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May


The age of the Euro-customer

Sun, 26th Jun 2005

SHOULD we fear for the future of business in Europe? Yes, was the gloomy response of 70 per cent of a pan- European group of journalists gathered at a seminar hosted by Unisys in the south of France last weekend.

Even the Mediterranean sun failed to dispel the gloom cast by the shambles in Brussels the week before, and the lack of political direction that was felt to have caused it. More shock and awe was generated by the extraordinary figures emerging from China and India - where labour costs are 50 US cents and 70 US cents an hour compared with $21.30 in the US and $30.50 in Sweden, and predictions by Shell and Goldman Sachs that by 2050 China would be the dominant economy in the world, with India number three. Deepening the depression was general agreement that Europeans were too attached to their lifestyle, too complacent and too sleepy to bother to compete.

True, all these seem like grounds for concern. Yet they all have a reverse side. This writer still found himself in the minority of optimists, agreeing (more shock horror) with a top French civil servant that the self-flagellation was overdone. European companies hold their fate in their hands (see sidebar). They are not at the mercy of Brussels, any more than of blind economic forces. Companies have will and ingenuity they form strategies and build resources to maximise strengths, and invent advantages out of difficulties. Despite the scare stories, Europe has satisfactory numbers of engineers and scientists. It's not short of capital, or ideas. It just needs to make better use of them.

Although Brussels can make a small contribution here, that's fundamentally a job for management, not for politicians. It is companies and individuals that will, or won't, make Europe a successful economy - in fact, success can only be achieved at company level, not by financial engineering (which is what much outsourcing is) or by acquisitions, but by more effectively creating goods and services that customers want to buy.

The customer, in fact, was strangely missing from most of the Unisys debates, which were all about the supply side - cost, regulation, competition - rather than demand. This, of course, accurately mirrors what happens in companies, which despite their protestations are overwhelmingly organised for the convenience of production rather than the convenience of the customer.

Yet this is a mistake, and the biggest European opportunity. One of Europe's best assets is demanding customers - the French of food, Germans of cars, Scandinavians of furniture and mobile phones, Italians of clothes and shoes, Britons of, er, garden tools and TV shows. Satisfy them and you can satisfy anyone.

Alas, as we know, European customers are far from satisfied. Three out of four UK garages provide shoddy service, complaints about mobile phones and airlines are going through the roof, and don't get me started on call centres again. One speaker noted that companies were becoming 'unreachable', elaborating with a cartoon showing one businessman saying to another: 'The new automated ordering system has really speeded up our business. We're losing customers faster than ever before.' Quite so. In short, customer service stinks.

European companies can't compete on cost alone. If they do, they're doomed: as hopeless a bet as a British winner at Wimbledon. Nothing Brussels does can alter that. But equally nothing prevents firms from quitting the bumpy playing field that is cost, and choosing another, quality of customer service, that better suits their historical attributes.

Focusing on customers does another thing. In his presentation to the seminar, Unisys CEO Joe McGrath underlined the need for companies to ditch their command-and-control style of management and move to something more collaborative and co-operative.

This is nothing to do with being nice to people (Unisys is a US company). It's to do with effectiveness. At a time when the marketplace is changing by the hour, the world is way too complicated for a company to be run by one person from the top. In a traditional, hierarchical, top-down company, as Jack Welch memorably put it, people 'have their face toward the CEO and their ass toward the customer', which is neither comfortable nor sensible.

Most companies, of course, whatever they may say about customers and employees, adopt just that posture. They are still command-and-control empires. In fact, the paradox, the dirty little secret of late western capitalism, is that its most important institution is the last redoubt of central planning.

As with Soviet Russia, such empires are so freighted with bureaucracy that they can scarcely move. A slide at the seminar quoted Jeff Immelt, General Electric's CEO, saying that 40 per cent of the group (widely considered one of the most leanly managed in the world, remember) now consists of administration, finance and backroom functions.

Immelt wants to reduce that by 75 per cent in three years, and that can only be done by turning the company to face the customer, and distributing leadership. That's what European companies should be looking at and emulating, rather than throwing up their hands in despair, demanding protection from Brussels and looking resentfully at India and China.

The late Sumantra Ghoshal once wrote that third-generation managers were running second-generation organisations with first-generation management. Developing a third-generation management model, one that works by harnessing ingenuity and loyalty rather than compliance, that enhances humanity rather than driving it into the ground, is both consistent with Europe's past and its best hope for the future. It's also achievable and is a DIY grand vision which owes nothing to Brussels.

The Observer, 26 June 2005


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