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The real lessons of Nokia

How are the mighty fallen. Once high-flying Nokia has sold its mobile handset operation to Microsoft. Computer maker Hewlett-Packard, a venerable Silicon Valley pioneer, has crashed out of the Dow Jones Industrial Index. It seems to be true, as a recent post on MIT Technology Review notes, that ‘the lifespan of great corporations is getting shorter and shorter’. Back in the 1950s, when a company made it on to the S&P 500, a roll-call of the corporate great and good, it could expect to stay there for 60 years. These days, on average it won’t get out of its teens. But why?

‘Technological disruption could be one big reason’, opines the author – and it’s a view common to the point of cliche. Thus, Kodak’s demise is always attributed to its being overtaken by the switch to digital; Palm, RIM and Nokia were leapfrogged by the iPhone and have never managed to catch up.

Yet let’s think for a minute. With a few exceptions – technology really has disrupted newspapers – blaming technology is no kind of explanation. It simply restates the problem. A more convincing, and down-to-earth, interpretation is that these companies failed to respond to changing markets because something in their internal organisation and culture didn’t let them.

One ex-Nokia manager cites a Finnish newspaper which points the finger squarely at the company’s stock option scheme for top and senior managers. In this narrative the options progressively corroded the culture from within, setting up debilitating competition between groups, people and platforms. Competition exacerbated divisions created when former chairman Jorma Ollila restructured Nokia’s business in 2003 into three separate groups, each with its own budgets and targets. The snag was that market/customer demand had to go through each of these divisions. By 2006 it was apparent that lack of trust and bad blood had caused a breakdown of cooperation between people and divisions that was directly affecting the company’s markets. But by then it was already too late.

In his biography of Steve Jobs, Walter Isaacson describes a strikingly similar situation at Sony in the run-up to the launch of Apple’s iPod and iTunes. By rights, that market should have been wrapped up by Sony, which unlike Apple already had both the technology and the content to make it its own. It failed to act because it was paralysed by rivalries between divisions, something that Jobs had expressly legislated against by insisting on a single balance sheet and P&L. As one Nokia manager described the result: ‘Everyone had two personal targets per year (defined by the hierarchy, top-down); [the result was] you only did your own things that enabled personal bonuses even when the business environment changed dramatically’.

Moreover, says the insider, at operating level Nokia’s work design faithfully mirrored the traditional reductionist thinking evident in remuneration. Complex tasks were systematically broken down into multiple simpler subtasks. ‘But knowledge work is very different from assembly line work… There was no flow in the work because every small decision had be escalated to multiple steering groups (or steering groups of steering groups of steering groups), and decision making wasn’t integrated with work. There could be weeks of waiting for the decision and for the time being, some other work had to be done to keep the “worker utilized”. Obviously, resource planning became a very complex task for the organisation’.

Another side-effect of this way of working became apparent when Nokia’s fortunes changed and it began laying people off. Highly reputed as it was, Nokia’s high-specialisation work design meant that engineers with 10 years of programming experience focused on, say, specific Bluetooth drivers in certain operating systems, and only used to following the specifications they were given, were not easily employable elsewhere.

In this light, the ‘technological disruption’ story looks like a lazy oversimplification. The real moral is more sobering. While rapid technological change means that more companies can ride the wave to the top, it also flatters managers (banking their huge option awards as they do so) into believing it was their own managerial genius that deserves the credit rather than the good fortune of being in the right place at the right time. The receding tide separates the firms that got the more boring but lasting things like reward and work design right from those that didn’t. In other words, the turning technology cycle just reveals how many companies simply weren’t that great, after all.

Facing the facts on 111

No apologies for returning to health this week. On BBC Radio 4, a Face the Facts edition by John Waite perfectly summed up the cul-de-sac we have run ourselves into with the NHS: having given a forensic description of what went wrong with the disastrous 111 number, the programme utterly failed to draw the conclusions of its own story and offered no hint of a way out of the vicious circle of rising demand and rising cost.

111 had its genesis in a 2010 decision to replace NHS Direct, in the official narrative an accepted, well-respected resource for patients, especially at night and at weekends when the rest of the NHS was closed, and for the NHS a means of relieving pressure on GP surgeries and A&E departments. The ‘problem’ was that it was expensive (about £123m a year); so the idea, no doubt underpinned by expensive consultancy advice, was to use technology to make efficiency gains by economising on highly-paid professional medical staff.

In other words, 111 was conceived of as a network of standard call centres of the kind that every customer loves to hate, manned by call handlers with no technical knowledge, reading a script from a screen, with professional expertise ‘on call’ behind. Just as classically, NHS England put contracts out to tender based on unit cost, or cost per call. The benchmark, according to Peter Carter, general secretary of the Royal College of Nursing, was £7 for a non-clinical call and £10 for one that had to be referred on to a clinician. Carter said: ‘The only way they [the contractors] can do it is by compromising the staff mix – they’re trying to do it on the cheap’.

When the system went live in April, the result was as wearily predictable as the 111 computer script. Technology malfunctions were the least of it. Lives have been endangered if not lost because neither patients nor computer programmes can easily distinguish between conditions that are really non-urgent and those that look it but aren’t (as a doctor noted, some conditions are almost impossible to diagnose over the phone but easy and instant for a trained physician in person). In other words, the system is unable to absort the presenting variety – a computer script is an utterly inadequate substitute for trained human judgment.

Meanwhile, as at any script-driven call centre managed for cost, call-handler morale was low and turnover consequently high. Staff felt undertrained and overworked and looked on in dismay as many colleagues treated it as casual work, clocking on for a few hours and then drifting away again. Call handlers left because they found it ‘just a really depressing environment’.

But as ever, cheap actually isn’t cheap: managing costs breeds more costs. Under the previous regime the original incumbent, NHS Direct, had been getting £24 a call, and its first bid for 111 contracts was too high. So it ‘reworked the figures’ to get under the hurdle and was duly awarded 11 areas, the largest provider. Unfortunately, its first calculations were nearer the mark. Calls were taking double the five and seven minutes estimated for unreferred and unreferred-on calls, for which it was paid from £7 to £10. It pulled out of two contracts even before the launch and now wants to give up the rest as financially unviable.

As depressing as the litany of failure is the response to it. NHS England claims that 111 provides a ‘safe, proven, consistent clinical assessment of callers’ symptoms’, and that 96 per cent of calls are answered within 60 seconds. Even critics assume that the issue is teething problems and poor execution. NHS Direct is blamed for ‘getting its sums wrong’, and the government for rolling 111 out too quickly and trying to cut corners on cost. Rising demand is taken as a given. Also taken for granted is that 111 is necessary – so the only solution is to do it better (read: more expensively).

In fact, everything about 111 was wrong from the beginning, including its purpose and starting point. But you wouldn’t know that. Nowhere is there a hint that the 111 story is not about doing things wrong, but doing the wrong thing. Nowhere is there a hint that the cost and time that matter are not cost and length of call, still less the time taken to pick up the phone, but the end-to-end cost of solving the problem so it doesn’t recur. Nowhere is there a hint that the only sensible way forward is to establish the real, as opposed to repeat and knock-on, volume of underlying demand and design a system to meet it, 24/7.

There being, in short, no sign that anyone has learned anything at all, the prospect is that we will do the same thing all over again and expect a different result. Which, as Einstein declared, is one definition of insanity.

Two cheers for Berwick’s report on patient safety in the NHS

There are plenty of things to approve in Don Berwick’s report on patient safety, as well as some to query. The fact that both good and less good are the opposite of what most people think they are says much about the state of public debate on the NHS as well as the difficulty of making the changes that Berwick recommends.

Overall response to the report has been lukewarm. It has been criticised as too general and short on particulars: no headline proposals for tough legal sanctions on individuals or regulation, no minimum staffing levels for wards (a ‘missed opportunity’, according to the nurses). In fact these reflect what’s good about it. Along with other clear principles – constancy of purpose in minimising harm, suspicion of numerical targets, the need to drive out fear and build pride and joy in work, attributing blame to a bad system rather than bad individuals, turning the NHS into a learning organisation – they come straight out of the Deming management handbook. Real cheers, then, for a report that recognises that the NHS is a system, so that change has to be systemic too.

In fact, that was one of Berwick’s most important points: awful though events at Mid Staffordshire were, he noted in a Newsnight interview, the fact that the NHS was a single system meant that when things went wrong there was an opportunity to do improve them system-wide – an impossibility in the fragmented US, for example.

The problem is that many people – inside the NHS as well as out – won’t get the radical implications of the system point. Without being exposed to them in action, they rarely do. We prefer easy solutions to hard ones, and sound-bite-obsessed media don’t help. And for them, the report will indeed seem general and even comforting. Learning organisation, ‘culture change’ – what could be softer focus, less contentious than that?

Paradoxically, one of the warning lights is the choice of patient safety as top priority. Of course, that’s what Berwick was asked to report on, and to be strictly accurate, it is ‘the quality of patient care, especially patient safety’, that the report singles out as the NHS’s most important aim. But safety and high-quality patient care, as Vanguard’s Andy Brogan, a keen and involved student of NHS affairs, points out, are ‘hygiene factors’, something necessary to achieve the purpose but not identical with it. Safety is a priority for air travel, too, but it’s not the purpose, and nor is it for the NHS.

‘When you have to make safety a priority, it tells you that the focus must have been wrong before’, Brogan reasons. ‘We ended up with a safety problem because we weren’t focused on purpose and value. A patient safety focus is not the same as a focus on purpose and value and therefore doesn’t remove the precipitating cause of the problem. It treats the symptom.’

The purpose of the NHS is to allow people to live healthy lives, in our own context. For Brogan, the big story in the NHS, nowhere hinted at in Berwick, is that it has conceived of its purpose from the wrong point of view: it is producer- rather than patient-centric, reducing patients to their conditions and then handing them out more or less standard medical packages – ‘push’ rather than ‘pull’. This is Fordist, industrialised, Model-T medicine – and the surface pressure and busyness conceals huge underlying waste and inefficiency.

‘Almost every improvement effort I see in the NHS assumes that it has a single-loop problem to solve – i.e. we are doing the right things, we just need to learn how to do them better’, says Brogan. ‘But the NHS has a double-loop problem – it is doing the wrong things. When you see people’s demands in the context of the lives they want to lead, many of the condition-shaped interventions are simply the wrong thing to do. Making them safer is just doing the wrong thing righter’.

Thus it’s all very well to call for the NHS to become a learning organisation – who could disagree? – but it can’t do that unless it changes how it measures. Measures can be used either for learning or accountability and control but not both (the argument is here). Broadly speaking, NHS measures are related to activity, not purpose from the patient’s point of view: number of GP or A&E visits, for example, all of which are assumed to be demand needing to be managed, which is done by rationing the available resource to match. No learning is involved; the measures are used for control, not to learn how to improve patients’ lives.

When measures are related to the purpose of enabling people to live healthy lives, on the other hand, the first discovery is that the more the organisation is ‘improved’ to increase throughput and cut costs, the worse it serves its patients. Take limiting GP appointments to 10 or even 8 minutes, or sometimes one problem at a time. This boosts throughput, but the price of failing to deal with the complete issue at first pass is multiplication of backed-up ‘failure demand’ as patients return for further consultations or present themselves at A&E instead. These pressures led to the setting up of first NHS Direct and now the disastrous 111 number – both unwitting factories for amplifying yet more repeat ‘demand’, the epitome of non-learning organisations.

Vanguard’s figures suggest that up to a terrifying 85 per cent of all demand into the NHS is failure demand. While much of it is medically justifiable, it needn’t and wouldn’t happen if it were dealt with properly the first time round. This is the nightmare treadmill that the NHS has to get off and that is the essential subtext to Berwick – small print that is more urgent and alarming than the report’s headlines. This is why the influential Roy Lilley, broadly a Berwick admirer, describes it as ‘the most exasperating and annoying report I’ve ever read.’ While not going that far, and accepting that ‘it’s important not to lose the political will,’ Brogan also expresses his frustration: at some point, he says, ‘someone will have to get up and call a spade a spade’.

How call centres get it wrong for both employees and customers

‘It’s the loneliest job in the world’. That would be a lighthouse-keeper, maybe? Firewatcher? Or a night security guard in an office or warehouse building?

Well, no, actually. In one of the saddest things I’ve read in weeks, tucked away in the ‘What I’m really thinking’ slot in the back of The Guardian, a writer described the bleak, affectless life of a call-centre agent.

‘You’re surrounded by people and talking on the phone all day, but you never make an emotional connection,’ wrote the anonymous agent, ‘either with your colleagues, who you barely get to know, or with the customers, who would rather have teeth pulled than talk to you… People are breathtakingly rude to me. I know I’m a convenient scapegoat to vent at, but I’m not a robot. It still hurts when the phone is slammed down. Every day is an internal wrangle. There are two voices. One is: ‘I don’t care what people call me. I’m doing OK; just keep plugging away.’ And the other is: ‘How can they talk like that to me?’

The tragedy is that many people reading the piece will probably have shrugged, ‘That’s the way life is. If you don’t like it, find a different job’. But the right response is not resignation, but outrage and revolt. People haven’t been put on earth, or if you prefer, humanity hasn’t evolved over millions of years, to be used cynically as disposable rags to soak up the rage and disillusionment engendered by practices that are a travesty of human relations, of customer service, and of management generally.

It doesn’t have to, and shouldn’t, happen like this on any count. What the writer describes is a full house of failure. Treating humans in such a way is degrading and wrong; but even if it could be justified in human terms it’s unacceptably inefficient as management; and instead of being cheap, as managers imagine, it’s actually uncountably expensive, although the costs are mainly hidden.

Putting technology in charge of humans, instead of the other way round, is wrong in principle. But employing computers to do things humans are better at, such as using judgement and helping others, and vice versa, is also a major cause of inefficiency. Whether responses are formally scripted or not (and many are), the aim of call centre activity like this is to force callers into predefined categories for which there are standard responses. In other words, the system is designed to deliver what’s convenient to the organisation rather than the individual. Preventing agents from solving individual problems not only stops the system from absorbing the infinite variety of demand, it demoralises workers and enrages customers, as graphically described in the Guardian.

The reason that call-centre work is designed like this is of course cost. Managers think that if they standardise responses they can keep call-handling times to a minimum and thus beat costs down. But this is an illusion. What they are measuring is the unit cost of a single activity – answering calls. When you measure the cost of resolving the problem from beginning to end, it becomes clear that ‘cheap’ is is not what it seems. Here’s the Guardian writer: ‘There are ways to beat the system, though. Bonuses are related to average call-handling time: ideally they should last for 35 seconds or less. So I ring my mobile for one second to bring down my average’. Agents can call on many other ploys to achieve the same end, including bumping cases up to the next level or closing them in one category and re-opening them in another.

Ironically, managers blinded by their obsession with activity costs usually see this as reflecting increasing demand rather than increasing inefficiency, so what do they do? – yes, they open another call centre, thus not only raising costs but locking them in for ever, or at least till the end of the outsourcing contract. There is plenty of anecdotal evidence that this dynamic – the recycling of ‘failure demand’ – is at least partly to blame for mounting pressures on ambulance services and A&E departments via NHS Direct and the equally misguided NHS 111.

More than 1m people now work in UK call centres, and although there are some exceptions, such cost-centred IT-driven systems are the norm. Although the industry dismisses the often-made comparison with the dark satanic mills of the Industrial Revolution, the comments below a BBC story on call centres chime exactly with the Guardian version. It may be that modern call centres are one of the most systematic destroyers of human wellbeing and happiness on the planet.

In this form they embody anti-management – another example of management betraying its fundamental principles and turning into its dark opposite. ‘Putting a smile in my voice despite endless rejections, not revealing what I’m going through when I feel sick with repressed anger’ – no one should be obliged to carry out such oppressive and counteproductive emotional labour, just as no one should be subject to zero-hours contracts, another facet of the creeping dehumanisation of work. Neither is compatible with management’s duty of care, and both will in time come to seem as indefensible as child or forced labour.

Calling corporate bluff on tax

Like distant thunder in a heatwave, the corporate tax debate rumbles on without any real break in the weather. In fact, if anything the temperature is still rising, so resolutely are the real issues being ignored by everyone involved, including the media.

Take the proposal, approved by progressives and conservatives alike, to allow the tax authorities to take action if they suspect companies are evading tax, even in the absence of technical illegality.

This is a truly bad idea that sets a terrible precedent. It is true that corporate tax rules are overcomplicated and unfit for purpose, but the remedy for that is to change the law. Giving an executive agency a mandate to override what Parliament has put in place, on its own say-so, is wrong in principle and dangerous in practice.

HMRC already benefits from an enormous amount of discretion. Despite scrupulously maintained accounts, a small-business owner of my acquaintance lives in utter dread of the annual tax inspection, the resulting demand seemingly dependent entirely on the mood of the inspector, with knowledge that the same individual will be back next year being an unanswerable disincentive to appeal.

To existing discretion to throw its weight around add the consideration that HMRC is a byword for dysfunctionality, a house of management horrors. Its ineffectiveness at the day job has been castigated over and over by Parliamentary committees, and some have questioned whether it is capable of carrying out its duty of care to its own hapless employees. Now imagine the consequences if an out-of-control organisation like that were to combine ‘discretion’ (which hardly seems the right word) with incentives. In fact, we know what they are already, from the writings of Orwell and Kafka and the experience of the old Soviet Union. You might as well entrust a fire service to a pyromaniac.

On the debate about the law too, the debate sails as wide of the mark as an Australian fast bowler at Lords. Thus, like everyone else, an otherwise fascinating BBC radio discussion on the history of corporate tax evasion signally failed to draw the conclusion that was staring it in the face.

Controversy over the subject goes back to at least the eighth century, when the Venerable Bede was apparently scandalised by bogus monks setting up monasteries to attract tax exemptions granted to subsidise the production of expensive illuminated books. The solution arrived (much later) through force majeure in the shape of an invasion of pillaging Vikings, in the face of whom even bent monks could hardly dispute an edict that they should contribute like everyone else to the common cause of survival.

Mutatis mutandis, the same is true today. The day is long past when corporations could claim exemptions that do not apply to the rest of society. We really are all in it together. For Vikings substitute global and financial warming, the latter of which of course was caused precisely by overexploitation of the privilege of not being in it all together that corporations had first grown accustomed to and then systematically abused.

In today’s world, pleading Corporate Social Responsibility as a sop for economic bad behaviour is scarcely more adequate than monks pointing to pious works in lieu of paying for defence. Now as then the solution is an edict that makes it clear that companies are not crude, one-dimensional economic organisations answerable only to shareholders but are inextricably part of society as a whole, from which they derive their rights, not the other way round. Although many business people appear to have forgotten it, free enterprise doesn’t stand as an end or even a virtue by itself – it’s only a virtue if it benefits society as a whole, which it is now more and more patently failing to do.

I know I repeat myself (well, no one else does): corporate managers take tax avoidance to the edge of the law because that’s what the shareholder-primacy ideology, backed up by self-interest and enshrined in corporate governance codes, tells them to do, just as they take it as a justification for short-changing customers, fleecing suppliers and offloading as many obligations as possible (pensions, welfare, risk in general) on to the rest of society. Ironically, the last revision of company law in 2006 actually increased the shareholder orientation of corporate UK, where shareholder influence is now the (misguided) envy of investors in other jurisdictions. Until this toxic nexus of law, ideological assumptions and vested interests built on them is unpicked, asking companies not to evade tax is as useless as demanding that sharks stop being carnivorous or pigeons give up eating peas.

Corporate leaders such as Google’s Eric Schmidt and Tim Cook at Apple have dared politicians to change the rules if they want companies to pay more tax, taking a calculated bet that they will have neither the courage nor the intellectual will to get to the bottom of the issue, and even if they did their own lobbying would be enough to snuff out any lingering enthusiasm. We should call their bluff. Go on, lead – have the guts to change the rules and spell out why, before it is too late.

Truth: easy to talk about, a hard way to manage, and critical in the long run?

Read my reflections on a Foundation Forum on truth (no less) here

‘Kittens are evil’: heresies in public policy

When Tony Blair remonstrated some years ago, ‘No company would consider managing without targets,’ he was nearly right. Whether organisations using them call it that or not, results-based frameworks for performance management have come to dominate management thinking in many parts of the developed world, in both public and private sectors – particularly in the UK. Broadly speaking, using outcomes-based thinking managers first define the desired results, then cascade the requirements down through the organisation and hold people at different levels accountable for their part in making them happen. The logical extension of this kind of performance management is payment by results (PBR), which has been eagerly adopted in many areas of social policy (NHS, employment, foreign aid). Like so much else in public sector management, its origins are to be found in the private sector, where in the form of bonuses and incentives it is ubiquitous in top management and throughout the financial sector.

Paying people for the results they achieve – it sounds rational and plausible; indeed it sounds like management’s Holy Grail. But if that is the case, why are two of the most enthusiastic proponents of results-based management, the banks and the NHS, conspicuous for producing outcomes that are the opposite of those they were set up to deliver – impoverishing the world rather than enriching it in the case of the banks and killing patients instead of curing them in NHS hospitals? And is there an alternative?

The answers that emerged from a fascinating and disturbing event organised by consultancy Vanguard in Manchester in March were, respectively: because people persist, and have a strong vested interest, in believing that making it work is a technical problem that we can solve if we’re clever enough; and yes, there is an alternative, and not surprisingly it’s the opposite of outcomes-based approaches – starting not from the back (the result) but the front (what’s happening now).

The event was entitled ‘Kittens are evil’, to make the point that like questioning the ‘aaaah-quotient’ of everyone’s favourite pet, casting doubt on outcomes-based management is heresy. Being a heretic can be uncomfortable – see Galileo and Luther – but sometimes there’s no option but to speak out. The Manchester event was the second in a series designed as a rallying-call for campaigners to take the initial steps down that route, the first having taken place in Newcastle on October 2012, organised by the North of England Transformation Network, Newcastle CVS and the KITE Centre at Newcastle University Business School.

The first step in turning today’s heresy into tomorrow’s new paradigm is to unpick the assumptions underpinning the current one. These turn out to be fairly heroic.

Number one, says keynote speaker Toby Lowe, research fellow at Newcastle University Business School’s KITE Centre and chief executive of Helix Arts, is that outcomes are unproblematic to measure (access his articles in The Guardian and Public Money and Management here and here). In fact, they are so context-dependent that in practice accurate measurement for timely management is impossible: ‘Our desire for outcome information outstrips our ability to provide it. Information about outcomes can either be simple, comparable and efficient to collect, or it can be a meaningful picture of how outcomes are experienced… It cannot be both.’

The second assumption is that effect can be reliably attributed to cause. The conceptual flaw here, says Lowe, ‘is that it is based on the idea that outcomes are the result of a linear process from problem through intervention to positive outcome’. But a moment’s thought indicates that attribution can only be done at the price of massive simplification in which a myriad external and contextual factors are weighted away or simply ignored. In combination, these two flaws yield what Lowe calls social policy’s ‘uncertainty principle’: the more we know about the outcome the more complex it becomes and the less we are able to attribute it to a particular cause. Yes, it’s a paradox: the more we measure, the less we understand.

Meanwhile, the side effects of in terms of the distortion of practice and priorities is reflected in almost every day’s news headlines. When managers are tasked with delivering ‘outcomes’ that are beyond their control, notes Lowe, they ‘learn ways to create the required outcomes data by altering the things that are within their capacity to control’ through creaming and other means of making the numbers without improving the actual outcomes. A good example: when a Vanguard team looked at A&E casualties at three NHS hospitals, it discovered that the nearer people got to the four-hour wait limit, the more likely they were to be admitted to hospital until at 3 hours 59 minutes everyone was admitted, irrespective of need.

More subtly, management by results can corrupt behaviour at every step in the chain. One view of targets is that they are a ‘Nelson’s eye’ (‘I see no ships’) game in which governments in effect collude with the gamers by taking reported performance improvements at face value, or alternatively by insisting that gaming is only carried out by ‘a few bad apples’, in both cases preserving the evidence base. A similar thing can happen to front-line workers, with even more worrying results. As Lowe notes, the relationship between worker and client is subtly reversed. The worker no longer asks the client ‘How can I help you achieve your goals?’ Instead, they ask ‘How can you help me achieve my targets?’ ‘Evidence-based policy is sought by government, but mostly the result is policy-based evidence’, is how economist John Kay sums up this corrupting process.

If, as even proponents admit, the real evidence base in favour of results-based management is so thin, and the casebook of distorting behaviour, unintended consequences, and outcomes the opposite of those expected, so thick, why does its hold remain so strong that it is still the default discourse? The answer, says Lowe, is that the acknowledged problems ‘have been treated as practical obstacles which can be overcome when, in fact, they cannot be “solved” because they are intrinsic to the theory itself.’ To denial is added formidable vested interest in the shape of the IT-based performance management systems that govern the way call centres and customer-service organisations operate throughout the UK public and private sectors. A final factor may be the pervasive short-termism afflicting those who report on such matters as well as carry them out, with the result that the ideological underpinnings of such management are never challenged or indeed examined.

As systems guru Russell Ackoff explained, if you are doing the wrong thing, then doing it better makes you wronger, not righter. So the ‘efficiency’ measures and large-scale IT-driven change efforts undertaken as remedies demonstrably make things worse. On the other hand, even if you start off doing the right thing wrong, every small improvement is a step in the right direction. If, as the evidence strongly suggests, outcomes-based approaches are the wrong thing, what is the right one?

The right thing – and the next step to establishing a better, more productive paradigm – is, logically, to reverse the wrong thing and start at the other end. If results, as Lowe puts it, ‘are emergent properties of complex adaptive systems’, so we can’t measure performance against them, what do we use as measures instead? That, says Andy Brogan, the second keynote presenter, depends on the answer to an anterior question: why do we measure?

Organisations can use measures in two ways: to learn and improve; or to create accountability. As with Lowe’s information dichotomy (information about outcomes is either complete on collectable but not both), accountability and learning are mutually exclusive: ‘the minute you use measures to create accountability, you can’t rely on them for learning, says Brogan, ‘because their validity is destroyed’ – a perfect example of Goodhart’s Law in action (‘Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes’, popularly restated as ‘When a measure becomes a target it ceases to be a good measure’, and named after Professor Charles Goodhart, economist and adviser to the Bank of England).

To illustrate the fundamental difference between the two kinds of measure, take the example of a local authority child protection department. It uses two standard measures for assessing children at risk. For those judged to be in imminent danger, it must carry out an initial assessment within seven days in 80 per cent of cases. For a fuller core assessment once the risk level is understood, the standard is 80 per cent within 35 days. Note that the measures are both arbitrary and illogical – seven days could be far too long for those in most danger, and the 80 per cent quota will be little comfort for the 20 per cent not covered. Be that as it may, the unit meets both standards, so under the red-amber-green (RAG) signalling system used to guide management priorities, it rates solid green: no management attention is required. The conversation among managers and workers is about making the numbers within the guidelines laid down in a compendious ‘yellow pages’, ie about demonstrating accountability. The result of success – meeting the standard – in this system is: relax, do nothing.

Now take the same department viewed according to a different measure: the end-to-end time from first referral to assessment completion – which of course is how it is experienced by the child or, say, the primary school teacher who has referred her to social services. The picture that emerges is very different. The ‘urgent’ assessment takes on average 16 days (‘far too long by any standard’) but can predictably take up to seven weeks, while the core assessment averages 55 days, not 35, but can equally take up to 161, or more than five months. Worse, because unbeknown to management the clock for the core assessment only starts when the case is formally opened and not when the initial assessment is completed, the true end-to-end time for the 35-day assessment can be anything up to nine months. ‘Now tell me Baby P and Victoria Climbié were one-offs’, says Andy Brogan, who collected the data, grimly. ‘They weren’t: they were designed in.’

So how could the department say it met the standards? Because the de facto purpose of its workers has become to avoid attracting managers’ attention by making the numbers, which, like customer service organisations everywhere, they have learned to do by recategorising cases and starting and stopping the clock in ways that are legitimate according to the official bible. ‘We’ve dialled down the value base or purpose and replaced it with making the measure,’ says Brogan. ‘It’s “for God’s sake hit 80 per cent because if not we’ll get hauled over the coals by management”. This is what happens when the measure is put there for accountability, not learning.’

To generate learning, a measure must be subordinate, and related, to purpose as defined from the customer or client’s point of view – in this case ensuring the child is safe in the shortest possible time. Then, the office conversation is about the available methods to do that, ie about improvement (recall that under the previous measure, the conversation is, ultimately, about how to do nothing). In all organisations, whether they are aware of it or not, there is a systemic relationship between purpose, measures and method. Where purpose comes first and measures are related to it, the job of workers and managers is to find methods that will meet the purpose better, as calibrated by the measures: a learning system. Where the measure comes first (as standards and specifications mandated by government and inspectors, for instance), it becomes the purpose and methods are correspondingly geared to meeting it, ie demonstrating accountability. Hence the paradox of public service organisations gaining three-star (or whatever the ranking system is) ratings and utterly failing their customers (Haringay social services), or bankers claiming their bonuses while pulling down the world; which in turn explains the more general one that in accountability systems no one is ever accountable (Mid Staffs, the banks), since they have always met the numbers.

Given how much attention is paid them (‘what gets measured gets managed’ is certainly true) it’s astonishing how much of the measurement that goes on in most organisations is useless. It is actually worse than that. As Deming rhetorically asked about targets, ‘What do ‘targets’ accomplish? Nothing. Wrong: their accomplishment is negative’. As in child protection, the wrong measures drive the wrong actions, which actually make matters worse, often by generating huge amounts of failure demand. In isolation static data points, averages, percentages and RAG systems say nothing about context, variation and predictability. Measuring to arbitrary targets and standards, as in the child protection example, keep managers blind to what is really going on. Measures of functional performance count activity, not attainment of purpose. These are all measures owned by the boardroom, of no help to anyone on the front line, where they should be used: why 80 per cent of assessments to be done in seven days? which 80 per cent? Perhaps most damaging of all are measures used as carrots and sticks to ‘motivate’ people – ‘Complete nonsense – I can’t overemphasize how flawed this idea is,’ says Brogan. These are accountability measures on steroids, making absolutely certain that the recipients will concentrate on the numbers, not the purpose. That is why they are called incentives. ‘Either people are motivated by purpose or they are motivated by the wrong thing,’ says Brogan. ‘Incentives aren’t the solution: they’re the problem’.

Organisations are too complex, human rationality too limited and contexts too infinitely variable for management ever to be scientific in the sense that numbers can substitute for judgment. Establishing purpose from which to derive appropriate measures sometimes requires difficult judgment calls. But this does not preclude scientific scrutiny of organisations and what they do as systems, albeit complex adaptive ones, so as to ‘understand and act on causes of performance variation in such a way that we can connect actions with the consequences they are having’, as Brogan puts it. This gives us back the lost idea of management as progress. By relating measures to purpose – what really matters to people? – and testing method against that – what is the current method achieving against purpose and why? Is it a good theory or a bad one? – managers grow the confidence to reject the ‘dangerous idiocies’ and haphazard, ideologically-inspired changes of management based on predetermined results and advance down a learning path in which the best we can do today is a certain step to doing it better tomorrow. ‘Centuries of science tells us that happens,’ says Brogan. It’s heresy today: but so once was the notion that the earth goes round the sun.

Case study: Criminal behaviour: trust, mistrust and bad measurement – Simon Guilfoyle, West Midlands Police

In the 1980s card game ‘Play Your Cards Right’, explained police inspector Simon Guilfoyle, players have to guess whether the next card in a sequence laid face down on the table will be higher or lower than the previous one. Of course, there is no way of knowing: the values could be anything between 2 (low) and ace (high). But many police forces manage performance by the same luck of the draw. One static data point – the crime rate in an area for one month – doesn’t tell you anything useful about the next month’s figure – and the fact that one is higher or lower doesn’t say anything useful either. It’s only when the data is expressed in a control or capability chart, with upper and lower control limits, that it is possible to see whether a variation in performance is predictable natural variation or something that needs special attention. Targets further confuse the situation. Guilfoyle’s theory of targets states that all numerical targets are arbitrary; and no target is immune from causing dysfunctional behaviour. For example: Saturday night drunks in a town centre can be handled in two ways: under ‘Section Five’ or as drunk and disorderly. In each case they can be cautioned, charged or fined £80 on the spot after a night in the cells. The only difference is that Section Five offences are reportable and drunk and disorderly are not. So the local commander’s priorities may well determine what happens on the street: if the target is to reduce crime figures, rowdies will dealt with as drunk and disorderly (non-recordable); if to boost detections, they will be recorded (and detected) under Section Five. Also, a unit under pressure to reduce crime may avoid taking offenders off the streets early in the evening, at the risk of serious harm occurring if real violence occurs later – clearly the ‘wrong thing’ viewed from the perspective of the public. The moral of the story, said Guilfoyle, is that purpose, measures and method are related; you mix up measures and priorities with targets at your peril.

Case study: Measurement in health and care – Andy Brogan, Vanguard Consulting

‘Demand is rising. The system is unsustainable’. This, said Vanguard’s Andy Brogan, is unchallenged wisdom in health and social care, and both data (rising numbers of GP consultations or visits to A&E) and common sense (ageing population, a system constantly at capacity) seem to support it. The NHS response is the ‘Nicholson challenge’: top down attempts to find £20bn of productivity/efficiency gains by increasing throughput and ‘doing more with less’. But the real (unasked) question is: is value demand rising? From a Vanguard sample, the answer is that in health and care an astonishing 86 per cent is failure demand, ie the result of something not done or not done right first time. Counterintuitively, one of the chief drivers of burgeoning failure demand is the efficiency drive that is supposed to alleviate matters. So for example a GP practice that attempted to improve access by restricting appointments to eight minutes and patient concerns to one per visit found that by increasing failure demand it had actually made the access problem worse, such that 1.5 per cent of repeat patients were absorbing 50 per cent of the resource. Efficiency is not effectiveness, and to distinguish between the two it is essential to understand demand in context. For example, for ‘Velcro man’, an elderly, apparently increasingly needy widower, the ‘solution’ to improving his life was not ever more domestic care but shirts that were easier to put on so that he could go out and meet friends: in his case ‘demand’ shrunk from £1000s per week of domestic care to a strip of Velcro inside his shirt. Understanding demand and treating people as individuals not numbers are thus keys to taking practical action, said Brogan. ‘Our hypothesis is that if we do this in a disciplined way we’ll be more effective versus the “lagging” measures [demand on GPs and A&E, etc] – and the early signs are that we are’. At that point there is an opportunity ‘to get more efficient at being effective’ (ensuring people have the predictably right skills, kit and access to specialist advice) – in other words, at meeting the real Nicholson challenge.

Case study: ‘I’ll have an outcome please, Bob’ – Ian Gilson, Perfect Flow

Outcomes are hard to argue with. But to those charged with delivering them, they seem to be answers plucked from a standard pack of outcome cards, according to Ian Gilson, director of logistics consultant Perfect Flow. For instance, ‘Our communities should be a great place to live’ is the desired outcome for a social housing provider. But a ‘great community’ is multi-faceted and made of many services and no two people have the same idea of what it is. So what does that desired ‘outcome’ mean to workers in a lettings service and how do they make it happen? Under top-down outcomes-based management, the board sets the outcomes, managers convert them into measurable KPIs and targets and workers ‘go do’. At the coalface of the lettings service the ‘agreed’ outcome translates into ‘get new tenants in quickly’ (because empty properties weaken communities and lead to ASB), with targets for quick turnround times and standardised methods (regulation decoration and fittings) to achieve them. Oh, and by the way, there’s a budget cut of 20 per cent this year… The consequences are the opposite of those intended. By standardising the work, targets remove the environmental context that gives it meaning. So… to meet the targets, managers fudge the figures by reclassifying voids from short to long term, shoehorn people into the wrong property and cut corners on repairs. ‘We’re messing with people’s lives here,‘ said Gilson. In one case an elderly lady was hurried into a new let with three major repairs outstanding, and five properties changed tenancy 10 times each, with £25,000 spent on each one. Meanwhile, predictably five weeks after the new tenant moves in, eviction proceedings begin because no one has helped them apply for benefits. All this is done on time and budget, meeting the targets but with no one thinking about the real outcome: high tenancy churn, more empty properties, less neighbourliness… not such a great community, in fact. In a redesigned letting service, on the other hand, workers take time to find the right tenant, agree the right works and handover date, carry them out before they move in (the property is a customer too), and help tenants with benefit claims. In other words they do what matters to the tenant, according to measures that drive understanding and improvement of the service, not accountability. Doing the right thing in reletting may seem to take longer and cost more in the short term – but it reduces the cost of the overall service, while making it more likely that tenants will stay, look after the property, form relationships and be a good neighbour – essential components of a great place to live.

Case study: Living the life you choose – Rick Wilson, Community Lives Consortium

CLC, said chief executive Rick Wilson, exists to help people with learning disabilities live their lives within communities in South Wales. It supports 260 people through 700 staff delivering 17,000 hours of support (personal, social, housing, mobility, skills and behaviours) a week. The work is demanding, involving individuals, their families, and local or health authority managers in complex networks. Recounting a Vanguard-inspired redesign, Wilson described an organisation facing up to the realisation that existing patterns of service delivery were both unsatisfactory and unsustainable in the light of growing demand and expectations and increasingly constrained resources: could personalisation be balanced with cost reduction? The first step in answering the question was to define CLC’s purpose: ‘supporting people to live the life they choose’. Deceptively simple but actually ‘honest and profound’, it immediately revealed that CLC had been operating to a quite different, shadow purpose: supporting the commissioner to discharge her duty of care, with implied design principles (focusing resources on what mattered to the commissioner, controlling people to get the work done, working to evidence compliance with the law) to match. Redesign began with Service Delivery Plans (a statutory requirement), then drawn up on the basis of a 21-page form comprising 175 questions with 25 supporting assessments and planning tools. It found a fundamental contradiction: while customer satisfaction scores were high (satisfying the regulator), when it asked people what kinds of life they wanted to live they gave completely different answers. Of the 14 steps in the service plans, just three had value for those supported – interestingly, much of the waste was not (as anticipated) caused by regulation but by the organisations own caution and culture. In the radically simplified redesign, CLC now produces genuinely personalised plans, drawn up with the person rather than the local authority care manager, and in different formats, videos and pictures as well as written documents. Instead of measuring process (compliance), measures now focus on ‘helping people and their support team to create a clear dialogue about what they want, and then to assess whether the team is capably responding to those requests’. Results strongly suggest that person-centred working is more efficient as well as helping people to be more in control of their services, enabling front-line managers to spend 30 per cent less time on admin, with corresponding saving in hours of support staff. Redesign is now being carried out in other areas of work. Perhaps equally encouraging, CLC has taken the commissioner on the same journey, changing the nature of what the she wants and expects. For Wilson, ‘This is only the start.’

Being pro-market and being pro-business are two very different things

Vaclav Havel, the writer and first president of the Czech Republic, put it like this:

‘Though my heart may be left of centre, I have always known that the only economic system that works is a market economy. This is the only natural economy, the only kind that makes sense, the only one that leads to prosperity, because it is the only one that reflects the nature of life itself. The essence of life is infinitely and mysteriously multiform, and therefore it cannot be contained or planned for, in its fullness and variability, by any central intelligence’.

Ironically the left has in many respects been a shrewder operator of capitalism than capitalists (think of the social-democrat economies of Northern Europe). But, as the Havel quote hints, it has been less clear thinking about markets, to which the left gives too little attention because it persists in conflating them with ‘capitalism’ as a whole, and by extension with big business, which is the current economy’s most conspicuous beneficiary.

The confusion between capitalism and business on the one side with the market economy on the other, and the baleful consequences that result, was one of the main topics explored by John Kay in a characteristically subtle (and completely unreported) LSE lecture at the beginning of June. Capitalism, said Kay, was no longer a helpful framework for thinking about the economy. The economic significance and value of capital markets were greatly overstated. Big companies being almost entirely self-sufficient as to capital needs (think of Apple’s $150bn cash pile) the so-called capital markets in practice serve the purpose of financial engineering and releasing capital, while the stock market is just a casino for secondary investors to gamble in. Financial-market considerations get allotted far too much attention and say in corporate affairs, from governance downwards.

It’s not surprising that the right, making the same conflation as the left, should fail to make the crucial distinction between being pro-market and pro-business. But it is dismaying that the left has been seduced, or seduced itself, into favouring the interests of existing business over the interests of the real market economy, that is the markets for goods and services. The consequences came into sharp relief in the ‘intellectual vacuum’ that greeted the crisis of 2008, charged Kay, when having spent 100 years preaching the takeover of capitalism’s commanding heights, the left was so terrified the system might collapse under the weight of its own contradictions that not only did it not nationalise the banks in order to run them down in an orderly fashion, it spent vast amounts of taxpayers’ money propping up dysfunctional companies in a way that practically guarantees another crisis in a few years time.

Being in favour of markets, said Kay, does not require genuflection at the altar of greed, scale, competition red in tooth and claw, rational economic man, or market perfection. Rather, it recognises that in conditions of radical uncertainty, where it is impossible for anyone to predict the future, or even the range of futures possible, the market economy’s ‘disciplined pluralism’ does a better job of both exploring new possibilities and closing down failed ones than the alternatives. Neither necessarily fair nor efficient, like democracy it is the least worst option; like democracy too, being socially embedded, it needs constant, pragmatic care and attention to keep it functioning properly.

Nurturing a functioning market economy requires very different policy prescriptions from those currently offered by either right or left. Through the price mechanism and ease of market entry and exit, the market economy is above all a process of discovery. Privileging value creation over value appropriation, it needs, said Kay, a ‘steady stream of unreasonable optimism’ in the shape of entrepreneurs willing to take their chances with innovative new products and services.

Its biggest enemy is vested interest and concentrations of economic power which since time immemorial have given shelter to predators and rent-seekers more interested in using their position to extract value from employees, customers and society as a whole than in undertaking the harder, uncertain work of product and market innovation. Castles on the Rhine, 10 per cent commissions on shares, lobbying and entertaining in expensive restaurants to shore up established interests, are all manifestations of rent-seeking. More insidiously, and worryingly, the version of strategy espoused by Michael Porter, ‘the most cited scholar in economics and business…[whose] ideas are the most widely used in practice by business and government leaders around the world’, is all about identifying ways of ‘avoiding competition and seeking out above-average profits protected by structural barriers’ – in other words, rent-seeking. Small wonder that potlical lobbying has become a more lucrative occupation for CEOs than developing relationships with customers and suppliers.

Unfortunately, regulation based on behaviour, rather than structure, is also vulnerable to rent-seeking as individuals seek constantly to push the envelope by treating any activity that is not formally outlawed as permissible. The result, noted Kay, is ‘regulation that is extensive, intrusive and ineffective’ – the worst possible combination. Meanwhile, in sector after sector public policy has confused the health of the industry with the health of individual firms, protecting vested interests to the detriment of experiment and the development of new markets.

Can we get a better functioning market economy? Yes – but only if the left understands that that means getting tough on business and breaking up the concentrations of power that are solely dedicated to prevent others nibbling at their over-calorific lunch. Unless and until it does, public policy will continue to be undermined by ‘a wealthy elite that is pulling strings not behind the scenes but quite publicly – people who are not traditionally wealthy, but who have acquired wealth through rent-seeking and value extraction’.