Recently in Management Category

The world's first (and best) management consultant, Peter Drucker, died last week. He was 95. The Economist has published a lengthy article about him, subtitled "The one management thinker every educated person should read" and I couldn't agree more. Here's the introduction:

ON NOVEMBER 11th, a few days short of his 96th birthday, Peter Drucker died. The most important management thinker of the past century, he wrote about 40 books (the last, “The Effective Executive in Action” will be published in January) and thousands of articles. He was a guru to the world's corporate elite, not just in his native Europe and his adoptive America, but also in Japan and the developing world (one devoted South Korean businessman even changed his first name to Mr Drucker). And he never rested in his mission to persuade the world that management matters—that, in his own rather portentous formula, “Management is the organ of institutions...the organ that converts a mob into an organisation, and human efforts into performance.”

Two years ago I suggested that the true nature of management was widely misunderstood in the UK (see Management is a dirty word). Last month a short, but revealing, comment in the Guardian provided more evidence that business may well be a victim of its own bad press.

In the last year or so, Rachel Elnaugh has become one of the most recognisable female entrepreneurs in Britain. She was one of five judges on a BBC television show called the Dragons' Den in which aspiring entrepreneurs presented their business plan in the hope that the judges (aka the "Dragons") would invest in the project.

Unfortunately for Ms Elnaugh, her own business (Red Letter Days) went into Administration this summer, and she became the subject of much criticism in the press.

Last month she was interviewed for the Guardian from which the following excerpt was taken :

There's no such thing as a nice businessperson, she believes, although for the first time in the interview she's aware she might be saying something controversial. "You're not there to be namby-pamby and nice, you're there to make the business work."

It's quite astonishing to hear a recognisable role model such as Elnaugh express such a negative view of her own occupation. The implications for her self-esteem are frightening, and you know the problem is serious when it so clearly comes from within.

From the Daily Telegraph:

Directors at Jessops are contractually bound to receive as little as a week's payoff if they are fired after a big fall in the company's share price, according to the camera equipment retailer's annual report.

The clause, which was agreed by Jessops' two executive directors when the company floated in November, has been hailed as an "innovative approach" by corporate governance campaigners to tackle the issue of directors being rewarded for failure.

From the Financial Times:

Carly Fiorina will be paid a $21.4m severance package after being fired as chief executive of Hewlett-Packard last week. She will also be able to keep her computer and receive free tech support for three months.

Only three months? It's a good thing she got the cash.

From Fast Company | The 6 Myths Of Creativity:

5. Competition Beats Collaboration

There's a widespread belief, particularly in the finance and high-tech industries, that internal competition fosters innovation. In our surveys, we found that creativity takes a hit when people in a work group compete instead of collaborate. The most creative teams are those that have the confidence to share and debate ideas. But when people compete for recognition, they stop sharing information. And that's destructive because nobody in an organization has all of the information required to put all the pieces of the puzzle together.

I knew it all along.

Some of Tesco's grocery stores have a new slogan on display in their windows. It states Helping you spend less every day.

I wonder if the company's shareholders think that's a good idea? Presumably, if Tesco does a good job and follows that objective through to its logical end, it'll eventually destroy itself. Call me cynical, but I just don't believe 'em!

We were somewhat appalled to discover on the weekend that there is currently a 10 week delay for appointments at the US Embassy in London. On Saturday the earliest appointment we could book online was for October 18th.

So if, like us, you want to file a "Consular Report of Birth Abroad", you'd best make the appointment two months before the birth occurs!

The situation is so desparate, according to the photographer at the Passport Photo Service, that some US citizens are travelling to Dublin for their appointment, where there is presumably less of a delay.

For a reality TV show Hell's Kitchen (aka adayinhell.com) has been pretty interesting, but not for the reasons you might think. It wasn't the cooking, nor the cut-throat competition, and certainly not the foul language, that made it compelling television. No, it was Chef Gordon Ramsay's management skills that really made it worth watching.

This programme, which came to an end on Sunday, centred around 10 virtually unknown "celebrities" (with one exception, a former Conservative cabinet minister) competing for the public's popular vote in order to remain in the kitchen of Britain's best and most profane chef, Gordon Ramsay. Most of the contestants' culinary skills were basic to say the least, but Ramsay spent the two weeks on air teaching them how to work as a team in order to prepare a very limited menu to his exacting, professional standards. Every evening the fruits of their labour were served to a restaurant full of famous and not-so-famous celebrities, although quite a few of the celebs left hungry on more than one occasion.

By the time it was finished it was obvious why Ramasy's restaurants work so well. The man isn't just an excellent cook; he's also a natural leader. His vision for the enterprise was well defined; he communicated it clearly and continuously to his staff; and he provided them with both positive and (infamously) negative feedback about their performance pretty much all the time. Never mind an annual review; those celebrities were bombarded with useful information during every working hour of every day. It was really interesting to see such powerful textbook management skills deployed so effectively.

Much has been made of Ramsay's profane language and the severe reprimands he gives his staff. However his management style has a lot in common with the traditional training techniques of the military. First you make sure everyone knows who is in charge through intimidation and fear; then you retrain to the required standards by providing constant feedback; and finally you rebuild confidence by recognizing good performance. Teamwork is developed by forcing the recruits to depend on one another in order to achieve their objective.

It's textbook stuff, and clearly works very well in a kitchen; and according to The Daily Telegraph (see Chef's recipe has a dash of method in its madness) I'm not the only person who thinks Ramsay's true genius comes from his management skills.

Yet another example appears in this weekend's FT to suggest that "it 'aint what you do, but the way that you do it" that counts. Except this time the context is political (see Tales show a president need not be smart).

Writing about the similarities in three recent books on George W. Bush's administration, Peter Spiegel wondered:

How is it, then, that senior aides are ignored on their areas of expertise? Much of this dysfunction, it emerges, is due to the old Washington adage "process is policy" - in other words, how decisions are made profoundly effects [sic] which decisions are made. In this administration, the "how" is at the core of the dysfunction.

I wonder if they're any fans of Jimmie Lunceford at the White House?

Last week I read two independent descriptions of the importance of business processes. As a former business analyst they were music to my ears.

The first was in an article on business innovation published by the Economist (see Companies and innovation - Less glamour, more profit subscription required):

Likewise, in the past few decades most of the companies that have created truly extraordinary amounts of wealth have done so by inventing great processes, not great products. Dell, Toyota and Wal-Mart, for example, have risen to the top of their respective industries by coming up with amazingly efficient ways of getting quite ordinary products into the hands of consumers more cheaply than their rivals.

The second was a review of The Future of Work by Thomas Malone in the Financial Times (see Corporate culture on the cusp subscription required):

There are also sections on "business process outsourcing", "process architectures for interchangeable organisations" and "the deep structure of business processes". Why is there this obsession with process? Strip any company of hierarchy and you are left with nothing but processes - the flow of work. In the flat, decentralised organisations of the future, it is argued, the ability to configure and reconfigure processes will be an important source of competitive advantage.

As Jimmie Lunceford and his Orchestra pointed out in 1939:

When I was a kid about half past three
My ma said "Daughter, come here to me"
Said things may come, and things may go
But this is one thing you ought to know...

Oh 't ain't what you do it's the way that you do it
'T ain't what you do it's the way that you do it
'T ain't what you do it's the way that you do it
That's what gets results

Lunceford should be the patron saint of business analysts. Now, repeat after me …

Eight months after hitting the headlines the Franklin Mint is contracting: Franklin Mint closes 30 retail stores, museum.

I wonder how the Diana, Princess of Wales Memorial Fund is doing? Even it's web site tells a tale: www.theworkcontinues.org.

The New Year has started strongly on BBC Radio 4, with several thought-provoking programmes:

Last week In Business examined why so few novels are set in the world of work, and attempted to explore the consequences for both business and society. As presenter Peter Day said "fiction normally shuns the working world or is deeply suspicious of it". He wanted to investigate "why creative types don't respond to this thing called work".

Fiammetta Rocco, literary editor of the Economist, was interviewed and expressed a feeling I've had for a long time:

"We've really lost that sense that business is about progress and doing good. There's no sense of that anymore. It's very, very hard when people don't feel strongly about something to create fiction out of it."

Peter Day then pointed out that:

"The way business is presented to people is part of the culture. If decent people think that it's not a subject that engages the imagination, or the intelligence, or the humanity of themselves, and don't go into business, then you kind of get the second-raters all joining up for it. So we need decent artistic representation of the business world."

However, the hottest tip of the year came from Rocco:

"We do review a lot of fiction in the Economist. We review it every single week and I'm always looking for great books. But a book that really told a story that developed a fantastic hero, that armed itself with this person's struggles and fears and difficulties and problems and triumphed in the end, in a business setting would be truly fantastic. I think that one of the enormous difficulties that exist now is that we're more comfortable with the idea of business than we may have been in the 19th century, and that makes it much harder to explore, it's a much bigger challenge to create something which is subtle and interesting and not a caricature. Somebody should do it."

So there you go. There's still time for one more New Year's resolution — write a great novel about business. For inspiration, here are a few of the authors or novels mentioned in the programme:

• Hard Times by Charles Dickens.
• The Way We Live Now by Anthony Trollope.
• Manhattan Transfer by John Dos Passos.
• Nice Work by David Lodge.
• Free to Trade by Michael Ridpath.
• Bonfire of the Vanities by Tom Wolfe.

I used to work for an auction house, and found myself campaigning constantly for the simplification of the business' operations. So I felt somewhat vindicated this weekend when the Financial Times published an article about investing in antiques (The fine art of polishing auction costs) that concluded with the following:

Would-be investors need to look closely at the fine print and bone up. Auctions are no place for novices, say experienced collectors. And it is not like buying stocks and shares. The process of buying and selling antiques, fine art and collectables is considerably less transparent than dealing in stock markets, where trading is incomparably quicker, easier, cheaper and clearer.

The moral of this story is that there are easier and much safer ways in which to make money.

Yet more news from the Economist:

[BSkyB's independent shareholders] were angry that Tony Ball, the departing boss, will get £10m ($17m) for agreeing not to work for competitors.

So that's yet more evidence that "…the aim of business strategy is to move an enterprise away from perfect competition and in the direction of monopoly".

Never believe anyone who tells you that all they want is "a level playing field". It's not true. They want it to tilt their way, and in some cases they are willing to pay handsomely to achieve it.

News from this morning's Guardian newspaper:

An investigation into last month's derailment of an inter-city train at King's Cross has found that the engineering company, Jarvis, failed to file paperwork for maintenance to a crucial set of points.

Jarvis has suspended an engineering supervisor after the accident, in which a GNER train carrying 150 passengers came off the tracks as it left London for Glasgow. Jarvis admitted a rail was missing because of an employee mistake.

A joint inquiry by Network Rail and Jarvis will this week publish findings which criticise a failure of communication between the two companies.

Industry sources say the two firms relied on a "verbal agreement" to carry out overnight maintenance to the track, rather than keeping detailed records. The points ought to have been disabled after Jarvis's work but Network Rail's signallers seemed unaware of the issue.

A rail was missing? A verbal agreement? Sometimes it is hard to believe that this is the same country that once ruled India.

Most of Europe will go on holiday at some point this month, and the Economist has obligingly published an article on the resurgence in tourism titled Crowded out. It's introduced as follows:

As British Airways' latest dispute with its unions shows, travel and tourism companies are finding it difficult to modernise as quickly as they would like. They need to keep trying, because the internet and the trend towards late booking have brought about the biggest revolution since the start of scheduled flights.

If last month's wildcat strike over punching in and out at British Airways wasn't sufficient proof that the airline is struggling, an acquaintance provided anecdotal evidence not long ago. He travels regularly to the south of France and noted that while the discount airline easyJet operates with a cabin crew of four, BA provides 11! No wonder BA announced a second quarter loss of £45m last week (see Losses batter bruised BA), especially given that BA has been forced to reduce its fares:

Full-service airlines are being forced to slash prices (and costs) to compete with low-cost airlines like easyJet, Ryanair and Southwest. The advent of the internet has made prices transparent, and made it beguilingly easy for customers to shop around. Customers, in turn, have become more comfortable in using the web to find last-minute deals. The effect is nothing short of revolutionary.

My wife and I are flying to Nice on BA this week, and the airfare is the lowest I've paid in a decade of travelling that route, which used to be the most expensive per mile of all BA's destinations. Never before have I paid so little, which is even more astounding when you consider that we're travelling at the height of the summer season. British Midland, Buzz (now part of Ryanair) and easyJet have finally forced BA to offer more competitive fares, and it will be interesting to see if BA has managed to simultaneously reduce its costs (i.e. the size of the cabin crew).

Although I booked these flights on-line, I did so in June, which can hardly be considered "last minute". Experience has taught me that on popular routes cheap fares are only available if you book early. Leave it to the last minute and you'll be lucky to find seats, let alone a good price. The Economist may be correct to say that "The web has become a vast clearing house for the travel industry's overcapacity: the more deals it offers, the more buyers it finds", but the overcapacity only exists because the destinations are comparatively unpopular for some reason. If you are happy to go where few wish to travel then by all means use lastminute.com, but if you want a real bargain at a popular resort book as much in advance as you can.

Sumantra Ghoshal is a professor of strategy and international management at London Business School. Last week an article that he wrote was published in the Financial Times. It was titled Business schools share the blame for Enron (subscription required). It was an interesting critique of business education, and it occurred to me that his conclusion could form the basis of an excellent final exam question for MBA students:

"By incorporating negative and highly pessimistic assumptions about people and institutions, pseudo-scientific theories of management have done much to reinforce, if not create, pathological behaviour on the part of managers and companies."

Discuss.

Several years ago the Economist published an interesting series of articles about crisis management. More recently the magazine suggested that it was important for any business in a crisis "to act fast, tell the whole truth and look as if you have nothing to hide" (see Bad for you). So it's been interesting to watch the self-imposed crisis at the Franklin Mint that has been brewing since last November and developed rapidly during the last 72 hours.

The Franklin Mint, which sells "collectibles" including several Princess Diana dolls, is suing the Diana, Princess of Wales Memorial Fund for "malicious prosecution", accusing the charity of having "acted in bad faith" when it initially sued the Franklin Mint for the rights to Princess Diana's image in the late 1990s. The charity lost that case and was required to pay all the legal fees. The Franklin Mint subsequently decided it wanted revenge, and filed suit last November. This week the charity froze all grants to its beneficiaries citing the Franklin Mint's lawsuit as the reason.

The initial reaction in the press was that the Princess of Wales Memorial Fund is in crisis, but in fact I think the Franklin Mint has more to lose from this unnecessary and wasteful dispute. The charity and its beneficiaries may suffer in the short-term, particularly if the Franklin Mint wins its case, but it's unlikely that they will be affected permanently. The social problems that they address combined with the public's collective memory of Princess Diana, will ensure that her favourite causes continue to receive help.

The Franklin Mint on the other hand is playing with fire. The media have cast them as the aggressor in this story, with Princess Diana's favourite causes as the victims. Can you imagine the dilemma some of the Franklin Mint's customers now face? Do they boycott Diana dolls in order to support her memorial fund, or do they continue to feed their collecting habit but possibly harm her charitable legacy in the process? That's a tough call; either way the doll collectors can't help but feel unhappy, and they may well hold the Franklin Mint responsible.

What was the Franklin Mint's management thinking by taking on the ghost of a martyred royal celebrity? How could they possibly hope to win?

For more on this story see:

• the Evening Standard for the gossipy background from last November in The 'vultures' threatening the Diana fund;
• The New York Times attempts to explain the legal history in Diana Charity Halts Grants, Citing Lawsuit;
• the Philadelphia Daily News provides the local angle in Franklin Mint's Diana flap.

The irony is that the Franklin Mint is suing for "malicious prosecution", but what other kind is there? Can you sue someone out of "good faith"?

Yet another scandal hits the unregulated art & antiques industry: Sotheby's faces probe on sales of temple loot. How long does it take for a company to reform its values?

This morning I realised that "management" is in danger of becoming a dirty word in the UK.

Estelle Morris, Minister for the Arts, was interviewed on the Today programme, because she has just been chosen as "Minister of the Year". This award from her peers made the headlines because Morris was not a Minister for much of the last year; in October she resigned as Secretary of State for Education after publically admitting that she wasn't up to the job, and she was appointed Minister for the Arts only last month.

On the Today programme Morris praised the Blair government for holding itself accountable for the standard of public services, but she went on to say (RealPlayer required):

"The danger is [accountability] turns politicians into managers and I think it's because of that, that sometimes it looks as though we want to control things at the centre...

...You know I think another thing is that politicians deliver nothing. They only deliver in conjunction with the service, with teachers and doctors and nurses. And sometimes 'cause we're so managerial I think that we probably exclude those other people from taking credit for what is being done as well."

Given her comments Estelle Morris must have had some experience with bad managers (haven't we all?), but the negative connotations she associates with managment generally, indicate that she needs to read the excellent book that I've just finished: What Management Is by Joan Magretta and Nan Stone. The subtitle is "How it works and why it's everyone's business".

Everyone includes politicians, of course; and the following excerpt seems tailor-made for Estelle Morris:

Back when labor was mostly a matter of brawn, the work itself could be managed: analyzed, organized, and specified. Workers had only to do exactly what they were told, and supervisors made sure they complied. But even as the supervisory component of management has shrunk considerably, we continue to confuse authority and control. Having the authority to reward and punish - being in charge - isn't the same thing as being able to control an individual's performance. When people become managers for the first time, they often experience a rude awakening. At last they take control, only to find they've been taken hostage instead. They realize that they are now dependent as never before, because management creates performance through others. Without the willing cooperation of others, management can accomplish very little.

Clearly Estelle Morris was talking about something else when she used the words "manager" and "managerial" this morning. I suspect she meant that holding politicians to account can turn them into tyrannical, dictatorial control freaks, and that they sometimes fail to give credit where it's due because they're too autocratic (and selfish?).

In the end I think her choice of words was unfortunate because they will only compound the poor opinion of management that is already palpable here in the UK (see BBC Newsnight: Economy hit by bad days at the office, FT.com: Top bosses 'overpaid and mistrusted' and FT.com: No confidence vote for British business), which would be a shame because Magretta and Stone are correct, management in its broadest sense is everyone's concern:

We began the book by saying what management isn't. It isn't supervising other people, it isn't applied economics, it isn't about occupying a privileged rung in a heirarchy, and it isn't confined to commercial enterprises.

Because we have been defining terms as we've gone along, we can now venture to say what management is.

Management is the discipline that makes joint performance possible.

Its mission is value creation, where value is defined from the outside in, by customers and owners in the case of a business; by society, more broadly, in the case of government agencies and nonprofits.

Despite being a politician for 24 years, Estelle Morris has yet to understand what management is: the discipline that makes joint performance possible, otherwise known as leadership.

The alumni magazine from my university arrived last week, and I was struck by the size of the "births" section that was allocated to my contemporaries.

Of course, that's simply a function of age, but it was interesting to note that almost every alumnus' message gives the impression that their greatest accomplishment is the birth of their latest child. All these intelligent, well educated, high-achievers, and yet not one highlights a single professional accomplishment of note. Is it significant that after 20 years of learning and another 20 of hard work, they're most proud of simply doing what comes naturally?

Well, it seems so. A couple of weeks ago the Economist published an article on the lack of women enrolled in MBA programmes, and it elicited the following response ( see Economist - Letters - The family business):

SIR - As an MBA who left a career in economic research to care for my two young children, I can tell you why more women do not pursue the qualification ("Men's work?", June 14th). Business schools and the careers to which they lead mould one to be self-promoting, analytical, decisive and ambitious. Motherhood requires that one be self-deprecating, intuitive, patient and tied down.

I have had to develop hastily the skills for motherhood that I had repressed in order to succeed in the business world and now resent having spent so much time and energy developing exactly the opposite of the talents I need to do what I consider the most important job of my life. For business schools to attract women they would need to change the very nature of business itself.

Barbara Ross Epp
Port Washington, New York

That's quite an indictment of the business world and executive education. It seems business requires cold-blooded warriors, whereas motherhood calls for, well ... passionate mothers.

What seems most likely to me, however, is that people are simply listing their most rewarding accomplishments. In other words, these intelligent, well educated, high-achievers have simply found raising children to be much more fulfilling than any amount of previous job satisfaction. All of which presumably bodes well for the propagation of the human race, but what does it imply about business?

Given the dot.com boom and bust, the long-term impact of the Internet on business largely remains to be seen, but there's at least one industry where its effect is a huge improvement: the sale of antiquarian books.

Believe it or not, but the impact of the Internet on the sales of used books was far from certain. Would the improved ability to find specific books increase demand and sales sufficiently to offset any decline in prices that might occur if customers could easily shop around? That's the question Björn Frank and Guntram Hepperle asked at the University of Hohenheim in Germany at the end of 2000. In the abstract to their paper entitled The Internet's Impact on the Market for Antiquarian Books: Some Unexpected Empirical Results (click here for the whole paper in PDF format) they concluded:

Though there is a considerable variance in most books' prices, we do not observe the expected negative correlation between price and share of internet sales (in relation to a seller's total sales). We find other factors which have a systematic impact on prices, but with respect to the Internet, our main result is that e-business currently contributes little or nothing to driving prices downwards.

I have to say that I'm not surprised. Yesterday a biography of one of my distant cousins arrived in the post from Hoffman's Bookshop in Columbus, Ohio. The third edition of Memoirs of Mrs. Rebecca Wakefield: Missionary in East Africa was published in 1888 and written by the subject's brother, Robert Brewin. I only discovered this book two weeks ago in the course of doing some family history research, and yet thanks to the information superhighway I already have my own copy and Hoffman's Bookshop has another satisfied customer.

Although I purchased the book from Hoffman's, the transaction was brokered by abebooks.com, which "connects those who buy books with those who sell them, providing abundant selection at affordable prices". The Memoirs of Mrs. Rebecca Wakefield was only the second book I have purchased in this way, but I'm in the market for a third, and thanks to abebooks.com's "want list" feature there's every chance that I'll find it eventually.

Last week when I was searching for the Memoirs of Mrs. Rebecca Wakefield there was only one copy to be found, so comparing prices was impossible; but in my limited experience prices on the Internet for books in a similar condition are also similar. So the real benefit the Internet brings is the ability to track the books down in the first place. There's no way I would have found copies of my books without the Internet.

Of course, there's another benefit. I have yet to set foot within 250 miles of Columbus. In fact, I've never been to Ohio at all; and now, fortunately, I don't have to -- at least not to spend time in its bookshops.

Update: For more on the Canadian success story abebooks.com see Giants and behemoths in The Globe and Mail.

Stephen Overall has written an interesting article in the Financial Times on the motivation of workers, titled On the scent of the light reward (subscription required), in which he gets straight to the point:

Why does the worker work? Friedrich Engels asked the question in 1844. "For love of work? From a natural impulse? Not at all! He works for money, for a thing which has nothing to do with the work itself."

Few have ever thought otherwise. In the Affluent Worker studies of the 1960s, sociologists investigated car workers in Luton and confirmed that work was a means to an end, a temporary surrender of liberty for the sake of material reward. This remains true today.

According to the article more recent research suggests that the keys to motivation lie in five different "dimensions". Apparently, motivation flows from:

• building an "internal brand" with which employees can identify.
• communicating the organisation's values.
• demonstrating better leadership.
• offering a challenging and interesting work environment
• good performance management and continuous improvement.

According to one academic working on this topic, any serious attempt to investigate the nature of motivation "...needs to begin from an examination of policies and practices that operate in an organisation. Unfairness is the greatest demotivator."

That's all interesting food for thought; particularly the comment about unfairness. Who decides what's fair and what's not? Since we're talking about the employee's motivation, it would seem to me that the employee's perception of fairness is of paramount importance. However, I wonder how often employees and management would share the same definition? Not often, I'd bet.

Last week's edition of In Business was entitled "Too much stuff". As the programme's web site explained:

The old assumptions just aren't working. It's a deflationary age...prices of goods are falling. Profits are tough to make. There is, quite simply, too much stuff in the world. Too many burgers, too many personal computers, too many cars. Peter Day asks whether today's manufacturers are making Too Much Stuff?

It reminded me of growing up in Canada, when every commercial break on television seemed full of advertisements for cars and trucks. I remember thinking that based on the proportion of ads devoted to automobiles, aliens from another planet would think that everyone in Canada was in the market for a new car every day. What did the car manufacturers think was going on? What would they do when everyone already owned three? I never did work out what they were thinking, and thirty years later expectations of continuous growth still don't seem sensible to me.

However, the title "Too much stuff" also reminded me of a lecture I once heard by a photographer named Dewitt Jones. He tells an amusing anecdote about "too much stuff". It seems he was once out taking photographs when a four year old boy once came up to him, and using a colourful, plastic juice container in the shape of a 35mm camera, started to imitate Jones' every shot. The boy was fascinated by Jones' extensive supply of photographic equipment, but as Jones was returning to his car for yet another lens the boy eventually said "You mean you need more stuff!?"

Late last year The Economist discussed the subject of changes in supply and demand in an article titled When growth is not an option. It concluded that businesses should go back to basics, back to the nineteenth century in fact, to learn how to cope with falling prices. Apparently the Victorians managed it all long ago.

On the day when Tesco refuted claims that it was supplying spiders along with its grapes, comes news of a new on-line grocery business serving New York City (well, the Upper East Side at any rate).

According to the BBC (BBC News | UK | Tesco denies using deadly spiders):

Tesco has admitted that a drive to use less pesticides in its food could mean more spiders turning up in bags of fruit. But the supermarket denied that food producers are using black widow spiders, after three customers found them in bags of grapes. In separate incidents, the three women discovered the deadly spider among American-grown grapes bought from Tesco stores. Two of the spiders were alive. The company says producers do use natural predators to protect fruit, as an alternative to chemicals. But it strongly denies that the distinctive spider, whose venom is 15 times more potent than a rattlesnake, is deliberately used on suppliers' crops in the US.

If that sounds like a scary disincentive, consider FreshDirect, a new on-line grocery delivery business based in Queens and currently serving the East Side of Manhattan.

According to Fortune magazine (The Online Grocer Version 2.0):

Their cargo--meat, fish, cheese, fresh-baked breads, produce, and other foods--sells at prices about 25% below what most New York grocers charge.

FreshDirect does deliver specialty-store-quality fresh food and prepared food at strikingly low prices.

It's a measure of the times that Fedele and Ackerman [the company's founders] refuse to call FreshDirect a dot-com. And while they admit that the company could not exist without the web (orders are placed on freshdirect.com for delivery the following day), they insist that efficiency, not technology, is the point. "Our idea was to build the ultimate food company that could scale," says Ackerman. "The only reason we chose the Internet was that it helped us reach people at a lower transaction cost. It allows us to do for food what Michael Dell did for computers." One of the great unfulfilled promises of the Internet has been that it would enable manufacturers to sell directly to consumers. But few companies other than Dell have actually done it.

And of course Webvan failed spectacularly. That first great Internet grocery scheme spent more than $1 billion on huge distribution facilities in seven cities before closing shop in July 2001.

Why should these guys do any better? It's a question they are asked constantly. Fedele and Ackerman insist Webvan was merely a distribution company that missed the point. Says Fedele: "This is a company based on food people, not dot-com people." FreshDirect's motto: "It's all about the food."

Hmmm...this is interesting. Up to now I had rather assumed that the attraction of on-line home delivery services was the convenience of the service rather than the quality of the food, which I have always assumed would be identical to that purchased in person at any given store. Certainly, here in the UK the food delivered by Tesco, Sainsbury's, et al., is identical to that found in their stores. In most cases, the food actually comes from your local shop, so it is literally the same food that you would buy if you went shopping in person.

The interesting aspect of FreshDirect's strategy is that it is offering better food at lower prices, as well as the convenience of on-line ordering and home delivery, which quite frankly sounds too good to be true. I find myself wondering what exactly "specialty-store-quality" really means and how it compares to the quality offered by the average grocery store in the UK. I also wonder if this approach would work outside of Manhattan, or more specifically in places where food is less expensive. Presumably shoppers in Queens already pay less for their food than residents of Manhattan. Will FreshDirect be as appealing to them?

Of course, Ocado (about which I have written previously, and on which the Economist reported just last week, see Off Their Trolleys) claims to be offering similar benefits here by supplying only food from Waitrose, which is generally considered to be the UK's highest quality grocer; but Ocado is definitely not cheaper than food sold in Waitrose's stores, in fact the delivery charge makes them more expensive still.

So perhaps FreshDirect's approach will be limited to places with unusually high food costs. Of course it's early days, and it remains to be seen if they can even make it work in Manhattan.

This week's Economist contains a review of a new book that sounds interesting: What Management Is: How it Works and Why it's Everyone's Business by Joan Magretta and Nan Stone (Economist.com | Management | The wood as well as the trees). The line that caught my eye was:

Management is about understanding people and all the heartache that flesh is heir to. "Failures of strategy", she [Magretta] says, "are often failures to face reality." This echoes some of the most original current writing about management, where the findings of psychology and sociology are applied to the building of organisations.

Dorothea Salo struck a nerve a few days ago with this post to her weblog (it's been quoted several times) Caveat Lector: Speaking the Self:

I am touched by the Cluetrainers' belief that real people always speak in real voices. It isn't so, though I wish it were and I envy the Cluetrainers their belief. Some people speak about themselves and their families in clichés and polite fictions for many of the same reasons corporations speak in empty, sonorous PR, not least among them desperate fear of the truth. Some people, submerged in the family fictions, lose their real voices in part or wholly. (I never lost quite all of mine, but I have been searching for some departed pieces a long time. I may never find them.)

Blogging threatens such families for the same reasons it threatens PR-dependent corporations. It threatens the fiction, the public façade of perfection, the private walls around anger and pain and disagreement and error.

Although DS was responding to the risks associated with personal expression, her comments about businesses and the truth are relevant to a new essay I have written and fortuitously entitled Caveat Emptor, Art Collector. Her sentiments serve as an eloquent introduction.

Norman Jensen (onegoodmove) has found a great quote that he attributes to T. S. Eliot:

"Half of the harm that is done in this world is due to people who want to feel important. They don't mean to do harm but the harm does not interest them."

In my experience, this aphorism is particularly prevalent in business.

I think I've become a fan of Alan Leighton, currently Chairman of Consignia (aka the Post Office), after hearing him interviewed by John Humphrys on BBC Radio 4 (On the Ropes). On the Ropes usually features people who have gone from riches to rags, or experienced some other personal failure in their life. In this case, it was argued that the Post Office is on the ropes and Leighton is the man responsible for turning the organisation around. Humphrys stressed Leighton's reputation as a ruthless businessman, but most of what Leighton said seemed like common sense to me. Here are a few highlights:

"I believe fundamentally you shouldn't pay people for failure."

"All organisations I know, particularly those that are performing badly, have what I call layers of treacle or permafrost in them which basically stops stuff happening. You know, there are business prevention squads in most businesses. They go out of their way to stop things happening, and one of the things you've got to do is get around that."

"In businesses, generally, the Chairman and Chief Executive create the context. They can't do anything else. They don't actually go and do very much. In retailing all the money is taken in the shops. It's not taken in the head offices. So you have to get that piece of thinking around your head. Where does the money get taken? Who takes the money? Who does the execution? Well the front line, so this whole thing about people are business' most important assets. It's a sort of trite saying that everyone trundles out now and then, but actually it's true. And if you actually understand it's true and you get after it, it's the only the way you turn businesses around."

"...the execution has to take place at the front end and you've got to have the management who believe that too. You know lots of managers don't believe that. Lots of managers think they've got a job by right. Their job is to bark out commands. Their job is to get people to do as they're told. Their job is not to listen to what people say. Their job is they know best. Well in my experience the operators know best, and if you can get them to be involved in things then you get a better result."

"The most bizarre thing about [the Post Office] is, this business is a monopoly. It's got £8 billion of sales, it's a monopoly and it loses £300 to £400 million pounds at the operating level. It's happened over a period of time....[the Post Office] is so inwardly focussed it doesn't think about the two things that count. If you don't look after your customers and you don't look after your people, you can be a monopoly and have £8 billion of sales and still lose a lot of money!"

"The most important thing is, do the right thing. If we do things wrong, we're not going to sit on them forever, which is what's happened in the past. We do things wrong, we get up, we say we did things wrong. We take the hit. We take the embarrassment, but we're not going to continue to do something that is wrong."

"In business turnarounds particularly, and in good businesses, most of the turnaround isn't in huge, big programmes. It's all about doing things better that you do everyday, and I'm sure there's a lot we can do on the back of that."

Although his comments make a lot of sense, these goals are very difficult to achieve in a large organisation, and I imagine the UK Post Office will be a challenge, even for an experienced businessman like Alan Leighton.

"The reform [of the civil service] should be thorough, radical, and complete."
Rutherford Birchard Hayes (1822-1893), U.S. president

Here's another example of stupidity in the public sector: E-mail ban for council staff. Members of staff at Liverpool City Council are not allowed to send internal e-mail messages on Wednesdays. Can you believe it? The suggestion is that they talk to one another instead.

Chief Executive David Henshaw "wants staff to solve problems more efficiently, rather than passing them on to a colleague via e-mail", and of course everyone knows that the way to get things done in an organization is to hold lots of face to face meetings, right? This is another example of retarding technological progress because of human incompetence. Discipline the people, don't take away their tools!

Here's a story that reveals how backward the civil service can be: Inland Revenue abandons 'insecure' e-mail facility. I'm not surprised the staff feel humiliated and embarrassed. I thought my previous employer was risk averse, but this situation takes it to a new level. Next they will want to abandon the fax machine, telephone and post because they might all be used by criminals impersonating tax payers. This is just self-interest and incompetence masquerading as customer/citizen care.

Nick Denton has written an interesting piece on The myth of American efficiency, and it has motivated me to write about a similar subject, one that I've been thinking about for some time and might be called The myth of British resistance to change.

I moved to the UK ten years ago, in April 1992, and I've been thinking about the changes I've seen take place here during the last decade. The changes I have in mind are those that have occurred in the frequent, ordinary activities that fill daily life, and upon reflection I'm surprised to find they all appear to be positive improvements. Of course, this is very much a personal view, and other residents of the UK may not appreciate these changes to the same extent.

Retail Banking

I moved to Britain after accepting a job with a classical music agent in London, and one of the first things I needed to do was open a bank account. I visited my local branch of Barclays Bank thinking it would only take a few minutes to apply and deposit my savings, but quickly discovered that in Britain banking was not so simple. In addition to a lengthy application form, the bank required a letter from my employer confirming my employment and six weeks in which to process my application!

I couldn't believe this inefficiency. A few months earlier in Toronto, I had opened three accounts at the same bank within 15 minutes. I complained to my employer's accountant about the British delay, and she kindly called the manager at the company's bank (a different bank in a totally different part of London) who provided me with a chequing account by the end of the week (still poor service by Canadian standards).

(As an aside, I had a Kafkaesque experience a few years later when I returned to university. I negotiated a government-sponsored loan through Barclays Bank, which agreed to lend me the money on condition that I open an account. I did so immediately, and had access to the loan within two days. So whereas it took six weeks to deposit money, it only took 48 hours to borrow it!)

Ten years later, the vast majority of my banking is done electronically and the last account I opened was done so on-line without talking to a single bank employee. I now pay all my bills using the telephone or internet, only visiting a bank on the very odd occasion when someone sends me an increasingly rare cheque for deposit.

Retail Food Industry

Food retailing has been very competitive in the UK for years, but technology has really improved its customer service recently (see my previous blog on Re-engineering the Grocery Shopping). So much so, that I rarely visit any of the large grocery stores anymore (What bliss this is! I can't tell you how much I appreciate not having to waste time shopping!).

Telephone Bills

Ten years ago it was difficult to obtain an itemised telephone bill in Britain. Not only was it a special request, but all calls costing 40p or less were lumped together anyway. You could only obtain specific information about expensive, usually long-distance, calls. Now I can view my telephone bills on-line, including all the information about every single call, and pay them automatically via direct debit. The process has become truly paperless. I can even download all the information and manipulate it to my heart's content in my electronic spreadsheet to obtain a complete picture of how I use the telephone. We've gone from one extreme to the other; from not enough information to almost having too much.

Arts Marketing

When I first moved to the UK, arts organisations used to charge £5 annually for the privilege of adding you to their mailing list! Consequently, I did not subscribe to any such lists. Now, having obtained my name and address when I purchase tickets, they send me brochures and pamphlets regularly for free. It took them a while, but British arts organisations now understand the need for self-promotion and they are beginning to learn how to do it. Fund raising will be next.

In all these ways living in Britain has improved. No doubt there are others as well. I know that many people complain about the deterioration in transportation and educational standards here, but these issues rarely affect me. Perhaps the key, no matter where you live, is to be selective. Seek out those things that work well wherever you are, and avoid those activities that don't work until they get better. Now I know why I don't own a car!

Sometimes modern economics amazes me. Why are air fares so complicated, for example? One-way flights are often more expensive than a return journey. Why is it cheaper for me to fly to Nice than take a peak-rate train to Chippenham in Wiltshire (both 90-minute journeys)?

Yesterday, I bought a loaf of bread in my local grocery store (not one of the big national chains) that had been made in Toronto, Ontario! I didn't realise this fact until I read the details on the packaging, after having eaten some of it. How on earth can it be cost effective to import this bread from North York (the suburb of Toronto in which it was made)? Surely there must be a closer and cheaper alternative?

Well, it turns out that the bread was made by the Manoucher Food Company, which appears to have been something of a phenomenon in the Canadian Food Industry (see this story in The Toronto Star). The loaf I tried was good, but I'm still amazed that it's necessary, and economically worthwhile what's more, to transport this perishable product more than 3,000 miles across the Atlantic Ocean.

Having just checked the receipt, I now see that I paid £2.19 for that loaf. Ouch! I'm not in the habit of checking prices before I buy food, but perhaps I should start? Given the important role bread has played in history (in France the price of bread is still set by the government, thanks in part to the likes of Marie Antoinette), the existence of this expensive, luxurious import is quite telling. What a rich world we now live in, although it's interesting to note that Manoucher doesn't export to France yet!

I am currently reading The East End of London by Millicent Rose (1951), which is a very interesting book about the history of London's East End. In the chapter on the construction of the docks, she writes:

With the building of the docks, the Industrial Revolution came to the East End and transformed it. When work is done upon such a scale as Mayhew describes, the employers (not individuals now but a company) and those whom they employ exist together without either acquaintance or mutual responsibility. The works of Rennie, Alexander, Telford, with all their grandeur, have an oppressive and terrible impersonality that fits the new relation of man to man. Alexander looked back to the glories of Rome, but his creation inaugurated the pitiless anarchy of the nineteenth century.

What a shame that the industrial revolution had this effect on personal relationships. It's legacy is still a problem today. My wife recently received an incredibly impersonal e-mail from the Chief Executive of the company that has employed her for more than a decade, a man she has met many times and with whom she is on a first name basis. His generic form letter was not addressed to anyone (it just arrived in her inbox without any recipients listed), and asked her to participate in a collective exercise intended to identify the company's values!

How about uncaring, careless and lazy, for starters? The CEO's message probably reveals more honest information about the corporate value system than any collective exercise will unearth. It is particularly worrying when you consider that this exercise is almost certainly an initiative of the Human Resources department, which should care more about the employees and how they are treated than any other part of the company. When will they learn that everything the company does is an expression of its values? When will they realise that their values are therefore plain for all to see in everything they do?

Here's an interesting article from this week's Economist (Are Sidney Harman and his kind the answer to America Inc's woes?) about the management style of Sidney Harman, founder of Harman International (i.e. maker of Harman Kardon stereo equipment among other things). It seems the idea of improving business productivity by attending to the workers might be making a come back.

More from that Economist survey:

Some employers handled last year's job cuts in remarkably insensitive ways. For example, at Cap Gemini, a software firm, employees were informed by voicemail that they had lost their jobs.

Regular readers of this page (are there any?) will probably realise that "the theory of business" is a recurring theme. That's partly because I have an MBA, which despite its reputation can be a highly theoretical degree in places, and also because my most recent former employer is the worst managed business I have ever come across. So every time I find new information about how businesses should be run I find it particularly interesting.

For example, this week's edition of the Economist includes a Survey of Management (subscription required). As the introduction says:

This survey suggests that the core of good management is a set of three old-fashioned virtues that were often forgotten in the bubble years, when anything seemed to go. At a minimum, good managers have to meet the following criteria:

• be honest;
• be frugal;
• be prepared.

As is so often the case with business theory, this statement makes simple common sense, and I can't help comparing it with my personal experience.

My former employer is incredibly old-fashioned (not surprising for a business founded in 1766), but lost sight of these principles long ago. It is not honest with customers or staff; it is extraordinarily wasteful, which is one reason why it is not very profitable (it actually made a loss in 2001); and it is rarely well prepared, which is why many business decisions are knee-jerk responses to fast moving events.

Had I known this was the case I would never have accepted the job offer, let alone promotion. How do you determine if a prospective employer subscribes to the Economist's principles before it's too late?

Just so you know what I mean by "old-fashioned" in the post above, BBC Radio has just announced that the British House of Commons has agreed that female Members of Parliament and staff will be allowed to breast-feed infants (with certain restrictions). My former employer only allowed women to wear trousers in 1998, at which rate breast-feeding should be permitted sometime around the year 2230!

Today's Financial Times has an interesting article by columnist Peter Martin about the latest research on the cause of poor corporate performance: Don't blame the industry. The researchers were attempting to determine whether or not an industry's fundamental economic structure might account for the lion's share of poor performance. Peter Martin writes about the implications of their research for individual managers and concludes with:

If you are working for a company in a tough industry with a management that does not appear to know what it is doing, consider taking another piece of Warren Buffett's advice: "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

It's amazing how dirty the word "socialism" has become. My dictionary defines it as "the belief that the state should own industries on behalf of the people and that everyone should be equal". But here's Digby Jones, Director General of the Confederation of British Industry, commenting today on a leaked European Commission draft proposal to extend temporary workers' rights:

"The flexibility of the labour market...could be under serious threat from this. It's depressing that Europe decides it's going to try and bring everyone down to some sort of low common denominator...It's socialism coming straight out of Brussels," he said. (For more see Bosses warn against rights for temps.)

Which part of the definition do you think he means? Since the EC proposal does not promote state ownership, he must be referring to the part about equality. The EC is for it; he's against it.

And yet this month's edition of the Harvard Business Review contains an article (see They're Not Employees, They're People) by the dean of all business gurus, Peter Drucker, which is summarised as follows:

"In this essay, business thinker Peter Drucker examines the changing dynamics of the workforce ? in particular, the need for organizations to take just as much care and responsibility when managing temporary and contract workers as they do with their traditional employees."

Those seem like opposite points of view to me. So who's right? Common sense tells me Drucker. So what's wrong with Digby Jones? He clearly has not read his copy of HBR!