Tag: managerialism

It’s too late, baby – when digital reality bites

Sensis decide to move on from a print based model to digital advertising – a decade too late.

Yesterday Sensis announced it would restructure for digital growth by sacking staff, offshoring and “accelerate its transition to a digital media business”.

The directory division of Telstra has been in decline for years, a process that wasn’t helped by then CEO Sol Trujillo embarking on his expensive “Google Schmoogle” diversion.

A decade later, Managing Director John Allen has announced another 650 jobs to go from the remaining 3,500 workforce.

John’s comments are worth noting.

Until now we have been operating with an outdated print-based model – this is no longer sustainable for us. As we have made clear in the past, we will continue to produce Yellow and White Pages books to meet the needs of customers and advertisers who rely on the printed directories, but our future is online and mobile where the vast majority of search and directory business takes place.

Carol King put it best – it’s too late, Baby. These are words that should have been said a decade ago.

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To save the community, we had to destroy it.

Can online communities like Lonely Planet’s Thorn Tree survive in managerial organisations like the BBC?

When the BBC bought a 75% of travel guide publisher Lonely Planet in 2007, many people were puzzled at what the travel guide added to the publicly owned broadcaster’s mandate.

In 2011 the BBC bought out the rest of the founders’ stakes and just over a year later management mistakes threaten to destroy the brand.

Lonely Planet is one of the most powerful internet media properties in the English speaking world having become the dominant travel guide in the 1980s and then successfully making the jump into the online world with its website and mobile apps.

In 2012, the site boasted of four million visitors a month with most under 35 years old.

Key to Lonely Planet’s online success has been its community. The Thorn Tree forum provided the bulk of the site’s traffic as thousands of members discussed exotic destinations and asked or answered travel questions.

The Thorn Tree also turns out to be the BBC’s undoing as management struggled to control members’ comments.

At the end of 2012, inappropriate content was bought to management’s attention, with the Jimmy Savile scandal still reverberating around the corridors of the BBC, the organisation’s management panicked and announced a temporary closure of the Thorn Tree.

Two months later, the site is back up again with strict pre-moderation of posts which has left many long time users upset and going elsewhere, if they didn’t already do so during the closure.

Online communities are a strong assets but they are surprisingly fragile, as many popular sites have found in the past.

For Lonely Planet users, there’s no shortage of other travel sites online and it’s going to be challenging for the site to recover.

The Thorn Tree saga raises the question of whether risk adverse, public sector organisations like the BBC have the risk appetite to run online forums and build communities.

By definition successful online communities are diverse and sometimes skate close to the boundaries of good taste for a careerist executive in a managerial organisation like the BBC, such risks are intolerable and have to be eliminated.

If this means shutting down the Thorn Tree forums or neutering them, then that will be done. Management careers come before the good of the organisation.

Time will tell whether Lonely Planet will continue to thrive under the BBC and its management, but the portents aren’t good.

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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.

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Australia’s grapes of wrath

The Australian wine industry is a good example of where the country’s industrial policies and business leadership have failed.

In a great post, The Wine Rules looks at what ails the Australian wine industry after the news of Cassella Wine’s problems.

Three things jump out of Dudley Brown’s article – how industry bodies are generally ineffectual, the failure of 1980s conglomerate thinking and how fragile your position is when you sell on price.

Selling on price

It’s tough being the cheapest supplier, you constantly have to be on guard against lower cost suppliers coming onto the market and you can’t do your best work.

Customers come to you not because you’re good, but because you’re cheap and will switch the moment someone beats you on price.

Worse still, you’re exposed to external shocks like supply interruptions, technological change or currency movement.

The latter is exactly what’s smashed Australia’s commodity wine sector.

A similar thing happened to the Australian movie industry – at fifty US cents to the Aussie dollar filming The Matrix in Sydney was a bargain, at eighty producers competitiveness falls away and at parity filming down under makes no sense at all.

Yet the movie industry persists in the model and still tries to compete in the zero-sum game of producer incentives which is possibly the most egregious example of corporate welfare on the planet.

When you’re a high cost country then you have to sell high value products, something that’s lost on those who see Australia’s future as lying in digging stuff up or chopping it down to sell cheaply in bulk.

Industry associations

“It’s like a Labor party candidate pre-selection convention” says Brown in describing the lack of talent among the leadership of the Australian wine industry. To be fair, it’s little better in Liberal Party.

There’s no surprise there’s an overlap between politics and industry associations, with no shortage of superannuated mediocre MPs supplementing their tragically inadequate lifetime pensions with a well paid job representing some hapless group of business people.

Not that the professional business lobbyists are any better as they pop up on various industry boards and government panels doing little. The only positive thing is these roles keep such folk away from positions where they could destroy shareholder or taxpayer wealth.

Basically, few Australian industry groups are worth spending time on and the wine industry is no exception.

Australia conglomerate theory

One of the conceits of 1980s Australia was the idea that local businesses had to dominate the domestic market in order to compete internationally.

A succession of business leaders took gullible useful idiots like Paul Keating and Graheme Richardson, or the Liberal Party equivalents to lunch at Machiavelli’s or The Flower Drum, stroked their not insubstantial egos over a few bottles of top French wine and came away with a plan to merge entire industries, or unions, into one or two mega-operations.

It ended in tears.

The best example is the brewing industry, where the state based brewers were hoovered up in two massive conglomerates in 1980s. Thirty years later Australia’s brewing industry is almost foreign owned and has failed in every export venture it has attempted.

Fosters Brewing Group was, ironically, one of the companies that managed to screw the Australian wine industry through poorly planned and executed conglomeration. Again every attempt at expanding overseas failed dismally.

In many ways, the Australian wine industry represents the missed opportunities of the country’s lost generation as what should have been one of the nation’s leading sectors – that had a genuine shot at being world leader – became mired in managerialism, corporatism and cronyism.

All isn’t lost for the nation’s vintners or any other Aussie industry, Dudley Brown describes how some individuals are committed to delivering great products to the world. There’s people like them in every sector.

Hopefully we’ll be able to harness those talents and enthusiasm to build the industries, not just in wine, that will drive Australia in the Twenty-First Century.

Picture courtesy of Krappweis on SXC.HU

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Who rules the company parking spots?

While at school I worked at a local shopping centre and one of the many ways to  irritate managers was to park in the spots closest to the shops.

“If the staff take all the spaces near the shops” said the store manager, “then customers have to walk further and might go somewhere else. The customers alway comes before the staff.”

That’s true and one of the surest signs of a poorly run business is the location of the staff parking spots, particularly when they are reserved for management.

executive-car-parking-spot

Similarly the type of company cars management award themselves with can be a warning sign for wary partners.

If customers, staff and suppliers have to walk past an array of expensive prestige cars in the shady and sheltered executive parking spots they can be pretty certain they are not going to be the number one priority at that business.

While running PC Rescue I quickly learned this when visiting potential customers, one client in particular invited me to review their network and make recommendations.

On arriving, I had to feed a parking meter in the street before picking my way past a series of high end Mercedes, two Porsches and a Maserati.

After looking at their network, which hadn’t had a cent spent on it for the best part of a decade, I gave the Managing Director a ballpark figure of what he was looking at to bring his systems into this century.

“That’s way too much!” he thundered and proceeded to lecture me on why my rates were extortionate – all the while I politely listened while thinking I’d driven to the job in a base model Holden Barina and was paying for parking.

Needless to say we didn’t get the job.

One of the worst, most soul destroying things in business is dealing with entitled customers and this client was a classic example. I genuinely feel sorry for whoever landed the job.

Who parks where and what they drive is a good measure for the calibre of a business’ leadership and the egos of management. It’s a good starting place for deciding who you’re going to do business with.

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Saving Hewlett Packard

Bloomberg Business week looks at the big challenges facing Meg Whitman as she tries to rebuild Hewlett Packard.

This site has previously looked at the massive task facing Meg Whitman as she tries to rebuild Hewlett Packard and undo the mis-steps of the company’s previous managerial failures.

Bloomberg Businessweek goes further with a deep analysis of what went wrong for HP over the last two and Whitman’s challenges in rebuilding the business.

HP’s decline starts with the biggest mis-step of Carly Fiorina, one of Whitman’s predecessors, in selling off HPs instrumentation business in 1999.

Power in the instruments

Industrial instruments were the core of HPs business, generations of engineers and scientists knew and trusted the HP brand which was synonymous with high quality, cutting edge technology.

The proof of the instrument arm’s strength is in the subsequent share performance of the spun off company – today Agilent trades at $43 while HP wallows at $15, half of what it was worth in 1999.

Making matters worse for HP was buying into the personal computer industry just as Dell and Gateway were commodifying the market. Fiorina’s high spending ways left Hewlett Packard incapable of competing against the lean operations of their nimbler competitors.

In many respects Fiorina’s successor Mark Hurd is the IT sales guy from central casting; aggressive, an excellent eye for numbers, intolerant of (other peoples’) wasteful spending and an ego the size of Uranus.

For HP he had some good points, making executives directly responsible for their division’s performance and cutting out management consultants. Anyone who shows Bain & Co or McKinsey’s the door, is not a wholly bad guy.

Cutting costs in the driver business

In cutting costs Hurd was ruthless – the Bloomberg story tells of how he cut HP’s driver division from over 700 to 64 staff. This in itself was not a bad thing.

Those who worked on HP products remember that period well. The software that came with Hewlett Packard equipment was buggy and overblown and Hurd’s reforms bought in a real improvement as drivers went back to being simple and effective.

Cost measures though also showed in HPs products and after sales support – increasingly the company resembled Dell during the dark days of Dell Hell where buyers of shoddy equipment found themselves dealing with poorly trained support desks over low quality phone lines. Customers started to flee HP products.

The perils of stack ranking

At the same time Hurd was using the crudest management technique of all – stack ranking, the practice of culling the bottom ten percent of workers each year.

Vanity Fair’s 2012 expose of Microsoft’s decline infamously blamed stack ranking for much of that company’s woes. The problem being that defining the bottom 10% of a team invariably involves politics and staff become more obsessed with currying favour with their managers than shipping good products.

People like Steve Ballmer and Mark Hurd like stack ranking because they thrive in that environment. The paradox is that characters like Steve Jobs, Bill Gates and Mark Zuckerberg tend to be culled.

HP, and Microsoft, needed more geeks focused on shipping new products than political animals like Hurd and Ballmer but that’s not what they got.

While Hurd met his financial targets, HP’s position was becoming more fragile as cranking up margins on services and printer cartridges while slashing costs on PCs and hardware can only go so far. His implosion over his royal lifestyle was probably one of the best timed exits in corporate history.

It’s worth reflecting on Hurd’s management excesses as he slashed expenses for the lesser beings in his company, you can browse a list of his expenses at The Street. In this respect alone, Hurd personified the entitled managerial culture of modern western society.

Replacing Hurd with the quiet Leo Apotheker made sense in that the new CEO was the opposite to his predecessor, but just as he didn’t have Hurd’s ego he was also a dud who made strategic mistakes and let costs begin to slip.

In replacing Apotheker Meg Whitman has massive job ahead of her, an important part of getting HP on track is slimming down management ranks to make the company more nimble. That in itself is a big task.

The biggest task of all though is to recapture HPs position as being an innovative leader with high quality products. Over the Fiorina and Hurd years that position was squandered and replaced by companies like Cisco and Apple.

Right now it’s hard to see where HP can re-establish itself in the marketplace but the goodwill towards the company from a generation of engineers who were bought up believing Hewlett Packard means quality means the company has a chance.

Hopefully Meg Whitman is the right person to seize those chances and undo fifteen years of bad management.

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Pennies for Apps – how Apple and Google dominate online income

Apple and Google dominate our online revenues while the creators of content fight over pennies. Is this a passing phase?

“App Store tops 40 billion downloads” trumpets Apple in a media release curiously timed to coincide with the opening of the Consumer Electronics Show.

While impressive, those figures aren’t great for developers. As writer Ed Bott points out they are getting 17.5 cents per download.

Making things worse, that return is trending downwards. Tech site Giga Om put the return at 20 cents a year earlier.

Giga Om also points out App Store returns are skewed towards the big successful game apps, meaning the majority of app developers are scratching for pennies.

This phenomenon is also happening with online advertising as Google Adsense partners find their income dwindling for pay for click adverts.

On top of declining revenues, there’s the cut that Google and Apple take. In the App Store, Apple’s take is 30% while Google pocket over 50% of Adsense revenue.

Working for pennies has become the norm for for creators like musicians, writers and app developers in the digital economy. The long tail is fine, but it barely pays the bills for all but a few outliers. Everyone else needs a day job.

In some respects this isn’t new – writers, poets, musicians and painters have generally starved in their garrets throughout history – but the Twentieth Century model of intellectual property, record labels and broadcast empires offered at least a decent living to many.

Right now the 21st Century model seems to be that creators can go back to starving, while the big four online conglomerates make the profits previously shared around by the movie studios, record labels and book publishers.

Maybe though the rivers of gold which are making Apple and Google’s managers rich may turn out to be just as vulnerable as those of the newspapers they’ve displaced.

It may well be that the current dominance of the App Store and Adsense are a transition effect as we move to other business models. It’s difficult to see right now, but we can’t rule it out.

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