CARBON trading is suddenly all the rage. As with number 10 buses, you wait for years, and all at once emissions trading markets are springing up all over the place. Three have come on stream in Europe since the beginning of 2005, and another three will start up in the next few months. Around them, a whole ecology of traders, consultancies, start-ups, newsletters and websites has come into being. Carbon trading is now an industry in its own right.

There have been false dawns – and wildly optimistic estimates of trading volumes – about emissions trading in the past. So will it be different this time? Hopefully not, is the answer. When the Kyoto treaty was signed in 1997, among the mechanisms it put forward to help developed economies reduce emissions cost-effectively was an international emissions trading scheme (ETS).

Under a ‘cap-and-trade’ arrangement, nations and companies are allotted fixed carbon allowances, which they can trade: buying, in the case of heavy emitters that can’t cut pollution quickly enough to meet their target selling, in the case of those that have surplus to their needs. In theory, the market mechanism rewards good behaviour, ensuring that improvements in emissions performance will be made at lowest cost and in the long term encouraging polluters to mend their ways.

When the Kyoto protocol came into effect last year, following Russia’s ratification, it ended years of uncertainty. ‘Ratification largely addressed the issue of political risk, and there has been an upsurge in interest from the investment community as a result,’ says Graham Meeks, director of policy research at Climate Change Capital, a merchant bank specialising in clean energy.

One upshot has been the establishment of the world’s first mandatory multinational carbon market, the EU ETS, which came into being this year. So far, volumes traded in Europe are small – around 500,000 tonnes a day, according to market analyst Point Carbon, most of which goes through brokers rather than the infant exchanges. The fledgling European Climate Exchange market, for instance, took 33 days to reach a total of 2 million tonnes. Even the larger figure is a drop in the ocean compared with the billions of tonnes of CO 2 the world pumps into the atmosphere every year, half of it through factory chimneys.

Predictions that one day carbon could be the most heavily traded commodity of all may be overdone. But from small beginnings, the totals are increasing fast. Today’s daily totals are the equivalent of a month’s trades in the pre-market phases last year.

Under Kyoto phase one, which runs to 2007, the EU is issuing permits for 2.2 billion tonnes a year. For the moment, says Point Carbon’s Bjarne Schieldrop, only a few companies have dipped a toe in the market. Small buyers and sellers are fewer and farther between.

However, that may be about to change. At around euros 20, double the price at the beginning of the year, the carbon price is certain to tempt more sellers. Banks and other financial institutions are gearing up to start trading, both as aggregators for small companies and as speculators in their own right. In the longer term, other countries, such as Norway, Switzerland, Canada and Japan, are thinking of linking with the European system. Despite President George Bush’s well-known hostility to all things Kyoto, even some American states, including Governor Schwarzenegger’s California, are considering the merits of the market. In this context, Point Carbon’s predictions of a 10 billion tonne, euros 200bn a year market hardly seem extreme.

So carbon trading may well thrive as a business. But will it succeed in its underlying mission – to cut emissions globally? Opinion is generally positive. ‘If it is underpinned by strict regulation it has the potential to be a good system,’ says Bryony Worthington, senior climate adviser for Friends of the Earth. ‘It corrects the situation where it’s cheaper to do the bad thing, and it rewards those that do good: a neat combination of stick and carrot.’

Optimists point to some encouraging precedents. Chicago’s market in sulphur dioxide has helped to cut US sulphur emissions from 18 million to 9 million tonnes since 1995. Meanwhile, the UK’s experimental Emissions Trading Scheme, now in its fourth year, has received an upbeat assessment from the National Audit Office. Globally, the scheme’s voluntary participants have overachieved their annual targets.

Also positive is the example of BP. Spurred by Kyoto, and breaking ranks with the rest of the industry, the oil giant introduced its own trading scheme for group companies in 1998, in effect the world’s first global ETS. In three years it reduced emissions by a fifth, nine years ahead of schedule. It also saved $650m in the process, in return for just $20m in outlay – an effective riposte to the standard industry whinge that tackling car bon will cost jobs and put companies out of business.

In the longer term, for firms to go beyond tactical manoeuvres – such as switching from carbon-intensive coal to carbon-light gas and buying permits – to substantial measures such as investing in energy-saving technology will require some further conditions.

At the moment, cautions Climate Change Capital’s Meeks, the market is simply not liquid or mature enough for lenders or companies to be sure the current market price for carbon is the underlying, long-term one. ‘Governments shouldn’t put too much reliance on current incentives,’ he warns.

That raises another issue. Phase two of the European ETS, guidelines for which will be discussed next year, lasts only until 2012 – far too short a time horizon for billion-dollar investment in power plant and other capital equipment. An A-list group of global businesses (among them Ford, Toyota, BA and BP) urged the G8 last week to put in place a long-term market mechanism similar to the EU scheme that would give them greater certainty about the future, pledging investment in return.

The third consideration is getting the caps right. If polluters are simply given the carbon rights to their existing emissions, to the extent that they can pass price rises on to customers or make easy tactical emissions savings, they are sitting on a potential windfall. In The Guardian recently, George Monbiot complained that in its present form, ‘carbon trading… rewards the polluting companies most responsible for the problem’.

This must not be allowed to happen, agrees FoE’s Worthington: ‘The market needs to be short.’ Many observers believe that because of frantic national lobbying, this time round the allocations have been too loose. As a matter of urgency, FoE wants to see proper regulation and a global ‘carbon inspectorate’, much like the nuclear variety, to ensure the markets are kept honest.

On the other hand, she is clear that bringing CO 2 on to company books is a crucial symbolic and practical advance. For once, companies agree. It turns climate change from an environmental issue to a business one – and, as BP’s Lord Browne remarked of his company’s successful trading experiment, a manageable one at that.

The costs of tackling climate change, he concluded, ‘are clearly lower than many fear’. The market makes it business’s business to prove it.

The Observer, 26 June 2005

BRITAIN, according to Napoleon, is a nation of shopkeepers, but are we falling out of love with our most prominent shops? The supermarket chains have been getting a bad press recently. A report by the New Economics Foundation has accused them (among others) of turning Britain’s high streets into clones. Consumers are starting to notice the lack of local produce and the disappearance of small local shops.

Reflecting more direct customer discontent, some of the chains – in fact all of them apart from Tesco and Waitrose – are in financial trouble for one reason or another (in striking contrast to the banks, for example, which are all raking in record profits). And despite repeated acquittals by the Office of Fair Trading, there are persistent rumblings from suppliers about exploitation and abusive tactics used by the retailers’ purchasing departments.

So far, the groups seem unwilling to see a pattern. Sure, customers punish retailers that run out of blueberries or baked beans. But that hardly dents the dominance over the shopping scene that they have built up over many years, economically, socially and managerially.

Economically, the retail chains are officially deemed to be ‘a good thing’. Their tight control over prices is credited with helping to keep inflation in check, and, despite the mutterings, the verdict of the competition authorities is that although smaller shopkeepers have lost out, competition between the chains is keeping choice wide enough for consumers to benefit overall.

Socially, the supermarkets can justifiably claim to have transformed British consuming habits, driving ever-longer shopping hours, including Sundays, and changing British food shoppers from the most staid to some of the most enthusiastically eclectic in the world.

Managerially, too, the supermarkets have much to boast about. A big supermarket is a marvel of logistics and management discipline – for its supply chain and people management as well as its financial results, Tesco, in particular, is consistently one of the UK’s most admired companies.

So should Tesco be worried by the grumbles? The answer is: yes, it should. And for evidence, it needs to look at one of the few things it doesn’t stock in its stores – aerospace parts.

In a fascinating study of the aerospace industry in the Academy of Management Executive earlier this year, two US professors, Christian Rossetti and Thomas Choi, describe the ‘dark side’ of supplier relationships: just what happens when powerful, well regarded businesses at the top of the food chain (as it were) are so focused on short-term profits that they fail to read the signs of supplier and customer discontent.

Briefly, what happened was this: under pressure from cash-strapped airlines to cut their prices, aerospace manufacturers in the 1990s decided to adopt ‘strategic sourcing’. Copied from the Japanese, strategic sourcing means reducing supplier numbers and concentrating orders on a favoured few close partners, with the dual aim of cutting management costs and achieving economies of scale.

All so progressive – except that the manufacturers only adopted half the prescription. Overlooking the fact that long-term relationships can only work in conditions of honesty and trust, having reduced supplier numbers they proceeded to squeeze the survivors for price and play them just as opportunistically as before.

The result was counter-productive to a degree that no one could have predicted. To survive, the suppliers started bypassing the manufacturers and, first surreptitiously, then openly, selling parts direct to airline customers. The airlines, which had long resented the high prices manufacturers charged for spares, were delighted. The manufacturers, whose profits largely derived from this quarter, had inadvertently created competitors for the most lucrative part of their market.

It got worse. By lowering maintenance costs, suppliers effectively lengthened the economic lifecycle of the aircraft the manufacturers sold, damaging their profitability again. As they grew in confidence, suppliers became potent competitors, beating manufacturers hands down not only on price but also in speed of response and quality.

Rationalisation went so far that some suppliers became monopolies, reversing the previous relationship of power. Where rationalisation was accompanied by outsourcing (which was often), the manufacturer often suffered a debilitating loss of knowledge, again weakening its position often it found that switching suppliers could now cost more in recreating lost knowledge than the saving gained from the move.

Overall, the professors describe the result as a ‘debacle’. By their own behaviour, huge airframe and engine manufacturers allowed suppliers, largely small companies traditionally regarded as being at their mercy, to turn the tables, ‘with widespread and broad implications for the industry’.

Supermarkets aren’t the same as aircraft manufacturers. But the authors note that they believe similar forces are at work. And you can see parallels, in both the tactics used (forced annual price reductions, extended payment terms, forced inventory levels, not to mention listing and promotion fees specific to the retail industry) and the consequences.

The latter are, so far, small in scale. But what are the farmers’ markets and websites which sell everything from herbs to speciality breeds of meat but a kind of disintermediation – an alliance of customers and small suppliers to cut out the bully in the middle? Importantly, this is a trend that the supermarkets should expect to continue. After all, it is they that have helped to create a more discerning customer. They should hardly be surprised if now that we have got over the excitement of quantity – Thai fish sauce, basil and year-round mangoes at every street corner – we now want quality: better meat, more organics, less salt, sugar and fat., and more local supply.

No business model lasts for ever, as food and retail companies illustrate to remarkable effect. McDonald’s, Woolworths, Marks & Spencer, Sainsbury’s and more recently Morrisons and Asda have all run foul of changing customer taste. Could it happen to Tesco? That seems far-fetched. But the lesson of aerospace is that the moment of greatest market power is potentially also the moment of greatest vulnerability.

The Observer, 19 June 2005

THE UK public sector will fork out euros 21 billion (£14bn) on IT this year, according to Kable, which researches government spending on computers. That is almost a quarter of the entire EU spend and some 40 per cent higher than the total for France or Germany, although some smaller countries match the UK in terms of spending per head or as a ratio of GDP.

Is that a matter for rejoicing or disquiet? You would not expect Ian Watmore, the government’s chief information officer and head of e-government, to say the latter before his appointment last September, he was managing director of UK Accenture, which spends its time selling IT services to large organisations, of which the government is just one.

But that’s the point. Relaxed, confident and informal, Watmore, 50, is every inch not the traditional civil servant, and every inch what the government would like the ‘new’ civil servant to be: professional, private-sector trained, able to fuse the discourses of the market and service delivery into the same apparently ideology-free language of efficiency and value for money.

Thus he downplays the differences between working in the public and private sectors. ‘The differences are overhyped,’ he says. ‘In any big organisation there are a few roles that need to operate across boundaries. My job is to try to influence people across the structures of Whitehall to work together in the joint interest.’

Beyond that, it is also to ‘professionalise’ government IT. This is a key point. The government is banking heavily on IT, both to transform public services and to deliver £12.5bn in efficiency gains. And, as the Kable figures show, it is spending far more on external support such as consultancy and outsourcing compar- atively than, say, France and Germany, and far more than it did itself 10 years ago. Predictably, Watmore makes no apologies for the emphasis on outsourcing: ‘I don’t believe, in general, that government should employ people to do work the marketplace does better, and that’s increasingly the case for IT worldwide. You can’t turn the clock back – government IT is in the hands of the market.’

However, he concedes there are implementation issues. There is much evidence that many, perhaps most, outsourcing deals fail to live up fully to expectations or are not flexible enough to adapt to changing circumstances – unless they are very well managed.

‘Where the government has neglected things is that it didn’t think it needed strong IT professionals to handle the implementation side,’ Watmore acknowledges. That capability inside government is very variable, he adds, and not always in the right place.

The agenda, then, ‘is to build up the IT profession in government, so that you have people who can manage change enabled by IT from strategy to implementation. If you do that, you can get the best out of the marketplace. If you don’t, the marketplace will not give you what you want, or costs will go up.’ This is what the second wave of outsourcing, largely driven by the Gershon efficiency agenda, is all about.

To guide it, Watmore has convened a ‘CIO Council’ – a group of 30 government and wider public-sector IT executives charged with drawing up a government-wide strategy for how IT can deli- ver the government’s business requirements. This means ‘identifying customer needs, linking them with the political and social agenda, and joining up behind that’. (Among other items discussed by the council is the setting up of an IT academy to establish common skills standards for the estimated 30,000 IT workers in the public sector.)

Watmore insists that at any one time there are hundreds of service-related IT projects on the go, most of them progressing well?: ‘But impressions are driven by the big-ticket items – the Child Support Agency, the NHS, identity cards and defence infrastructure. What the media and parliament mean when they say government does it badly is that it does big projects badly. Actually, I think it does pretty well, given the size.’

Big projects, he says, really are harder, partly because of sheer size, using databases six to 10 times greater than the largest in the private sector. At the same time, the real prize is not so much in discrete initiatives as in joining them up. That increases the number of dimensions the arguments have to be won on, and also the stakes.

It is also the case, paradoxically, that although the IT may be necessary to capture the benefits of improvement, it is not in itself the important thing. The important thing is to improve the processes in the first place.

This is particularly true of the NHS, where a hugely complicated infrastructure combined with gross underinvestment for decades means that an awful lot of change is going on at once.

At heart, says Watmore, the NHS programme, as in many of the other big projects, is as much about transforming the way it manages itself as about the IT as such – but when things go wrong, it’s the technology which is invariably blamed. Although there was an unwelcome reminder last week of the pitfalls when one of the regional NHS IT consortia sacked a software supplier, Watmore is encouraged by recent signs: ‘We’ve implemented enough real stuff on the ground to sense that it’s doable. Now that the medical and professional community have something to use, they’re beginning to talk positively about it.’

When Watmore’s contract runs out in August 2008, he would like to leave his successor with a situation ‘where IT is seen as a help to government rather than a hindrance, as now’. In other words, where high spending on IT is unequivocally a matter for rejoicing.

We are not there yet and some sceptics would argue that until ministers modify their one-dimensional, specification-driven approach to performance management in the public sector, the necessary prior process improvement will never happen.

Watmore, however, is an optimist. ‘It’s a fantastically interesting time,’ he says. ‘We have new energy and a new parliamentary cycle. The groundwork has been done. And I’m working with some brilliant people: not good – really good. For once, the stars are in alignment.’

The Observer, 12 June 2005

THE lengths to which companies will go to avoid drawing the right conclusions in favour of the self-serving and expedient never ceases to amaze. A spectacular – and sad – example was highlighted in an article in this paper last week (‘Indian call staff quit over abuse on the line’), describing how increasing numbers of employees were abandoning their jobs because of abuse, often racist, from British and US customers.

According to the article, irate customers were a major stress factor contributing to rocketing turnover rates at Indian call centres, in some cases touching 60 or 70 per cent a year. Some organisations were employing psychiatrists and counsellors to help employees to cope. Their conclusion: anger and fear about offshoring were to blame. ‘When you move jobs away from a country, there’s going to be a lot of pent-up frustration which gets let out on Indian workers,’ one analyst said.

There is zero excuse or tolerance for the kind of abuse documented in the article. But to blame the anger on racism and the effects of offshoring is to ignore the glaring fact that belligerent customers are a major stress factor for UK and US call centres, too. Does that cause a dim light to go on somewhere? It should. The important thing is nothing to do with where the call centre is located the important thing is that customers have had it up to here, everywhere, and the reasons are everywhere the same.

At bottom, companies are still producing to suit themselves rather than the customer. ‘We don’t care about the colour of the person we’re talking to,’ says Professor Harry Scarbrough, director of the Economic and Social Research Council’s Evolution of Business Knowledge pro gramme. ‘But we do care about being fobbed off with people working to a script. Call centres don’t have the knowledge available in a local bank branch or shop. What customers get is knowledge that is pre-packed, shallow, mass-produced and inflexible. People don’t like that.’

It was Albert Einstein who defined madness as doing the same thing over and over again and expecting a different result. Tragically, but predictably, this is what is happening in India and elsewhere as supposedly advanced companies export toxic western management techniques to countries that can be excused for imagining that there is no alternative to what they are told is ‘best practice’. ‘Best practice’, of course (like ‘solutions’), is rapidly becoming a warning sign of meaninglessness or complacency ahead. And in the case of contact centres, charges John Seddon of Vanguard Consulting, conventional ‘best practice’ is a large part of the problem, embedding in the work the very things that earned centres their sweatshop reputation and harming competitiveness rather than improving it.

The problem starts with the distance of the call centre from the rest of the organisation, metaphorically as well as literally. It ought to be the company’s window on the world, a vital and sensitive two-way connection with customers instead, all too often it is a bolt-on cost centre, a lowest-cost sponge for mopping up the mess of the initial product inadequacy. As such, it has no influence on, and therefore precious little chance of changing, the conditions that caused the customer aggro in the first place.

So most call centres start off with high stress factors – angry customers and lack of influence over the problems they deal with every day – built into their workload. This is the company’s fault, not the customer’s.

‘The distance is induced by the organ isation, not geography,’ says Scarbrough. Offshoring the call centre is a perfect symbolic statement of the peripheral importance of customer concerns versus production efficiencies. The factors are compounded many times over by the way call centres are internally designed and managed.

The ‘sweatshop’ analogy is well-founded. Vanguard notes that the measurements on which staff are judged are equivalents of the time-and-motion measures used in factories pilloried by Charlie Chaplin in Modern Times. Time to answer the phone, time spent on calls, numbers of calls per hour are derived from the need to meet production targets set by management rather than from the purpose of serving the customer.

The result is a double alienation, of both employees and customers. ‘It’s very routinised, high-surveillance work,’ says Scarbrough of the Economic and Social Research Council. ‘There’s low motivation in skill and small rewards, backed up with the big stick: surveillance and controls applied through technology.’

Under the new-fangled (often excessive) technological facade, what’s happening is actually a long-hallowed configuration. Aided by technology, com- panies are going offshore to play the low-cost production option. But in services they still haven’t twigged that it is quality rather than quantity or price that’s important and quality, just as it does in manufacturing, requires reversing the whole cycle of production, starting from the customer, not the output target.

Meanwhile, the remedies proposed for the Indian call centres will, like most ‘best practice’, make matters worse. Call-centre workers don’t need psychological counselling or anger-management courses they need a better system and, failing that, a tough trade union.

As for letting staff hang up on abusive customers, as some firms are doing – one entirely sympathises, but it’s so far from approaching the underlying issues that it’s hard to know where to start.

As the costs of the customer revolt begin to mount, companies will eventually have to rethink their low-cost production logic. But sadly it is too late to stop the export of their nineteenth-century management principles, which cause vast amounts of alienation, exploitation and needless misery to emerging countries – truly worst practice.

As Scarbrough says, given the low-skill, low-value of the jobs created in India on one side and the destructive hidden costs for customers and companies on the other, offshored call centres may be a remarkable example of an international exchange, freely entered into, that benefits neither party: ‘That’s quite rare.’

The Observer, 5 June 2005

BEING in favour of red tape is a bit like being in favour of rats or cockroaches. It would be correspondingly hard to oppose the Chancellor’s commitment to slashing the burden of regulation on companies, announced with much fanfare last week.

But a bit of perspective is in order. Anyone who thinks that UK company performance in world markets will be transformed by them filling in 25 per cent fewer forms and undergoing 30 per cent fewer inspections is as far from reality as Michael Jackson’s Neverland.

The graphics on the right show that in 1998 the UK had the least regulated product markets and the second most liberalised labour market in the world. The legislation passed since then, some of it European, may have changed the position a bit, but the fact is that the extent and speed of the deregulation of the UK private sector is unparalleled.

The real question around regulation is not ‘why are UK companies so tangled up in bureaucracy?’ but ‘why haven’t they made more of the economy’s almost unalloyed business-friendliness?’.

Compared with many other major economies, the UK is a manager’s paradise, with weak unions, no tripartite institutions, a stable, growing economy and governments of all colours determined to advance the private sector and to defend its ‘flexibilities’. Between 1979 and 1997, fully 10 percentage points of GDP migrated from the public to the private sector, leaving just 2 per cent of the economy in state hands.

Business textbooks prescribe exposure to the bracing winds of competition as a pick-me-up for entrepreneurial anaemia. But instead of being galvanised into new activity, a long list of sectors and companies have just quietly rolled over and died. The shrivelling of Rover is the latest example. Manufacturing has not ceased its headlong decline. Despite the favourable regulatory climate, UK productivity has made up no ground on that of apparently much less business-friendly economies, such as Germany and France.

Why have managers responded so limply to all the inducements they could have asked for? One answer is tantalisingly beginning to emerge from research at the Advanced Institute of Management Research. It suggests that ‘path dependence’ is partly to blame. By this it means that purely market-oriented reforms led companies down a cost-cutting path, concentrating on downsizing, delayering, outsourcing and making people work long hours.

But now that these one-time gains are running out, it is becoming clear that the one-trick pony has nothing left in its bag. UK managers have no track record in innovation. They are reactive, conservative and overconfident in their own abilities, with a knee-jerk tendency to default to cost-cutting mode when the pressure builds up – which is not surprising because that’s what the market-led reforms have taught them to be.

In this context, while the removal of a few forms and inspections is welcome, to imagine that competitiveness in world markets stands or falls by it is a travesty. A business-friendly environment is not at all the same thing as competitive companies. And ‘competition’, as we are beginning to see, is in any case a two-edged sword.

Today’s economic agenda emphasises co-operation as much as competition. ‘Working smarter’, whether in the shape of innovating, building better supply chains, or managing fluid networks, requires collaboration.

But the UK doesn’t do collaboration, either institutionally or within companies. The idea of social partners, as on the Continent, is scorned partnership with suppliers is honoured mostly in the breach research consortiums are a rarity and industry associations are weak and fragmented. The upshot is feeble exploitation of the country’s relatively vigorous science base and slow take-up of promising (collaborative) management practices. The systematic dismantling of counterweights to management and the market ironically leaves no lever to be pulled to switch the economy from the ‘low road’ of competing on low input costs, including labour, to the high road’ (competing on high value or better positioning in the supply chain).

Even within the company, competition and market-based approaches are the hallmark of conventional Anglo-Saxon management. Lip service to teamwork is undercut by performance-related pay, competitive rankings and The Apprentice -style rewards, all of which not only militate against co-operation but also result in a self-imposed bureaucracy which is much more of a drag on energy and initiative than any outside regulation. (This is the internal, private-sector equivalent of the specification and targets regime under which the public sector is buckling – but that is another story.)

At the heart of the enterprise, the doctrine of shareholder value institutionalises competition as the driving force, pitting shareholders against managers, employees, suppliers, customers and even society in rivalry for the returns that the business makes. One of the key demands of shareholder-value advocates, of course, is that regulation be kept to a minimum so that nothing gets in the way of the sacred duty of the company to make money for shareholders.

You can see the irony here. In the name of shareholder value, shareholders and managers colluded in the 1990s in devising monstrous incentives to align their interests at the expense of everyone else. The resulting excesses brought down a wave of regulation that makes anything around maternity leave or working hours look like footnotes.

Complying with America’s Sarbanes-Oxley corporate reporting legislation costs large companies millions similar legislation is on the way in France, Germany and Japan. This regulation really does threaten to dampen entrepreneurial spirits and tie managers up in red tape. But companies brought it on themselves – as they did, for example, with the equally debilitating rules governing the financial services industry.

What really holds UK companies back is not employment law or pernickety health and safety rules but the inefficiencies and regulation that they avoidably generate all on their own. The ball is in their court. The idea that for every new regulation an old one should be struck out is a great one. But thinking that it is a kind of Viagra for failing managerial drive is, alas, wishful thinking.

The Observer, 29 May 2005

Last week the GMB drew attention to the intriguing statistic that one in seven of all UK employees is a manager or senior official. The latest Labour Force Survey shows that, at 4 million, the UK’s managerial workforce is now the largest occupational group in Britain- 15 per cent of the workforce, compared with 12 per cent for the professions, 14 per cent for associate professional and technical, 13 per cent for administration and secretarial and 12 per cent for skilled trades.

What’s more, the management cadre is growing. In 1981, the GMB notes, there were 2.7 million UK managers, 12 per cent of the then workforce. By contrast, at that stage skilled tradesmen, at 4 million, still made up 18 per cent of British workers.

Interestingly, managerial intensity, as we might call it, varies greatly around the country. In the north, Scotland and Wales it is lower than average, while in the south it is considerably higher. In the City of London, more than one in four employees is a manager.

So what does it all mean? The GMB decided to look at the figures when workers in some of its lowest-paid sections, including hospital cleaners and local government workers, complained that they were responding to so many managers they were unable to get anything done (echoing Peter Drucker’s wistful remark that so much of management seems to be about preventing people from doing their job).

But this doesn’t explain why the management inflation is occurring. After all, as Ewart Keep, deputy director of the Economic and Social Research Council’s Research Centre for Skills, Knowledge and Organisational Performance, points out, the conventional narrative is one of flattening organisations and disappearing hierarchies. That should mean fewer managers. Likewise, large-scale outsourcing of routine jobs might also be expected to cut management numbers.

TUC senior policy officer Richard Exell notes that there are two ways of getting performance out of workers, roughly corresponding to the ‘high road’ and the ‘low road’. In the German model, or ‘high road’, highly skilled workers are trusted with wide autonomy over their jobs, supported by an institutional framework emphasising participation, training and high pay.

At the opposite extreme, the US model is low on trust and training, instead throwing armies of new graduates at the workplace to make decisions and ensure others follow them. ‘Every country falls somewhere on that spectrum, and over the past 20 years we’ve been moving towards the US model,’ Exell says.

At the same time, these models are self-reinforcing: a low-trust, command-and-control regime tends to beget behaviour that seems to justify still tighter controls and still more managers – a manifestation of Parkinson’s Law showing how managers produce work for other managers. The reverse is also true. Although the classifications do not correspond exactly, ‘high-road’ economies such as Germany and the Nordic countries do appear to have lower chiefs-to-indians ratios than the UK, says Keep.

Another factor might be the growing complexity of work. Regulation, or the targets culture, is one aspect of that, particularly in the public sector, which is also affected by the drive to marketisation – for example, all universities now have marketing and PR departments (and managers).

But similar tendencies are also at work in the ‘management factories’ of private sector companies. Headlong technological advance means whole new departments to manage (websites, for example) and burgeoning information requires more managers to collect, analyse and send it on to others. ‘Performance analysts’ are increasingly, and depressingly, in demand in many companies to decide what the data avidly collected by computers actually mean.

Counterintuitively, outsourcing could actually multiply management posts: instead of one organisation there are now two, with managers on both sides to manage the relationship as well as the function.

A further, very British, element in the mix is class. In the UK, management is as much about position and status as function. Keep notes that many managers say they don’t manage people any more – ‘retail managers’ or ‘train managers’, for example – depriving the word of most of its meaning. He speculates that as the working population has become more middle class it has shed its previous work titles and adopted a management nomenclature more in keeping with its aspirations. In other words, the change is one of word rather than deed.

However, LSE’s Carsten Sorensen cautions against simplistic interpretations, especially the assumption that more management is necessarily a sign of inefficiency. ‘Ought there to be fewer managers? I’m not sure,’ he says.

For instance, managing a solicitors’ or architects’ office may be more management-intensive than running a factory. Given that the City is one of the UK’s strengths, the high proportion of management employees may be appropriate. And, however it comes out in international comparisons, in absolute terms the UK is a more successful economy than it was 20 years ago, when managers were apparently fewer on the ground.

On the other hand, by the same token, the combined efforts of all the UK’s management workforce, and its business graduates have not been able to close the productivity gap with the US, France and Germany. So managers may still have a case to prove. Could the UK’s productivity problem be that there are too few people actually doing anything productive, and too many managers adding no value checking up on what they do?

One is reminded of the story of a Japan v America boat race. Japan won by a mile. After lengthy analysis, the Americans decided they lost because while the Japanese had eight people rowing and one steering, in the American boat the proportions were reversed.

The following year the Americans were confident their reorganised team would carry the day. It consisted of a boat manager, two steering managers, three area steering managers, an IT manager to collect performance data, an HR manager, and a rower incentivised to meet the targets. This time the US team lost by two miles. It sacked the oarsman for poor performance and gave the managers a bonus for identifying the problem.

The Observer, 22 May 2005

WHILE no one would wish to diminish the plight of the Rover workers, it’s not all doom and gloom in the Midlands. Less than 50 miles up the road from Longbridge, another car company has quietly completed a pounds 50 million investment programme and recruited 1,000 extra workers to boost production from 220,000 to 285,000 cars a year, 85 per cent for export.

That brings the total invested on the site to pounds 1.2 billion. In its 13 years of existence the plant has steadily upped its purchases of parts from local suppliers. These now total pounds 450m, or 49 per cent of the total by value.

Admittedly Toyota Motor Manufacturing UK (TMUK), based at Burnaston in Derbyshire (it has another plant making its engines at Deeside in north Wales) benefits from a very different context from Rover. Its parent, on some measures, is currently the second-largest motor firm in the world after GM, and few doubt that it will take top spot in the next few years. It is also in robust financial health – in marked contrast to the big three US automakers, two of which are struggling to avoid junk bond status.

Yet those differences in circumstances are not coincidental. They are the consequence of profound differences in the way Toyota operates. ‘Toyota is a an oddball company,’ admits Sir Alan Jones, chairman of TMUK and ‘managing officer’ of the parent firm in Japan. ‘We look at things in a holistic way.’

This is an unassuming way of putting it, but then Toyoto prefers actions to words, both in and outside the plant. Although it is happy to show what it does if people ask, it doesn’t boast or preach about its unique approach.

T here is more to Toyota’s holism than meets the eye. To understand it, it is necessary to back up half a century.

When the company was starting to make cars again after the war, it rapidly twigged that the mass-production methods of the Americans would have to be substantially altered to meet the very different conditions of Japan, where space, raw materials and skilled labour were in short supply and the customer base was smaller, poorer and more diverse.

The genius of Taiichi Ohno, who developed the Toyota Production System (or TPS) in the 1950s, was to take the standardised way of working pioneered by Henry Ford, and insert it in a process that reversed Ford’s logic.

Instead of seeing production as a series of separate processes (press, weld, paint, assembly, sales) each delivering batches of products scheduled and optimised for economies of scale, Ohno saw it as a single pulse: a car ‘pulled’ through the different factory processes, from one end to the other, by a customer order. In this view, each process was both customer and supplier to the processes next to it.

As Ohno surmised, by optimising the pulse rather than the batch he could do away with the need to store work-in-progress while it waited between processes, thus saving space. By putting the processes close to each other, he no longer required expensive transfer lines.

But coupling work tightly together meant that you couldn’t afford anything to go wrong. There was nowhere to house rejects, and no buffer of stock from which to draw new ones. Quality had to be right every time. So to ‘just-in-time’ delivery of parts was added a second principle of the TPS: automation with a human touch, or ‘ jidoka ‘, meaning the ability of those on the line to stop production instantly to correct mistakes on the spot if anything went wrong.

And finally, in a pull system, it was the customer that drove constant improvement , not obsolescence planned on high.

The implications of this way of working are far-reaching. The workforce is in control of the production process – so you had better educate, trust and respect it. The quality of goods received from suppliers is equally critical, so the same goes for them. This is why Toyota calls employees ‘members’. It is also the reality behind Jones’s remark: ‘Company prosperity depends on member [employee] prosperity and supplier prosperity.’

Trust and respect are far from costless. For example, although Toyota is highly sensitive to demand, carrying inventory in the factory for hours rather than days, it freezes orders to suppliers for 20-day periods to give them continuity. It works with them long-term, too, for reciprocal benefit.

Likewise for members: when in 1996-7 currency movements and unsuitable models left TMUK badly exposed, it did not build for stock or have recourse to layoffs, instead keeping people working on process improvements that paid off later. ‘That was an important decision point,’ says Jones.

In the same way, ‘Toyota didn’t walk away from us then – although it could have done.’ It has taken 11 years for TMUK to become profitable.

Holism explains many things that look paradoxical to outsiders. For instance, while some areas of manufacture are heavily automated, others are not.

‘To understand what we’re doing, we first do a process manually, then mechanise it, then automate – if we need to,’ says Jones. So you may see a trolley of parts pushed a short distance by hand, or someone on a bike collecting up internal orders for new parts.

Or take work standardisation. Jones denies that this is a straitjacket or a dis incentive to initiative – it’s the reverse. ‘You have to have standard methods to know how to improve. Standard methods force discussion,’ he says.

Although principles are common across all Toyota plants, detailed work methods vary. Comparisons show how and where further improvements might be possible. In that sense, standardisation is part of the open, visual management that is at the heart of the TPS.

The greatest difference between Toyota and Rover and other ailing car firms is financial. By treating production as a single end-to-end system, and focusing on shortening the period from order to delivery, Toyota forces into the open the costs of traditional methods – quality, missed forecasts, vast management overhead – that are usually hidden.

Unobsessed with internal and external league tables, Toyota has only one unchanging target: to improve against itself in cost and customer approval.

‘It’s sometimes hard,’ notes Jones, ‘to maintain the holism through thick and thin’ – but not as hard as being Rover.

The Observer, 22 April 2005

LIKE MANY businessmen, Sir Clive Woodward, the enterprising head coach of England’s 2003 World Cup winning rugby team, is fond of presentations containing charts, bullet points and abbreviations.

As the engaging Woodward concedes, these performances caused rolled eyes among the players when he took over the England job in 1997. The description in his book, Winning! (Hodder & Stoughton) of the team running around in practice games shouting ‘CTC!’ (Crossbar, Touchline, Communicate, for spatial awareness), or even better ‘T-Cup!’ (Think Correctly Under Pressure) is deeply cherishable.

But wacky is not the same as flaky. In the Telstra Stadium, on the rainy Sydney night of 22 November 2003, in the last minute of extra time in the World Cup final, CTC and T-Cup paid off in hearts, clubs, diamonds and spades.

As England threw in the ball for the crucial play, the players knew, from systematic analysis of hundreds of games, that 70 seconds was more than enough time to win – as long as they kept their heads. It takes just 20 seconds to score a try, and a team retaining the ball through five successive phases of play has an 85 per cent chance of scoring.

In the event it took three phases, accurately executed under desperate Australian pressure, for the team to position Jonny Wilkinson for the famous drop-kick in front of the posts. Wilkinson’s right boot did the rest, giving England their best sporting moment since the football World Cup of 1966.

The preparation for that last minute sums up Woodward to a T. Unlike many sportspeople, who sell motivation to the business sector, he insists sport needs to learn from the professionalism, attention to detail and entrepreneurialism of business.

‘You don’t get lucky,’ he says flatly. ‘There’s risk in saying this, but you want to work in an environment where there are absolutely no excuses. My job was simple: to give Martin Johnson the best chance of winning the World Cup. We had to be favourites, the best planned, the best prepared team.

‘You have to make [the players] feel very special, very elite, the best qualified in the world. That way you can demand the best. If you give them every chance to be successful, it’s then up to them to grab it, just as we did in the World Cup.’

Nine months after that win, the manner of Woodward’s explosive departure was also revealing and consistent. He believed that, although the players had been specially made available for his brand of intensive preparation, England had in the end won despite, rather than because of, the system.

It could only win again, he reckoned, if the level of preparation could be moved up another few notches, towards perfection – keeping ahead in the business of rugby demanded nothing less. When it became clear this would not happen, he departed in a thunderous display nearly as dramatic as the victory in the rain.

With something near a grin, Woodward concedes that now he can see the other point of view. ‘Water under the bridge,’ he says briskly, acknowledging that, until that final clash, ’99 per cent of the time the RFU [Rugby Football Union] was fantastic. They supported what we did, they allowed us to put in place something quite special – and we delivered.’

Fashioning one of the most professional sporting teams in the world in a deeply traditional game such as rugby entailed a cultural change for which only a small-business background could have prepared him, he says. While Woodward also had a rewarding career at Xerox, ‘of all the experiences, including playing rugby for England, setting up my own firm was the best grounding for the England job, quite categorically.’

From establishing his own business he learnt the primordial importance of making the right appointments, both for playing and management teams. ‘Leadership,’ he says simply ‘is picking the right people. You win more matches by right selection than in any other way. If you have the right people in your team, you don’t need to worry about motivation. But one wrong person can cut the legs off everyone. If you make a bad decision you have to change it, however hard that is.’

Small business also taught him the imperative need to get things done, never mind the niceties. When Woodward first arrived at Twickenham he found he did not even have an office, since it was assumed he would work from home. He scrimped and saved, borrowed or got around funding shortfalls by invention and lateral thinking.

His approach to sponsorship was typical. The England players were bemused (again) to find themselves equipped with full mobile IT kit, including laptops from Elonex and phones from O2. Some of them had never used a computer before. But these were not perks, rather a bonding device for a team that spent far more time apart than it did together.

Despite the lasting reverberation of slammed doors at Twickenham, Woodward will almost certainly be back as a full-time rugby coach (see page 1, Sport). But in the meantime his ideas will be tested to destruction on the forthcoming British Lions tour of New Zealand. There is no history of winning against New Zealand, the most intense rugby-playing nation in the world – of 10 test series, the Lions have won just one.

Woodward says: ‘When Brian O’Driscoll leads the players out in the first test in Dunedin on 25 June, my job is to ensure they’re the best prepared team ever in a Lions shirt. That gives them half a chance. We have to work back from there and fast-track everything we’ve learned in six years in a matter of weeks.’

That will require a wholly new approach to training – which is why the players are currently marvelling at some methods that seem a lot stranger than flip charts. History may be against them – but then who would have bet that England would win 14 games against the southern hemisphere teams in a row? ‘I just have a sneaking feeling,’ Woodward says, ‘that we could cause an upset if we get it right.’

The Observer, 15 May 2005

THE MOST surreal episode in the election campaign was the panicked prime ministerial time-out from matters of trust, immigration and war in Iraq to instruct doctors how to make patients’ appointments.

In itself, the incident might seem laughable. But there could hardly be a more telling symbol of Labour’s greatest domestic failure: its inability to fathom how its relationship with the public services should be managed.

Think about it: after decades of privatisation, and the erection of a tentacular regulatory regime (now costing the public sector at least pounds 13 billion a year) with the express aim of distancing government from the day-to-day management of services, ministers are more dedicated interferers than at any time in the past 50 years – perhaps ever.

This is micromanagement on a gigantic scale (if you see what I mean). But it is more than that. Like the almost daily promises to get rid of MRSA, deliver cleaner hospitals, cut the number of asylum seekers, improve exam results, and shorten hospital waiting lists, the ministerial dictation of doctors’ appointment systems is straight out of the Gosplan handbook for central planners, circa 1950.

Command from the centre didn’t work in the Soviet economy, and it doesn’t work in the NHS either. The first reason is that the government doesn’t know what patients ringing up for an appointment actually want. Since it doesn’t know the nature of the demand (how many calls are real emergencies, how many can be handled by a nurse, how many are follow-ups) it follows that it can’t know the real capacity of the system to meet it.

In turn, this means that the famous target of all appointments within 48 hours is entirely arbitrary. Some surgeries may be able to meet it, others not. If enough pressure is brought to bear, those that can’t will feel obliged to manipulate the numbers, as the only things under their control, to get the desired result. That’s what happened in the appointments case, just as it hap pens in all other services subject to blanket specifications too.

It follows also, because it’s a government representation of what patients want rather than the thing itself, that the system is not likely to be a good one. It’s not patient-friendly. A follow-up appointment a week later may be much more important than a first-time one which has to take place within 48 hours. But as a mass-production system it can’t handle this legitimate variety.

Moreover, ministerial prescription subverts any possibility of improvement. As the scientist-philosopher Gregory Bateson put it: ‘Learning proceeds from difference.’ Difference has the political disadvantage of inequality, since some solutions will be better than others. But it has the advantage of movement: given a degree of choice, a better solution for patients or customers will attract more adherents, to the exclusion of poorer ones.

The other thing Whitehall still doesn’t seem to get is the costs of its interference. These are hidden but enormous. And although where they emerge is unpredictable, their incidence isn’t. Tinkering with one part of a system always has costly ramifications somewhere else.

In the surgeries case, the cost of meeting the 48-hour appointments deadline is that some patients find it harder to see their doctors for a follow-up. The cost of insisting that hospitals treat all accident and emergency patients within four hours is that some infected wards can’t be taken out of commission to get rid of MRSA.

So interference begets more interference, as ministers decree changes and regulators diligently amend and tighten the rules. But if the capacity isn’t there – if there simply aren’t enough doctors and nurses to attend to all the first-time and follow-up patients that need to be seen – surgeries will either not meet the targets or, if enough jobs depend on it, find new ways round them.

And so the dance goes on, with more and more invention and effort going into satisfying ministers’ demands for the right numbers and less and less into finding better ways of treating the patient.

There are other casualties, too. Perhaps the most insidious is the degradation of official numbers. Paradoxically, the more the government prods, measures and intervenes, the less the figures it produces to show that the desired ends are being met, are believed.

There are good reasons for the scepticism. We should know by now that you can’t use the same figures for measurement and control: the control function corrupts the measurement.

Because of the interventions, the figures are constantly being revised, so it’s hard to compare like with like. But they’re dubious anyway, partly because of the representation problem noted earlier, but also because in every public ser vice they are subject to systematic manipulation. The figures may purport to show that no one has to wait more than two days to see their doctor, but any straw poll says the contrary – a next-day appointment is rare. The figures don’t correspond to the reality as people experience it.

The diagnosis from the doctor’s surgery is that, the election over, New Labour needs a new start. Foreign adventures apart, its only hope of a fourth term is to win unambiguous recognition that public services are getting better. But to clean up the figures, it needs to acknowledge an unpalatable truth. The famous efficiency review, now being worked on in every department across Whitehall, has the wrong focus: the major engine of bureaucratic cost inflation is ministers themselves.

Accordingly, to win back control over the numbers, No 10’s Delivery Unit should decree a self-denying ordinance: reform starts with conquering the atavistic urge to command and control.

That’s not as paradoxical as it sounds. Curiously, there’s a precedent under its nose. Practically New Labour’s first significant act when it took office was to grant the Bank of England independence. Although the move was controversial then, it has come to be ranked as an almost unqualified success. No party wants to turn the clock back. The medicine is the same for any other public service. Set people a clear purpose, give them the keys to the system, hold them accountable – and stand well back.

The Observer, 8 Observer 2005

MARGARET THATCHER once said that anyone taking a bus after the age of 26 was clearly a failure. In that case, failure is catching and London is in the grip of an epidemic: over the past four years bus usage in the capital has risen by 40 per cent and some nouveaux deadbeats have actually abandoned their previous status symbols, their cars, to slum it.

Perhaps uniquely in the world, says London’s high-profile traffic commissioner, Bob Kiley, London is experiencing ‘an intermodal shift’ in favour of public transport.

The burgeoning of the buses, accompanied by efficient implementation of the congestion charge, may be one reason why Kiley looks so relaxed after four years in what has been called the toughest transport job in the world. Indeed, last December he told mayor Ken Livingstone that he was renewing his contract at Transport for London (TfL), the umbrella organisation that shelters the Underground, buses and strategic roads, ‘for an indefinite period’.

Not everyone thought he would. After all, Kiley has long passed the age when he qualified for a free bus pass (he is 69). After a successful career that included rejuvenation of the Boston and New York transportation systems as well as stints in the CIA and private industry, the affable, thoughtful American had little left to prove.

And in London, even with (because of?) the support of the feisty Livingstone, Kiley has not had it all his own way. The pair lost a very public, bloody battle with the Treasury over how the desperately needed renewal of London’s crumbling Underground system would be funded. Kiley still thinks the conditions of the infamous public private partnership (PPP), which locks maintenance and renewal of the tube infrastructure into fixed 30-year contracts with the private sector, are ‘heinous’. So why should he continue to put himself through it?

Shirt-sleeved and at ease in his airy TfL office above Victoria Street, Kiley laughs: ‘Almost from day one I said it would take six to eight years to have enough of the pieces in place to be able to walk away thinking that this work would continue for a long period, say 20 or 30 years, and [that] the whole system would be rejuvenated – all of it.’

That point hasn’t been reached – but it’s getting closer. One important element was the bringing together of the buses, Tube and other organisations into TfL, an organisational feat in itself given the fate of so many large mergers and reorganisations in the private sector. The Traffic Management Act, which gives TfL powers to control who digs holes in the road and when, is a further piece in the strategic jigsaw.

More importantly, TfL has secured adequate funding. This is not just through the PPP it is now allowed to borrow £3bn or more on its own account depending on its performance.

‘There’s no question that the government has committed itself to funding PPP indefinitely – whether for the whole 30 years remains to be seen, but renewable every seven-and-a-half years,’ says Kiley. That means a spend of £1bn a year under the PPP alone, divided equally between maintenance and renewals.

In short, the job is doable? ‘With our resources resolved for the next five years or so, very definitely.’ There are still big issues with the contracts, but also a general feeling among the parties that having fought themselves to a standstill, they have to try to make the arrange ment work. The Treasury, whose brainchild the PPP was, is desperate for it to succeed – Gordon Brown, after all, wants to be Prime Minister – and has, Kiley concedes, been ‘extremely helpful’.

This, of course, gives Kiley and Livingstone political leverage to compensate for lack of control over the contracts, and they too would rather be remembered for an Underground that works long after the details of the PPP have been forgotten. ‘I’ve always reluctantly conceded that, if you give it long enough, any contract can be made to work better,’ Kiley says. Some people think that after the election and a few changes of personnel, a quiet renegotiation of the contracts in the light of experience would be in everyone’s interests – including those of the contractors’ shareholders, some of whom are becoming restive.

TfL’s end of the bargain is now to deliver on the projects it is funding and building itself, notably the East London line extension which should be under construction by the end of the year. ‘We take that very seriously,’ says Kiley. ‘We want to make the budget, we want to do it in time, with the minimum of fuss, in a way that makes people appreciate it’s a great project.’

A lot is riding on these projects, which also include the Thames Gateway bridge and extending the Docklands Light Railway. If TfL brings them in on time and under budget, as it did with the congestion charge, it will not only reinforce its claim for further powers – for instance over the overland commuter rail network – but prove that old-fashioned public procurement was the right way to rebuild the infrastructure all along.

London School of Economics transport expert Tony Travers, a fierce opponent of the PPP, believes this is likely: ‘It will almost certainly be financed, built and opened while the PPP is still wallowing in treacle.’ He is more nuanced about TfL’s achievements as a whole. He concedes that the congestion charge and buses have been an extraordinary piece of public policy and that uniting the transport modes under TfL is a gain in transparency. But the buses are now seriously in the red and some charge that TfL on its own has inflated the going rate for public-agency salaries. But even allowing for the baleful influence of the PPP, the real doubts centre on the Tube: ‘Has quality improved perceptibly since takeover in 2003? The answer has to be no.’

Kiley’s indirect answer is to point to New York and Boston. On the whole, London and the two US cities are very similar. But there is one big difference: New York and Boston have been working on physically improving their systems for 20 and 30 years, respectively. London, on the other hand, has just the Jubilee and Victoria Lines to its credit over the past 60 years.

Kiley is well aware that for TfL over the next few years building human capital will be as important as the infrastructure. It’s the last big piece of the jigsaw – ‘the mode we have to get into for the next 30 years’.

He won’t be around that long, of course, but he has another good reason for sticking around to make TfL work. He likes London. He enjoys his relationship with the mayor, and vice-versa, despite their political differences (Livingstone reportedly began the job interview by saying he never thought he’d be recruiting an ex-CIA agent Kiley retorted that he didn’t expect to be sitting in the office of an unreconstructed Trot). ‘It’s been a delight. I really like London – it’s getting a bit easier to move around in, too.’

Profile

Name Robert R Kiley

Born 16 September 1935

Career Although ‘never a spook’, joined the CIA after Harvard Graduate School, ending up executive assistant to director Richard Helms. Deputy mayor of Boston and chairman of the Massachusetts Bay Transportation Authority in the 1970s. Chairman of New York’s MTA in the 1980s. In 1990s principal of private equity investment house CEO of New York City Partnership. Member of the Council on Foreign Relations, American Repertory Theater, Princeton Review

Family Married to Rona, two sons

Leisure Jogging, reading, galleries, museums

What they say

‘He definitely plays like a political animal. We’re not used to that. It’s curious, a top guy telling everyone that a partnership isn’t going to work. It hardly provokes the spirit the PPP is supposed to have’

One-time contractor

‘He sets very high standards. But don’t bullshit him – it’s lethal’ Colleague

‘When I was elected mayor, I decided to appoint the best transport expert in the world. All my experience working with Bob Kiley has confirmed that judgment. Personally, we hit it off from the start – it has been a real pleasure working with him’ Ken Livingstone

The Observer, 8 May 2005