected.

An exaggeration? Only a little. It encapsulates the second reason to throw the government’s insufferable boasting about its business friendliness back in its face: without exception, every reform or ‘solution’ it has brought to an already hard-pressed public sector has not just failed to improve it: it has systematically made things worse. This holds at macro- as well as micro-organisational level, and is the opposite of surprising, since it has single-mindedly applied (already wrong) private-sector thinking to the public sector, where it comes out even wronger.

Take the NHS. Faithful to the failed, false (see last week’s article) and reductive neo-liberal conceit that the market and transactional relationships are the only efficient form of organisation, the coalition’s reforms have, as the King’s Fund confirmed in a critical recent report, substantially marketised healthcare. In so doing they have carried out a ‘distracting and damaging’ top-down reorganisation, brought in ‘complex and confusing’ mechanisms for accountability and governance, and failed to plug a lack of system leadership which is increasingly problematic when there is a need for more bottom-up adjustment to deal with the consequences of the reforms. The report could have added that relying on competition (the essence of markets) to bring about cooperation and integration is a contradiction in terms.

As this suggests, many of the NHS’s ills are iatrogenic – caused by the treatment. Thus, as always, measures designed to reduce costs (rationing of all kinds, NHS 1111…) drive up costs, while targets create unattended, unwatched spaces where scandals bubble up malignantly until they burst. Yet more intrusive and counterproductive regulation and inspection ensue, resulting in a reign of terror that blankets hospitals, schools and whole swathes of the public sector like a pall.

Fear is a mockery of intelligent management – it blocks movement and makes people institutionally stupid, looking after their own skins rather than those of others, as in the old Soviet Union. ‘Sadly,’ confirms Polly Toynbee, ‘[Robert] Francis’s 2013 report into appalling treatment at the Mid Staffordshire trust has increased the “climate of fear” he criticises’ – ‘Freedom to Speak Up’, the name of his review, thus joining a growing number of ‘reversifications’ of practical meaning that this kind of management always translates into. Recent choice examples of reversification include ‘freedom to plan old age’ (translation: no pension), ‘personal budgets’ (choice over who gives you a package that is no use to you), ‘flexible labour market’ (permatemping, zero hours), the ‘sharing economy’ (winner takes all), and Help to Work (punishment for being poor).

As for local services delivered by the public sector, whether care, training, play centres and even consultancy, welcome to the whelkstall. For a comprehensive primer on this wonderland of management nonsense, read John Seddon’s incisive The Whitehall Effect: How Whitehall Became the Enemy of Great Public Services and What We Can Do About It, reviewed here, and get angry. Meanwhile, meet Henry Stewart, founder of a successful IT training and consultancy company, Happy, that has won more training and ‘great place to work awards’ than you can count. Earlier this month Stewart posted a blog on the madness of government procurement, describing what happened when the government decided that (yes) all training for Whitehall departments would be delivered through a single central contract provided by (yes again) Capita.

Having won the tender, Happy had previously been sole provider of IT training for DWP, where it was highly rated. But under the new system, previous record, quality, price or even what the department wanted, counted for nothing – DWP could have any colour it liked so long it was Capita. At a stroke, not being a Capita partner, Happy lost 25 per cent of its revenues.

It lost again when the government instituted new ‘minimum value contracts’ for apprenticeship delivery, which disqualified small businesses from direct contracts and forced them to work through others. ‘This increased the cost and complexity, as well as resulting in major delays in payment.’

‘Government regularly trundles down the path of big centralised contracts in the belief that they will provide economies of scale, but they rarely do’, comments Stewart – in this case claims of 60 per cent savings are undercut by the Cabinet Office’s refusal to release the report on which the claim is based, despite repeated Freedom of Information requests.

Let’s leave it to Stewart to draw the conclusion.

‘I find it hard to see a government that has had such a devastating effect on my business as any friend of enterprise’, he says.

‘And I also note that while they have been keen to cut corporation tax for large companies, there has been no change at all for small business. So, Mr Cameron, please do not pretend to be on the side of small business. You may be friends with the banks, the hedge funds and the tax dodgers. But you are no friend of hard-working small enterprises like mine.’

The pro- vs anti-business spat currently being vented by politicians in Westminster and certain red-faced businessmen is as meaningless as it is dispiriting. To call opponents out as anti-business because they suggest that all is not 100 per cent for the best in the best of all possible business worlds is childish, self-demeaning and deeply insulting to the rest of us.

The fact is that a love-hate relationship with business is entirely justified. The company is one of mankind’s most prodigious inventions. Large corporations are central to our current existence. No advanced economy has been built without them; they and their supply chains have hauled billions out of poverty, and in the developed economies, life, both work and play, would be inconceivable without them. Yet as with any technology, business’s potential for harm is as great as that for wellbeing. While no organisation is responsible for so much prosperity, none, particularly since 2007, has also created more confusion and mayhem. If it is inconceivable that that many of the world’s biggest problems, from global warming to inequality, can be solved without business involvement, it is partly because of the business role in causing them.

It is difficult, then, to exaggerate business’s importance. As the FT’s chief economics writer, Martin Wolf, has put it: ‘Almost nothing in economics is more important than thinking through how companies should be managed and for what ends.’

And here’s the rub. Unfortunately, Wolf goes on, ‘we have made a mess of this. That mess has a name: it is “shareholder value maximisation”. Operating companies in line with this belief not only leads to misbehaviour but may also militates against their true social aim, which is to generate greater prosperity’.

Wolf is not alone. At the Global Peter Drucker Forum in November, Roger Martin, previously dean of Toronto’s Rotman School of Management, observed that today’s capitalism was structured to reward banditry rather than stewardship. Colin Mayer is another past business-school dean, this time of Said at Oxford. In his recent book (review here), he charges that notwithstanding their near-miraculous past achievements, companies are now endangering their creators. ‘It is not an exaggeration to say that through their negligence, incompetence, greed, or fraud, corporations are a threat to our livelihood and the world we live in’ – ‘our Frankenstein’, in fact.

I could go on. These are just three in a growing chorus of business A-listers (many others include Dominic Barton, global head of McKinsey, Paul Polman, chairman of Unilever, Jack Welch, former CEO of GE, long-time UK business observer Charles Handy) voicing alarm that business-as-usual is increasingly not the answer, as David Cameron, George Osborne and, disappointingly, even Vince Cable seem to assume, but the number one problem we need to solve. Even Ed Milliband appears to imagine that a few minor tweaks and one-off tax charges will do the trick.

But judge for yourself. The fact (yes, fact) is that shareholder capitalism, an ideological construct of the 1970s, has not delivered the goods, even for shareholders. Martin has shown that shareholders have done less well under the regime that puts them first than it did in the postwar years, when companies accepted that they had obligations to employees and society too. Since then, companies’ return on assets has fallen by 75 per cent. Corporate longevity is plunging; on both sides of the Atlantic, the number of publicly quoted companies has dropped by half in 15 years. Brutally, the PLC, the core institution of capitalism, is no longer its dynamic engine but the millstone holding it back. It may even be on the way out.

The reason? Simple: the short-termist, shareholder-dominated formula favoured by capital markets and corporate governance codes is a recipe for slow, sometimes rapid, death rather than robust health and long-term survival. Companies are escaping the constraints of that regime by going private, merging, or going bust. In this light the current bout of business Labour-bashing resembles nothing so much as the last roar of the dinosaurs as they blunder witlessly towards their own extinction.

We know what’s brought us to this pass. The most dangerous bubble of all, as Mihir Desai pointed out in an important HBR article, is the one that has attracted least attention: the giant financial incentive bubble that has been inflated with the intention of aligning the interests of corporate and fund managers with those of shareholders. As was the intention, these incentives have indeed changed behaviours, but the results are disastrous. As Desai points out, through massive misallocation of talent and resources, ‘These changed incentives and rewards have contributed significantly to the twin crises of modern American [and more generally Anglophone] capitalism: repeated governance failures, which lead many to question the stewardship abilities of American managers and investors, and rising income inequality.’

What Chicago’s clever economists failed to foresee in their free-market zeal was that shareholder primacy effectively put managers and corporations on a collision course with the rest of society. While society benefits from well-functioning markets that oblige companies to innovate to create new advantage, which is then commodified by rivals to the profit of all consumers (think of the repeated cycle of innovation in semiconductors and personal computers), under shareholder value it is in companies’ interests to strive to make markets as imperfect as possible – through cartels, oligopolies and lobbying for special privilege, for example – to protect their own rents. In a zero-sum game, the object of business strategy, as in Michael Porter’s well known model, is to prevent other stakeholders from eating the shareholders’ (including CEOs’) lunch – in other words, capturing value rather than creating it, working against the larger interests of society.

As Desai suggests, here in these distorted incentives is the cause of the financial crash in 2008; here is the explanation why companies are investing in cost-cutting measures in order to return cash to shareholders via dividends and share buybacks instead of in innovation that would create new markets, jobs and value, as in the past; here is the reason for the race to the bottom in wages and benefits and the race to the top in CEO pay; here is the reason why companies in the richest countries apparently can’t afford to pay a living wage or live up to their pension commitments.

Here too is the reason why the much vaunted internet will, under present conditions, create neither jobs nor wealth for the majority. On the contrary, as Andrew Keen and others have argued, it simply turbocharges present tendencies to a frightening degree. On the other side of the ledger, chief executives and short-term shareholders have benefited in direct proportion to the extent that they have kept wages down, exploited suppliers and externalised as much of their costs as possible (in-work benefits to subsidise low pay, bail-outs and quantitative easing for the banks, environmental clean-up) on to society as a whole. And without orchestrated political change, they will continue to do so. Of course they will; why wouldn’t they? That’s what business schools teach them, consultants recommend and corporate governance codes solemnly condone.

So now tell me why ‘thinking through how companies should be managed and for what ends’, and similar debate over organisations in the public sector, shouldn’t be at the very top of the electoral agenda – or to put it the other way around, why failing to put it there is not a dereliction of Westminster’s primary duty to its constituents. Those perverse incentives are still there. The one good thing about the unfolding scandal of HSBC and Lord Green is that it reveals in all its cynicism what for politicians being ‘business-friendly’ really means. As so often, for the larger perspective one has to come back to Peter Drucker. ‘Free enterprise,’ he wrote, ‘cannot be justified as being good for business. It can be justified only as being good for society’. If being good for society involves a little temporary unfriendliness to companies and their leaders unwittingly undermining it, so be it.

(See also ‘Being pro-market and being pro-business are two very different things’, here)

Read my article in FT Business Education 26 January 2015 here

Earlier this month I met my accountant to go through my (very simple) yearly accounts. He made a throwaway remark about the trials of submitting tax returns to Her Majesty’s Revenue and Customs online, so I asked him to elaborate. Twenty minutes later (as long as it took to deal with my figures) he was still going. Here’s what he told me (the short version).

The HMRC computer system has crashed on him so often that he has given up using the website by day and only goes online after 10pm at night. Any improvement after that is relative: each return still takes an hour to file. There is a complicated login and logout procedure to be completed at both beginning and end (gateways and passwords) and for every file there are around 30 ‘noes’ to be clicked (are you in receipt of Job Seekers’ Allowance, child benefit, etc). If the system goes down before you get to the end, you go back to square one. The systems dealing with VAT and tax don’t talk to each other.

When the figures come back from the Revenue, the calculations have not been checked; my accountant says he now spends more time and effort correcting HMRC mistakes than doing the accounts in the first place. His productivity, and billing time chargeable to clients, are thereby both substantially reduced.

Raising queries on accounts is dysfunctionality raised to an art form. In a past life it was possible to discuss a case with a tax inspector, sometimes even one who familiar with the file. (My late previous accountant, a well-known inspector-gamekeeper turned accountant-poacher, was legendary for his epic rows with tax inspectors, usually after lunch, some of which he won, some he lost; I often felt a less abrasive approach might have been more productive, but gains and losses probably evened out over time and – the most important thing – after the row at least you knew where you stood.) The inspector is no longer accessible. Calls that get through (according to a recent Which? assessment one-third don’t) go to a call centre, which despite its impressive ‘Dedicated Priority Helpline’ moniker is essentially a message-taking service for logging and transferring queries to an ‘adviser’ somewhere in a back office. The adviser in turn is supposed to call back within a certain period. Since there is no way of knowing when this will be, it often happens that the accountant is not in to take the call. In which case the query is ‘closed’ and the process starts all over again.

This design is like something out of a Borgesian short story, performing the remarkable trick of making service dramatically bad at the same time as it permits HMRC agents to meet their targets and thus assert the opposite: the service is good. Magic! Under the only measure that makes sense to customers – the elapsed time taken to resolve a query – the service is dire, frequently stretching over weeks. But since HMRC uses measures related to activity (percentage of calls answered, percentage of calls handled within five minutes) rather than to purpose (resolving taxpayers’ tax issues), it has no knowledge of how good or bad its service is from the customer viewpoint, nor that its work backlogs are not the fault of bloody-minded customers but are self-created ‘failure demand’ – new cases that are actually old ones with a new reference number because they weren’t done or done wrong the first time round. Predictably, because managers have no idea what good looks like for the customer, they pin improvement hopes on technology, this case in the guise of voice-recognition software, which equally predictably creates not economies but rage, despair, more failure demand and higher cost. As the late Peter Drucker said somewhere, nothing is so utterly useless as striving to do better what shouldn’t be done at all.

It’s worth recounting this litany because the new HMRC is touted as a flagship of public-sector reform. Some flagship. It’s actually a travesty of reform, a compendium of all the mistakes that have already been made in the private sector, plus a few twists of its own. Thus its IT-led, front- and back-office design faithfully replicates the private-sector scale thinking that has made banks, telecom and utilities a byword for dismal customer service. It has been implemented by big consulting and IT firms that have strong incentives to use expensive computer systems, at the expense of human beings and common sense. Also borrowed from the private-sector chamber of horrors is a reductive, predatory and ultimately self-defeating view of cost. Although it’s impossible to calculate with any degree of accuracy, the new improved HMRC will almost certainly have yielded no global cost saving. Adding insult to injury, however, as my accountant points out with feeling, the costs of the worsened service have been bodily shifted to the user, costs moreover that are difficult to recover since they are incurred in activities that add no value for the ultimate client. In short, what HMRC is a flagship of is what’s wrong with today’s management – pretty much everything, in fact.

Read my article ‘Socially useful business – necessity or nonsense?’ here

It doesn’t take a clairvoyant to predict the two items that will dominate the management agenda in 2015. The first, local and particular to the UK, is public services and more specifically the NHS. The second, more general and more pregnant with unknown unknowns, is the future of work in the app, on-demand or algorithm economy. Bluntly, is the day of the full-time job over?

Each topic is hugely important; each is at a fork in the road. Tiresomely, each is likely to follow the road more travelled, leaving the positive potential unfulfilled. Thus the Conservative recipe for the NHS and the public sector, competition and the import of private-sector firms and practices, is as numbingly irrelevant to the main issue, which is one of management and work design, as Labour’s medicine of higher spending. Meanwhile, NHS boss Simon Stevens thinks that technology is the answer. In a recent interview, he declared that ‘health service new towns’ such as Ebbsfleet in Kent would start from ‘the default assumption that digital interaction will be the main way that people will interact with the health service’… Rather than registering with a family doctor, he predicted, residents would sign up to ‘a virtual primary care service, and then … rather than booking an appointment, [they’d] just be able to call up a doctor or a nurse on [their] iPhone, and have the face-to-face interaction there’.

Well, perhaps. More likely, like almost everyone else, he has been ‘fooled by penicillin’, as the US surgeon Atul Gawande described the syndrome in his riveting 2014 BBC Reith lectures. Pace Fleming and Curie, argued Gawande, the key to excellent health outcomes isn’t brilliant individual discoveries that enable disease to be cured like magic with a couple of injections. It’s the painstaking, error-free application of well-known basic principles. Take the dreadful ebola outbreak in west Africa. Asked about the secret of bringing it under control, a professor of nursing told me, ‘It’s a system, isn’t it? If any part of the system drops, there’s leakage – that’s how the virus spreads’.

Gawande is the originator and author of ‘The Checklist Manifesto’. His case is that in a complex, interconnected world even routine procedures have too many steps and dependencies for any one brain to be able to keep in mind reliably. He found that even in good hospitals a simple checklist carried out before surgery regularly reduces post-op complications by 35 per cent. In Scotland, systematic application of the checklist has so far saved an estimated 9,000 lives. Gawande called his second lecture ‘The Century of the System’: ‘We spent the 20th century reducing problems to atomic particles,’ he explained. But to deliver against those great discoveries, ‘it’s now how things connect up that matters.’

Mutatis mutandis, similar systems considerations apply to the issue of jobs and automation, and management generally. Hyping the app economy, Silicon Valley takes a strongly technology-centric approach: geeks know best, is the attitude, and if they can do it it should be done. In the same way economists look at technology and innovation exclusively from a productivity angle. Economists have traditionally taken an optimistic line: if a technology increases the overall productivity of the economy, then increased overall well being outweighs the temporary discomfort experienced by those whose livelihoods are displaced by the new methods. But there are conspicuously more doubters this time round. Nouriel Roubini, the New York academic who predicted the US housing crash in 2007, wonders ‘Where Will All The Workers Go?’. In a new book, author Nicholas Carr warns that ‘to ensure society’s well being in the future, we may need to place limits on automation’. Noting (‘There’s an app for that’) that the app economy’s ability ‘to deliver labour and services in a variety of new ways will challenge many of the fundamental assumptions of 20th-century capitalism, from the nature of the firm to the structure of careers’, even The Economist concludes that the overall picture is more complex and worrying than many politicians and economists have been prepared to admit.

Why? What’s missing from the economic account is awareness of the shaping managerial forces. As the Peter Drucker Society’s Richard Straub points out, the mismatch that automation is showing up is not primarily with skills but with opportunities to deploy and actualise human potential. In his book, Carr makes a distinction between liberating ‘humanist’ technology and its opposite, an ‘anti-humanist’ variety that simply displaces, deskills and sidelines people. That’s the effect of much current automation. Work by Clayton Christensen, confirmed by others such as William Lazonick, has shown that under pressure from the capital markets, managers have largely given up investing in market-creating innovation. They prefer cost-saving measures that substitute capital for labour, benefiting shareholders and triggering their own bonuses. Hence the decline of the middle-ranking job and the stagnation of wages. Drucker once wrote that the social responsibility of companies was to turn social problems into opportunity, jobs and wealth. But the chances of that happening when Silicon Valley entrepreneurs and corporate managers alike believe that their sole purpose is to enrich the shareholders constituency is precisely nil.

As with any other method, automation or algorithms are subservient to purpose. The kind of systems thinking that Gawande talks about is helpful here. Could automation and IT help in bringing ebola under control? Unlikely. Could it help in overcoming more banal but also debilitating and poorly treated conditions highlighted by Gawande such as coronary heart disease, asthma, high blood pressure and mental disability? Probably, in due course, through more systematic data collection and prompting to take medication (there are already apps for it). But it’s that way round. The order is: establish purpose, design against demand – and then see how computers can help humans to do it better. Human, not computers, by default.

Happy New Year.

As regular as bonfire night, last week saw the UK’s ritual annual outsourcing row. In 2013 the Institute of Government urged a halt to central outsourcing pending a review on the grounds that Whitehall lacked the management skills to make it work. Last week it was the turn of the Public Accounts Committee to charge that departments were overreliant on a handful of ‘quasi-monopoly’ contractors, two of them under investigation by the Serious Fraud Office for gross overcharging. The ‘markets’ being created by this kind of privatisation, charged the IG, were reducing competition and choice rather than enhancing them.

This is a fail in its own terms: but beyond that choice and competition are in themselves wrong-headed and self-defeating goals. These assertions run so counter to the authorised version that Whitehall simply blanks them out, which is why the outsourcing juggernaut rolls on regardless. This is one of the central themes of John Seddon’s important new book, The Whitehall Effect – How Whitehall Became the Enemy of Great Public Services and What We Can Do About it, which takes as its invaluable task the deconstruction of the current public-service paradigm (which is what it is) and the substitution of a better one.

Disclosure is in order here – while the ideas are distinctively Seddon’s, developed in Vanguard’s hands-on consultancy work across public- and private-sector organisations – I did some editing work on the book. I am proud to have done so, because while, as one Amazon reviewer puts it, Seddon’s narrative will certainly ‘make any rational person angry’, it fulfills a larger ambition. It puts in place a hard evidence base for a replacement offering hope and even (not a word to use lightly) inspiration for those who believe that management and public service have more to offer than cost-cutting, rationing and increasingly intrusive individual performance management.

To my knowledge, no one before has put together a satisfying intellectual pedigree of UK public services explaining both how they have come to assume their current form and why the latter is so dysfunctional. Seddon shows how the computerised call-centre/front-and-back-office/shared service model derives from – and suffers all the disadvantages of – traditional batch manufacturing, with its emphasis on standardisation, economies of scale and unit costs. This model, although still largely followed, was already obsolescent even in manufacturing by the late 1980s. In services, where the nature of demand is infinitely variable, the adoption of standardisation has been predictably disastrous.

As citizens, what we now get are shrink-wrapped, mass-produced service packages designed for lowest cost by commissioners and specifiers. They do such a poor job of meeting real need that they generate more demand (more contacts, more explanation, more referrals and assessments, more useless activity) than they satisfy.

Here in a nutshell is the whole slow-motion nightmare of everlasting austerity: public services that generate demand rather than meet it, apparently justifying more cuts that make matters grindingly worse. As Seddon explains, the ‘choice’ people really want is having their individual needs met; deciding between competing suppliers of similar bog-standard, ill-fitting packages, the Whitehall version of ‘choice’, is a bad joke, a travesty that delivers the worst of both worlds: a kind of market Stalinism in which product and cost are centrally planned and (see the PAC report) contracting is weighted in favour of the largest, cheapest and most cynical suppliers who care most about their shareholders and least about customers and workers.

One by one, Seddon picks off all the current public-service nostrums: as well as choice, personal budgets, commissioning, managing demand (aka rationing), risk management and lean have nothing to do with the purpose of a service in the only way that matters, as a citizen would define it. They are just activity. Some chapters (for example on procurement, aptly subtitled ‘how to ensure you don’t get what you want’) make you want to cry, laugh and smash up the furniture at the same time. As he reminds us, in the absence of real purpose the management measures used – in targets and standards, inspection and regulation and performance management (managing individuals rather than the system) – fill the void, distorting priorities and diverting effort and ingenuity into self-defeating attempts to do the wrong thing righter. The result is degraded services, disengaged citizens and demoralised public-service workers.

By definition, a paradigm is monolithic; at some point, it can no longer be incrementally force-fitted to the emerging evidence and has to be replaced. In other words, you can’t get to where we want to be by altering targets and standards. Getting over this hump is hard – ‘it is difficult,’ as Upton Sinclair noted, ‘to get a man to understand something when his livelihood depends on his not understanding it’ – which is why the careful dismantling of the monolith is essential part of Seddon’s project. But as important is the positive element, ‘the principles and practice’, to quote Lord Victor Adebowale’s foreword, ‘of how public services could empower citizens, could be exciting (yes, exciting) to deliver, and could genuinely add value to the lives of the public who pay for them’.

They could also return lost legitimacy to politics and Whitehall. ‘Politicians don’t know much about management,’ writes Seddon. But nor should they. Their mandated role is not to micro-manage but to focus on the purpose of public services for the people they represent. This ‘puts politicians where they need to be: connected to [their voters], able to appreciate the value of public services in their terms… but also to understand how better services build stronger communities, resolve social problems and lower costs’. Leaders of public services should be freed up to determine the measures and methods they use to meet these ends, with the role of ‘intelligent’ inspection and regulation restricted to testing whether the methods (whatever they are) really do drive improvement against purpose.

One of the ironies is that, when people can break the straitjacket of the dominant paradigm, such an agenda transcends considerations of right and left. Thus, in the US it is gaining traction in avowedly hard-right states like Texas and Utah, where politicians and technocrats are flocking to see how officials are respectively slashing prison populations (Texas of all places has closed three prisons so far) and dramatically reducing homelessness by resolving the issues that threw individuals off course and getting them on their feet again. The motivation is simple: it costs the taxpayer too much to keep people in prison or in homeless shelters, much less to do whatever it takes to get them off the state’s books, permanently. One state’s ‘financial rectitude’ is another’s ‘enlightened treatment of social problems’; whatever, it’s a result.

Under the radar, many similar initiatives in the UK public sector are producing the same kind of results, which Seddon has documented in a number of previous books and articles. This, though, is the most important and authoritative. In the run-up to the election, it has a direct message for every voter and politician as well as service leader: this is a set of ideas whose time has surely come.