That was week ending 7th December 2012

The theme for this week’s TWb4TW is “and now for something completely different” or not as the case may be.

This is the Autumn of our discontent - or should that be Winter?

Last week the Chancellor delivered his Autumn Statement. Now I may be a bit pedantic and old fashioned but for me December is winter. In fact over the last few weeks I kept thinking I must have missed the Autumn Statement, we seemed to wait a long time for it to appear. Given that it required the Chancellor to admit he is going to miss almost every target that he has been telling us are essential to achieve, he may have needed more time to think of plausible excuses.

Much has already been written and spoken about the statement so I am not going to add to that. However one thought did strike me.  Suppose you are on the board of a holding company reviewing the performance of the MD of one of your subsidiaries, which has been making losses for some time. He tells you that sales are static, that whilst he has cut some costs overall they are still increasing and that several new projects he announced either haven’t started or are taking longer to deliver results. However he assures you that everything is on track, but it may take 2 or 3 years longer before profitability is restored. When you quiz him about what he is doing different that might get a different result he mutters vaguely about taking some of the spend from one part of his operation to spend in another.

How long would you put up with an MD who keeps on doing the same things and assuring you that this will deliver a different result? Not long I suspect. Did the Autumn Statement contain anything really different that looked like it might deliver a different result? Well I couldn’t spot it.

What could be different?

Most commentators had some sympathy for the Chancellor saying that he had a difficult hand to play. However I am grateful to Fraser Nelson of the Daily Telegraph who highlighted some countries that have tried something completely different and are getting different results.

Estonia is a tiny country surrounded by large and powerful neighbours, with every reason to blame global forces for its own economic problems. However throughout the downturn it has kept its tax rates low at 21pc. It cut state spending by a tenth in one year compared to our average of 2.5pc a year. The result is Estonia now has the fastest growth in Europe.

Socialist Sweden made a permanent tax cut for the lower paid that encouraged so many people back to work that the extra revenue covered the cost of the policy. The tax cut amounted to a whole extra month’s salary a year. The increase in tax allowances here will benefit about 20 million people, but the tax cut amounts to 90p a week. Not enough to spend in pound shop, much less kick start the economy!

The Swedes also reduced corporation tax from 26pc to 22pc, but they did it in 3 months, whilst our reductions are being phased over several years. So is it time to try something completely different like significant tax cuts, delivered hard and fast that will stimulate significant economic activity that in turn will deliver higher tax revenues and lower government spending? Just a thought.

No change from Tesco

It is now a year since Tesco’s Chief Executive Philip Clarke launched a £1bn turnaround plan. However like for like sales fell again in the third quarter and now around 29pc of UK consumers choose to do the majority of their food shopping at Tesco, down from 35pc in 2011.

Some analysts have said it may be too early for consumers to have noticed the improvements Tesco has been making in staff and products. I believe that the problem is more that they have not noticed anything really different and that’s because it isn’t. Some of you may recall the experience recently of my business partner who when he was unable to access an offer on Tesco’s website reported it to customer services. They insisted first that there wasn’t a problem with their site it must be with my partner’s system. They went further suggesting ways he could spend his time fixing what was their problem and of course “nobody else has complained”. Eventually last week he was contacted by a technical person (significantly not from customer service) who admitted there was a problem with the Tesco website and there had been hundreds of messages about it.

So does £1bn to revitalise stores and products and hire 8,000 extra staff make a difference? Not so far apparently and maybe it’s because it won’t make the slightest difference to Tesco’s attitude to its customers, because Tesco doesn’t think it has an attitude problem.

HP full steam on to the rocks

Last week HP’s market value fell to $27bn which is now below the $31bn it has spent on acquisitions in the last 5 years. Research has consistently shown that mergers and acquisitions usually destroy value. HP’s management seem bent on proving this by setting an all time record for value destruction. Indeed they may have already achieved it.

Market speculation is that the company may be broken up as the sum of its parts now looks significantly greater than the whole. What is clear is that it needs to do something radically different as the current strategy which is to straighten out the huge mess that is today’s HP seems highly unlikely to succeed.

Other stories from last week, worth a mention

Starbucks offer to pay voluntary corporation tax was an appropriate way to kick off the pantomime season and it was different!

Sir Philip Green’s 25pc sale of TopShop leaves his Arcadia Group debt free and with £600m to fuel further growth. Sir Philip doesn’t have to do anything different, just carry on doing what he is really good at. Unlike HP who seem determined not to do what they used to be really good at.

The report into the West Coast rail bid fiasco was published confirming what we already knew about the levels of incompetence and dishonesty at the DfT. Now it’s official will it make a difference? Not holding my breath.

The Tchenguiz brothers started their claim for £200m against the Serious Farce Office for losses incurred as a result of their wrongful arrest. This is the largest claim ever brought against a government department. You could almost wish them well until you remember it is us the taxpayers who will have to stump up the £200m. Those responsible for the mess at the SFO at the time have all left with large payoffs, again paid by us. So no change there then.

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.

That was week ending 25th May 2012

I had intended that this week’s look at last week would focus on the more humorous side of business, the economy and politics.  However there have not been many stories to chuckle about.  Even those that contained some vaguely amusing aspects left me not knowing whether to laugh or cry.  So here are a few of last week’s stories that illustrate some interesting aspects of human behaviour.

Regan of the SFO

This is an extraordinary story.  The Serious Fraud Office’s pursuit of the Tchenguiz brothers is more like an episode of the Sweeny than a serious investigation. Last year the brothers were arrested in a dawn raid on their properties (screeching tyres and “go, go, go" no doubt). Whatever the SFO hoped to find clearly they didn’t as neither of the brothers have been charged and both continue to deny any wrongdoing.

Not finding evidence never seemed to bother the Sweeney and it doesn’t seem to bother the SFO either. They continue to pursue the case and are now threatening a high profile investigation lasting 5 to 10 years (which we would pay for) if the brothers don’t agree to a financial settlement. Not even being accused by a high court judge of “sheer incompetence” has deterred the SFO from blundering on. I don’t know whether the Tchenguiz brothers are laughing or crying but I do have this mental picture of senior SFO investigators snarling “shut it” at anyone who suggests they don’t have a case.

En garde c’est Lagarde

IMF director Christine Lagarde endorsed the coalition’s austerity policy as the right course for the UK. However she also warned that further measures were needed to get the economy growing again. So a sort of “has done well, but now must do better” school report from the economics mistress.

She also used a new term to describe austerity measures, “fiscal consolidation”. Amazingly no politician has picked up on this so far. It is difficult to get people to vote for austerity as we all know what that means. Or if we didn’t we do now. “Fiscal consolidation” on the other hand might just sound sufficiently nothing really to do with the rest of us to sneak under the radar.

Talking of politicians, the shadow chancellor Ed Balls leapt up to claim that Ms Lagarde was right because she was agreeing with him. In her statement “when trying to imagine what the situation would be like today of no such fiscal consolidation programme had been decided, I shiver” she was clearly talking about him, but not necessarily agreeing with him. When challenged in interview, Balls responded that where she did not agree with his views she was wrong. Right and wrong at the same time it seems.

Yell no more

I had thought that the most extreme example of pointless rebranding had been the renaming of Norwich Union, one of the most well established and trusted brand names in the financial services industry. This became subsumed into Aviva, which sounds like a cross between a bus company and a 1970’s Vauxhall.

However Yell have hilariously gone way beyond this and announced last week that the new name for the business will be, wait for it ….. “hibu”. Heavily in debt and making huge losses this is the best they can come up with. Mike Pocock, Chief Executive said that the company needed a new name because it was “viewed as a dinosaur”. Was he suggesting that if Tyrannosaurus Rex had changed its name this would have saved it from extinction? Another step down the road to extinction for Yell, sorry “HIBU”.

HP and Autonomy

HP announced 25,000 jobs cuts. It was going to be 24,999 but they decided to include Mike Lynch, CEO of Autonomy that HP had paid $10.3bn to acquire just seven months ago. “Licence revenue was disappointing, sales execution was a challenge and big deals were taking longer to close”, said HP’s finance director, Kathie Lesjak.

However long before the sale to HP UK stock market analysts were critical of Autonomy and advising investors to sell. Mike Lynch claimed these critics did not understand complex software businesses like his. Apart from one, the critics could not quite put their finger on what made them uncomfortable about Autonomy. The one who did was Marc Geall and he had actually worked for Autonomy for 2 years, before joining Deutche Bank in June 2010. Here are some extracts from a note Geall issued in October 2010.

“The management structure, control and systems at Autonomy are more representative of a start-up than a major global player … Autonomy's sales force are "hunters not farmers" …the investment in the business has lagged revenues ... [which] could affect customer satisfaction towards the product and value it delivers."

Most of the other analysts applied conventional analysis criteria to Autonomy. These were easily batted away by Lynch, who believed they did not really apply to his business. By contrast Geall comments on aspects of the core characteristics of Autonomy's organisational culture, how it thinks and behaves and how these could impact on future performance. You can read the full article we published in 2010 by clicking here.

Much is being made of the bureaucratic HP culture stifling the entrepreneurial spirit in Autonomy, with some justification. However what Geall’s analysis showed was that Autonomy’s culture which was once its strength was becoming its weakness and this has now manifested itself under HP’s ownership after just seven months.

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.