Monday, 16 November 2009

An Historic Fable – Foot(in mouth)note

On June 1st we published the strange fable of how the Grand Vizier Bludge became Emperor.

History is not kind to politicians, nor are facts (which we guess is why they try so hard to avoid, suppress or conceal them) –

Both before and since becoming Emperor, Bludge had made no secret of his admiration for his own Viziering skills and expertise. His acolytes chirruped their chorus of agreement - "No man alive was so expert, knowledgeable or had such wonderful judgement as the Great Bludge". Lo, He had trudged long and lonely through the E Kono mists’ dismal swamps. Lo, He had mastered the E Kono magic of speaking at great length and redefining all words to his own secret meanings. Behold, much did He say, and little did others understand. Fearsome was His mockery of anyone’s inability to grasp what He had made incomprehensible.

What a Legend in His Lifetime!

When he was Grand Vizier, the Great Bludge had made the decision to convert 395 tonnes of the Empire reserves of gold "to capture more Water to spread the Emperor’s Benefice" (i.e. to suborn the loyalty of the Emperor Blarr’s Court). “It is a prudent and wise decision, it is the right thing to do” he trumpeted, banging his mighty fist.

Inconvenient Fact

When Bludge made the decision, the price of gold was $8,841,278 per tonne. 10 years later, when the Water had been squandered, dissipated and evaporated, and the land laid waste by de-hyd-ration, the price of gold is $435,365,770. So not only had the Water been lost, but also $10,477,174,340 of reserves – that is $10.5 billion!

A Legend in His Lifetime?

It was not a wise decision, it was not prudent and it was the wrong thing to do.

So, more questions for you in these difficult times.

  • Are you really thinking clearly?
  • Can you see your way past the misleading miasma of Bludged up thinking that permeates, complicates, delays and dilutes the interface between business and government?
  • Have you really thought hard about how you want your business world to be, and how your company will need to be within it, when the new administration comes?
  • Can you spell out what you want the new government to bring to you and your organisation so that you can make sure you get it?
  • Don't forget that to wait will be to be too late. Do it to them before they do it to you!

Can the Comparative Competitive Strength point of view assist you to achieve the clarity of purpose and the incisiveness of argument that is needed, now more than ever?

You want to know more? We are here.

"You're having a laugh ... seriously" is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog uses a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at "Exceeding Expectations" ,Business Bloop of the Month Award", "Capitalism or ... Common Sense" .

Friday, 6 November 2009

Lost In The Mist – if you go down in the woods today ….

This story is not “Shrek”, but the main character is a clueless great lump -

General “Aimless Arnie” Motors has been lost in the mist for a long time. For a long time he was used to fine weather and level prairie, but the clouds came in and it all got hilly and woody. However, he is 5 star confident, he will keep on doing what he has always done, no one is going to stop him on his route march to dominate the sprawling and forever breeding Motors family world wide.

The General is sweating heavily in his bright and shiny shell suit under the weight of his massive rucksack. He has not been fit for a long time. The ground under his wandering feet turns crumbly. Suddenly he is on a slippery slope and right on a cliff edge. He turns to face up the slope but he is stuck, he cannot move. He only just keeps his balance by flailing his arms. His rucksack is pulling him over, but it is full of trophies that prove how important he is and he cannot face dropping them over the cliff – he would rather die. He reluctantly jettisons a few of the more shoddy prizes, but they are not enough.

Out of the mist comes a saviour. It is Akela Angela with her pack of hungry little cubs. She demands his trophies from the rucksack and throws him a lifeline, which he grabs tight. Then scary Scoutmaster Peter turns up with his rapacious troop and the same demand. Peter squabbles with Angela, and, somewhere behind her, a Bear snuffles around. The General dithers and wobbles - and wobbles and dithers. Angela thinks she has won

And then the sun comes out and the mist clears.

The General regains his balance for the moment. He decides that he won’t let go of his trophies, not with a Bear about. He convinces himself that, now he can see the slope, he can scrabble back up. He hands back Angela’s lifeline and says no deal. Akela Angela is beside herself with rage, she had already promised the goodies to her little pack, and, more seriously perhaps, the Bear? She goes rushing off to tell teacher that it’s not fair. “How can I help?” asks scary Scoutmaster Peter pulling out his cunning rope.

What will The General do next?

§ Will he be able to keep his precarious balance for long enough?

§ Can he scrabble up the slope on his own?

§ Will he grab scary Scoutmaster Peter’s cunning rope?

§ Will anybody else ever again offer to help him?

§ Will the mists come back? How soon? How thick?

§ Has he any idea where he really is or where he needs to go next?

§ Has he worked out why he might have been smart to keep his trophies – or what to do with them?

§ Will Angela’s cub’s and Peter’s scouts link up, or will they just fight each other?

· Or, will Angela push him off the cliff? Might the Bear help her?

Seriously, General Motors’ Board could hardly have done worse.

They continue to act as though they have a Comparative Competitive Strength level of Comfortable whilst every possible bit of evidence shows that they are at the bottom of Constrained and actually dropping into The Abyss. Considering that there have been a number of individual replacements of Directors on this Board, it is amazing that there are no signs of a change in leadership attitudes and behaviours. Their apparent inability to look beyond next week to make rational decisions, and their continued behaviour as though they have any freedom of choice, remains incomprehensible. At least they do seem to know that something needs to be done, but preferably by someone else - anybody. It is totally clear that they do not know that they do not know what to do, why they need to do something, where to start or how to do it.

Do they deserve any help? The White House is not impressed -

Steve Rattner, the investment banker who headed the Obama administration’s auto task force until July, gave his views in an article published by Fortune magazine. Rattner said that he already knew the Detroit companies’ reputation for insular, slow-moving cultures. However, even by that low standard, he was still taken aback by the stunningly poor management that they found, especially at General Motors. (our emphases)

Maybe complete disaster is the only route the GM leadership are capable of following? Is the unavoidable outcome now a complete collapse followed by the scouring of the smoking ruins by Angela’s cubs, Peter’s troopers, Asian scavengers and the Bear? Will Russelsheim, Ellesmere Port and the General’s other european sites, become the new Longbridges? Has Gypsy Rose Woodley, who hailed the Phoenix Four as the saviours of Rover, forecast that Vauxhall will be OK now that Angela is really cross? Will scary Scoutmaster Peter’s enfeebled Uncle Gordon (the other great lump in the woods) assure us that he is doing the “right thing”? If so, The General really is doomed in Europe – and if he dies here, then it will be totally fatal.

Or is there an alternative? Something fast, furious and affordable? Is there a Fairy Godmother with a Magic Pumpkin that can convert General Aimless into Captain Competent? Not quite, but the Competitive Strength Report and Process could come pretty close. If the top three layers of management teams in GM ran themselves through this before Christmas (it’s fast but totally feasible) they could finish up understanding what they need to do, why and where to start.

It’s not often that we think we can be a Fairy Godmother – but we know we have a Magic Pumpkin. Do we expect to be asked by The General?– No – but he can contact us at And so can you if you are interested in the extraordinary insights that come from the Comparative Competitive Strength point of view, and how they may help you with your business survival, your investment plans or your bankers. Or please look at our website here.

"You're having a laugh ... seriously" is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog uses a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at "Exceeding Expectations" ,Business Bloop of the Month Award", "Capitalism or ... Common Sense" .

Wednesday, 30 September 2009

Alice, Alice, where the **** is Alice?

Lewis Carroll could have had no idea how sane and mundane his stories about Alice might appear now, one hundred and fifty years later. His alter ego, Charles Lutridge Dodgson, the mathematician, logician, photographer, inventor and would be priest, might not be surprised at all. Alice is constantly surprised by the impossible, the illogical and the nonsensical – but of course, it is just a funny story.

But it was not just a story, it is a cutting satire. In his time, Dodgson was illuminating the human gift for self deception and sustained irrationality, for overwhelming conceit and self absorption, for illogical argument and nonsensical assertion. Through the wondering eyes of Alice, Dodgson the logician, showed us so many of the ways in which people make fools of their peers, and of themselves. And, of course, nothing has changed.

“What would you do with a company which always misses forecasts, has unhappy owners, has a huge unfunded pension deficit, has increased overheads in real terms for 11 years, has had negative cashflow for 20 years ... and projects further negative cashflow, can only make ends meet by charging customers more and borrowing more to pay the interest, has recently made two large loss-making acquisitions without any turnround plan, cooks the books by missing out liabilities, has an appalling record on senior management expenses and has an unqualified finance director of bizarre appearance and a Trotskyist background? That company, ladies and gentleman, is the UK government.”

That was private equity entrepreneur Jon Moulton’s explosive opening speech to a private investor club meeting run by PI Capital last week. It was so outspoken — even by Moulton’s standards — that it deserves a wider audience if only because it probably reflects what a lot of people are thinking, if not openly saying, about the parlous state of the government finances.
Reported by Jenny Davey in The Sunday Times.

If we were to apply the Comparative Competitive Strength point of view to Jon Moulton’s description of the UK Government , it would conclude that UK plc is at the lower end of Constrained, heading for The Abyss. At the strategic level, that clearly indicates a serious failure of leadership.

However, the Comparative Competitive Strength point of view tells us something else of equal importance. The issue is cultural – incompetent at the top means incompetent at the bottom. So, a desperate mother can kill herself and her child in Leicestershire, helpless children die in Haringey, responsible policewomen are prevented from looking after each other’s children – the list is endless. Micro management under ever increasingly labyrinthine mountains of rules, regulations and guidelines is never a good idea – more than one hundred years of consciously competent managerial learning has proved that. So, when it is driven in by people with no managerial experience or competence, applying demonstrably very low levels of practical and emotional intelligence, the ghastly chaos, and squalid indifference to the individual, of the outcomes can be no surprise. Charles Dodgson would recognise it all – this would be Alice in Blunderland.

The incompetence at the top may soon be removed. But the damage to the fabric of public administration is profound. There have been 12 years of substantial erosion of operational competence in the leadership, managerial and operational culture within all public sector administration. Thousands of leaders and managers no longer know how to think straight. Their immersion in the mad logic of the Brown Queen’s Blunderland, with the White Rabbit Balls, the Darling Dormouse and Mad Hatter Mandelson, has damaged their critical faculties, let us hope not irreversibly. A massive regeneration of competence and motivation is needed to restore the effective use of public money for effective service delivery. The appalling and insidious political canard that these two phrases are mutually exclusive must be destroyed by demonstrated results – this truly has been the Grin without the Cat, and deeply unfunny.

When can this be done? Local Government and Agency leaderships do not need to wait for the cancer in Westminster to be excised by the electorate. Even the permanent leaderships of Departments of State could start now, had they the courage, to get ready for the surgery and vigorous therapy they know is inevitable – their political leadership is now far too self obsessed with personal career survival to really get in their way.

What needs to be done? The answers to this are an infinitely long list, and as such will be taken by some incompetent leaderships as a justification for doing nothing, starting a lengthy study, or urgently squandering millions on just one hot topic. In fact what is needed is simple, but not easy for the prevailing mind sets.

  • They need to Decide To Act knowing few, if any, answers.
  • They need to lead all their people at every level throughout their vast and cumbersome organisations to Decide To Act. Many of the people they employ will know what needs to be done, and how to do it. There are proven processes that can enable them to want to do it. They need to be set free from the stifling stranglehold of bureaucratic micro-management and to be trusted and supported in making their ideas happen.
  • Change will need to be led from the top, driven from the bottom and made possible by the middle. Anything must be possible, everything opened for change, no vetoes or taboos.
  • To the Public Sector leadership, this may sound profoundly radical – but given the extreme urgency of the nation’s situation, there are few alternatives.
  • For the Political leadership, this will require courage and vision, clarity of purpose and enormous self discipline. Now there is a question.
Can it be done? The Competitive Strength Report has been proven to assist the leadership and the management of commercial organisations to Decide to Act to transform their profitability. Its alter ego, the Service Excellence Report, has been developed to assist the leadership and management of public sector organisations to start to transform their performance. It is based on the same principles but focuses on effectiveness of service delivery instead of profitability. It helps the leadership and then every member of the organisation understand the implications of Constrained, to fear the threat of The Abyss and to get a glimpse of the possible personal transformation of their own working life if their organisation can get to Excellent or Free.
It can deliver the Decision To Act in less than 2 working days of effort within a 3 week timescale, and have significant impact on its participants. It is precisely this “lightness of demand” combined with “weight of impact” and speed that makes it an ideal tool to initiate the transformation of massive organisations.

And, last but not least, the Service Excellence Report process is underwritten by a genuinely logical approach, one which Dodgson the logician would approve, with simple personal insights into peoples’ behaviours and thinking that even Alice, the innocent, could recognise and apply. This way everybody can get to see everything the way that Alice can see it – simple, logical and possible.

Find out more about the Service Excellence Report, and the Comparative Competitive Strength point of view at our ChangeWORLD site and at our Competitive Strength Report site. Why not talk to us about these ideas, you may see ways forward you have never seen before.

“You’re Having a Laugh … Seriously?” is brought to you by Steve Goodman and Tony Ericson of ChangeWORLD. For even more serious information and comment go to our
website and our other three blogs:- Exceeding Expectations, Capitalism or Common Sense & Business Bloop of the Month Award.

Monday, 1 June 2009

An Historic Fable of our Times

Once upon a time, the Emperor Blarr was told that the people in the south were dying from thirst.

“Sire, Your Capital City here in the North has endless supplies of water”, assured Mervin-the-Dowser. The Emperor decided to grant to the people of the south the water that they needed.

Grand Vizier Bludge urged caution, “Sire, we must take care not to waste your precious water. It would not be prudent to assume that it may never run out. I must protect your Empire’s wealth.” Emperor Blarr commanded that it be done without delay, “Send water directly to the people of the south and let them use it at will, I trust them not to waste it. They will love their Emperor for His Benefice!”

Grand Vizier Bludge did as he was told, but not for long. He returned to the Emperor, “Sire,” he said, “My spies tell me that your water is being wasted by the people of the south in the most profligate and irresponsible manner.” He brought forth elaborately woven and finely spun tales from his spies. Sadly, Emperor Blarr agreed to let Grand Vizier Bludge take steps to control the wastage. Did he know that, at that moment, he had sealed his own doom?

The Grand Vizier appointed members of the Court to a Commission to control the Benefice of Emperor Blarr. He rewarded the Commissioners liberally - with a proportion of the water. They promptly used these allocations to purchase goods and influence with the thirsty and needy people of the south. This brought them benefits for the City and the Court and so they prospered mightily.

Emperor Blarr discovered that his influence and power were waning. He raged and cried out, but his Court was too busy scheming and dealing to get more influence. Grand Vizier Bludge smiled his sick lizard grin.

Suddenly, after a military set back, the Courtiers deposed Emperor Blarr and sent him into exile to beg for gold in foreign Courts. They acclaimed Grand Vizier Bludge as their new Emperor. His cunning plan was complete – except for the small matter of securing his own rear.

At once, Emperor Bludge summoned his creature, Grand Vizier Sweethart. He commanded, “I do not trust the Commissioners not to waste or misuse My Benefice. Appoint Agencies for each of the Commissioners to help them to distribute the water by My rules. See that they are rewarded generously to ensure their loyalty to Me.”

Grand Vizier Sweethart carried out the Emperor’s command, and, bowing low to the High Priest Gee Shin, installed “Efficiency-By-Healthy-Wind-Of-Competition”. He appointed many Agencies for each Commissioner and decreed that each should receive a generous allocation of water for their own use. He prescribed that each supply of water should be divided into many separate pools, regularly, and that the Agencies should compete with each other for each distribution from each of these lakes. To keep everyone on their toes, from time to time, he decreed that water should be moved from one lake to another, to better balance The Emperor’s Benefice. Systematic spillage was, of course, only a small price for “competitive efficiency”.

The Agencies worked spasmodically to distribute such water as reached them, once it had trickled erratically through the pools of the Commissioners. They all worked very much harder and longer to make sure they won their bid for their next allocation of the precious fluid. The Commissioners and the Agencies were now well accustomed to the benefits and power that came with distribution rights, therefore bidding had to be their main priority.

The Emperor Bludge announced at regular intervals that even more massive amounts of water were being distributed – and expected the people to love Him for His Benefice. And, all the while, the Emperor’s spies kept Him informed so that, in all the land, nothing was done or said about which He did not know. Anyone who incurred His displeasure was threatened (by His Mighty Fist or His Imperial Hairdryer) that their share of the water could be limited, or denied Wherever it appeared that anyone was acquiring too much influence, a further Agency was appointed to further sub-divide their water allocation.

After many years of the Emperor Bludge’s rule, all the Commissioners and the Agencies had become well accustomed to this “competitively efficient” way of conducting the Emperor’s state. They took great care not to displease the Emperor Bludge or his creature Grand Vizier Sweethart. They all now depended on their entitlement of water with the power and lifestyle it purchased for them.

Disaster was not expected, but it came nevertheless.

Mervin-the-Dowser staggered white faced into Court. “There is a massive liquidity crisis. It is situation RED. Resource Exhaustion Syndrome is clearly indicated”, he mumbled quietly (as was his wont). “I don’t understand” cried Grand Vizier Sweethart (as was his wont), “Spell it out for me”. Mervin-the-Dowser shouted (nearly), “The wells have run dry. The water has run out. There Is No More Water! Is that clear enough for you?”. Grand Vizier Sweethart fainted, but in a brief flash of consciousness, announced that “Everything is under control. All will be well. We have a sound system”. The Emperor Bludge declaimed that “Evil Genies have spirited away the water, this is a totally unforeseeable disaster brought on by malign forces”.

Scribbler Dick asked, “What about the people in the south? Now what will they drink?”

“We solved that problem years ago” replied Grand Vizier Sweethart, rallying, “They all died of something new and unknown called “de-hyd-ration”. It was a fortunate coincidence because there was not enough water for them to survive anyway after the Commissioners and Agencies had used their entitled shares. It was market forces, sadly, but we all did our best and we all followed the rules.”

The enraged Courtiers protested loudly, “Where are the allocations of water to which we are entitled?” The Agencies wept and wailed, “Oh save us! Save us! We are being consumed by The Abyss”.

· What will become of Emperor Bludge and Grand Vizier Sweethart?

· Will the Commissioners and Agencies also perish from this de-hyd-ration?

· What will become of the Empire?

· Can Mervin-the-Dowser find any more water?

· Is it really too late for the people of the south?

Is there a Lesson in this Fable?

Far too many, we are certain. Here are two from our Competitive Strength perspective.

This Fable illustrates the terrible consequences when the principles of Total Quality Management are applied by those that either do not understand them, or wilfully corrupt them for their own purposes.

We are focused on Exceeding Expectations and the massive Comparative Competitive Advantage that is the result of the effective pursuit of Excellence, which in turn is achieved through the effective application of the principles of Total Quality Management (TQM). This has been proven and quantified by robust research.

§ One of the principles of TQM is that everyone in any organisation is the Customer of everyone else in that organisation and should act accordingly.

o What the principles of TQM do not say is that this means that everyone should set up, administer, and incur the cost of, a complex contractual apparatus to negotiate and award these customer relationships.

§ Would only a simpleton such as Grand Vizier Sweethart think that, perhaps? Or is this just cleverness without intelligence?

· Or was he just having a laugh?

§ Did he mishear in the Temple of High Priest Gee Shin? Or was the sermon unclear?

§ Another principle of TQM is that every transaction causes waste and that they should therefore be reduced to the absolute minimum; we call this LEAN Thinking nowadays.

o What the principles of TQM do not say is that you should fragment a process and introduce multiple extra activities for the purposes of control or manipulation.

§ Would only a devious despot such as Emperor Bludge enforce something so unproductive and wasteful, perhaps? Or is this also clever but deeply unintelligent behaviour?

· Or was he just having a laugh?

§ We could answer this only with an objective measure of the intellect of Emperor Bludge; objective as distinct from how his Courtiers rate it.

In this Fable, the overwhelming mixture of patronage, over-bureaucratisation, over-control, corruption through entitlement, ignorance and complete disregard for outcomes, has doomed this Empire to The Abyss. A very sticky end awaits all – nobody has any reason to laugh here – there will be tears before bed time..

A Challenge for You

Please take a hard look at your own organisation. Are there any of the works of the Emperor Bludge or Grand Vizier Sweethart that you might recognise anywhere? Have you placed your faith in Economic Divining and how sure are you of your Mervin’s foresight? Do you assume that you cannot trust your people? Do you have any Commissioners and Agencies that you really do not need? Are you shuffling resources unnecessarily? Are you approaching The Abyss and not realising it?

Maybe not, we hope so. However, here is the question that we believe you must ask yourself in these uncertain and turbulent times - are you anywhere near achieving your full Comparative Competitive Advantage?

You can find out more about your potential, or contact us, on our ChangeWORLD web site at the Competitive Strength page, or discover more details on the Competitive Strength Report website.

“You’re Having a Laugh … Seriously?” is brought to you by Steve Goodman and Tony Ericson of ChangeWORLD. For even more serious information and comment go to our website and our other three blogs:- Exceeding Expectations Capitalism or Common Sense & Business Bloop of the Month Award.

Friday, 20 March 2009

The Credit Crunch Explained

With the publication of Lord Turner’s plans for “tougher regulation” of UK financial services (didn’t notice anything about having to ask permission to go to the toilet – a grave omission in our view) we thought we would share this little story with you. It was sent to us by our longtime business associate and partner Terry Murphy, author and publisher of the Achievement Process. In the form of a light hearted parable it gives the clearest explanation we have seen to date of how the world’s banking and financial system collapsed.

Linda is the proprietor of a bar in Cork. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers (still mostly unemployed alcoholics) flood into Linda's bar. Taking advantage of her customers' freedom from immediate payment constraints, Linda increases her prices for wine and beer, the most popular drinks. Her sales volumes and profits increase massively.

A young and dynamic “customer relationship manager” at the local bank recognizes these customer debts as valuable “credit assets” and increases Linda's borrowing facilities. He has no concerns since he has the debts of the alcoholics as collateral and Linda’s apparent healthy profit margins means she can afford the premium interest rate the bank has charged. Also he beats his loans targets hands down.

At the bank's corporate headquarters, these premium interest rates enable expert bankers to transform the loan into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean or exactly what the assets are behind them. What they do understand is that their prices continuously climb and the securities become top-selling items. The expert bankers beat their targets hands down and are rewarded with substantial bonuses.

One day, although the prices are still climbing, a risk manager of the bank takes a different view of the value of these debts and others like them and changes the risk criteria, thus triggering a demand for repayment of Linda's loan. He is of course fired in due course for his negativity but not before the demand for payment has been executed.

The drinkers cannot pay back the debts to Linda’s bar (it hadn’t occurred to them that they would ever be asked to) and consequently Linda cannot meet the repayment demand and has no choice but to file for bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. There is, as with everything that went before no rational explanation for this difference.

The suppliers of Linda's bar, having granted her generous credit terms and, encouraged by their bankers and advisors, invested in these securities are suddenly faced with a dire situation. Her wine supplier goes into administration; her beer supplier is taken over by a competitor.

The bank however is saved by the Government following dramatic round-the-clock negotiations with leaders from the governing political party (and vested interests). The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Everyone we have relayed this story to has reacted in much the same way. “Finally an explanation I can understand, that’s exactly what happened.” Much has been written about the lessons to be learnt from the credit crunch but for us this little story highlights three in particular.

1. Alcoholics are only concerned about getting the next drink. So if you give them a drink they will drink it and if you give them another they will drink it and so on. The transactions produce no value as the one consumes the other and vice versa.

2. A wise old mentor of ours once said, “Profit is someone’s opinion, cash is fact. Stick to facts”.

3. Every party will have a pooper. However the damage has been done long before the pooper triggers the consequences. So don’t blame the party pooper.

Now please read the story again, can you spot the connections?

"You're having a laugh ... seriously" is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at "Exceeding Expectations" , Business Bloop of the Month Award", "Capitalism or ... Common Sense" .

Wednesday, 11 February 2009

Bring on my Bonus

If ever there was a story that would elicit the response, “you’re having a laugh … seriously?” then the whole bonus debate is it. Digging into the comment and opinion on this has shown me just what I have been missing.

For a start let’s stop all this nonsense about a bonus culture being a bad thing. The word “bonus” is Latin for “good”. Now we all know that anything where the root of meaning is based on an ancient classical language is a fundamental truth. Therefore bonuses are by definition a “good thing” and my conscience is clear!

Next not having any money does not mean that you can’t pay a bonus. RBS, having lost £28bn of theirs and everyone else’s money is still seriously intending to pay bonuses to its staff. Gordon Brown has demonstrated how to do this on a national scale. So if it’s a “good thing” and you don’t even need any money, what’s the problem?

You can even get a “guaranteed bonus”. As long as you turn up, answer a few phone calls and stare at your computer screen as if you know what’s going on then you get your bonus, come what may. You even know how much it is going to be, which helps with planning luxury holidays, ordering a Lamborghini etc.

The trend now is for the basic salary, plus of course all accompanying benefits, to be paid simply for occupying the position. If you are actually expected to do anything you only do it if there is a bonus attached, which is only fair. After all simply being Chairman of 43 different companies is a big enough job in itself. And of course each bonus must also be many times greater than the salary, to reflect the relative difficulty of “doing something”.

The public sector has gone further. Here, there is no need for a guarantee. Because bonuses are a “good thing” civil servants are now being awarded them for doing exactly what they always have done, as inefficiently as they always did. As the public sector mostly does what it has always done, the bonuses are de facto guaranteed.

This logic has been taken further in what I call the “Twilight Zone” between the public and private sector. This is where something must appear to be getting done, but must not disturb the status quo so it actually never gets done. This is truly tricky work. One of the stars of the Twilight Zone (poor pun intended) is the SFA. (Financial Services Authority – I shall continue to call them the S****F***A** until they do actually do something). Significant bonuses have been paid for not spotting the Northern Rock problems, not spotting the risks in HBOS even when brought to their attention and completely missing any signs of the impending credit crunch. Still room for improvement though, hence the appointment of Sir James Crosby, previous Chief Exec of HBOS as the SFA Deputy Chairman (now resigned!), who knows all about bonuses.

An interesting twist on this has been applied to the Olympic Delivery Authority. Here the directors will be paid a bonus “if they deliver the Olympic facilities in time for the Olympic Games in 2012”. Without this explicit incentive it could easily slip their minds when these facilities are required and for which particular event. “What, you need them finished by next summer? Can’t they reschedule for about 18 months later? Their diaries can’t be booked that far ahead”. It also saves Tessa Jowell having to phone them up saying things like “only 36 months to go you know, have you ordered the seats yet?”

So a bonus is a good thing and no money is no barrier to payment. A guarantee helps but the public sector experience shows this is no longer necessary because a bonus can become an entitlement. Make sure that there is a clear differentiation between salary and benefits, which are simply for the position and a bonus which is for actually doing something. Even better if all or part of the bonus can be paid for succeeding in doing nothing.

This is the remuneration package I need to negotiate for myself. On second thoughts I’ll book the luxury holiday and order the Lamborghini first. Then I’ll know how much bonus I deserve.

Seriously though … Financial incentive devices can skew behaviour and results in alarming ways. They need to be carefully thought through and regularly reviewed. Two quotes explain why. “Tell me how you will measure me and I will show you how I will behave”. (Eli Goldratt The Goal) “You need to be careful what you ask for, more than likely you’re going to get it”. (Ralph Waldo Emerson) If you incentivise people to earn large amounts of money in a short time that is exactly what they are likely to do. The rest is collateral damage. Take extreme care.

“You’re Having a Laugh … Seriously?” is brought to you by Steve Goodman and Tony Ericson of ChangeWORLD. For even more serious information and comment go to our website and our other two blogs:- Exceeding Expectations & Business Bloop of the Month Award.

Tuesday, 6 January 2009

To forecast is to forewarn

It’s that time of year when you can confidently forecast that there will be numerous predictions for the coming year from numerous “experts”. So here are our “non-expert” forecasts for 2009.

January - More retailers go into administration, most, including MFI are sold on in “pre-pack deals” to managements and/or previous owners convinced that if you keep on doing what you have always done it will eventually work.
M&S revises Christmas sales figures downwards. This is due to record returns by women of unsuitable lingerie bought as Christmas presents by their male partners hoping to be cheered up. M&S share price plummets.

February - MFI goes into administration again due to new owners being unable to follow the instructions in the “prepack” deal.
Gordon Brown confident “that the British people will overcome the challenges of the current economic difficulties – which started in America”. British people think “no mate that’s your job”.

March - Bank of England having already reduced interest rates to zero, tries “buy one get one free” offer on any loan to anyone for any purpose. Appears to work at first, then Carcraft runs out of stock.
M&S announce surprise increase in sales. Share price soars.

April – Public sector construction projects announced in January to create 100,000 jobs appear to be working as 50,000 new staff are recruited for planning departments, public inquires etc.
M&S revise sales figures down as most were again items of lingerie, bought as Easter presents by men still hoping this would lead to them being cheered up. M&S shares plummet.

May - Pound reaches parity with Matebele Gumbean. UK tourist board reports record bookings at UK holiday destinations. The only vacancies left for the school holidays are at a caravan site near West Hartlepool and they are selling fast. Travel firms cut overseas holiday capacity to just one hotel in Iceland.
Government announces new initiative to kick start the economy involving sale and lease back of all government buildings and investing the proceeds in refinancing the banks (yes, again!). The deal is done with a Middle East financial consortium called The Arab Lending & Investment Bank, known as TALIBank.

June - Alistair Darling apologises for Treasury inadvertently including Buckingham Palace, Windsor Castle, Sandringham and Balmoral in the sale and leaseback deal. “I apologise most sincerely that the Queen no longer has anywhere to live. On the upside we would never have raised the amount we did without these buildings being included. They are about the only ones left that have any real value”.
Bank of England now employing SAS to break into banks at night and stuff more cash into their vaults to try and get lending moving. This is known as "quantitative easing".

July - Banks still not lending. Begins to dawn on Mervyn King that they have actually forgotten how to, as they have all focused solely on rebuilding their balance sheets in order to get free of government control. BoE sets up special task force to scour the nation’s golf courses to find retired bank managers who remember how to lend. This fails as few would admit they had worked for a bank, (“we were only following orders”) apart from Fred Goodwin, but he could only remember how to borrow.
Holiday season starts and right on cue the heavens open with record rainfall in all UK tourist destinations. “This is what Woolworths was for, somewhere to go on a wet afternoon in West Hartlepool” summed up the feelings of holiday makers.

August - Gordon Brown confident “that the British people will overcome the challenges of the current adverse weather – which started in America”. British people think “no mate, but we know where we are going next year for our holidays”. (See December)
Oil drops below $2 a barrel. OPEC, having already reduced production levels to zero, starts giving away top spec Range Rovers with every 10 gallons of petrol to boost demand.

September - First signs of recovery, Jaguar/Landrover start recruiting, MFI is relaunched. “This time our business plan has the top clearly labelled” said a management spokesman.
Public sector construction projects still stalled. Government sets up urgent inquiry to report by 2012 and recruits 25,000 people for new task force to tackle delays in the planning system. Only 25,000 new jobs to go now and without even starting a single project!

October - Governments around the world take co-ordinated action to restructure the world’s economy, involving a wave of company mergers and takeovers. However a proposal to merge French Connection with the band Take That is blocked on the grounds that they have already been getting away with FCUK for far too long.
First public sector construction project is announced, new offices for Planning Delays Task Force.

November - Banks still not lending. BoE tries new approach involving paying obscene levels of bonuses to bankers who lend money. Within days, credit markets unfreeze and economic growth resumes.
House prices recover, fifteen shopping mall projects started and 125% mortgages reintroduced. “Job done “says Gordon Brown. “No mate, but you are” says British public.

December - Record pre-Christmas retail sales fuelled by easy credit and hordes of Matebele tourists (pound now worth 0.5 of a Matabele Gumbean), with M&S reporting a big rise. M&S shares plummet.
In spite of the further falls in the pound travel industry reports massive excess of demand over supply for overseas holidays in the sun by families washed out of their UK holidays in 2009. (Hotel in Iceland withdrawn due to lack of interest).

Seriously though …Whilst these predictions are entirely fanciful we would not be surprised if some turn out to be correct. Current experience should tell us that even the most far fetched possibilities can become a reality. In spite of this most of us run our lives, our businesses and even our governments on the basis that there won’t be any surprises. Quote from Woody Allen “God’s idea of a joke is watching humans make plans for the future”.

You're having a laugh .... seriously? is brought to you by Steve Goodman & Tony Ericson of ChangeWORLD. For even more serious information and comment go to our Exceeding Expectations blog and the ChangeWORLD website