Week ending 18th January 2013

Once again a number of stories and themes to choose from for this week’s article in a week when finally snow arrived in quantities vaguely in line with apocalyptic Daily Mail weather headlines. I shall start with:

Confusion over the Community

Delivery by David Cameron of his long trailed speech on the future of our membership of the EU and a possible referendum was postponed due to the tragic events in Algeria. This was the right thing to do. In the short term at least there are some things that take precedence even over something as significant as our future membership of the EU.

However voters (or this voter anyway) must be completely confused as to where our leaders stand on the EU. Should we be in, should we be out or even, should we be shaking it all about? The referendum issue is making it worse as there are now two arguments going on. The first is about whether or not we should remain in the EU and if so on what terms. The second is about whether we should have a referendum and when. Add in Messrs Milliband and Cable who maintain we must stay in Europe but reform it (and the chances of succeeding on that are ...?) but don’t want a referendum and the confusion is complete.

It’s a bit like watching Morris dancing in the fog. You have been told a troupe of Morris dancers is going to perform. You can see shadowy figures moving about in the gloom and hear the occasional chink of bells and clack of sticks but whether there is any actual dancing going on and what sort of dancing is impossible to tell. Let’s hope that Cameron’s speech makes things clearer when he finally gets to deliver it. However that is more hope than expectation and I suspect on this one he prefers dancing in the fog right now.

Business on the Community

All this confusion worries business leaders because “business does not like uncertainty”. Personally I can’t remember when we last had the sort of certainty in business, the economy and politics that this seems to imply but perhaps others lead a more sheltered life than I do.

Roughly business opinion appears to be split between those that want us in the EU and don’t want to rock the boat with any talk of re-negotiation and those that want to see change and think that if this resulted in us leaving then we could manage very nicely thank you. The first group tends to be people who make things and sell a lot of them to Europe (like the UK MD of Honda) whilst the second don’t (like Simon Wolfson of Next). Further dire warnings come from the financial sector about the consequences for London as a financial centre but are then countered by others who see little or no threat even if we were to leave the EU.

One problem for the pro EU business lobby, especially for those who don’t want the boat rocked is that their warnings are very similar to those used to argue the case for us joining the Euro. As none of those dire consequences came to pass, in fact the opposite, it rather makes you think that an alternative relationship with the EU, including being outside might work in the same way that staying out of the Euro has.

In fact we could make any outcome work for us if (i) we were clear about the outcome we wanted, (ii) we had the will to make it work and (iii) we had the freedom of action to do what was needed to make it work.  Right now we have none of these.

Well burger me!

Sorry but I can’t let the “horsemeat in burgers” debacle go by without comment. Like many my first reaction was surprise that a pack of frozen “value burgers” contained any meat at all. They are not, after all labelled “beef burgers” just “burgers”. Burgers are grey, flat, round things made of mashed up “stuff” held together by God knows what.

What was not a surprise was that Tesco were the main focus of the problem. Other retailers withdrew burger products from their stores as a precautionary measure but Tesco’s value burgers did actually contain horsemeat. You would think that if a retailer puts its own name on a food product then it would have a pretty tight specification on what went into it. It seems this is not the case and that as long as they were “cheap” Tesco didn’t bother to check what they contained. This is just another manifestation of how far the change in culture has to go at Tesco with regards to its perception of what “customer care” really means. Throwing £1bn at the business is no substitute for “caring about your customers”.

It also makes you wonder what all those regulators in Brussels have been doing. They can tell us what light bulbs to buy but appear to have missed the opportunity to bring in “euro burger” regulations. Given all the expensive restaurants in Brussels and Strasbourg that they all eat in at our expense they may well have not come across the “value burger”.

How many channels in “multi-channel”?

More results from retailers last week and more administrations. Invariably the comment on the failures is that they were not quick enough to change (which is right) and did not get into online and multi-channel quickly enough (which is not necessarily right).

I was interested to come across a small chain of Danish homeware stores called Tiger, who added 5 new stores to its UK chain taking their total to 18. It plans to add another 8 in 2013 with demand for its products showing no sign of slowing down. All the shops are profitable. They achieved 55% sales growth during the Christmas period without any online sales at all! Whilst they have a website where you can browse products and find out where the shops are located they have no plans currently to go into online sales.

This makes sense right now because with an average transaction value of around £7 and many items which are bulky and fragile selling online presents more of a problem than a solution for both Tiger and its customers. Tiger concentrates on getting stores in the right locations where the footfall is sufficient to bring high volumes of potential customers into its stores. Then, to quote Managing Director Philip Bier “to be successful now you need to offer good value and a pleasant experience”.

So “good value and a pleasant experience” is this the real “multi-channel”? If you get these two factors right, whether in store, online or from your garden shed then you will win. Online retailing is valid only when it enables you to offer “good value and a pleasant experience”. Tesco, please note, it is both and.

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 11th January 2013

Best wishes for the New Year everyone from me and this first article of 2013.  Usually a first article in a new year starts with predictions for the coming year. I am not going to do that for three reasons. First everyone else has already done this. Second I haven’t a clue (at least not a useful clue) about what is going to happen in 2013. Third TWb4TW is about looking back and drawing lessons from the recent past to use in the future. There were plenty of these from last week’s news and here’s a few that caught my attention.

Super not so super anymore?

Last week the big and not so big retail names reported on Christmas trading. In the supermarket sector winners appeared to be Tesco (+2.5pc), albeit having thrown £1bn at the problem, Waitrose (+4.3pc) and Sainsburys (+0.9pc, so only just). A significant loser appeared to be Morrisons where like for like sales fell 2.5%. Interestingly Booths, a privately owned supermarket group with just 28 stores all in the Northwest managed +3.5%.

Those of us who have thought “do we really need another supermarket” every time we saw yet another planning application for one can begin to feel a little smug as overall in the UK it now appears we don’t. The market is not just “mature” it’s becoming pretty much dormant as far as overall growth prospects are concerned. However much of the financial media and comment from financial analysts is still focused on like for like sales. But is this what is really going to matter?

In an insightful article in the Telegraph on Thursday Damien Reece pointed out that what really matters and always has is return on investment. i.e. profitability. Sales growth can drive profitability but when this is hard to come by then maybe other factors matter more. He contrasts Sainsburys profitability prospects with Morrisons.  On £23bn of sales Sainsburys is expected make around £752m. Whereas Morrisons, the apparent loser over the Christmas period is expected make £888m on around £18bn sales.

Justin King at Sainsburys has done an admirable job in growing market share, including moving into online and convenience stores. However this has been primarily a sales led strategy and is maybe running out of steam. Morrisons CEO Dalton Philips has been criticised for not moving fast enough into online retailing and convenience stores but this does not seem to have done significant damage to profits. He has started the move into convenience with his “M” Stores and is working on the online offer. Coming at these later than his competition may prove to be no bad thing in the long run.

However the lesson from all this is neatly summed up by Damien Reece in his article. “The conclusion is that neither company has got things quite right and both need to change. The reality is that only one of them admits it”. The world has and is changing, are we admitting that we and our businesses need to change as well?

Highs and lows on the high street

Contrasting fortunes on the high street over the Christmas period as well. An example of how you can be both a winner and a loser was Debenhams who reported their highest ever Christmas sales. However this was achieved largely through heavy discounting and a big increase in online sales. The discounting and extra costs incurred combined to produce only a tiny 0.1pc increase in margin. So all Debenhams got for its record sales was a reduction in its share price of 6.5pc.

The real low however was the collapse of Jessops the specialist camera and photography chain.  All its stores will close with the loss of up to 2,000 jobs. I am both frustrated and angry about this because it really did not have to happen.

The demise actually started back in 1996 when Alan Jessop retired and sold the business to a venture capital backed MBO. The business had grown from one shop to become a nationwide chain of over 200 stores and was consistently a “first mover” in its market. The buyers thought all they had to do was to buy the market leader, add more stores and then float the company to make a juicy profit. Unfortunately along with Alan Jessop a number of his senior team also left clutching nice cheques for their shareholdings. What walked out the door with them was the understanding of what it was that had made Jessops so successful.

The MBO did not get it and neither did the venture capital arm of ABN Amro when they bought the business in 2002. The company floated in 2004 with a deeply discounted IPO but the investors did not get it and were wiped out in 2009 when HSBC rescued the business with a debt for equity swap. HSBC didn’t get it either and is likely to lose £30m.

The collapse of Jessops is nothing to do with recession on the high street. It steadily declined even during the retail boom. Nor was it to do with camera phones or any of the other trite conclusions being trotted out. I am in no doubt that if the ethos that had driven the success of the business up to 1996 had been allowed to continue to flourish then the company would have as well. Instead the collapse became inevitable but it did not have to be this way.

Time to pay

One of the key business principles of the Jessops business under Alan Jessop was that suppliers were always paid on time, every time. Suppliers were expected to perform but if they did they knew they would get their money when they expected it. Consequently Jessops got the best prices, the best products and service from their suppliers and were always offered new technology first. This practice faded under succeeding managements. So much so that the reason there was no chance of selling any of the business as a going concern is that the suppliers were not prepared to support the business any longer.

This brings me to something I don’t do often, saying “well done” to a politician. This goes to Michael Fallon, Business and Enterprise Minister who has written to 350 FTSE companies asking them to sign up to the prompt payment code (PPC). What’s more he is threatening to “name and shame” any business that refuses to comply.

This is a good start but he has a big challenge on his hands and just how big is illustrated by the response from some big companies. Sainsburys' response was “We already abide by the spirit of the code and will be responding in the coming weeks”. Morrison’s claimed that it already paid suppliers within a “mutually agreed time frame”. GSK has just changed its payment terms to “within the first five calendar days of the month following the expiry of 60 calendar days from the date of receipt of the relevant invoice”. This is gobbledegook for “we have just pushed our payment terms out to 90 days plus”.

Pushing out payment terms to suppliers is not clever at all and in fact is bad business practice and verging on the dishonest. It pushes up costs as the customer employs people to spend time delaying and disputing payments and the supplier employs people to try to counter this. However the biggest disruption is to the business process down the supply chain as the end customer hoards a pile of cash that should be put to work through the system. In effect this causes blockages and interruptions to the “blood supply” which at the very least weakens the effective operation of the process and sometimes kills it off altogether. If the majority of businesses paid their suppliers within 30 to 45 days maximum this would release a huge lump of working capital into the business sector and is consequently in the national interest to do so. So good luck Mr. Fallon but you will need to be uncompromising and tenacious to push this one home.

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 14th December 2012

This is the last TWb4TW until after the Christmas and New Year break. I started writing these articles in April and can hardly believe it is now nearly the end of the year and I am still writing them. I have been encouraged by the kind responses from you the people that read them and I thank you for those.

This week I thought it appropriate to produce my Christmas wish list, wishes for myself and others.  Here goes.

Cable not able

Last week Vince Cable took yet another swipe at big global companies that don’t pay enough or any UK tax. For Mr. Cable it is still the moral high ground that matters so no mention of our unfit for any purpose tax system. If the companies concerned are obeying the law then it is clearly the law that needs changing if it is not producing the result the country needs and that is the job of government.

Whilst Mr. Cable has done some good work at BIS underneath he is fundamentally anti business, or if isn’t he certainly sounds like it. I once heard him speak and claim that he was experienced in business because he had spent time as an economist at Shell. Anyone who knows anything about what economists do in organisations like Shell will know this doesn’t count as business experience.

So my Christmas wish for Mr. Cable is that he should get another job.  Minister for Overseas Development might suit his moralising better or perhaps being made to run an SME for a year might give him some “real” business experience.

It’s the economy stupid

Talking of experience my Christmas wish for George Osborne is that he too should find an opportunity to get some real experience. He is an example of yet another politician who is no doubt very intelligent but has done nothing but politics almost since he left primary school. This was demonstrated in the Autumn Statement and its aftermath where he was clearly more interested in scoring political points over Ed Balls than coming up with radical policies that would really get the economy moving. You can usually leave Ed Balls to score political points over himself, so why not get on with the job we pay you for, George because it really is the economy that matters and you are not stupid.

Does one more make a difference?

After the announcement that Canadian Mark Carney is to succeed Sir Mervyn King as Governor of the Bank of England last week we heard that Hector Sants was to join Barclays as head of compliance. Sants was previously Chief Executive at the FSA.

Now you can’t blame all the FSA’s failings on Sants. However he did step up to Chief Executive in time to rubber stamp RBS’ acquisition of ABN AMRO and he did publish just a 12 line press release on the FSA’s investigation into RBS, rather than publish the full report.

I understand that Barclays already have around 1800 compliance officers. So whilst Carney’s appointment does represent a new direction at the BoE you have to ask what real difference appointing a regulator to head up compliance will really make at Barclays.  My Christmas wish for Mr. Sants is good luck, but I have a feeling he will end up between a rock and a hard place with this one.

Train the trainers

The investigation into what went wrong at the DfT over the West Coast Mainline fiasco continues but with growing signs of avoidance tactics from anyone in the DfT who could possibly be blamed. My Christmas wish is that anyone at senior level in the DfT should be given a train set for Christmas and  required to assemble it in to a working model of the West Coast line in 30 minutes or be shown the door. Simple and effective.

HP used to work

I own an HP printer which I bought in the days when you could truly say buy HP because you just plug it in, turn it on and it works. What’s more my printer still does work, even though HP has had about 5 CEOs since I bought it. My Christmas wish for HP is that they should make me an offer for my old printer, with a suitable Autonomy sized premium and I would be delighted to sell it back to them. Then they could examine it and discover what it was that they used be really good at.

Oh no it's Silvio

You could not make it up; Silvio Berlusconi is running for Prime Minister of Italy again. This proves the view of a previous British ambassador to Italy who said “it is not difficult to govern the Italians, it is simply unnecessary”. Sr B’s first public pronouncement was to state “who cares about how much interest we pay to people who invest in our debt obligations compared to Germany”. This will be music to many Italian’s ears but maybe this time not enough of them will buy the message. So I wish Silvio Berlusconi everything he deserves.

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. TWb4TW will be back in the New Year so have a great Christmas and New Year holiday.

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 23rd November 2012

What goes down must come up

I have emphasised before that I am not any kind of expert on the stock market. If I was, I would not be writing these articles every week. However I have learnt that in general good news from a company tends to lead to a rise in the share value and bad news to a fall.

So what do think might happen to a company that has issued 5 profit warnings since May, whose loss will now be 6 times higher than it forecast in July and is under investigation by the FSA for how it handled inside information? Following the fifth profit warning its shares increased last week by 17pc!

The company is Lamprell an oil rig maker and wind turbine installer. This story seems to demonstrate that you can't have too much of a bad thing. However incoming Chairman John Kennedy has moved fast and cleared out the former CEO, CFO and COO. He also brought in PwC to give the big projects a good going over and although this produced a lot more bad news the markets seem to prefer to know the worst. The better news is that there is still a pretty good and now verified order book and the company’s bankers are supportive.

Now this may not last and I for one will not be piling in to the shares any time soon. However maybe the lesson is that if you have the courage to front up on all the bad news and to take decisive action then this just might be the beginning of some good news.

Did, didn’t, did, didn’t

By far the biggest business story last week has been the Hewlett Packard (HP) Autonomy pantomime. HP paid $10.4.bn for Autonomy in 2011, an 80% premium and 34 times projected revenues! Then in May, just seven months later, HP announced a disappointing quarter for Autonomy and 25,000 job losses, including Autonomy founder and CEO Mike Lynch. Last week they went further and alleged that Autonomy had misrepresented its financial results resulting in HP paying more than the company was worth. Not surprisingly Lynch disagrees, claiming that HP has mismanaged the business.

HP have taken an $8.4bn ($5.4bn for Autonomy) write down and their shares fell 10% to their lowest for a decade. Naturally investors are hopping mad and are asking about what happened with the due diligence. The list of advisers (and £40m of fees) appears to back Meg Whitman’s (HP’s CEO) claim that “we did a whole host of due diligence”, there were certainly enough of them. However she went on to say “it is a little challenging to go in and say gee we need to double check Deloitte (Autonomy’s auditors)”. This must qualify as the “I wish I hadn’t said that” CEO quote of the year.

HP has been thrashing around for years trying to find its way to a future away from the dwindling PC and IT peripherals market. The future is software they decided hence the purchase of Autonomy, which they appeared determined to do at almost any price. This is just the latest in a series of expensive accidents for HP. It demonstrates they simply don’t have the capability to make the changes needed in their own business, much less be capable of taking on other businesses they knows nothing about.

Whether HP’s allegations or Mike Lynch’s claims of mismanagement are eventually proved to be right is frankly irrelevant, this result was always going to be the same. Ms Whitman insists that Autonomy will remain a key part of HP’s future. However with Autonomy personnel leaving in droves as I say, the result is always going to be the same.

Euro Crash?

I was at the CBI conference on Monday to hear speeches from David Cameron and Ed Milliband and to witness a “performance” from Boris Johnson. (If you want to see Boris’ speech there is a link to CBI website below)

Both Cameron and Milliband had much to say about Europe. Cameron talked tough playing shamelessly to the euro sceptics even though he has no intention of taking Britain out of Europe. Milliband talked about how he would not let the country “sleepwalk towards the exit” and the need for Britain to be “in the room and at the table”. Quite how much of this is Milliband’s sincere belief and how much is political opportunism to prise open the cracks in the coalition and the Tory party on Europe is hard to tell. His answer to the short comings of Europe and the Eurozone is that he would seek to bring about reform. He did not explain what reforms or how they might be achieved. The fact that the European commission is building itself palatial new premises in Brussels and the wine served to Europe’s leaders this week cost £120 a bottle might give him some idea of the challenge involved.

The sentiment amongst the business people at the conference was to support what Milliband had to say. Most, though not all UK business leaders do not want us to end up outside of Europe.
However what nobody appears prepared to talk about is the very real possibility of the Eurozone imploding. Greece is supposed to have run out of money this month, yet still the tranche of bailout funds they need to avert this has not been cleared, even though the Greek government managed to get its latest austerity measures through its parliament. Several other countries are just spiralling down with no bottom to their economic well in sight. France lost its AAA credit rating last week, mainly because there is no sign the French government has even recognised, much less is prepared to deal with its fundamental uncompetitiveness.

If the roof does fall in then I would rather be near the exit or even through it. Could it happen? Maybe, maybe not. However remember when Russia defaulted everyone said it would never happen and it did, in just one day!

Boris at CBI

Is it a bird, is it a plane? No it’s a black swan

Talking of the unexpected and unthinkable last week Nassim Nicholas Taleb published a new book – “Antifragile”.  This is the latest of his extended argument about the requirements for business success in our modern world.  Starting with “The Black Swan”, he has now produced a number of densely written and intensely demanding publications. A reviewer pronounced “Antifragile” as probably a good idea but almost unreadable.

For me, this is maddening and frustrating – because Taleb is right but has failed to communicate an immensely important idea that I and my business partners identified in 2004 and have been promoting from our tiny corner ever since! So I am able to explain a concept that could really matter for your survival and prosperity in this uncertain world and save you reading a series of books and still being none the wiser for it.  Here goes –

Idea 1 -– Unexpected things are inevitable and can have totally unpredictable consequences.  Taleb calls these Black Swans.  We say S*** Happens!

Idea 2 – A few Organisations can withstand unexpected events substantially better than most others.  We call this Competitive Strength, (Taleb’s “Antifragile”)

Idea 3 – Outfits with outstanding Competitive Strength have extraordinarily agile, adaptive and flexible mindsets, combined with superb operational competence (i.e. not HP!) and so deal rapidly and effectively with whatever happens – either bad news (Black Swans) or good news (Market Opportunities).  We call this Changeability, (Taleb conflates this into “Antifragile”, wrongly)

And there you have it, 3 challenging ideas you should pay attention to and no need to read 4 or 5 challenging books on the subject. The future is massively uncertain, S*** Will happen. Only outstanding Competitive Strength can deliver the Changeability to secure the future for you and your business in an uncertain world.

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 16th November 2012

No deal to Green deal

In last week’s article I explored the difference between “knowing what you are there for” as opposed to “knowing what you are there to do” A piece of news from last week demonstrates just how wrong everything goes when you forget “what you are there for” and blunder blindly into areas where you have no competence and are therefore bound to fail.

The “Green Deal” is a flagship government policy to make homes more energy efficient and ultimately cut energy bills. If you haven’t heard about it or are not clear what it actually is then you are not alone. Announced in June last year, so far not a single household has registered for the scheme. The scheme enables people to borrow up to £10k to have loft and wall insulation installed. The loan is repaid over up to 25 years through higher bills but the expected savings must be equal to or greater than the cost of the work.

Now if you old fashioned like me this sounds like a second mortgage. Perhaps your walls and lofts may be at risk if you fail to make the repayments. Joking apart, the scheme is so riddled with uncertainty that it is no surprise that even people who have heard of it don’t find it attractive. Also if like me you have had a rash of pimply youths (pun intended) knocking on your door and claiming to be from a government grant service and are not trying to sell you anything, it has also become intensely irritating!

One of the things government is to there for is to ensure that the country’s assets are maintained and improved, so developing a policy to improve insulation in our housing stock is fine. However they didn’t stop there. They went on to design and launch a consumer home improvement product with a personal finance component included. What experience or competence does government have in this field? None. So no take up is no surprise. Can you imagine Proctor & Gamble launching a new cleaning product without thorough market research and testing and a carefully planned and fully resourced launch and marketing campaign?

This is not the first time this has happened. A previous spectacular example was the Millenium Dome. This a was a Tory government scheme but the Labour government decided to not only to proceed with its construction but also to go into the entertainment industry as well. Civil servants were appointed to run it with the inevitable disastrous results. Since it has been run by entertainment industry professionals it has become a great success.

All politicians and government officials have become so sure they know what’s good for us that they can’t resist going into areas they know nothing about. The same happens in business when instead of setting clear directions for the people who know what they are doing and letting them get on with it, managers have to micro manage every aspect of what their people do.

Taxing Times

The debate about how much tax businesses pay or don't pay rumbles on. The week started with Amazon, Starbucks and Google appearing before the Public Accounts Committee (PAC). Amazon made the mistake of sending Andrew Cecil their “Head of Public Policy” or PR man to you and me. He was eaten for breakfast by Chair of PAC Margaret Hodge describing his responses as “unacceptable nonsense” and accusing him of being clearly “not credible”. Why some businesses when they are clearly in a hole over an aspect of the way they do business persist in sending out these lightweight PR people to continue digging I don’t know!

The politicians have now moved the debate to the moral high ground where they take the high ground and make it very clear that business is on the low ground. Ms Hodge accused the companies of using accounting strategies that were “cynical” and “unjust”. She didn’t stop there, adding “we are not accusing you of being illegal; we are accusing you of being immoral”. When politicians start “accusing” others of being “immoral” we are well into pot and kettle territory. Just how many jobs with their accompanying income tax, NI and VAT tax revenues have Ms Hodge and her colleagues on PAC created recently? Any chance of a grown up dialogue that could get to the root of the problem and find practical solutions goes out the window as soon as the “M Word” is deployed.

Whilst there is a ”moral” dimension to the problem of some companies being able to legally reduce their tax liabilities to near zero, this is not a helpful argument. The real point is about competition. If these businesses can save huge amounts of money by paying very low tax on their profits this gives them an unfair and unearned advantage over their competitors who are not able to access the same mechanisms. Andy Street, Managing Director of John Lewis put is finger right on it.

“There is less money to invest if you are giving 27pc of your profits to the Exchequer. Clearly, if you are domiciled in a tax haven you’ve got much more. They will out-invest and ultimately out-trade us. And that means there will not be a tax base in the UK”.

Not a single mention of morality just plain common sense that highlights what the real problem is and what the consequences could be.

What this whole episode is demonstrating is that the taxation system for any business based or operating in the UK is a mess. Even a dog would not want it for dinner. The world has changed a great deal but the tax system has not, apart from continuous tinkering. This is why Tolley’s tax guide is now twice the size it was 10 years ago.

Politicians think a “competitive” business tax regime is just about tax rates, but it is not, it is also about the system itself. Reasonable rates of business tax based on a simple, transparent and above all stable system is what businesses really want. There are lots of reasons why businesses would want to operate in the UK but a tax system that mean they pay little or no tax shouldn't be one of them.

Several other commentators made this point about the failings of our tax system last week. However not one politician, whether a government minister or an MP lauding it on a House of Commons Committee, gave it a mention. Those of us in business need to give them an earful on this at every opportunity.

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 9th November 2012

Last week could be described as momentous, given that Barack Obama was elected for a second term as US President and the Chinese continue ponderously through their leadership change process. It is difficult to work out what is going on with this. However it seems pretty certain that one of the blokes in suits will become the new leader of China sometime soon.

This and some other stories from last week prompted me to think about the difference between “knowing what you are there for” and “knowing what you are there to do” and whether this difference matters. The connection is not immediately obvious between this and Presidential election and Chinese change of leadership, but bear with me.

Hurricane heroics

I am grateful for this story from my business partner in Melbourne, Barbara Craven. It concerns a US company called Squarespace who provide cloud based services including running hundreds of thousands of websites for customers. When hurricane Sandy struck their data centre in downtown Manhattan it suffered a total loss of power in spite of multiple levels of back up systems and resources. It took out much of the building services including fuel reserves for back up generators. And yet none of their customers experienced any down time as a result of the power outage!

How did they do it? For three days employees carried fuel manually up 17 flights of stairs to fuel the remaining back up generator. By day four they had installed a pump system to deliver fuel to the generator on the roof. They now have plenty of fuel on site and a further generator connected at street level but they are still not connected to the power grid. Yet the service to customers has never faltered.

This for me this is an example of people who know what they are there for, to serve their customers. So when struck by a disaster of such unprecedented proportions that they could not possibly have planned for it, they quickly worked out what they had to do. So maybe there is a difference and the difference can make a difference.

Obamarama

However a positive rather than negative “purpose” can, I believe, influence results. In the 2008 Presidential election much was made of Obama’s election machine, particularly that part of it that “got the vote out”. In 2012 the Republicans said they would match or even exceed this. However it looks as though they didn’t and that it was a crucial factor in their defeat. From what I have read it wasn’t about money or about the numbers of people involved. The Obama people just seemed to have the more positive sense of purpose which was to get their man elected. Consequently they had a very clear understanding of what they had to do, which was to find every single possible voter who might vote for Obama and make sure they voted. The Republicans on the other hand gave the impression that they were there to stop Obama being elected, rather than to get Romney elected. This showed on the ground in the lack of purpose, drive and resources they put into getting their vote out.

The lone voice

I came across an example of what happens when people are not clear what they are there for when talking last week with a friend of mine who works for a European manufacturer of capital goods. The company has brought in consultants to improve “sales” performance and they have introduced a sales performance management system. This requires everyone in the sales force to log every phone call, e-mail, meeting etc. and to carry out their sales activity in line with performance standards set by the system. Even though my friend has been the top sales person in Europe for most of the past fifteen years, they want him to conform to the new system as well. Their argument being that if he doesn’t do it then no one else will.

The company has also spent €35m “rationalising” its manufacturing facilities. Whilst this has produced cost savings, these have not been used to offer lower prices or even better delivery times to customers. My friend is clear on what he is there for, to sell machines to customers, but others don’t appear to share this view. They think they are there to tell others what to do and to micro manage them into doing it.

Whitehall revolving doors

However I also think you often need time and experience to understand what you are really there for. This is not surprising when most of our education and experience of work has been all about WHAT we must do rather then why we are doing it.

Regular readers of these articles will know that I regularly castigate government for its lack of competence and capability to deliver what the country needs. This week a report from the Better Government Initiative (BGI) will be published highlighting the shortcomings in government which have caused so many policy failures, including record levels of staff replacement in Whitehall.

Did any of us realise that staff turnover in the Treasury over the last two years has been 50% and the average age in the department is now well under 30?  High staff turnover is affecting all departments from the lowest to highest levels. Only 2 of Whitehall’s 16 departments have the same Permanent Secretary as they did two years ago. The Department of Transport is now on its fourth Permanent Secretary since the election. No wonder it screwed up the West Coast Mainline bid.

It seems that no one has given a thought as to whether this indicates a serious problem at the heart of government. With staff turnover at these levels people will hardly have time to figure out what they are there to do, never mind what they are there for.

China Syndrome

Judging by some of the rhetoric from the Chinese leadership last week they know what they are there for - to maintain one party government so as to keep the communist party in power in China. A key component of the strategy to maintain this political status quo is government control of state enterprises that dominate key areas of the economy. Many of these behemoths make huge losses and are a source of much of the corruption in the Chinese economic system.

However the other goal set is to double per capita income by 2020. This is an example of where what you have to do to achieve what you think you are there for is actually an obstacle to achieving your goals. I may be proved wrong, but in the last 100 years autocratic government with state control of the economy has not been a successful formula for delivering sustainable growth in prosperity for its citizens. This is because it favours the relatively few to the detriment of the many and always encourages corrupt practices by the few to maintain their privileges.

It’s all about outcomes

If you can set a clear outcome that both you and your people can relate to and find inspiring, then quite extraordinary things can happen. A positive outcome will nearly always beat a negative outcome. Focusing just on what people are there to do can make it really hard work to make anything happen at all. Even when you have set an outcome people need time and support to work out how they personally can relate to this and consequently what they are really there for. Finally if the outcomes you set are about you having your cake and eating it, this is likely to be self-defeating.

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.