GREECE -- Can the Tragedy be avoided?



Greece- How do we save the patient?



After years of lax fiscal discipline and fiddling the economic figures, Greece is in a real crisis -- that incidentally will touch us all -- even in the UK,although we keep pretending that it is a pure European affair, it isn't at all. Greece should never have been allowed into the Euro as its debt was not in line with the principles for joining the single currency, thought it looked as if it was at the time,suspiciously so, some commentators thought and they were proved right.

Holders of Greek government bonds are nervous, although interest rates on their bonds are high,this reflects the fact that the risk of debt default by the Greek government is viewed as likely by the bond markets. Its debts are nearly 160% of its GDP and it is destined to receive a 110 billion euro bail out this year with another 100 billion euros to follow to keep the country going until 2013. The IMF is demanding privatisation of Greek state assets and deep public expenditure cuts. There is already fighting Syntagma square. Is this approach sustainable no matter what we think of Greek profligacy?

What is to be done?

Greece could default but even if it walked away from its debts it would still have to reform itself because it would just get back where it is now without radical reform of its public sector. It would have to leave the single currency and re-introduce the drachma which would probably need to be de-valued anyway. No-one would lend it any money so it could not afford to make any more mistakes

A more realistic option might be to re-structure its debt -- that is a proportion of its debt -- say 50%, could be forgiven. Good for Greece but less good for the private banks and government's (but mainly banks) that hold Greek debt -- It would still affect the global economy but the banks would probably be able to better cope with such write offs than they could have done 3 years ago.

Will Greece be ever able to repay over 200 billion of euro debt or is a restructure of its debt the best thing to do? In my view a severe haircut for European banks might just save Greek Society from catastrophe. Even after a re-structure the Greek economy would need to be nurtured for many years to come --

The patient would be sick but it could recover after a debt restructure-- Other forms of medicine might just kill the patient and no-one would want that.

NO JOY IN OLD AGE -- Return of the Death tax?

Who is watching over her?

I read Sunday's Observer with horror and dismay, when some of the proposals of Andrew Dilnot"s report on the funding of social care for the elderly were revealed. Middleclass people would have to fund the first 35k of their social care costs themselves , but they can always take out insurance to cover that 35k cost. I can just imagine the insurance industry rubbing its hands in glee --trying to ensure that it meets its social care insurance sales targets.

If someone needs residential care and has more than 23.25k in savings,capital or assets then they have to pay for the care themselves. This is exemption limit is not a great deal of money in reality but it means that the costs of residential care would fall on you. I know from personal experience that when my friend's father went into residential care, his house had to be sold to pay for the bills, the irony of it was that the buyer of the house was his own son. Therefore a house which he had bought over so many years, was sold to pay for his care costs and he could not pass the house down to his own son. Whilst his son, had to purchase the house he had lived in as a child, from his father. The father was upset that he could not pass on his house to his son and was annoyed with himself for being ill and depriving his own son of his inheritance. It is very disturbing and worrying for older people who have given so much to society to be put through this type of process.

Maybe insurance might be the answer but why should certain older people be penalised for being thrifty and careful with their money.

This is a difficult problem as the costs of social care finance are rising considerably and more and more people will need it, the 23k threshold could be increased but then the cots of social care support would increase as well and probably by more, Perhaps we need to do the following:

1.Raise the threshold of eligibility for social care support so that the richest in society will pay a larger percentage of their own costs -- the level could be raised to #75k or even more. They would only get support after the first #75 has been funded from their own resources.

2. There could be different exemption levels for different bands of people with the poorest having to fund little or no amounts of their own social care costs.

3. Tax relief could be given on any contributions to a savings plans for future social care costs

4. A proportion of any pension fund could be set aside to cover social care costs

5. Everyone could be given a one off endowment from the state which they could invest for future growth to fund social care-- If they do not need it then they can return all or part of it to the state or use it to fund a family member's social care costs -- The fund could not be used for any other purpose.

6. A proportion of everyone's income could be put into a national social care fund which would fund social care on a national basis.

These are just some ideas to make a death tax more palatable.

Which method might you choose?

OPEN PUBLIC SERVICES - How open and how public?

Open for personalisation?

In the past, it must be said that the delivery of public services has been somewhat inflexible and not always in the best interests of the user. Services were often standardised and homogeneous without taking account of the specific needs and desires of the individual. Residential care for the elderly was one such type of provision in defined service parcels. From the provider point of view, the provision of a standardised service is easier to measure in an input sense and easier to cost  -- when you are delivering standardised services it will be easier to argue in political and policy terms that each client is getting a similar level of service at a similar level of input cost. So when politicians and service users ask questions about service standards and costs then the provider can reply that the provision per individual is fairly uniform and few if any people are discriminated against in terms of public service delivery from the sense of input provision. They get a sort of equality of service provision -- it might be equally good or bad but certainly not geared to the individual.

The arguments are clear in the uniform and homogeneous sense,though the service outcomes for the user from the provision of a largely uniform service may not be too great. This is because this type of service delivery might provide a reasonable basic standard of service but it will not necessarily meet the client's service aspirations and this is where the problems start. What do people want from a public service and what can we deliver to them? Can we build in choice and involve the client more in service delivery and design? This is very challenging for public service professionals but ultimately it is desirable because if the public services will not offer such a flexible type of service then other entities will. The public service might not like these choices but in the final analysis it will have to take them into account because the old view that the public service provider knows best what the service user wants and needs is out of date.

We will need to constantly challenge ourselves to give our clients a fantastic service purchasing\consumimg experience. Often public services fail to do the latter and do not adequately recognise that service users' tastes and wishes do change over time. Often we are not bothered to find out why or how this happens and it is to our detriment.

The predicted role of greater personalisation in the forthcoming July 2011 White Paper on Open Public services is a key issue. An authority will work out how much a level of service could cost but the recipient may decide to spend that cash allocation on something else e.g. a teenager with stress and mental health problems might wish to join a gardening club or do an art course rather than attend formal therapy sessions. A terminally ill patient might spend the budget on a dedicated home nurse so he can pass his last days peacefully at home.  Al these decisions are personal,utilising a budget for a service but not spending it in the way some public services might expect or want a service recipient to spend it on. Will the authority be the sole provider of this different type of service offering or will it have greater competition from other service providers like charities and third sector organisations? This will depend on how sophisticated the local market for these personalised services becomes. Irrespective of this public sector organisations need to be ready for the personalisation challenge. They will need to think about how it will affect the structure of services in the future -- Will they be able to split up their existing budgets and make cash payments to recipients thus giving them the spending power to deliver personal budgets?

The real challenge will be to make personalisation work for the public sector and for the personal budget recipient as well. What if the budget recipient has special needs -- will future personal budget formulas take them into account -- perhaps to a limited degree -- But going too far down this road of catering for too many special needs cases would make personalisation overtly complex.

HENRI FAYOL -- Still relevant to-day

Henri Fayol, a French engineer and director of mines, was little unknown outside France until the late 40s when Constance Storrs published her translation of Fayol's 1916 " Administration Industrielle et Generale ".
His theorising about administration was built on personal observation and experience of what worked well in terms of organisation.

Like Peter Drucker he also had 5 main functions of management;

1. to forecast and plan - prevoyance -- Examine the future and draw up plans of action to meet future changes in demands and circumstances. If management is not about this then what is it about? Sometimes we do not get it right but often we nearly get it right and that is better than getting it wrong.

2. to organise -  build up the structure, material and human capacity and talent of the organisation to achieve organisational goals

Fayol - Still relevant

3. to command - ensure that desired tasks/projects are completed in a proper and timely fashion by ensuring the allocated resources perform properly.

4. to co-ordinate -- bind together, unify and harmonise activity and effort in the pursuit of the entity's goals -- ensuring we are rowing the boat together in the right direction

5. to control - see that everything occurs in conformity with policy and practise of the organisation and that if it does not, then we take corrective action to ensure it does.

These principles seem a bit dusty today but if you put them in a more modern context they are still relevant and useful.

We can still learn from the past and we will re-visit Fayol's writngs at a later date to see whatelse we can glean from them.

PETER DRUCKER'S MANAGEMENT WISDOM -- Still as meaningful as ever?

The Master -Still as relevant as ever

Peter F. Drucker was a writer, professor, management consultant and self-described “social ecologist,” who explored the way human beings organize themselves and interact much the way an ecologist would observe and analyze the biological world.

He provided the following lifelong tools for business effectiveness based on his Five Questions management framework.

The Five Questions are:

1. What is my/our mission?

2.Who is my/our customer?

3.What does the customer value?
4.What are my/our results?
5.What is my/our plan?

Do we really need anything else in maangement theory and practice?

EFFECTIVE MARKETING - What we need is not always what we get

Marketing - Do we get it right?

I am sure that there are very many excellent marketing approaches in the business world but often the marketing approach is not fully integrated with  the way the business is going. Malcolm McDonald from Cranfield Business School characterised the problems thus:

• Growing vulnerability to environmental change
• Too many products
• Pricing confusion
• Wasted promotion
• Meaningless numbers
• internal strife between departments

Perhaps you recognise the symptoms because I do. Too often marketing has been confused with promotion and sales and much advice that I have received has been sales and promotion advice and not marketing at all.

In the textbooks and in real life as well, marketing is defined as " the identification and profitable satisfaction of customer needs". This is a simple definition but one that is often operationally difficult to achieve and meet.
Marketing should have 3 components:

1.Identifying needs
2.Satisfying needs
3.Making a profit

Marketing is therefore a process that needs to be a fundamental part of our business planning -- but it is often not a fundamental part of it. It is frequently an add on and an afterthought and this is where the problems commence.

Marketing should be helping business units identify customer needs and satisfy them at a profit. This means helping us identify current and future products and services that are likely to be winners, learn from competitors, identify our own strengths and weaknesses and deliver excellent service and experience that people want to come back for.

The first thing we need to try and do is identify what the business is about -- the business is not defined solely by itself,by its articles of association etc -- According to Peter Drucker, this can only be answered from outside. Therefore the mission of any business is to satisfy its customers' needs. This is probably more important than accounts and sales reports but is often omitted in the final analysis. We should constantly ask external people how we are viewed and what we need to do in the light of this information to change our mission and our vision for what our company is about.

If we understand our customers and their needs well enough and can meet them -- then the need for high spending on sales teams, advertising and publicity will not be that great and the customer should be ready to buy and we have moved from selling\publicity to a really effective marketing approach.

Selling is the last stage of marketing and if the marketing job has been done well then it will still be challenging but not impossible. The worst scenario we can have is to try to sell someone a product\service we think they want when they actually don't want it. No repeat business there then!

How you might wish to approach the branding of your company.

REDUCING THE UK BUDGET DEFICIT -- Slow,Slow,Quick, Quick, Slow

Is there a secret plan B for
cutting the deficit?

Like an ill trained tango dancer the government itself is dancing with the budget deficit and how quickly it needs to be reduced.Should cuts in public expenditure be kept at the same levels as now i.e. an elimination of the structural deficit by the end of the life of this parliament ( Possibly 2015?) or is the medicine killing the patient, with economic growth being relatively flat for the foreseable future. 

Since Christmas 2010,on the whole, economic growth has been very disappointing, reductions in public spending do produce an effect on national income which is greater than the value of the intial spending cut. This reduction in spending in the economy is subject to a negative multiplier effect which amplifies
the effect of the spending reduction on national income.

If you are not a Keynesian,then you will always be nervous about having a government budget defcit, even in times of high unemployment, because that defcit needs to be financed,usually by the government issuing UK bonds to foreign investors,including foreign governments. The larger the deficit, the greater the theoretical risk of default, the more that needs to be borrowed externally and the higher the rate of interest that the UK government will have to pay out to foreigners for holding UK bonds. The higher interest the UK needs to pay, the fewer resources it can devote to its own speding programmes. However, probably the most effective way of reducing our external borrowing is to promote higher UK growth,which will mean higher profits and incomes and greater tax revenues for the UK government to utilise in any way it sees fit,usually to redeem existing debt. The problem of low economic growth is therefore directly linked to the speed with which the deficit can be reduced and external debt repaid. The more that deficit reduction and debt repayment can be tackled by higher economic growth the less the requirement for painful public spending cuts.

There is however more to this approach than meets the eye. The public spending cuts are supposed to lead to a position where the private sector can fill the employment and output gap. There is a view that public expenditure crowds out the private sector for example if public spending is higher, then competiton for scare resources is greater,lower public spending means that the private sector will have easier access to these resources,will not be crowded out and will be able to produce greater wealth and employ more people and resources. Such arguments may be valid,but only in the long run, as any such adjustment would take a long time to work through the economy. The private sector will have a big gap to fill and no-one really knows whether it can successfully fill it.

Therefore this week the IMF backed the government's current austerity approach,whilst a deputy director of the OECD intially stated that the UK should think again about a plan B for the economy,before his boss presumably pulled him out of the firing line.

If UK economic growth persists in being as weak as it is at the moment, for say the next 6 months, then George Osborne really will have to think again -- but this will obviously be dressed up as something else under the banner of a flexible response or something like that. The alternative plan B for tackling the UK budget deficit will remain secret for now.

Perhaps the taxation position will be slightly eased or certain public sector projects will be retained.

After all, in 2015 there is an election to be won (or lost?)

THE PAY GAP - Are we all in this together?

The British People believe this

Work by the Institute of Public Policy and Research  (IPPR), has shown that nearly two thirds of Britons would support some form of action to reduce the gap between high and low earners. In the corporate and banking sector, large bonuses have been paid to a small number of individuals whilst the rest are left behind in terms of any pecuniary incentives that they receive. Good performance should be rewarded but bad performance should not -- perhaps work teams should be collectively rewarded for good performance -- this would cause far less antagonism and jealousy. The benefits of success should be more fairly distributed and should not be concentrated in the hands of the few. Unfortunately the position in the UK flies against this, between 1975 and 2008 the top 1% of UK earners increased their share of the UK wage bill from 5% to 8%.This rise in top pay has been concentrated in publicly listed companies.

Arguments are always made that pay levels are driven by market forces,but the market itself may be distorted, as in the UK favouring salaries in the financial sector over all other sectors. Can such a distorted  position continue into the future? Especially when the market seems to be out of sink with what the general public thinks. The IPPR  work quoted people saying that the chief executive of a large public company should not earn  more than 350 thousand pounds per annum when infact many of them are earning nearer one million pounds. Will Hutton has argued for a ratio of circa 26:1 in terms of the earnings of a chief executive vis a vis a regular shopfloor worker. With average earnings of around 25k per annum this would give an annual salary of 650k for the chief executive.

Earnings differentials between employees are important in that they should reflect differences in skill,knowledge, training,occupation and work output.In classical economic theory, labour would be paid in accordance with its marginal productivity. In the real world this is not always the case. One factor we need to remember is that labour markets are very different to commodity markets in that employment involves a continuing human relationship between the employer and the employee.

In terms of earnings of individuals, there must come a point where an extra increase in salary does not matter that much to the individual -- who would ever need more than one million pounds a year?

BARCELONA - Management Secrets

The New Home Grown Messi?

No-one who saw Barca's demolition of Manchester United last Saturday could fail to admire the fluent football that was played by that team. I know from Junior football in the UK that the temptation is to have a big strong lad up front who can kick the ball with force and a goalie who can kick the ball far and high. If you roll the ball out to the full back to play it through midfield then the coaches criticise you for not getting the ball up field fast enough. This track and field type football does work at certain levels but not at the very highest levels unfortunately. In the UK we still have to learn that fact.

What about Barca themselves?  According to a recent article in the Economist

" .... Barça plays as a team in a sport that has far too many prima donnas. It keeps the ball moving, dominates possession and keeps its opponents under constant pressure. But there is a less obvious answer, too, and one that has implications beyond the football pitch. Barça has provided a distinctive solution to some of the most contentious problems in management theory. What is the right balance between stars and the rest of mankind? Should you buy talent or grow your own? How can you harness the enthusiasm of consumers to promote your brand? And how do you combine the advantages of local roots and global reach?"

Barça puts more emphasis than any other major team on growing its own players.  Eight of the team’s leading players are products of its football school, La Masia. The students are relentlessly instructed in the importance of team spirit, self-sacrifice and perseverance. They are also taught that Barça is “more than a club”: it is the embodiment of Catalan pride.  

Boris Groysberg, of Harvard Business School, has warned that companies are too obsessed with hiring stars rather than developing teams. He conducted a fascinating study of successful Wall Street analysts who moved from one firm to another. He discovered that company-switching analysts saw an immediate decline in their performance. For all their swagger, it seems that their success depended as much on their co-workers as their innate talents. Jim Collins, the author of “Good to Great”, argues that the secret of long-term corporate success lies in cultivating a distinctive set of values. For all the talk of diversity and globalisation, this usually means promoting from within and putting down deep local roots.

So there you have it -- Do you build from within or buy in superstars to make a difference?

Is there really any substitute for mining and developing your own business and management talent?

How many times has the external superstar come into a business only to find that he is not used to its culture and values and that he cannot replicate his earlier success.

Lets look at what we can develop ourselves before we go elsewhere.

http://www.economist.com/node/18709691?story_id=18709691