JEFF IMMELT, chief executive of GE, laments that 40 per cent of GE consists of unproductive administration and back office work. He wants to halve that in five years.

Management consultancy Proudfoot calculates that on average a whopping 37 per cent of all working time is wasted – that’s equivalent to 7.5 per cent of UK GDP. A Mercer-Gallup survey finds that while 73 per cent of workers are ‘disengaged’ from their organisation, 19 per cent would happily sabotage it.

GE rates as one of the best managed companies in the world (hang on to that for a minute). Many lesser firms are so cluttered with waste and bad feeling that they can barely move.

Take General Motors, which last week announced a net quarterly loss of $1.9 billion. GM had already jettisoned its parts supplier, Delphi – which has just gone into Chapter 11 and is demanding drastic pay reductions from its 33,000 US employees.

Now GM is selling a controlling stake in its finance arm, its sole profitable business. It has also negotiated a $3bn reduction in healthcare costs with the trade unions.

But these can only win temporary respite. The truth is that both GM and Delphi are in a death spiral. Their real problem is not healthcare costs, the official excuse, even though the latter total $1,500 per car. It is a business model that ensures that for every car sold, GM realises $6,000 less in dollars than Toyota. In other words, even discounting health costs, GM is $4,500 per car less effective than its Japanese rival.

The responses are another twist on the downward spiral. Who would want to work for an outfit that demands pay cuts on one side while setting aside 10 per cent of its equity as a bonus for management when it emerges from Chapter 11, as Delphi has done? Whose only reaction is quarrelling with the union, like GM?

Never underestimate the power of disengagement. As an airline pilot noted with a malevolent grin when faced with similar cutbacks, ‘There’s no way they can cut my wages faster than I can raise their costs.’

As that suggests, the full-service airlines are also in a death spiral, and for much the same reasons. The fact is that the business model of GM, the legacy airlines, and indeed most of the world’s large traditional companies, is played out, knackered, off its perch – the Norwegian Blue of business models.

Consider GE. GE, remember, is the most admired, best managed old-paradigm company in the world. Its training is legendary, its top managers exceptional, its commitment to good practice unquestioned, the pressure to perform so relentless that the lowest performers are culled each year. So if this paragon is only 60 per cent productive, what hope is there for anyone else?

The Proudfoot 2005 international productivity report throws some light on this. It found that almost everyone was ‘busy doing the wrong things’ to raise productivity. Thus, while executives (and ministers) think it is all a matter of capital investment, in fact it’s much more important to get the most out of existing resources – eliminating wasted time, for instance. It’s management, stupid.

‘The tendency to exaggerate the importance of new projects… is also reflected in over-optimistic expectations of cost savings and productivity gains from offshoring [and outsourcing],’ adds the report.

The source of the ills can be narrowed down further. According to Proudfoot, three-quarters of the wasted time is down to poorly planned and managed work and inadequate supervision. Supervisors, Proudfoot found, were spending more than half their time on administration and non-value-adding activities all managers overestimate their effectiveness.

Proudfoot sees the answer as a better and more tightly operated command and control process. ‘Having a well designed and effective management operating system,’ says the report, ‘is the single most important change firms can make to improve labour productivity.’

Well, yes. Yet while there is undeniably scope to make existing conventional systems work better, GE’s experience graphically demonstrates their limits. Beyond a certain point, planning and command and control aren’t the solution – they’re the problem.

Ever more detailed budgeting, forecasting, planning and allocating are not only non-value-adding (think of all those management man-hours and complex IT sys tems), they are often value subtracting – for all the planning, GM spends too much time building motors no one wants to buy.

The tragedy is that there are perfectly viable alternatives. It took 25 years before anyone copied the successful low-cost, point-to-point model of Southwest Airlines (which pays its pilots 50 per cent more than some rivals).

No western carmaker has fully absorbed the lessons of Toyota, even though they’re hardly a secret. It gives competitors guided tours of its plants, for goodness sake.

When Toyota took over responsibility for GM’s plant in Fremont, California – a factory afflicted with world-class levels of drug and alcohol abuse – the same workforce promptly doubled productivity and quality, with no extra pay.

In complex human systems, autocratic control is an illusion. The only way of retaining control is to give it away, producing to real demand and placing decision-making on the front line, nearest to the customer. This is the case for service companies as well as manufacturers.

GM is probably past hope. But unless it can make the shift, even GE will struggle to bring its management overhead much below that crippling 40 per cent.

The Observer, 23 October 2005