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Bonfire of the quangos is damp squib say MPs

I read a report in the British Newspaper the Telegraph about the abolishing of some  192 public bodies, including the Film Council, the Audit Commission and the Human Fertilisation and Embryology Authority.Unveiling the plans in October, Francis Maude, the Cabinet Office minister, had told the house of commons that the aim was to restore accountability to large swathes of Government and as a side benefit save some money!

Now however MPs on the Public Administration select committee said much lauded “Bonfire of the Quangos” had been poorly run and that “it won’t deliver significant cost savings or improved accountability”. The cross-party committee suggested that the Tory pre-election promises about cutting “costly bureaucracy” of quangos was responsible for creating a falses expectation of high savings.

Seems to me that the commitee is missing the point although it may be possible to acheive some savings by getting rid of some of these bureacrats the main point is to get rid of these unaccountable job’s worths who do nothing more than provide a level of oppressive control  and provide jobs for political has beens and quangocrats. What is needed is to avoid the setting up of organisations that in many respects act as buffers between those who are ruled and the politicians. Those who set policy should be directly responsible and accountable for the implementation and not be able to fall back on blaming a quango to avoid any due blame for their own incompetence.

Bonfire of the quangos is damp squib, MPs say – Telegraph.

Why burden students with more debt?

Industry Leaders and Conservatives contemplate commercial rates for student loans

I was a little annoyed by the recent call by the industry leaders and the Conservative policy of selling the student loan book which will mean in practice students paying the equivalent of a commercial rate of interest for their loans at University. Currently the rate of interest for a student loan is set at around the rate of inflation – so assuming inflation gets back to a more normal rate over the next few years the long term loan rate will settle at around 3 to 5%. Although this seems high it is the cheapest way to borrow money to pay for a course and in effect a student will be paying back at purchase power parity. The value of the money paid back is at the same purchase value at the money drawn now.

Actually the interest rate due on loans fell to a negative number – 0.4% recently so at least in theory the principal was being reduced but the government fixed the minimum rate at 0% which sounds great but means that in these deflationary times the loan principle remains fixed and not reduced in line with the notional purchasing power.

One of the justifications for the student loan system was that graduates over a working lifetime would earn substantially more in salary – currently this is being mooted at around £100,000 over a non graduate. This looks like a substantial figure but when the time value of money is taken into account it seems not so much of a justification and when commercial loan rates are taken into account even less so.

The value of money depends upon its timing – money in the hand now is worth much more than money in 20 years time. Over time the value of money is reduced by inflation or by interest charges. For example a shopping basket in twenty years may cost around £45 more on a hundred pound basket of goods just to account for a 4% annual inflation over the time. This means that a £145 basket of goods can be valued at £100 at today’s prices. Similarly higher salaries are spread over the working lifetime and extra cash as a result of your degree can appear in twenty or thirty years time and be worth much less in today’s terms than you might expect.

Lets assume a student loan of £20,000 at the end of a course and treat this as an investment to achieve extra cash flow over a non graduate person each year over a forty year period of £2500 (£100,000 divided by 40). On a discounted cash flow of this money stream at 4% interest the breakeven is some 13 years away and the total value of the £100,000 at today’s prices is about £45,000. In other words for the loan of £20,000 it is paid back and you make £25,000 return on your investment over someone who did not bother. Behind these sorts of figures is the sad fact that most graduates will end up in jobs that pay no more than a non-graduate and will thus never get the return.

The situation is worse if we go along with the hare-brained idea to charge students a commercial loan rate currently at 8%. If we assume a 10% average interest rate over the forty years we are talking about breaking even on the investment in 25 years and the value of our £100,000 coming down to £20,000 at today’s prices. This sort of benefit is so far down the line that in investment terms in a business such a proposal would be thrown out.

We often are taken in by large sounding numbers that materialise years away (remember the endowment fiasco) and forget to account for the timing of the investment or the probability that we can cannot achieve it per se. Most graduates will have rather routine jobs that a generation ago were handled by A level high school leavers and the rewards for others may be years away whilst they find their feet. Training graduates is a long term investment for this country in ‘its’ intellectual capital and should be treated as something that will benefit society as a whole and help us stop or even reverse the long term decline in our global position as a trading nation. University education should be available to those who can do it in a grant maintained format without burdening young people with debts that take years to pay off in exchange for dubious long term benefits.

Can risk be reduced by sourcing from multiple suppliers offshore?

Multi-Shoring – can risk be reduced by sourcing from multiple suppliers?

Although the reality is very different a recent article in computer weekly (a UK based IT Magazine) suggested that companies are being more flexible and attempting to spread the risk by outsourcing to different suppliers in different countries. As Leslie Wilcox of the LSE suggested the process looks like ‘spread betting’. Although this was a nice idea at least in print the practice of doing this for real is proving more difficult as the basis of off-shoring is often to move low value commodity call-centric services to locations where the language matches that of the home country. Accordingly much of the UK based off-shore market has naturally gravitated to India where a large number of skilled, low paid and disciplined people are available to man the phones. The Indian subcontinent turns out twenty to thirty thousand IT graduates a year for example and as a corollary of their degree course often speak English to a high standard. Another factor that causes management heartache with multi-shoring is the problems of managing several off-shore suppliers – its bad enough with one as the practice has shown.

Although innovation is appearing as more important at least in surveys when deciding on outsourcing the main attraction for off-shoring still remains labour arbitrage – i.e. cheaper wages. However in India of late they have been ‘enjoying’ 25% wage inflation in the outsource industry as highly skilled graduates are demanding better salaries – furthermore the attrition rate is extremely high and it seems that graduates do not relish a long term ‘career’ in a call-centre but treat the job as a stepping stone into the world of work. It is these factors (rather than risk reduction) which is causing companies to explore the world more carefully looking for the next low wage spot. Unfortunately there are not many options and talk of using Malta, Singapore are fanciful and only really in the margins, and Russia and China have immense language barriers to overcome before they can be considered

Another remark was made in the article that rather than always going down the low cost route ‘companies are asking for more innovation’ from their suppliers – this is not borne out by any evidence of course and is not clear what is meant by innovation but there is something useful in this comment. That’s the idea is that outsource providers can take up the proposition of innovation and actively improve their service, be more efficient, deliver in more up to date means, whilst constantly improving the cost base. In my view you can have innovation and cost improvement at the same time and suppliers rather than resting on their laurels after the deal is closed should from day one start to improve the service and pass on a fair part of this to the customer. Can you imagine what it would be like to be a customer of such an outsource provider? Working to improve their part of your business to make it more efficient and effective whilst reducing your bill year-on-year – rather than the account manager just turning up once a month to make sure you pay the bill and renew the contract! If suppliers did this they would probably have continuous rights to the business and be invulnerable to critique and outsourcing would look something more like a real partnership based on performance rather than just a mechanism gaining access to the market without much risk.

Royston

see more of my posts on the Bizface Forum

Forced Change in an Outsourcing – guidelines for communicating to reduce resistance

Forced Change in an Outsourcing

Change Managers in an Outsource often assume that if the rationale for change is made clear to the people affected then change management is unproblematic and resistance negligible. People assume that if we rationally explain to the employees affected they will ‘buy-in’ to the process and thereafter work actively to realise the change or at least moderate their resistance to it. There is a assumption behind all this that changes are negotiated and developed over time and that the change agent’s task is but to make clear the imperatives and the people fall into place – communication mechanisms (usually Slide-Ware) are the main carriers of this type of intervention.

Whilst this approach has been roundly criticised for ignoring political and social aspects it is also more and more disturbed in major system changes. In outsourcing or mergers and acquisitions we are often faced with transitioning organisations within a strict deadline. Here the degrees of freedom are limited and failure to successfully implement can result in stiff penalties for time and cost overruns. In such circumstances our room for ‘negotiation’ is constrained as the change outcome is a given and the people affected are faced with a forced change.

Of interest to us as managers and consultants in such circumstances is how we support the change in particular minimising the business risk, defusing change resistance and avoiding long term damage to the organisation.

Forced change against a strict deadline is the reality and we also see that the complexity in a major change is increasing as many major programmes consist of several big initiatives in their own right. In one major change programme I worked on the client was disentangling from a parent company, implementing major systems changes, whilst outsourcing a part of the operational IT. All of these forcing substantial changes in role and responsibility right across the organisation and this programme also included the outsourcing of substantial parts of the finance function in a phase two.

Don’t forget Managers are affected by an Outsource as well…

At a management level change of status assumes high importance with any perceived loss in autonomy or the need to acquire new skills key aspects to consider. In another change programme the author was involved in the financial controller had a significant change in scope as a result of a system implementation and outsourcing which included loss of staff from her department. This resulted in much prevarication and concentration on detail, non-acceptance of the rational for change and question/problem raising that came over to the central project team as structural resistance.

Also don’t assume managers know how to support their staff through change – because they often do not. Special training and development is necessary. Also be sure that the management has bought in, in one case the stiffest resistance came from the team leader whose scepticism fed the resistance of the whole team being outsourced.

Three Key points in managing change communication

  • Relevant – We all know the value of clear communication but forget to caveat this with the need for relevancy. Exhortations of the value of the change at high level are useless unless made clearly relevant to the people affected. Unless the communication is explicitly tailored to the hearer’s specific needs general broadcasts will be discounted and perceived negatively.
  • Clear – Avoid the ‘Englishman on Holiday’ change communications approach – i.e. if they don’t understand speak slowly and louder! At a feedback meeting on the situation at a French manufacturing plant the consultants gave a withering overview of the impact of the various initiatives, changes and improvement programmes a major high technology company was imposing on the factory. The response to this from the company – “the management have not explained this clearly enough therefore ‘they’ do not understand it” – obviously they did not get the message either!.
  • Segmented – People in change need focused information – how does this new system affect me? Will I still have a job? Will I be able to cope – will they train me? This means communications must be relevant, focused and bespoke aimed at a segmented audience – don’t treat people as the same with the same vanilla information requirements.

Some interventions I have used

  • Local briefings at department or group level to strengthen team feelings of unity and develop focus on the task in hand.
  • Cutover process – form well managed meetings to act as resolution and solution forum to build for the change-over.
  • Tighter linkage to the change-over particularly for the management to expose the organisation to the task in hand and encounter change.
  • Activate processes to resolve/close personnel issues — close these issues managers often have difficulty in handling these.
  • Mentoring management to actively participate and lead change
  • Visible presence of change manager to emphasise the company’s commitment to making the change over
  • Reflect listen but not judge issues — allow self-reflection.
  • Ensure deployment communications is done (Watch for gate-keeping in one project when I checked the communications had got no further that the secretary)
  • Provide recognition of any process improvements ideas and try to push upwards any ideas the team has.
  • Recognise that resistance is a legitimate concern for the well-being of the business.
  • Ensure communication channels are open and deployed (again this is sometimes not done).
  • Hire a consultant to act as change focus (reflecting with support but not judging)
  • Tighter engagement of the organisation into the change process — they will switch to solve mode.

As an endnote — Know the limitations of rationally based change methods and avoid broadcast communication. Target and segment communications at the various groups in an organisation and you will be much more successful and managing communicating even bad news. When we design a marketing communications approach we segment our audience and focus messages at specific target groups – this is a lesson we could use within change management.

Royston

Involve people in change to reduce the resistance

Involve people in the change to reduce the resistance

Forced change against a strict deadline is now the reality for most changes and what we see more and more is that the complexity of change is increasing and many major programmes consist of several in their own right substantial change tasks.

In one of my jobs I had to advise a major European unit of a global company which had particular change issues that made their changeover within a global project have high perceived business risk. This unit for example had already gone through several changes of ownership in their recent past and was again heavily impacted by the new global program. Our first step was to understand how the change impacted on the group in some detail – on the departments and individuals within the business. Change needed to be thought ‘through’ not ‘about’ and the changes in role and tasks were worked through at a detailed level of granularity – and how these would change as the global project proceeded.

The intervention strategy we considered was based around thinking through what the ‘changed’ organisation’ would look like when the dust had settled. The patterns of communication, the new roles and responsibilities and the impact on individual tasks were considered and what the steps would look like to bridge the gap from the current situation to the future. We worked backwards from the desired state and forwards from the current to meet in the middle! This defined inter alia the changes in role and task, and the necessary training and coaching for the individuals. The transition was trickier, and this was handled by facilitating the transition cutover planning at group level. This acted to involve the organisation in the changeover (it’s on ‘its’ way!) and confronted them with the change and engaged them in participating in the design of the whole process. Getting them to define in detail their future roles and tasks as well as the timings were key aspects of this intervention. Further, interviews and group meetings around the changeover period itself allowed ‘voice’ to be given and concerns and issues to be fully surfaced.

Key learning points

Do not interpret all resistance as opposition to change. Opposition can often be a sign of interest in the outcome and an expression of legitimate concern Capture the concerns and rationale. It may be that someone has identified a flaw in our reasoning and may have identified a route to possible failure, perhaps from the last time this occurred. To find out why it did not work last time may reveal some interesting lessons. However, be cautious about agreeing with an issue as this may be interpreted as a sign that the change can be negotiated – capture without judgement.

The assumption that all employees will go through the same cycle of resistance is false and too simplistic. Often there are winners in a change process. Identify these and build coalitions to build a success culture. Furthermore, some departments or groups of people are more successful or more robust with handling change than others. Building on these departments within an organisation help bring the whole organisation along

We all know the value of clear communication but forget to include the need for relevant clear communication. Exhortations of the value of the change at high level are useless unless made clearly relevant to the people affected by the change. Unless the communication is made explicitly relevant to the employees specific needs they will switch off and ignore you.

Royston