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Welcome to the Meridian 1 blog
Jun 25th, 09
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Strategic Analysis: UK Political Environment 2
May 16th, 10
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UK Political Environment - are the clouds clearing or gathering?
The recent UK general election is a major event that requires careful consideration for most local organisations, and it may have wider implications beyond the UK. Unusually, business played a prominent role in the campaign as the Conservative party used a selection of CEOs to back their policy of initiating public expenditure cuts in 2010 and opposing the planned rise in National Insurance which was characterised as a ‘tax on jobs’.
None of the parties won a mandate to govern, but in the unlikely coalition that has been formed between the Conservatives and Liberal Democrats, these Tory economic proposals are already being implemented. Apparently, the policy has found favour with the financial markets, but whether this judgement is being made for the performance of the overall economy or for narrower reasons of self-interest is not entirely clear.
It is too early to tell what the result of this policy approach will be, but many economists have warned that cutting public expenditure and raising taxes too soon in the cycle of economic recovery risks creating a ‘double dip’ recession. Unfortunately, the track record of George Osborne, the new UK Finance Minister is not good in this area. He consistently made bad calls during the unfolding economic downturn. However, the presence of Vince Cable in the Cabinet may help here. As the Liberal Democrat economic shadow he tended to make much better calls, and there is some experience to draw on in the form of former Chancellor Kenneth Clarke.
Previous Conservative administrations caused significant damage to the industrial infrastructure through idealogical pursuit of the flawed economic doctrine of Monetarism. The key strategic indicator over the coming weeks will be whether economic policy decisions are pragmatic or dogmatic. If the latter, we should prepare for another downturn in the next 12 months.
Paying for consultancy by results in the NHS
Oct 15th, 09
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Hospital equipment
This is not a new subject, but it has raised its head again recently following concern about the amount spent on consultancy by the UK National Health Service (NHS). Alan Downey, former chair of the Institute of Business Consulting and KPMG’s global head of healthcare, wrote in Management Today that “Consultants are…increasingly expected to ‘put some skin in the game’ – to place part or all of their fee at risk, depending on a successful outcome.” A similar argument was put forward in Times Online by Alan Leaman, Chief Executive of the Management Consultancies Association (MCA) : “the NHS can get even better value from consultancy… by increasing the use of ‘payment by results’…”
We welcome the debate, and support the principle of payment by results, but feel it is important to challenge some of the assumptions that lie behind the story.
For example, as Downey points out in his article: “In January, a Conservative consultation document, It’s Your Money, complained of ‘a massive overuse of external consultants’ by government departments. Some commentators have been barely able to suppress their delight at the thought that the recession might hit consultants particularly hard.”
Certainly, as a consultant, you get used to a perception that as a profession we are overpaid, but are all the perceptions true? For example, the NHS experience doesn’t support the Conservative claim of massive overuse. The MCA research found that the NHS spent approximately £300 million on management consultancy in 2008, which is equivalent to less than a third of 1 per cent of its total budget.
As always, we support basing any discussion and decision on the evidence and the facts rather than perception and populist political propaganda.
Strategic Analysis: UK Political environment
Oct 14th, 09
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Houses of Parliament, London
This post is intended to be used as part of the strategic analysis that any well-run business should undertake. It is intended to contribute to the political element of any strategic environmental analysis using the variants of the PEST framework( PESTEL, PESTLE, STEEPLE, PESTLIED etc.)
The final term of the current UK government has begun following the summer recess and the party political conference season. The economic context is similar to many other legislatures; it is a year since stock markets fell and economies crashed into recession following the failure of Lehman Brothers and the near-collapse of many elements of the global banking system.
So, how do things look a year on? The macro-economic measure of GDP growth suggests that China, followed by a number of other countries, is recovering and economic growth has returned. A number of developed economies are static, and economies that had a high dependency on Financial Services (UK, Ireland, Iceland) are trailing behind.
The narrative in the UK is worrying though. Some politicians, supported by the media, appear to have either forgotten recent history, or revised it for party political advantage. In an economy that is suffering because of mistakes made by banks, not only has government failed to secure changes to business practice and culture, but the opposition has very cleverly changed the story from abject failure of deregulated markets to one of reckless public expenditure and the need to pay down national debt.
Party politics is a feature of the particular form of parliamentary democracy that we have in the UK, but when it diverts political debate from the real issues it is dangerous. When the area it moves to (reducing public expenditure during a recession) is potentially damaging to the medium-term economic health of the country it is reckless.
An election is due next year. It is vital for the UK economy that the election debate considers the real issues rather than dangerous and potentially damaging illusions.
You can’t outsource responsibility
Oct 12th, 09
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Cloud computing
Cloud computing is a popular trend that is being promoted heavily and one that we have had concerns about for some time. We like to think of our company as innovative and open to new ideas, but we have so far been unconvinced by cloud computing. Where any data is held on external servers, we ensure that backups are taken and transmitted back to our server here, which has a frequent and multi-level security backup regime.
The Microsoft problem is a timely warning to consider moving data to ‘the cloud’ very carefully or, if you are already using external data services, to ensure a robust back-up procedure that moves the data out of the cloud and into a tangible, physical medium is good risk management – which is a requirement for any Business Process Outsourcing (BPO), not just cloud computing.
Keep change simple
Oct 3rd, 09
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Working with a client on a new corporate strategy last week highlighted the importance of simplicity in business generally and change in particular.
The focus of the work is translating a new corporate strategy and business plan into action through creating a number of competitive strategies and divisional plans. In addition to writing and executing these new plans, we also identified a number of supporting activities including: new recognition and reward systems, new performance evaluation needs, some degree of process design and improvement leading to the specification and selection of a new enterprise-wide IT system, the upgrade of the IT and network infrastructure to support the new systems, re-branding, internal and external communications, project and programme management, training and education programmes and so on.
The scale and complexity of the work was clearly a worry, which is where the need for simplicity comes in. I am unsure of the original context, but Albert Einstein said: “Everything should be made as simple as possible, but no simpler”, which is a helpful statement. There are clearly a number of threads here, and they need to be woven together into an integrated programme, and while urgency is a necessity for successful change, it shouldn’t preclude thorough preparation ( I hesitate to use the word ‘planning’ because it is too prescriptive when there are many unknowns and unpredictable events).
A statistic that is often quoted to illustrate the risks of change is that 70% of all change programmes fail to deliver the anticipated benefits. The interesting statistic therefore is that there must be a third of change programmes that get it right. The excellent book: “Hard Facts, Dangerous Half Truths and Total Nonsense” by Pfeffer and Sutton, which is scrupulous in seeking evidence for statements merely says that “most organizational change efforts have a high failure rate”, but in a quote that takes some inspiration from Oscar Wilde, I suspect, they quite correctly conclude that “the only thing more dangerous than changing an organization is never changing it at all.” So, how do we minimise the risk and emulate the minority of programmes that succeed?
One conclusion is that we must learn from both the successes and failures of past change efforts. Two things can help here; one is to accept that every project, programme and organisation is a work-in-progress that can always be improved. The second is that allowing people to learn from mistakes requires first that those mistakes can be recognised through discussing them openly without fear of retribution. It is not good to repeat mistakes, but every new idea has to carry a risk of failure and, therefore, in a truly innovative learning organisation, failure should be something that is accepted as business-as-usual.
Returning to the opening theme, it is reasonable to assume that failure occurs more often in complex situations than simple ones through the simple existence of many more variables. So, to give a change programme a reasonable chance of success, in addition to encouraging open discussion and acceptance of mistakes and a process for continuous refinement and improvement, some effort at the beginning to prepare well, by critically evaluating every planned activity and task to ensure it absolutely necessary then removing or deferring those that aren’t will be a major factor.
Keep the change as simple as possible, but no simpler. Thank you Albert.
Show me the evidence!
Sep 8th, 09
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Show me the evidence
Essentially, evidence-based management is a sceptical approach that, according to Pfeffer and Sutton from their excellent book: Hard facts, dangerous half-truths, and total nonsense: profiting from evidence-based management (2006) follows a few simple guidelines including:
Treat old ideas like old ideas, and
Be suspicious of breakthrough ideas, and studies because they, almost, never happen.
There is much to still learn and discover about how organisations function, but there is also plenty of well-researched evidence around for what works in the business world. The so-called ‘gurus’ who claim that business is difficult to figure out because it is all about people and we are complex, unpredictable things that don’t follow predictable rational rules are giving up too easily. Trying to understand human and organisational behaviour is why we have psychology for instance.
So, claiming that business is too hard to fathom is weak. Worse than this though is using the complexity argument to justify unproven, flaky nonsense (see earlier posts on business psychics). A good example in the field of personal development would be “The Secret” with its claim of applying the “universal law of attraction” to achieve your desires- the idea being that if you simply visualise something it will be attracted to you – whether it is a physical object, maybe a car or yacht, or an abstract concept such as love or success.
Try as I might, I can find no evidence for this – the best I have come up with is gravity and magnetism.
People are often attracted to mysticism in it’s various forms because it offers easy answers to difficult problems. The business world, particularly in the current fragile economic climate, deserves better. So, rather than deciding that because we don’t have all the answers yet we should ignore management science and just make stuff up, let’s build on what we have found to date, do more research, reflect on experience and…show me the evidence!
What clear strategy looks like
Aug 5th, 09
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Last week this blog criticised Verizon for mixed messages about their response to the downturn. They mixed vague platitudes about revenue and market share growth with reports of cost-cutting. RR Donnelley, the Chicago based provider of print and related services, painted a much clearer picture today in their announcement of second quarter results.
On the face of it the results don’t look good, with net sales in the quarter down 19.4% from the second quarter of 2008 and GAAP net earnings of $25.2 million vs. $145.1 million in the second quarter of 2008.
However, the message from President and CEO Thomas J. Quinlan III was clear:
“We continued to be impacted by the global economic recession during the second quarter, as most of the end-markets that we serve experienced reduced demand.”
It would be easier to run businesses if we could control the external market, but we can’t. No amount of advertising spend or sales incentive will encourage customers to spend if they have decided not to. The reality of strategic management is that while an organisation’s purpose and values should remain constant, every business has to respond to market conditions by adapting strategy and goals to suit.
In the case of Verizon last week it was difficult to understand what their response was, but with RR Donnelley it is clear that part of their strategy is to build resilience during the recession so they can emerge stronger in the recovery:
“During the first six months of 2009, our focused management of costs and working capital has resulted in cash flow from operations of over $850 million, an increase of nearly $480 million from the prior year … Despite the challenging operating environment, over the past 12 months we have reduced our debt level by nearly $800 million and ended the second quarter of 2009 with available liquidity of $2.4 billion.”
This appears to be a measured and sensible response to adverse market conditions and one that many businesses could learn from.
Verizon COO seems to confuse goals with strategy
Jul 28th, 09
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In a conference call yesterday to discuss a reduction in its year-on-year second quarter profits, Verizon Chief Operating Officer, Denny Strigl, said that “These are challenging times,but we stay focused on our strategy of growing revenue and taking market share, and improving profits. The state of the economy may make it more difficult in the short term, but we are doing what we do best, which is managing our businesses and reducing costs.”
Now, this is a transcript of a conference call and the words may not have been chosen as carefully as they should have been, but there are a number of worrying issues in this brief extract:
1) The stated “strategy” is, in fact, three goals. They describe what Verizon would like to achieve. A strategy should explain how these goals will be achieved. A test of a good strategy is doing something different to your competitors that makes potential customers more likely to choose you. As this is a post about Verizon, let’s use a telecoms example: the Apple iPhone. It redefined the market in a great example of blue ocean strategy (as described by Kim & Mauborgne in their book (Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
).
They aren’t even very good goals; how many businesses are not seeking to improve profits and while they are not universal, many businesses are focused on growing revenue and market share.
2) Let’s assume they are goals and Strigl simply misspoke. We can also learn from this brief statement that they are not doing very well at implementing this stated policy. Just to be clear, the statement says they are focused on top-line profit improvement i.e. by growing revenue and taking market share. So, why, in the very next sentence does he claim they are actually focused on reducing cost.
3) Even allowing for the fact that this was a call and not a PR-screened release, How can a senior executive with one of the world’s leading corporations get away with doing nothing more than stating the obvious when trying to explain how they will stem the decline in profit, beat their competitors and emerge even stronger on the other side of the downturn?
The rest of the call went on to talk about specifics, and maybe it is unfair to expect a COO to cover strategy, after all this is more the domain of the CEO, but this quote is a great example of someone appearing to say the right things while actually giving nothing away. Ultimately all strategy is attempting to increase long-term economic profit, and every business wants to increase revenue and control costs – those are the other two variables in the profit equation.
Ultimately, the investors will decide what to make of this and the results will tell, but if I had a financial interest in Verizon I would hope that this was a deliberately opaque performance to hide competitive information from the competition rather than a sign of an executive team that doesn’t know the difference between goals and strategy.
What do you think? Is this reasonable criticism or am I being unfair? Please feel free to comment.
Strategic issue in Ireland
Jul 23rd, 09
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This is just a short post to note the significant change to the social element of the business environment in Ireland following the passage of a new law making blasphemy a crime. President Mary McAleese signed the Defamation Bill 2006 into law yesterday.
Most businesses won’t be directly affected, but it could be an indicator of other trends within Irish society. We will track developments to see if the impact is felt beyond simple statements deliberately intended to cause offence.
There is already a campaign to test the new law by publishing statements that could be construed as blasphemous. This will be a useful barometer for gauging public opinion. If it is widely supported in Irish society, the world will know that this is a country that has taken a backward step and it may affect future inward investment. If, on the other hand, the challenges cause the new law to fail, it may be treated as a temporary problem and quickly forgotten.
This post is being written in the UK and it is not trying to denigrate Ireland in any way. It is written in sympathy as we have seen societal changes here with the government extending the remit of the equalities bodies to include religion and, according to former cabinet minister James Purnell in the Guardian newspaper last week, the UK government has “been allergic about having any kind of debate about the fact we’re making lots of parents have to pretend to be religious at school … it’s a completely terrible position to put people in..”
There is a well-established principle that a law is only worth passing if it is accepted and, therefore, requires minimal policing. Time will tell in this case. In the meantime, any strategic evaluation of the business environment in Ireland has to record a negative trend in the sociological arena.
Business psychics – better than management consultants?
Jul 21st, 09
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Last month this blog reported a surprising (to us at least) trend for businesses to seek ‘new age’ services such as business psychics and feng shui consultants. Is this limited to a tiny minority who would always be susceptible; is it a sign of desperation in the teeth of the economic downturn, or is it an indication that traditional consultancy is not seen as able to provide the required solutions?
In the field of health, people often seek alternative therapies when medicine does not fulfil their needs, which can often be psychological. For example, the provision of a particular treatment may provide part of the answer, but sometimes a patient needs reassurance, or just the chance to be listened to. Clearly medicine cannot cure everything, so maybe it is not surprising that other avenues are explored. However, as Derren Brown reminded us this week in his blog with a clip from a BBC documentary, psychics can be fairly easily tested and exposed.
So, what is going on in the business world? Maybe there are parallels with individual medical conditions in that we are dealing with the health of a business, but this is only a metaphor. Business performance is measured by sustained economic profit and positive cash flow. While it is right that a business person may want to seek reassurance that they are making a good decision, or that a big order will close, this is better sought from a colleague, coach or consultant until there is solid evidence that those who claim mystical powers of prediction have some special gift that the rest of us don’t possess. A challenge to prove these phenomena has been issued by the James Randi Educational Foundation, who offer a one-million-US-dollar prize to anyone who can show, under proper observing conditions, evidence of any paranormal, supernatural, or occult power or event. Are there any business psychics out there willing to take up the challenge?
