I F YOU DID a psychological profile of the corporation, what would it look like? Self-interested, manipulative, avowedly asocial, self-aggrandising, unable to accept responsibility for its own actions or feel remorse – as a person, the corporation would probably qualify as a full-blown psychopath.

Sensationalist? Joel Bakan, whose provocative film documentary, The Corporation , is due out at this month and whose book of the same is in the shops (Constable, pounds 9.99), doesn’t think so.

The opposite of a blunderbuss-wielding Michael Moore, Bakan is a Canadian law professor whose brief is as well- ordered, concise and sober as the accusation is grave: behind its benevolent face, he argues, the most important institution of modern capitalism is a Frankenstein’s monster that has broken its chains and is now consuming the society that created it.

Three key legal interventions have made the corporation what it is, Bakan says. The first two were the innovations of limited liability and the granting to the corporation of a legal personality. At a stroke, ‘the corporate person had taken the place, at least in law, of the real people who owned corporations’. And the company, previously dependent on government grant and charter, could now be seen as an independent being, a ‘natural entity’ with the same rights to exist as an individual.

The corporation turned out to be a work of genius, a brilliant amplifier of capital and effort that has made possible the sensational improvements in living standards (in the developed world) of the past 150 years. But it is a flawed genius, and the flaw, perhaps fatal, is the third enabling condition: exclusive emphasis on profit.

This is expressed in the book’s subtitle, The Pathological Pursuit of Profit and Power. On the basis of case law, Bakan insists, ‘managers and directors have a legal duty to put shareholders’ interests above all others’ and no authority to serve any other interests – the ‘best interests of the corporation’ principle.

The combination of these three conditions (Bakan could have added a fourth, which is that, unlike a human being, the corporation has no natural life span. It can in effect live and get bigger for ever) has far-reaching consequences.

The first is that among the interests the corporation has no business serving are those of the society that framed its governing rules. In the interests of shareholders, the corporation is not only entitled but obliged to offload on to others as many of the costs of making profits as possible.

In short, says shareholder activist Bob Monks, quoted by Bakan, the corporation is ‘an externalising machine, in the same way that a shark is a killing machine’ – not because it’s malevolent but because that’s the way it is designed. This in turn makes the whole notion of corporate social responsibility a logical nonsense, permissible only when it is in the best interests of the corporation (in which case it’s not corporate social responsibility) or when, ironically, it is insincere (ditto).

CSR, says Bakan baldly, ‘is an oxymoron’. You might just as well ask a great white to be nice to fish or a fox to go vegetarian. When it comes down to it, responsibility always takes second place to shareholder interests, in the name of which corporations constantly test the edges of legality and far overstep those of morality.

This truly is a world where, as he says, legal compliance is just another cost-benefit analysis. Bakan has hair-raising and gruesomely entertaining sections on spying, cheating and amazingly unethical marketing devices. He also notes three pages of alleged legal breaches by corporate role model GE sweatshops turning out goods for Nike and Wal-Mart and American companies’ reluctance to cease their involvement in Nazi Germany because it was good business for their shareholders.

Extraordinarily, Bakan recounts a fortunately inept but serious (and authenticated) business-backed plan to depose Roosevelt and install a fascist regime in the US in the 1930s.

The corporation has been much more successful by persuasion, to the extent that swathes of what used to be the public sphere and interest have been surrendered to it. And it still wants more.

But as the dominance grows, so do the flaws. In a nightmare version of the effect of the invisible hand, everyone pursuing their own self-interest increasingly produces results no one wants or intends (in the extreme, planetary collapse), but for which no one is responsible. And the pathologically narrow and materialistic view of human nature that underpins today’s corporate form not only dominates economic activity – it is also altering humanity.

‘In a world where anything or anyone can be owned, manipulated, and exploited for profit, everything and everyone will eventually be,’ Bakan warns. The sorcerer’s apprentice is running amok the corporation is remaking us in its own stunted and undersocialised image.

This lucid and urgent book does leave a couple of stones unturned. It perhaps overestimates the global hegemony of the US model (although not its fundamentalist zeal for hegemony) shareholders certainly own rights in companies, but the assets themselves?

Then again it underestimates, or rather does not address, the formidable extent to which the model is underpinned by dominant academic theory. And, perhaps not surprisingly, Bakan’s remedies are less well thought-out than his cool and authorititative analysis.

He is, though, undoubtedly right that it’s time to destroy the pernicious and self-serving idea of the corporation as a ‘natural entity’. It’s not. It has a right to exist because society gave it one.

The corporation was created as an instrument of public policy, and its licence can still, theoretically, be revoked. The presumption of freedom from regulation is otiose. The corporation needs to be re-made in our image – in law, in theory and in practice.

The Observer, 24 October 2004

ONCE UPON a time, all of, oooh, 20 years ago, the press was full of strident headlines about site closures, the decamping of jobs to Asia and the inability of the West to compete with low-wage countries in the East. Business Week dubbed the phenomenon ‘the hollowing of the corporation’ and wondered if the US economy would survive.

Then, of course, the subject was manufacturing. We know what happened: manufacturing survived, but metamorphosed, with Dell, Cisco, Microsoft and Intel replacing General Motors, Ford and GE as the motor of the US and world economy. Out of the new order emerged an unprecedented phase of expansion that was only reined in when the dotcom boom toppled over its own exuberant overconfidence three years ago.

We should do well to bear the parallel in mind when thinking about the current outsourcing/offshoring boom. On the one hand, ‘[Offshoring] is nothing new,’ notes Ananda Mukerji, chief executive of fast-growing Indian outsourcing service provider ICICI One-Source (I-OneSource). Twenty years ago, multinationals discovered the advantage of global sourcing of physical goods now the technology exists to do the same thing with business processes, ranging from payroll processing and account handling to customer service.

On the other hand, it’s pretty clear that after the current reconfiguring of comparative advantage is done, it won’t be business as usual. The potential for fresh combinations of resources being created will almost certainly see to that.

Mukerji’s company, astutely set up by a leading bank in 2002 to specialise in ‘business process outsourcing’ to UK and US firms, mainly in financial services, is a good example of this potential. Now boasting a workforce of 4,800 and six processing centres, I-OneSource grew by 134 per cent last year and is projecting annual expansion ‘faster than the industry’s 50 per cent’ for the next four or five years.

The Indian outsourcing sector will employ 1 million Indians by 2008. The same number of IT professionals will be writing software and running offshored IT contracts. And if you thought their advantage was just low cost, think again.

‘In practice, the cost proposition only comes into play if quality is up to scratch,’ Mukerji says. ‘As an offshore vendor, you have to be even better before people will consider you.’

Typically, I-OneSource is seeking to hop quickly up the value ladder from commodity transaction supplier to fully fledged business partner, offering not just an end-to-end service but also advice and consultancy in the mould of an IBM or Accenture. In a nutshell, firms such as I-OneSource are positioning themselves squarely at the leading edge of the knowledge economy.

Given India’s output of more than 2 million graduates a year (although not all of the highest standard), this is not far-fetched. A year ago, says Mukerji, the choice of location for a world-class processing centre was down to Mumbai or Bangalore now eight or 10 cities are jostling to be chosen.

It is a different story in the UK, where service companies should be preparing for a shake-up quite as fundamental as the one that hit manufacturing for six two decades ago.

UK manufacturers in particular were slow to react to the threat of global sourcing at first, then rushed pell-mell into out- and offshoring. However they took time to register (some never did), that there’s nothing inevitable about this. As the performance of many, often small or medium-sized, companies has shown, it’s perfectly possible for manufacturing to prosper in the UK – on condition that companies rethink all their processes from end to end and go lean.

Lean is a lot more than the tools and techniques it is sometimes sold as, since it involves reversing the top-down flow of influence and information – from manager-push to customer-pull – something that does not appeal to most managers. This is one reason why take-up was so half-hearted.

As specialist consultancies such as Vanguard, and now mainstream outfits such as McKinsey and AT Kearney, have shown, the lean logic applies equally well to providing service as to making things. AT Kearney, for instance, says the ‘lean leap’ can take 30 to 40 per cent out of the cost of transaction or other processes – after which the offshoring equation takes on a different complexion. It may still be a sensible option, but it is then about something more sophisticated than cost advantage, which is rapidly eroded when competitors follow suit.

Almost all service companies are where manufacturing was 20 years ago, stuffed with waste and offering poor service and value for money. To get beyond the mass-production attitudes that prevent them moving up to the higher-added-value uplands where most people think the UK’s economic future lies, they need to clear out the clutter – irrespective of outsourcing.

The lesson of manufacturing (and of comparative advantage) is that outsourcing to each other’s strengths can and should be a positive-sum game: each party can gain. But to reap that benefit, UK service companies will need to be much cleverer in improving quality and cutting cost than their manufacturing counterparts. Otherwise, Indian companies – which, after all, know a lot about UK tastes – will turn them into, well, curry.

The Observer, 17 Observer 2004

THE GREAT Australian fast bowler Glenn McGrath once noted that cricket was a straightforward game that people were constantly trying to complicate. ‘The hardest part,’ he said, ‘is keeping it simple.’

The same is true of management. Not that management is any easier than getting your bat near, or yourself out of the way of, a 95mph ball. It’s not. But keeping sight of the context is just as hard as laying bat on ball.

Do you hook the bouncer or not? That requires a simultaneous evaluation of the condition of the pitch, the balance of the battle between bowler and batsman and the state of the entire game.

Most management is a vast superstructure of complication erected on a small, simple base: the requirement to deliver a product or service to a customer at a satisfactory quality and price. But the superstructure is now so overgrown that it’s almost impossible to see the true context.

When you get down to it, 95 per cent of ‘management’ is about managing complexity and 5 per cent about doing the simple things that really matter.

Hence the feeling of infinite regression so characteristic of the field: managers pounce eagerly on the latest dragon-taming device (usually IT), only to find that the ‘solution’ is as frustratingly distant as ever.

The answer wasn’t IT after all. But nor is it marketing, strategy, HR or any other single element. It’s to stop obsessively ‘doing the wrong thing righter’ (Russell Ackoff) and strip the organisation back to the original simple idea.

Think of simplicity as a strong force whose unifying principle is ‘pull’. This is in relation to its opposite, the weak force of complexity whose governing principle is ‘push’. Both are self-reinforcing spirals but traditional, complexity-based push management drives a vicious circle.

Most companies make a product or service and then sell it to the customer with a big sales push.

Because they’re manufacturing a guess of what the customer wants, they have lots of product variants in reserve ‘just in case’. This inventory now has to be stored and managed.

As well as IT to track their inventory, companies need computers, specialists and managers to predict demand, order materials and parts and schedule manufacturing for the products they guess the customers will buy.

When companies guess wrongly they must dream up incentives for both their salesforce and customers to get these expensively made and stored mistakes sold. These schemes often cancel out any profit and forced sales also obscure what customers really want.

Push is so ingrained that we don’t notice it any more. Internally rather than externally mandated, it requires forced circulation through the system. Decisions (guesses) and commands about customers, products and quantities are pushed down from the departments where they are made. Communications departments are set up to circulate the information.

Jobs are pushed too, their shape determined by computer-derived abstractions that drive (another significant word) production.

So is much of the training on offer but, as psychologist Abraham Maslow put it, ‘A job that isn’t worth doing isn’t worth doing well.’ These jobs aren’t worth doing well and people know it. So to smooth their edges and cajole performance, managers resort to incentives, palliatives and sanctions, administered by an army of human resources executives.

Now reverse the logic. Suppose the customer pulls the product or service required through your system. Because you’re making what someone has actually ordered, you don’t have to guess or predict sales and production. You don’t have to add extra features or colours to tempt people to buy. If you’re not making things on spec, you don’t need the space, computers or people to store and track the inventory.

Within the factory, computers for complex scheduling and ordering are redundant because the work itself carries the necessary information. The order automatically triggers demand for parts the work triggers the next stage in the process. So jobs also have a clear and present focus: to do just what is needed to satisfy the next internal customer.

Because the information is validated by the customer and inherent in the work, companies need fewer managers to second-guess it or make arbitrary decisions and then correct them. Managers’ jobs change from giving orders to helping others do the job of satisfying customers.

Another of Maslow’s sayings was: ‘If you want people to do a good job, give them a good job to do.’ People doing a good job don’t take sickies, so firms working this way can do without absenteeism measures (absurd and disastrous bribes for people to turn up to work), nor do you need complicated incentives or other sanctions. Pull easily defines appropriate training, information and pay: whatever it takes to enable people to do a better job of satisfying the cus tomer. Decades ago, author and consultant Richard Schonberger termed this virtuous circle ‘frugal’ management. The more smoothly work is pulled through the system, the less wasted time, effort, space, inventory, rework, duplication, computers – and cost.

Oh, yes, and management too. As Peter Drucker once lamented, ‘So much of management seems to be preventing people doing their jobs.’

A better aim for managers is getting out of the way. The best kind of management is no management at all. Simple, or what?

The Observer, 10 October 2004

THE CASE of Corinne Maier was one of the media events of the French silly season. Maier, an economist at Electricite de France (EDF), a pillar of the French corporate establishment, wrote a book called Bonjour paresse (‘Hello Sloth’) which landed its author in a bathful of eau chaude when it was splashed on the front page of Le Monde

Billed as a slacker’s manual and subtitled ‘of the art and necessity of doing as little as possible at work’, Bonjour paresse was a publishing sensation. But it also brought the author a summons to a disciplinary hearing on the grounds of damage to EDF’s prestige and the self-esteem of her colleagues.

Would she, wouldn’t she be sacked? In the event, having been given time to reflect by Maier’s defiant departure for a nice holiday (‘Everyone knows you can’t have a disciplinary hearing in France in August,’ she snorted), the company let her off with a warning, an outcome she accepted with remarkably bad grace, muttering darkly about ‘harassment’.

It’s not hard to see why EDF was cross. A nod to Francoise Sagan’s dark existential 1954 novel Bonjour tristesse (‘Hello Heartache’), Bonjour paresse does a rather more direct job on the existential void at the heart of business.

Stingingly written by a formidably well-read intellectual (Maier’s other subjects are literature and the famously abstruse psychoanalyst Jacques Lacan), her anti-business polemic pulls no punches. Much of corporate life, says Maier, is quite literally absurd, consisting of empty rituals and arbitrary actions whose only function is to provide the illusion of purpose.

Underneath is stasis – ‘everything has to change so that everything remains the same’ – in which the job of executives is to fill the time between pay cheques by doing nothing as actively as they can.

This hollowness is perfectly reflected in corporate speak, of which Maier produces several choice examples, some from EDF. ‘Rester leader implique securiser le sourcing et/ou le positionnement du groupe sur le midstream gazier, de meme qu’identifier un mix/portefeuille de production optimal en fonction du mass market,’ gives a flavour, its posturing self-importance even more offensive for its linguistic barbarity (‘no man’s langue,’ as Maier neatly dubs it).

Maier’s wrecking ball scores many bruising hits, for how could it not? But although she mercilessly exposes the unsayable – the gulf between the seriousness with which top managers regard their activity and the triviality of the object of their pretension, between the claims of flexibility and cool and the stultifying conformity beneath, between rhetorical benevolence and the reality of control – in one crucial respect Maier doesn’t go far enough.

She shares with the cartoon strip office worker Dilbert, whom she quotes, the unquestioned assumption that corporate existence is inherently meaningless. Hence the advice at the end of the book, which got her into trouble: to sap the business from within by going through the motions while doing as little as possible.

But – and this actually doubles the absurdity of today’s reality – there is no practical or intellectual reason why business should be like this.

Historically, business and trade were civilising influences. As Jane Jacobs has shown, ‘le doux commerce’ required honesty and trust as well as numeracy to flourish. The first use of writing was to record inventory – crudely, business made literature possible. As Maier herself notes, capitalism’s beginnings have been closely linked to the Protestant work ethic.

The original sin of modern business, if one can call it that, is not to do with its nature but the practical matter of its organisation. Back in the early days of mass production, standardised products seemed to demand standardised work to churn them out. Hence Fordisation, the defining characteristic of which was command and control and specialisation – the hiving off of thought, management and decision-making from frontline work.

Command and control may have enabled huge increases in productivity at the time, but with every day that passes we pay a heavier price for its continuing legacy, the evacuation of purpose from work. One result is the colossal inefficiencies that disfigure almost all organisations in both public and private sectors, with consequences that Maier so clinically describes.

She is right to be outraged. But the answer is not passive resistance. In a jokey aside earlier in the book, she fantasises that taking a leaf from French history and chopping off a few heads might be a step forward, a prelude to a new settlement that would at least bring a fairer division of the spoils between the industrial classes, if not a more meaningful existence.

Regime change, however, is exactly what’s needed. In effect, large companies are the ancien regime , the last surviving practitioners of central planning, as rusted, dysfunctional and archaic as latter-day Soviet Russia. But there’s no point in guillotining a few of today’s chiefs and replacing them with others of the same ilk. The whole apparatus of command and control must go.

So ignore the call to cultivate sloth. Instead, sweep away the entire top-heavy company superstructure, together with all the highly paid courtiers on the executive floor who do nothing but complicate the issues and weigh the company down. Liberate purpose. Put decision-making back into work. Adieu paresse , bonjour la revolution !

Simon.Caulkin@observer.co.uk

French lessons

‘The supreme goal of the organisation is to induce the employee to internalise the things that would otherwise have to be imposed on him or her from the outside,’ writes Maier. To combat this you must:

*Remember that white-collar work is today’s slavery: you work for your monthly pay cheque, nothing else.

*Bear in mind that trying to change the system is futile.

*Since your job is pointless – any idiot could do it (and will, given the chance) – spend time cultivating allies rather than working.

* Avoid responsibility, which brings extra work at small reward, and operational assignments like the plague. Give preference to ‘staff’ jobs (research, internal consultancy, communications) whose contribution is impossible to measure.

* Talk the talk but learn to recognise fellow doubters.

* Be courteous to temps, contractors and others brought in from outside. After all, they are the only ones who do any real work.

the Observer, 3 October 2004

IT’S PAYBACK time. As the election approaches, the government is demanding returns on an unprecedented period of IT spending. Massive programmes in health (the national programme for IT – nearly £2 billion this year), education (£2.6bn), local government (£3bn), defence (£1.9bn), justice (£1.2bn) and central government departments (£2.7 bn) take total public-sector spending on information technology up to £12bn this year, making the wider public sector the computer industry’s biggest customer. According to Kable, a research company, by 2006/7, the public-sector IT market will be worth more than £16 bn – 72 per cent higher than 2001/2.

The result of this huge modernisation expenditure (‘no investment without reform’) is expected to be the automation of 100,000 civil-service jobs, removing 16.5 per cent from central-government running costs and ploughing more than £20bn back into frontline services such as hospitals, schools and criminal justice.

In the 21st century, for example, the government believes there’s no reason why every central department should have its own separate payroll, HR, finance and property management systems, or why the public sector as a whole should have 30,000 back offices collecting and processing information. There are similar opportunities, it believes, for rationalising front offices where officials transact with citizens face to face.

There’s no doubt about the spending. There’s no doubt also about the scope for improvement. But will the computers that are supposed to link the two actually live up to the government’s expectations by improving efficiencies and helping it win the next election? There are two reasons why this is, as they say, a big ask.

The first is history. The spending programme includes a number of huge and complex projects – NPfIT (for the Health Service) merging the Inland Revenue and Customs and Excise computer systems Department for Work and Pensions Criminal Records Bureau a 10-year Defence Information Infrastructure project, with identity cards and the unification of the justice system on the horizon – in which the UK’s track record is mixed, to say the least.

Figures quoted by the British Computer Society suggest that just 16 per cent of large UK projects meet all their goals. Other estimates are lower. Hence the steady stream of computer disaster stories: the 18-months-late £400m Child Support Agency computer, for example, or the £318m (so far) system for the magistrates’ courts, referred to by the chairman of the Public Accounts Committee as ‘one of the worst IT projects I have ever seen’.

When the Audit Commission looked at the well-publicised episode of the Passport Office computer, it found that the new system had raised unit costs by 30 per cent. The National Audit Office is now preparing to take a look at NPfIT.

The second reason for scepticism is method. Although the failure rate of such projects is partly to do with poor project management, more importantly their rationale is flawed from the outset.

When Michael Hammer wrote his celebrated ‘re-engineering’ manifesto, ‘Re-engineering Work: Don’t Automate, Obliterate’, in 1990, the kernel of the idea was the need to recast the way work was organised. He saw, from examples in Japan and elsewhere, that by abandoning a system in which work (processing an order or paying a bill, say) was passed sequentially from one department to another and instead managing it as a seamless process from beginning to end, huge improvements could be made: a bill could be paid (or housing benefit processed) in days rather than the months it traditionally took.

Hammer got many things right. He emphasised, for example, that the ‘re-engineered’ process worked by putting the decision point where the work was carried out. ‘The new principle suggests that the people who do the work should make the decisions and that the process itself can have built-in controls,’ he wrote.

In other words, re-engineering would reverse the fragmentation that made assembly-line jobs, whether in a factory or local or central government office, so soul-destroying. And by putting decision points in the flow of work it could get rid of suffocating bureaucracy and layers of management control.

Unfortunately, organisations overlooked these humanistic subtleties in favour of Hammer’s other prescription: that computers were an essential component of this large-scale reorganisation. The result was the exact opposite of his brave new world of work. Instead of obliterating departmental functions and boundaries and re-engineering work in an end-to-end flow, companies queued up to buy IT ‘solutions’ that not only preserved the bad old systems in aspic, they actually disabled further improvement by locking in the old methods in. Hence the subsequent finding that the majority of re-engineering attempts failed.

Unfortunately, in the public sector this tendency is only now reaching its apogee in the government’s current spending review. Almost all public services are ripe for reshaping and streamlining as a process from the customer’s point of view. But the current regime of specifications and targets, completely functionally and activity based, is utterly antithetical to any such project. One ex-civil servant remembers being instructed how to pick up a pencil faster in a desperate attempt to squeeze efficiencies out of the existing system.

In a travesty of ‘reform’, what is now being proposed is giant automated information-processing factories for mass-producing transactions – procurement, information collecting and processing – which will at the same time institutionalise the waste inherent in existing systems and perpetuate the dehumanisation of separating work from decision-making.

A classic example of the specification cart preceding the improvement horse, thus effectively bolting the latter in its stable, is e-government. The government mandate that all possible public services should be deliverable electronically by the end of 2005 will cost around £7.5 bn. But as departments and local authorities rush to meet the deadline, public takeup of the spanking new e-services is so disappointing that the government has launched a marketing campaign to boost it. A local authority or agency website, after all, is only another way into the shop. By specifying e-government without any idea of what matters to an e-citizen, the government will have simply added an expensive new entry channel to existing ones. Unsurprisingly, Kable estimates that on current trends e-government will never remotely cover its costs, let alone free up resources for the front line.

Mere pen-pushing to specification (‘reply to all queries with two working days’) and control is indeed demeaning and demoralising work. But that’s because of the way the work is designed. Contrary to the political discourse about bureaucrats and time-servers, the truth is that working to improve back-office support for front-line public service is both worthy and essential, work anyone could be proud of.

Improving public services could and should form part of the job of all civil servants. The tragedy of the current regime – assembly-line work driven by targets and specification – amplified by what’s now being proposed, is that it will make improvement impossible, alienating public service workers and lifting service levels only on the margin. The truth is that the real ‘reform’ that’s needed is that of the government’s approach.

Otherwise today’s IT bonanza will benefit the IT and consultancy industries more than those at the front end, whether citizens or those who deliver the services.

The Observer, 26 September 2004

HERE’S WHY service doesn’t get better – systems that managers install with the aim of improving service actually make it worse, as in the case of interactive voice response that we highlighted last week.

Take the case of a leaking water main experienced by an Observer reader. Repairing a leak (or anything else) is a common and straightforward type of service – something breaks, the customer asks for service, the company fixes it. But it’s frequently not that simple. In this case, a new customer rang the water company to ask it to mend a leaking main (she knew it was leaking because the meter kept spinning when the stopcock was shut).

The company replied that someone would phone her back (within five days according to the customer, two according to the company) to arrange an appointment. No, she told them, it’s an emergency: having just moved into the house, we don’t know where the main lies and the leak may be damaging the foundations. Anyway, aren’t we supposed to be conserving water?

No, replied the firm, an emergency is something like Boscastle it doesn’t apply to domestic repairs. We’ll phone you back to fix an appointment – which we guarantee will be within the following five working days. In other words, there could be a seven- or 10-day wait, depending on the versions, between reporting an incident and the first visit.

The first visit, because when the man from the water company arrived after what most of us would call two weeks (these are working days), he was a surveyor, not a plumber: a second visit would be necessary to fix the leak. In any case, he thought the leak was underground and outside. Underground meant excavation, and excavation required another operator. So… you need to ring the company. They’ll ring you back to make an appointment. That’s right, within five days (or two). And the excavator? Five days. Guaranteed.

By this time, with the meter still running more than two weeks after the leak had been reported and, she thought, potentially another fortnight in the offing, the customer quickly had the leak – which turned out to be under the house – fixed by another plumber.

Let’s be clear what this story is about. It’s not about incompetence or ill-will. There’s no reason to doubt the company’s worthy intentions about water conservation and customer service on its website. What interests the customer – and me – is the extraordinary discrepancy between what the company insists is ‘good service’ and her personal experience that it is not.

How can a company construct a system that allows it to live with such opposites, claiming in good faith excellent customer service and conservation at the same time as it leaves the water running for a month, give or take a few days? That requires a minimum of four transactions with the company, up to six if the leak is underground (work it out), to fix a domestic leak?

The answer is, very easily. This is the norm, rather than the exception, in service companies. You do it by managing the trees and ignoring the wood, in the name of efficiency breaking up the process of serving the customer into individual activities (phone the customer, send a surveyor, send a plumber) and managing the activities according to detailed specification. The underlying purpose gets lost in the process.

The purpose of a water company is, presumably, satisfying customers by delivering water as reliably and economically as possible. The repair ought to serve that purpose, so the quicker the better. That’s certainly what matters most to the customer.

You’d think, then, that the company would measure and manage the process from beginning to end: the complete repair cycle time from first phone call to the plumber’s van pulling out of the drive. But you’d be wrong. Not only does the company not manage overall repair times, it doesn’t even know what they are. It can tell you how well it meets the specifications for making an appointment or sending a surveyor or plumber, but not how long the overall process takes.

In other words, it has no way of measuring how well it is meeting its purpose of carrying out the repair. Result: it is perfectly possible, as in this case, for an urgent repair to take the best part of a month and everyone to meet their specification. So, again: because everyone is meeting their specification, service is impeccable – we can prove it. The customer must be mistaken. No one knows anything is wrong.

Does this sound familiar? It should. Fragmentation and specification are everywhere, and everywhere they have the same dire effects of building in inefficiencies and waste. Because of the inefficiencies – think of the wasted time, transactions, phone calls, mileage, not to mention water, and the large possibility of error in the multiple hand-offs – poor service is always more expensive than good, although managers (and politicians) can’t see this either.

Specifications and targets put in place to improve service are in fact incompatible with it, because they subvert purpose. Instead of minimising customer inconvenience, water company employees strive diligently to meet the specification – phone back or get someone out within the specified time. This isn’t their fault: they are doing what they are told. To a degree, this is true of the company as a whole. Incredibly, among the water regulator’s eight indicators of service levels, one is the time companies take to answer the phone – but not how long it takes to fix a broken main.

As always, there is an alternative. Stop measuring activities that are part of the whole, get rid of the accompanying specifications and targets, and manage the work as a piece from beginning to end. Put people to work solving customers’ problems rather than meeting specifications. Keep the water flowing – and staunch the flood of leaking customer confidence.

The Observer, 5 September 2004

LAST WEEK ‘the UK’s leading Orange dealer’ texted me the offer of a free mobile upgrade. I phoned back – and got its IVR (interactive voice response) system.

Oh God. First a long promotion spiel, then four options to select from: ‘If you are a pay-monthly contract customer whose phone is more than 11 months old and you would like to speak with a friendly upgrade adviser about upgrading to one of the new generation of colour camera phones entirely free of charge, press 1. If…’

I pressed 2 – only to get a second level of recorded response: ‘To enable us to give you information on our latest phones and tariffs, please state your name, your phone number and the expiry date of your contract so that…’

No – definitely not. Life’s too short. I want to talk to a person, not be patronised by a machine. The company approached me – there’s a limit to the amount of time and effort I’ll spend even for a free offer. And I haven’t thought about the contract for years. I haven’t a clue about the details. That’s their job!

This is a small example, but it sums up why IVR is the most hated management invention of modern times, despised by everyone including, no doubt, when they experience it from the other end, the managers who eagerly install it in their businesses. It is also one of the most misguided and counterproductive.

So how come managers are so keen to use it? The short answer is that they believe automation will cut the cost of providing service. By having customers auto-sort and filter calls as they come in, they think they can minimise the amount of expensive people-resource devoted to answering questions, and maximise the time they spend selling.

But the calculation is wrong in every respect. IVR is sold as an IT ‘solution’, and like any number of such ‘solutions’ the main thing it solves is the IT firms’ need to make sales. Far from containing costs it generally raises them – and worsens service. Companies, and certainly customers, would be better off without it.

Let’s go back to the beginning. What is the problem that IVR is supposed to be a solution to? The key issue in service is dealing with variety – amplified by the fact that the service is ‘co-produced’ in real time with the customer. My mobile query could have to do with any number of phone makes, types and tariffs, and I have no idea what my contract is. And I don’t want a colour camera phone, I want a headset. Although I might check the tariff too while I’m about it.

It’s impossible to sort calls according to all the possible variables – nor should you try. Arbitrary categories, as in this case, simply create confusion (what do I do if none of the options fits my query/queries?) or resistance (I’m buggered if I’m doing any more of this). In the first case the result is unnecessary work (I press any old button, explain my query to the wrong person who has to pass me to another), which means extra cost in the second, non-completion – I drop out. This means lost sales, which of course managers can’t see.

All this happens because the menu options are invariably not designed according to demand – what matters to the customer – but according to supply – what matters to a remote marketing department. Using a device that customers hate is already courtroom evidence of a producer’s rather than a customer’s mentality.

The irony is that we both want the same thing: smooth service that helps me get most value out of my mobile phone. But you wouldn’t know it, because the robotised menu sets up an artificial opposition between the two: it prevents me getting the service I require.

Computers are great at routine and hopeless at variety. People, on the other hand, are wonderful at variety and bored and demoralised by routine. So what does IVR do? With the utmost perversity, it uses both people and computers for what they are worst at. It is therefore not surprising that it irritates the hell out of customers too – a full house of dysfunctionality.

What matters to me is having my questions answered and my order taken in the shortest possible time, in one call. The best way for the company to do this is to reverse the usual thinking, get rid of the IVR filter and put its best ‘upgrade advisers’ on the frontline phones, where they belong.

For most companies, this is counterintuitive, because they are obsessed with people-costs. They measure people to death with activity measures like time to respond, call duration, numbers of calls a day. But these are unrelated to the purpose of the activity – in this case selling phones, accessories and minutes – and therefore offer no guidance on how to do it better.

Meanwhile, they ignore the other costs – for example, of non-completers (like me) and customers who consume extra resources by having to ring a sec ond or third time. These are often substantial.

Unlike computers, people can relate to customers and pick up on these things. They can report back and adjust the offering accordingly. By stopping callers dropping out, they increase chances of making a sale by answering their questions first time, they prevent unwanted follow-on calls. The first increases revenues, the second effectively increases capacity. And you can further reduce costs by ending the IVR contract that you no longer need.

So – select from the following options: if you want to improve service, increase sales and cut costs, press button one and delete your IVR…

There are no further options.

the Observer, 29 August 2004

THERE is a minister for it, an academy for it, and companies and managers are signing up for it in droves: corporate social responsibility (CSR) is rapidly becoming management’s new conventional wisdom.

JK Galbraith, who invented the term, pointed out that conventional wisdom becomes so by being repeated so many times by those with axes to grind that it becomes the default position irrespective of its merits. As such, all conventional wisdom bears the beadiest scrutiny. CSR is no exception: what is actually going on behind these blandly reassuring words? Should it be welcomed or is it a dangerous distraction from business’s real role?

This is the question posed by David Henderson in The Role of Business in the Modern World (Institute of Economic Affairs, pounds 12.50). Henderson, a prominent academic economist and former head of economics and statistics at the OECD, is a CSR sceptic. But his scepticism derives not from the common reproach that CSR is trivial, a fig-leaf for runaway capitalism that does nothing to change it. His charge is that CSR may be too powerful, undermining the ‘primary purpose of business’ as the vehicle of economic progress and thereby damaging, rather than increasing, welfare.

Henderson has aired some of these concerns before but it’s a measure of how far the debate has moved on that he now aims not so much at the possible consequences of adopting CSR on the individual firm – he accepts that in some cases CSR can contribute to long-term profitability – as on the economy as a whole.

‘It is the possible economy-wide effects of CSR which are especially worrying,’ he says. His fear is that if managers allow corporate political correctness to take primacy over red-blooded entrepreneurialism, market opportunities will be neglected and competitive pressures weakened, making people in general worse off. ‘Such a trend towards a more regulated world, with social pressures serving to weaken competitive pressures, would cause the primary pur pose of business to be less well performed… The case against the general adoption of CSR by businesses… is not that it would necessarily be bad for enterprise profits, but that it would reduce welfare.’

There is a case to be made against CSR but this is not it. In fact, the overall welfare – and companies themselves – are far more at risk from the traditional ‘economic’ approach that he supports than from the ‘global salvationism’ or ‘new millennium collectivism’ that he identifies as the main danger.

Let’s agree with Henderson that, particularly over the last half-century, capitalist economies have produced huge increases in material welfare for their citizens and that companies, as the main engine of capitalist evolution, have an essential role to play in bringing new products to market and opening up new ones.

We live, in fact, in an organisational economy. Unfortunately, like almost all free-market economists, Henderson fails to take the logical next step and make the essential distinction between organisations and markets. A vibrant economy, to increase welfare, needs both, each fulfilling its own function: companies innovating to create temporary advantage for themselves, and markets competing that advantage away and handing the benefit on to consumers.

For companies, the real trouble comes not when they adopt CSR but when they obey the injunctions of free-market economists, which cause them to imitate markets. These are: to put short-term efficiencies before the creation of new resources through innovation to pursue profits or shareholder value explicitly at the expense of customers, suppliers and employees and to neglect the fact that, unlike blind economic forces, they are intentional entities with long-term purpose and choices.

It may well be true, as Henderson suggests, that in some areas corporate behaviour is in danger of becoming overregulated – in corporate governance, for instance, there is little evidence that companies that separate chief executive and chairman’s role or that have a preponderance of outside directors on the board do better than those that do neither. The codes may (possibly) deter wrongdoers, but they don’t make it easier for companies to be entrepreneurial.

But what brought about such regulation? Not companies pursuing CSR, but firms such as Enron and WorldCom that single-mindedly maximised profits – the preferred economic approach – at the expense of other stakeholders. Less spectacularly, Shell and Marks & Spencer have fallen from grace not because they neglected their profit-making function but because they put it before the maintenance of their values. As always, when the financial target becomes the corporate purpose, real priorities suffer.

Ironically, CSR only exists as the obverse of the misguided strict economic approach. It is the understandable response of managers and companies that feel obliged by conventional wisdom to focus on the economic imperative but are uneasily aware that their actions are increasingly having harmful effects, such as obesity, climate change, declining fish stocks, growth of allergies, asthmas and chemically induced ill nesses. No wonder CSR is growing so fast: it’s corporate guilty conscience.

As CK Prahalad points out in his stirring new book, The Fortune at the Bottom of the Pyramid , CSR is a sideshow compared to the need – and opportunity – to bring the world’s 4 billion poor into the global economy.

That requires firms to recommit themselves to their proper vocation of innovation – rather than philanthropy – to meet social need. In the same way, it’s not CSR that requires managers to be as frugal as possible in their use of resources and their emission of harmful wastes: it’s their duty as trustees of the company’s long-term future, a role of which Henderson approves.

‘The search for profit is fully compatible with professionalism, humanity, and the wish to act honourably,’ he writes. But current economic doctrine, by putting the need to make profit first, explicitly absolves managers from any sense of moral responsibility.

As the late Sumantra Ghoshal wrote in his last published piece, what we badly need are theories that acknowledge the patent reality that ‘companies survive and prosper when they simultaneously pay attention to the interests of customers, employees, shareholders and perhaps even the communities in which they operate’.

In other words, those that bring responsibility in from the cold and place it inside the firm. At that point, we all can happily agree that CSR is an irrelevance: it no longer needs to exist.

The Observer, 22 August 2004

YOU MIGHT imagine that the dotcom boom is over. So it is, in the private sector. Among companies, investment in internet ventures dried up more or less overnight three years ago. It now exists as a kind of residual hangover – a fading if embarrassing reminder that overindulgence in hi-tech investment can damage corporate health.

The news doesn’t seem to have percolated through to the public sector, however, which is in the middle of a binge that, if it happened in a pub, would be subject to agonised hand-wringing and questions in Parliament.

According to the research company Kable, which tracks public sector ICT (information and communications technology) spending, e-government – the government’s requirement that all local and central government services should be available electronically by the end of 2005 – will cost the taxpayer £7.4 billion by 2006. Since 2001, the e-government gusher has been spouting at an average rate of £1.5bn a year. Central government’s share of the total will be some £4.4bn, local government £3bn. (These figures don’t include education, health and defence.)

It’s an article of faith that e-government is ‘a good thing’. Progress towards e-government gets local authorities brownie points in their official comprehensive performance assessments – authorities that invest in ambitious computer-based ‘solutions’ such as contact centres, customer relationship management (CRM) databases and comprehensive web portals get higher marks than those that don’t. As further inducement, over the last four years they have received £675 million in central government funding for e-government projects – a figure that is, however, dwarfed by the £4bn mopped up by government departments for the same purpose.

But what’s it all for? The accepted line is that, by making essential information available online, e-government can foster democracy and inclusion and improve the quality of service to citizens and business. In theory, too, it can contribute to efficiency by cutting the cost of service delivery – electronic transactions can be much cheaper than paper-based ones.

So now, with the next election approaching and public services high on the political agenda, the pressure is on to turn the promise into reality. In the just-published expenditure round, Gordon Brown demanded returns from his expensive investment. Government agencies have been given until December to tell him how they are going to persuade the public to use their e-services.

You mean… that’s right: until now no one has bothered to find out what people actually want from e-government. As the 2005 deadline approaches, so little is known that the Office of the Deputy Prime Minister, which is responsible for pushing local authorities online, has launched a £2.5m ‘e-citizen national project’ (www.e-citizen.gov.uk) – a marketing wheeze to discover ‘what makes an e-citizen tick’ and to catapult e-government take-up to success.’

You might think that was something to be done before spending £7.4bn. As it is, while in some cases e-transactions can work well (see right), overall the picture is unpromising. Kable reckons that by 2006 savings from the e-government investment will total a princely £819m. As the graph shows, even taking the figures out to 2015, on current form e-government savings will never even equal current spending.

The reasons for this are summed up in another Kable report, ‘What do they mean by ‘yes’? Shared services and the Gershon agenda’ (www.kablenet. com/kablereport). One of the most important is that in the rush to to meet the 2005 online deadline, people have forgotten the underlying point of improving service – as always happens, the target has become the de facto pur pose, to the detriment of the real one.

The result, says one local authority boss, is ‘a field day for consultants and IT vendors’. An e-government specialist adds: ‘We’re building all these capacities and now we have to help the services find ways of using them. They’re solutions looking for problems… everyone is busy working on the solutions and no one on the problems.’

Regulatory pressures compound the issue. Councils have to invest in e-government to pass their audit tests – but putting services online does nothing to raise customer-satisfaction ratings. ‘So who are we working for?’ asks a puzzled chief executive. ‘Government inspectors, or citizens?’

In any case, while putting basic transactions online may make sense, for more complex issues, for instance around social need, human contact is needed. ‘A lot of it is fundamentally misguided, because it is people who are good at absorbing variety, not machines,’ says a systems specialist quoted by the report.

Finally, the financial approach to e-government has also been as ill-thought-out as the wildest dotcom. ‘Just adding e-government as another access channel to service is the worst of all worlds,’ complains a leading academic observer. ‘E-government as a free good, with departments allowed to do ludicrous ‘invest to save’ bids, is clearly unsustainable.’

Crap service delivered over the internet, as a chief executive puts it, is still crap. In this perspective e-government, far from being the harbinger of a brave new service economy, is turning out to be a monument to the bad old one. You can have any service you like so long as it’s what we’ve decided to provide: what better definition of the producer interest could there be than that?

Additional research by Robert Colvile

The Observer, 15 August 2004

THERE’S AN email joke going around about the latest US position to be outsourced to India: President of the United States.

Is the new appointee a bit shaky on some of the issues? To enable him to answer those he doesn’t understand, says the spoof announcement, he will be given call centre-type scripts to follow. This will allow additional savings to be realised ‘as these scripting tools have already been used by Mr Bush in the US’.

Actually, leaving Bush out of it, the joke may be nearer the mark than many people suppose. Behind press stories about the shift of call centre and low-level number-crunching jobs abroad, something much more fundamental is afoot, which will have implications for Western companies across the board.

We already know, for instance, that by using better methods, some Indian firms are producing software that is not just cheaper but of far higher quality than almost all their Western counterparts.

But in many other areas, too, from banking to shampoo to health, the testing conditions of the developing world are giving birth to cost and quality innovations that dramatically undercut the bloated business models of the West.

Some are recounted in CK Prahalad’s new book, The Fortune at the Bottom of the Pyramid (Wharton School Press). While some are well known – for example, the extraordinary success of the Grameen Bank’s microlending concept in Bangladesh – others are less so.

Take Casas Bahia, which has built one of Brazil’s largest retail chains selling consumer goods to the shanty towns or India’s Aravind eye hospital, which may be the best place in the world to have a cataract removed. At its four sites, Aravind treats 1.4 million patients and carries out 196,000 operations a year. The cost per cataract: $25, compared with $1,500-$2,000 in the US.

As these examples show, to put down today’s shifts as ‘outsourcing’ – a transfer of employment scraps from the rich man’s table – is patronising and simplistic. It’s not just the international division of labour but the whole ecology of business that’s changing. And among the prized Western entities in the front line are brands.

Look at it like this. It’s now a given that you can get any commodity item you like, industrial or consumer, from the Far East without sacrificing reliability or quality. What you can’t get (yet) is a brand.

But the brand, points out Paul Pankhurst, chairman of innovation consultancy PDD, while increasingly critical, is also becoming harder to sustain. For instance, he notes that ‘there are now turn-key design services in India and Taiwan – so you can take not just the manufacture of an athletic shoe or mobile phone offshore, but the design and development work too’.

You can also mobilise a workforce the size of the population of Guildford in a week to ramp up production. Few Western firms can compete with that. The implications are profound. Brand holders have been pushed right to the top of the value chain. This means that they have less and less of the total activity to make their money from: just distribution and the brand itself.

That puts a premium on innovation. But – as companies are starting to comprehend – innov ative capacity is traditionally closely linked to manufacturing (new products often being dependent on new processes). By the same token, as the new turn-key houses are growing up, the in-house innovation capability of the brand owners is inexorably going down.

Outsourcing, as some of us have maintained all along, is not a one-way street. In return for lower costs (maybe) in the short term, ‘advanced’ firms in the developed economies have fragmented and given away increasingly high-level know-how which is being elegantly reassembled and sold back to them – and their competitors. Which means there’s a differentiation problem, too. Says Pankhurst: ‘The more you embrace outsourcing, the more you lose control.’

Testimony to the shift is his own firm, which has recently set up a subsidiary called Carbonate to develop and incubate new ideas. Carbonate’s first new product, the Deck, is a multipurpose exercise platform that was the brainchild of Loughborough University. Carbonate helped to develop and design it (in return for equity) and, crucially, matched it to a brand (Reebok) which can give it much better distribution than it could manage on its own.

The Deck, says Pankhurst, sums up many of the changing aspects of innovation. On the one hand, university departments and small companies are finding it harder and harder to mobilise the clout to commercialise their intellectual property on the other hand, brand owners are in desperate need of new ideas.

The ‘brand bit’ is now absolutely key, he says. In the past, a leading consultancy would have sold engineering and behavioural research now it’s marketing, brand planning and product mapping – ‘stuff we didn’t even think about five years ago’.

Western companies will have to have a solid brand and distribution to survive, he says. That goes for companies not just in consumer goods but also in business-to-business sectors. But they’ll have to be a lot better at it than they are now. A good start would be learning to value and husband the unique know-how they have been so nonchalantly dissipating. Without innovation, there’ll be nothing left to outsource.

the Observer, 8 August 2004