5 November 2012

That was week ending 2nd November 2012

My purpose in starting this series of weekly (well mostly weekly) articles is to take a different perspective on some of the news stories from the previous week to see what lessons might be learnt. However I am beginning to find that many of these lessons keep coming round again. So here is a quick canter through some of last week’s news stories with my take on the lessons they contain.

Barclays to slash pay – senior employees at Barclays are to have their pay cut by up to 50%, with the bank happy to take the risk that some will leave rather than accept this. This is one of the key outcomes of Project Mango, a three part review into the future of the former Barclays Capital. So it appears that reality does catch with everyone eventually and the longer you ignore it the bigger kick in the backside it gives you. The mystery that remains is why big corporates continue to give major projects such silly names.

BT Sports Channel – perhaps to its surprise BT came away with two of the seven Premier League broadcasting rights packages plus the rights to Premier League Rugby from next year. The idea behind this move is that it will enable BT to compete with Sky in offering bundled telephony, broadband and TV services. However it is unclear how BT will earn a return on the near £1bn of its shareholders money that it has spent so far when it doesn’t even have a sports channel yet.  The major impact so far is that BT’s entry into the bidding process forced Sky to pay 40% more than in previous Premier League auctions. Perhaps the lesson is be careful what you bid for, because you most likely will end up with some of it, having paid a lot more than you expected.

PPI miss-selling hits banks profits – one clue as to why Barclays and the other banks feel confident they can reduce the pay of their senior people without any mass exits is the scale of the financial headwinds facing all banks. In addition to PPI compensation, the consequences for interest rate swap miss-selling, HSBC’s money laundering and Libor rate manipulation have yet to be fully quantified. PPI compensation alone could top £12bn and be the biggest miss-selling scandal of all time. PPI miss-selling wasn’t just wide-spread; it had become a way of life. If it made money for the bank and for you, it was alright. The lesson is that these days HOW you make your money is just as important as how much you make. Dubious practices that society deems unacceptable will find you out and cost you dear.

Official, West Coast bid fiasco was a fiasco - a preliminary report on the investigation into this sorry saga has confirmed that the DfT’s part in the fiasco is every bit as bad as we thought. Officials in the department knew that they had neither the resources nor the expertise to manage the bid process effectively but they went ahead anyway. They even accepted the “risk of a challenge” from Virgin Rail Group. This wasn’t a risk; it was a cast iron certainty!
Given that rail is a key part of this country’s infrastructure and the DfT has a key role to play the least the government could do was to ensure it was up to its job. Right now it is the equivalent of sending a village football team with just seven players out to play Manchester United. The lesson for those of us in business is that we must demand that government massively improves its own competence and capability before it starts telling us how to run our businesses.

Hitachi buys in to UK nuclear – this Japanese white samurai came riding out of the sunset to buy up RWE and E.ON’s nuclear business in the UK. This is good news because before this the only nuclear game left in town was the Centrica/EDF joint venture. Hitachi has a record of building reactors on time and on budget which would make a welcome change if they could do this in the UK.
However major obstacles remain before this investment will become a reality, notably getting Hitachi’s Advanced Boiling Water Reactor licensed for use in the UK. This could take four years. Once again a key role is played by government, not just in the licensing process but in settling the price to be paid for electricity generated from the new plants. Get this wrong on the scale of the West Coast rail bid and we are in serious trouble.
The lesson is that when you have pulled a rabbit out of the hat, don’t then starve it to death.

Royal Mail delivers Parcels! – another bit of potentially good news was the announcement by Royal Mail that it is to invest £75m into a four year expansion programme that will fuel a decisive shift away from delivering letters to servicing online retailers instead.
Many of us can be forgiven for thinking about time too! To be fair Royal Mail has had a stack of legacy problems to deal with before they could get to a position where they have a chance of making this investment a success. Successive government indecision and general messing about with Royal Mail hasn’t helped. However the lesson is that when it’s obvious what you need to do, best get on and do it. You will be surprised by how often doing the bleeding obvious doesn’t get done.

And finally – I have a feeling in my water that overall things are starting to get better. This is not to do with last quarter’s growth figure, but just a general feeling in spite of all sorts of potential further difficulties that there are more signs pointing up rather than down. Two big events this week may turn out to be significant, namely the result (if we get one this week) of the US Presidential election and the change of government in China. In one millions of American voters will decide the result, in the other a few thousand people turn up in Beijing and put their hands up when they are told to. I am not sure which I find the scarier!

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

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