Weariness with competition and the search for efficiency

In October, Gail Kelly, CEO of the large Australian bank Westpac, announced further job cuts. At the same time, Forbes magazine listed her as eighth on its list of the most powerful women in the world. As it happened, one of our party in Greece was one of those made redundant as part of Mrs Kelly's cuts.

Also in October, Australian health fund NIB (a former mutual) launched an unsolicited take-over for Geelong based mutual GMHBA, an action attacked by the Sydney Morning Herald's Michael Pascoe in an article entitled How to steal a mutual. Then, on Tuesday, I was talking to old colleagues about the big staff cuts in another organisation, about the impacts this was having on performance. We also talked about high staff turnover in yet another organisation as a consequence of management problems. Today, the papers are full of the savage UK budget cuts. As I write, the proportion of the Australian workforce in temporary, casual or contact positions is higher than 50 per cent.

The $9 million that Gail Kelly spent on buying a house at Terry Hills on Sydney's Northern Beaches may sound a lot, but it is still less than her annual salary of around $10.6 million. The annual remuneration of NIB's CEO Mark Fitzgibbon at $1.14 million is a lot less than that of Mrs Kelly. Still, its not bad compared to the $495,000 he earned the year before demutualisation, not bad compared to the $870,000 he earned in 2007, the  year following.

This post is not an attack on executive salaries, although I do think that these are now, on average, out of kilter with the long term contribution of the executives concerned. Rather, it is an expression of weariness, of concern at the hidden costs associated with current management approaches.

Talking to a senior manager the other day, she said that she really could not do her job properly, that it was almost impossible to plan effectively when things were so unstable. Another manager complained that head count controls forced her to use contractors even though they were more expensive.

I have always been a supporter of the concept of continuous improvement, the idea of continuous incremental improvements. It is always possible to do better. Further, things that have worked in the past are constantly affected by organisational and market changes, leading to a requirement for change. Sometimes major change is required where there is a disconnect between the organisation as it stands and its function.

The problem I have, the reason for my weariness, is that the relentless drive to achieve efficiencies, to reduce (or at least be seen to be acting to reduce) costs, has become self-defeating. To use the jargon, the concept of efficiency has actually replaced that of effectiveness.

We can see this if we look at the concepts of fat and of redundancy.

Fat is a bad thing. We have to cut it out, to slim the organisation down. In excess, fat is a bad thing. The obese organisation becomes slower, less able to respond. Yet a degree of fat is actually not bad, because it allows managers to do new things, to respond to change.

Redundancy, the presence of surplus capacity or of fall back systems, is also a necessary thing in complex systems. As we have seen in electricity generation and distribution, you can reduce costs and increase profits by reducing redundancy. However, as you do, the chances of catastrophic systemic failure can increase.

Much of my work over recent decades has been as a strategic or management consultant. As a general rule of thumb, it is relatively easy to reduce costs. However, enhancing the organisation's longer term chances of survival is a far harder task.

At national level, I have argued that current approaches to public administration and public policy have passed their use by date. I just don't think that they work very well, for reasons that I have tried to spell out at length in past posts.            

One of the odd things here is that I find myself arguing against the very concepts that I once supported so strongly as a way of bringing about improvement. It's not that I think that the concepts themselves were wrong. Rather, that their blind, unthinking, application has become self-defeating. Still, that's another story!