SIBERIA IS huge, empty and inhospitable – a five-hour plane ride from Moscow in a battered 1970s Tupolev gets you no further than the wild central republic of Khakasia: population 600,000 average yearly temperature, zero Celcius. It seems an unlikely hotbed of new developments in a pounds 30bn world industry.

Yet nothing better illustrates the changing of the world’s industrial guard than the new Khakas aluminium smelter at Sayanogorsk, south of capital Abakan. Khakas, the first smelter built in Russia since 1985 and claimed to be the most technologically advanced in the world, is being built by Russians, using Russian technology, with Russian money. The pounds 375m investment is just a starter: even before this month’s merger announcement with smaller rival Sual, parent Rusal (for Russian Aluminium) had began a pounds 8bn expansion and modernisation programme aiming to almost double production to 5 million tonnes by 2013.

At a stroke, the merger, which includes the raw materials assets of Swiss metals trader Glencore and will be known as United Company Rusal (UCR), achieves Rusal’s aim of becoming the world’s Number 1 producer, overtaking long-time North American leaders Alcoa and Alcan. Given the company’s history, this is remarkable in itself. Only six years old, Rusal emerged as a joint venture put together by oligarchs Roman Abramovich and Oleg Deripaska out of the wreckage of the ‘aluminium wars’, a violent struggle for control of the industry in the mid-1990s. Its chief assets were four giant Soviet-era smelters whose size was offset by being run down, over-manned and an environmental nightmare. The captive workforce wasn’t just disaffected – it was dangerously mutinous.

But it would be a mistake to dismiss the company’s rise from nowhere as a triumph of dodgy finance and quantity over quality. ‘Becoming number one is good, but it’s all about quality,’ says director of strategy and corporate development Pavel Ulianov. As bold as the company’s growth goals, is its ambition to become Russia’s best-managed company and an employer of choice. This means playing a canny game on at least two levels.

The first is strategic and geopolitical. The largest cost element (at 30 per cent) in aluminium production is energy – which is why, as competition for energy sources hots up, the industry’s centre of gravity is shifting to the Middle East, Iceland and Siberia, which is blessed with clean and renewable hydropower. Energy will account for a third of UCR’s investment spend. Also vital is a secure supply of raw materials – alumina for smelting and the bauxite from which that alumina is refined.

Increasingly, aluminium production requires global scale. As Deripaska noted, the estimated pounds 15bn Rusal-Sual-Glencore deal creates ‘a truly global company’, with assets stretching from Guyana to Guinea by way of Australia and Europe, and substantially in energy as well as aluminium. In turn, that requires the company to raise its game in managing operations, and, particularly, people. ‘I used to believe we needed to breed ‘Rusal people’,’ says HR director Victoria Petrova, part of a young top team that relishes the idea of creating a world-class Russian enterprise. ‘Now I think diversity is more important.’

Alongside R&D and design capabilities, the group has set up a corporate university, professional ‘academies’ for functions such as HR and finance, and a medical institute. With 110,000 employees in 17 countries across five continents in the combined group, diversity now has a strong international element.

Just how far Rusal has come in international awareness is in evidence at the Sayaganorsk complex. On the walls of the spick-and-span plants are charts tracking production, quality and absence levels, while at the Khakas smelter, robots delicately stack aluminium ingots on pallets. Apparently at Deripaska’s behest , Rusal invited sensei (teachers) from Toyota to advise on production techniques. It now boasts a ‘Rusal Business System’ along the lines of the famous Toyota Production System which, according to Petrova, is removing swathes of bureaucracy as well as identifying novel ways of boosting smelter productivity. Although this has doubled since 2000 it still lags behind the best international standards.

In other areas, however, the company remains unabashedly Russian. It is proud that, having sacked the original international contractors, it is building Khakas using its own engineering and construction resources. The advanced processing technology used at the site is also self-developed. It had to be – foreign rivals refused to license theirs.

Less welcome – and its most obvious Achilles heel – is another Russian speciality of the 1990s less-than-transparent corporate governance and the potential for political influence. A flotation in London in the next two years – a condition of the merger – and Russian presidential elections in 2008 are tests that will be watched by investors and competitors alike. But assuming those hurdles are passed, have no doubts: it won’t be how the cold-war warriors were expecting it, but the Russians are coming.

The Observer, 22 October 2006

IMAGINE A company whose ultimate purpose is ‘the happiness of all its members’; has a written democratic constitution of which the above is the first principle; is a partnership whose members undertake to treat each other, customers and suppliers with respect, honesty and courtesy; and has just decided to pay its top manager no more than 75 times the average basic rate of non-management members – in effect reducing the theoretical maximum.

Isn’t such an entity too good for this cynical old world? Come on: business isn’t a democracy – if everyone had a say, how would anything get done? Similarly, a company can’t be nice to everyone and how will it attract good people with such an unworldly pay policy? Received wisdom says an organisation built on those lines would be squelched in short order by harder-nosed conventional rivals.

Well, prepare for a shock, or maybe a new definition of hard-nosed: John Lewis not only exists, it is kicking sand in rivals’ faces. The stores group has shed its staid image and reinvented both the supposedly passe department store and the supermarket for a more health- and fairness-oriented age. As well as growing physically – it plans 10 more department stores in the next decade and will soon have 200 Waitrose supermarkets – the partnership also runs fast-growing online operations for both divisions, and earlier this month launched a direct services outfit called Greenbee. No wonder the chairman began his presentation to the recent quarterly ‘council’ meeting (the partnership’s parliament) by congratulating partners on a ‘sparkling’ first-half performance.

With 65,000 partners and revenues of pounds 6bn, John Lewis has come a long way from founder John Spedan Lewis’s ‘experiment in industrial democracy’ set up in 1950. Human resources director Andy Street bristles at the idea of John Lewis as an amiable eccentric trading off its reputation as a national treasure. John Lewis has to be a better business than its rivals, he says, because of the conditions partnership imposes – final-salary pensions, for example, which alone among large retailers it has no plans to abandon (although the council has voted to raise the retirement age to 65).

Conversely, although the connection is hard to prove, the business model rests on the conviction that ‘partnership’ is what supercharges the retail performance. Fulfilled workers go the extra mile for customers, which makes for greater satisfaction and loyalty, and higher profits – part of which are then shared equally among the partners (in effect, 15 per cent bonus last year). ‘It’s a closed loop,’ says Street. ‘Co-owners behave differently… it all fits consistently together, which is why others find it hard to emulate.’

Pay is an essential part of the mix. Take top salaries, the formula for which has just been revised by the council after strenuous debate. It’s actually quite hard to make comparisons with other companies, since almost everywhere else top pay includes a huge variable element – which John Lewis eschews. But the 75-times maximum ratio for chairman Sir Stuart Hampson (a theoretical pounds 887,000, although he only made a basic pounds 650,000 in 2005) compares with 127 times for the UK as a whole, and 466 times for Tesco’s Sir Terry Leahy. No other major British company, maintains Street, has an explicit link between top and shop-floor pay, let alone one set by employees. As for making it harder for the group to attract talent (as some council members fret), Street claims the reverse happens: it puts off people who are motivated only by money and attracts those who want to work in the partnership model – so the spiral is self-reinforcing.

The group is now engaged in a conscious attempt to make the partnership principles even more central to day-to-day management. Customer satisfaction and profits are easy to measure, notes council member Anne Buckley, whose day job is ‘registrar’ – a kind of internal consultant on partnership best practice. For the past three years, an employee survey has attempted ‘to gauge performance on the partnership principles better’. As Hampson emphasised at the council meeting: ‘So often it is management that sets the agenda. The partner survey turns that around.’

It was always part of the founder’s aim to establish ‘a better form of business’, and with confidence high the partnership is, in its modest way, going on the offensive. One reason for growth, says Street, is to give more people the chance not just to buy from the partnership but to participate in and contribute to its more fulfilling business model.

That’s a brave aim. But success creates its own pressures. As Hampson also reminded the council, a business is most vulnerable when it believes it’s doing well. Part of the group’s surge is the result of the public mood catching up with the principles it has always espoused. Having survived modest obscurity, in the limelight, partners will be reminded of another partnership principle that they signed up to: that ‘they share the responsibilities of ownership as well as its rewards’.

The Observer, 15 October 2006

I ONCE TRIED to get entrepreneur publisher Felix Dennis to back the launch of a European management magazine. Ten pages into his book How to Get Rich , it’s easy to understand his lack of interest. For this weird, brash, compulsive, irritating and highly entertaining volume is best described as an anti-management, or more accurately an antidote-to-management, tract.

True to his promise, there is not a word of business jargon in it – ‘Who bloody cares about management?’ he exclaims at one point. Instead, there are exhortations, often in verse (usually his own – as he boasts, spending three hours a day writing poetry while sipping Chateau d’Yquem on Mustique is a privilege of the extremely rich), supported by an eclectic collection of non-business quotes (he is voraciously well-read), lists, and a stream of publishing anecdotes, autobiographical snippets and philosophical diversions. And that, gentle reader (as he would say), is about it.

Actually, I have no doubt that, despite his distaste, Dennis would have backed our project ‘in a heartbeat’, as he would also say, if there had been commercial value in it. He is nothing if not opportunistic. He has made fortunes variously out of kung-fu exploitation, computer and lads’ mags (Maxim outsells all rivals in the US), but also out of apparently lost causes he has obstinately upheld even when they gave other people heart attacks.

Thus, against dire warnings from his directors, he invested in a struggling, cheaply printed weekly news magazine with no ads called The Week. ‘You can guess the result. The Week is now the most profitable magazine I own in the UK. Pound for pound… it is the most profitable magazine I ever owned.’ Even more quixotically, he launched a US version which has now, he claims, reached break-even, although it cost him $50m to get there.

How much of a fortune? Between $400m and $900m (pounds 212m and pounds 478m) before tax, he says – not bad for a penniless hippy who was jailed in 1971 for his part in the Oz schoolkids’ issue, which was judged obscene. In short, there is method in the Dennis madness – and there is, too, in the book, once you get past the surface annoyances. The style, for instance. Short sentences with no verbs. Like this. Very wearing.

And you may wonder what the verse is all about as well, until you realise that, as he explains, ‘poetry forces a writer to condense and crystallise his thoughts and often represents a short cut to truths unsuspected by the author himself’.

Stripped of the woolly euphemisms of management, How to Get Rich is a sharp reminder of what entrepreneurial capitalism is about: the scary, exhilarating business of multiplying money through new ventures, and in turn spreading the proceeds about (with tens of millions binged on rock’n’roll-style indulgences, he was particular good at the latter).

Getting rich this way requires insane determination and self-belief, coupled with relentless emphasis on execution (rather than a great idea) and a rigid refusal to give away a single point of ownership (‘Ownership is not the most important thing. IT IS THE ONLY THING THAT COUNTS’). Cleverly, Dennis realises that, unlike him, most people are not primarily motivated by money so you can hire smart people to make you rich by being generous with the things that turn them on: good pay, opportunity, a great place to work, start-ups to launch – and a ringing send-off when they depart for pastures new.

This is not rocket science. In fact, ironically, it corresponds with the findings of some, dare I say it, good management books. But, despite Dennis’s exhortations, that doesn’t make it easy. Just how not easy becomes clear in some extraordinary passages on fear and luck, the sentiments of which would do justice to one of Dennis’s heroes, that most anguished and terrifying blues singer, Robert Johnson. Luck helps – but not if you seek it. Fear of failure, Dennis believes, is the single greatest impediment to getting rich. But in the face of the certainty of death, why should anything else matter?

‘If you want to be rich you must make a pact with yourself about fear… You cannot banish fear, but you can face it down, stomp on it, crush it, bury it, padlock it into the deepest recesses of your heart and soul and leave it to rot.’

In his heart Dennis must sense that few people can resolve the Catch-22 at the heart of his proposition. You can only get rich if you really, really want it. But if you really, really want it, you are liable to forget that getting rich is a game, a game you can only win if you treat riches as if they didn’t matter – otherwise you destroy the fragile things that made you want to be rich in the first place.

The rich really are different.

Dennis apparently wanted to call his book How to Get Rich (But it Won’t Make You Happy). Did his publisher persuade him that was too negative, or was it his own realisation that it’s something everyone has to find out for themselves? Either way, his book may not succeed in making other people rich – but I bet it adds to his mighty pile.

The Observer, 8 October 2006

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.