THE ONLY bad thing about going on holiday last month was missing the chance to take part in a Today programme discussion on the state of management: how has it changed over the past 40 years, and for better or worse?

Good question. If I had been able to get a word in edgeways, this is what I would have wanted to say: Yes, of course management has changed – but behind a surface gain in ‘professionalism’, I fear for the worse as much as for the better.

There is certainly a lot more of it about. Where 40 years ago there were just two UK business schools, now there are more than 100, and business is the single most popular undergraduate degree. But business schools are only a part of what has become a management industry in its own right, with a full cast of ideas entrepreneurs (gurus and authors), mass infrastructure and ‘solution’ providers (IT firms and consultancies), educators, and of course promoters and hucksters (PR and press) – all of it eventually paid for, directly or indirectly, by the client.

Feeding off itself, this bubbling ecology has generated a ferment of new products and relationships – from offshoring to corporate social responsibility, customer relations management to coaching – none of which existed 40 years ago. If a problem can be expressed in words, someone will write a software ‘solution’ to manage it.

Alas, more doesn’t mean better. Much of this swirling management activity adds no value, and indeed hides the wood within the trees. It is, to put it politely, management auto-stimulation, which exists only because the main management effort of the past four decades has been perversely channelled up a dead end.

The distinguished systems theorist Russ Ackoff describes the trap as ‘doing the wrong thing righter’. ‘The righter we do the wrong thing,’ he explains, ‘the wronger we become. When we make a mistake doing the wrong thing and correct it, we become wronger. When we make a mistake doing the right thing and correct it, we become righter. Therefore, it is better to do the right thing wrong than the wrong thing right.’ Most of our current problems are, he says, the result of policymakers and managers busting a gut to do the wrong thing right.

The wrong thing that the entire management industry has spent the past 40 years trying to put right is mass production command and control. ‘We are committed,’ as Ackoff also notes, ‘to a market economy at the national [macro] level, and to a non-market, centrally planned, hierarchically managed [micro] economy within most corporations.’

We know that central planning doesn’t – can’t – work. But, my goodness, that doesn’t stop people trying. The result is an increasingly vicious circle in which each effort to control the uncontrollable simply destabilises the system further, provoking yet more frantic efforts to get things back in hand. So the end of management becomes control rather than creation of resources. When Peter Drucker lamented that so much of management consists in making it difficult for people to work, he meant it literally.

In the private sector the ratchet is reflected in the ever greater sacrifice that seems to demanded for every new unit of ‘progress’ – tighter performance management, less job security, not even a pension in retirement. In the public sector, look no further than the NHS, spending terrifying amounts on reorganisation after reorganisation with no attendant increase in productivity, and managers everywhere so busy chasing targets that they have no time to do the work that matters to patients.

The waste of resource is bad enough. But the doomsday scenario is that management ends up making the wrong thing ‘right’. In management, as in the social sciences generally, expectation is, if not everything, a powerful amplifier for both good and ill. Inherent in command and control is the assumption that human beings can’t be trusted on their own to do what’s needed. Hierarchy and tight supervision are required to tell them what to do. So, in a self-fulfilling prophecy, fear-driven, hierarchical organisations turn people into untrustworthy opportunists – and the control freaks say: ‘I told you so.’

The gleam of hope is that if we appreciate the power of expectation and can distinguish the wrong thing from the right, we can rewind the nightmare complications of the past 40 years. Organisations that treat people as optimists who want to do a good job can create the conditions in which creative optimists succeed, abolishing the need for expensive control. Taking orders from customers rather than the chief executive means they can dispense with both the apparatus of planning and scheduling to second-guess what people want and the machinery of persuasion to make them buy what they otherwise wouldn’t.

Doing the right thing requires less management, not more. Management badly needs its William of Occam: ‘No more things should be presumed to exist than absolutely necessary.’ I suspect John Humphrys would have agreed.

The Observer, 1 October 2006

MANY, PERHAPS most, management books sell success recipes – short cuts claiming to make the job simpler and easier. The twin originality of The Exceptional Manager (Oxford University Press) is that it starts from the other end, by identifying what is problematic about managing, and then fitting its advice to the context of the UK today. What is managing in Britain in the 21st century all about? And how will it change in the future?

Actually, there’s a third originality too. The book (having helped edit it, I declare an interest here) is a collaborative effort by, and the first major output of, a multidisciplinary group of scholars belonging to the Advanced Institute of Management (AIM). AIM is a publicly funded body whose objective is to bridge the gap between management theory (or theories) and practice, and harness research to improving company performance. So the book is itself both a working model of practice-led enquiry and a step towards an evidence base for UK management.

As the double-edged title hints, there are no easy answers. The exceptional manager is just that – an exception. For while exceptional managers collectively do ‘make a difference’ – witness the outperformance of companies such as RBS, Tesco and BP – the fact is that most don’t. BP’s recent local difficulties just go to show how hard it is for companies to keep performing at the highest level: where it has fallen down is in routine operations, possibly the least difficult part of management’s job.

In every management discipline, the pattern is the same: making a difference is not business as usual only better it is something different. Thus, deciding on a viable strategy is one thing. It is quite another to do it in the long term, when adapting to changing conditions will almost certainly mean changing the business model. As with many other management areas, managers have not one but two strategic imperatives: one steering the present strategic course, while the other judges the moment not only to change direction but to jump ship and start up an aeroplane instead.

Ironically, as the authors point out, many of the dramatic turnaround stories that fuel the management ‘success’ literature are in fact from a strategy angle the opposite: ‘from the point of view of market position, shareholder wealth, and jobs…’ transformational change is unmistakeable testimony to previous strategic failure.

This two-way stretch – doing the existing thing efficiently while looking for the opportunity to do something different and better – is particularly contradictory for innovators. Doing everyday things better is all about measurement, groove and routine – but these are anathema to innovation, which by its nature is unpredictable and thrives on flexibility and freedom from routine.

And the problem is magnified again for the UK, for which innovation is viewed as the great management challenge. It’s something of a commonplace that, economically, UK plc needs to move up the value chain, competing with higher-value, innovative goods and services rather than on price, as in the past. It’s much less of a commonplace that innovation, always difficult, is likely to be harder still for UK managers because of their past.

In brief, say the AIM authors, the market-oriented policy reforms pursued by UK governments since the 1980s have actively encouraged managers to centre their competitive proposition on low input costs and prices (cynics would add that City short-termism has reinforced the trend). Today’s corporate weaknesses, charted in the book, of meagre R&D spending, unimaginative people management and reluctance to take up promising new practices, faithfully reflect this institutional framework.

This means that the challenge for managers of progressive British companies – and material for a new phase of AIM’s mission – will be not just to innovate in products and services. Equally as important will be wrenching their attitude from head-on market competition to co-operation: creating the institutional infrastructures (superior education, flexible supply chains, collaborative R&D links with universities and research institutes, for instance) that will underpin innovation as a self-reinforcing cycle rather than a fraught one-off event. Indeed, this ‘may turn out to be as critical to evolving competitiveness as the more familiar managerial role of performance improvement’.

‘Business as usual,’ warn the authors, will lead inevitably to relative decline. At the heart of a new approach – ‘the levers that switch the trajectory of the company from the low road to the high road’ – are the beliefs and actions of the exceptional manager. This is not a macho management superhero rather, these are reflective men and women who can break out of the cage of their own assumptions and act on the basis of what works (or doesn’t) in their particular context, not on what they think. Another way of being an exceptional manager, then, is focusing on the exception rather than the rule: still a challenge, but they don’t have to be a mathematical minority.

The Observer, 17 September 2006

‘WE MUST reject the idea – well-intentioned, but dead wrong – that the primary path to greatness in the social sectors is to become ‘more like a business’.’ The interesting thing about this proposition, which runs counter to a tidal wave of advice and practice, is that it comes not from an unreconstructed member of Old Labour, but from the author of two of the most interesting and respected business books of the 1990s, Jim Collins.

In Built to Last , co-written with Jerry Porras, and Good to Great, Collins tried to identify what distinguished enduringly excellent organisations from the merely good, and how one could become the other. Now, in a 30-page monograph to accompany what has come to be known as G2G , Collins extends the thinking to the public and social sectors.

This is work in progress, and detailed research is under way, but he is confident enough to present a preliminary conclusion: most businesses lie somewhere on the spectrum between mediocre and good very few are truly excellent.

Many accepted business practices turn out to correlate with mediocrity rather than greatness. So why should we insist on importing such practices into hospitals, universities and charities?

The real distinction is between excellent and the rest, not between business and social, he says. Great companies have more in common with great charity or public-sector organisations than they have with indifferent companies.

Cynics would suggest that ‘greatness’, after all, is the prism through which Collins looks at things, so he would say that. Yet the insights pass the common sense test (they have evidence to back them, rather than mere ideological belief). Being consistently excellent is largely a matter of fierce discipline – doing essential things well – and that holds good across sectors. Among the essentials are establishing measures of success and tracking progress towards them. It’s not good enough to say that success can’t be quantified in the public or social sectors of course it can – only the measure relates to purpose, not money.

All indicators, Collins rightly reminds us, are flawed – especially financial ones (see iSoft, Enron and others ad infinitum ). What’s important is not identifying one perfect indicator, but separating inputs from outputs, settling on a consistent and intelligent method of assessing output, and tracking the trajectory with rigour. Maintaining the discipline is critical: ‘No matter how much you have achieved, you will always be merely good relative to what you can become. Greatness is an inherently dynamic process, not an end point. The moment you think of yourself as great, your slide towards mediocrity will have already begun.’

Overall, Collins believes that pitfalls in the way of building lasting excellence in the public sector, while different, are no greater than in the private sector. In some areas, the social sectors may even have an advantage. Surprisingly, one such area is leadership.

The UK public sector currently sees the idea of leadership, something lacking in the past, as its great white hope. But the last thing it needs is the hard-driving, alpha-male style of leadership so fetishised in the private sector. The kind of leadership that is important can maintain focus and discipline while coping with characteristically complex governance and diffuse power structures – and that’s not currently common in business, although it may have to be in future.

Business leaders faced with mobile workers, consumer and environmental groups and regulation can’t bank on wielding untrammelled executive power as in the past: they have to lead people who have a choice whether to follow. This skill will be ‘even more important to the next generation of business leaders, and they would do well to learn from the social sectors’, Collins says.

The social sectors may also have an underplayed advantage in attracting the right people. Using money to ‘motivate’ is a poor second to having employees motivated by the job in the first place – and public and social sectors, with their sense of mission, do well at attracting such people. ‘The right people can often attract money, but money by itself can never attract the right people,’ Collins writes. ‘Time and talent can compensate for lack of money, but money cannot ever compensate for lack of the right people.’

In fact, the public sector often unwittingly connives with the government in overestimating the importance of financial resources and underestimating the power of people, leadership and a self-reinforcing system to overcome apparent system constraints – as proved by pockets of public-service excellence created by people with the courage to defy centrally mandated methods and establish their own purpose-related methods.

Pointing to the extraordinary finding that, over 30 years to 2002, the top-performing US share was not Intel or Wal-Mart but Southwest Airlines, Collins notes that there are outperformers in the most unlikely and unpromising environments. ‘Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.’

The Observer, 3 September 2006

WHEN BRITAIN’S athletics coach publicly ‘named and shamed’ individual team members for their disappointing showing at a recent European championships, his words could have no effect on their technical ability. Running faster or jumping further is a matter of physical conditioning that takes months of training, diet and practice. Instead, he obviously believed he could affect their attitude – that he could improve their performance by motivating them to try harder. He was doing – or trying to do – performance management.

Performance management is one of those many management issues (leadership is another) that becomes more puzzling the more you look at it. At first sight it seems evident that teams and individuals should be managed to produce good performance. But that doesn’t make it effective or easy. A recent report by the Work Foundation notes that despite intensive attention from academics and practitioners over the last two decades, for many organisations performance management remains a vexed subject with a ‘grail-type quality’ always out of reach.

Difficulties organisations (not just companies) wrestle with include: schemes that are poorly designed and administered over-complexity focus on the individual rather than teams (despite rhetoric to the contrary) failure to put development promises into practice lack of line-management commitment a wrong emphasis on financial rewards inconsistent and subjective appraisal simplistic assumptions about identity of interest (‘we’re all in the same boat’) and poor returns for the effort involved. Oh yes, and both managers and employees hate it.

Taking these objections into account, there’s a fair chance that performance management often ends up destroying value rather than creating it. (Ask yourself what good the public haranguing of the underperforming athletes will do.) When a ‘solution’ raises more questions than it answers, and the only help on offer is the exhortation to do it better, it’s generally nature’s way of saying that there’s something wrong with the original premise. Performance, along with stress, absenteeism, culture, appraisal and many more elements in the bloated management superstructure comes in the category of problems best treated not by managing them better but by eliminating the need for treating them altogether.

Performance management is perfectly symbolised by appraisal, a central part of PM, in which managers ‘give feedback’ to the employee. This defines it as a manager-facing system: in a customer-facing system it’s the customer who feeds back information to the supplier so that the collective function can be approved.

If the employee ‘has his face towards the CEO and his ass towards the customer’, in Jack Welch’s immortal phrase, it’s not surprising that the overall results are erratic and disappointing. Performance management too often consists of trying to make people do the wrong thing righter – a dead end which offers no useful learning.

In any case, the importance of individuals and even teams is vastly overestimated compared with the constraints under which they operate. The assumption behind PM that improvement is chiefly a matter of individual effort, motivation and capability is deeply flawed. In their excellent Hard Facts, Dangerous Half-Truths and Total Nonsense , Jeff Pfeffer and Robert Sutton show time and time again how systems trump individual effort: people do perform differently – but it’s not the same people who do better or worse each week bad systems full of brilliant people make terrible mistakes however heavy the performance management (for instance, the repeated Nasa tragedies of Columbia and Challenger) good systems make ordinary people perform better. ‘Bad systems do far more damage than bad people, and a bad system can make a genius look like an idiot. Try redesigning systems and jobs before you decide that a person is ‘crappy’,’ they advise.

As this suggests, the best solution to the PM conundrum is to design it out. This means creating a system in which employees face, and get feedback from, the customer, and requires a crucial shift in perspective, from managers controlling people, to managers and workforce together learning to control the system. A good example would be a customer contact centre where individual activity measures (how many calls, how long they take) are replaced by measures related to purpose (how long did it take to resolve the problem from end to end). The management of performance then becomes a process of learning – what are the most common problems, how can we resolve them more quickly, and even better, how can we prevent them arising in the first place? The job manages performance of the manager too, and most of the bureaucracy of ‘performance management’ is redundant. As the psychologist Abraham Maslow once said, ‘What is not worth doing is not worth doing well’ – just don’t do it.

The Observer, 27 August 2006

BY THE end of the 20th century, management consultancy was a $100bn-a-year business. Considering that there is no accepted body of theory or practice for consultants to sell, it is not a profession, is unregulated and is not subject to anything resembling a Hippocratic oath, that is a remarkable total.

But even that is an inadequate measure of its clout. Scarcely believably, by 1995 there was one consultant in the US for every 13 managers, compared with one for 100 in 1965. Business schools, set up to educate managers, were ‘first captured, and then redirected’ to become assembly lines producing fodder for the elite consultancy firms that absorb a third of MBAs graduating from the top schools.

It’s no surprise big consultancy has colonised business – in 1999 IBM, Morgan Stanley, American Express, Delta Airlines and Polaroid, to name only the best-known, were all run by recruits from McKinsey alone – recasting much of it in its own image, Enron being the prime example. But consultants also influence charities and not-for-profit organisations, as well as reshaping government by privatisation and importing their (often self-serving) notions of ‘efficiency’ into the public sector, all over the world.

In hindsight, perhaps the most astonishing aspect of big consultancy’s rise to mastery of the universe is its accidental and specifically local origins. As recounted by Said Business School’s Chris McKenna in his fascinating study, The World’s Newest Profession: Management Consulting in the 20th Century (Cambridge UP), the leading consulting firms owe their existence not to specialist knowledge but to opportunistic response to US regulatory change.

Until the 1930s much of the work now labelled ‘management consultancy’ was carried out by US banks and accounting firms. To prevent conflicts of interest, that was outlawed in New Deal legislative and regulatory measures, which also decreed that any firm raising finance should be subject to a management audit. Barely pausing to marvel at their fortune, into the void smartly stepped entrepreneurs such as James McKinsey, Edwin Booz and Charles Armstrong, often accountants and all based in Chicago. Management consultancy, a specifically American solution to a specifically American problem, was born.

McKenna shows that time and again the pattern has been repeated, the large consultancies prospering as opportunistic beneficiaries of regulators who in their zeal to prevent one kind of monopoly inadvertently created another. Thus consultancy gained a new role in the late 1930s when Congress banned executives from using industry associations or cartels to create benchmarks or codify best practice, thereby leaving consultants free to make the role of industry knowledge-broker their own.

It was the same with IT consulting. When computer giant IBM settled the longstanding antitrust suit against it in 1956, a condition was that it should not offer advice about installing or running computers. That left the way clear for Andersen (later Accenture) and others. Most ironic of all, following the Enron collapse in which professional service firms were heavily implicated, 2002’s Sarbanes-Oxley Act, the most significant US governance legislation since the laws that brought consultancy into being, almost exactly replicated their effects.

As in the 1930s, Sarbox banned auditors from offering consultancy, but compelled boards to bring in outsiders to do stringent management checks. Hence, as McKenna notes, the paradoxical result was that having failed to prevent – some would say having actively contributed to – the corporate governance crisis, the consultancy elite has been put in charge of monitoring it. Nice work!

How do they do it? McKenna argues that in extending their domain, building on their regulation-sponsored legitimacy to colonise and remake business, first in the US and then around the world, the big consulting firms have been vastly helped by not being part of a profession. ‘Consultants succeeded in large part by assuming the outward appearance of a profession… even as they avoided the most confining elements of professional status like state regulation, individual accreditation and, most remarkably, professional liability.’ If their remedies don’t work, well, there are no guarantees in management. If ethical issues arise, that’s normal in an emerging profession. Though it played a huge part in developing Enron’s strategy, the management consultancy McKinsey has faced few searching questions over the company’s catastrophic collapse.

McKenna concludes his provocative account by suggesting that it’s time for consultancy to grow up and accept the challenge of professionalism. In the meantime clients might consider adding another definition to the one about a consultant being someone who borrows your watch to tell you the time: in McKenna’s story, a consultant sells insurance which is only valid so long as you don’t make a claim. McKenna’s title, of course, makes allusion to another well-known profession whose prerogative is power without responsibility: the oldest.

The Observer, 20 August 2006

THE BIZARRE tale of Ipswich Hospital NHS Trust, which has been penalised for treating its patients too quickly, shows just how hard it is for managers to manage in Labour’s idiosyncratic pseudo-markets.

The situation arose – pay attention here – because of conflicting objectives for ‘purchasers’ and ‘providers’ in the healthcare system. Ipswich General Hospital (the provider) has done particularly well at clearing its backlog of patients waiting for non-emergency operations. As a result it finds itself able to deal with new patients almost immediately – something for the NHS to be proud of, and good news for patients.

Not for East Suffolk Primary Care Trusts, however, the purchaser of hospital treatments in the area, which to ‘manage demand’ (stay within its budget for the year) introduced a minimum waiting time of 122 days to space them out. When Ipswich breached the minimum, doing more operations more quickly than had been contracted for, the PCT simply refused to pay, citing the 122-day rule. As a result, the hospital’s reward for giving patients priority is a pounds 2.5m hole in its finances and a good going-over by Richmond House, the NHS headquarters.

In the looking-glass world of NHS accounting, public-sector actors get all the disadvantages of the market and none of the benefits. In a real market, Ipswich’s behaviour would be entirely rational. Most of its considerable costs being fixed or near fixed, the marginal cost of an extra operation is small doing more is one of the few ways it has of increasing income. Leaving expensive operating theatres and consultants idle is as daft as it is offensive to patients suffering from conditions that could be treated. What’s more, in a real market, Ipswich’s success in cutting waiting times would attract more patients, thereby reducing unit costs and benefiting both it and the system as a whole.

Unfortunately, simplistic NHS accounting rules give PCTs no similar incentive to treat patients quickly. They are like an insurance company boosting this year’s profits by postponing carrying out repairs on a legitimate claim until the following year. In the case of human repairs, though, delay can substantially increase overall costs as the patient’s condition deteriorates, making costlier treatment necessary, while lengthier absence from work is a loss to the economy. And we haven’t even mentioned the human costs. Managing patients for the benefit of the finances is bleakly absurd.

There is another interesting casualty of the Ipswich story. From the patient’s point of view, minimum waiting times – which are likely to crop up all over the system according to the NHS Confederation, representing trusts – make a mockery of the government’s much-vaunted notion of choice. For patient and GP, speed is a reason for choosing one hospital over another: but if the system makes them all the same – if Ipswich can’t exceed its quota, no matter how good it is – then how are patients to choose? Removing choice, which was supposed to provide an incentive for hospitals to improve as well as a benefit to patients, at a stroke takes away a central plank of the government’s reforms.

In fact, even if it were allowed, the benefits of choice are overstated. In health, every patient has to be treated somewhere, and in practice it is impossible to expand or contract capacity overnight. So ‘choice’ simply redistributes patients between existing establishments – only now the onus is on the individual to compete with other individuals to get the best deal, instead of on the system to provide it. Choice of this kind is inadequate compensation for a dysfunctional system, an abdication of management responsibility to improve it.

At the same time, even if choice doesn’t and can’t work, it still costs. As GP Margaret McCartney points out in her FT column, in the age of ‘choose and book’ for hospital appointments, trusts are beginning to compete for attention through advertising. Instead of jointly building a powerful NHS brand – free access to high-quality, evidence-based medicine, everywhere – hospitals are using precious resources rebranding themselves with marketing slogans. In this simulacrum of choice, competition is exercised through the expensive and wasteful medium of advertising to state what ought to be blindingly obvious.

Under many circumstances, choice and competitive markets are powerful mechanisms to drive innovation and reallocate resources from less productive to more productive producers. However, given the requirement for equity and the inflexibility of capacity – even with the touring specialist treatment units – there are strong grounds for thinking that healthcare is not one of them.

What is certain is that installing a phony market and then preventing the participants from acting on its incentives is perverse and pointless, the worst of all worlds. Its costs – deciphering the rules, writing contracts and now competitive marketing – are eating up the benefits. It’s not the patients in the NHS who are sick: it’s the system.

The Observer, 13 August 2006

THE WEIRD thing about Lord Browne’s spat with BP chairman Peter Sutherland over his retirement is that it may be unreal. BP wants Browne to retire in 2008, when he is 60. But from October, the Employment Equality (Age) Regulations make compulsory retirement under 65 illegal. Browne may be perfectly within his rights in three years to say he has changed his mind and won’t be going after all.

Employment lawyers say that forcing early retirement will constitute discrimination only justifiable in exceptional cases – hardly applicable to Browne, whom most shareholders would love to stay. The only other option will be a pay-off. In the past, the highest compensation for unfair dismissal – the sole legal remedy in such cases – was pounds 58,000, but under the new regulations payouts for age discrimination have no upper limit.

According to a survey by human resources specialists Adecco and Tarlo Lyons, just 13 per cent of HR managers in large UK firms are concerned with the impending rule change. But the legal profession warns the changes are likely to put a slow burn under the whole employment relationship, including pay and seniority as well as retirement.

Andrew Chamberlain, an employment solicitor at law firm Addleshaw Goddard, says: ‘Unfortunately, the legislation isn’t very well drafted, which means that in some areas we can’t give clear advice, so employers will keep their heads down until they can see what it means. It will probably take a lot of expensive litigation to establish what the intentions are.’

The Observer, 6 August 2006

Even before then, it is clear that payouts will be more frequent and higher. Take a 59- or 60-year-old middle-to-senior manager whom an employer wants to push aside in favour of a more energetic 40-year-old. Under present rules, with a small payoff such borderline terminations are hard to resist. When age becomes a legal factor, expect a rash of discrimination cases.

For a foretaste, look at recent high-profile sex-discrimination cases in the City. Sex discrimination was outlawed in the 1970s, but when upper limits on compensation claims were lifted, cases soared. Taking into account loss of earnings and bonuses, payouts can hit pounds 800,000 or more. High earners kicked out for failing to gee up corporate performance will also have another argument for compensation, potentially leading to higher ‘payments for failure’. Chamberlain predicts: ‘Companies will have to approach senior executive terminations much more rigorously – or expensively.’

Some traditional forms of pay will also be brought into the age discrimination net. Professional firms (including solicitors) will have to justify pay based on levels of qualification, since this indirectly favours older workers over younger ones. And though seniority increments are exempted from the regulations for up to five years, after that they too will have to be justified, on grounds of both ‘legitimate aim’ – business or welfare case – and being ‘proportionate’ – discriminatory effects should be outweighed by benefits, and there should be no less discriminatory way of achieving the same end. This could affect civil servants and other public-sector employees, possibly speeding up the move to individual performance contracts.

One of the oddest, unintended, consequences of the new regulations may be the emasculation or even disappearance of the CV. Employers are already advised not to ask for date of birth on job applications. However, education and employment dates could convey the same information. Acas suggests removing requests for ‘unnecessary’ date and period details from forms, but employers claim that would make them meaningless. What is and isn’t justifiable is another aspect of the regulations that may have to be tested in the courts.

All right-on nonsense? There’s far too much legislation in employment already, grumbles Chamberlain, who queries the consequences of enacting poorly drafted regulation before business, and society, is ready. For others, that’s the justification. After all, tossing perfectly good employees on the scrapheap at 60 serves neither their nor society’s interests.

With nice irony, one of the most spirited attacks on ‘the bureaucratisation of age, which ignores ability and choice and creates a linear process driven solely by the ticking of the clock’, comes from the BP website. When so many jobs depend on know-how accumulated over time, ‘How can we afford to neglect such experience?’ it demands. ‘How can we afford to say to someone – just because they have reached the age of 60 or 65 – ‘You are too old to make a contribution’? How can we afford to have to learn everything again and again, simply because of chronology?’

How indeed? The author: John Browne.

EARLIER THIS month the Treasury announced that Sir David Varney was leaving his job as chairman of HM Revenue and Customs to become Gordon Brown’s full-time adviser on ‘transformational government’ – in English, improving public services through the use of IT. Coming as the government announced the scrapping of the ill-fated Child Support Agency (IT spend £540m, backlog 300,000 cases, running costs 70p of every £1 collected), this might seem somewhat satirical.

Varney, after all, arrives from the same Revenue and Customs that spent £100m on an e-VAT system that after four years was used by 1 per cent of traders instead of the 50 per cent anticipated and whose family tax credit system produced such dysfunctional results – hardship rather than help – that the Prime Minister had to apologise to its victims last year.

Buying IT systems is notoriously difficult, which might be thought a reason for approaching them with less than the current blind faith. But they are only the most obvious symptom of a much broader failing which a number of observers believe could undermine the latest ambitions for public sector reform. Procurement – buying everything from paper clips to billion-pound computer systems – is hardly the sexiest subject. But it is critical for a government trying to drive resources to the front line.

Partly this is a matter of buying power. Local government spends £40bn a year on goods and services, and the whole public sector more than £100bn. In his 2004 efficiency review, Sir Peter Gershon reckoned that better buying could yield £7bn in cost savings – the largest chunk in the £21bn identified as possible.

However, in the mixed economy of service providers now emerging in the public sector, procurement takes on as much strategic as monetary importance. It is not just about buying, but commissioning in its broadest sense, says Craig Baker, a partner at consultancy Ernst and Young: defining strategy, shaping solutions, specifying the requirement, identifying suppliers ‘and then driving delivery through to improved outcomes’.

Yet in a co-authored report Good Britain to Great Britain: Delivering world-class services for a world-class economy , Baker notes the ‘client-side’ is an area where public sector management has noticeably weakened in recent years. ‘Outsourcing has led to a ‘hollowing out’ of these capabilities,’ says the report. ‘Procurements are initiated too soon, before requirements are fully defined. Too much is abdicated to suppliers, or ‘strategic partners’, all too often ending in tears and recriminations.’

The public sector fails to understand that world-class sourcing has to bring together managers responsible for providing service with commercial purchasing teams, adds Andrew Cox, professor of business strategy at Birmingham Business School and chairman of Newpoint Consulting. Lack of commercial understanding in senior departmental managers and the low standing of purchasing functions means procurement is reactive and based on short-term power relationships. ‘This problem has not been addressed in any way by the Gershon reforms’, which have focused exclusively on the easy pickings, Cox charges.

The results of procurement failings reach far and wide. One is that the public sector has to buy its expertise elsewhere. Last week word leaked out that a US company is poised to take over responsibility for £4bn of NHS procurement. A month ago it was disclosed that global healthcare companies were being asked to tender to take over key commissioning functions from primary care trusts, spenders of 80 per cent of the NHS budget. Both would introduce a new layer of cost and profit into the system.

In IT, where ironically in the Sixties and Seventies the UK public sector was one of the most advanced users and managers, it is now so dependent on its suppliers for the specification of requirements that it can’t sack them even when it wants to. The dependencies have also resulted in some murky relationships, with suppliers recruiting public servants indecently soon after they leave office.

Finally, and paradoxically, the need to get results from public sector procurement in general and IT in particular has provided a bonanza for management and IT consultants, now worth more than £1bn a year. (For gory details read David Craig’s Plundering the public sector: How New Labour are letting consultants run off with £70bn of our money , Constable). ‘The public sector has bought a lot of poor-quality advice,’ concedes Baker.

In time, Baker believes the new departmental capability reviews will improve procurement skills. But there remains a deeper problem. As my colleague Nick Cohen has pointed out, the real reason behind the CSA’s accumulation of £3bn of uncollectable debt wasn’t hopeless computers: it was the naive bureaucratic assumption that a computer programme could resolve the messy, agonising drama of family break-up. Computers crunch numbers. Humans solve problems – including, and especially, transformational government.

The Observer, 30 July 2006

DESPITE WHAT they say – and often even think – many, perhaps most, companies are surreptitiously at war with their customers. Through nuisance games, dirty tricks and small print they take every opportunity to extract more from your wallet for no extra service. Orange now wants to charge me for providing a paper copy of my mobile phone bill each month. Rather than employ more staff, Tesco asks me to scan and check out my shopping myself. Despite earning a whopping pounds 21bn before tax last year, HSBC no longer allows me to use direct debits and standing orders on my ‘high-interest’ current account (high interest being strictly relative here).

Trivial stuff, you might think. But the consequences of this subterranean struggle are momentous. We don’t trust our service suppliers and are increasingly willing to drop them at the drop of a hat. Despite huge amounts spent on aids like customer relations management software, customer satisfaction levels are low and falling, and so is the esteem in which business is held. On the company side, that translates into more effort (to replace lost customers) for lower growth. More insidiously, the warfare often brings with it the dead hand of the regulator, as happened in financial services, building in bureaucracy and and in some cases holding back the growth of the market as a whole.

‘You can’t grow a business if you’re at war with your customers; you can only grow by treating people in a way that they come back for more,’ says Fred Reichheld, director emeritus of consultancy Bain, who has made a career of studying the economics of loyalty. Well, yes, it shouldn’t take a business school education to figure that one out. So why do so many firms go on doing the former at the cost of the latter?

The culprit, says Reichheld, is the profit-based system most companies use to manage performance. Managers are judged and often rewarded on their profit figures. But financial measures make no distinction between how profits are earned. Are they the result of creating new value from customer relationships (‘good profits’ from increasing loyalty), or were they earned by appropriating value from them (‘bad profits’)?

The trouble is that customer value is a wasting asset. When it is exhausted and the consumer moves on, the firm has to buy more, with baits, promotions and special offers. Buying growth this way is expensive and hard work, which is one reason, believes Reichheld, why so few large companies grow by more than 5 per cent a year. As churn increases, they have to work harder and harder to stand still. Eventually, value may be eroded faster than companies can acquire it. Compare General Motors, for example, with Toyota, going in the other direction.

So how does a company focus on ‘good’ profits and break the addiction to ‘bad’? After much experiment, Reichheld and Satmetrix, a company that focuses on measuring customer experience, boiled it down to a single question: on a scale of 1 to 10, would customers recommend the product? Customers who rate the product 9 or 10 are ‘promoters’ those who rank it 0 to 6 are ‘detractors’. Subtract the percentage of detractors from the percentage of promoters and you get a ‘net promoter score’, or NPS.

NPS is controversial, because it puts any number of vested interests out of joint. ‘It’s not something over there in the marketing department,’ says Reichheld. ‘It involves changing almost every process – budgeting, strategy, rewards, the economics of the firm.’ It has implications for leadership too: any company taking it seriously really does have to put the customer in the driving seat, in effect turning the company inside out.

It’s early days, but the figures seem to stack up. According to Reichheld, across 36 industries the company with the top NPS score is growing 2.5 times faster than the average. Obvious really: a company with, in effect, an virtual marketing department of consumers advocating its products is likely to sell more stuff than a company with a virtual anti-marketing department, which is what detractors become. It will surprise no one that in a recent Satmetrix report on hi-tech industries, Apple had the highest NPS among computer firms, as did Google in online services. While the top companies have NPS scores of 70 or more – in the US Harley-Davidson scores 81 and Amazon 73 – in some industries (financial services, mobile phones and cable TV among them) the scores are negative, meaning they are creating more detractors than promoters every day.

Reichheld acknowledges ‘there is still more that we don’t know than we do’ about making NPS operational. It could become just another number to manage by. But one company taking it seriously is industrial giant GE. It has adopted it as a central element of its ambitious attempt to grow at above 8 per cent a year and is using it to identify customer concerns before swinging in process improvement teams to address them, and are already claiming substantial results. It stands to reason: as in other spheres there are no long-term winners from fighting, while everyone gains from peace.

The Observer,

BORDEAUX WINEMAKERS have never had it so good. After a ‘legendary’ 2000 and an ‘exceptional’ 2003, last year they won the equivalent of a rollover jackpot. With perfect weather and growing conditions and radically improved techniques, many top chateaux made what they claim to be their best wines ever. And they are charging prices to match – double or sometimes treble their already exalted norm. Thus, a case of top-flight 2005 Bordeaux will set you back at least pounds 4,000 and sometimes much more. Chateau Haut-Brion is asking pounds 4,500, Chateau Cheval Blanc pounds 5,250, Chateau Ausone a staggering pounds 7,500 – that is, pounds 600 or more a bottle for wine that is still in cask and which no punter would dare to taste for another 10 years.

On the other hand, Bordeaux winemakers have never had it so bad. At the bottom end, many growers are in serious trouble, according to the Bordeaux wine trade body, whose president resigned in May in despair at the chronic failure to reduce the oversupply of basic wine that is at the heart of the problem. Many growers are refusing to sell at current price levels. While they want more cash to tide them over, the EU is determined to drain the wine lake – the result of worldwide overplanting – and stop a regime of subsidies and ‘crisis distillation’ that costs European taxpayers euros 1.3bn a year.

The Bordeaux nobles seem little concerned at the plight of their inferiors. Why should they be? The famous chateaux are among the original global brands, with histories dating back to the 18th century and international connections way beyond that (Bordeaux vineyards have some claim to be the first British subsidised industry; the city took the English side in the Hundred Years War). Production is tiny, and great Bordeaux is at the top of the wish list of the new rich in every emerging market, with China and Russia currently to the fore.

Yet if the blue bloods aren’t worried, they should be. Brands are as fragile as they are powerful. And the first cracks in the myth have begun to appear. Bor deaux’s own guru, the US critic Robert Parker, whose systematic rankings have done much to reassure consumers and collectors and consolidate the Bordeaux cult, has laid into the ‘aristocrats of the Medoc’ over the pricing of their 2005s.

By setting their prices with an eye to getting one up on their neighbours rather than the interests of loyal consumers, ‘they may well be killing the golden goose’, Parker charges. US buyers are staying away in droves, criticising ‘insane’ prices. The Bordelais are also taking hits from friendly fire. The resigning president of the Bordeaux trade association complained that ‘unless the fundamentals change, the crisis will not go away. We are wasting the opportunity that a great vintage like the 2005 has given us.’

Winemakers in the Languedoc, who have already resorted to violent protest, have accused the Bordelais of ‘twirling their moustaches’ while others bear the brunt of the crisis. Perhaps most damaging has been a high-profile comparative winetasting of mature vintages of famous US and French growths. The replay of a celebrated 1976 tasting comparing younger vintages, it was widely expected to favour the French. In fact, US growers swept the board.

Such has been the hype that Bordeaux chateau owners will certainly sell their 2005s. But as they congratulate themselves on the cash rolling in, they might look at the trajectories of two other luxury industries that compete for the dollars of the new rich – flashy watches and exotic cars. Both demonstrate the folly of imagining that the top end of an industry can survive on its own.

Company after company on the run from low-cost foreign competition believes it can survive by retreating upmarket. (This is the whole story of UK manufacturing since the war.) But where are they now, Rolls-Royce, Bentley, Aston Martin or any other luxury marque? All owned by much bigger mass-market companies. The most successful top-end brand is Toyota’s home-grown Lexus, the embodiment of everything the world’s most effective manufacturer has learnt in half a century of making cars.

An even better analogy may be Swiss watches. In the 1980s, the Swiss were crumbling under the assault of Japanese digital manufacturers. What saved them was the invention of the Swatch, a pert, hi-tech, low-cost design whose success prevented the Japanese from cleaning up at the low end and devoting the profits to eating into the top, a la Toyota. It also ensured the survival of the Swiss watchmaking infrastructure and specialist skills which are the basis of Swiss cachet.

In winemaking the competition is not Japanese. But the Chinese and Indians are planting acres of the best grape varieties and – before you laugh – a respected wine expert predicted recently that in 20 years they would be doing to western winegrowers what their industrial counterparts are to electronics manufacturers and software firms. Never mind today’s prices: it’s time for Bordeaux’s top winemakers to recognise that their fate is inextricably bound up with that of their lowlier brethren. There’s no economic liberty, you might say, without equality and fraternity too.

The Observer,16 July 2006