WHATEVER HAPPENED to joined-up government? One of New Labour’s favourite mantras when it came to power, it dropped out of the lexicon in the second term. This is perhaps understandable, since there is precious little of it about. But that, too, is not surprising, because the management methods the government favours make joined-up anything almost impossible to achieve.

Joining things up implies looking at elements of a problem as part of a whole – a system. Since ultimately everything is part of other bigger systems, systems thinking poses problems of delineation (at what level to tackle the issue) andof measurement (how best to measure performance of a system, the NHS, say).

But if concentrating on parts of the problem initially seems easier, it always ends in tears, adversely affecting the system as a whole, raising costs and making it harder and harder for managers to see the link between causes and effects.

A perfect example in microcosm: according to a Nuffield Review, students going to university increasingly struggle with work that requires them to think independently or make connections between narrow areas of study – when called upon to show joined-up thinking, in other words. Because of excessive emphasis on modular courses, results and league tables, students are taught to pass exams, not to think for themselves.

‘Learners who may have achieved academic success by such means at A-level… are increasingly coming into higher education expecting to be told the answers,’ the review says. Passing exams has become the unspoken purpose of the system. Ministers boast that results are improving but ignore the purpose of the system as a whole: preparing students for adult life as thinking, connecting beings.

Again, from a systems viewpoint, there is no mystery about the state of the NHS. How can the organisation be simultaneously meeting all its performance targets and in financial crisis, despite absorbing record amounts of money? Because, in the absence of a systems view of improvement, performance goals can be met only at the expense of missing others, in this case financial ones. The lack of overall systems improvement has been disguised by the high spending. But now that is tailing off, better financial and operating performance can only be achieved through method, which the NHS doesn’t have.

NHS trusts have become good at ‘passing exams’ (hitting targets and pass ing inspections), but the casualty is the system as a whole. Some interesting systems work is going on within the NHS at the level of individual trusts, with encouraging results, but these are exceptions, in part because it involves downplaying, at least temporarily, the targets that are the chief feature of the regime, as well as the cause of the failings.

The third, even more devastating, example of failure to see things in joined-up terms is pensions. Leave aside for the moment the unintended results of the Chancellor’s decision to do away with the advanced corporation tax break, thus triggering the initial panic. That pales into insignificance compared with the consequences of the regulatory and other changes that, in the name of greater precision, have caused companies to calculate pension liabilities in terms of the yields on long-dated gilts. This simple change has set in motion a classic case of Goodhart’s Law.

To remind you, Charles Goodhart was a chief adviser to the Bank of England who observed that as soon as governments tried to regulate a category of financial assets, it could no longer be relied on as an economic indicator because the institutions just invented new kinds of assets. In other words, the minute a measure is used to manage by, it ceases to be useful as a measure. It can be one or the other, but not both. Turning gilts in effect into both target and measure was asking for trouble, which has duly arrived. Supposedly to reduce risk and match assets more closely with liabilities, companies have sold equities and poured money into gilts, which has had the perverse effect of raising prices and depressing yields, nominally increasing, not decreasing, their pension deficits.

The only systems that really turn government on are IT ones, whose importance it vastly over estimates. Organisations are remodelled around flashy IT systems that usually institutionalise the disjointed present arrangements, optimising parts of the system at the expense of the whole. One example is the 100 or so shared-service operations being planned to carry out the public sector’s routine back-office functions on a smaller scale are call-centres mandated to take customer calls for the police, ambulances and other services. The idea was that people answering phones would clear others to do real work. But without system measurements, this just moves work from one place to another, adding a layer of cost in the process.

New Labour was right in 1997 that joining up public-sector management was its biggest challenge. Unfortunately, in 2006, it still is.

The Observer, 26 February 2006

BUSINESS OUGHT to be a natural for reality TV. There’s drama, high stakes and issues that affect everyone on the planet – and that’s before you have to choose between hating or fancying the participants. The fact that there is currently almost nothing on the box that makes the business world seem either interesting or comprehensible both increases the opportunity and makes it more important to get the formula right.

So it’s a pity we’re stuck with the travesty of The Apprentice , the second series of which kicks off on Wednesday. A surprise hit for BBC2 last year, the programme, fronted by the irascible Sir Alan Sugar, comes up in its second manifestation with much the same ingredients as before, only more so: the same gabby, over-assertive young men and women in power suits competing to complete a series of business-related tasks, the same catch phrase ‘You’re fired’ greeting one of the 14 candidates at the end of each episode.

After the 12 tasks, in case you missed the first series, the last one standing is taken on as Sugar’s apprentice at a salary of £100,000. This time, however, the main programme will be accompanied by a follow-up, perhaps inevitably called You’re Fired , an interview with the sacked candidate, while a website will offer programme repeats, clips and videos of auditions.

The problem with The Apprentice is not, in its gruesome way, watchability – there is a certain grim satisfaction in seeing insufferable candidates getting their comeuppance after having tried to rat on fellow team members, and in marvelling at the depths of humiliation they will undergo for the chance of that £100,000.

The trouble is the relentlessly reductive and trivialising view of business that it puts forward. True to form, the first episode shows the ‘girls’ team tarting themselves up to persuade market traders to give them free fruit and veg etables to sell, and the ‘boys’ simply descending to the hard sell. Many of the 12 tasks seem to involve buying and/or selling: nothing wrong with that, except that in The Apprentice the qualities favoured seem to be the gift of the gab, smooth patter and manipulation. Success is putting one across on someone else rather than a straight, tough deal.

The usual line of defence to this is, where’s your sense of humour? It’s only a game. But this is undercut in a number of ways. First, as Sugar himself grimly counters, it’s actually not a game, and £100,000 is there to prove it. Second, the spin-off book from the series (subtitled How to Get Hired, Not Fired ) purports to distil the lessons of the experience ‘to show you how to become a success in business and test your stamina and leadership potential’: in other words, it does have a real-life application. (In fact this is false: while apprenticeship suggests learning, craft and a body of knowledge, the only learning in the programme is about how to avoid responsibility for failure, collect as much credit as possible for success and scheme rivals out.)

Finally, as Lynn Barber put it in a witty interview in this paper, if it’s a game, it’s a pretty counterproductive one: the world it presents is ‘so cut-throat, joyless and frightening’ that it’s hard to imagine any young person wanting to have a part of it, let alone work for Sugar, if it wasn’t for the cash prize.

The point is not that business isn’t tough or stressful or competitive of course it is, as anyone knows who has made a pitch to venture capitalists, faced a tough interview panel or been dressed down for failing to meet demanding sales or production targets. But all business, even the most cut-throat, is a mixture of competition and co-operation. This version, focusing relentlessly on individual greed and ambition, has space only for temporary tactical alliances that dissolve in recriminations and accusations when mistakes are made. Winner takes all, the team is destroyed. The Apprentice offers a crude, brainless version of business in which success is down to individual plausibility and pleasing the boss rather than learning and teamwork, as in a real apprenticeship.

If this seems excessively PC, consider a more insidious objection. Because of their real-world effects on actions and decisions, assumptions about business and human nature can easily become self-fulfilling. If you expect people to be opportunistic schemers and treat them accordingly, opportunism and scheming are thereby legitimised and that’s what they learn to be. The reverse is also the case: assumptions of trust and co-operation tend to legitimise more of the same. So assumptions matter. The Apprentice is a good example of the self-fulfilling process at work, both within and between the series. Thus, people have learnt that success is about outcompeting the others at scheming and being opportunistic in pursuit of £100,000 The Apprentice provides a course in doing just that – and in the end the biggest asshole wins.

Business doesn’t have to be like this, and neither does reality TV. If indeed it’s what business is about, then programmes like this bear their responsibility for making it so.

The Observer, 19 February 2006

WHEN TONY BLAIR, David Cameron and the Department of Health all want a piece of the same action, cynics start to wonder. When the bigwigs in Davos jostle to get in there too, wondering turns to suspicion. Can ‘social entrepreneurship’ really be the white hope for British health, bringing water to Third World slums and alleviating world poverty?

For once, the cynics may be wrong. Olivier Kayser, the European head of Ashoka, an organisation whose founder Bill Drayton pioneered the idea of social entrepreneurship 25 years ago, believes that any indication that official thinking is catching up with reality is welcome. There is a ‘small risk’, he concedes, of governments promoting a tame or ‘lite’ version of the concept which would relieve the idea of its revolutionary ambition and reduce it to a purely economic remit. But ‘the train is rolling’, he says. ‘It doesn’t depend on governments or the public sector, and it’s not going to stop.’

What is social entrepreneurship? ‘Inspired pragmatism’ is one answer. Its is perhaps best captured by Ashoka’s version of economic history. In this narrative, business discovered entrepreneurship with the Industrial Revolution, triggering huge economic growth but also a growing gulf with the rest of society’s activities. The social sector remained untouched by entrepreneurship because it was sheltered by government as a monopoly tax gatherer and service provider. Hence the growing contrast between the dynamic the private sector and the sclerotic public.

In about 1980, the gulf between the two became too wide to bear. The logjam broke, entrepreneurs emerged who had learned the system-changing power of new product and delivery ideas combined with a variety of incentives, and a wave of entrepreneurship began to transform the competitiveness of the non-commercial parts of the economy.

The unsung story is that the not-for-profit, third, or social sector, as it is variously known, is rapidly catching up on corporations in productivity and sometimes surpassing them in creativity. It is seeing explosive growth. A John Hopkins University study of the economies of 26 countries in 2003 found that in the mid-1990s the non-profit sector accounted for $1.2 trillion in expenditures worldwide, employed 31 million full-time equivalent workers (nearly 7 per cent of the non-agricultural workforce) and was growing fast – throughout the 1990s non-profits were taking on staff at more than twice the rate of the economy as a whole.

Social entrepreneurship claims many of its greatest successes so far in poorer countries where social needs are greatest. The idea of micro-credit developed by the Grameen Bank and its founder Muhammad Yunus (who sits on Ashoka’s world council alongside the likes of Rajat Gupta, ex-managing director of McKinsey, and Sir Shridath Ramphal, formerly secretary-general of the British Commonwealth) is one such. So is Aravind Eye Hospital in India, which carries out 220,000 cataract operations a year, two thirds of them free. Aravind runs the largest and one of the highest-quality cataract operations in the world – and it comfortably covers its costs.

But the power of these ideas is such that their influence spreads much further than the locality where they were born. Thus Aravind’s innovative methods and processes are beginning to change healthcare economics in the richer world. A cataract sufferer in Britain could spend a leisurely week in India and have the operation for less than a private operation at home. David Green, the social entrepreneur who helped develop Aravind, is now engaged on a project that will similarly undercut the exorbitant price of hearing aids. Meanwhile, micro-lending has been adopted in the US and UK as well as in other parts of the developing world.

Now many people believe social entrepreneurship’s time has come in the rich nations, where fresh thinking is badly needed to find solutions for intractable social ills: the French suburbs, physical regeneration and environmental pressures are a few examples among many. New Labour has been quick to spot the political possibilities in the sector. While farming out provision of health and education services to the profit-making private sector is viewed with hostility by much of the population, not-for-profits are another matter. A sign of the times: NHS nurses in Surrey have been encouraged to form a non-profit company to sell services to the local primary care trust and the Department of Health recently set up a ‘social enterprise unit’ to help others do the same.

Kayser accepts that as the third sector expands, it will run up against competition from companies that will not necessarily welcome new entrants on their patch. ‘But we absolutely welcome it,’ he says. ‘We’re entrepreneurs, and entrepreneurs intuitively understand innovation, change and risk.’ Social entrepreneurship is about systems-changing ideas, wherever the repercussions may lead.

The Observer, 12 February 2006

IT IS A funny old game, although some might use another metaphor. Is Sven a great manager, an OK one, or, to use a technical footballing term, a turnip? Is he really worth pounds 4.2m a year? Or one tenth or even one hundredth of that?

The final judgment can only be posthumous, as it were. But even if England win the World Cup – more likely than Eeyore winning the Derby, but probably not much – it will not erase the memory of a number of distinctly ungreat moments along the way. No one comes out of the Sven-Goran Eriksson affair unscathed, and its gamey combination of cupidity and indecisiveness, laced with media tack, makes it an unattractive microcosm of the game as a whole.

The tactics of the News of the World are external to the FA and outside its control. Not so the greed and indecision off which the media feed. It’s significant, says Professor Christine Oughton, director of the Football Governance Research Centre at Birkbeck College, that FA action about Eriksson’s future came only after the second round of revelations alleging corruption in transfers, which directly concerned the great and the good of the Premier League, not the remarks about players, even though the latter are more damaging to the team.

The slow-motion reaction is in part the result of the unwieldy representative structure and blurred responsibilities and functions that characterise the FA as a whole. ‘Because of its institutional structure, the FA finds it hard to make decisions quickly,’ says Oughton. In fact, despite the high-profile (and high-salary) nature of Eriksson’s appointment, a similar sense of ambiguity and evasiveness pervades the entire employment relationship, as summed up in its curious ending. After all, Sven would almost certainly have gone after the World Cup anyway, either in a blaze of glory if England won or with ‘a thank you and goodbye’, as he put it, if it didn’t.

It’s hard not to see this as a cultural mismatch from the start – and one that is regularly replayed on the pitch. ‘English players prefer strong leadership and clear direction,’ says Chris Brady, professor at Cass Business School – and a former professional footballer. ‘That’s why they like 4-4-2: it’s clear and unambiguous. Why does [Chelsea coach] Jose Mourinho do so well in the Premier League? Although most of the Chelsea players are foreign, Mourinho works through John Terry, the captain, and Frank Lampard, who drive the team. It’s a perfect fit for the Premiership.’ Eriksson’s core relationship, however, is not with Terry or Lampard, England players both, but with the less forceful David Beckham. His style – ‘good organiser, nice guy, the players like him’ – is more consensual and less directive. This approach has much to commend it for a season-long league campaign. Indeed, Eriksson’s book, On Football (Carlton), puts a welcome and all too rare emphasis on that under-used footballing organ, the mind. ‘I spend a lot of energy taking the aggression out of my players,’ Eriksson says. ‘All a player has to do is begin to argue with the referee, play dirty or quarrel with the opposition for there to be a danger that their performance will sink like a stone.’

He talks of taking time to build relationships and security, eliminating performance anxiety and creating resilience. The approach won an Italian league title for Lazio in 2000 – albeit at the second attempt and with resources that would have pleased Mourinho. But managing qualification is not the same as the short, sharp shock of the knock-out phases. Players vying for glory are motivated differently to those playing for bread and butter in the league – and require similarly different management. This is like project management: high pressure, end-dated, with clear targets. ‘In this context and despite the conventional wisdom,’ says Brady, ‘the manager has great power and can be quite ruthless – provided the players believe they can win under his leadership.’

This, alas, is where the real damage has been done. At a quick count, Eriksson will have earned about pounds 14m (net) on his five-year England watch, a salary that a FTSE 100 chief executive would be proud of, even without a payoff. In these circumstances falling for the ‘fake sheikh’ set-up makes him look naive and greedy. But compromising himself is one thing to criticise the players to an outsider, even a bogus one, is to undermine the bond of trust and confidence that he spends much of his book promoting.

‘He may be technically right when he says it didn’t mean much – it’s hardly earth-shattering that a player is unhappy or lazy – but after that are they going to give him everything when it really matters?’ asks Brady. ‘It’s either all in the mind or it isn’t – he does seem to believe that he can have his cake and eat it too, and he wants us to agree in the bargain.’

It’s a flawed end to a flawed beginning. But despite the hype it was unlikely to be otherwise. Poor governance on one side and lack of straightforwardness on the other do not make a winning recipe, on or off the pitch.

The Obser, 29 January 2006

FEW MANAGEMENT books genuinely shock. Those that do begin with a quote by Baudelaire, end with a graphic account of a post mortem, reference Spinoza and Cicero and can easily and profitably be read in an afternoon. They could only be the work of one person, whom aficionados will instantly recognise from the description as the Dutch writer Joep Schrijvers.

Schrijvers’ world is The Office rewritten by Leonard Cohen – an annoying but addictive mixture of black humour and clammy pessimism that can’t be removed from the mind. So far as I remember, his first book, The Way of the Rat: A Survival Guide to Office Politics , didn’t actually contain corpses, but it did stick the knife into the body of many cheery writings on organisation. Proving that gloom is good, it also sold 150,000 copies. His latest, The Monday Morning Feeling , is another gloomily entertaining disquisition, this time on why so many people are so unenthusiastic about their work.

Of course, there is no shortage of books on employment and its discontents. But there’s a curious stasis about them. The tone is always earnest and exhortatory: change, competition, globalisation are inevitable and we should meet them head on employers should promote the HR agenda and work/life balance out of enlightened self-interest we should all work for a more human workplace. In short, we all can and should do better.

Schrijvers pokes merciless fun at such simple-minded optimism. His position is simple. Every work day is Monday. The basic problem with work, particularly working with others, is that a lot involves suppressing the elementary drives we have inherited from our evolutionary past. However much we try to be rational, we are actually ‘drive-driven’: in a deep psychological sense, we don’t want to be there or do what we are supposed to. Hence the malaise, headache, nausea or just inability to get out of bed.

This being the case, all the usual remedies for the condition are like trying to teach a pig to sing: pointless, and annoying to the pig. In a section called ‘Ludicrous Therapies’, Schrijvers skewers them one by one: the incantations of self-help guides that destroy people by assuming perfectibility and making them implicitly responsible for their own discomfort bureaucracy that promotes the illusion rather than the reality of control the ‘fairytale’ of the new spirituality and the attempt to humanise the company, which just makes matters worse by raising expectations that are impossible to meet.

Like eating nothing but marshmallows, an unalloyed diet of Schrijvers’ almost parodic dark view would drive you mad. But fortunately the book is brief and in any case he has anticipated this objection. If you suddenly think ‘Things aren’t as bad as this’ and throw the book across the room, that, he teases, is part of the diagnosis and purpose. ‘For nothing comforts and revives better than the awareness that things can be a lot worse. That is the knowledge that this book offers.’

The blurb about Schrijvers says he has worked as, among other things, a consultant. Reading the book, I wondered at first what kind of consultancy that could be – assisted corporate suicide, perhaps? In the end, however, an injection of the relentlessly downbeat ends up being energising. By clearing out some obvious (and not so obvious) idiocies, Schrijvers obliges you to think about more promising avenues. Thus, if ‘work is nothing more than work’, forget about the ‘culture change’, ‘people initiatives’ and ‘transformation programmes’ that so enrage employees and eat up time and energy, and concentrate on the organisation of work. That’s quite a positive thought.

At a different level, ‘the Monday feeling’ seems a more likely explanation for Britain’s productivity shortcomings than the economic equations used by the Treasury. It’s well known, for instance, that the results of the local football team have as much immediate effect on productivity as investment levels that UK workers notoriously lack ‘voice’ in the organisation of work and that British managers are highly prone to all the delusions that Schrijvers so diligently punctures.

If The Monday Feeling shocks, the effect comes not from the grisly ending on the mortuary slab but from the bleakness it dissects in the assumptions that underpin so much of corporate behaviour, and the way they play out not just in the workplace but in life. Lots of people will reject everything it stands for, at least in public. But that’s a start. Because the other revelation is the triviality, tedium and numbing length of almost all other business books. That’s a shock, too.

The Observer, 22 January 2006

THE SPECTACLE of British companies queuing up to renege on their pension obligations – foaming at the mouth over the government’s unwillingness to do the same – is not only deeply unappealing, it is also nature’s way of saying that there’s something mortally wrong with modern shareholder capitalism and the way companies are run under it. In Anglo-Saxon capitalism, isn’t accumulating value for shareholders, of whom pensioners should be at the front of the queue, what companies are for? And what executives are more than handsomely paid to achieve?

Of course, there are other culprits for this entirely self-manufactured crisis. The decision of Mr Prudence, Gordon Brown, to end the ACT tax break, thus giving companies the excuse to exploit a short-term stock market plunge and move straight from pension holidays to pension funerals, now looks like the most reckless economic bargain of modern times. Actuarial calculations are an art, not a science. Having ignored the problem of ageing for decades, the profession has now bounced itself into the opposite frenzy of overcaution. Regulation after the event makes life more difficult for the pension good guys, who now have to bail out the bad. Finally, current valuation methods are not ‘conservative’ a better description of snapshot valuations of liabilities that stretch decades ahead is ‘completely daft’.

Yet although outsiders have helped, companies needed little encouragement to pull the plug. Far from being an accident or a surprise, the pensions betrayal is the culmination of a long-term stealth project to transfer risk from the organi sation to the individual. In the name of shareholder value, companies first ditched long-term careers, then sotto voce, the commitment to employment in general. Once a last resort, undertaken only in emergency, redundancies are now for many companies the automatic first response. In this light, axing final-salary pensions is just the final nail in the corporate-welfare coffin. Job done.

Pensions are deferred pay, and as TUC general secretary Brendan Barber has noted, reducing pensions is a pay cut of a particularly blatant kind: although you wouldn’t guess it from the campaign that makes everyone else responsible, companies owe their pension funds at least £20bn in back contributions they elected not to make in the fat years. As late as 2004, when companies such as Rentokil were still basking in pensions vacations, FTSE 100 companies paid out a reported £39.5bn in dividends, compared with just £10.5bn in pension contributions.

So, who does benefit from companies’ worship of shareholder value? The answer is the financial services industry and top managers – the very people whose collusion brought us to this pass in the first place. It is an irony that the investment strategy of Warren Buffet and Berkshire Hathaway is the most effective. Their extreme patience and sumptuous returns exactly match the long-term needs of pensioners. Yet it is the antithesis of what most pension funds do.

Dominated by managers incentivised by shareholder value, company pension funds pursue a management-oriented agenda. The more costs and liabilities can be minimised and short-term investment performance maximised, the larger top managers’ pay packets. Likewise, fund managers’ bonuses depend on assets under management, the result of short-term performance. So they pressure managers to jack up share prices by every possible means – including slashing pensions.

While the pensions crisis is indeed real (except for directors, padded against the pain they are causing others by separate schemes – see table below), it is perfect nonsense to say that nothing can be done. Even investment professionals privately suggest that a government less in thrall to the City and the CBI could put a limit on dividends as a ratio of pension deficits or even – horror! – mandate a dividend holiday. Companies could reward long-term investors with higher dividends. And tax breaks could favour companies that shame the herd by continuing to show that there is an alternative.

To their credit, there are still a few. In his column in Real Business , John Timpson, the chief executive of the eponymous company, recently described sleepless nights when new valuation methods sent the group’s final salary pension scheme lurching into the red.

What was he to do? He duly found a way of keeping the scheme open for new entrants as well as existing members. The retirement age will rise, and it will cost ‘a tidy sum’ to fund the theoretical deficits. But ‘the extra contribution is much less than the pension holiday we enjoyed for 15 years… And when I present our pensioners with their retirement gift, I will be able to look them in the eye with a clear conscience’.

Top Ten Pensioners 2003

NAME COMPANY ANNUAL

PENSION pounds

J-P Garnier GSK 929,000

G Mulcahy Kingfisher 790,000

R Sykes GSK 729,000

N Fitzgerald Unilever 718,000

C Thompson Rentokil 690,000

C Gent Vodafone 662,000

R Wilson Rio Tinto 656,000

H Mogren AstraZeneca 597,000

B Gilbertson BHP Billiton 594,356

J Sunderland Cadbury

Schweppes 589,000

Average FTSE 100 director’s pension

2004: £167,000. Average occupational pension 2004: £6,400.

Sources: www.havingtheircake.com, TUC Pensionswatch2005

The Observer, 15 January 2006

Perhaps the most encouraging – and surprising – news for the environment in the past 12 months has come from the giant US corporation GE. Its product line of nuclear power, aero engines, coal plant and plastics hardly seems likely to endear it to environmentalists, with whom it has also crossed swords over chemical pollution (which it is now clearing up) in the Hudson river. Moreover, some of its largest customers are utilities, traditionally among the fiercest opponents of curbs on emissions of greenhouse gases.

Yet all the more reason to take notice of the company’s launch of an ‘ecomagination’ programme, charged with building sales of green technologies to $20bn by 2010. R&D in these areas, ranging from cleaner coal and power plants to fuel cells and wind turbines, will double to $1.5bn.

At the same time, GE says it will cut its own CO 2 emissions by 1 per cent by 2012, equivalent to a reduction of 40 per cent if it continues to grow as planned. It pledges to subject its performance, and ecomagination products, to an independent audit.

True, even $20bn is relatively small beer by GE’s standards: less than a seventh of last year’s turnover of $152bn. Even so, the symbolic importance of the move can hardly be overestimated. Never mind what George Bush thinks, the greening of the largest (by market value) and possibly hardest-nosed company on the planet surely signals the moment when global warming became as much of a business as an activist’s preoccupation. As Jeff Imelt, GE’s chief executive and ecomagination champion, says: ‘Green is green [ie, dollars].’

In bald terms, this means that environmental improvement now has the formidable management power of GE behind it – not to mention lobbying clout. As significant as GE’s internal decision is its call, along with a number of other major US firms, for regulation to force companies to take action on carbon emissions. ‘Tough regulation makes people play hard and compete hard,’ notes GE international president Fernando Beccalli- Falco. ‘We don’t mind regulation so long as it’s fair and everyone plays by it.’

Beccalli-Falco has an office in front of the European Commission in Brussels. GE is aware of European pressure for controls and has an important research centre in Munich. It is right that regulation will come in the end – at which point it will be in pole position to satisfy global demand for greener equipment. But it insists that the market is there anyway.

GE, says Beccalli-Falco, is both a technology company and a student of long-term megatrends. Combining the two, it was hardly rocket science to conclude that technologies for protecting the environment and minimising energy use could make money for both GE and its customers. Every oil-price hike and pollution scare in China just makes the reasoning more convincing.

Committing itself to cutting its own emissions was a similarly easy decision, because it helps GE meet internal targets for channelling operational savings into productive investment. In that sense, says Beccalli-Falco, putting investment, research and commitment into the environment was giving formal recognition to something that was happening anyway.

However, no one should underestimate the impetus that such formal recognition brings. On one side, managers will be held to those targets. On the other, in a call with analysts last December, Imelt spoke of the theme for 2006 as ‘go big’ – making sure that GE businesses got all the benefits and none of the drawbacks of the group’s vast size.

Not only global reach and technology, but also cast-iron financial status and ‘hardwiring’ its internal best-practice sharing processes would be used to build all of the businesses.

One example of ‘going big’: since 2001 GE has spent $60bn rebalancing its product portfolio away from financial services. ‘GE is 127 years old and aware that Darwinism is about the survival of the most adaptable, not the strongest,’ says Beccalli-Falco.

Is there a conflict between GE’s traditional pursuit of ruthless efficiency in delivering planned results and the requirement for inherently less predictable innovation? No, says Beccalli-Falco. On the contrary, the disciplines that GE’s internal processes bring are key to its ability to spread new thinking through its constituent parts and, counterintuitively, they make good ideas more likely to yield real results.

There is a limit to what one company can achieve. It is also the case that most of its effort remains outside ecomagination. Yet the endorsement of the environment as business by the world’s most formidable industrial company is worth more than all the world’s corporate social responsibility programmes. To rephrase the famous quote about General Motors: what’s good for GE isn’t at all bad for the planet.

The Observer, 8 January 2006

BINGE management is the phrase coined by Donal Carroll, of consultancy Critical Difference, to describe a debilitating condition afflicting much of UK plc. Symptoms include hypochondria, panic attacks, addiction to dieting and round-the-clock consumption of miracle remedies.

In management terms most companies are overweight and some obese. Almost all are unfit and sluggish, spending too much time and effort pushing paper and not nearly enough lifting weights in the gym.

Like human addicts, companies (and particularly their representative associations) have the unattractive habit of seeking to blame everyone else for their ills. But much of the condition is self-inflicted. Consider the analogy of regulation at the national level. The Better Regulation Task Force (BRTF), established in 1997 to lighten the regulatory overhead, estimates that regulation costs the economy around pounds 100 billion or 10-12 cent of GDP a year – about the same as income tax.

Of that, it reckons that 60-70 per cent is related to policy – improving health and safety, protecting the environment and so on – and therefore has benefits as well as cost. While there is always scope for improving policy-driven regulation by increasing the ratio of benefits to costs, the main opportunity for improvement lies in eliminating the substantial 30-40 per cent of regulation which is bureaucracy, ie waste pure and simple.

Shedding pointless red tape could free up 1 per cent of GDP for economic muscle-building, the BRTF reckons. There is a behavioural hit, too: just as losing weight allows individuals to lead a more adventurous lifestyle, so cutting regulation should produce a bolder, more entrepreneurial economy.

Industry has by and large welcomed the BRTF recommendations, while urging it (and the government) to do more. But there is plenty to do to bring its own addictive behaviour under control.

GE reckons that 40 per cent of its $150bn revenues are devoted to administration and back-office functions. In less efficient companies than GE the figure will be much higher. Firms, therefore, have at least as much to gain from displacing resources from bureaucratic to productive purposes as the economy as a whole. So what scope is there for adopting better regulation guidelines inside firms?

As the task force recommends in a recent paper, the overriding principle is ‘less is more’. The first thing is to stand on the scales, measure the flab and resolve to remove it. But experience tells that reflex reactions generally do not do the trick. Caution is in order – it is important that the remedy should not make matters worse.

In slightly differing ways, in both public and private sectors, one of the most insidious problems is what the BRTF calls ‘regulatory creep’ – the instinctive tendency of administrators to inflate the importance of the rule book and constantly invent new refinements to it. In universities, schools, police and the NHS, it’s not so much regulatory creep as regulatory sprint, as local managers enthusiastically embellish centrally set targets with their own variations and extra demands, as a result of which many professionals feel they are spending so much time accounting and managing that there is none left for the original task.

In companies, the phenomenon takes the form of new management initiatives raining down from on high with little explanation or consultation. According to management consultancy Bain, on average, companies currently have 13 major management tools in use. But these tools impose their own costs. Thus, companies’ attempts to downsize and outsource have shifted cost from the waist, as it were, but as usual where there is no method, it simply reappears on the thighs or bottom. Automating offices transfers employment from clerks to IT support staff more subtly, shunting customer service into robotic call centres offloads costs on to customers who extract payment through churn, ill temper and viral bad mouthing.

Similarly, lemming-like outsourcing, it is now clear, may have cut the cost of some activities, but the price is a ‘hollowing out’ of larger commissioning skills, so that many organisations have lost the capability to design, specify and project-manage solutions to their own problems. The cost is tears and recriminations and yet another remedy that falls short of expectations.

In the end, few tools turn out to be real management innovations. They offer no differentiation, since mass suppliers are prescribing exactly the same thing for competitors. They end up being just another cost of doing business: yet more management overhead or burden that, like the ageing population, has to be paid for by a smaller and smaller productive workforce.

In the short-term both public and private sector managers should take to heart the BRTF’s ‘one in, one out’ principle, under which every new rule intro duced should be balanced by another removed. The government has in principle accepted the recommendation, borrowed from the Dutch, although there is little sign so far of much effect on the ground. (In fact, it could be argued that the better regulation apparatus, consisting of simplification targets, plans and units in departments and regulators, is itself a net addition to the regulatory regime.) It is also sensible to cost the impact of new rules, rather than simply taking the benefits on trust, and consider non-regulatory alternatives. Finally, what is the worst that can happen if we don’t do this? As the poet Allen Ginsberg once wrote, ‘It’s never too late to do nothing at all.’

Weight control of all types comes down to concentrating on essentials, self-discipline and constancy of purpose. Rule books, hierarchies and multiplying management initiatives grow up to compensate for the lack of these things. At least in Ricardo Semler’s account, the culture at Semco, the Brazilian engineering firm, is so strong that it needs practically no rules at all. So let’s make 2006 the year of managing in moderation and ban the binge.

CAN it be ‘bah, humbug’ time again already? Every Christmas the appeal to our better nature serves to throw into ever more grating relief the mendacity, or at least deliberate ambiguity, at the heart of so many companies’ business practice – and this one is no exception.

Thus the boss of GNER admitted last week that it was hard to find cheap fares on the company’s website, adding coolly that it would take a year to make them more accessible. The next day British Gas was taken to task by the Advertising Standards Authority for a misleading ad campaign – for the seventh time in a year. Happy Christmas, suckers.

However, don’t think that this is just festive behaviour:

* A leading mobile phone company worked out that it makes two-thirds of its profits by not telling customers they are on inappropriate tariffs

* Don’t even try to pin down a ‘real’ air fare: airlines deliberately change their prices hundreds of times a day to make it impossible for you to find out

* Banks make much of their profits from extra charges on customers who overdraw – and have algorithms for paying in cheques that make sure they do so as often as possible

* Companies using 0870 or 0871 phone numbers for customer service profit from keeping customers on hold while they work their way through the dreaded automated answering systems

* Loyal customers are often worst treated, paying more for services than ‘rate tarts’ who switch every few months. Loyalty, in effect, is a mugs’ game.

The cynical may shrug, but that’s showbiz. Caveat emptor. As Groucho Marx put it: ‘The secret of success is honesty and fair dealing. Fake that, and you’ve got it made.’

Yet the long-term costs of the Groucho model of business are catastrophic. Some of the examples above are taken from a book out next year ( The Ultimate Question , Harvard Business School Press). In it Fred Reichheld, a senior consultant at Bain who has made a career of studying customer loyalty, graphically maps the differing effects of what he terms ‘good’ and ‘bad’ profits.

Good profits are self-sustaining because customers not only come back again for repeat purchases, they become advocates for the company – a virtual marketing department. Apple customers are a good example. Bad profits are the reverse. Instead of creating value for customers, behaviour like that above appropriates value from them.

But it’s a mistake to think that ripped-off customers are passive. They find ways of getting even that exert a huge toll on offenders. In a mirror image they become an anti-marketing department: an invisible army of detractors, each of whose negative comments typically cancels out several recommendations. Detractors complain more, make more calls on customer service and are a hidden drag on growth. They cost more and spend less. Angry customers depress employees, compounding the effect. And to neutralise their influence requires ever greater effort by the companies.

Figures in some industries – credit cards, mobile phones, cable TV and, sad to say, at least in the US, newspapers – are now so high that compa nies are having to pedal more and more furiously just to stand still. It makes the apocryphal customer-service director all too credible: ‘Our new automated ordering system has sped everything up: we’re losing customers faster than ever before.’

Statistician W.E. Deming said that the most important costs in business were unknown and unknowable. In this case it seems hardly coincidence that so many companies find it hard to grow consistently and so few provide a service that customers can be positive about. Yet very few managers are able to make the connection. The capacity for self-deception is stunning: while 96 per cent of directors responding to a Bain survey said their company was customer-focused and 80 per cent declared that they provided superior service, customers in other surveys rated just 8 per cent of the firms they dealt with as superior.

Bad profits are the result of short-term management by the numbers, aided and abetted by the notorious unreliability of conventional customer-satisfaction surveys. Instead, Reichheld proposes that managers should pay attention to a measure of, simply speaking, the ratio of promoters to detractors. Bain calculations seem to confirm that the relatively rare firms with a high positive ‘net promoter score’ have superior growth and profitability those with low scores – the vast majority – struggle to keep afloat, not least because their destructive tactics are generating as much negative as positive word-of-mouth advertising.

Reichheld’s analysis of good and bad profitability rings horribly true – and the next month will doubtless bring many new examples of the latter to the surface. But, as readers of this column may already be concluding, the difficulty will be putting the score into practice without depriving it of its integrity. If it is made into a target on which pay and prospects depend, the ‘net promoter score’ will cease to be a reliable measure, however persuasive the initial concept. When ‘making the NPS numbers’ becomes the end rather than the means, priorities are likely to become distorted and people lose sight of the underlying purpose.

The best companies intuitively understand that good service is not about loyalty programmes, satisfaction surveys or CRM, it’s about allowing customers to pull the value they need with the minimum of fuss and effort. If you provide that kind of customer service, you won’t need ‘customer service’ at all. And the NPS will, deservedly, go through the roof.

The Observer, 11 December 2005

ONE OF business’s quaintest boasts is that it lives in the real world. Actually, the world that it inhabits is a fantasy one: only in a dream could it endlessly consume its own natural capital and expect society to absorb the ever-mounting costs of its profit-maximising ways.

But real reality is beginning to intrude. On the day this column was written, in a discussion on the Today programme the government’s past and present chief scientific advisers agreed that human-induced climate change was the ‘the most serious challenge that humanity has faced in its history’. And the day of reckoning is approaching fast. Just one example: when Chinese car and paper use reaches US levels (no longer unthinkable), it will absorb all current oil and paper production.

Optimists suggest that technology will solve all that. Ultimately, however, the grim reaper in the shape of the second law of thermo dynamics trumps even free-market capitalism. So if capitalism is the problem, what is the solution?

Jonathon Porritt’s answer, in his chunky Capitalism as if the World Matters , is… capitalism. Capitalism, he admits, ‘is the only game in town’. Not only is there no time to conceptualise any other big idea, but in its most important institutions, companies and markets, capitalism possesses the only instruments that can credibly turn the situation around.

Porritt spends much time justifying this position, no doubt looking over his shoulder at his colleagues in the green movement. But it’s not as surprising as it looks. Although it’s true that industrial processes and consumerism have brought us to the present pass, some islands within it are already compatible with sustainable concepts. While ‘lean’ manufacturing, for example, is often portrayed as being about resource productivity (doing more with less – and there’s plenty to do here, given that 90 per cent of materials extracted for building consumer products ends up as waste), its real significance is that it reverses the demand cycle, the process only beginning with a customer order. It also works best with local sourcing and long-term relationships.

But the real point is a larger one. Capitalism is a system, albeit a sub-system of the biosphere as a whole. What’s key to its drive and momentum is not some metaphysical concept like the ‘free market’ or even the profit motive. It’s the ecology of capitalism: the dynamic, systemic interaction of markets and companies together, each obeying its own distinct logic, within the rules of the game. Companies compete to provide better solutions, markets decide on winners and losers and regulation decrees what success is.

Regulation is not some kind of foreign intruder in this process – a tiresome armchair umpire – but an integral part of it. Consider Formula One. The story of Formula One is intense technological competition within specifications laid down by a governing body. Each time an advance threatens to make races less competitive or attractive to watch, new regulations are imposed, driving further innovation. Like a sailing boat’s forward movement, innovation is driven by the twin pressures of competition (wind) and regulation (water) on the teams (keel).

It is hard to see organisations such as the CBI, to which Porritt unsurprisingly gives short shrift for its kneejerk rejection of all regulation, in the role of an F1 team, welcoming new regulation as a stimulus to innovation, leading-edge branding and new partnerships. In fact, it is an irony of the present situation that trade and employer associations find themselves in the parodic position of denying capitalism’s adaptability while progressives who have for years ignored this quality have turned into its most enthusiastic supporters. Writes Porritt: ‘What one suspects they don’t like is the idea that the self-same market forces that they venerate may well turn out to be the most powerful driver of change in our inevitable transition to a sustainable economy.’

It’s true that in this vision many large companies would be propelled out of their comfort zones, obliged by competition to focus much more on the dynamic processes of innovation than the static ones of collecting rents on their existing advantage.

But some leading companies have already made this step. GE is not a name that springs readily to environmentalists’ lips, but (crudely) its decision earlier this year that saving the planet was great business was more significant than the totality of corporate responsibility programmes to date.

Belying the whingeing of corporate pressure groups, companies like GE and some of the motor companies are now calling on governments to tighten environmental regulation to level the playing field and prevent rivals from free-riding on low minimum standards.

Naturally, this is in their commercial interests. But that’s the point. As Porritt emphasises, looking for significant results from corporate responsibility is pointless – it’s a distraction and a fig leaf (not least for governments) at best when the current rules of the game, entirely financially framed, make bad behaviour rational. As with F1, what’s needed is rules – comprising both carrots and sticks – that bend the purpose of the whole system to competitive innovation and make bad behaviour irrational. And only governments can frame those.

Just how far there is to go in this respect – and just how far governments lag behind the leading companies – was illustrated last week when the Chancellor casually tossed aside the requirement for firms to include an operating and financial review (OFR) in their annual reports. The OFR, in preparation for years, is just the kind of statement of long-term sustainability that is needed to complement the financial snapshot.

Despite its initial promises, bringing the government to sticking point on the environment will be tough. In the meantime, Porritt is right to emphasise the opportunities in sustainable development rather than the well-rehearsed Doomsday scenarios. As the environmental movement has learnt the hard way, proving that a course of action is wrong isn’t enough by itself to change anything.

Porritt’s book is a brave and important working draft for an essential positive alternative. It’s not always an easy read – but then saving the planet isn’t trivial either. As the distillation of unparalleled experience on the frontline and formidable reading, it is the best account of where we are now and how we might move ahead. He’s right that the world matters and right again that saving it requires us to recycle rather than throw away every scrap that we’ve learnt about managing companies and markets.

The Observer, 4 December 2005