Category: management

Throwing your problems over the fence

Outsourcing, subcontracting and securitisation often shift costs and risk from those responsible. Usually the bill ends up with the taxpayer or shareholder.

I first heard the term “throwing the problem over the fence” from a telco project manager a few years ago, it describes how modern organisations shift risk to others.

Throwing the problem over the fence usually involves contracting out a task, the philosophy is once the contract is signed delivery is no longer management’s problem, it’s now the responsibility of the contractor. Once the job is over the fence it’s out of sight and out of mind.

Governments, financial institutions and most corporations have become very good at throwing their problems over the fence.

Contracting away your worries

A core tenet of 1980s management thinking is contracting out; freeing executives from the tedious task of actually doing their jobs lets them focus on the important things in life, like securing performance bonuses.

Of course you can’t contract out risk – risk is like toothpaste, squeeze it in one place and it oozes out somewhere else.

Unlike toothpaste, risks have a habit of growing if they are ignored. Which becomes a problem for whoever is unwittingly on the other side of the fence.

Railways and risk

In “The Crash That Stopped Britain” author Ian Jack looked at the causes of the October 2000 Hatfield train accident which threw the nation’s railway network into chaos.

Jack correctly predicted that no-one would be found responsible as the tangle of rail operators, maintenance companies, financiers, labour hire firms and regulators made it almost impossible to determine exactly where responsibility for a fatal failure lay.

Diffusing responsibility is partly by design although originally the idea was to save costs, the theory being that tendering work previously done in house to the lowest cost provider would save money.

Instead its caused an escalation in costs as contracting out meant an increase in middlemen as financiers, lawyers, project managers, contract administrators – of which I was once one – and many others are drafted in to manage the outsourced contracts.

Throughout the Anglosphere – the US, UK, Canada, Australia and New Zealand – the results of embracing this mentality has meant skyrocketing costs and delays in public work projects, a good example being the Southern Sydney Freight Line which was three years late and 250% over budget.

Naturally no-one is held responsible for the delays, cost over-runs or lousy initial planning and estimating on that project, which is a happy result for everyone except the taxpayer who foots the bill.

The Global Financial Crisis

While the cost of building railways, schools and motorways is a chronic problem, a far more bigger issue is the role of “throwing problems over the fence” in the financial industry.

Securitisation was seen as a magic bullet for the banking industry in the 1990s, the Basel Accords allowed banks to bundle up their entire home loan portfolios and throw them over the fence to fund managers and their unwitting investors.

When the inevitable happened with the Global Financial Crisis in 2008, it was difficult to attribute exactly who held the mortgages, let alone who was responsible for the losses among the mass of brokers, ratings agencies, fund managers and bankers who’d profited so well from the boom.

The only thing we could be sure of was that it was the taxpayer – you, your children and grand-children – who ended up holding the problem when the GFC’s bills were hurled over the last fence.

On the other side of the fence

Risk isn’t something that can be thrown over a fence, eventually it comes back in a bigger and nastier way. The question is who ends up dealing with it.

The genius of political and business leaders in the last 30 years has been in how they’ve thrown their responsibilities over the fence while retaining the perks and privilege of holding responsible positions.

Generally it’s taxpayers and shareholders sitting on the other side of the fence who have to deal with the costs and they aren’t getting cheaper.

Poor journalism and social media

Fairfax gets the Sandy Hook shooter story wrong and blames social media and shows how broken their own journalism is.

Brother’s plea shows up online failings crows the Sydney Morning Herald over social media’s role in misidentifying the perpetrator of the Sandy Hook school shooting.

The problem for the SMH is that social media wasn’t responsible for the story. As the Washington Post reported, CNN and various other outlets misidentified the shooter as his brother who had to take to social media to correct the record.

For the mainstream media, the Sandy Hook shooting was not their finest hour; not only did they misidentify Ryan Lanza as the shooter, but they mistakenly reported his mother had worked at the school. When the Daily Mail does a better analysis of the story than many outlets, you know something is wrong.

Something is certainly wrong at Fairfax as the cutting of resources results in the Sydney Morning Herald being three days behind the story and factually wrong on key aspects – not to mention adding a smug headline that is embarrassingly incorrect.

While the writer of the SMH article should be held to account for sloppy work and poor research, the real responsibility for this embarrassment lies with the paper’s editors and management who should be ensuring what appears under the masthead is accurate and reliable.

Both The Age and Sydney Morning Herald are essential to the fabric of their respective cities, this story is a good example of the important role the SMH has in shining light on the arcane dealings of the city’s business community. Fairfax can, and should, do far better than a poor, badly researched story on social media.

Ironically, the mis-identification story quotes media academic Julie Posetti as saying “anyone with an internet connection could now contribute to and comment on the breaking news cycle without going through the filters of the traditional media.”

At Fairfax, those filters are broken with the breathing space from selling its New Zealand digital operation, the company’s management has an opportunity to fix their credibility problem and focus on its core business.

Life in the mob

At a time of easily generated moral hysteria, it’s best to keep your head rather than joining the mob.

The reaction to last week’s tragic passing of a nurse over a hoax phone call shows how hysteria and cynicism in new and old media fuel each other.

Having created villains, in this case the two hapless Sydney radio hosts, the mainstream media creates a moral outrage to stir up the mob which in turn generates more headlines.

As with the Hillsborough tragedy, this allows those in positions of responsibility the opportunity to avoid scrutiny and accountability.

In this case we see the hospital management demanding action being taken against the Sydney duo while conveniently ducking questions about why poorly paid nurses are expected to act as switchboard operators on top of their already considerable responsibilities.

Now we’re seeing calls to make practical jokes illegal – no doubt there’ll be a wave of teenage boys being prosecuted for making prank phone calls when panicked politicians pass poorly drafted laws to deal with the ‘problem’.

Our taxes at work.

Your mission in life is to use your brain and not to be one of the torch bearing mob.

If it’s you the mob are looking for, then it’s best to lie low until another headline or something shiny distracts them.

Disruption and leadership

Smartphones and the internet are shifting power between suppliers, companies and customers. The new breed of leaders has a tough task.

As new communications tools appear, the challenge for managers is to deal with the disruptions these technologies bring to their businesses.

Launching Deloitte Digital’s release of Taking Leadership in the Digital Economy last week the Executive Director of Telstra Digital Consumers, Gerd Schenkel, described how business is changing as consumers are being empowered by smartphones.

A good example of this is the taxi industry where applications like GoCatch, InGoGo and Uber give passengers the opportunity to fight back against poor service from protected operators.

Sydney is an attractive market for taxi industry disruptors as the current protected market fails both passengers and drivers. Travis Kalanick, the CEO of Uber, said at the Sydney launch of his service earlier last week that the city is one of the more ‘problematic” markets they’ve entered alongside San Francisco and Paris.

That letting down drivers along with passengers is an also an important point – drivers get 80% of Uber’s charges while InGoGo and GoCatch free operators from poor booking systems that frustrate everybody involved in the industry while making the system as unaccountable as possible.

Similar changes are happening in other industries as technology changes the way suppliers, customers and staff work.

A good example of changing work practices is the adoption of Bring Your Own Device (BYOD) policies in the workplace. A few years ago in most businesses it was unthought of that staff could be allowed to bring their own computers to work. Today it’s common and soon the companies that don’t have a BYOD policy will be exception.

BYOD has happened because of the arrival of cheap consumer devices like smartphones and tablets along with IT departments rolling out web based services.

We’ve seen this before – probably the greatest influences on the shape of modern society had been electricity and the motor car. These, and many other technological changes have shaped today’s workplace.

Many businesses though suffer for those changes as we’re seeing with the drying up of the newspapers’ “rivers of gold”.

For Telstra this is seen in the demise of their phone directory business; Sensis was a true river of gold in the days of printed phone directories, but a number of management mis-steps over the last 15 years meant they totally missed the transition to digital.

The tragedy for Telstra that Sensis’ strength in the local advertising market should have been a positive given Google’s failure to execute on their local search strategy.

On reflecting about the struggle to deal with transitions to new technology, just how many business are like Sensis and Fairfax in having leaders that aren’t equipped to deal with these changes.

The leaders of the 1980s whose business models were based on the assumption of economic growth underpinned by easy credit, cheap energy and demographic growth and now finding those factors are moving against them at the same time technology change is disrupting their industries.

For the upcoming generation of leaders, both in business and government, having the ability to adapt to the changed power relationships between customers, suppliers and workers is going to be essential. For those steeped in last century’s certainties, it’s going to be a tough time.

Bringing manufacturing home

How GE is reviving its American manufacturing operations

In the 1980s General Electric, like most US companies, sent most of its appliance manufacturing offshore.

Now its coming home.

The Atlantic Magazine looks at how General Electric is resuscitating manufacturing at Kentucky’s Appliance Park as management finds US workers are more skilled and productive than their equivalents in Mexico or China.

An important part of the article is how critcal supply chains are; manufacturing hubs rely upon having a community of skilled service providers and suppliers around the factories while being close to customers improves and simplifies logistics.

In the latter case, it now take hours or days to deliver products to customers’ stores or warehouses rather than the five weeks it takes from China.

The cost of those goods is lower too, the Kansas made GeoSpring heater sells for $1299 while the Chinese product sells for $1599.

What is most notable though is how designers and managers now have a better understanding of the manufacturing process; where under the oustourced model the difficulties in assembly were none of their business, now they are far more deeper and directly involved.

This really goes to the core of what an organisation does – in the 1980s it was fashionable to talk of the “virtual corportation” where everything the business did was outsourced except for the managers who were employed solely to pocket their bonuses.

In the 1990s and early 2000s that “virtual corporation” became a reality as manufacturing and customer support were offshored and logistics was outsourced.

One of the best examples was customer support where looking after the needs of those who buy the company’s products were secondary to the need to cut costs.

This focus on cost cutting over customer service hurt Dell badly in the 2000s and it continues to hurt many organisations – particularly telcos and banks – today.

The weakness in the “virtual corporation” model was the company ended up adding little more value than the brand name and eventually those offshored manufacturers and call centres took control of the business’ goodwill and intellectual property.

Eventually the hidden costs of offshoring became too obvious for even the most craven, KPI driven manager to ignore and suddenly manufacturing in the Western world became competitive again.

Sadly, the fixation on dirt cheap labour has damaged many industries beyond the point where they can be salvaged with too many skilled workers lost and the ecosystem of capable suppliers destroyed. These are costs where tomorrow’s managers will rue the short sighted actions of yesterday’s corporate leaders.

A weird case of Stockholm syndrome

Some business have been trapped by their own technology. This is one of the problems for many news organisations.

Hacks and Hackers are regular informal meetups where technologists and journalists get together to discuss how news gathering is changing in the digital age. The November Sydney meeting featured a discussion with Aron Pilhofer, founder of the original event and Editor of Interactive News at The New York Times.

Aron had some great views on how journalism is changing and some of what he mentioned about the New York Times’ digital adventures was off the record

Some gems from Aron included just how ‘dirty’ raw data is from government agencies and how journalists can help open data advocates make their stories more accessible. Those topics are for future blog posts.

One of Aron’s comments about the challenges of the media was how many news organisations are trapped in “a weird case of Stockholm syndrome” – where their output is limited by their Content Management Systems.

It’s notable how many businesses, not just in media are constrained by their own systems – what was set up to serve the organisation has instead has become the master.

Of all the take aways from Aron’s talk, the Stockholm Syndrome of poor CMS’ is the most universal across industries – organisations pay a fortune to multinational consultancies for poor software platforms that management then tries to shoehorn their staff and business processes into.

This rarely ends well and usually creates more problems as the business loses flexibility, which is exactly what has happened to new organisations.

Sometimes biting the bullet and writing off a poor investment, particularly in software, makes damn good sense.

Whitman’s managerial mountain

How Meg Whitman has to dismantle the legacy of over a decade’s poor management at HP

This week’s announcement by HP that it will take a nearly nine billion dollar write down on the $10 billion investment it made in British business intelligence software business Autonomy shows how a once proud company can be laid low by a managerial culture.

HP’s purchase of Autonomy was a classic example of the Silicon Valley greater fool exit where the founders and investors of a business find a foolish buyer – in this case HP – to overpay for the operation.

In HP’s case it appears they overpaid by $8.8 billion dollars, this follows a $8 billion dollar write down earlier this year on the 2008 acquisition of Electronic Data Systems.

HP’s management are now claiming Autonomy’s managers defrauded them and the deal has been referred to the US Securities and Exchange Commission and the UK Serious Fraud Office – a point which Autonomy’s former CEO, Mike Lynch, describes as nonsense given 300 HP managers and two major accounting companies carried out due diligence on the firm.

For HP this is another humiliation on a decade of embarrassment largely caused by poor leadership with poorly chosen CEOs including the hubristic Carly Fiorina, followed by the poster boy of entitled managerialism, Mark Hurd, who in turn was succeeded by the haplessly incompetent Leon Apotheker.

Apotheker was the wrong person to undo the mistakes of his predecessors however at least with the Autonomy purchase he was trying to clamber onto a technology trend before it left the station, unlike both Hurd and Fiorina who had missed opportunities and entered markets way too late. Although like Apotheker, they overpaid for acquisitions like Palm, EDS and 3Com.

In Fiorina’s case she had missed the dot com boom and subsequent bust while trashing the company’s brand by competing with Dell in the low end, lousy margin consumer PC industry.

Hurd’s solution was services, as shown by the $14 billion dollar acquisition of EDS. At the same time he took an axe to HPs costs and continued Fiorina’s gutting of HP’s core competences in R&D and high end industrial technology.

Like all managerialists, Mark didn’t apply the cost cutting mantra to himself, staying at the best hotels and flying the world on corporate jets like a latter Bourbon. A list of his expenses, along with the salaries for himself and his senior executive buddies, would embarrass a third-world kleptocrat.

When he left HP under the cloud of a sexual harrassment scandal, the board gave him a settlement of over $40 million dollars rather than the $27 million he was entitled to.

Most infamously, in the scandal that bought him down, a company ‘hostess’ claimed he stopped by an ATM in Madrid to show her the million he kept on call in his checking account.

It’s instructive that Roman emperors would have a slave reminding them that they were only mortal. Today’s managerial heroes have ‘hostesses’ to remind them of their entitled position of being hairy chested, virile heroes of 20th Century capitalism; even as their 1980s thinking destroyed shareholder wealth on an industrial scale.

One could ask why a company like HP would need ‘hostesses’ – particularly at a time when cost cutting was mandating office lights were turned off at 6pm. Just the fact pretty ladies could be on the company payroll to solely to stroke the egos of senior male executives is enough in itself to illustrate the mess HP had become.

With over $16 billion in write downs this year, sacking the eye-candy for over-privileged middle aged executives is the easier task for current HP CEO Meg Whitman. Whether she can manage to save HP from over a decade of poor management remains to be seen, but the shareholders will be hoping.

Incurious George and the cult of managerialism

The BBC’s scandals illustrate how management layers diffuse responsibility in modern organisations

“Do you not read papers?” Thundered the BBC’s John Humphrys to the corporation’s Director General during an interview over the broadcaster’s latest scandal.

That exchange was one of the final straws for the hapless George Entwhistle’s 54 day leadership of the British Broadcasting Corporation where the Jimmy Savile scandal had seen him labelled as ‘Incurious George’ for his failure to ask basic questions of his subordinates.

Humphry’s emphasised this when discussing the Newsnight program’s advance notice of the allegations they were going make;

You have a staff, but you have an enormous staff of people who are reporting into you on all sorts of things – they didn’t see this tweet that was going to set the world on fire?

A lack of staff certainly isn’t the BBC’s problem, the organisation’s chairman Chris Patten quipped after Entwhistle’s resignation that the broadcaster has more managers than the Chinese Communist Party.

George Entwhistle’s failure to ask his legion of managers and their failure to keep the boss informed is symptomatic of modern management where layers of bureaucracy are used to diffuse responsibility.

In every corporate scandal over the last two decades we find the people who were paid well to hold ‘responsible’ positions claimed they weren’t told about the nefarious deeds or negligence of their underlings.

Shareholders suffer massive losses, taxpayers bail out floundering businesses and yet senior executives and board members happily waddle along blissfully content as long as the money keeps rolling in.

If it were just private enterprise affected by this managerialism then it could be argued that the free market will fix the problem. Unfortunately the public sector is equally affected.

Managerialism infects the public service as we see with the BBC and it’s political masters  and the results are hospital patients die, wards of the state abused, known swindlers rob old ladies and agencies continually fail to deliver the services they are charged to deliver.

Again the layers of management diffuse responsibility; the Minister, the Director-General and the ranks of Directors with claims to the executive toilet suite’s keys are insulated from the inconvenience of actually being responsible for doing the job they are paid to do.

Managerialism and incuriousity are fine bedfellows, in many ways Incurious George Entwhistle is the management icon of our times.

Here’s where the fees go

Goldman Sachs is taking on new partners, showing how lucrative their fees are.

Becoming a partner of Goldman Sachs is a path to riches and is admission into the highest elites of the Western World’s corporatist society.

The Guardian looks at the process of becoming a Goldman Sachs partner from joining the company as an ‘analyst’ or ‘associate’ through to achieving the highest partner level.

What’s notable about the story are the layers of management and their grandiose titles; the position of “vice-president” being a case in point where it is the next step up for associates and analysts rather than the seat of power such a title suggests.

The sheer number of these vice-presidents and Managing Directors, estimated in the hundreds by the Guardian, is another notable point. The fact there are nearly 500 partner positions in the firm indicates just how fat the fees must be to pay these people.

If Goldman Sachs and their clients were private companies their fees and remuneration would be their own business. Since the Global Financial Crisis, Goldman Sachs and its too-big-to-fail competitors now are explicitly underwritten by the world’s taxpayers.

That should make us all concerned at just how much our grandchildren are going to have to pay for the generous lifestyles of today’s banking elites.

Beware the business trolls

Trolls are as likely to hide in a business’ accounts receivable file as they are on a Facebook page

“A psychopath will enter everyone’s lives at one time. When yours arrives, your job is to get them out of your life as quickly as possible.”

That little gem was handed down to me before the internet gave everyone a global megaphone to entertain themselves with. Today it’s likely a dozen psychopaths a week could enter your life through the web or social media.

One of the manifestations of this ability for anyone to post to the web regardless of merit or sanity has given rise to the phenomenon of “trolling”, of which there has been much recent media attention.

At its most basic, trolling is about getting attention. The troll hopes to get a reaction from something outrageous they’ve said or done. In that respect they aren’t too different to radio talk back hosts or SmartCompany editors.

Business has its own types of trolls: the ‘squeaky wheel’ who hopes that by making a complete pain of themselves you’ll succumb to their unreasonable demands; the perennial tyre kicker who wastes your sales staff’s time; or the late payer who enjoys toying with you and your accounts people but has no intention of ever paying the bill.

The effects of these business trolls can be just as debilitating as an online troll, with the added bonus that they distract you and your employees from getting work done.

Sometimes the business owner makes the mistake of taking things personally. This often happens when a bad debtor upsets us so much we make it our life mission to get what we deserve to be paid.

Hundreds of hours and thousands of dollars later we surrender and accept we were never really going to get that relatively trivial sum.

The worst of all the business trolls is the recreational debtor. These business psychopaths take delight in ringing up debts they have no intention of paying and then treating your attempts to get the money back as a type of game where they will thoroughly mess with your mind.

These are the people to get out of your life as quickly as possible. It could be writing off the debt, giving them the refund or just kicking them out of the store.

So beware of the business trolls, they are as likely to appear in your outstandings file as on your Facebook page.

What business are newspapers in?

To understand the future of news, we need to define the business

The problems of The Guardian and other newspaper groups around the world raises the question of what business they are actually in – news or advertising?

“Going digital only is not an option” was an agenda item for a meeting of Guardian executives claims the Financial Times.

Digital only however is the option most of the readers are taking with the Guardian’s online channels attracting 9.5 million UK readers a month compared to a print circulation of 6.5 million. The Guardian’s total global online audience is 65 million, ten times the size of the print edition.

Making matters worse is the trend, according to the UK Audit Bureau of Circulations (ABC), newspaper sales are declining at 16% per year while online readership is growing 14%.

As the Guardian readership figures show, the number of readers isn’t the problem and the same is true for the New York Times or the Sydney Morning Herald. More people are reading these publications than ever before, but the advertising has gone elsewhere.

Essentially a newspaper was an advertising platform, the cover price barely covered the costs of printing and distribution while the classified and display advertising provided the “rivers of gold” that made the business so lucrative through most of the Twentieth Century.

Most of those rivers have been diverted as dedicated employment, real estate, travel and motoring websites have stolen much of the advertising revenue that sustained newspapers.

As classified advertising platforms, newspapers have reached their use by date and now they have to build a model that is more focused on online display advertising and getting readers to pay for content.

Getting readers to pay is difficult when the market has been trained to expect news for free or pennies a day, a problem not helped by some newspapers chasing online eyeballs with low quality content.

Equally difficult is training sales teams to sell digital advertising, too many sales teams have grown fat and complacent over decades of flogging lucrative and easy real estate print ads.

The challenge for newspaper managements around the world is figuring out how to get the advertisers onto their online platforms and providing a product which readers value and are prepared to pay for.

It may well be that The Guardian’s management are right, that print does have a role in the newspaper’s future but first they are going to have to define what their company is and what it does.

Running out of luck

Is Australia’s luck running out in the digital and Asian economy.

Last week I was lucky to get along to Digital Australia and Emergent Asia panel held at PwC’s Sydney office where the panel looked at how Australia’s industries are adapting to the digital economy and evolving Australian markets.

The outlook from the panel was generally downbeat about the ability of Australia’s business leaders and politicians to adapt to the changes in the global economy although there were some optimistic points about the resilience and flexibility of the nation.

I did a write up for it on Technology Spectator which is online at It’s Not Good Enough To Be Clever

The challenge is on for Australia’s business leaders – let’s see if they are up to it.