I’m rewarded for spending not for saving, says government IT director

In an interview with Silicon.com Phil Pavitt, CIO at HM Revenue and Customs, told this story:

In my first few weeks of the job I was visited by leading members of the Cabinet Office.

In that conversation with me they mentioned I am in the top purchasing club… That means you have tremendous influence on buying power, buying ideas and management and so on.

I said ‘If I reduce costs by 50 per cent what happens?’, ‘Well, you leave the club,’ I was told.

So here I am relieved of my ability to influence government’s ability to purchase if I am clever and do my job. It’s one of the most perverse things that I’ve heard.

We don’t have a ‘demonstrable reduction of cost club’, we have a ’sheer size of spend club’. Surely this is the wrong way round.

Which is one of the reasons why costs in the civil service keep rising. Not only is there no incentive for senior managers to cut costs, they are often penalised for doing so. As one civil servant explained to me:

It’s better to over-spend against your budget than to under-spend. As long as you don’t take the piss, you can always come up with a good reason for over-spending. If you put up a good enough argument they will find the money from somewhere. If you under-spend, though, they will just give you less next year and it will be much harder to do your job.

In a system like this, no-one is willing to make cost-reduction plans on anything more than a piecemeal basis. There is no point in anticipating problems and making your team lean and mean to face future challenges. No-one will reward you for it. Better to wait until you are forced to make cuts, make as few as you can get away with this year then hope your won’t get hit again next year. After all, as Phil Pavitt says, your prestige depends on the size of your budget. Only a fool would cut any more than he had to.

As Edgar Schein told us, twenty-five years ago, organisational culture is based on deep assumptions which are shared by a particular group. In the Civil Service the prevailing assumptions are that the size of your department is a key determinant of your status, that budgets keep increasing year-on-year and that there will always be extra money if you can put up a good enough case. Intellectually, civil servants might know that public spending needs to be cut but this knowledge can sit quite comfortably with a belief that it won’t actually affect their own departments. Chris Dillow could probably name a cognitive bias for this. For now,  I will call it the It’ll-happen-to-all-the-rest-of-them-but-not-me bias.

This way of thinking is deep rooted in the Civil Service and it will take some changing. It is yet another force militating against the public sector cost savings on which both major parties’ spending plans rest.

Team building can seriously damage your health

“We’re going to run a team-building event.”

The first time I heard those words I was a young graduate trainee. I was still too junior to go on the three-day outdoor bonding exercise but I remember the effect it had on the middle managers who were being forced to participate. They were, to put it bluntly, shitting themselves.

Now don’t get me wrong, I have seen team-building events work really well. I have even witnessed a few that have actually improved the way the team works. All too often, though, they are either expensive jollies, excuses for macho posturing by executives or opportunities for self-styled gurus to test their latest mumbo-jumbo theories. Most stories of team-building excess are so ridiculous that they are funny. But no-one was laughing last week as a so-called motivational speaker was charged with manslaughter after three people died and eighteen others were injured during one of his events.

James Ray, who had built a multi-million dollar business empire out of such events, decided it would be good for his clients’ personal development to be cooked in a sweatbox in the Arizona desert for a few hours. After enduring fasting and sleep deprivation, 50 people were crammed into a tent made of plastic sheeting and slowly roasted. It’s the sort of thing you associate with war-crimes trials rather than corporate events.

It never ceases to amaze me how otherwise intelligent people are taken in by this kind of rubbish. Sure there’s something to be said for stretching yourself a bit and doing things you wouldn’t normally do but sitting and baking under a plastic cover isn’t going to make you a stronger person. At best it will give you a headache and make you smell; at worst it will kill you.

Public services facing a management crisis

A recent survey by the Chartered Institute of Personnel and Development (CIPD) draws some damning conclusions about management capability in the public sector:

There is a management crisis looming in our public services. Whichever party wins the next election will be targeting major changes in public service delivery. But there is an elephant in the corner that is completely overlooked in most of the current political debates over service reform, which is the poor quality of people management at the sharp end of public service delivery.

Compared to their counterparts in the private sector, public sector executives are less effective at managing absence, conflict and poor performance. For example, the difference between levels of absence is a feature of almost every study of absenteeism. Private sector employees take an average of 6.4 days off sick per year. Public sector employes take 9.7.

The study also has some interesting observations about managing poor performance and conflict.

Public sector managers also appear to shy away from taking formal disciplinary action and discipline proportionately far fewer employees than managers in the private sector. According to CIPD research, public sector organisations average one formal disciplinary case per 364 employees each year, compared with one disciplinary case per 119 employees among private services employers and one disciplinary case per 72 employees among manufacturing and production organisations (CIPD 2007). New analysis of the research for this report confirms that public sector organisations discipline proportionally far fewer staff than those in the private sector, regardless of size of organisation.

Public services employers also spend far longer than their private services counterparts dealing with formal disciplinary and grievance cases, averaging 21 days of management time on every formal disciplinary case (11.5 days for private services organisations) and 12 days on every grievance case (6.7 days for private services employers).

In addition, when the formal disciplinary or grievance procedure is used, public sector organisations spend significantly more time managing conflict than those in the private sector (CIPD 2007), averaging 21 days in management time per disciplinary case (12 days among private service employers) and 12 days for each grievance case (7 days among private services sector employers).

So public sector managers are less likely to tackle performance problems and, when they do, they take longer to do it.

From my own experience these findings ring true. Public sector managers tend to procrastinate more when tacking performance issues. Some of this is due to the more convoluted procedures in the public sector but these, too, are a function of the same management problem. Most of the public sector’s people management procedures go way beyond what is necessary to comply with the law. At the same time, those managers who really want to tackle performance issues can usually find ways to do so even within such complex rules. All too often, the procedures are used as an excuse by managers who would shy away from conflict anyway.

Grievances and disciplinaries are a big deal in most organisations but, in general, the level of panic they engender is higher in public sector organisations. The panic often leads to paralysis; managers get to a point where they don’t know what to do next. That’s why you have people on suspension pending disciplinary hearings for over a year, or employees who have raised more that eighty separate grievances without anyone having the nerve to face them down and get them to stop.

Of course, there are some good managers in the public sector and the report points this out. It could be argued that it is harder to be a good manager in the public sector because there are more procedures which get in the way of managing performance effectively. To do so in spite of these constraints takes courage and persistence. But, though the public sector has some good managers, there are simply not enough of them. The prevailing culture is one of conflict avoidance, low expectations of performance and collusion with the trade unions. The CIPD report does not break its findings down into the public sector’s component parts but, based on my own observations, this culture seems to get worse as you get closer to the centre of government. In general, local authorities are exemplars of efficiency compared to government departments and agencies.

Making the public sector more efficient and less expensive will depend on the ability its managers to improve performance. The next government can start by dismantling the complex Civil Service HR policies and procedures, which will help, but it will also need to develop and recruit better managers. Unless the standard of its managers improves, any chance of reducing the government deficit by making the public sector more efficient will be lost.

And Sir and friends were crucified

Over the past couple of days, most business pages have reported on EMI’s downfall. If anything, the people who are working in the business have done well. Despite a tough business environment, operating profits and market share are up. But, back in the days of cheap and easy credit, EMI was bought with debt by a private equity company led by Guy Hands. It wasn’t its music and entertainment business that screwed EMI, it was the financial engineering which came with private equity ownership. As the Guardian’s Julia Finch explains:

EMI’s music business – which has a heritage stretching back over 100 years – has actually ­performed well: with profit before financial charges up 81% to £298m as its chief executive, Elio Leoni-Sceti, has cut costs and grown market share by finding and promoting new musical talent. EMI’s Capitol Nashville label has the number one album in the US this week, with country and western band Lady Antebellum.

But Maltby [the company set up by Hands to acquire EMI]…. has plunged £1.75bn into the red as a result of a £1bn financial writedown, a vast interest bill, derivative and foreign exchange losses and restructuring costs.

So all those people who worked so hard to improve EMI’s performance are going to be screwed anyway.

This time, though, it looks as though the financiers are going to get seriously burnt too.  In a last-ditch move to avoid huge losses, Guy Hands is suing Citibank, who lent him more than half the money and advised him on the takeover, claiming that the bank tricked him into buying EMI.

Now, just think about that for a minute. We’re being told a story of Citibank as the corporate Del Boy and poor Guy Hands as the hapless punter. Hands has bought and sold more companies than most people work for during their lives. He must surely know everything there is to know about due diligence, valuing companies and not paying too much for them. 

He must be even more desperate to get his cash back than he is to preserve his reputation. If the court finds that Citibank did, indeed, trick Guy Hands, he will be left looking just as stupid as the mugs who pay over the odds for dodgy goods out of suitcases in Peckham Market.

Ten great HR blogs

Thanks to HPA for including Flip Chart Fairy Tales in their Top Ten HR Bloggers list. I was in good company, with the likes of Jon Ingham and Scott McArthur. I appreciated the description of FCFT too:

HR blogs don’t get more straight talking than this. The author, ‘Rick’, calls his mix of personal, political and business-related posts ‘reflections on the world of work and organisational crap’. He freely admits he’s going to upset a few people but of course that’s what’s made his 3-year-old blog so popular.

Heh! Perhaps it’s rather like those restaurants people flock to because the staff are rude.

Here’s a blog I hadn’t come across though. Nick Jefferson sounds like a man after my own heart. This comment made me laugh:

Matrix management. Mmm. 

It sounds like bullshit, doesn’t it? 

That’s because – with very limited exceptions – it is.

He’ll be going straight onto the blogroll then!

Update: Actually, Nick was already on the blogroll. I discovered his blog this time last year.  Plot…….losing……oh well, I have been working hard of late!

Chief executive sacked – without a payoff!

Here’s a slightly unusual employment tribunal case.

Tim Wheeler, formerly the £780k a year CEO of  property firm Brixton, is suing his former employer for breach of contract and unfair dismissal after being sacked last March. A number of allegations and, according the Evening Standard, quite a lot of foul language, have kept up the media interest in the case.

All entertaining stuff but the most interesting thing about this case is that it has come about because a chief executive was sacked. Chief executives are hardly ever sacked. OK, the headlines might say that a CEO has been fired but they are not dismissed in the way that most ordinary mortals would understand the term. In almost all cases, regardless of their poor performance or  misconduct, they are paid vast sums of money to leave the company. But Tim Wheeler appears to have been given the boot with no golden parachute, no redundancy pay and no pay in lieu of notice.

Of course, I have no idea whether the allegations against Mr Wheeler are true or whether Brixton followed a fair procedure when they sacked him. We will have to wait for the judgement in April to find out what really happened. All the same, it is refreshing to see a board take the highly unusual step of dismissing their CEO when they think he has screwed up.  It would be good to see a lot more of this in both the private and public sectors.

Targets and performance management – the key to public sector reform

Last week’s report by the Nuffield Trust, showing that England gets better value for money from its NHS spending than Scotland, Wales or Northern Ireland, was bound to stir things up a bit. The NHS outside England is, on the whole, run more like the NHS was in the 1980s. It is managed by local health boards, resembling the old area health authorities, there is much less emphasis on targets and most of the market-based reforms applied in England have been rejected. This means that we have something close to a control group against which we can test the reforms of the last fifteen years or so. If you want to know what a modern NHS would look like if targets, markets, foundation trusts and local devolution had never happened, you only need to look at Scotland and Wales.

Which is why the Nuffield survey is controversial. Everyone who is opposed to the direction the NHS has taken in England doesn’t want to believe the figures. As you might expect, the SNP and the BMA were quick to question the report’s findings. However, there is mounting evidence that the NHS in England is, indeed, out-performing the health services of other parts of the UK. Reasearch by Carol Propper, covered in the FT and on this blog last year, found similar results.

Furthermore, this research also refutes the claim made by opponents of NHS reforms that a focus on targets simply means improvements in the target being measured while everything else goes to pot. For example, Professor Propper found that “targets led to a fall in waiting times without apparent reductions in other aspects of patient care”. Comparative studies between Wales and England have also concluded that the use of targets has not had a detrimental effect on other aspects of patient care. As early as 2006, Hanuck and Street concluded:

Over the period [of the study] the English hospitals recorded increased levels of activity, undertook proportionately more day case activity, and mortality rates fell. The stronger performance management regime operating in England appears to have contributed to higher levels of performance in the English hospitals over the period.

The Nuffield report also deals with the objection that comparing Wales and Scotland with England is unfair because the socio-economic profiles are different. Even when they compared Scotland and Wales with North-East England, an area with similar levels of deprivation, the researchers found that NHS performance in the North East was better than that in Scotland or Wales, despite having lower levels of per-capita funding.

In short, then, there is a lot of evidence to show that the English system with its emphasis on targets and performance management delivers better value for money than the health services in the devolved countries.

Of course, it is easy to attack the use of targets by coming up with silly examples of where they have led to perverse outcomes. Just look in the comments on Peter Preston’s article from earlier this week. All the straw-men are in there somewhere. We all know the stories of bonus driven sales teams achieving massive increases in orders that production and distribution teams were unable to meet. Result – rich salesmen, pissed-off customers and a company losing market share. 

But most organisations are getting a lot cleverer about using targets, performance management and incentives and, from the research, the NHS seems to be using them to good effect.

So could targets be the key to improving efficiency elsewhere in the public sector? Almost certainly.

Many public sector organisations, especially central government and its agencies, are bedevilled by a lack of focus. Initiative overload is endemic. Typically a number of improvement projects will be going on at any given time, all competing for resources and getting in each others’ way. To deal with the resulting complexity they then need another team of people to manage the dependencies between the projects. It is very easy to create an industry around a group of projects that have no clear impact on the bottom line.

Part of the problem is that the bottom line isn’t always clear. Even in profit-making organisations, clever people will come up with good reasons to launch their own ego-driven projects. Where the organisation’s purpose is less clear,  a few talented individuals will take advantage of the ambiguity to make their mark, build their skills and enhance their career prospects. If challenged they will usually be able to present a convincing argument explaining why their pet project fits in with one of the organisation’s ninety-seven key priorities. As one former medical director, himself a doctor, explained to me a some years ago:

There are a lot of people in the NHS doing what they want to do, not what they are supposed to do.

Clear targets and performance management have stopped much of that.

The advantage of having a few clear targets is that the ambiguity and wriggle-room is seriously reduced. Once you are clearer about what you have to achieve in a given time, it’s far easier to choose between those good ideas which will contribute to the bottom line and those which won’t.

Over the next few years, public sector organisations will have implement spending cuts on a scale that only those now close to retirement can remember. The un-focused, woolly management that prevails in many of these organisations hasn’t a hope in hell of achieving these cost savings without severe degradation of the country’s public services. Public sector managers, especially those in the civil service, need to be given clear performance targets and managed against them. Those that fail to meet their targets without a very good reason should be fired. And I don’t mean paid off or moved to another job, I mean fired. Sack a couple of high-profile civil servants for failing to deliver and watch the culture of central government change – rapidly!

David Cameron, for all his rhetorical opposition to targets, will soon come to realise that he has no choice other than to give public sector managers clear objectives and to manage their performance closely. Unless he does this, he will never make the public sector more efficient and he won’t be able to get the government deficit down without large tax increases or a complete dismantling of services.

As the Nuffield and other studies have shown, targets work. If the improvements in efficiency experienced by the NHS in England can be extended to other parts of the public sector the next government has at least a chance of managing down its debt.  Without clear targets and strong performance management, it hasn’t a hope in hell.

Seniority ain’t what it used to be

According to the Telegraph and Radio 4, the mid-life crisis is now passé. Instead, a graceful ‘midlife transition’ is now the fashionable way to deal with the aging process. “Gone are the clichés of adultery and Harley-Davidsons,” said Radio 4’s Justin Webb.

Damn! I was looking forward to a Harley-Davidson and a bit of adultery. A graceful transition doesn’t sound nearly as much fun. Why is it that, whenever I am on the cusp of seniority, the perks of that seniority are withdrawn just before I get there?

This seems to have been the story of my life. It started when I was a kid. At the school I went to, sixth-formers were expected to give punishments to younger pupils for minor misdemeanours, by making them write lines. As soon as I got to the sixth-form the practice was abolished. In a similar vein, the sixth-form centre, once a private fiefdom in a separate building, was replaced by a crappy common room in the main school building, under the watchful eyes of the authorities.

It was the same when I started work. Just as I got to the grade where you were allowed to have your own office, the company decided that offices were old-fashioned and went open-plan. When I reached the point in the hierarchy where you were entitled to a fat-cat gas-guzzling car, the firm went all eco-friendly and decided that we should all travel by train. Eventually, I got to the level when, in days of yore, executives spent their afternoons playing golf or having long boozy lunches with clients. Alas, I soon discovered that those days were gone. Instead, I had people bending my ear about ’making the numbers’, ’shareholder value’, ‘the quarterly report’ and all sorts of other tiresome things. The old buffers who were the senior executives when I started work never seemed to worry about stuff like that.

What really annoys me is that I know this is going to keep happening until, twenty years or so from now, some spotty geek calling himself a financial adviser will say, “Oh yeah, pensions, they had them in the olden days didn’t they? Seems like you used to have one but it got wiped out by the last three banking crashes. You can’t afford to retire so you’ll have to keep working until you are seventy-five.”

Age and seniority just ain’t what they used to be.

Who gains from takeovers?

Sorry for the lack of posts over the last week or so. I have been out and about again. Still, a few long train journeys gave me the chance to catch up on some reading. The hullabaloo over Kraft’s takeover of Cadbury’s has kept me entertained over the past couple of days.

Perhaps there is so much fuss because, like Woolworths, Cadbury’s is a brand that a lot of us remember from when we were children. Seeing it go into foreign ownership is bound to cause a twinge of sadness. But there is no rational case for getting any more upset about Cadbury’s than any other business that has been taken over by foreign organisations. Over the past twenty years or so Britain’s airports, energy suppliers, steel makers, water companies and motor manufacturers have fallen into foreign hands. These industries are all more strategically important than the manufacture of confectionary. If the government did not step in to prevent their acquisition by foreign companies, there is no logic in it stopping the sale of a firm that makes chocolate bars. The people planning to demonstrate against the takeover will probably have a nice day out in London but that’s about all they will get.

Almost as futile are the protests of the shareholders. Both Cadbury’s and Kraft shareholders reckon they are being sold short by the merger. While this might sound a little counterintuitive, it is indeed possible for both sets of shareholders to get shafted during a merger. There are a few individual examples of successful mergers but most of the evidence over the last decade or so, both academic and anecdotal, shows that most fail to add value to the new company and many actually destroy value. The biggest mergers are the most value-destroying of all. All too often, the whole ends up being much less than the sum of the parts.

The mistake we often make when discussing takeovers is to assume that there is some kind of commercial logic too them. Sometimes there is but quite often there isn’t. No, as I have said before, the key driving forces behind takeovers are the egos of senior executives. Mergers are a power trip for the people who plan and execute them. The adrenalin highs during the chase are better than you could get from most drugs. Suddenly everyone wants to interview you. You go from single columns tucked away in the business section to big feature articles in the mainstream sections. You are there on the front pages, bestriding the world, with the fate of thousands of people and millions of dollars in your hands.

Of course, as well as the ego trip, takeovers can be financially beneficial for senior executives too, especially if they can convince their boards and remuneration committees that borrowing a shedload of money to buy another company somehow counts as growth. The bosses of the acquired companies often don’t do too badly either. But the people who are always guaranteed to make a killing are the investment bankers and advisors. They usually keep a low profile during the battle but they get fat fees for…erm…arranging things. Back in the olden days, before 2008, investment banks had lots of people who would search for companies ripe for takeover then approach potential acquirers among their clients and suggest that they make a bid. As the economy picks up, no doubt they will soon be up to their old tricks again.  

So you see, even though employees, politicians, journalists and shareholders might complain, for some people mergers and takeovers really are a very good thing.

Giving 100% at work

This seemed like an appropriate Friday Funny for the first week back after Christmas. Well, it made me laugh anyway. I like the way the work effort peaks on Wednesday and then tails off again as the weekend gets nearer.

Mind you, it seems that just giving 100% at work isn’t good enough any more. These days people claim to be giving 110%, or, if you watch the candidates on The Apprentice, 120% and rising, depending on the intensity of that week’s bullshit bidding-war. I would ban the phrase “I always give 110%” from every workplace.

Hat Tip: Am tellin me mam