Enron: a master class in hubris and raging greed

THOSE OF a timorous disposition may want to avoid Enron: The Smartest Guys in the Room. Most Hollywood horror is ultimately comforting, since you can tell yourself it never happened. Not so the events recounted in this blood-curdling, neatly constructed documentary on the rise and fall of the notorious Houston energy giant, culminating in the world’s biggest bankruptcy.

As the film progressively reveals, principally through the mouths of the protagonists, they really were as bad as they seemed. We see the hubris (one of the shell companies set up to shelter the firm’s mounting losses was called M. Yass – OK, move the full stop to the right), the self-serving and the rampaging greed. In retrospect, though, what should send shivers up every spine is that if Enron and Arthur Andersen were business’s Twin Towers (40,000 jobs and $100bn of capital were lost between them), the fundamentalism that brought them crashing down was not some external malevolence: the enemy was, and is, within.

At one level, Enron was a microcosm of the dotcom extravaganza, a one-company bubble of its own. All the ingredients were present: within the firm, leaders who believed they could outsmart anyone or anything, and products that became increasingly disembodied from reality (from energy to futures and markets: at one stage it planned to sell weather) outside the firm, political support and willing believers – ‘useful idiots’ in both academic and financial worlds who took at face value everything the firm told them and eagerly talked it up.

Once the bandwagon started to roll, Enron became a model of self-sustaining momentum. Everyone was dazzled by the honeypot. Investors scrambled over each other to pile in. The top US investment banks, Wall Street’s creme de la creme, enthusiastically subscribed to the loss-hiding schemes, no questions asked. Laxer accounting rules? Regulators, perhaps mindful of chairman ‘Kenny Boy’ Lay’s political connections, were happy to oblige. Lawyers and auditors – the latter well enough aware of what was happening to shred the offending documents in panic when the balloon burst – were far too dependent on the gravy train to even attempt to apply the brakes.

Enron was a bubble in another sense. Disconnected from reality by both its conviction of invincibility and its fantasy accounting, and unchecked by guidance from the top, Enron employees behaved as if they were in a world of their own. Just how perverse this world had become is shown in one of the film’s most disquieting sequences where Enron traders are overheard laughing and boasting about their efforts to disrupt California’s energy supplies in 2000. The famous blackouts that year were not caused by shortage of capacity or poor regulation – they were caused by Enron, which drove prices (and profits) up by as much as nine times by shutting down power stations and creating artificial shortages. Caught on tape, one trader exults at the forest fires sweeping over the state, crowing ‘Burn, baby, burn!’

It may be significant that it took two women to make the first small punctures in this testosterone-inflated balloon – Fortune reporter Bethany McLean (one up for journalism here), who mildly asked if the company’s stock was overpriced, and Sherron Watkins, the Enron employee who undertook the dangerous job of informing the company emperors that they weren’t wearing any clothes.

Although Enron bosses used considerable ingenuity in their attempts to disguise the true state of the figures, in retrospect the most striking thing about their drive to auto-destruction is its utter pumped-up, fanatical single-mindedness: business as extreme sport.

Enron was the most extreme corporate monument to shareholder value ever erected. The entire system was geared to keeping the share price up. On the carrot side, the incentives for doing so were vast: even in the last months executives were collecting bonuses of tens of millions and cashing options for hundreds, even as they exhorted lowlier employees to invest their retirement savings in company stock (which was later pillaged in a desperate attempt to buy time). On the stick side, the system was ‘rank and yank’: every year all employees were graded one to five, and all the fives were fired. Fifteen per cent had to be fives.

In a culture formed by the sack on one side and a pot of gold on the other, it’s scarcely surprising that employees stopped at nothing, including shutting down California (which is now suing for $6bn compensation), to keep the quarterly numbers moving up. After all, their own greed could be, and was, justified because it was all for the shareholders.

But we should know that. In systems where incentives are sharp enough and the moral compass deliberately disabled – what’s good for shareholders is good for the company is good for me – that’s what happens. In that sense, to get where Enron ended up didn’t require management to be deliberately evil; it just required it to take what most MBAs learn at business school and pursue it to its logical conclusion.

The Observer, 7 Ma7 2006

Painful truth behind the Revenue’s slipped disk

BEHIND THE fiasco of last year’s vanishing Revenue and Customs disk lies an everyday story of outsourcing folk. You can imagine how it went. Senior HMRC manager to junior manager, on telephone: ‘Hello? Sir Humphrey here. The National Audit Office wants some numbers on families receiving child benefit. They don’t want sensitive stuff – names, addresses, bank accounts – just the basic figures. Can you get it off to them?… Oh. Why not?… You mean we don’t have anyone here who can remove the personal details?… Yes, I know we outsource data management to EDS, but surely – well, never mind, get EDS to do it then… What do you mean, it’s beyond the scope of the contract?… How much?… Good God! OK, just send the complete disk, then. Let the NAO desensitise it.’

Behind this story is another. The reason the extra charge was so high – reportedly thousands of pounds – was only partly that the outsourcer had its customer over a barrel. More fundamentally, many customers drive such hard bargains upfront that outsourcers can only make money through extras and small print that makes contracts heavily back-end-loaded. ‘If it’s not a fair price, something has to give – either quality or cost,’ says Geraldine Fox, of Compass Management Consulting.

HMRC ought to be a star exhibit in the inquiry currently being conducted by economist DeAnne Julius into the pounds 44bn-a-year market in outsourced government services, ranging from IT and payroll services to prisons, and how it can be made to function better.

Of course, ‘make or buy’ decisions have to be made in any business, and apply to services as much as manufacturing. But it’s hard to resist the feeling that Julius is addressing the wrong question. Her remit assumes that outsourcing is the right thing to do, and the route to efficiency is doing it better. Yet the real issue is how to make public services work better as a whole, rather than the outsourced part of it. In this larger issue, as we should know by now, outsourcing is often an irrelevance and a distraction, the wrong answer to the wrong question.

HMRC handily epitomises some of the most obvious pitfalls. For starters, when a service is outsourced, the accompanying know-how usually goes with it – even for such simple things as removing information from a database, or how to keep a hospital ward clean and infection-free. Since it’s impossible to specify all eventualities in a contract, such indirect costs are never counted, and costs of non-standard items always exceed predictions (and budget). In many cases, exasperated users end up creating internal specialist groups to fill in the outsourcing gaps, thus negating the reason for doing it in the first place.

Another casualty of the outsourcing decision is the ability to manage the function. IT and cleaning still have to be managed. Rather than tough bargaining at the procurement stage, ‘to get value from outsourcing you need a top-notch governance group – and they are as rare as hen’s teeth. It takes smart customers to get good deals,’ says Fox.

Alas, in most cases the emphasis is reversed. In their determination not to be ripped off, and meet fierce individual cost targets, buyers rely heavily on aggressive, legal-led purchasing teams focusing on short-term contract prices rather than the long-term needs of the business – an approach almost guaranteed to be self-defeating. What looked an attractive deal in year one, already looks a good deal less so by year three. ‘To get deep starting discounts, organisations are signing seven-, eight- and even 10-year deals,’ says Fox. ‘That’s consistently bad practice – the economy will change, the business will change, and you’ll be locked in. Some organisations will be paying 40 per cent over the market rate by the end of the contract, and for antiquated processes. That’s not a good place to negotiate from.’

It’s disappointing, she says, that after three generations of IT outsourcing, organisations still make the same mistakes – believing they can get rid of problems by outsourcing them, underestimating the management overhead needed to make contracts work, and overestimating cost savings. Indeed, with companies panickingly squeezing suppliers as recession bites, this round of mistakes may be bigger than ever.

At the heart of outsourcing is the Fordist faith in mass-production: specialisation, division of labour and economies of scale. But while the formula worked for Adam Smith’s pin factory, the diseconomies of scale – in the shape of massive demoralisation and labour turnover – were already becoming apparent by the time of Ford’s Model-T.

HMRC, and the vast shared-service factories being imposed on local authorities and other public service providers, are today’s equivalent of Ford’s River Rouge plant. Behind the automated document handling and batteries of computers sits a rusting, outdated hulk of a management model – and no amount of outsourcing can change that.

The Observer, 30 March 2008

Big banks have failed. The solution? Big banks…

’THIS IS a solution?’ marvelled Stanley Bing incredulously on business website TheStreet.com at the prospect of a new wave of bank consolidations.

’Didn’t we see what happened to Citigroup and Bank of America? Aren’t both now being deconstructed due to unsuccessful, if not heedless, acquisitions? Haven’t empires from Rome to ITT fallen into rubble as a result of getting too big, too fast?’

He has a point. Most people assume that sorting out the banks is a technical and financial matter – deleveraging, rebuilding reserves and writing down toxic liabilities. But that’s just the half of it. What has been grossly neglected is that, even when that’s done, many banks face the mother of all challenges on the management front – making business sense of vast, sometimes shotgun, acquisitions carried out in the most hostile economic conditions of our lifetimes.

Consider: at the best of times, mergers are worse business, and harder to do, than managers think. A third fail, and 80% fail to live up to expectations. The financial brainboxes are no better at it than the plodders: a recent City poll on the worst banking mergers of all time identified such turkeys as Citibank-Travellers, Credit Suisse-DLJ, Wachovia-Golden West and Commerzbank-Dresdner Bank – then put RBS-ABN Amro and Bank of America-Merrill Lynch, whose consequences are still ramifying, on top of the list.

’Value destruction in financial services isn’t new – we just can’t afford it any more,’ says Dustin Seale, managing director of the Europe arm of Senn-Delaney Leadership, a consultancy specialising in corporate culture.

The risk, he fears, is that the perceived remedy makes ultimate success harder to achieve. Thus, while banking is moving towards being smaller, more focused, and more conservative, the entities being cobbled together are bigger and more complex than ever. Banks were once too big to fail are today’s mergers creating organisations that are too big to save?

Bank mergers are not just ordinarily difficult. The credit crunch capsized all the assumptions on which they were based. RBS’s Sir Fred Goodwin had a good record of making acquisitions work, even expensive ones, but ‘Fred the Shred’ is toast, and his merger rationale and style volatised with him.

His bank’s strategy of globalisation no longer makes much sense, believes Andrew Campbell, director of the Ashridge Strategic Management Centre and co-author of a book called Smarter Acquisitions. Lloyds-HBOS, now relabelled Lloyds Banking Group, is a more coherent unit focusing on the UK retail market, but even here the merger will not be plain sailing integrating the workforce and senior managers of a fierce rival, part of whose identity is bound up with the rivalry itself, never is.

The very success criteria on which the mergers were predicated, and on which the current leaders rose to the top, have reversed overnight. The macho City culture of individual achievement and self-promotion has become the problem but moving to a culture where words such as engagement, trust and self-determination can be heard without provoking gales of laughter is a monumental management task – made more monumental, points out Ian Johnston, a Senn-Delaney partner, by the fact that the colossal bonuses that were used to paper over other cultural discontents are no longer available.

The sense that the world revolves around the banks has to yield to a humbler recognition of the need to serve customers and build relationships. Some banks will make wholesale changes in what they actually do (leadership, recruitment, reward) as well as what they say. Others will find it harder to get beyond spin. Yet, as Seale points out, those that do can contemplate an opportunity as enormous as the challenge.

Without exception, the big banks have been lamentable at dealing with retail customers. This is partly because their minds have been on sexier types of business, but much more because they have remained obstinately wedded to the cost-driven mass-production methods that render them brainless – and, incidentally, have taken General Motors and Chrysler to the brink of extinction.

The first major bank to use the opportunities of the merger round to renew itself by providing an honest, transparent and intelligent service to high-street customers will be greeted with tears of joy. OK, I exaggerate a bit, but renewing the link with customers is the best way for the banks both to make amends for the monstrous errors of the past few years and to proof themselves against foolishness in the future.

As they consider how to avoid a new wave of merger-driven value annihilation, bank leaders can at least comfort themselves with this unexpected thought: for once, as Seale points out, ‘no one wants them to fail’.

The Observer, 1 February 2009

Farewell, with a last word on the blunder years

THE BANKERS have claimed another victim – this column. Cost-cutting as a result of the worst media recession in a lifetime means that Observer Management will disappear next week.

I wish I could say the job was complete. When I joined the paper in 1993, the brief was to make visible and discussable something that was intangible, taken for granted, and, for better or worse, affected us all. That was the easy bit. The column instantly drew a rich and argumentative response that ensured a constant supply of issues to address that meshed directly with readers’ own.

But from this exchange emerged a second agenda item that soon overtook the first. Across both public and private sectors what readers experienced as ‘management’ was pervasively problematic. It just wasn’t what it said on the tin. Wherever they looked, readers found a glaring discrepancy between ‘official’ and ‘unofficial’ versions, between talk and walk.

The talk was empowerment, shared destiny, pulling together: the walk was increasing work intensity, tight performance management, risk offloaded on to the individual. The talk was flat organi sations: the reality, centralisation and a yawning divide between other ranks, required to minimise their demands for the greater good, and a remote officer class whose rewards had to soar to motivate them to do their job. Employees were the most valuable asset – until costs had to be cut. Repeated mis-selling and other scandals demonstrated it certainly wasn’t the customer who was king.

Somewhere along the line the edifice of management had been turned upside down – it was shareholders who had become monarch, their courtiers lavishly rewarded managers whose MBA courses had taught them to manage deals and numbers, not things or people. Management had suffered a reverse takeover. Finance annexed reality, cost ousted value, the means became the end.

This is the story that this column has reflected. Shamefully, it reached its explosive climax on the watch of a Labour government that, betraying its entire history, not only encouraged ethics-free market-led management principles in the private sector but imposed them wholesale on the public sector. The credit crunch is man(agement)-made – management, not market, failure. So is the Soviet-style targets and inspection regime, locked in place by lucrative IT contracts with private suppliers, that has made the public sector systemically less capable than it was 12 years ago, despite the billions spent. The emails of rage and despair from public-sector workers at what has been done to their profession have to be read to be believed. And still ministers don’t get it. The elevation of the grisly Alan Sugar to ‘enterprise tsar’ and the timorous, frozen-in-the-headlights approach to City reform in one sense are as risible as MPs’ expenses – but they are also a terrifying denial of reality.

Of course, institutional stupidity and failure to take responsibility are characteristic of all top-down organisations – in fact, they’re two sides of the same coin. Hence the reductio ad absurdum , also charted here, of gleaming hi-tech organisations too witless to stop themselves auto-destructing. What is there about the credit crunch and the environmental one hard on its heels that is not to understand? The management model that has run us for the past 30 years, like the discredited economic theories (rational expectations, efficient markets) to which it cringes, is bust, dead, finished – a mortal danger to us and the planet.

So where do we go from here? Optimism has been in short supply over the past few years. Yet this is not because of lack of alternatives (There Is Always An Alternative) so much as the arrogant certainties of the ruling doctrine that have pushed saner voices to the margin, at worst making unorthodoxy unpublishable. Perhaps the collapse of orthodoxy will make it easier to salute and cherish such exceptions: companies that refuse the dominant logic, such as John Lewis academics who risk their careers by engaging with big issues (would Darwin, Freud and Marx be employable in today’s universities?) courageous public-sector managers who find ways of circumventing the draconian targets regime to do what they know to be right.

As the 2009 Reith lecturer Michael Sandel noted last week, norms matter, because they so easily become self-fulfilling. It shouldn’t need saying in the middle of the biggest management meltdown in history, when the stakes are at their highest, that the debate about the norms that should govern a post-financial form of management must go on, even if not here. For my part, what I’ve learned from an amazingly rewarding 16 years will find its way into a book that, in honour of readers who are the joint creators, I had always thought of as The Observer‘s book of management – although regrettably, and not of my doing, now without the capital ‘O’.

Good service must not follow GM’s road to ruin

THE BANKRUPTCY of General Motors was a defining moment – in effect a symbolic final line under the management century that began with the invention of mass production and was brought to an end by the series of explosions that blew up the financial sector.

The latter, ironically, was supposed to be the future, a weightless economic and employment successor to limping manufacturing. Only it wasn’t. Meet the new economy, same as the old one except on steroids, which just intensify rather than dampen down the destructive effects.

GM’s demise comes after the longest death scene in history. Its heyday was the postwar period up to the 1970s, when, to a degree unmatched before or since, this one company was management. Peter Drucker, the discipline’s first and most respected chronicler, wrote the seminal Concept of the Corporation after observing the company for two years in the 1950s, and its pioneering multidivisional structure – with a separate division corresponding to each market segment, from Chevrolet to Cadillac – had a huge influence on the shape of other large firms.

In contrast to the maverick entrepreneur Henry Ford, who had little time (or need) for management, GM was the embodiment of what the great historian Alfred Chandler dubbed ‘the visible hand’ – the revolution that substituted rational administrative co-ordination for market forces to drive productivity up and costs down systematically. In the 1950s, GM was the biggest and most successful company in the world.

But its days were numbered as the car industry became global and world supply started to outstrip demand. GM’s formula took Ford’s mass production to new heights. It built so many cars so cheaply that even if they weren’t what buyers really wanted, it could shift them by cutting prices and advertising heavily. But just as GM had undercut Ford’s management model, GM’s was destroyed. Japanese companies figured out how to make cars in small quantities equally cheaply and of higher quality and, being much more attuned to what customers wanted, they rarely had to discount to get rid of surplus inventory. Economies of flow and market pull replaced economies of scale and marketing push.

Since the decline really set in during the 1980s, GM has staggered from one crisis to another. Automation, changes at the top, new brands – nothing has turned the tide some of its brands now have negative value. But this is not surprising: GM’s management model is as obsolete as fins, chrome and whitewall tyres. It has been kept on the road only because, like the banks, it was too big to be allowed to run off it.

All companies are collections of subsystems within a bigger one, which in turn operates within the ecology of the market as a whole. At its height in the 1950s and 1960s, GM’s parts all worked in harmony with the market. Since then, the market has radically altered, and the set of accountabilities that worked in the past has driven them ever further in the wrong direction. Neither the parts nor the whole are now functional, and a small GM is a contradiction in terms barring a miracle, the only future for the surviving marques (probably Cadillac and Chevrolet) will, like Opel and Vauxhall, be in the bosom of an acquirer.

It would be nice to think that with its chief protagonist humbled, the GM management model could be buried, the page turned and a new one started. Unfortunately, it has developed a potent half-life in the services sector. With the development of computers and the internet, financial services and communications companies have been sold a vision of services mass-produced like consumer products, with a virtual supply chain linking low-cost suppliers around the globe.

Alas, the template is usually pure GM. The emphasis on economies of scale and low transaction costs achieved through specialisation and standardisation exactly parallels the obsessions of the bankrupt US carmaker. The result is white-collar factories like HM Revenue and Customs, the Department for Work and Pensions and the Probation Service, which are as inflexible, error-prone and customer-unfriendly as any car assembly plant.

But the mass-production analogy is false. Services can and should be systematised , not industrialised. The idea of mass production leads up a blind alley back to the past. The wide variety of service demand means that the standardise-specialise-automate formula can’t work. Services can be produced economically, but they need well-organised humans, not computers, to do it.

Services are the most likely place to develop a post-industrial management model, one that is more sensitive to customers than mass production, more responsible than the financial services industry, and less wasteful than either. To do that, though, the first imperative is to dismantle the legacy of GM. RIP

Look to the Puritans, not business schools

As Larry Elliott noted in The Guardian recently, since the 1960s the liberal state has been stood on its head. Whereas 40 years ago markets were framed by strong checks and balances, while within the law individuals could, and did, tell officials to mind their own business, the reverse is now true.

Individual behaviour is regulated by armies of surveillants enforcing guidelines on drinking, smoking, parenting, loitering, dog-pooping, refuse disposal, even school catchment areas, to make the world safe for unregulated markets, particularly financial ones.

Much the same has happened in management. In the 1960s there was less management, and although it was more paternalistic, it was (mostly) reined in by convention as well as stronger trade unions and collective bargaining (there’s a blast from the past). But managers grumbling about the ‘right to manage’ and leader writers fulminating about workers’ demands now seem from another world. In the ‘flexible’ economies, there are now, by design, very few constraints on management action. And, boy, have they used their freedom.

In the wholesale outsourcing of risk from the organisation to the individual, first to go was responsibility for careers. Next overboard was pensions, with companies seemingly competing nearly as hard to shore up their finances by closing schemes as by winning new customers. At the same time, financially trained managers increasingly looked to employees as their first resort for costs to cut. And a tightly yoked performance-management regime of targets and inspection (aka appraisal) made it clear that at work, as at home, people were not to be trusted, needing sharp sanctions and incentives to get them to perform.

In both cases, the cure was worse than the illness. After a couple of practice runs, free financial markets duly obliterated pension pots and savings that individuals had put aside after being booted out of company schemes, with governments utterly impotent to intervene except in the futile role of Humpty-Dumpty. Meanwhile, expecting the corporate officer class to look after the interests of the ranks proved as vain as the unions always said it would be.

Globally, the share of income going to capital has steadily risen at the expense of labour. At a human level, what this means at the coalface was revealed in a rich and fascinating report from the TUC last week. Life in the Middle (www.tuc.org.uk/touchstone/lifeinthemiddle.pdf) shows that the real middle Britain – the stratum of clerical and administrative workers, supervisors, lower-tier man agers, small entrepreneurs and skilled manual workers – has lost out sharply over the last 30 years compared with almost everyone else.

Thus the pay of median earners (pounds 377 a week) has gone up far less than the average – 60% versus 78% – and the gap has widened where 30 years ago the UK was one of Europe’s most equal societies, it is now among the most unequal. Middle-income Britons are less likely to have a university degree, a final-salary pension, or shares and savings, and more likely to have been unemployed than those just above them on the income scale. Four out of 10 think they are in a lower-status job than their fathers.

How all this has happened is not just economics. In their bold, original and agreeably opinionated The Puritan Gift , brothers Will and Kenneth Hopper argue that up to the 1970s, US management (which the British gamely follows at one remove) was living on the strength of its Puritan inheritance, part of which (with idealism, mechanical aptitudes and unparalleled ability to galvanise energy behind a single aim) was a belief that the coherence of the collective was more important than any individual.

But the obverse of US willingness to live in the present is the ease with which it forgets its past. Managers abandoned true north in favour of ‘neo-Taylorism’ – quantitative techniques, ‘the cult of the expert’, of which the temples were business schools, and heroic CEOs. Raging self-interest and the malign influence of shareholder value did the rest as it did in the UK, where, lacking their own tradition and burdened by inferiority complex, UK managers were all too easy to drag in the same direction.

The Hoppers end on a note of qualified optimism. Just as the French had to go to the US to reintroduce resistant vines after their own had been wiped out by phylloxera, so the most thoughtful Anglo-US firms are relearning what they once knew from Japan, inheritor of the human-centred US tradition via Deming and others after the war.

The crunch reinforces the urgency of renewal, as does the scandal of MPs’ expenses, both egregious management failures that focus the plight and the fury of the TUC’s ‘sinking’ middle. A new tax and mobility agenda is the TUC’s remedy; returning management to its virtuous roots would do more.

The Observer, 31 May 2009

Individuality can banish the downturn blues

IN BB KING’s song Recession Blues, the singer is about to (guess what) lose his baby because he can no longer afford to give her what she wants. Won’t someone go to Washington, he pleads in the last verse, to ‘get me out of this misery’.

Powerlessness corrupts. As recession brutally reveals, helplessness is what a century of wage work and increasingly abstract, remote management has left increasing numbers of people with – and, it is now clear, not just the working classes. Hence the unprecedented wave of outrage at City bankers, financiers who casually offshore themselves to avoid paying for the wreckage they have brought down on others, and MPs with their tragically revealing expenses.

After anger, frustration and the realisation that the only people anyone is going to Washington to bail out is themselves, what then? Time to get on your bike and take your destiny in your own hands. Lynda Gratton’s new book, Glow: How You Can Radiate Energy, Innovation and Success , was written before the crunch, but many will find its subject – self-help in a globalised and corporate world – perfectly suited for the times, and the positive message of individual agency at least a pinprick of light in the surrounding gloom. Why do some people radiate energy and optimism and attract other people to their projects? Can such qualities be created? And how do you deal with a situation that suppresses rather than encourages them, as many companies unfortunately do?

These seem simple ideas, and some people have been put off by the heavy emphasis with they are presented ( Glow always capitalised and in italics, for example). But don’t be misled. Gratton is no frothy new ager. You don’t get to be a director of a major consultancy at the age of 30 by being soft-minded, nor to be a professor at London Business School, where she has for some years been grappling with difficult issues of management practice (which is what she is professor of), rather than theory.

Glow is in this lineage. Whereas her earlier book, The Democratic Enterprise , as its name suggests, explored the implications of freeing up the company as a whole, and 2007’s Hot Spots dealt with firing the energy and creativity of groups, Glow turns the spotlight on the ultimate unit of management, the individual.

Gratton concedes there are many self-help books – but most of them leave out the context. She thinks people need to be ‘much more adult’ about the employment relationship. ‘Many of us are going to have to work till we’re 70,’ she says. ‘Work is it. So you’d better find somewhere where it’s fun and interesting.’ If the context doesn’t allow the individual to flourish, cut your losses and move. Project work, enabled by technology, makes this more feasible, she suggests.

But it’s also about taking responsibility. In far too many organisations, management absorbs energy, sucking the life out of groups and work. Gratton argues that by co-operating with others, ‘jumping across worlds’ (really networking to multiply the number of options and sources of inspiration), and setting audacious goals, backed up by supporting activities, such as sharing information, conversation, and asking questions, it can be consciously generated. ‘ Glow is the small actions people can take that add up to something larger,’ she says. The collective result is what in her earlier book she termed ‘hot spots’, those teams or groups that mysteriously flare up, radiate heat and light – and all too often die away again.

Do ‘quiet’ ideas such as co-operation and networking stand a chance against the stereotypes of competition and get ahead at any cost (as in the hideous caricature of business that is The Apprentice ), particularly in today’s hard times? Isolated individuals face a perilous future in global competition, responds Gratton. The corporation on the other hand is all about combination – collaborating to do things jointly that are beyond the scope of individuals on their own.

As to how her approach works in practice, though this was not part of her research, a number of companies seem to embody the ‘glow’ principles almost exactly. One is WL Gore, maker of the hi-tech fabric in the new folding roof over Wimbledon’s Centre Court. There are no titles or conventional lines of command at Gore, where the only way of becoming a leader is to attract followers. If a project can’t attract people to work on it, then it doesn’t get done. The Brazilian company Semco runs on similar self-organising lines. Both are highly successful both are besieged by job applicants.

Of course, this is only anecdotal evidence. But, pace BB King, they and other co-operative companies suggest that fatalism is not the only response to a difficult world. If you accept you have a part in shaping an organisation you would like to work in – and would want your children to join – then behaving in at least some of the ways described in Glow would be a start.

Don’t simply stamp ‘Private’ on the Royal Mail

WILL ROYAL MAIL be New Labour’s political and managerial watershed? There could hardly be a clearer test case of what, if anything, 12 years of bruising encounters with public-sector reform have taught it.

No one doubts that the Mail badly needs an overhaul. In the 16 years since the then Post Office described itself to The Guardian as ‘the best in the world’ (I remember: I wrote the story), it has gone steadily backwards. Shorn of a vision, denied the commercial freedom of rivals and in the view of many ill-served by the regulator, RM has long been lost in strategic limbo.

Some abuse was self-inflicted: remember the beyond-caricature Consignia episode? Or the Orwellian ‘Negative External Financing Limit’ that saw the Treasury cream off pounds 2.4bn of its profits, or the government-imposed 13-year pension holiday that has landed it with a pounds 6.8bn pension deficit that has become a rod to beat it with. Not surprisingly, industrial relations, always challenging, are testy.

But RM is far from a basket case. Postal performance is relatively good and costs relatively low. Even after a 40% shrink age, it has a network of 12,000 outlets under the universal delivery obligation, it is a link to every address in Britain.

There is one other intangible but crucial factor. The Royal Mail is a national treasure. Like the NHS, it exerts a hold on public affection that is, objectively, only partly justified. But whatever the ‘reality’ – as Gordon Brown knows from his duffing up by Joanna Lumley – national treasure status raises the underlying stakes tenfold. No disrespect to Lumley, but RM is higher-profile than the Ghurkas. New Labour simply must get it right.

This is the intriguing backdrop to today’s clash of two opposing models of management modernisation. The official one, part-privatisation, is directly in the there-is-no-alternative, market-based line that has been the default setting since Labour came to power. The assumptions are entirely economic: to use management writer Alistair Mant’s phrase, the ‘business worldview’ has been so thoroughly ingested by ministers and civil servants that no other is entertained. Business is the frame of reference ergo, the private sector must do it better.

Meanwhile, the left-leaning think-tank Compass has put forward a proposal for a not-for-profit RM, borrowing from the likes of Network Rail and Welsh Water, with the aim of renewing and strengthening public-sector values. It wants a ‘dynamic and innovative pub lic service’ that enlists both workforce, including managers and trade unions, and public in the renewal effort. The measure is the maximisation of public benefit, rather than profit.

Wishful thinking? Not a bit, says Hilary Wainwright, who uses that formulation in another Compass publication, Public sector reform… but not as we know it!. It recounts an example of how it has been done. The template is not exact, since the case Wainwright reports is the modernisation (or ‘transformation’, as it prefers to call it) of Newcastle council’s IT services with 650 staff and a budget of pounds 25m, not a national enterprise. Nevertheless, the issues faced – basically the need to rejuvenate an underinvested, traditionally run, not very engaged public service – were fundamentally the same, right down to the initial assumption that there was no alternative to privatisation.

There are many interesting things about the Newcastle experience. One is the critical role of the union (Unison) in articulating the determination of staff to keep their own destiny in their own hands. It also maintained the ‘democratic infrastructure’ which ensured that, once arrived at, tough decisions would stick and is now a strong champion of spreading the model elsewhere.

And why would it not be? Because perhaps the most striking finding is that while the privatisation model has no language to address the public-service concerns of the Compass proposals – it talks past them, as if they didn’t exist – the publicly generated reform did that and more. In Newcastle’s case, the self-funding deal has saved a net pounds 28.5m after investment of pounds 20m, a result that if reproduced at other councils could save pounds 3.5bn nationally, as well as improving public services by leaps and bounds.

Translating all this to RM will not be easy, but, as in Newcastle, everyone, including the postal workers’ union, is aware it’s crunch time the only question is what kind of crunch. That applies to ministers too, for whom the choice could not be sharper. Do they continue to treat public service as an economic burden to be minimised by privatisation and outsourcing – the last gasp of the exhausted old policies – or switch to a less reductive management accounting that has a chance of mining some real national treasure? Forward, or back?

Here’s an idea: don’t offer prizes for suggestions

SIGH. Another grand efficiency wheeze that should have been strangled at birth. At first sight, getting worked up about Lord Darzi’s NHS suggestion scheme – under which pounds 20m in prize money is on offer to staff coming up with the best ideas for saving money over the next four years – might seem over the top. The cash sum is trivial: the NHS needs to cut costs by pounds 2.3bn in the next year alone. And if someone does walk off with pounds 5m for an idea that saves many times that, isn’t that a reasonable deal?

Well, no. Spoilsport though it is to point it out, the calculable costs of the awards will add much more to the headline pounds 20m the unquantifiable costs will be many times the original total and whatever the verdict of the subsequent report, the likelihood of the scheme delivering otherwise undreamed-of improvements to offset those costs is nil. Indeed, it could make matters worse.

The most depressing thing is the ignorance it betrays about how systems work – the management equivalent of a doctor expecting cancer patients to respond to treatment by black magic. ‘The more you look at it, the more frightening the whole thing becomes,’ mutters Jane Seddon of Process Management International, a consultancy whose work is based on looking at systems as a whole.

Start with the cost of the scheme itself. Even before the formal launch, there is the cost of developing, planning and specifying the scheme. Now add the costs of communicating and marketing it to the NHS’s two million employees. There’ll need to be a database of submissions with staff to run it, and trained assessors to rank suggestions. If consultants aren’t involved already, they will be now. Finally, there is the bureaucracy of judging and making the awards, including a review mechanism for appeals.

However, the direct bureaucratic costs will be dwarfed by the unquantifiable ones. The prize money sets up competition among individuals and units that ought to be sharing knowledge, not hoarding it. What about people whose day job is process improvement? Will they hold good ideas back or ‘seed’ them with others to give themselves a chance of sharing the booty?

Many apparently sensible suggestions, says PMI’s Jan Gillett, will be unhelpful in practice, because in a system made up of many interacting parts like the NHS, changing one part will affect many others, some for the worse. As the venerable US systems thinker Russ Ackoff never tires of pointing out: ‘Problems in organisations are almost always the product of interactions of parts, never the action of a single part. Treating a single part destabilises the whole and demands more fruitless management intervention management becomes a consumer of energy, rather than a creator’.

Meanwhile, suggestions that really would make a difference – like getting rid of distorting targets and IT-driven bureaucracy, classic energy-gobblers – can’t even be admitted, let alone acted on. This is partly because, as a complex organisation, the NHS is not susceptible to quick fixes (to quote Ackoff again, the only problems that have simple solutions are simple ones). But in any case, says Gillett, the problems they want to remove have been deliberately created by NHS management and are therefore politically out of bounds. The costs of the cynicism and wasted time occasioned by such a fruitless exercise will never be calculated, but they certainly exist.

The Darzi scheme is perverse in two ways. First, the NHS is home to islands of extremely advanced and sophisticated systems thinking, which under pins radical improvement in cancer and stroke services, for example, and is being explored in a number of hospital trusts. Second, used systematically, suggestion schemes are very far from useless. But, says Gillett, they can only work as an integrated part of the whole system.

To see what an awesome instrument a simple suggestion can be in the right hands, consider this. Toyota’s Japanese plants generate an astonishing 600,000 improvement suggestions a year. Equally astonishing, almost all are implemented, and none is paid for. Improvement in this scheme of things isn’t separate from the job it is part of it. In this sense, honed by a constant stream of improvements, Toyota’s standard operating procedures stand as the embodiment of its organisational learning, accumulated over many years. Ability to harness the motivation of front-line employees is a large part of its competitive edge.

Compared with this simple structured approach, Darzi’s incentive-based scheme is almost embarrassingly crude. ‘You don’t need to bribe people to come up with ideas,’ says Seddon. ‘All you have to do is visit the workplace and listen.’ Money prizes won’t make the ideas worse or better, or help the distribution. So here’s a suggestion for Darzi: stop trying to motivate NHS workers with money and use the cash to link up the islands of excellence that exist already.

The rich cried wolf. Now they deserve to be bitten

IN AESOP’S fable of the boy who cried wolf, the sting in the tail is that when the wolf actually appears, the young shepherd has lied so many times that no one comes to his aid even when the wolf is devouring the flock (and, in some versions, the boy himself). No one would actually want him – or the sheep – to suffer that fate, but if he does, we understand that he has brought it on himself.

Hearing the deafening cacophony of wolf warnings echoing around the Square Mile last week, it’s hard to resist the idea that the City of London is similarly preparing its own downfall. The roll call of businesses blindly asserting their right to go on doing the things that will eventually kill them is long: car companies resisting limits on CO 2 emissions, chemical firms contesting controls on toxic substances, energy firms fighting regulation every step of the way. The City’s insistence on its right to evade responsibilities that apply to everyone else is just the latest in this cautionary line, but taken to a new level.

In fact, given similar predictions of doom following the tax treatment of non-doms and foreign company earnings last year, anyone listening to the howls of protest that a 50% tax rate, regulation of hedge funds and curbs on bankers’ pay will trigger an exodus of ‘the brightest and best’ from London must be surprised that there is still anyone in that dubious category left to drive away.

The breathtaking sense of entitlement, and contemptuous dismissal of those who labour in the lower strata of the real world, can be gauged by the weirdness of the arguments attacking the measures. One is that the rich will take steps to avoid paying some of the tax (well, blow me). Another is that, by using cars, private medicine and schools, they are proportionally less reliant on public services. Or try this: cutting tax relief on pensions contributions from 40% to 20% will encourage outraged high earners to cut off their noses to spite their faces by closing down company pension schemes, as well as (of course) emigrating to more favourable legislations.

Indignation at proposals to get companies to publish gender pay comparisons, or the ratio of senior to average pay, similarly seems to come from another world. Good firms aiming to attract the best (as opposed to the most mercenary) talent would want to show they have a fair – that is, equal – pay policy anyway. And firms arguing that what they pay their chief executives is irrelevant to the rest of the company are simply demonstrating that they still don’t get it.

These fractures and disconnections – of the City from the rest of the economy, of the astronomically wealthy from the lower orders, of the boss from the humble employee – are both part symptom, part cause of the bubble that has blown up in our faces over the last year. Top and bottom, finance and factory, are interconnected parts of the same system, whether the unit is a company, an economy or, as we are now learning, the planet as a whole. As we also now know, while the wealth of the rich has shrunk dramatically, the millions who have lost jobs and homes are paying a much heavier relative price than those who are down to their last couple of million.

Which is why the recent, hesitant measures are important. We can regret that in relation to both pensions and tax they are tardy and ill-thought-through – indeed, they give every impression of being narrowly political rather than strategically motivated. But they are still welcome to the extent that they begin to call the City’s preposterous bluff.

For a start, we can begin to query the facile identification of ‘top talent’ with ‘top pay’. In many professions – in fact even in the pre-Big Bang City – the idea that the best were automatically the most attracted to money would cause outrage. Since in any case we shall need fewer, as well as less well-paid, bankers as the financial sector shrinks back to sustainable size, we don’t need to cave in to hollow blackmail. Every other country is in the same boat where exactly would they go? We can stop the regulatory and tax race to the bottom and think more clearly about what we do want – and the incentives that might encourage it.

The irony is that we need a functioning, creative City playing its important original role of serving the rest of the economy: helping companies to raise money, trade, insure themselves and invest wisely. As for the other City, the ‘big end of town’, as it came to be known in New Labour circles, it has cried wolf too many times for the warnings of disaster to be believed. It lied about its ability to manage risk, the necessity for light-touch regulation and the need to be free to pay its practitioners any money they asked for. It will, accordingly, get the regulation it deserves. If City professionals decide in consequence to depart for Hong Kong or the Channel Islands, it won’t be because someone else has driven them out. They’ll have done it to themselves.