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

TO THE average chief executive, the idea of a ‘democratic enterprise’ probably falls under ‘nice on paper, hopeless in practice’, rather like stakeholding or being kind to the environment.

Not so, insists Lynda Gratton, author of a new book The Democratic Enterprise , (FT Prentice Hall) and a professor of management practice – she says pointedly – not theory , at London Business School. She maintains that democracy is both necessary and do-able.

Although few companies can claim to be perfectly democratic just yet (with the possible exception of Brazil’s Semco), elements of democracy can be found in firms such as BT, McKinsey and BP, and Gratton uses them as the context for her studies of, among other issues, individuals who are taking charge of their working lives. She sees her role as both illuminating the path ahead and giving people confidence to test it out.

‘There are immense pressures to preserve the status quo,’ she says. Search most middle managers and you’ll find a ‘right to manage’ tattoo somewhere about their person. Much widely applied performance management is simply command-and-control with the edges rounded off. The lure of the heroic leader, particularly in times of change, is still strong.

So why should companies want to want to think about the tenets of democracy? For good instrumental reasons, Gratton believes. One is demographic. An alarming proportion of today’s young people – Generation X and Y – are voting with their feet, refusing to replicate what they see as the mistake of their parents in tying themselves to companies that later betrayed them. They are asserting their desire for a different balance by turning their backs on the corporate sector.

A second factor is technology, which is enabling (at least in theory) ever- closer relationships between a firm and its customers – so why not with employees, Gratton reasons. ‘Firms do lots of things that cost money and benefit neither the firm nor its people – like forcing them to commute to expensive city offices when they could work at home,’ she says. ‘That’s poor management – and poor management not to change it.’

There are some powerful performance arguments for democracy, too. By promoting justice and fairness and finding solutions -such as remote working – that work for both sides, the democratic enterprise benefits from more engaged employees.

In turn, engaged employees build shared purpose and alignment, creating more agile, adaptive organisations. This is particularly important in times of change and turbulence, and for promoting innovation. Finally, committed employees, confident that they work for a just organisation that has their interests at heart, can be the difference between the success or failure of a merger or other large new venture.

Such an inclusive organisation overcomes many of the theoretical and practical disadvantages of present-day organisations: the need for complicated incentives and punishments to deter opportunism and align conflicting interests hierarchy to tell people what to do and the denial of any moral or ethical dimension of management.

Yet Gratton argues powerfully that justifications for enterprise democracy go well beyond the bottom line. Democracy, she says, ‘exists for the benefit of its citizens, while also advancing the interests of the institution’. The two go together. In a democracy, individuals have the opportunity to become themselves, to flourish and find meaning in working lives governed by choice and shared purpose.

That is important in itself. Yet the implications go wider still. Gratton believes that currently accepted models of state democracy have virtually been reduced to voting for a leader. It is above the level of the individual citizen and a travesty of the real thing. The ‘real thing’, to the contrary, is engaged participation in daily affairs and decisions in which participants strengthen the institution as they hone their own democratic skills. By far the most important economic and social institution in most people’s lives, the company could- and should – have a large role to play in pro viding fresh energy to redden our thinning political blood.

The idea of the company as saviour of democracy may sound strange, but it is objectively no stranger than the idea that – with all the technological, physical and philosophical possibilities at their disposal – companies continue to lock themselves into a single organisational model that condemns them to concentrate on constraining human behaviour rather than liberating it, and turns management into an exercise in control and manipulation.

Gratton’s book is timely and important. She is one of a small but influential band of business academics who have begun to question the ‘ideological gloomy paradigm’ – the overwhelmingly negative assumptions about human nature that historically underpin management theorising. The Democratic Enterprise is one of the first interventions to crystallise these dissatisfactions and offer steps to a positive alternative model.

A ‘delightful organisation’, one that you would be happy to have your children join? Why not? ‘There’s a sea change going on,’ she believes. ‘The economic view of people has gone as far as it can. The pendulum is beginning to swing back to a more rounded vision of human nature.’ The revolution is democracy, and it starts here.

The Observer, 8 February 2004

WORKPLACE bullying is part of the dark side of organisational life. And it is taking on disturbing proportions. One study in 2000 found that 10 per cent of UK employees had been bullied – that is, suffered persistent, demeaning harassment – over the previous 12 months and 25 per cent had in the last five years.

When Mercer HR Consulting investigated two years later, it reported that one in five employees said they had been bullied in the last year – and even more in the case of middle managers, nearly 24 per cent of whom had been victims. Seventeen per cent of senior managers said they had suffered the same way.

The bullying of managers was particularly worrying, according to Mercer, because it suggested that the practice was endemic.

This suspicion is reinforced by the extraordinary incidence of bullying in occupations such as healthcare (28 per cent in the last year) and the City (50 per cent, according to a hard-hitting BBC documentary, The City Exposed , last year). Although they are at opposite ends of the earning and status spectrum, it’s no accident that these professions are similarly disfigured: both are fiercely target-driven, fear-ruled cultures in which the pressure on managers to make demanding, if not impossible, figures is systematically transmitted down through the ranks.

In the public sector, abuse often takes the form of what might be called bullying by bureaucracy: making unreasonable demands of people doing repetitive work with no control over their working conditions (call centres spring to mind).

The City, however, has taken bullying to another plane. In parts of the Square Mile, management is just a euphemism for institutionalised bullying. The BBC programme and some lurid court cases have painted a picture of tyrannical, abusive, even pathological, behaviour that seems more more appropriate to a prison or the Mafia than to a twenty-first century workplace. Last year broker Cantor Fitzgerald had to pay a former employee nearly pounds 1 million compensation for months of obscenities, threats and public humiliation.

Depressingly, these extre-mes are often tolerated as the price to be paid for exorbitant salaries. In some cases they are worn as a badge of honour.

Cantor appealed against the judgment. One City head-hunter told the BBC: ‘Why should it be changed? If you can’t stand the heat, get out of the kitchen. This is a Darwinian City… If you are not fit enough to survive you will be killed off – and quickly.’

This, not to put too fine a point on it, is bollocks. Bullying is evidence of dysfunctional, out-of-control organisations and people, and carries huge direct and hidden costs. For individuals, these include loss of earnings, esteem and identity, leading in some cases to breakdown and even suicide. According to the 2000 study – by Umist, the University of Manchester Institute of Science and Technology – bullying victims had the worst health, mental and physical, the highest sickness absenteeism and intention to leave, the lowest commitment and job satisfaction and the poorest productivity.

More insidiously, says Lancaster Business School’s Professor Cary Cooper, who co-wrote the report, there seems to be a ‘passive bullying’ syndrome where those who witness it are similarly demoralised.

It’s hard to make precise calculations of the overall cost to organisations of this kind of behaviour. In a report for the International Labour Office on violence and stress at work, Cooper noted that to the direct cost of days lost should be added a possible drop of between 1.5 and 2 per cent in productivity, the cost of complaints and grievances, retirement costs and reputational damage.

He estimates that these could cost some firms the equivalent of between 5 and 15 per cent of turnover – ‘for large companies the difference between profit and loss’. Cooper sees the City’s bullying culture as the product of a high-stress, performance-driven environment, coupled with the fact that newly promoted managers are usually good brokers or traders with no preparation for managing people. ‘As managers they assume they have to reproduce what was done to them,’ Cooper says. ‘This makes the City a perfect breeding ground for bullies.’

It’s true that in many high-pressure occupations the ‘stressometer’ needle sometimes lurches into the red – newspapers are not for shrinking violets, and jour nalists are known to become boisterous on occasion. But there is a world of difference between robustness and sadism, and the line is increasingly being drawn by the courts. As new legislation takes effect, a host of damaging court cases against City firms is expected in the next few months.

That’s one reason why things may start to change in the City (the public sector may be another story). The other is that in an unpredictable world extreme command and control, of which bullying is the extension, is a losing strategy.

Fear, it has been well observed, makes people stupid, and an organisation based on it is an evolutionary dead end. As with the first Neanderthals, good riddance.

The Observer, 1 February 2004

I BET Martin Johnson never went on a leadership course. Unlike his predecessor, I doubt whether England’s World Cup winning rugby captain, who has announced his international retirement, will write a book about leadership either. In fact, how ever you look at it, the man under TV’s best known beetle brows is an unlikely leadership totem all round.

Uncommunicative, less than media friendly, Johnson is pitch- rather than book-smart. He is, as he would say himself, an ordinary bloke. An accidental, initially reluctant captain, at first he was too taciturn to be a really good one. As he admits in his autobiography, he was also at heart a conservative one.

But he led by example. And my, how he learned. In the World Cup final, the captain as captain was the real difference between the two teams. Jonny Wilkinson may have delivered the winning points, but Johnson made that possible by providing the unwavering self-belief and keeping the side’s head together, not only in the palpitating final minutes but also through some nervous performances in previous games.

How to explain the paradox? That Johnson is large and imposing was no hindrance. But on closer inspection, Johnson’s England captaincy was a sophisticated and subtle affair, perfectly illustrating the way notions of leadership are changing to cope with a networked age.

Much of the mountainous literature and most of the development material on leaders and leadership concentrate on personal characteristics of managerial elites. But personal development, points out Mike Pedler, co-author with John Burgoyne and Tom Boydell of the excellent A Manager’s Guide to Leadership (McGraw Hill), doesn’t necessarily provide a helpful guide to action for the organisation. It does, however, lead directly to the disastrous ‘lone hero’ model of leadership that has wreaked such havoc on Western, and particularly US, corporations over the last few years.

Personal qualities are of course important – Johnson’s combination of intense professional will and profound personal modesty were critical, and his essential honesty carried him unerringly through the tricky transition to professionalism.

But a better way of thinking about leadership, suggests Pedler, is as a response to challenge. This puts the emphasis on the here and now, a task and a context. Leadership is a performance art, he says, which has little meaning in the abstract.

For all its dangers, leadership is also becoming increasingly important. In an age of networks, knowledge and self-motivated professionals working in teams, administering resources isn’t enough. The job is to animate them. So management is leadership: the ability to mobilise collective action to face a challenge.

This is a very different animal from the centralised, hoarded leadership of the past. Too often, says Pedler, leadership gets confused with the office holder, so power is tightly held in one place.

In contrast, today’s leadership needs to be decentralised and distributed to every part of the organisation so those on the periphery who are first to spot challenges can act on them instantly.

This kind of inclusive leadership increases the organisation’s agility and power to act at the same time as it serves the political end of diminishing the all-too-present dangers in centralised, charismatic authority. Leadership isn’t authority it’s everyone taking responsibility for making each decision as robust as it can be, by contest if necessary.

Now look at how this plays out in the England rugby team. Pedler’s book quotes Gerard Egan: ‘If your organisation has only one leader, it is probably short of leadership.’ No chance of that. In his chapter on captaincy, Johnson notes that England have a ‘captain’ for every area of the game: for the scrum, for the lineout, and two for defence, with senior players also having their say. Players can and do take responsibility for decisions – not always to the glee of the captain: ‘Some of [the team’s] best moments, scorching tries scored… after a quick tap-and-go, have come with me screaming in the background, ‘No, no… go for the three points!’ ‘

Every organisation needs captains all over the pitch, says Pedler, and the fact that Johnson leaves so many behind is another notch to his credit. It also, as he admits, made leading much easier – as did the immaculate supporting framework provided by coach Clive Woodward and the backup staff.

Leadership, as Pedler notes, is indivisible from the context that creates it. Johnson couldn’t have been the undisputed leader he was without Woodward’s ambitious planning and the support of great players.

But equally the team was only as good as it was because of Johnson’s ability to focus the collective will and translate it into a simple, believable imperative: England would win the World Cup. Hardened internationals have said that he gave them confidence just being on the pitch.

The real test of all good leaders is an organisation that can survive and improve on them. No one can guarantee that, but Johnson, like a series of Australian cricket captains, has given England the best possible chance.

Come to think of it, in his characteristically honest, tell-it-as-it-is autobiography (sales 350,000 and rising) perhaps Johnson has written a leadership manual after all. A better casebook would be hard to imagine.

The Observer, 25 January 2004