Category Archives: Business

As one old colleague put it – I’ll help you if you help me – the essence of business

Austerity – myth or reality

Just read an article by Mark Serwotka, general secretary of the Public and Commercial Services Union, that has prompted this quick response – would like to have done it through twitter but I need more than 140ch to get it off my chest.

Now I must admit I went into this full of optimism that someone was finally set to expose the austerity story. The article at http://bit.ly/TYXXNJ starts quite well – but then it tails off into a whole pile of populist drivel. The sort of garbage that raises a loud cheer amongst the troops, but does nothing to show us the light.

The situation in the UK is fairly straightforward. We have an enormous debt of around £1.3tn (excluding a public pension deficit that would probably dwarf that figure) that continues to grow at an alarming rate. All we hear in the news is about reducing the budget deficit – which means we’re not reducing the debt at all, just reducing the rate at which is grows. I’d say that’s cause for concern not just for this generation but all those with the unpleasant task of following us and sorting out our mess.

So let’s be clear Mark about your statement, “But is there really less money around? Of course not. Our economy is still one of the largest in the world and some people are still doing very nicely, thank you very much”. What you fail to observe is that technically we are bust – if we were a business or an individual we would be declared bankrupt. The only money that is around comes from increasing the debt which a business or individual would not be allowed to do. I’m one of those old-fashioned types who believes if you can’t afford it, you can’t have it, but clearly when you refer to money your views are more “I want it, therefore it is my right to have it”.

What saves us is the fact that many other countries are in the same boat and one country will not call the loans on another because it would spark a meltdown that would put 2008 into the “nice to have” category. Fortunately, we have the luxury compared to some of being able to set our own interest rates. The Bank of England decided that low-interest rates were the order of the day – again only possible because everyone else was doing it. There were several reasons for that decision and one in particular related to our very high levels of household debt (which last year stood at around £28k for every single adult in this country) – and the absolute need to prevent a housing crisis similar to that seen in the US with sub-prime.

So prior to the 2008 financial crisis, we had interest rates running at around 5% and they are now at 0.5%. So what that means is the vast majority of people in debt were actually financially better off after the crisis than before because they were paying less to service their debt. Without all the trimmings (again to keep it simple) the average mortgage payments for approximately 10 million mortgage holding households have gone down by over £3000 per year. So every person who has remained in employment (we have more people in employment now than in 2008) who carries debt is better off now than before the crisis. That’s an awful lot of people.

I do however recognise that alongside that, many people have seen their pay reduced and for them the benefit of interest rate reductions might simply soften the blow. Mike points out that the public sector has come in for some fairly rough treatment and that is right. However one could argue that the public sector has simply become too big and needs trimming back – in 2013 almost 20% of all jobs were in the public sector. Whether you like it or not, the size of the public sector is dictated by the size of the private sector – the bigger the private sector, the more money is taken into the public purse to pay for services. The size of our national debt would infer the public sector is too big and the choice facing the budget holders is to reduce jobs, pay or both.

However, the people I feel sorry for are those with savings because the cut in interest rates means they are worse off. The moral of the government approach is spend yourself silly, get into debt, have everything you want now regardless of whether you can afford it (spending is always good for the economy) and then when it all goes pear-shaped we’ll help you out and shaft all those people who’ve tried to live within their means. Brilliant but the inevitable consequence is people won’t learn. Only next time it will be worse because all those debt addicts will carry on and many savers will join them because they might as well enjoy themselves.

Mark also refers to poverty which is something of red rag to a bull with me. Relative poverty defines income or resources in relation to the average. So let’s assume we have 5 people with incomes 100, 150, 175, 200, 225 – to put the average at 170 – which means that 2 people are in relative poverty. Now if someone enters our country with a large wad of cash (perhaps a Russian oligarch, a Chinese billionaire or rich Europeans hedging their assets) and an income of 350, then all of a sudden our average moves to 200 and we now have 3 if not 4 people staring at poverty. Their circumstances haven’t changed, but the headline figure of 4 in 6 people now in poverty is a real attention grabber. Even better, our economy is now showing growth because our new wealthy immigrant has lots of money to spend in the shops and on property and is more than willing to do so.

So let’s be clear relative poverty is not a very good definition of a person’s struggle to survive – it is simply a measure of the gap between the top and the bottom. That’s not to say it doesn’t have it’s place, but it is currently being used mischievously out of context. And when you then use the poverty card against utility companies you seem to ignore the reasons why their prices have increased or the fact that many of our pensions a leading shareholders in those companies.

It also leads to another interesting question. In your country would you rather have more millionaires or less? Personally I don’t want to see millionaires who are well off because they have simply exploited others. I categorize people working in and around the stock market as such because all they do is gamble with other people’s money – if they win, they receive a ridiculously high bonus whilst the pension pot receives 5% and if they lose they receive a moderate bonus whilst the pension pot is obliterated. How the stock market is allowed to work as a no-lose casino for the traders is beyond me – but that’s for another day and another blog.

However I do want to see more millionaires who have created something – created products and services that generate good employment. Employment where the employees receive a fair market rate and good working conditions and prospects. The more of those millionaires the better and I’m sure their money will be welcomed up and down the country in every shop they walk into. I agree morally it is not comfortable to hear that the top 5 wealthy families are worth more than the bottom 20%. Clearly there is an imbalance but I’m not jealous of what they have earned – I’m thankful that they’ve chosen to do it in the UK so we have a little more money to fund our public services without financially crippling our future generations. Having said that, you might find if those families chose to leave the UK (and they are wealthy enough do so) then it would drag a large number of people out of poverty.

If Mike is going to be a responsible trade union leader he needs to think first about what is best for the country, then what is best for his members. That cannot ignore the debt.

Population and house prices – is there a link Sherlock?

According to The Office for National Statistics estimated there were 64.1 million people in the UK in June 2013, a rise of 0.63% on the previous year. That equates to a population growth of more than 400,000 which apparently is more than any other country in the EU and it’s a rate that will soon take the UK to over 70 million.

So where’s all that increase coming from. Apparently just over half was down to natural change – births minus deaths – while net migration represented 46% of the rise and interestingly more than a quarter of all births came from immigrant mothers. A quarter of the UK population growth was in London.

At the same time we appear to be caught up in another housing boom. The governor of the Bank of England, Mark Carney warned of “deep structural problems” in the British housing market stemming from a shortage of fresh stock. It is most chronic in the South East where Savills estimates a shortage well into the hundred thousands. Co-incidentally last week official figures showed annual house price rising at around 9.9% pa – with London showing a near 19% rise.

And so the conversation concerning the Great House Price Inflation Robbery began:

Holmes begins, “Dr Watson, there is nothing like first hand evidence. We have a growing population, largely driven by immigration or the offspring of immigration. We have a shortage of houses which I deduce must have something to do with the fact that we have more people to house – I would surmise that should the population remain flat then there would be no material increase number of houses.”
Dr Watson steps in, “With you so far Holmes old chap, although perhaps I could add to your last point to acknowledge the role of the single parent family in all this. Apparently nearly 25% of households are now single parent – a number which has trebled over the last 4 decades.”
Back to Holmes, “Good point Watson and it is clear there is nothing more deceptive than an obvious fact. So we would need a small increase in new homes to account for those people who can longer bring themselves to share the same living space with their family.”
Watson “Absolutely old chap. And a damned shame it is too! Then there is also the need to build houses that are replacements for those that are no longer fit for purpose.”
Holmes again, “Another point well made, my dear Dr Watson. However, having gathered these facts and smoked several pipes over them, trying to separate those which were crucial from others which were merely incidental. I concluded them as merely incidental compared to population increase as the leading culprit in this dastardly robbery.”
Holmes went on, “I confess to knowing no earthly reason why the leaders of our great nation do not appear to make the glaringly obvious connection between immigration and the increase in population that so violently contributes to the housing shortage and consequent bubble. Surely any man not blinded by the need of the populist vote could conclude the same and then react accordingly.”
Dr Watson exhales slowly before adding, “All very well old chap. But more people, means more “needs” to be satisfied which ultimately means more jobs and more spending. The connection may well have been made Holmes, but it’s a turkey voting for Christmas like move for any politician to stifle what little growth there may be in the economy. I’ve even heard some comment that the infrastructure, such as schools, hospitals and transport, can’t take the added load, only to be informed by those of a certain persuasion, that investment in infrastructure will in itself create more jobs and make the government more appealing to voters.”
Holmes responds swiftly “I think that you know me well enough, Watson, to understand that I am by no means a nervous man. At the same time, it is stupidity rather than courage to refuse to recognize danger when it is close upon you. This reminds me of the curious incident of the dog in the night-time”
Dr Watson inquires “But the dog did nothing at night-time”
Holmes again “That was the curious incident! Here we have a government with an apparent need to demonstrate growth to the voting public. Growth is a curious beast. Its variances means little on the streets, but as a headline it symbolises prosperity and has become a battle cry to rally the troops. In a country getting close to the edge of all it can consume without losing it’s buttons and popping it’s shirt, the only way to maintain the illusion of growth is to grow the population. I imagine you will find a very different per capita picture from that promoted by our government of the day – something which the common man fails to grasp. In the short-term such rapid population growth will lead to house price inflation and it can also fuel anti-immigration sentiment as shown by the results for that Moriarty like creature and his UKIP party – but they are merely bumps in the road. More serious are the possible long-term effects of such an approach. A national debt of £1.4tn growing at over £5k per second simply cannot stomach the increased public spending required to grow the infrastructure needed to maintain a harmonious community – and that figure does not even include the alarming pension deficit. The night-time is fast approaching, Watson – decisions need to be made quickly to reduce the debt and ensure harmony on our streets is maintained – but if the dog doesn’t raise itself into action, it may be a long time before the light returns”

With that, Watson poured himself a quick tipple and changed the subject to why England seem incapable of winning the World Cup

Are teachers right to feel undervalued ?

Two-thirds of teachers feel undervalued, says OECD study as reported http://www.bbc.co.uk/news/business-27985795.

It’s a fair point. They get up every day ready to be in school between 8 & 9 am, apart from the 13 plus weeks of the year when it’s the school holidays, obviously. They sit through a good few hours of lessons trying to pass on wisdom to an audience that might rather be playing on the X-box. Often with the inclusion of the odd little Jonny, who, despite being English, is more likely to become the US president than sit still without misbehaving for a whole lesson. They endure a tortuous lunch hour when they’ve either got to marshal the tear-aways in the playground or sit huddled together with other similarly worn down dreamers in the staffroom. Then between 3 & 4 pm the dark clouds part and a ray of light enters the room as the little rascals drift away, scruffier than when they arrived, and preparations begin to repeat the exercise all over again tomorrow. In between times there might be the added bonus of an extra curricular activity and a bit of homework to be getting on with.

All that and not a word of thanks from anyone.  The only recognition comes when poor little Jonny’s parents introduce themselves and him as the victims of teacher bullying – the fact that he might have stuck chewing gum in a class mate’s hair and sworn at the teacher trying to break up the ensuing fight is little more than a neglected detail.

Sounds to me like they’ve got a point.  As Aristotle proclaimed, “Learning is an ornament in prosperity, a refuge in adversity, and a provision in old age.”  Surely if there is nothing more important than education, then there is nothing more important than the providers of education!

Hold on – let’s take a step back to provide some balance.   I get up at 06:45 to make it to the office at 07:30 each day – that’s when I’m in the office and not travelling.  I sift through a raft of about 50 emails.  A few trying to sell to me, several we’d refer to as “arse covering” and then maybe 1 or 2 of any actual value.   Then the meetings start from around 09:00 and go right through to the end of the day, with odd gaps here and there.  I grab a sandwich for lunch which I eat during a meeting, much to the annoyance of the presenter, who recognises my attention is more focused on the misery of the slightly damp bread rather than his navel gazing analysis.   Then everything starts to wind down and I head for the exit at around 5:30pm so that I can get back home for 6:00pm.   A quick bite to eat, some time with the children and the it’s onto looking through the actions that I’ve picked up during the day and adding them to the growing list that I should have completed yesterday.   Then before I know it the alarm’s bleeping and we’re off again.

To be fair, every month the cycle is broken by a trip or two and as I’m sure you appreciate, travel is an absolute luxury.  It’s usually by plane, which means waking at 05:00 to get to the airport for 06:00, so that I can wait around in discomfort for a good couple of hours.  Then a squeeze into a seat that was surely modelled by primary school children and off we go.  Mid-way through I’ll be provided with some sort of cold sandwich, which provides little benefit other than passing the time, before the man in front decides I need to study his male pattern baldness in more detail by reclining his seat.  I’ve so far avoided the temptation to provide it with a Benny Hill like slap, but I won’t be able to resist forever.  After a few hours of being bumped around and losing any feeling in my legs, we endure a slightly nerve-wracking landing.  Then it’s off to stand in a clearance queue before the “will it/won’t it turn up” conundrum of the baggage carousel.   I’ll always remember standing at a UK airport, hearing an announcement stating that one of the baggage trucks hadn’t made it to the plane, so half the bags were left on the departure runway.  Shouts of “Come on my bag!” as if watching the Derby, echoed through the hall.

Feeling relieved, bags in hand, it’s off to the taxi rank for a journey of unspeakable horror with a driver of suicidal tendencies – this applies especially in European and South American countries and maybe others I’m yet to visit.  I suppose the clue is in the missing seat belts and cracked windscreen, but his car is next in line and you get what you’re given.   At the hotel, a quick beer to relax before checking out the room service – it’s seldom much fun sitting Billy-no-mates in a restaurant on your own.   Then crank up the PC and attempt to log onto the email server through the hotel’s exorbitantly priced internet service.   As the emails download at pre-broadband speed the TV goes on and you flick through a good 50 channels to find the only 2 that speak your language.  After the second news re-run, you flick through again – surely there is something you missed.  In the end it comes down to your language but boring, some irrelevant sport that you’re not the faintest bit interested in, or music.   The music goes on and you start working through all those emails that you’d have got to at 07:30 had you stayed in the office, only now it’s 8pm in the evening.   Lights off at around 11pm and a quick review of the day shows very little achieved apart from being a long way from home.   All that and not a word of thanks – and I only get a few weeks holiday a year, which I can only take when the Company allows me and the prices are through the roof.

I feel undervalued.   Why is no-one writing about me?

Perhaps the truth is that most employees feel undervalued to some extent.  They feel that they work too hard and make too many sacrifices without so much as a by your leave.    It might not be perfect, but unfortunately, that’s life and the recognition comes in the form of a pay check.

Do I value what teachers do? Yes  Do I think they are undervalued? Yes  Do I think they deserve greater recognition?  No more than the vast majority of those being paid to do a job.

Negotiation winners and losers

Negotiation. There’s a battle ahead and I’m going to be the winner. Is that really what it’s about?

A little anecdote to get us going. A few years ago I was involved with a company who claimed to have the best procurement team in the country. Confident, self-assured, almost cocky – they can get the best discounts. So I joined them as they negotiated for a piece of machinery with a large multi-national supplier. Sure enough by the end of the 2 weeks process they had secured an impressive 30% discount with a potential further rebate for a repeat order. Impressive stuff I thought. Fortunately, I knew the supplier reasonably well, as I’d dealt with them before, and a few weeks later I asked him about the negotiation and why they’d agreed to such a discount when they’d never offered me anything like that. “Simple”, he said “Their buyers pride themselves on the size of discount and because we want to deliver that for them, we start off with a much higher price.”

So lesson number 1: The size of discount is immaterial – it’s the end price that matters. So now that’s cleared up, how do I get the best price ?

And now to anecdote number 2. I was working for a company a few years ago with a large spend on food materials. The buying team would conduct a tender process, inviting a few suppliers to submit tenders for a 6-12 month contract. With only a small team, longer term contracts were more efficient than buying spot on a regular basis and it gave more certainty to the budget. Mid-way through one of the contracts the Managing Director received a phone call from an alternative supplier(B) who offered lower prices than were being paid – about 10% lower. The MD asked for a written offer, then stormed into the Procurement Manager’s office, waving the paper offer in the air, accusing him of gross incompetence. He insisted on this new price and forced the Procurement Manager to either re-negotiate with the existing supplier or switch to the new one. With a contract in place, however, there was little room to move and the best he could do was a 2% discount as a gesture of goodwill. A few weeks later the Procurement Manager was relieved of his duties. The new man came in and within a couple of months it was time re-tender time. Supplier B participated but this time his prices were much higher and he failed to win the contract. I asked Supplier B about what had gone on and he said “Our sales struggled to keep pace with production last year and we had a surplus of stock with no buyers. So we offered large discounts to make sure we weren’t left with a write off. It’s not something we’d plan to do, so when it comes to a tender we’d never offer those discounts”. A case of an MD who didn’t really understand the arena and an unlucky Procurement Manager.

So lesson number 2: Prices change for a variety of reasons and a snapshot doesn’t tell the whole story. Prices reflect the supply and demand position of an industry as a whole at that time. However, there can be lower prices available as a result of inefficient management by suppliers. Similarly spot prices can also be much higher if supply is tight because the suppliers know you are desperate. The question is do you want security of supply and price through a contract or are you willing to take the risk with spot prices.

The final anecdote and the one that really makes the difference. Over ten years ago, I was lead negotiator in a services contract and spent a good 2 weeks going back and forth with the potential suppliers. Analysing, discussing and re-analysing. We made good progress but it was all a bit confrontational with my Company looking for the lowest price/best service and the suppliers looking for the highest margin they could make. Eventually we made our selection and called a meeting with the “winner” who happened to be our existing supplier. We arrived at their office and waited in reception. I stood up and started to read the various bits of company news on the notice board when something caught my eye. It was a summary P&L lying on the reception desk. I know it’s not strictly ethical, but here it was in front of me and a quick glance ensued. Within a second I knew I was being ripped off. The supplier had fed me a pack of lies about their cost base. A few minutes later the meeting was called and in we went. I didn’t say anything about what I’d seen but instead decided this was the meeting to inform the supplier they had not been successful. It went down like a lead balloon and not something the supplier’s big boss, who’d made a special trip to attend, was expecting.

A couple of months later I met up with the supplier and asked him why he’d lied. He said “We were making good money on your contract and my job was to slightly improve that margin. We didn’t think there was any risk we’d lose as we knew our competitors were at a disadvantage because we already had the contract and there was a cost to change”. Then he came back with “I assume leaving us cost you more, so how did you manage to justify the additional cost to change to your Company?” Truth was I was in a difficult situation because when I walked out of that meeting I knew I couldn’t go back to my Company with a higher cost – they’d laugh at me. At the same time I couldn’t give the contract to a supplier I didn’t trust. So when I got back to my car I made a call to the Supplier who was in second place and asked to see him. I drove straight round and basically laid out my position to him. I was totally and completely honest about my own personal position – not the Company – but me. His reaction was to do exactly the same – he said exactly what he could and couldn’t do. So I promised him the contract was his if he could do 3 things. Firstly get his prices to the right level. Secondly meet the cost to change. Thirdly provide a commitment that the 2 companies would work openly together on initiatives to reduce costs and improve service so that next time the contract was up for renewal, there would be no alternative that could beat their quote. I received a phone call the next day and the deal was done – that initial contract was worth £10 million and it was still rolling on 15 years later.

Lesson 3: Good negotiation is not a contest. It is about honesty. Both the supplier and the buyer knowing what their companies need and what they personally need. Lay down those needs on the table, starting with the personal then the company and work together to satisfy those needs. Unfortunately, we are ingrained to believe that our adversary is trying to take advantage of us. And guess what ? Sometimes they will, so you have to be aware that they might “play” at being honest. But if you can bring yourself to be honest and open, both parties can start to work at solutions that are right for everyone. This is how true partnership relationships start.