Vanity Projects

Despite living in Australia, John Band often has more of a grip on the detail of British news stories than many people here. As he explained yesterday, the taxpayer has not been fleeced by G4s over the Olympic security contract. If anything, it will now cost the public less, thanks to the huge penalty clauses. Even if things had gone to plan, G4S was never in line to make that much money anyway.  A mere £10 million, or 4 percent profit, is not much considering the risk the company was taking on.

So why did they do it? It was, as CEO Nick Buckles all but admitted yesterday, a vanity project.

Anyone who has worked in a large organisation will have come across a vanity project at some point. They are the ones that are really driven by senior management egos, though they are usually dressed up in something which looks like a commercial rationale.

I’ve been involved with a few. I’ve crunched the numbers every which way and found that there was no way we could do the work at a profit. I’ve gone to my boss and said as much.

“Ah yes, but think of the exposure we’d get if we won this, Rick,” comes the reply. And I’m sent away to come up with costs that would win the project but would get me disciplined if I put in such a loss-making bid on any normal piece of work.

Exposure is, of course, corporate code for senior executives hobnobbing with important people and getting their pictures in the papers. The rationale, or rather the post-hoc rationalisation, goes like this: If the project means we get to spend time in one-to-one meetings with powerful movers and shakers, it’s bound to lead to lots more work, so it’s worth going in at a loss. In my experience, though, while such projects gave plenty of the former, they rarely led to the latter. Senior people did the hobnobbing but the promised payoff never came.

So it is with many corporate projects. The ego comes first and the often flimsy rationale is built around it. Perhaps the most obvious examples of vanity projects are mergers and acquisitions. As a former colleague of mine once observed, these are just as often about big swinging dicks as any commercial considerations. The executives leading the charge love the glory and the limelight but, for the most part, the benefits for anyone else, including the shareholders, fail to materialise.

In many cases, even the term bounded rationality flatters the corporate decision making process. J G March’s Garbage Can model is closer to the truth. The ego leads and the commercial justification gets written up afterwards.

Is this any worse in public or private sector organisations, wonders Chris Dillow?

In my experience, having worked in both sectors, public and private sector managers are equally prone to vanity. Because of the greater complexity and ambiguity in the public sector, there is more scope for clever people to construct arguments to justify what they want to do. Set against that, the decision making processes in the public sector take longer and involve more people, so you don’t see the wilder and more spontaneous ego trips that have led to big private sector failures. Both sectors make vanity-based decisions but the consequences manifest themselves in different ways.

Of course, the argument many will make is that private sector organisations go bust if they make too may uncommercial decisions, so there is a Darwinian process weeding out the vain managers that is absent in the public sector. But, where large firms are systemically important, like the banks, this clearly isn’t true. Whether or not RBS would have needed a bailout if it hadn’t taken over ABN Amro is something we will never know but the acquisition was certainly a major contributor to the bank’s collapse. The vanity projects of those in charge of RBS in the run up to the financial crash, then, led to a direct hit on the taxpayer.

Chris concludes:

[T]he question of whether private sector firms are well or badly managed cannot be left to the market, and nor can they be rectified by macroeconomic policies. The question of how private sector firms are managed is a legitimate political one.

Indeed so. If a company’s vanity projects can have such have such an impact, regulators need to start taking an interest a lot earlier.

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15 Responses to Vanity Projects

  1. Pingback: Vanity Projects - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. bobawesome says:

    “If a company’s vanity projects can have such have such an impact, regulators need to start taking an interest a lot earlier.”

    And the regulators never engage in vanity, oh no:

    http://www.theregister.co.uk/2012/04/26/murdoch_bskyb_hunt_ofcom_wtf/

  3. Mark Baker says:

    Regulators of course, not being affected by the same issues as Private or Public Sector organisations.
    No vanity at all from either Mervyn King or Adair Turner, and especially not from Chancellors and Prime Ministers. A No True Scotsman fallacy at play.

    The only solution is Darwinian, but then you have to stop large corporations becoming monopolies, operating in cartels, or being too big to fail.

  4. Rick says:

    Bob/Mark – fair points both. No organisation is immune from vanity projects, not even regulators.

    But how do you stop organisations operating in cartels or becoming too big to fail? Brings you back to regulators again.

  5. One could reasonably argue that the Olympics themselves are equally as much a vanity project as G4S’s involvement in them…

  6. sadbutmadlad says:

    Vanity projects are also marketing schemes. So the loss should be more than covered by the marketing budget that would have had to exist to get the same exposure. All news is good news and all that. Unless it is so bad that it destroys the company.

    • Rick says:

      sadbutmadlad – I think that’s what people claim – back to the ‘Think of the exposure’ argument – but I’m not sure it actually works that often. In the G4S case it clearly hasn’t.

  7. Charles says:

    I believe that most of the media focus on G4S is because journalists and most of the public can get their heads around what happened at the firm, unlike understanding the shenanigans that have been going on in the finance sector.

  8. kitty says:

    I think it’s ministers rather than managers in the public sector that are more likely to push their vanity projects through…”but I’ve announced it now!”

  9. politika says:

    Rick, it’s not ‘just’ the private and public sectors that do the vanity thing.

    Sorry to harp back, but that’s what I’ve argued for some while thaqt our own Chancellor is up to: http://pinkpolitika.com/2011/04/04/zeroing-the-deficit-zoom-zoom-essentially-a-grim-vanity-project/
    Now, which regulator is going to stop that?

    PS The argument ‘think of the publicity’ has particular resonance for those involved in the music profession. It’s what event organisers who ‘forgot’ to do a decent budget for the ‘entertainment’ tell the hapless performers, when the event requires music but the organisers don’t want to part with cash. Doesn’t lead to anything (except a reputation for gullability), of course.

  10. Cass says:

    “the argument many will make is that private sector organisations go bust if they make too may uncommercial decisions, so there is a Darwinian process weeding out the vain managers that is absent in the public sector.”

    Certainly true to a large extent, particularly historically… but I wonder whether the current public sector environment of restructure-restructure-restructure / largescale redundancies means vanity projects get people cut? Though perhaps the opposite could be said too, whereby constant restructuring allows more experimentation and makes the system on a service-by-service basis more open to vanity projects? (Which can then “safely” fail…)

  11. Dipper says:

    Can anyone give an example of a Vanity project that has worked? There must be cases of firms who transformed the way they were viewed positively in the market through such projects and produced major long-term benefits?

  12. Pingback: The one where something failed | Masters or Bust

  13. Pingback: With power comes … | Don't Compromise

  14. Pingback: icon (εἰκών)/vanity (καθομιλουμένη) | Sarah Tanburn

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