MANAGERS still haven’t taken on board the lessons identified by management researcher Frederick Herzberg 40 years ago.

In a celebrated Harvard Business Review article in 1968, One More Time: How Do You Motivate Employees , Herzberg showed that satisfaction and dissatisfaction at work weren’t opposites, as most people assume, but the result of completely different factors.

So while poor pay can certainly demotivate, sometimes disastrously, it doesn’t follow that paying people handsomely motivates them.

The opposite of job dissatisfaction, Herzberg said, wasn’t job satisfaction but no job dissatisfaction. He argued that satisfaction and dissatisfaction at work involved two different human needs.

Money, like work conditions, relations with peers, status and, above all, company policy and supervision, were what he called ‘hygiene factors’ – aspects external to the job that could make people unhappy if they were inadequate, but which weren’t motivational.

Motivators, on the other hand, were factors intrinsic to the job: achievement, recognition, responsibility, advancement and personal growth.

It follows from this that most motivational tools, from exhortation to pay incentives, are useless: people can only motivate themselves.

As Herzberg famously put it: ‘If you want people motivated to do a good job, give them a good job to do.’

The Observer, 11 April 2004

O NE OF Gordon Brown’s odder budget ideas was the scheme to allow new graduates of the world’s top 50 business schools to come to the UK to work for a year. Most of these establishments being American, this is presumably a very New Labour attempt to jolt British management by mainlining a shot of transatlantic enterprise culture.

The Chancellor should be careful what he wishes for. The business schools which validated the enterprise culture were also the ones that gave us Enron, Tyco and ‘Chainsaw Al’ Dunlap. More generally, they are at least partly to blame for the paralysing cynicism with which the public has come to regard all companies and their managers.

That’s a serious indictment, but it’s not mine. The charge sheet is much more formidable because it was hammered on the door Luther-like by one of business academia’s own. When he was struck down this month at the tragically early age of 55, London Business School Pro fessor Sumantra Ghoshal was working on a project which took issue with just about everything currently being done in management – including and especially the role of business academics.

Ghoshal’s challenge can’t be shrugged off as revolutionary ideology or a woolly idealism. Originally a physicist and a genuine management heavyweight, he was a meticulous researcher who never stopped observing and questioning why managers and companies acted as they did. Why, he wanted to know, were managers so busy shooting themselves in the foot, behaving in ways that wrecked their own legitimacy and that of their companies?

Why, instead of nurturing their organisations as engines of progress, were they turning them into vehicles of exploitation and coercion, apeing markets, creating monopolies, ripping off customers and forcing employees to work ever harder while their top managers helped themselves to truly breathtaking quantities of pay?

Reluctantly, Ghoshal had come to the conclusion that the culprit was none other than the academy itself: ‘We – as business school faculty – need to own up to our own role in creating Enrons,’ he wrote in one of his last pieces. ‘It is our theories and ideas that have done much to strengthen the management practices we are all so loudly condemning.’

Recent company excesses, Ghoshal argued, had their roots in ideas developed in business schools over the past 30 years. If managers were seeking ever- more inventive ways of boosting share prices, paying themselves over the odds for doing so and offloading the costs on to society, they were just doing what business-school courses on strategy, transaction cost economics and agency theory had taught them.

Neither was it surprising that policy-makers framed their responses in the same destructive terms. Corporate governance prescriptions are based on agency theory, for instance, with no shred of evidence that they will improve outcomes, while the Chancellor is eagerly laying out the welcome mat for clever people brilliantly trained in the very things that got us into trouble in the first place.

How did the business schools come to create today’s management Frankenstein? Ghoshal traced it back to the unspoken academic project to make business studies ‘respectable’ by removing the subjectivity of analysing company behaviour in terms of human choices and actions, instead looking for explanations in impersonal patterns and laws – a kind of business physics.

The pretension to science has far-reaching consequences. By definition, it excludes moral or ethical dimensions from management since they are about intentions which cannot be modelled or quantified. By the same token, it can only admit strictly economic motivations, precisely because they can be quantified. Establishing shareholder value as the one true end of management allows all the complex variables that go into corporate life to be reduced to a neat set of equations. ( Mutatis mutandis , it is the same kind of economic determinism that allows Brown to assume that merging the Inland Revenue and Customs or axing 20,000 jobs at the Department of Work and Pensions are simple mathematical formulae: DWP – 20,000 = x % efficiency gain.)

But in any case, trying to make human organisations fit the causal logic of physics is an egregious error. The laws of physics are blind humans and their organisations have intentions and choices and employ strategy – one step back, two steps forward – that aren’t available in the natural sciences. It not only doesn’t fit with what happens in practice it’s wrong even in theory.

There’s a final savage twist to the infernal circle in which academics and managers find themselves entwined. Social scientists carry an even greater social and moral responsibility than their colleagues in the physical sciences, argued Ghoshal. If in physics you theorise that a brick dropped off a tall building could fall upwards, you’d get some funny looks – but it wouldn’t affect the trajectory of the brick.

In the social sciences on the other hand, if enough people believe it, a ‘wrong’ theory can become ‘right’ – exactly what has happened in management. Thus, managers who treat people as opportunistic chancers encourage opportunism that justifies ever tighter controls. Governance that assumes managers can’t be trusted to maximise shareholder value without hefty incentives, breeds managers who require huge stock options. Strategy based on the idea that maximising profits involves a battle for value with employees, partners and society generates corporate monsters such as Enron which do in fact distort competition and eventually destroy themselves.

When he died, Ghoshal was challenging academic colleagues not only to stop creating Enrons but to start constructing positive and realistic theories that would be the building blocks for a better corporate world. Many were responding. Contributing to this endeavour is probably not what Brown had in mind for his business-school recruits, but there could be no more urgent task or fitting memorial.

The Observer, 28 March 2004

THE CAR is ‘the machine that changed the world’. It has played a huge part in global social, economic and industrial development. Consumers increasingly want the mobility, convenience and status that go with car ownership, and one estimate is that today’s world car population of 740 million will rise to 1.2 billion by 2020.

But vehicles consume irreplaceable fossil fuels and now account for 20 per cent of European CO2 combustion emissions, according to the European Environmental Agency.

Although 75 per cent of end-of-life vehicles by weight is currently recycled, an estimated 2 million tonnes of scrap residues a year go into landfill waste tips in Europe alone. Car manufacturing plants generate waste and harmful emissions of their own.

So is a sustainable motor industry an oxymoron? Maybe, but the experience of Japan’s Toyota offers some cause for optimism. Although true sustainability remains a long way off, Toyota shows how enlightened corporate values combined with long-term regulation and competition can drive industrial production in an environmentally positive direction.

Although its past ranges of cars have lacked charisma, Toyota packs business oomph. With a 10.7 per cent market share, last year the Japanese group passed Ford to become the second biggest vehicle manufacturer in the world. Few doubt that it will hit its aim of a 15 per cent global share in the next decade.

Toyota’s reputation and sales reflect this performance. Last year it was the Financial Times’s third most highly respected company after GE and Microsoft, and by some distance the highest-ranked car company. With a market capitalisation of £50bn Toyota is worth more than GM, Ford and Daimler-Chrysler put together.

So what Toyota does matters. Take the launch of its second-generation Prius, the first hybrid petrol-electric powered car to go into mass production. The latest Prius, the North American Car of the Year and Best Engineered Car of 2004, is driven by electricity at low speed, when petrol is least efficient, and by a conventional motor on the open road. By using the strengths of both, the combined technology improves fuel consumption figures and dramatically cuts low-speed emissions. As a tribute to its cleanness, the Prius is exempt from the London congestion charge.

Hybrid cars, says Toyota UK marketing director Paul Philpott, are only the bridge to fuel cells, possibly the cars of the future. The first fuel-cell vehicles, whose only by-product is water vapour, are already being tested in the US and Japan. Mass production is still a decade or so off, dependent on the creation of a fuel infrastructure and how fast the tech nology can be made affordable. Meanwhile, the hybrid is an important environmental step forward. It has the advantage of dovetailing with the existing infrastructure, and it is acceptable to consumers because there is little performance downside – in fact, its next manifestation will be in a luxury high-performance Lexus four-wheel-drive. ‘Prius makes environmental motoring desirable,’ says Philpott – as underlined by the car’s engineering accolades and rapid take-up by consumers. More than half the UK’s 2004 allocation of 1,600 have already been sold, and the global total for the year is on target for 130,000.

This is only a small proportion of today’s output of 6 million Toyotas. But the hybrid will steadily be extended to other Toyota models as the technology improves and economies of scale kick in, changing the competitive landscape. No manufacturer can now afford to ignore the technology. Ford has just licensed Toyota’s technology, and General Motors, owner of the UK Vauxhall brand, is due to produce a range of hybrid SUVs (sports-utility vehicles) and pick-up trucks.

While the Prius is the headline grabber, however, Toyota can legitimately claim that its environmental credentials go deeper than greener engines. Indeed, can be argued that the platform for its success, the Toyota Production System (TPS), is, as the exemplar of lean manufacturing, a major contribution to environmental welfare in its own right.

The TPS, constructed on the principle that it is better and cheaper to build in quality to cars from the start than inspect it in at the end – the traditional Western view – has been steadily honed over nearly 70 years to minimise every aspect of waste: time, space, energy, raw materials, movement, inspection. This ‘pursuit of the zeros’ has taken Toyota so far ahead of its rivals that it reputedly takes less time to build a Lexus than to correct the faults in an expensive German car coming off the assembly line. If every manufacturer were as efficient, the Kyoto anti-pollution targets would be within reach, or could be set much higher.

The power of this kind of continuous improvement is that there is always more to go for. Last year ,Toyota’s UK plants at Burnaston in Derbyshire and Deeside in North Wales sent almost nothing to landfill tips, compared with 8.5 kilos per car in 2001. Over Europe as a whole, the group cut energy use by 19 per cent and used 6 per cent less water while increasing production.

Toyota’s technological innovations around cleaner engine technology and safety are grounded in, and supported by, this frugal manufacturing philosophy. Both are enshrined in the company’s Earth Charter, first developed in 1992, and its full life-cycle Environmental Management System.

Both are essential to fulfil the group’s ultimate aim of building a car that emits zero emissions over the whole of its life. Ambitious but, as Toyota president Fujo Cho says: ‘The expansion of automobile use will have a significant impact on the environment. In other words, there is no future for the automotive industry without the promotion of environmental technology. Toyota is convinced that only companies that succeed in this area will be acceptable to society.’

The virtuous circle is just that.

CORPORATE SOCIAL RESPONSIBILITY, Special Report, The Observer, 21 March 2004

EVERY year at this time, traffic grinds to a halt in London and other big towns as the streets sprout holes, stop signs, cones, piles of sand, JCBs, drunkenly-leaning temporary traffic lights and other paraphernalia of the March roadworks festival. Is this some mysterious urban rising of the sap, a mechanical equivalent of Wordsworth’s daffodils or the arrival of the swallows in spring?

Well, yes and no. The plague of roadworks is indeed linked to the seasons, in this case the end of the financial year. But the cause is not nature but strictly man-made. It’s the budget. Unless you’re a taxi driver, you’ll probably just shrug at this point. Surely budgets are a fact of life, whether for governments, big companies or the smallest tiddler? Budgeting, planning and monitoring against the plan is what managers do. It is management – or at least one version of it.

We shouldn’t be so tolerant. In all the (long) list of dubious management practices, none is so incontrovertibly an emperor without clothes as budgeting. Its effects are deeply corrosive on both sides of the organisation.

On the spending side, every budget-holder spends to the limit in the last months of the year to make sure they can ask for the same amount next year.

Of course there’s no earthly reason why all the streets should be dug up at the same time – it would be much better if they weren’t. In any case, the situation may have changed since the budget was set a year or more ago. London’s New Oxford Street might not need resurfacing. Or that daft new one-way system might be less urgent (it always is) than spending on care for the elderly, schools or libraries. But there is no way of switching resources to match new priorities, because ‘it’s in the budget’.

In this way, a process that is undertaken in the name of controlling costs actually ring-fences them. Through the incentives, the budget provides for budget-holders to create larger budgets and keep or spend surpluses – there is no incentive for anyone to give them back so that they can be used elsewhere – it is actually a powerful driver of inflation. The justification for next year’s roadworks budgets is last year’s, with no examination of real need.

The effects on the output side are, if anything, even worse. For example, in most organisations salespeople act like budget-holders in reverse. Instead of setting their budgets high, they have every incentive to keep their targets low, since they are paid for meeting them.

Here, too, there is a matching reverse-inflation effect. As sales targets are usually set monthly or quarterly, perversely there is little incentive for a salesperson to go on selling after he or she has met the target. They’re getting the bonus, so why should they? From an individual point of view, it makes much more sense to get the next period off to a running start by postponing a new sale over the month-end.

As with spending, the budget encourages and protects sub-optimisation. Of course, managers know that salespeople want lower targets, so they often arbitrarily put them up: ‘To make the budget numbers, you must sell X million this month.’ That gives people incentives to sell at all costs – the wrong product to the wrong people (as in financial services), unnecessary extra features, to bring forward sales from the next period, or, in the worst cases, to invent them. The counterpart to the March holes-in-the-road syndrome on the output side is factories all over the country working flat out to meet a wholly artificial sales rush that magically materialises just in time for people to win their year-end bonuses.

It is no exaggeration to say that budgets corrupt. In a large company with many business units, product divisions and geographical regions, each with its own budget, the effects are compounded many times over. ‘Managing’ in such organisations is often as much a political as a business activity- gaming the system by negotiating low targets and high bud gets – and ‘success’ is about managing contingencies – hiding pots of resources at different levels that can be brought into play throughout the year to make up the numbers. Either way, people’s energy and attention is focused on managing internal relationships rather than the risk and uncertainty of the real world.

Not surprisingly, budgets create despair and misery for many thoughtful managers, as well as massive organisational cost. In a large company, the budget process may take six months and consume 30 per cent of management’s time – all for something, as they are well aware, that is out of date long before it is signed off and actually hinders real-time business adjustment.

As a fixed performance contract in a volatile world, budgets are the reverse of what’s needed. They are as obstructive to rational business behaviour as the holes in the road to the circulation of traffic. The taxi driver’s right: the world would be a lot better without them.

The Observer, 21 March 2004

HOW’S THIS for a winning publishing formula? A university funds scientific research the research is turned into a paper by an author, who pays a colour illustration and reprint charge – say, pounds 1,000 – and surrenders the copyright for the privilege of publishing his findings in a specialised journal. Peers review the work for free, then the publisher prints the article – and sells it back for a hefty fee to the institution where the work was carried out in the first place.

Welcome to scientific publishing. As the production and potential value of scientific knowledge mushrooms, so too has the small-circulation, high-price formula pioneered by Robert Maxwell’s Pergamon Press to disseminate it. Science is the fastest-growing media sub-sector of the past 15 years, says Morgan Stanley.

It is also highly profitable. At Reed Elsevier, the largest scientific publisher (and now, coincidentally, owner of Pergamon), margins on its journals business historically hover at about 40 per cent.

It may not stay that way for much longer. In the past year a new kind of publisher has begun to take the game to Reed Elsevier – and rivals Wolters Kluwer, Wiley, Springer, Blackwells, and Taylor and Francis – by operating quite differently. Instead of charging a subscription, so-called open-access publishers such as BioMed Central in the UK and the US Public Library of Science allow free access to their journals, usually on the web, recouping their editing and distribution costs with a one-off fee to authors – about $1,500 for a top US journal, far less than that in the UK.

As with Napster and music, the scientific publishing shake-up is due to a combination of unsustainable monopoly and online technology that undermines the cost basis of traditional publishing.

Many specialised journals are must-reads for scientists in their area in effect they are a monopoly. This means that, however arcane the subject, publishers can charge more or less what they like. Over 10 years, journal price increases have far outstripped inflation. Annual subscriptions to Brain Research or Nuclear Physics B – both owned by Elsevier – cost $16,000 and $12,000 respectively.

The ability of large publishers to push up prices has been reinforced by a growing concentration of journal ownership and the tactic of bundling subscriptions into ‘big deals’, under which major subscribers must pay for electronic access to a fixed portfolio of journals, whatever their needs. To access digital versions of the 200 journals it already keeps in hard copy, one UK institute says it had to take a bundle of 1,300 electronic ones, at a large extra cost.

Now the pips are starting to squeak. With relatively fixed budgets, even the world’s best libraries can no longer afford to hold all the research journals. Something has to give – and often it is the journals of less powerful publishers or learned societies, which use their publishing proceeds to fund other activities. Academics believe that the knock-on effects of scientific publishing inflation have also been felt by other subject areas, such as the humanities, and even library book acquisition programmes.

Over the past two years, protests at the unfairness of the current system have mounted. Having paid once to produce new scientific knowledge, funding agencies and scientists argue, why should taxpayers and charitable bodies have to pay again to use it?

Last June may have marked the turning point, when open access joined the mainstream. A group of high-powered international funding agencies, publishers, scientific institutions and libraries published the ‘Bethesda Statement’, championing open-access pub- lishing and outlining steps towards it.

In the same month a deal was struck under which all UK universities joined the NHS in becoming institutional members of BioMed Central, allowing their researchers to publish articles free in return for a central subscription. In the US, meanwhile, a Bill was introduced to Congress which would exclude from copyright protection any work resulting from government-funded research.

Since then the pace has hotted up. Other prominent funding institutions, such as the Howard Hughes Medical Institute, the Wellcome Trust and the Max Planck Society, have come down in favour of the principle. Scientists in California have called on members to boycott Elsevier journals unless they reduce what they see as outrageous access fees, and a number of ‘big deals’ have reportedly been cancelled. ‘Open-access publishing takes off,’ declared an exultant editorial in the British Medical Journal last month. ‘The dream is now achievable.’

As is to be expected, the existing publishers will not go down without a fight. To counter accusations of profiteering, some are making access to important journals free to researchers in developing countries after six months. Announcing Reed Elsevier results this month, chief executive Crispin Davis noted that 96 per cent of Reed scientific subscriptions had been renewed this year. Open access, he said, accounted only for 1 per cent of the overall market and had yet to prove its viability.

Before the House of Commons Select Committee on Science and Technology, which began hearings on the subject earlier this month, Davies repeated his robust defence of a traditional model that he insisted had until now served science well.

Elsevier and other publishers argue that open access will mean an end to peer review and ultimately lower standards of published work – a charge hotly denied by the new entrants.

When it reports, the committee is likely to find that open access has important long-term implications for all branches of the scientific community, including researchers, funding agencies, public authorities and libraries, as well as publishers. As they digest them, expect a messy transitional period ahead. New variants and hybrids will emerge, and some will drop out.

But even in the short term, there will undoubtedly be a richer, more competitive publishing ecology. And you don’t need a scientific journal to tell you that richer competition equals greater benefits for science – and poorer profits for the likes of Reed Elsevier.

The Observer, 14 March 2004

Sumantra Ghoshal, latterly professor of strategic leadership at the London Business School, who has died of a brain haemorrhage aged 55, was a brilliant and original thinker in a field which needs more of them. He used his intellect to understand organisations and to help managers to make them better places to work and greater forces for good. He also loved collaborating – with PhD students, faculty, even journalists, anyone with ideas to trade, in particular with his collaborator Chris Bartlett of Harvard University. ‘Boundaries never meant much to Sumantra,’ Bartlett noted.

All his work was grounded in observation. ‘You look at the phenomena with authenticity, respect, curiosity, speculation, the occasional journalistic privileges,’ Ghoshal once explained. For him, academics and journalists were observers – as he knew from experience, it was managers who did the hard work of wrestling with problems and decisions on the ground, and whatever they were doing, it was for a reason. The purpose of study was to understand those reasons and make it possible to alter the conditions that engendered them for the better.

It was this combination of empathy and extreme intelligence – laced with a strong dose of humour – that made him such a formidable and attractive performer. A wonderful teacher as well as researcher (provided collaborators could put up with a lot of walking about and smoke-filled rooms), he could make complex ideas available with equal fluency to management scholars or a roomful of chief executives, handling theory with flair and practice with rigour.

This is evident in his published works. As well as 12 books, including the ground-breaking Managing Across Borders (1989), The Individualised Corporation (1997), and many academic articles and case histories, Ghoshal and Bartlett were prolific contributors to Harvard Business Review, the manager’s bible.

In a revealing and entertaining recorded discussion in 2000, Ghoshal and Bartlett traced how the focus of their work had zoomed steadily in from the general to the specific. Starting with the strategy of the firm, they then looked at issues of management within it, and finally the individual taking charge of his or her destiny.

It was from this least abstract platform – the individual human being – that the most powerful theoretical challenge, and the most controversial, emerged. The next project, ambitious even for him, was to rescue management practice from the blind alleys that it had run into by recasting management theory from the ground up. He saw today’s disillusion with companies and managers as the fault of management theory – in particular the narrowly economic assumptions about human nature and the nature of companies that in practice cause managers to subvert themselves and their companies. Today’s management theory, he summarised, was undersocialised and one-dimensional, a parody of the human condition more appropriate to a prison or a madhouse than an institution which should be a force for good.

At his death Ghoshal was mobilising forces for the mother of all intellectual battles with his usual gusto, pouring energy into the Advanced Institute for Management Research, of which he was a fellow. Despite the odds, few people who heard him transfix an audience of managers and other non-academics at a recent bravura presentation of his thesis would have bet against him carrying it off. Although it will be difficult without him, it is a tribute to his genius for collaboration that he leaves a network of co-workers determined to take the ideas forward.

Ghoshal was a Bengali, born in Calcutta. He took a BSc in physics at Delhi University and rose through the management ranks at Indian Oil before moving to the US on a Fulbright Fellowship in 1981. There, he managed to produce two PhD dissertations at once, initially at MIT’s Sloan School of Management, then also at Harvard Business School, where he met Bartlett. He was appointed to Insead business school in France in 1985, becoming a full professor in record time and producing a stream of influential books and articles on multinational enterprise.

Joining the London Business School in 1994, he quickly became the centre of a group of researchers who shared his passionately humanist views. He renewed his ties with India, developing a large following through research, consulting, newspaper columns and a television series. He was a prime mover behind the setting up of the Indian School of Business in Hyderabad, where he was founding dean and taught extensively. He also began an influential collection of Indian art.

Wide-ranging, passionate and outgoing, Ghoshal was also a genuinely modest man with a talent for friendship.

He is survived by his wife Sushmita, and two sons in London, and his parents and brother in India.

Sumantra Ghoshal , academic, born September 1948 died March 3 2004

The Guardian, 7 March 2004

PICTURE an industry that grew fat in a postwar sellers’ market. Its products were flashy, poorly built and accident-prone but that didn’t matter, at least to producers, because they had obsolescence built in and everyone needed them.

Everyone knows what happened next. The quality message preached by Western gurus, ignored by home manufacturers, was eagerly adopted elsewhere. Soon, foreign firms were invading the market. Jobs started to haemorrhage overseas. While Western manufacturers squealed about cheap imitations and low labour costs, in fact they were losing out not to cheap but to smart. It wasn’t an economic but a management story.

The motor industry, of course, is a well known study in corporate complacency. Only we’re not talking about cars in the 1960s. We’re talking about software today.

The parallels are as close as transistors on a microchip. As computer users know full well, today it is commercial software that is unsafe at any speed – just like the cars of 40 years ago. For Detroit’s Big Three car-makers read the software giants that today rule the computer world, such as Microsoft and Oracle. For Japan read India. And for W. Edwards Deming and J.M. Juran, the quality sages whose message Western car manufacturers scorned until the eleventh hour, read Watts Humphrey.

Humphrey, 77, spent 27 years at IBM, where he was director of programming and ran the software labs. Since 1986, he has been crusading for better software at Carnegie Mellon University’s software engineering institute (SEI), where he is a fellow.

Like Deming, to whom he is often compared, Humphrey insists that it’s perfectly possible to build defect-free software – but not on today’s craft methods, which (crudely) consist of relying on individual effort and intuition, and testing out the inevitable errors afterwards.

Wrong, says Humphrey. Writing good software requires method to ensure that quality is built in from the start. Far from being more expensive, he says, building defect-free software saves both time and money because it does away with rework. One estimate is that 75 per cent of Microsoft’s software costs are in testing and correcting defects. IBM had two acres of computers just dedicated to testing – all generating cost, not value.

Again like Deming, Humphrey refuses to blame programmers for the errors that cost so dear. To blame, he says, are the management systems within which people work. To prove it, he has developed personal and team-based software development methods that yield results that are remarkably different from the industry norm.

Whereas half of traditional software projects take more than twice their allotted time or are simply cancelled, with vast cost overruns, a recent SEI study of 20 projects run on Humphrey’s methods found that they all came in on time and on budget, essentially defect-free.

None of this is new. In 2000, Cheryll Barron, a past Silicon Valley correspondent for the Economist and Business Week, wrote a much quoted essay on salon.com called ‘High-tech’s missionaries of sloppiness’. Airing just these concerns, Barron railed at computer failure rates running at 25 per cent a year and prevailing attitudes summed up in notably explicit fashion by industry evangelist Guy Kawasaki (also quoted in these columns) as ‘Don’t worry, be crappy’. The important thing, Kawasaki said, was to ship product fast. If it was ‘good enough’, problems could be fixed later.

The trouble is that ‘good enough’ is not good enough any more. Although Barron’s piece caused a stir at the time, nothing much in the industry has changed since – except in two vital respects.

First, the stakes are higher. Windows now contains nearly 100 million lines of code. By SEI’s rule of thumb that means tens of thousands of errors even after testing, which by definition won’t be discovered until an accident happens, or worse.

In the firing line now are more than individual users. Unlike cars, computers are interconnected by the internet. As size, complexity and numbers of interconnections grow, so do the vulnerabilities of the system as a whole – which can simply no longer be addressed by the industry’s traditional reactive methods. Baldly, internet security problems are software quality problems, says Humphrey: ‘It is safe to say that there is no such thing as poor-quality secure software.’

The second change since 2000 is in the competition. Echoing Japanese car firms of the 1960s, the most eager adopters of software quality systems are not (with exceptions such as IBM and Boeing) US industry leaders but much less prominent Indian firms which have an urgent need for an edge – and no vested interested in the past. Indian companies such as Infosys and AIS are now churning out code that is not only cheaper but better than the industry standard. Of the organisations claiming the SEI’s (top) Level 5 quality status in 2002, more than half were Indian. Most US and European firms are at Level 2.

Back in the 1960s, the most assiduous motor-industry follower of Deming’s principles was Toyota, which has never stopped deepening his insights and honing its production system. Forty years on, guess which is by far the most profitable car firm and about to overtake Ford as the second largest in the world.

Could it happen in software? It sounds improbable now – but then, that’s what General Motors thought in the 1960s. Most firms may not know it, but the process has already begun.

The Observer, 7 March 2004

ONE OF the consequences of changing business demographics is the move from a collective to an individual approach to employment rights. At the same time, the workforce is becoming more diverse, and the number of directives and regulations is growing – minimum wage, working time, discrimination, there’s even an ageism directive on the horizon. There are no fewer than 100 employment rights.

With more people needing to know more about more things, it’s not surprising that there are gaps in employment knowledge – and they are holding UK businesses, particularly smaller ones, back, says the employment advisory service Acas.

In a survey to be released on Tuesday, Acas finds that 25 per cent of small- and medium-sized employers aren’t familiar with recent changes in employment law and their implications, even though almost all the 500 companies surveyed agreed that good communication on employment matters is an aid to business. Nearly the same proportion feel they don’t have the information or know-how to deal effectively with workplace-related problems.

What Acas calls the ‘rhetoric and reality’ gap is also true for employees. While 93 per cent think good communication on employment rights is positive for business, 31 per cent say their bosses deal with an issue only when it becomes a problem. At the same time, 81 per cent of employees confess they aren’t familiar with new employment regulations.

Some of these gaps may be wilful – as in the case of the 1,000 or so women dismissed every year for being pregnant, according to the Equal Opportunities Commission. But both direct and indirect costs are high. Employment tribunal cases have levelled off at 90,000- 100,000 a year but the size of compensation awards is going up.

In any case, ‘tribunal cases are the tip of the iceberg’, notes Jerry Gibson, Acas regional director for London. ‘There are 1 million job changes a year. Of course, some are people moving on to a better job but how many happen because someone is nursing a grievance that isn’t being dealt with?’

The cost of recruiting is now pounds 4,000 per employee – but that may be far outweighed by the loss of the experience that leaves with the employee, notes Gibson. As the makeup of the workforce changes, there is ‘a compelling business need’ for employers to know the ins and outs of employment law as it applies to diversity and gender – or at least to know where to turn for advice.

Acas itself mirrors the changing face of UK employment relations. Since its founding in the bad old days of 1974, just before the winter of discontent and the three-day week, Acas has been best- known for its conciliation role. It has played a behind-the-scenes role in almost every important UK labour dispute. With the fall-off in strikes, the decline of the unions in many sectors and the rise of the small firm as an employer of choice, however, it finds itself with an increased educational and advisory role.

Nowadays, Acas is keen to emphasise that only 10 per cent of its 900 or so employees are involved in resolving disputes. Most of its effort goes into a variety of support services (training, information and advice helplines, workshops and consultancy), mostly free or at cost, aiming to prevent small issues becoming large problems in the first place.

‘Prevention is better, and cheaper, than cure,’ says Gibson. ‘Once cases get to tribunal, attitudes harden. We want to get more issues solved in the workplace, before they cause damage. Usually that’s what everyone wants, but a lot of people don’t know where to go for help.’

In the absence of union representatives to keep employers up to the mark or even a dedicated human resources person in small companies, the organisation takes 750,000 help calls a year, split evenly between individuals and employers.

The website gets 500,000 hits a month. Most queries still centre on issues of discipline and dismissal, often around competence and performance improvement. Redundancy and layoff issues are next, and wages and conditions come in third, with a growing category focused on equality, diversity and gender matters, including pregnancy. As the result of a recommendation of the Better Regulation Task Force, Acas is piloting a mediation programme for small companies which has the objective of intervention at an early stage. Another novelty is ‘partnering’ with organisations such as the Engineering Employers’ Federation, chambers of commerce, regional development agencies and even the British Medical Association to improve Acas’s visibility and increase its reach.

The aim is to convince people that observing employee rights and running an effective business are compatible, Gibson emphasises. The two should go together. In ninety-five per cent of cases employee rights are commonsense. When it comes to the tricky last 5 per cent, the rule of thumb should be call Acas before you do something irretrievable, he says.

The Observer, 29 February 2004

THE increasing cost of doing business in the UK is driving manufacturers and service operators offshore, the president of the Engineering Employers’ Federation, Mike Baunton, warned the Chancellor recently.

He singled out pensions, national insurance, energy and the new emissions trading scheme for particular stricture. ‘There is now an increasing range of pressures making it more expensive to do business in the UK and eroding our advantage as a low-cost, lightly regulated economy,’ he complained. ‘This is only fuelling the fire of moves to lower-cost countries and damaging our ability to manage proactively the transformation of our economy.’

To be fair, criticism of the opportunistic NI increases is justified. The Government can also legitimately be castigated for its disastrous handling of the public sector – the Prime Minister’s admission that real improvement may take a further 15 years will be an underestimate unless it changes its methods.

Yet in the wider perspective, industry’s attempt to offload responsibility for its own shortcomings on to Westminster and Whitehall is right royal cheek. For the last 30 years the British economy has been run almost entirely according to the managerial agenda – in fact no other has had a look-in.

Imagine the wish-list of a captain of industry in the Eighties. The right to manage? Certainly, sir, courtesy of Margaret Thatcher’s series of trade union laws. Lower taxes and a smaller state? Yes, thanks to draconian cuts across the public sector (now flapping heavily home to roost) and successive waves of privatisation that have turned great swathes of near-monopoly over to profit-seeking private hands. Flexibility? You got it. No workers’ rights or social protection, please, we’re British. A stable economy? Of course – and rightly- plus explicit policies for manufacturing, innovation and training, all washed down with oodles of performance-related pay. And the result? Though the UK economy (apart from the US) is unique in being driven so directly by the perceived demands of corporate competitiveness, as Michael Porter politely reminded us last year, it remains stuck in a low-wage, low-skill groove.

The Engineering Employers’ Federation noted last year that productivity was being held back by low take-up of proven remedies, such as high-performance workplace arrangements. Meanwhile, European Commissioner Chris Patten caustically remarked recently that while sorrowful official British speeches about the eurozone countries suggested that we should be sending them food parcels, they don’t seem to accept that our lightly regulated, low-cost model has anything to teach them.

The reality, he said, is that five allegedly sclerotic EU states are richer than the UK, and only Spain, Portugal and Greece have poorer productivity levels. The UK has low unemployment, but four other countries do even better. For all its boasts about being outward-looking and internationally oriented, the UK trades a much smaller share of its economy than Germany (42 per cent of GDP to 57 per cent) and is surpassed even by those supposed bastions of protectionism France and Italy (45 and 43 per cent). Nor is it obvious, Patten added, that ‘the consumer of public services, the train passenger, the hospital patient in Britain is better off than our continental cousins’.

As is so often the case, the captains of industry are unerringly attacking the wrong enemy. For a start, a low-wage, low-skill economy is only low-cost in a very limited sense. The inputs may be cheap, but any gain is many times outweighed by the cost of poor quality, unsophisticated products, and primitive processes. As Derek Bok, a famous Harvard president, said: ‘If you think education is expensive, try ignorance.’

In the same perspective, not all regulation is bad. Well-framed regulation with sensible lead times can set in train a virtuous circle of innovation leading to superior products and, in the long run, lower costs. Emissions trading is a good example of market-friendly regulation rewarding companies that innovate in socially desirable ways, without dictating how they should do it. Firms that meet the targets will be in a good position to benefit from their experience and knowhow when stricter environmental conditions are imposed in other parts of the world, as they surely will be.

The real barriers to better performance are not external, but internal. The Engineering Employers’ Federation noted that companies that adopt high-performance working practices can expect to show a 20 per cent improvement over companies that don’t. The Work Foundation has come up with similar findings. The invariable revelation for manufacturers (and often service operations) adopting lean approaches is the huge potential for stripping out waste of all kinds, much of which drops straight to the bottom line.

In other words, most companies could find 20 to 40 per cent extra resources within their own four walls, and much more by spreading good practice to their suppliers. The secret of the rare UK companies that concentrate on world-class work practices – Rolls-Royce and Reckitt Benckiser spring to mind – is that they open up vast strategic possibilities that are effectively closed to their competitors. It’s no accident that 30 per cent of Reckitt’s turnover comes from products introduced in the last three years.

This illustrates their other secret: innovation. These companies understand that finding new and better ways of giving customers what they want isn’t an optional extra. It’s what firms are supposed to do, part of the makeup that distinguishes them from markets. In the long run, the ability of a company to use its workforce to innovate – there is no other sustainable way – far outweighs the advantages of cheap labour or even energy. Brain trumps brawn every time.

No company has to put up with 20-40 per cent waste nor is there any inevitability about relocation east. The big issue for UK manufacturing firms is their own self-imposed determinism, not government policy. You got what you wanted: your destiny is in your own hands.

The Observer, 22 February 2004

AN ELECTRICIAN came to change the meter two weeks ago. Competent and sensible, he did the job in about two minutes. As he drank his tea he told me that someone would be back to read the meter next week. Why didn’t he do it? ‘Too easy,’ he grimaced. ‘The new computer system won’t accept meter readings it hasn’t generated requests for.’

He added that he was disinclined to do it anyway. As one of the few properly trained technicians left in the firm – most are now subcontractors – he got all the hard jobs (changing a meter can take hours if it is inconveniently sited) but was expected to do, and be paid for, the same number of assignments in a day as the subcontractors. ‘Why’, he asked, ‘should I help anyone else make their numbers at my expense?’

The next day I had to ring my bank with a simple query. My branch is in Norfolk, and up to a few years ago I would have talked to someone whose voice I recognised and who knew my account. He or she would have answered the question straight off, we’d have mentioned the weather and the relationship would have been reasserted.

This time, after penetrating the IVR (interactive voice response) picket line, I got someone in a service centre in the Far East. She was polite and businesslike. We waited while she pulled up my details and the prompts to answer my question. The query took longer than it would have done before – but, worse, it was a computer-driven dialogue that I could have had with any bank, or any organisation, anywhere. It was a transaction, not a relationship.

What have these episodes in common? One thing is a striking gap between rhetoric and reality. The rhetoric in each case is serving the customer, the reality is worsening service. Another is the baleful effect of much modern IT, where the computer is the master rather than the servant of the customer and the people doing the work.

And behind that is a system producing poor service because that is what it is designed to do. It is working to the edicts of top managers – what those furthest removed from customers think that customers want – not those of the customers themselves.

It is the considerable virtue of John Seddon’s new book, Freedom from Command and Control (Vanguard Education), that it charts with rigour and precision exactly how this infernal machine fits together to work as perversely as it does.

Seddon has long been a scourge of the conventional call centre industry, and he uses many telling examples (good and bad) in the book. But his field is wider. As the title suggests, this is a full assault on the top-down, function-driven management philosophies that still govern almost all western companies, and how they are damaging service firms.

So here is a lucid account of how customers have been duped into mistaking IT features (‘solutions’) for benefits, often leading to worse service and higher costs. Here also is an explanation of why so many off-the-shelf management aids at best have little effect, or lead companies seriously astray.

ISO 9000 (a particular bugbear), the ‘excellence model’, Investors in People, Charter Mark, the balanced scorecard, IT-based knowledge management, and customer relationship management all get it in the neck for failing to disturb the top-down, mass production thinking that service companies adopted wholesale from manufacturing – just as manufacturing firms are moving on.

Here in particular is an eloquent discussion of that most treacherous of management subjects: measurement. Seddon shows how the conventional apparatus of measurement – targets, standards, service levels, activity measures and budget – focuses almost all managers’ attention on individual performance, whereas 95 per cent of performance variation is due to the system over which the individual has no control. Where managers are mostly remote from the work, Seddon notes dryly that paying attention to people can be extremely demoralising for those paid attention to.

Service is harder than manufacturing because demand is more varied – the consumer helps to shape it. The conventional approach to this is to try to constrain variety by forcing it through a computer-regulated filter into a mass production factory allowing economies of scale.

Wrong way round, says Seddon. People are good at handling variety computers aren’t. ‘The assumption in the command-and-control design is that freedom must be subordinated to efficiency the worker must be kept under control. In fact, efficiencies only come from freedom – the people who do the work must be able to decide the best way to handle any particular demand to maximise efficiency.’

Instead of being controlled by measures, people need measures and methods that allow them to control and improve the work. In this way people, and only people, can absorb variety. And the results can be spectacular: capacity rises as waste is removed. Cost falls. Better service is cheaper not dearer.

This applies everywhere, but particularly to the public sector. Throwing resources at a wasteful system just compounds the inefficiency. Paradoxically, for all the privatisation and experiments with private-sector delivery, the real problem with the UK public sector is that it is under as much central command and control as it was when nationalised. As a result, despite all the inspection, auditing and targets – in fact because of it – ‘every public service… shows significant scope for improvement without any additional resources. The services are replete with waste it is designed in. Public sector managers need help in designing it out.’

Seddon quotes Deming: ‘Without theory, experience has no meaning. Without theory, one has no questions to ask. Hence, without theory, there is no learning.’

This book is what the pioneer systems thinker might have written about improving services: practical, rigorous, experience distilled through theory. If the public sector took it seriously it would have more effect on delivery than all the targets put together, and if the private sector adopted it there might be fewer call centre jobs, but they wouldn’t be heading east.

The Observer, 15 Frbruary 2004