THE FRENCH philosopher Jean Baudrillard, you may remember, declared that the Gulf War (the first one) took place only on television. He would be unmystified by today’s broadcasting fakes, in which the reality as constituted on TV is the mirror opposite of that experienced by everyone else – as different as life is from death, in fact. Far from being just an aberration at the BBC, faking is now revealed to be endemic: it’s the way TV works.

We should hardly be surprised. Faking it – hiding one version of reality with another – is increasingly what management is about profit is the product of an arbitrage between the company’s image of reality and yours. Consider Penelope Cruz’s eyelashes, or any number of airbrushed model images. Almost all advertising and much media production is faked in some sense.

We’re not talking about honest mistakes here, but the more insidious practice of cutting corners and stretching reality. Articles that don’t live up to sensational headlines or stories that are bulked up to justify front-page billing dispel any illusion that the print media are immune to the ’embellishing’ temptations that broadcasting colleagues have succumbed to.

Many companies practice deception as a part of their business model – sometimes without even knowing it. In the June issue of Harvard Business Review, Gail McGovern and Youngme Moon describe how companies in a range of industries, from banking and hotels to mobile phones and travel, use a variety of tricks to make you pay more than the service warrants.

All service companies compete in advertising superior customer service. Yet many profit as much by extracting value as creating it. A substantial proportion of retail banking profits, for example, comes from penalising customers for breaking arbitrary, complicated rules about minimum balances, credit limits and payment deadlines. Mobile phone companies make much of their money out of the minutes we don’t use. Hotels and travel operators make it hard to find out about discounts or upgrades some airlines have computer algorithms that run so often that it is impossible to identify what the ‘normal’ price of a flight ought to be.

Why do companies persist with such pretences? First, because they can. In the Photoshop era, any image – any digital entity – can be manipulated by the most junior computer user in the company. Which it often is, because, second, there are financial pressures to do so. Technology and financial pressures have propelled the wave of outsourcing and freelancing, by means of which much of what used to be companies’ core work is done outside, by contractors and sub-contractors.

This cuts direct costs (although not by as much as managers think), but carries heavy hidden costs. One is that freelances and outsourcers also work for competitors, reducing differentiation and making it more likely that customers will switch. Another, as the broadcasters have found, is that if the gap between competing realities becomes too large to bridge, cheap is actually dear as trust evaporates and customers turn elsewhere.

The BBC, as a public-service broadcaster dependent on a licence fee, is particularly vulnerable to charges of trust abuse, and foolhardy for perpetrating it. But the danger for non-publicly supported organisations is just as great. In mobile phones and financial services, churn is so great that a substantial part of company resource is deployed on expensive recruitment of new custom ers to replace those who leave. That is called running to stand still. In the case of newspapers, could it be that it is lack of trust that has created such reader keenness to set up their own blogs and websites – that we have created our own competition?

Organisations that want to maintain customers’ trust have two ways of avoiding broadcasting-style fakes. If they are outsourced, they need robust governance in the shape of explicit rulebooks and contracts (this is one reason why outsourcing turns out to be less cheap than expected – it needs more formal, and visible, management, not less).

Old-style unitary companies have better, and often neglected, technology at their disposal. The word ‘values’ has been so overused it is almost meaningless. But if values are strong and unambiguous enough they are both cheaper and more foolproof than the alternative, since the rules are internalised and organic, rather than external and imposed.

Of course, some companies, pleading the pressure of the capital markets, will claim they have no choice but to fake it. Investors don’t care how the numbers are made, only that they are. This is not so much the Jean Baudrillard as the Groucho Marx school of management. As he put it: ‘The secret of success is honesty and fair dealing. If you can fake those, you’ve got it made.’

The Observer, 5 August 2007

‘THERE WAS only one catch and that was Catch-22.

‘Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane he had to fly them. If he flew them he was crazy and didn’t have to but if he didn’t want to he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause… ‘That’s some catch, that Catch-22,’ he observed. ‘The best there is,’ Doc Daneeka agreed.’

Joseph Heller’s brilliant, excoriating 1961 novel, set on a fictional US airbase in the Second World War, was always about capitalism as much as war. But to read it again is to be struck by how much nature has come to resemble art.

In business, too, there is a trap – a catch in whose ‘spinning reasonableness’ and ‘elliptical precision’ individuals seem helpless. Well before capitalism’s global triumph, Heller imagined today’s organisational configuration in which the individual revolves around the system, rather than vice versa. Ever pondered the logic of companies taking away career and pension and upping work intensity, for your own good? Or the fact that you can buy any insurance you please, except for the things that you know you’ll need? Or that companies are delighted to give loans to anyone who can repay them but not to those who can’t, ie those who need them? Welcome to Catch-22. Only a few years in the future lay its ultimate expression in Vietnam in the shape of the My-Lai school of management, in which to save something it became necessary to destroy it.

For John Yossarian, Heller’s quirky contrarian protagonist, it slowly dawns that his life is in as much danger from the corporate ambitions of his own side as from enemy bullets. Not just the enemy – everyone is out to get him.

Thus, the naive and fabulously successful mess entrepreneur, Milo Minderbinder, successfully sells defence to the Germans, because he knows where the Americans will attack, and attack to his own side, because he knows where the German defences will be – despite the resulting carnage a victory for private enterprise, he points out, since both armies are socialised institutions. (‘Frankly,’ he confides, ‘I’d like to see the government get out of war altogether.’)

When Yossarian opens a first-aid kit to comfort a dying airman, he finds the morphine gone and a note its place with the words: ‘What’s good for M&M Enterprises is good for the country’ (everyone, as Milo insists, has a share in the syndicate). With his opaque deals and magical profits, Milo anticipates both the role of the private sector in modern war (think Iraq) and today’s private-equity and hedge-fund claims that it is somehow possible for purely financial instruments to conjure up perpetually higher returns than those earned on the underlying investments.

In real life, as in the book, Catch-22 is alive and well today in bureaucracy, provisos and small print. Corporate risk-management systems are sophisticated forms of it, being designed not to eliminate but to pass on risk. But the apotheosis of its diabolical reasonableness is undoubtedly numerical targets. Targets seem hard and tangible, the stuff of modern management. But the instant they are used to manage by, they melt: the figures can no longer be relied on, since people whose only control is over the numbers will instantly find ways around them. Hence a paradox of an elegance that Heller would have loved: targets are necessary and should be used, but in use they are useless and should be abandoned.

Not surprisingly, in this world of paradox, language too is mangled as it is forced to embody rival versions of reality. The novel features constant linguistic battles over meaning, characterised by blizzards of negatives and positives (‘I always didn’t say you couldn’t punish me, sir’). Much less wittily, corporate language reflects a similar struggle to reshape meaning – hence the excruciating circumlocutions and euphemisms which accurately express the conflicted objectives beneath. Try ‘workforce culture re-engineering’ and ‘leveraging supply-chain solutions’ (I leave the meanings to your imagination).

At the end of the book, by playing out his personal version of the dilemma – ‘jeopardising his traditional rights of freedom and independence by daring to exercise them’ – Yossarian is a danger both to himself and the system. He is offered the classic deal for the rebel down the ages: wealth and fame in return for accepting the system. Initially tempted, he refuses, and then has no option but to desert (’You’ll have to jump’. ‘I’ll jump’. ‘Jump!’ Major Danby cried. Yossarian jumped’). Nowadays, with no other game in town, it’s harder to opt out the challenge is to tackle Catch-22 from within. But Heller’s weapons – anger, surreal humour and a brilliant eye for human absurdity – are as important, perhaps more so, than ever. In the roster of alternative books about business, Daneeka’s right: this one is the best there is.

The Observer, 29 July 2007

BRITISH POLITICIANS enjoy lecturing their continental European counterparts on the virtues of a deregulated and flexible economy. But on the subject of what the flexible economy is supposed to deliver, namely superior company performance and productivity, they fall strangely silent. This is because, measured by output per hour, the UK still lags rather than leading. Recent figures show that in 2004 American workers added 34 per cent more value per hour than their UK counterparts, Germans 11 per cent more, and the French 25 per cent more.

This frustrates and perplexes ministers and their advisers, who have spent the last 30 years using the UK as a testbed for a no-alternative economic experiment in the abovementioned flexibility and deregulation, only to find that while the macroeconomic levers they can pull do affect productivity, it’s the microeconomic processes inside companies that they can’t reach (at least not directly) that matter more. It’s not the economy: it’s management, stupid.

Reinforcement for this view comes from a new report from the LSE’s Centre for Economic Performance, McKinsey & Co and Stanford University entitled Management Practice and Productivity: Why They Matter , which supports the common-sense notion that the way firms are managed is one of the most important ways of distinguishing between them. Scoring 4,000 medium-sized European, Asian and US manufacturing companies on the quality of their operations, performance and talent management, the report suggests that, as with productivity, the UK is in the second league for management, behind the top tier of the US, Sweden, Japan and Germany, alongside France, Italy and Poland, and ahead of the dunces of Greece, India and China.

However, these figures conceal some interesting subtexts. The difference in national averages is largely accounted for by the ‘tail’ of badly run firms – on the chosen criteria, 8 per cent of UK companies fall into this category compared with 2 per cent in the US. In India, 20 per cent of companies are badly run, yet the best Indian firms are a match for anyone. Multinationals operating in India, for example, are among the best-managed anywhere, with the top 30 per cent of Indian firms being better managed than the average in the UK. As the researchers note, combined with low labour costs, this makes them formidable competitors, irrespective of national averages.

Ownership matters too. Multinationals, particularly US ones, are the best managed everywhere. Interestingly, private-equity-owned firms aren’t notably better managed than the UK average, and are less well managed than the top tier of national leaders, multinationals and firms under dispersed shareholder ownership. So much for the supposed performance advantages conferred by their governance arrangements.

The researchers argue that the study is good news for companies, ‘suggesting that they have access to dramatic improvements in performance simply by adopting good practices used elsewhere’. For policymakers, the challenge is harder – getting the good-practice message across to the poor-performing tail that brings the average down.

But not so fast. In a kind of infinite regression, complementary research in progress under the aegis of the Advanced Institute of Management Research (AIM) hints that ‘adopting good practices used elsewhere’ is anything but simple. That is because managers are astonishingly bad at assessing their own performance. More than 85 per cent of managers in the LSE study believed their company was better managed than the average, and self-assessed scores ‘have almost no link’ with firm performance or the marks awarded by the researchers.

More broadly, the AIM research identifies the context for good practice as critical. Indirect support for that comes from the LSE finding that although there are relative differences in national scores (the UK scores well for people management and less well for operations, for example), ‘no single dimension provides the key for improved management performance’ – good firms are well managed across all performance aspects. The implication is that a firm can’t just import an attractive practice: it has to have the underpinnings in place to support it – including the awareness that it is needed in the first place.

So when it is said that British managers are notoriously reluctant to adopt promising practices, this is true but not very helpful, tantamount to saying that the UK is not very good at management. To break out of the circle of inertia, the key seems to be to get managers looking both outward – as much to customers as to other companies, to get an accurate bearing on their real competitive position and inward – to develop their own ‘signature’ practices, based on their own values and history, that will distinguish them from others in the eyes of customers. As with fruit and veg, home-grown is best.

The Observer, 22 July 2007

Amid the doom and gloom of the book trade – the disappearance of an independent bookshop every week, deep price discounting by the supermarkets, the pike-like eagerness of the large publishing houses to swallow their smaller brethren whole – it’s easy to conclude that there’s no life left outside the ranks of the big corporates.

Yet independent publishers continue not only to survive but thrive. Astonishingly, industry sources put the number of UK independent publishing houses at more than 3,000 – and though some are amateur or ‘plain daft’, the number remains remarkably constant, according to Philip Kogan, chairman of Kogan Page, by some distance this country’s largest indie publisher of business books.

‘Forty years of obduracy!’ is his self-deprecating description of the company’s ability to hold the road over long periods and difficult terrain but on closer questioning there’s a bit more to it than that.

‘There’s a lot of very good management going on around here,’ he says, a tribute to daughter Helen, who took over day-to-day running of the family-owned firm a couple of years ago, and also to colleagues who have seen KP through a number of ups and downs over the years, including the failure of a US distributor, which temporarily hit the group hard, and the periodic need to cull burgeoning publishing enthusiasms back to a core list that both marketing and sales wings can adequately service.

‘You could argue that as independents we have to be better than the big companies to survive,’ Kogan says. The range of skills even the smallest publisher has to embrace – business, design, print buying, editing, selling and marketing, distribution, not to mention web-mastery – stretches far beyond what any manager in a large conglomerate firm (‘not houses any more’) would have to envisage.

That’s a challenge, but also part of the fun of being an independent. ‘The fundamentals of publishing don’t change. It’s about acquiring good intellectual property and getting it to market’, Kogan notes. Proof of the primacy of shrewd commissioning, and something he is most proud of, is a core of titles still going strong 30 or 40 years down the line.

That includes some, he concedes, that are frankly boring – British Qualifications or the Industrial Training Yearbook, anyone? – so much so that he jokes that when he set it up he was tempted to call his venture Boring Books Ltd (‘but vanity prevailed’). Four decades on, British Qualifications , a must-buy for libraries, is in its 38th edition and paying a new generation of salaries and overheads: a testimony to the continuing vibrancy and viability of niche publishing, and to the ‘complete set of satisfactions’ provided by being able ‘to have and make work a good idea, no matter how simple or tedious’.

What has changed though, is the route to, and economics of, getting books to market. Ten per cent (for some specialist book and journal publishers almost the totality) of sales are now online and the same again through the supermarkets, and both segments are growing strongly. At the same time, with Borders up for sale and Waterstones cutting selling space by 10 per cent, the number of outlets is shrinking (and with it the range of books on offer to the public) while the cost of getting shelf space goes through the roof. As Kogan sighs, the days of the 30 per cent publisher’s profit margin are now a distant memory.

Kogan admits that his first love is the bookshop – ‘I’d rather browse and buy something I’ve discovered than chuck a discounted bestseller in the trolley with the toilet paper’ – and is delighted with the success of enterprising exceptions such as Daunts and the rejuvenated Foyles in London. He believes there’s much that could be done with some university campus bookshops. Yet there’s a saving grace in the impersonal new retail world: ‘All publishers are equal in the eyes of the internet’, he points out, and Kogan Page has adopted it with a sprightliness belying its age and low-tech exterior.

The internet is a boon to outfits such as Kogan Page which, with a list of 140 or so titles a year and a back catalogue of 1,500, sell mostly small numbers of a large number of titles spread over many years. There are exceptions to the ‘long tail’ model – Great Answers To Interview Questions sells 30,000 copies a year and is into its fifth million worldwide. But blockbuster sales can’t be relied on: ‘The smell of a title in a publisher’s nostrils is not enough: he, or she, must know, be sure of, the channels to market.’ They must also exploit all revenue sources, including internet selling and online publishing, audio, not neglecting sponsored publishing and selling ad space in books and online.

Despite being a bit of a worrier – he rings me a day after the interview fretting about an anecdote concerning a supplier – Kogan’s ease with the new world of online is no surprise. Unusually for a publisher, he’s a scientist by training. After school in east London he took a degree in physics, then spent 10 years in R&D, specialising in dielectrics (‘insulators for those who are more familiar with dialectics’). He might have continued in that vein, but for an appraisal where he was shown a graph plotting where he would be in eight years’ time, at the age of 40.

‘I’d be 40! Horrors!’ The next weekend he applied to be chief editor of a schools partwork called Understanding Science , which, to the consternation of his family, he got. The company he joined, Sampson Low, was a rambling outfit which also owned Jane’s Fighting Ships and published Enid Blyton. From its ‘able and eccentric’ boss, David White (who numbered the invention and exploitation of Little Noddy among his credits) and his wife, Kogan acknowledges learning much, including the virtues of producing copy to tight deadlines and explaining complicated concepts simply.

He also developed an itch to start out on his own. First, however, he did two more ‘off-the-wall’ jobs, with an educational technology firm and then Cornmarket, an innovative careers publisher run by Clive Labovitch, co-founder of Haymarket Publishing with a certain Michael Heseltine. When Cornmarket ran into trouble, Kogan, with a £2,000 loan from brother Ben, was on his way. With the help of a minority partner, the late Terry Page, an industrial journalist, he put together the first Industrial Training Yearbook in four months and wrote a direct mail brochure that had a scarcely believable response rate of 30 per cent.

Page dropped out after a few months, but the firm has never looked back. Now 77, Kogan shows no sign of doing that either, arriving at the company’s Pentonville Road warren most days to ‘deal with the horrible authors and do lots of strategy’. Neither is there any notion of selling up, although there’d be no shortage of takers. ‘I’m a recidivist,’ he says.

In any case, with succession assured, a proven formula and a pragmatic realism that has allowed the firm to play to, and adapt, its strengths to all the changes the trade has thrown at it, why would he? Despite regrets (and the running down of the science and cultural base local government profligacy), ‘We accept the world as it is. Provided we get organised, keep agile and have the right product, we can compete with anyone.’

THE CV

Name: Philip Kogan

Born: 1930 Stratford, London

Education: Stratford Grammar School, Universities of Reading and London (physics)

Career: Ten years as physicist in industrial research before changing profession to take up several jobs in publishing. Launched Kogan Page as part-time occupation in 1967 with the aid of partner Terry Page and a £2,000 loan. Past chairman of the Independent Publishing Guild and treasurer of the Publishers’ Association

Hobbies Tennis, reading, music

Family Married, two daughters, one son

The Observer, 15 July 2007

LAST CHRISTMAS a legal firm sent me a mug. On the front was the legend: ‘Do you have a risk assessment for THIS?’, and on the back: ‘Have you: Tested the kettle’s connection? Checked for vermin faeces in the tea bag? Ensured the milk is within its sell-by date? Checked the handle is secure? Waited for the tea to cool to a safe temperature?’

This is a joke, but it’s not much more extreme than the notice seen recently at a cricket ground warning that cricket is a game played with a hard ball that could hurt if it hit you. Or the council that advised residents to take out liability insurance costing hundreds of pounds a year for an allotment rented for £5. Or, at a completely different level, the US Sarbanes-Oxley legislation that obliges companies to have internal controls to prevent future Enrons or WorldComs.

What all these examples have in common is a growing obsession with risk management. At first blush, the managing (and implied minimising) of risk sounds uncontroversial, even beneficial. But is it really true that the world is suddenly so risk-ridden that it justifies what LSE’s Professor Michael Power described in the title of an eloquent Demos pamphlet as ‘The Risk Management of Everything’? OK, we used not to have terrorists, but neither did we have statins to control cholesterol or smoke-free pubs – and when was a spectator last killed by a cricket ball? Or is risk management just another artificial bogeyman set up for consultants to charge huge amounts to charm away?

It’s more subtle, and pernicious, than that. The term ‘risk society’ was coined by sociologist Ulrich Beck in the early 1990s to describe a modern society organised in response to the idea of risk. But Power dates the rise of the risk-management industry to 1995, when the oil storage platform Brent Spar and the collapse of Barings Bank suddenly brought into focus the twin objects of risk fetish: internal controls and reputation.

The downing of Barings by rogue trader Nick Leeson triggered a quest for internal control that culminated in Sarbanes-Oxley. And with Brent Spar came the realisation that perception of events and motivations could be life- threatening – a revelation underlined when Arthur Andersen, the largest auditor in the world, vaporised after the disclosure that it had shredded Enron documents.

‘Reputation has become a new source of anxiety where organisational identity and economic survival are at stake,’ Power writes. ‘And if everything may impact on organisational reputation, then reputational risk management demands the risk management of everything [RMOE].’

Unfortunately, the consequences of RMOE are potentially more damaging than the first-order risk it was supposedly designed to control. Internal controls are about process – paper trails and arse-covering, in the technical term witness the Sarbox ‘reign of terror’ which absorbs so much corporate energy (and cost) that there’s no one left to look out for ‘unknown unknowns’, by definition beyond the scope of risk management until they occur.

Internal control blueprints, concludes Power, are largely fantasy, an incantatory naming and taming designed to ‘project comforting images of controlling the uncontrollable’. Meanwhile, reputational risk takes us into still more troubling territory. Reputation is secondary risk, the risk to a company’s image of making a primary mistake, but, as Andersen demonstrates, it is a potent one. The response is defensive: either direct, so that schools cancel trips and auditors stop auditing high-risk clients (ie, those who most need it) or indirect, by acting as before but attaching warnings everywhere (like the mug and the cricket notice).

Power believes we are entering a phase where organisations are more concerned with second-order, reputational, risk, than the primary one of getting things wrong in the first place. This is manifested in the public sector by universities and hospitals managing league tables and stars rather than students and patients, and in the private sector by the subsuming of corporate responsibility into the risk management agenda. Instead of being about doing the right thing, CSR is just another risk-management ploy. The spin and the small print are more important than the substance.

The pathology of risk management presents in many other absurd and tragic ways. Organisations may be safer, but at the price of offloading risk on to individuals who can’t pass it on – which is why public confidence in organisations does not increase. And pity the professionals, teachers, doctors and accountants, who hide their expensively gained expertise rather than express it for fear of the retribution that an honest mistake will bring down on their organisations and ultimately on themselves.

Thus does risk management multiply risk for the collective. In other words, my mug isn’t a joke. It’s deadly serious.

The Observer, 15 July 2007

ONE OF THE innovations that Gordon Brown inherits from Tony Blair is the Prime Minister’s delivery unit (PMDU) at Number 10. To the uninitiated that may not sound interesting, but governments around the world have leapt on the experiment with alacrity.

It’s not hard to see the appeal. The delivery unit – a small performance-management unit at the heart of government – offers the promise of driving public-service improvement from the centre, acting as a transmission mechanism between the motor of prime ministerial edict and the wheels of the individual departments.

The story of the PMDU is fluently recounted in Sir Michael Barber’s new book, Instruction to Deliver. Barber, who set it up and ran it from 2001 to 2005, was Blair’s ‘Mr Targets’, the enforcer of the government’s, but particularly the Prime Minister’s, priorities during his second term, extending to the railways, hospital waiting times, street crime and other areas the methods he had previously used as a special adviser at the education department to drive through improvements in literacy and GCSE results.

It’s an instructive narrative, if not always in the way Barber intends. A loyal Blairite, he is eloquent on the frustrations of an impatient government which has, surely correctly, identified public-sector productivity as the defining issue of domestic politics. The recalcitrance of the professions, the venom of the media and the languid wordiness of the civil service are givens. He vigorously defends the target regime and its achievements – illustrated, true to caricature, by a series of Powerpoint bar charts. The usual suspects (rising expectations, time lags, the media – natch) are evoked to explain why we aren’t suitably grateful for the results.

Barber’s team of ferociously bright and focused young things undoubtedly provided a salutary jolt to a system in which delivery was secondary and a job in execution as welcome as a stint in the salt mines.

Barber is proud of the fact that when asked in 2005 if the unit should be abolished, initially suspicious departments all voted to keep it. Yet the book raises more questions than answers. Barber’s final plea for a fully-fledged Prime Minister’s department to strengthen the central delivery chain still further seems an unlikely way forward, at least on its own. On Barber’s own estimation, the four-year treatment administered by the PDMU has only raised the standards of the public services from ‘awful’ to ‘adequate’. More seriously, that improvement has been won at enormous cost, both financial and in terms of the collapsed morale and sometimes downright hostility of the public-service professions.

Unfortunately, that compromises the ability to achieve better things in the future. Even Barber concedes that getting from ‘adequate’ to ‘good’, let alone ‘great’, can’t be done by central fiat. It needs to enlist hearts and minds. It also requires the ability to look at and manage the system as a whole. Barber acknowledges the need for ‘whole system reform’ in passing, but only in passing, and gives no hint of the extent to which the blunt, soviet-tractor-style techniques of PMDU Mark 1 (targets, carrots and sticks) are incompatible with it.

As someone said, carrots and sticks are useful for donkeys and if the object is direct and simple. Likewise targets. Of course, as Barber writes, it is important to know what success is and devise measures to track progress towards it. But it’s bad faith to try to motivate people with financial incentives then complain they are self-interested and disin genuous to pretend that the unintended consequences of crude numerical targets are trivial.

Two weeks ago the Economist , a publication Barber approvingly quotes, carried a piece querying the Blair educational achievement that he oversaw. New research, it reported, suggested that improved GCSE pass rates had only been achieved by pupils taking easier subjects and the much-trumpeted improvement in 11-year-olds’ literacy and numeracy was partly a reflection of being taught to the test.

As an easy solution to a complex problem, this is what targets do. It’s not that they are too ambitious or can’t be made to work, at least temporarily it’s that optimising the parts is the enemy of the much greater returns that only system reform can deliver. Barber shrewdly notes that in many cases a ‘legacy’ depends not on the achievement handed on but what a successor does with it. This is the case with Blair and the PMDU (Barber has moved on to join consultants McKinsey). If Brown uses it to go beyond ‘flogging the system’ and institute a systems-approach delivery improvement, it will be a lasting and important one. If he doesn’t, it will go the way described by a public servant in the book: ‘Reforms are like London buses it really doesn’t matter is you miss one because there’ll be another one along in a minute.’

The Observer, 8 July 2007

AFTER LAND Rover and Jaguar, ICI looks likely to be the next British manufacturing icon to fall under foreign control (see page 4). Even more than the carmakers, ICI’s history is full of painful ironies, the most poignant of which is that its eclipse is entirely home-made. The brutal truth is that ICI has imperilled its independence by dutifully complying with the approved nostrums of financial management over the last two decades.

It’s worth emphasizing that the old ICI wasn’t just the UK’s largest and most successful manufacturing firm for much of the 20th century. As economist John Kay has pointed out, it was also one of the main progenitors of the country’s most celebrated (in fact, its only) hi-tech industry.

After the war, ICI’s board decided that the future of chemicals lay in pharmaceuticals. Among the clever young scientists it hired was James Black, whose discovery of beta-blockers laid the foundations for ICI’s pharmaceuticals division, later Zeneca. Black took similar concepts to SmithKline, where he won a Nobel prize for his work on a stomach-ulcer treatment that became Tagamet, the blockbuster that indirectly begat Zantac – for many years the best-selling drug in the world and the one on which Glaxo’s fortunes were based.

It took no less than 20 years for ICI’s pharma operations to break even – but patiently growing its stock of resources was what ICI was for , as its mission statement of the time made clear. As late as the 1980s, its stated aim was to be ‘the world’s leading chemical company, serving companies internationally through the innovative and responsible application of chemistry and related science. Through achievement of this aim, we will enhance the wealth and wellbeing of our shareholders, our employees, our customers and the communities which we serve and in which we operate.’

It is possible to identify the exact moment when all that changed. In 1991, Hanson, a company which in many of its methods anticipated today’s private equity houses, bought a small stake in ICI which was widely thought to be the precursor of a full bid. It wasn’t, but – rather like the Cadbury Schweppes demerger today – the threat, sensational at the time, was enough to spur the company to do exactly what the raiders wanted: break itself up, float off pharma and arm itself with a new, managerially correct mission statement that was more in tune with the age of shareholder value: ‘Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world-competitive cost base.’

Instead of growing through its own R&D (‘the innovative and responsible application of chemistry’), ICI now saw its strategy as dealmaking – dumping commodity chemicals and buying its way up the value chain in the shape of fragrances and a sheaf of speciality chemicals acquired from Unilever. So far, so fashionable. But ICI went one better. Again anticipating what is approved practice today, it burdened itself with pounds 4bn of debt to do the Unilever deal. Unfortunately, it failed to sell off the old assets as quickly as it hoped, turning the debt into a millstone that prevented it from doing anything else. Earnings and share price declined. The chief executive left.

Under the latest regime, ICI is thought to have done quite well, paying down the debt and beginning to grow again. But it has paid dearly for the five-year period when it was paralysed by debt and you might say that, in the longer term, the Dutch bid is its reward for having faithfully reflected in its strategy the financial orthodoxy of the time, an orthodoxy that it helped create.

It is important to stress that ICI wasn’t just any old company, but a genuine world leader. It was managed by the great and the good, individuals who headed commissions and bequeathed us today’s governance rules, among other things. As such, the reason it finds itself in the position it does today is not dishonesty, roguery, or irresponsibility. It is not even bad management – or, rather, it is, but it’s institutionalised bad management of the kind that ticks all the boxes of the narrow playmakers by whose rules the UK’s corporate economy now runs.

You won’t be surprised to know that ICI has crafted itself yet another vision. This one is ‘to become the leader in formulation science, creating complex mixtures that deliver the effects valued by consumers and customers’. It continues: ‘To achieve this leadership goal, and through this create superior returns for shareholders, the group is building a portfolio of businesses that are leaders in their respective industries, bringing together consumer understanding, outstanding knowledge of customer needs and processes, and leading edge technology platforms to provide a distinctive, competitive advantage’.

I’ll leave you to decide which of the three mission statements provides the most appropriate guidance for a developing, world-leading company, and which reads most like an epitaph.

The Observer, 24 June 2007

THE FATE of Jaguar and Land Rover (see Oliver Morgan, pages 4-5) will be a key indicator of the state of 21st-century UK plc. That the most likely buyer is private equity already tells us much – not least because in our City-dominated economy there are no large manufacturing candidates left.

If they are snapped up by private equity, will two of the best-known names in UK manufacturing go the ‘propertification’ way of Rover, their assets seen to be worth more as shopping malls and offices than factories employing people to make things? Or will they be turned round, their pipelines stocked with new models and returned to the stock market in rude, restored health?

That is the official private equity scenario, of which the motor companies will be an acid test. But the test track will not be ownership as such. Some of the best-performing motor and ancillary companies are already privately controlled, with a strong family influence – think of Toyota, BMW, Porsche and Michelin.

Yet these companies work to time frames and visions that are in many ways the antithesis of private equity. All are the result of patient organisation-building that stretches far beyond building a product and selling it. Toyota makes its own microchips (thus saving itself the electronic glitches that damaged Mercedes’s quality reputation) while in Michelin’s idiosyncratic structure the tyre brand is underpinned and spread by its maps and restaurant guides. How long would those last if the private equity funds got their hands on the French tyre-maker?

The testing ground is management. The corporate world is increasingly dividing into two rival visions of how to manage performance. Private-equity-driven management is a kind of turbocharged version of the existing command-and-control orthodoxy, but vastly bidding up both its inducements for success and the penalties for failure, and bidding down the human angle. Generic, numbers-driven, financially-motivated, it claims to be able to manage anything.

In a kind of Gresham’s Law, private equity-style management is driving out longer-term, more people-oriented alternatives. Pressure from the capital markets is one factor, leading companies to try to head off the attentions of private equity or to respond to activist shareholders (such as those on the case of Cadbury and Vodafone) by pre-emptively adopting their own behaviour.

A second, less acknowledged, reason is the lure of quantification: managers find numbers easier to manage (and manipulate) than humans. A striking testimony to this clash of values is the conflicting attitudes of executives around HR. In a worldwide survey by the Economist Intelligence Unit and Deloitte, while 85 per cent of senior executives said people were ‘vital’ to business performance, 63 per cent admitted they never consulted HR leaders on mergers and acquisitions, and in three-quarters of firms HR barely contributes to strategy formation.

By piling on the pressures to dispense with underperforming assets and wring the utmost from existing resources, private equity favours present efficiency. Whether the same reductive appeal to financial motivation and quantification is as effective when applied to the less certain process of innovation is moot – let alone the investment in people, products and the organisation that leads to enduring outperformance in a sophisticated industry such as car manufacture.

While it is greatly to the taste of the capital markets, the private equity management style runs up hard against what people say they want from work. According to studies such as Roffey Park’s annual ‘management agenda’, most people are still more motivated by making a difference, by recognition and by doing a good job and feeling good about it than anything else. Put bluntly, beyond a certain point most people want meaning from work rather than money.

Such concerns might seem to cut little ice in the face of the high returns being claimed by the most successful private equity and hedge funds, quite apart from the extraordinary amounts being pocketed by those in charge of them. Despite what people privately think, money talks louder than anything else, doesn’t it?

Yet even in this ultra-hardnosed world, the human factor has a habit of biting back. Last week the Financial Times noted that staff at top investment banks in London, struggling to cope with record deal volumes, were so overstretched that they were in danger of making costly mistakes. One consultant noted: ‘The temptation is to drive your people harder. But there is a limit. There could be a danger of people slipping up.’

It’s a delicious irony: the boiler room of today’s voom-voom capitalism at risk of blowing up under the pressures it is imposing on others in the name of the virtuous disciplines of private equity. Down on the shop floor, whether in the City or a Land Rover plant in Solihull, you take the ‘man’ out of management at your peril.

The Observer, 17 June 2007

AS ANYONE trying to navigate London’s dug-up streets will testify, the capital’s water mains are knackered. Pipes are cracked, blocked, too narrow or in the wrong place. Joints and valves are worn and pumping stations out of date. The result: 20 to 30 per cent of the water supply goes to waste in bursts, or simply seeps away underground.

Something similar happens to customer information in today’s service organisations. In a forthcoming report called ‘Expectation vs Experience: How Wide the Rift?’, database-software specialist Data Vantage shows that, of the vast quantities of information expensively pumped through corporate pipes, much gets diverted, dammed or just trickles through the cracks. What does get through is often contaminated, diluted, or otherwise unusable.

The direct outcome is not only huge amounts of costly waste and further treatment. Companies are drowning in data and starved of knowledge, while customers are passed from pillar to post as data packets. Despite hours spent hanging on the phone or online, customers and companies are just not connecting. They shout past each other until pissed-off customers hang up and go somewhere else – and, because of the information gaps, organisations aren’t learning. As Data Vantage’s chairman, John Orsmond, puts it, they are locked into a state of ‘arrested development’, putting the blame on consumers’ brand promiscuity rather than their inability to meet the expectations their own marketing departments have created.

In effect, customers and companies have become divided by technology. Their relationship, conducted through computers, has become as dry and joyless as virtual sex. The dreaded ‘Interactive Voice Response’, the on-hold music that doubles the annoyance of queuing, the codes and passwords, are all so many barriers to communication.

Too often, a new channel of communication simply multiplies managers’ opportunities for making the same mistakes. Because most companies don’t have a single ‘view’ of a customer (which would allow call-centre, e-commerce and marketing staff to share the same information), a website, for example, often just adds a layer of complexity and cost. You phone a call centre to complain about a bill – but you still get a threatening reminder through the post a week later. If you send an email, the call-centre operator hasn’t seen it.

The result, according to Orsmond, is that rage among ‘mouse-bound’ customers has reached an intensity just below that occasioned by divorce while the queries and complaints generated by ‘mangled customers’ trying, Humpty-Dumpty-like, to put themselves together again on company websites threaten to overwhelm existing call centres and oblige companies to set up new ones. Customers are invisible to organisations except as shadowy computer-generated stereotypes, while companies are remote and unreachable, a source of stress and suspicion rather than satisfaction.

Mechanical, computer-mediated relationships are bad enough. Companies make things worse by measuring and prioritising the wrong things. One of the clearest findings of the Data Vantage survey is that time-pressed consumers are putting quality of service above brand, features and price. In short, people buy where they have the best experience. Yet companies – particularly the largest ones in mature sectors such as financial services, travel and mobile phones – continue to focus on crunching costs and forcing customers through filters and scripts.

Fully 89 per cent of service provid ers are failing to deliver the joined-up service customers want, according to Orsmond – damaging brands, causing customers to defect and putting more pressure on sales to run faster just to stand still.

Such things matter at the macro as well as micro level. Politicians and others glibly invoke concepts such as the ‘information society’ to soothe away disquiet about the withering of UK manufacturing and the growth of services, which now make up 60 per cent of the economy. Yet the UK’s productivity record, already mediocre, is worse in services than manufacturing. The failure of data assembly lines to deliver what people want in terms of convenience, expectation and experience, and the resort to knee-jerk cost-cutting, is troublingly reminiscent of the ills that beset the country’s physical assembly lines – with just the same failure to understand markets and customers, and, crucially, build the right management and skills.

Those skills are critical, says Orsmond, and in many areas they are lacking. While, as with physical production, it is essential to route the pipes properly, simplifying the runs and putting the right information on the screen at the right time, it is humans who work the valves and switches – and, even more importantly, humans wanting their problems solved on the other end of the line.

The Observer, 10 June 2007

COMPANIES ARE quick to complain about the ‘regulatory burden’, a phrase that conjures up a Yes Minister vision of rules and form-filling that would be comical if it weren’t so frustrating.

This is to trivialise it – globalisation and climate change make regulation, in the sense of directing the market towards beneficial rather than harmful goals, critical in the years ahead. Yet there is one kind of regulation that is indeed unnecessary and cramping – the kind that organisations bring on themselves.

Exhibit one is the conditions that big utility companies are currently trying to impose on their customers. Many, for example, add a surcharge of up to pounds 5 a month for those who prefer not to use direct debit. They also charge for late payment, for sending bills by post rather than email and, in BT’s case, for switching to another supplier. Mortgage companies have attracted ire over mounting termination fees, while after an FSA ruling on excessive late-payment charges for credit cards, banks have been submerged by a wave of customer complaints about overdraft and other fees.

And it’s not just bank customers – a recent survey by YouGov found that 69 per cent of consumers had complained to a company during the past year, many of them receiving no response. A recent report said that 15 per cent of mobile phone users were on the wrong tariff (that is, one too expensive for their needs) the European Parliament has just ruled that operators must cut their sky-high roaming charges.

But let’s reverse the roles and look at how big companies treat their suppliers. When they’re the customers, it’s a remarkably different story. Graydon UK, a credit information agency, polled 500 suppliers to large firms to ask about their payment experiences. A whopping 57 per cent of them reported their big customers had unilaterally altered their credit or payment terms in the past year.

Typically, the changes involved extending payment periods from 30 to 60 days (but sometimes to 90 and in one case 120), or demanding a deduction on invoices received. According to Graydon managing director Martin Williams, this is particularly prevalent in the fashion trade, where Matalan, Marks & Spencer, New Look, Debenhams, Arcadia, Alexon, and Mosaic, have all unilaterally changed supplier rules of engagement in the past year. Matalan reportedly wrote to suppliers saying that in future it would simply deduct 2 per cent from all invoices received.

In their annual reports, such behaviour is concealed in the neutral language of financial management. Here’s the 2006 Debenhams directors’ report, for example: ‘Since the business was taken private in December 2003, there has been a strong focus on cash generation. This touches all areas of the business for example, in improved supplier terms, shorter buying lead times, lower stock investment, a ‘clear as you go’ markdown policy and the robust management of cost.’

Of course, one company’s ‘improved supplier terms’ is another, usually smaller, one’s markedly worsened ones.

Retail is a particularly fertile ground for imaginative ploys that allow companies to say they pay on time when, in fact, they don’t. Of greatest concern, says Williams, is the practice of ‘pay and deduct’, where retailers pay on time but deduct a proportion of the invoice, with a follow-up debit note explaining why. For suppliers, especially small ones, resolving disputes is difficult and time-consuming – particularly when, as in the case of Tesco, supplier helplines have been offshored to India. Special pricing arrangements – for instance, for special offers or favourable shelf placements – and hand-offs between buyers and financial departments are also fruitful sources for delay. Among the supermarkets, only Waitrose escapes supplier criticism for such practices.

How do they get away with it? ‘It’s part of the business culture in the UK – much more so than in Germany or France,’ says Williams. ‘And it’s getting worse as the big firms get stronger.’ And, as at Debenhams, the pressure for cash generation in companies that have been restructured by private equity can only increase. Williams estimates that across the economy as a whole up to 50 per cent of bills are overdue, and at any one time pounds 30bn of suppliers’ money is sitting earning interest in big customers’ accounts.

There’s no other way of describing this than as abuse of power – and probably no way of combating it except via legislation that puts the onus on the abuser rather than the victim. In theory, creditors can demand interest from late payers, but who’s going to risk offending their biggest customer?

By making life more difficult for the legitimate as well as illegitimate, overzealous regulation does indeed harm us all. But failing to recognise business’s own responsibility for the tightening noose of red tape is just corporate social hypocrisy.

The Observer, 3 June 2007