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

RESPONDING TO an article on the outsourcing frenzy, a reader lamented that managers had forgotten how to manage: their first reaction was to look for packaged solutions that offloaded responsibility for anything difficult on to someone else. This resonated with the observation by a council chief executive that young managers were so reliant on targets they had become incapable of managing without them. Confronted by the need to use judgment, they were at a loss.

Such behaviour is part of the burgeoning phenomenon of management lite – managing by numbers and formulas rather than judgment and method. What this dumbing-down of the discipline means in practice was captured with brutal clarity last week in the Panorama investigation into apparently dubious food-preparation and labelling practices at Tesco and Sainsbury. To refresh your memory (if not your palate), the programme alleged that in some stores workers had altered sell-by dates, invented records and sometimes even reprocessed foods for resale. To which the companies replied, more or less in chorus, that they took such allegations seriously, were satisfied that these cases were aberrations, and had retrained staff to ensure they didn’t happen again.

No doubt top managers believe that they are telling the truth. But let’s unpick it a bit. Why would workers go to such lengths to protect Tesco’s profits? Love of the company or loyalty to shareholders? According to the staff in question, time and understaffing pressures were one answer, while others feared for their job prospects if the stores went over tight waste budgets.

Yet we’ve known for years about the consequences of such a work climate. Statistician W Edwards Deming (whose UK Forum met last week to honour and build on his work) noted half a century ago that where there was fear, there were also phony figures. Targets are a classic substitute for the hard work and thought needed to understand real demand and how to organise work to satisfy it. They have the dual effect of conveying fierce performance pressure downward while absolving those at the top of responsibility for or knowledge of the methods used to achieve them. For those on the receiving end, it’s their job against the integrity of the only thing under their control – the figures they give their bosses. As Deming noted, no prizes for guessing which is the casualty.

This is why, under any such a regime, whether the NHS, the police (the subject of the previous week’s target nonsense) or shelf-stacking at Tesco, cheating is never just an aberration – the province of ‘a few rotten apples’ – but the rule the figures collected to monitor them are worthless and managers wholly unaware of what is happening on the ground.

While targets actively corrupt, as the same reader noted, many other management initiatives promoted by successive governments – BS 9001, EFQM, Investors in People – are more about assessment, conformance and verification than how to take action: clipboard thinking, in his words. Still others, such as the adoption of ‘solutions’ ranging from CRM and call centres to the current favourite, shared services, reflect a naive and gullible belief that technology and data can somehow take the place of reflection and method.

The hollowing-out of management helps explain some otherwise puzzling contradictions. In theory, with more university students at both undergraduate and graduate level studying business than any other subject, our organisations ought to be better run than ever. Yet there is little evidence of this. Rather, the ability to execute seems if anything to be getting worse. In the public sector, the debacles of Hips, junior doctors’ appointments, botched Scottish elections and the Rural Payments Agency are a succession of cases in point. The setting aside of no less than an extra pounds 400m to project-manage the Olympics is an extraordinary vote of no confidence in the UK’s ability to oversee large projects – but then again, after the Dome, the Scottish parliament and Wembley, it’s hardly an unreasonable view to take.

Dumbed-down management does no favours to executives, those they manage, or the organisations they work for. In London recently, management writer Ken Blanchard described the job of leaders as creating a framework within which frontline workers could be trusted to use their brains independently of rules and regulations – the opposite of the Tesco and Sainsbury experience.

Managers are not mechanics who pull (or push) levers to make things happen. As Don Sull at LBS once put it, other than in finance, there aren’t global business laws. ‘There are useful generalisations, but in management, context, timing, personality and history are everything. The challenge lies in developing judgment, knowing which tool to use rather than reaching for the hammer every time.’ It’s not the counter staff who need retraining: it’s the managers.

The Observer, 27 May 2007

DO YOU have to be an asshole to succeed in business? Many would answer ‘yes’ – the rueful witnesses to the fact that in business, as in baboon troops, alpha males (and females) end up on top, where the combination of success, domineering natures and fawning underlings quickly turns them into horrible creeps.

This is why in a list of the world’s greatest assholes, business would take a disproportionate share – Kozlowski and Ebbers, ‘Chainsaw Al’ Dunlap, Trump, Eisner and much of the top management at Enron. Although in the UK maybe only Maxwell would make the A-list, we could supply a richly unpleasant supporting cast, including many trading managers in the City of London.

But the asshole imperative is self-serving fallacy. As Bob Sutton notes in his entertaining and important The No Asshole Rule (Sphere), succeeding in business is not the same as having a successful business – in fact without careful management, the abrasive qualities that the unscrupulous use to elbow others out of their way as they move up can, and often do, tear the fabric of the organisation to bits. Assholes may ‘succeed’, but they often wreck the business in doing so.

This forceful plea by Sutton – management professor at Stanford and co-author of Hard Facts, Dangerous Half Truths and Total Nonsense – for workplace civility is founded on a mass of psychological and management research demonstrating that the idea of ‘the brilliant bastard’, the star who is also an asshole, is, organisationally speaking, an oxymoron.

In terms of hard cash, one business estimated only the most obvious management, legal and HR costs of dealing with an ‘untouchable’ but obnoxious performer at $160,000 a year; adding in the indirect losses to the firm through stress, demotivation, absenteeism and knock-on effects for customers takes the Total Cost of Assholes, or TCA, multiples higher. More cheerfully, high TCA means the results of getting rid of assholes are invariably less financially damaging than expected and often more than offset by the positive effects – freer flow of ideas, fewer leavers, better morale and more time to spend on customers rather than staying alive.

There are, Sutton admits, one or two exceptions to the ‘No Assholes Rule’. Managers sometimes need to do ‘bad cop’ as well as ‘good’, not least to deal with the clueless, spiteful and lazy – assholes, in fact. In some people it’s hard to tell whether good or bad cop predominates. When he googled ‘Steve Jobs’, Apple’s mercurial chief, with ‘asshole’, Sutton got 89,000 hits compared with just 750 for Oracle’s equally notorious Larry Ellison. Jobs is undeniably both brilliant and impossible, capable of making underlings believe he is either the devil or a hero. But research shows that fear motivates less well than positive reward. Playing the asshole, Sutton concludes, is a dangerous game, the most likely outcome of which is that you are one, in which case you’ll almost certainly do far more harm than good.

The reason is that human emotions, including fear, contempt and rage, are contagious while conversely, personality has little influence on how people behave in particular circumstances. Negative interactions have five times more effect on mood than positive ones.

The upshot of this triple whammy is that ‘assholes breed like rabbits’. Worse, if the plague isn’t stifled at birth, it can kick off a vicious circle in which asshole behaviour becomes institutionalised, generating expectations that reinforce it. Managers who rule by fear and loathing foster cynicism, resistance and indifferent performance that seem to justify yet another turn of the screw.

In some areas – Wall Street and the City of London, Hollywood, the music industry and increasing swathes of the UK public sector – asshole management is endemic, raising the spectre of the horror-film scenario in which our organisations reprocess us in their own malign and shrunken image. In Sutton’s chilling phrase, ‘Assholes are us’.

This is not an idle threat. While the reverse process also holds – civilised behaviour begets civilised behaviour – many of the things organisations do in the name of management encourage rather than dampen asshole tendencies. For example, hundreds of research studies confirm the adage that power corrupts. Increasing status and power differences turns alpha natures into assholes (who as a result make worse decisions) and inferiors into underperforming wimps.

Powerlessness corrupts, too. Many organisations aggravate the problem with ‘performance cultures’ that constantly rate and rank people, garland a few stars and ignore the rest. Yet the evidence is clear and easily understandable: ‘if you want to have fewer assholes – and better organisational performance – reducing the status differences between the highest- and lowest-status members… is the way to go.’

Oh, anyway, sod it – this book is a blow for humanity as well as management. Life is too short.

The Observer, 20 Many 2007

OUTSOURCING of information technology – and to a lesser extent business processes such as finance, administration or human resources – is now so prevalent that it has become the default: companies, and particularly the public sector, have to explain themselves if they don’t outsource, the underlying assumptions being that they are (a) missing out on automatic cost reductions attendant on shedding routine operations to specialists and (b) by the same token, handing competitive advantage to those who do.

Yet outsourcing is going through ‘a mid-life crisis’, according to Compass, a management consultancy. When Compass analysed 240 large outsourcing contracts in Europe and the US, it found that fully two-thirds were unravelling before the contract’s full term. Far from cutting costs, in many cases outsourcing ended up costing more than keeping the services in-house.

Terminating a contract in mid-term is expensive, but some buyers are finding that the cost of remaining locked in to an inflexible deal is higher still. Sainsbury and JP Morgan are two firms that have scrapped multi-million-pound deals (with Accenture and IBM) over the past couple of years to bring IT operations back in-house others probably would (and should) do the same, except that they no longer have the necessary expertise to do so.

Ironically, the inflexibilities are often negotiated into the contract by buyers, whose faith in the existence of large cost advantages is akin to a belief in alchemy, according to Scott Scarrott, Compass’s head of business development. ‘There’s no magic,’ he says. An outsourcer has to be 20 per cent better than the in-house operation just to cover set-up costs and break even. Factor in a margin for risk, overhead and profit and that rises to 40 per cent. That’s a handicap that can’t be offset by simple ‘labour arbitrage’ even in low-wage countries such as India, where high labour turnover and low productivity compound the disadvantages.

Yet buyers still insist on negotiating heavily legalistic, cheapest-possible deals with almost no ‘wriggle room’. They usually live to regret it. Two or three years in, buyers find that hardware costs have come down, while – under heavily back-end-loaded deals – costs are rising rapidly. By the end of a seven-year contract, some companies examined by Compass were paying 40 per cent more for their outsourced services than they would have by doing them themselves.

Scarrott stresses that this is not the type of deal vendors prefer, but it is the one that cost-obsessed buyers insist on. ‘For every bad vendor there are at least five bad buyers,’ he says. The mistakes are all the bad old management habits, speeded up and updated for an IT-enabled world: short-termism, wrong yardsticks (speed and labour costs rather than anything connected with the business), failure to retain know-how to manage the new relationship, inadequate attention to governance, and an unappealing combination of greed, laziness and cowardice that is manifested in the all-too-common practice of ‘lift and shift’ – simply taking an inefficient operation and handing it over to someone else to deal with, often, in the medium term, by sacking people. In short, outsourcing has become a classic management fad.

Depressingly, the public sector is a serial offender, adding to poor procurement a dogged failure to learn: a contract’s true value can only be evaluated after two or three years, but since those who do the deals are only concerned with procurement, that rarely happens. So outsourcing is frequently the worst of all worlds: the wrong solution to the wrong problem, done badly.

Given that IT outsourcing is three generations old, you might expect the lessons to have been learnt by now. A few companies, having found out the hard way, are indeed beginning to take a more selective attitude to the practice: lowering cost-saving expectations, bringing back some operations and retaining much more expertise even in those they outsource. However, Compass sees many of the same mistakes being made all over again as new industries, such as insurance, pile on the bandwagon.

Perhaps the most worrying aspect of this catalogue is what it says about companies’ underlying strategy. None of the hi-tech trappings or jargon can disguise the fact that ‘lift and shift’ represents the management equivalent of football’s ‘route one’ – heads down, hack the ball upfield and chase.

No wonder customers are unhappy. If they are cynical about customer service with a foreign accent, it’s because they know it’s an accurate reflection of suppliers’ reliance on low-cost and mass-production methods for dealing with them. That’s a model that has run its course – so shareholders should be worried, too.

The Observer, 13 May 2007

THE PAINFUL unravelling over the last year of the public and private lives of one of the UK’s most iconic businessmen, Lord Browne, is a sobering example of the pitfalls of the cult of leadership. Raising expectations far beyond the capacity of one human to fulfil them – neither BP’s successes nor its more recent failings were ever down to Browne alone – hero leaders often end up destroying themselves and wounding the companies that helped to make them.

The love affair with Leadership – capital L – is deep-rooted and pervasive, as a look at almost any copy of Harvard Business Review or Fortune will confirm. April’s HBR establishes both the tone and the assumed relationship with ‘What Your Leader Expects From You’. February offers ‘Discovering Your Authentic Leadership’, while January 2007 – a special issue devoted to ‘The Tests of a Leader’ – sports a cover picture of a shirt-sleeved executive (male, naturally) pumping press-ups on the boardroom table. ‘Leadership is for lone He-Men’ is the clear message: leaders are managers on steroids.

Of course, we need leaders to focus, decide, rally and sometimes inspire. From playgrounds to football teams to political parties, human groups do not remain leaderless for long. But the business need for heroic leadership – and its corollary, the lament for the lack of it that kicks off most articles on the subject – is something else again.

Where does the desire for heroes originate? One source is the quest for certainty. This intensifies as the world becomes more uncertain perversely, by raising expectations it also increases the likelihood that they will be dashed. Another source is the way the leader’s job is specified. Theoretically, the need for hierarchy, with a strong leader on top, stems from the idea that employees’ and companies’ interests differ, so a strong boss is needed to ensure the workforce does what is required for shareholders. The boss must also decide what they should do. Obvious, really: in any case, the alternative – running a company from the bottom up – is surely a recipe for chaos and anarchy?

Except that these notions are danger ous half-truths. In theory and in practice, hierarchy doesn’t work, and no one put the reason better then GE’s Jack Welch, himself an iconic manager. Hierarchy, he said, defines an organisation in which people have ‘their face towards the CEO and their ass towards the customer’. The more charismatic the executive, and the more centralised the power, the more perverse the effect.

Centralised power and decision-making, central planning by another name, is not only bad news for the customer. It leads to a cult of personality that wrecks good management. In Ego Check: Why Executive Hubris is Wrecking Companies and Careers (Kaplan), Mathew Hayward notes that chief executives who become celebrities are a danger both to themselves and their followers. They believe their own press, attribute success to their own brilliance and failure to the incompetence of others, and vastly overestimate their decision-making prowess. Success only supercharges this process, generating feelings of invincibility that make an eventual fall inevitable.

When CEOs become celebrities, their firms’ performance starts to decline, Hayward finds. Before their downfalls, Martha Stewart, Enron’s Ken Lay, Hank Greenberg at AIG, Sunbeam’s Al Dunlap, Dennis Kozlowski at Tyco, and WorldCom’s Bernie Ebbers all figured in laudatory cover stories in prominent business magazines. He also discovered that companies with starry CEOs pay more for acquisitions. And consider this: by acting as positive feedback, stellar pay can reinforce executive hubris and its damaging effects. Hayward writes: ‘By fostering false confidence, greater compensation can actually diminish our resourcefulness and productivity.’

At bottom, the cult of leadership is based on a false opposition. The opposite of top-down hierarchy is not bottom-up anarchy. It is what John Seddon of Vanguard Consulting calls ‘outside-in’, or, to reverse Welch’s image, turning the company through 180 degrees to face the customer rather than the boss.

Making the organisation demand-led instantly changes the role and requirements of the CEO. Of course, courage and judgment are still necessary. But they are no longer arbitrary, the product of supposed omniscience. Nor is the job any longer one of coercion, but rather to support front-line employees in serving customers. In short, the leader sets the context in which the interests of company and employees can, as far as possible, coincide.

As ever, be careful what you wish for. Outside-in, demand-led companies don’t need hero leaders, we should beware of creating them, and they should beware celebrity’s duplicity. As for investors, when a CEO makes the front cover of Fortune, or appears at the head of a ‘most admired’ list – sell.

The Observer, 6 May 2007

Anyone looking at New Labour’s decade through a macroeconomic lens might conclude it was the best of times.

After an uninterrupted run of growth, employment is consistently high and inflation (despite the recent blip) is low. The UK rates as one of the most market-oriented, business-friendly economies in the world, with (whatever the CBI says) a favourable tax regime and the lowest levels of product and labour market regulation in the OECD. The stock market is booming. For proof of the strength of the economy, look no further than sterling which, apart from a brief moment in the early Nineties, was last worth $2 in Mrs Thatcher’s day.

Yet reverse the lens and the New Labour decade looks very different. Since 1997 manufacturing has lost a million jobs, including those of the last British volume car manufacturer – a symbolic demise if ever there was one. Record company profitability notwithstanding, fewer people can look forward to a secure old age most will have to work longer, and harder, for their retire ment. Levels of engagement and trust at work are obstinately low. Since real salary increases have been hogged by the best paid, inequality with even medium earners has grown by leaps and bounds. The country is running the biggest trade deficit since records began. Meanwhile, much of the public sector is in disarray.

Most strikingly, despite being the focus of intense government effort, relative to traditional rivals the productivity performance of UK firms is mediocre – in terms of output per hour, free-market Britain still lags not only the United States but regulated Germany and even supposedly sclerotic France. It was, in fact, the worst of times.

How can two such different accounts apply to the same economy? Clues can be gleaned from a series of studies being carried out by the Advanced Institute of Management Research (AIM) which suggest that ministers’ views of management are naive. Broadly, the government thinks that improving company performance is about supply-side economics and best practice. To this end, the Treasury has singled out five ‘levers’ of productivity – competition, innovation, enterprise, investment and skills – and subjected each to major programmes of reform.

But both these concepts are problematic. Productivity, the researchers suggest, is not primarily about inputs but the messy, complex, human process of turning them into usable outputs – ie, management, not economics. Since the Treasury’s levers are unconnected with what happens inside the firm, supply-side push has little effect: the supply of skills may have increased, but employers’ ability to use them hasn’t the world is awash with credit, yet companies still refuse to invest as much as counterparts abroad competition pushes companies on to the ‘low road’ of cutting costs and competing on price rather than changing strategy to move up the value chain.

This is bad enough. But there is more to come. AIM’s work on UK companies’ notorious reluctance to take up advanced management practices shows that the idea that there is something called ‘best practice’ that can be bodily transferred from one context to another is simplistic. Instead, companies need to look within themselves as much as outside to develop their own unique ‘signature’ processes. This is why Toyota remains way out in front of other car firms, despite all attempts to imitate it.

Establishing such processes involves building human and organisational capital – patient, painstaking work. But today’s institutional context might have been designed to make such long-term organisation-building impossible. The havoc visited on the public sector in the name of competition is the government’s deliberate attempt to match today’s deal-making frenzy in the City, and both make good practice harder.

The AIM research shows that, disquietingly, the UK productivity gap is even wider in services than in manufacturing. But what price Boots or Sainsbury’s developing distinctive processes when they are being turned upside down by private equity, or the threat of it or the NHS when it is being reorganised every two years by a government that doesn’t understand what management is?

The tale of the two economies is thus not just that they are growing apart. The two are increasingly at odds, with the function of what used to be thought of as the ‘real’ one more and more to supply the raw material for the bids, deals and exotic instruments keep the weightless one miraculously aloft. As Anthony Hilton wrote in the Evening Standard last week, ‘the entire UK economy has become, in effect, a giant hedge fund with a massive one-way bet on financial services – and no Plan B for the day when the City goes off the boil.’ If and when it does, the costs of the government’s failure to understand the managerial economy will be high – for all of us.

The Observer, 29 April 2007