Tuesday, 28 April 2009

Rename the unpalatable

You may foresee that decisions you choose to take (or have to take) will have both upsides and downsides. In fact they may be downright unpopular. You should do what you can to create a new language in which to describe your decision.

Suppose you are Chancellor of the Exchequer. You decide to increase the money supply. US economist Milton Friedman said it would be theoretically possible for governments to drop large amounts of cash out of helicopters for the public to pick up. Non-economists may talk of “turning on the printing press”. More obscure mechanisms may be used nowadays but they amount to the same thing.

You may be looking to make life easier for people to buy things, or bankers to lend, or exporters to export to get the economy moving. And you might be lucky – get it right. However, the downside risk is a currency devaluation that makes imports and foreign holidays more expensive, then leads later to inflation and higher taxes. Some people might remember these negative consequences when governments tried this before.

So don’t talk of increasing the money supply. Don’t mention devaluation or inflation. Use a new and more positive-sounding language. Say “quantitative easing”.

And then add that there is no alternative - even if there is one (which there always is).

Tuesday, 21 April 2009

Move back office functions out of sight

“Belief in targets, incentives and inspection; belief in economies of scale and shared back-office services... these are all wrong-headed ideas and yet they have underpinned this government's attempts to reform the public sector.” (Ref.)

Top managers don’t want be bothered with back-offices. So on the up, you’ll need to demonstrate you are actively managing back office functions. Consolidate support units into one. Subcontract support services. And move them all to a remote location if you can.

These initiatives may turn out be expensive failures; they may damage customer service and destroy customer confidence (consider your own experience of call centres); but top managers find these proposals irresistible.

Ref. “Systems Thinking in the Public Sector: the failure of the reform regime... and a manifesto for a better way” John Seddon. (2008)

Close your ears to challenges

“John Spivey (letter Apr 8) suggests that in today's public service bureaucracy, managers are chosen for their ability to filter out bad news. As chairman of a medical Royal College committee a few years ago, it was on occasion my job to meet officials from the Dept of Health to discuss the latest political gimmick. On attempting to acquaint them with the realities of medical life, I was often told, 'I can’t tell my minister that - he wouldn’t want to hear it'.” (Letter to The Times 9th April 2009)

Once you have gambled, once you have proposed an idea, prematurely, with a view to increasing your personal visibility or some other priority - close your ears to contrary ideas. Do not test your proposal is robust before going too far with it. That would merely increase the chance that your wisdom will be questioned.

The higher your position, the more you can gamble

“The bankers’ bonus system has given a huge upside to people who gamble, with no downside for them if their gambles fail.” Edited from remarks made by the Bank of England boss Mervyn King on BBC radio Feb 2009.

As you move up the management hierarchy, the laws of chance play a bigger part. On each promotion you must make bigger decisions, but collecting all the relevant information grows harder and/or you get less inclined to do it.

Perhaps the data you need is uncollectable, perhaps it is unknowable. Perhaps your information systems are inadequate. Perhaps you are a gambler by nature, you have no inclination to collect data or analyse the data you are given.

The higher the manager, the harder it is to challenge their decision, and (in the private sector) the less likely people will question it. The more senior you are, the more money you earn, the more people assume you know what you are doing.

Also, the closer you get to board level, the more you will be surrounded by other gamblers sympathetic to an informal management style. They will give you licence to take bigger gambles, to take bigger decisions with less evidence.

For all these reasons, promotion tends to require and reinforce a willingness to take bigger risks, make bigger gambles. This self-reinforcing spiral reaches its peak at the point where top level managers (like James Crosby) make near random decisions.

The inevitable result is that a large organisation tends to gather a pool of directors who are paid a lot for making under-researched decisions.

“There’s no science behind it. It is simply my judgement that I thought the figure was an appropriate one.” The Chancellor of the Exchequer Alistair Darling explaining how he decided to impose a new 50% tax rate on those who earn over £150,000. April 29th 2009

Admitting the 50% tax rate was a gamble, not backed by analysis of its effect on tax revenue is remarkable. Alistair Darling deserves credit for his honesty.

Note however that decisions that are random in their capacity to deliver return on investment are far from random in other ways – since directors are intelligent people who have their own goals and are skilful at achieving those. Alistair Darling surely had in mind grabbing a headline that would boost his party’s appeal to low-paid voters.

Delegate governance to a quality management function

The way people make decisions at lower levels is deeply affected by the culture that cascades from the top level - by what questions are asked and what questions are not asked. The failure of Jacque Santer to set the right tone at the top of the European Commission led to his fall from grace.

You are responsible for the actions/decisions you are authorised to do/take yourself. You are accountable for the actions/decisions done/taken by your delegates. So, you are not directly responsible for a fraudulent procurement made by your subordinate, but you are accountable. That means you are responsible for ensuring the subordinate is governed by reasonable process of supervision. You become responsible if the supervision process is too thin or if you fail to react to information that process gives you.

Frankly, the principle of accountability is a huge drag on the entrapaneur, on the gambling manager. How can you be sure that your reign at the top is not brought to an end by an irresponsible subordinate? Does accountability really mean you have to supervise what your subordinates are doing?

There is a way out. Separate governance from management. Employ quality managers who are responsible for the processes that monitor and control your subordinates’ decisions and actions. But make sure they are not so competent that they are effective, and report things to you. So when things go wrong, you can blame the failure of your quality management organisation. Then show your bravery by calling for an 'audit' - that's what proper managers do isn’t it?

Delegate dodgy work

“I take full responsibility for what happened. That's why the person who was responsible went immediately." Gordon Brown (16 April 2009)

Leaving aside whether Gordon Brown grasps what taking responsibility means, the obvious point here is that as a top manager, you will delegate the riskiest, dodgiest and dirtiest work. Then maintain sufficient distance to avoid blame for what your delegate does.

And when things go wrong, it is better for your delegate to resign rather than be dismissed, since this will demonstrate the high standards of behaviour in your organisation.