Sterling Performance

We’re expecting a recession, you know. John Lewis has reported low figures for three consecutive months — practically the definition of a recession.

At last, someone has bothered to ask: why are oil prices so high? But peak oil concerns quickly gave way to water worries as GE pledged to cut its consumption by one-fifth.

Then an OECD report on the cost of food prompted Newsnight to ask Jonathon Porritt whether it was time to tackle the ‘taboo’ subject of overpopulation. Green blog the Good Life defends his stance today. Lunartalks does not. (But swearily.)

The airlines continued to make the business of travel wholly unpleasant. Higher fares have been promised and US carriers have begun charging for check-in bags. Next: pay-as-you-go travel. One man’s obstacle is another’s opportunity in the world of enterprise. Please save Silverjet, someone.

Comings and goings

Arun Sarin bowed out on a high, leaving Vodafone in solid shape for successor Vittorio Colao. Next stop, Tata?

CEO departures were also big over at Booz & Co — where a big piece of research revealed how few bosses were being sacked for poor performance.

Instead, the buck stopped with middle managers at SocGen, despite shareholder disgust: “You’re putting the employee into prison when it was the bosses who should have left. And your second failure was to turn our bank into a casino.”

Jeff Randall’s ready with the P45s, though: BAA — you’re fired.

Rock & roll jeweller Theo Fennell has stepped down as head of his AIM-listed business. He’ll continue to design collections for Theo Fennell as a consultant, but his ‘private pieces’ will have to be completed under another name.

And the other Stone of the day, Sharon, has ‘done a Ratner‘ and lost a lucrative branding contract with Dior.

State the obvious award today goes to shadow chancellor George Osborne, who says the Bank of England needs more City expertise. “I believe it is critical that we have someone with a real understanding of the City in this important job in the Bank.”

And happy 10th birthday to the euro. If there’s a party, Russia will eat all the cake.

Not that we can afford cake…

Some silver linings

• It’s about time house-prices came down to earth, says Larry Elliott.
• Government might start practising some financial housekeeping, suggests Hamish McRae.
• We’ll become more innovative in our search for alternative energy. (Possibly a bad thing: Prime Minister Brown’s talk of investing more in nuclear power plants is not what we had in mind.)
• Soaring vegetable oil prices will make fried food a luxury. The NHS will be unburdened.
• Europe’s exorbitant costs will cause a mass outbreak of schadenfreude.
• Entrepreneurs will find a way to capitalise on present difficulties. (The latest: can’t sell your house? Get a stylist to ‘dress’ it.)

It’s only when you run out of water that you realise how vital it is, observes Rupert Wright in ‘Take Me to the Source’. His book — along with ‘Water: the Final Resource’, by Robin Griffiths and William Houston — suggests we should be just as concerned about access to water as we are about oil.

Now smart (and pessimistic) investors, perhaps noting Barcelona’s water crisis last week, are tipping the clear stuff as the next liquid gold.

After all, it takes 2,866 gallons of water just to make a pair of jeans, says Big Picture — which also predicts great swathes of the oil-rich Middle East, Africa and Asia will be seriously dry by 2020.

Greece, Libya, Russia, and Mali top the per-capita use table, but overall, it’s Asia that swallows 50 per cent of the world’s water supply.

Forward-thinking business GE has already taken note. It plans to cut water consumption by 20 per cent — that’s 3,000 Olympic swimming pools — using its own recycling products.

It’s also demonstrating water’s earning potential. Under its ‘Ecoimagination’ initiative, it has already done so well on sales of environmental products, including water treatment and filtration technology, that it’s upped its 2010 target to $25bn.

Liquid assets, indeed.

Image by Snap CC2.0.

If author Jim Champy’s 1994 ‘Re-engineering the Corporation‘ was a manifesto for change in 1994, his series of new titles, starting with ‘Outsmart!‘, offers a glimpse into a new and promising future for business.

“Outsmarting the competition requires more than intelligence, experience and business sense,” he writes. “You also have to be quick, flexible and ready to adapt to the transforming world. The penalty for failure is Darwinian extinction, but the prize for success is survival, growth and rich rewards of a life spent in the brave new world of business.”

I ask him about re-engineering’s poor image and how it’s being revitalised to fit this brave new world.

You’re famous for re-engineering, but it now has negative connotations. Do you have any regrets about the book?
I have no regrets. People who see re-engineering as something negative don’t understand it. It’s misunderstood and mis-practised. It’s about making the company more capable again.

There are some very difficult to accept consequences of rearranging your work. Unless your company is growing, so that you can actually add people as it grows, there’s no question that it will downsize.

It’s associated with the 1990s recession and rash decision-making…
That’s the danger. It isn’t about the ‘bunker mentality’, it’s about reorganising your business so it’s more efficient.

There was a great quote from the last recession: ‘You can’t shrink yourself to greatness’.

People develop that bunker mentality, particularly in this type of economy. And it leads to a form of shrinking, where a company loses its capabilities and struggles to compete.

How do the case studies in ‘Outsmart!’ sit with re-engineering?
At Smith & Wesson, the president, Michael Golden, initially made some cutbacks, but because he got the company growing again, he was able to add staff.

I toured a Smith & Wesson plant and it was truly an inspiring experience.

All along the line, people were doing real re-engineering work — they were very engaged in perfecting the processes in order to produce more units every day. They were really proud of it.

Nobody there was fearful of losing their job, because they were getting more efficient and business was growing.

Next: Thriving in even the toughest markets.

For Jim Champy on ‘Outsmart!’, click here.

Is five years enough time to turn around a business? Because that’s all the time most CEOs will be given, according to Booz & Co figures on the average tenure of chief executives worldwide.

IDC’s research director of consumer mobile, John Delaney, notes that this was enough time for outgoing Vodafone chief executive Arun Sarin to execute a tricky, but ultimately successful acquisition.

But it was, admits Delaney, a ‘bumpy ride’ that tested shareholders’ patience and nearly cost Sarin his job.

The Booz & Co report also claims that CEOs are rarely sacked for poor performance, which raises many questions — most obviously, how are they getting away with it?

If shareholders and analysts are so fixated on short-term returns, why are so many sloppy performers slipping under the radar? Or is short-termism at the heart of their poor performance?

In a bid to deliver just enough to keep shareholders off their backs, are CEOs sacrificing radical, long-term change strategies for small, immediate wins?

It takes years to turn around a company or make signficant changes: just ask John Timpson, whose ‘upside down management‘ took years to implement across his chain of stores. The reason Timpson could do it? It’s his own business and not subject to the pressures of City analysts or shareholders.

Is this the problem? Business guru Jim Champy is in no doubt: real change takes years, which means publicly listed companies are at a ’significant disadvantage’ because investors don’t trust management.

If true, few CEOs of major organisations are gaining experience in change management — making for a serious skills shortage in the not-too-distant future. Maybe it’s already here. Little wonder boards avoid sacking CEOs, if they know they won’t find another — or don’t really trust them in the first place.

Or perhaps it’s an expectation gap. Is it possible shareholders are too quick to judge (or that boards are unclear in setting targets)? Sarin’s survival would indicate so. And so would the parable of ‘royal rat-catcher’ Rentokil Initial.

In April 2005, Doug Flynn took up the post of chief executive at Rentokil. By March 2008, he’d been sacked in a ‘night of the long knives’-style coup. (He also got a £1.2m pay off, so don’t feel too sorry for him.) The company’s turnaround now hangs on three ex-ICI executives with a five-year plan.

But they weren’t Rentokil’s initial choice of saviour. That was Clive Thompson — ousted by the board in 2004 amid accusations of short-termism.

Arun Sarin’s exit from Vodafone has caused a flurry of retrospectives, many looking back in wonder at his near-dismissal just two years ago.

It all turned out for the best, but if Sarin had been booted out for underperformance he would’ve been an exception, according to the latest research from Booz & Company.

Its study of 2,500 companies over 10 years finds little correlation between a CEO’s job security and the company’s performance.

While European CEO churn is ’significantly higher’ at 17.6 per cent than that of North America (15.2 per cent), the average rate for CEO dismissal for poor performance was only 2.1 per cent over a decade.

Bosses at underperforming businesses faced only a 5.7 per cent chance of being fired overall, even if forced dismissals in 2007 were 4.2 per cent — higher than the 1990s average.

Pressure is clearly increasing on CEOs to deliver — and quickly. Europe’s CEOs average seven years in the role, while in the UK it’s just 5.9. The Combined Code on corporate goverance means Europe’s bosses are also more likely to be ousted in a boardroom coup: between 1997 and 2007, 37 per cent of all European successions were forced, compared to 27 per cent in North America

Most vulnerable are the bosses in IT, telcos and financial services, making Sarin’s smooth departure — and, to a lesser extent, that of BT’s Ben Verwaayen — something of a rarity.

There are already calls for boards to get tough when it comes to pay and performance. One-quarter of the FTSE 100’s companies are underperforming, according to the Telegraph. But will remuneration committees start connecting the dots?

Or is there such a dearth of able business leaders that a poorly-performing CEO is better than none at all?

Other findings:

• CEO turnover is down from 14.3 per cent in 2006 to 13.8 per cent in 2007 — a result of lower M&A activity, which tends to force departures.
• US CEOs have a longer average tenure than European counterparts — 8.3 years in 2007 to Europe’s 7 years.
• The most secure industries for CEOs are energy (5.8 per cent churn) and industrials (8.8 per cent).
• The rate of planned successions in 2007 was 6.8 per cent.
• In the UK, externally appointed CEOs leaving in 2007 delivered a ’significantly worse’ performance than insiders (-11 per cent compared to 2.5 per cent).
• CEOs who are also chairmen are more secure (stand up, Stuart Rose). But only 16.5 per cent of departing European CEOs held both titles in 2007, compared to 75 per cent in North America.

‘CEO Succession 2007: The Performance Paradox’ will be published in the summer edition of ’strategy+business’.

Forget the business school rankings. Choosing a course is as easy as turning on the telly for aspiring students glued to the ‘job interview from hell’ that is TV’s ‘The Apprentice‘.

Aston University claims to have been inundated with enquiries about its BSc in Management and Strategy (MAS) course thanks to the presence of likeable Aston MAS grad Alex Wotherspoon.

One applicant, rather worringly, was said to have cited ‘The Apprentice’ as her reason for choosing the course. Overall, the number of students making it their first choice is up 150 per cent, according to the university.

It’s not all down to the ‘The Apprentice’, says Dr Helen Higson, associate dean of undergraduate studies and pro-vice chancellor for international relations. Even so, it’s a turn up for those who criticised the show a couple of years ago.

Detractors include NESTA chief and ex-Apax chief of staff Jonathan Kestenbaum, who took aim at the show’s portrayal of the workplace as a ruthless hornet’s nest. The late Sir John Harvey-Jones — whose ‘Troubleshooter’ series paved the way for business TV in Britain — disparaged Sir Alan Sugar’s ‘bullying’ tactics.

But defenders claim it has raised awareness of business among a younger generation and that it encourages debate about what it takes to be a good manager.

Sugar himself admits it’s a ‘one-way portrayal’ of his leadership style. But he believes it presents a realistic view of the corporate world.

Whether accurate or not, the show’s likely to have won another fan in Aston.

I wonder if Michael “I am an exceptional individual” Sophocles’s alma mater, Edinburgh, has enjoyed a similar spike in applications.

Does The Apprentice present a realistic picture of the UK workplace? Share your views below.

Jim Champy’s in an ebullient mood. The reason? His new book, ‘Outsmart!’, has reinvigorated his optimism about business. Made up almost entirely of case studies, it tracks the success strategies of a group of diverse and dynamic companies that all boast double or triple-digit growth rates over the past few years.

But they also had to have something special about them to make it into the book: “Many companies with high growth were just in the right place at the right time. Then there were those that stood out.”

What makes some companies stand out? I ask Champy in the first of a three-part interview starting below.

Why this book, now?
I didn’t want to write just another management book. There’s very little that is new in management to write.

I originally wrote ‘Reengineering the Corporation’ and I still believe in the need for companies fundamentally to change the way they operate. But in many ways re-engineering isn’t enough anymore. There are changes in the marketplace that require a new business model, something more complete.

You won’t find me using those terms — business model — in the book because I didn’t want to use jargon.

But it’s about what a company delivers to its customers and how it does it.

What inspired your choice of case studies?
There are a lot of businesses that are just different to those of 10 years ago. I wanted to look at how these were operating.

I was taken both by the nature of the initial idea for the business — new and fresh to me — and then how they implemented it.

What do they have in common?
I wasn’t looking for commonalities or a new business theory. I was looking for richness, variety.

The universal rules of business are very basic, fundamental stuff.

But there were commonalities in the way these companies behaved, which I try to sum up in the last chapter.

Several of the case studies involve turnarounds. Is this a coincidence?
Often, an entrepreneur comes up with the bright idea, but won’t have operating skills.

Either that founder will hand over to someone else or the business is taken away from them — or they have to go through multiple attempts at starting up.

There was a persistence about the people running these businesses — they kept going until they got it right.

Where did the entrepreneurs get their ideas?
Sadly, there’s no universal rule about where to find good ideas. But many came from a need the founder had — they all had some ‘pain’ that they wanted to address.

Panos Panay was an agent trying to match performers with promoters when he came up with Sonicbids. Becky Minard’s sick horse spurred her to start SmartPak.

Did you have a favourite story from your research?
If there was, it would have to be Sonicbids. It’s run by a guy — Panos — who’s incredibly enthusiastic, who is serving 120,000 performers who would have no other way to market. He’s created this whole infrastructure to support the work of these people. It’s genius, really.

My hope is that he can turn it into a business of great scale and success by extending the services he provides to those 120,000 people.

It’ll be interesting to see if this company can maintain its traction and find ways to reach the scale it could grow to.

Next: Champy defends re-engineering.

Photograph by Randal F. Vanderveer

UK skills are rarely out of the spotlight — ever since Tony Blair promised to prioritise “education, education, education”, the government’s done everything skills-related in triplicate, to the extent that it’s created a skills ‘quangocracy‘.

The UK Commission for Employment and Skills, chaired by BT’s Sir Michael Rake, aims to simplify matters and subsume other skills bodies, in line with the Leitch Review recommendations.

The good news for employers is that the best of the Sector Skills Councils look set to stay — if they pass muster. Meanwhile, the UKCES will set about improving the ‘employability’ skills of new recruits.

According to an Institute of Directors briefing, only 25 per cent of IoD members — board-level executives — feel young people are employment-ready.

Most are happy with new recruits’ technical skills, but 64 per cent say employability skills are more important.

These include the not-especially challenging ’skills’ of honesty and integrity, basic literacy, reliability, punctuality, numeracy and co-operation. Yet they are deteriorating, according to UKCES chief executive Chris Humphries.

Employers complain that young recruits have a bad attitude to work, they cannot communicate clearly, work in teams or get to work on time.

But some of their complaints are just daft. If a new recruit’s not wearing appropriate clothes, why not just lay down the law? How are newbies supposed to know that you never let the phone ring more than three times unless someone tells them? Given the skills shortages facing businesses, doling out a few tips on telephone manner to an otherwise qualified new starter is hardly a chore.

No-one hits the ground running. If employers want a particular type of work etiquette observed, they should explain the ground rules on the first day. Even better, draw up a simple policy. No matter what size your business, clear policies on the structural stuff — time-keeping, dress code, how to answer the phone — make life easier for everyone.

Gen Y may be re-shaping the workplace, but they are still ready to learn.

Charles Dunstone clearly understands that innovation — and disruption — is the route to ongoing success.

His sale of 50 per cent Carphone Warehouse’s retail business to US electronics retailing giant Best Buy is the latest in a series of bold moves by its founder and CEO — whose hero is said to be maverick entrepreneur Richard Branson.

A couple of years ago Carphone launched a “free” broadband offer to the market that led to horrendous customer and operational problems.

The initiative has paid off, but many CEOs would still be licking their wounds and ensuring nothing like that happened again.

Not so Dunstone — the Best Buy deal proves his focus is on growth and innovation rather than operational problem-solving.

The problem with problem-solving is that it can lead to insularity and incrementalism. It may work in a steady-state environment but it cannot help businesses in a non-linear world.

If you spend all your time and focus resolving current problems the risk is that you:

• Fail to identify important changes in your market
• Do not build the capabilities required to exploit these changes
• Lose out to new and more agile players

Where problem-solving takes a microscope to the organisation, innovation takes a telescope to the world. (more…)

Senior management redundancies have hit a seven-year high in Britain, according to the 2008 National Management Survey, published by the Chartered Management Institute and CELRE. Most likely for the chop are East Anglian execs (also the most loyal to employers, sadly), while lucky Eire employees are safest in their jobs.

Confusingly, pay levels are up too — perhaps because, despite redundancies, some employers are struggling to fill vacant roles. Junior executive earnings did best this year (a sure sign of a world upside down) with average increases of 5.4 per cent, while directors took home five per cent more and managers just 4.8 per cent more.

But employers are finding that throwing money at good people is only part of the solution. Despite average salary rises, the CMI report has also found resignations on the rise — at 6.5 per cent, the figure’s the highest for a decade.

Employers cite the top reasons for employees leaving as:

• Competition from other organisations or headhunting — 75 per cent
• Failure to provide career opportunities or development programmes — 48 per cent
• Frustrations with the working environment — 10 per cent
• Bureaucratic leadership styles — 8 per cent

Redundancy queries from estate agents and banks are flooding into employment consultancy Croner’s helpline, confirms helpline adviser Joanne Pitts. “I’m assuming it’s down to the credit crunch. It seems most companies turn to this automatically, instead of looking at the alternatives.”

She suggests some short-term fixes for companies under financial pressure. A temporary reduction in days/hours — or short-term layoff — may be enough to stave off losses in small businesses. You can do this for six weeks without consequences, according to Pitts. Encourage people, too, to use up their holidays so they are on hand to help during lean periods.