Archive for the ‘The board’ Category

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Privatisation – good for productivity?

In Productivity culture,Public sector,The board,The workforce,UK productivity on February 28, 2011 by Tim Aikens

There has been a lot of press recently about rises in water prices.  One of the Thatcher era’s ‘big successes’ was the privatisation of utilities – water, gas, electricity and telecommunications.  Of these water is the only one to have maintained a monopoly.  Water prices for the average household have gone up in real terms by about 45%  since 1989 (source; Ofwat).  Leakage is till at some 19% of supply!  Compared to the price of many other things, water has become increasingly expensive and yet the commodity has changed little as far as I can taste! (note I am talking about the cost of water, not sewage or drainage)

So is this a case of privatisation not working or are the water companies simply catching up after decades of underinvestment?  OR – does their monopoly position allow them to get away with inherently poor performance despite the existence of Ofwat?  This is not going to be a rant about privatisation or Margaret Thatcher, but simply to ask the question is privatisation necessarily good for productivity and the objective of delivering More for Less?  Another privatised utility that has had problems is Railtrack – the privatised organisation set up to manage the UK’s rail infrastructure.  Network Rail was set up to take over the remnant of Railtrack after it’s failure.  Network Rail is now desperate to introduce large efficiencies in its business.

There are some interesting similarities.  Two utility organisations, set up as private businesses yet not delivering real cost efficiencies.  They are both monopolies.  You have no choice over who provides your water and the train operating companies have no choice over who supplies track and services!  Despite government regulation neither have delivered. There are other similarities. Both have long thin infrastructure (pipes and rail tracks) with points of focus (waterworks and stations).  Both have a legacy of underinvestment.  Both like to think they have delivered a lot – but my water tastes no different and the journey time to my home town of Norwich is little different than it was in 1960!

I have talked in the past of a ‘productivity culture’.  Post privatisation, both management and the workforce stayed essentially the same.  If the people don’t change (either physically or emotionally) the culture won’t change.  If processes don’t change the outcomes won’t either.  Network Rail is being forced by budget cuts to deliver some big efficiencies.  This is an external driver acting on the organisation.  No such driver exists within water (Ofwat seems to rule with a very gentle hand).

The obvious conclusion that privatisation to a monopoly delivers little benefit will be of no surprise to students of economics .  The problem is that they can reap the benefits of a PLC and still behave like a public utility!  Things need to be the other way around,  perform like a PLC, but have the constraints of a public utility.

So what to do?  All the usual suspects come to mind:

  • have a formal and real focus on productivity (with clear, stretching, targets and objectives)
  • change the people or change the people (be both committed and ruthless)
  • processes will need to change and innovation will be vital (difficult without the previous two)
  • without real leadership in the area of productivity little will change!

Network Rail have a lot to do.  The driver for them is financial stricture.  It remains to be seen if their management and workforce can deliver.  The utilities don’t need to worry unless Ofwat really decides to use its teeth.  As well as measuring all the good stuff on water quality and availability, Ofwat needs to get back to basics.  What is the cost of a unit of water and just how efficiently is it being delivered?

Articles

Productivity starts at the top

In The board,UK productivity,Uncategorized on March 18, 2010 by Tim Aikens

I’ve mentioned the need to have productivity as a board issue and discussed why many boards of directors just don’t either get ‘it’ or in many cases don’t even go there.  How can we start to get the boards of UK plc thinking of productivity on a daily basis as a vital issue?  In a business context a successful business needs to have the right product in the right market at the right price.  But beyond that, a key element for long-term profitability will be productivity.  Someone will always come along (eventually) and make the same item  – or deliver the same service for less.  Not just  by migration of services to countries like India because unit wages are lower, but simply because the hourly output is so much higher.  The US for example has higher average hourly wages than the UK in many of not all areas, but still manages to produce goods and services more cheaply.

So, for the board directors out there here are the top three things you need to do as a start in terms of getting productivity on the agenda:

1. Have productivity as an agenda item on every board meeting from now on.
2. Make one of the directors responsible and accountable for productivity.
3. Make 25% of performance related pay dependent on productivity in ALL areas of the business, not just production.

Just doing this will begin to focus minds on the key productivity issues (especially the last one)

Of course, the productivity revolution does not have to wait for the board. Every one else can take the lead (but understand that state of mind – ‘why should I bother when the bosses don’t care?!’  There are lots of things that everyone else can start to think about and do:

1.  Managers set yourselves and informal target.  How can we do – whatever it is, better, faster, cheaper etc.
2.  Challenge those above you to seek improvements in how things are done.  Ask the big question WHY!
3.  Challenge everything.  Why this way, how can we do this differently, we’ve been doing this for years – is there a better way?

A wonderful example I saw on the net the other day. A UK firm who lays large concrete slabs for roads or runways. Once the concrete is set, you need to seal the gap with bitumen. The old way – man with bucket of hot bitumen, pouring a stream carefully by hand, often missing the crack, with lots of wastage and time spent refilling the bucket. The new way –  a man with a piece of kit on wheels, including an insulated bucket, hose and trigger system to inject just the right amount of bitumen into the gap, faster and virtually no waste.  How many more opportunities are there like this?

Lets have some comments on good examples of productive change!

Articles

What are the Directors doing

In The board,UK productivity on March 10, 2010 by Tim Aikens

Company directors have reached the top of their career. For them this is often the result of many years of hard work and not a little talent. Yet when they get to the top what is their interest in raising productivity?  In manufacturing it would seem that it is quite significant, yet in other areas – service, supplies, public sector (yes they do have a lot of ‘Directors’) it would seem that their interest is small or at least ineffective (see earlier posts). I often wonder why this is so. To me, if we do not continually raise productivity, businesses will fail – and have been doing so for many years – only the fittest – i.e. the most productive survive. So why is productivity ignored?

One reason why I think directors’ minds are off the scent is that they are beset by short-term problems.  Not least of which is the need to demonstrate that performance has improved since the last quarter.  If  the stock market is watching their performance, and profits fall, the share price falls and they become a takeover target. If it sounds simple – it is.  Many directors lose a lot of sleep – and hair over whether the next quarter’s results will be good enough.  How can they plan for a long-term, more efficient future if they have to sacrifice everything at the altar of short-term results?

But this is not the case in the public sector, or is it?  the last government has introduced so much measurement so many performance measures that senior mangers live or die by them. Their objective is to ‘hit targets’ and not to be more effective.  The phrase ‘rewarding people for the wrong behaviours’ springs to mind (and I will write ore about that in a later blog).

So – how do we get senior management to think more about productivity and really do something? What do you think?

In the public sector I believe we need a complete overhaul of the target mentality that currently exists and to bring back some common sense – as well as letting managers take a long-term view.  In the private sector directors need to stand up to the stock market and show that long-term performance is more important than a one time improvement (as many companies such as Exxon Mobil do year on year). Institutional investors need to take a longer term view themselves and press to get productivity on the boardroom agenda as one of the top issues, rather than press for incremental improvements in quarterly results.

Let’s have your comments and get this topic onto the political and boardroom agendas!!