Note: some of the linked articles below require an FT Subscription to read
Asking the wrong questions about middle management
Andrew Hill, FT’s management editor, once again challenges assumptions about where true value in a company really lies. This time he argues that those who ‘delayer’ management levels do so at their peril. Following recent announcements from Elon Musk that ‘we are flattening the management structure,’ and BT that it was cutting 13,000 mainly middle management and back office jobs, Hill cautions leaders about the efficacy of flattening the management structure.
Those who reduce the links in the chain of command (or even try to abolish middle managers altogether) often just add extra workload to those who survive the cull, and encourages unnecessary tinkering by the CEO into his or her direct reports. Indeed, when GE’s former CEO Jack Welch took on 18 direct reports—countering the prevailing convention that these should be limited to around 7—he was in effect centralising power, according to one view.
Hill adds: ‘Leaders who fixate on structure may neglect more important factors, such as culture, competence, collaboration and customer satisfaction’. He refers to Stephen Denning’s The Age of Agile, arguing how ‘large organisations such as Microsoft or Spotify prosper not through hierarchy but by encouraging network connections and ensuring that “anyone can talk to anyone.’
The FT | IE Corporate Learning Alliance has also asked whether middle management is undervalued and misunderstood. Engagement, productivity, and institutional memory and more all depend to some degree on empowering and preserving the integrity of the middle manager. Much of the problem comes down to a misunderstanding about his or her distinctive role.
As David Bolchover writes, there is a vital difference between what the manager does and what the leader does. The latter sees their role in inspiring others and influence a working culture through what they say and do. It seldom involves direct contact with the team. On the other hand, ‘management involves dealing with other people’s messy realities, finding out what makes them tick and solving personal and workplace problems.’ Plenty of research suggests that company performance and engagement is determined more at this level than any other in organisation; senior leaders might therefore be less hasty when considering whether to discard it.
Gig Workers of the World Unite (…on a WhatsApp group)!
The FT’s new ‘Big Picture’ podcast series discusses the important trends shaping today’s business world. The latest, must-listen episode, The Changing World of Work, might be of particular interest to HR and learning professionals, as FT writers Sarah O’ Connor, Emma Jacobs and Martin Sandbu reflect on how the traditional employer-worker relationship is ‘coming apart at the seams.’
Although most employees continue to enjoy traditional jobs, the rise of a contingent workforce (which the FT | IE Corporate Learning Alliance wrote about here) is changing the employment landscape. In the UK, a huge growth in self-employment has come with temporary contracts on a ‘paid-per delivery basis,’ characterised by agency work and zero hours’ contracts, without pension or job security. The podcast notes a bifurcation of the jobs market in southern Europe too, with 80% of jobs in France, for example, having great employment contracts while the rest struggle with poor pay and protection.
The UK gig economy now accounts for some 4% of the total workforce. For those with specialist knowledge, this can be both flexible and profitable. But most are ‘lousy jobs’ making deliveries or taking care of the elderly. They come with heightened performance anxiety, lack security, and deter essential elements of normal jobs, such as taking a holiday. Worse, such jobs don't always offer much flexibility, especially when it comes to childcare. From Hollywood actresses to London bike couriers, employment risk has shifted back to the employees. To put it another way: who do they complain to when their rights are abused?
Gig work is often compared unfavourably with relatively stable manufacturing jobs. But the latter weren’t always secure either. Many of their benefits were introduced as a result of fierce industrial struggles. Similar unionisation battles may lie ahead for gig workers. Although it might be easier to organise like-minded, culturally united groups of workers on a factory floor, doing the same for gig workers isn't impossible. Instant, mass communication allows disparate workers to talk to each other through a simple WhatsApp group. The Independent Workers Union of Great Britain, for example, recently won pay rises for 90% of cycle couriers. However, today's collective bargaining involves a different mindset from that of old-school, 1970’s trade unions.
Government can play a part in creating a new balance of power. The podcast asks whether the introduction of a basic universal income might allow the most vulnerable workers to negotiate with an employer without risking total destitution. Or would unscrupulous employers see this as a way to avoid paying a living wage?
Long hours and media overload: lessons for today’s stressed executives
The FT revisits the curse of the time-poor executive. It’s easy to be cynical about such concerns. Boredom is probably a bigger concern for office workers than long-hours and high pressure. Moreover, plenty of research demonstrates the diminishing and eventually negative returns to long hours.
Unfortunately, the message about the counter-productive consequences of over working doesn’t always get through—and the result can be toxic. Brooke Masters, the FT’s new comments and analysis editor, refers to an alarming email sent by a banker to junior analysts. He had been walking around the New York office at midnight and found 11 staff members still working at their desks. ‘Given that new [projects needing] staffing continue to flow in and you are all very near capacity,' the banker wrote, 'the only way I can think of to differentiate among you is to see who is in the office in the wee hours of the morning.’ The implied message: work all night or get fired.
Rather than disown the manager’s comments, the bank declined to comment - and this following a 2015 suicide of an employee, after which the bank had promised to introduce more flexible working.
Arguably there’s a degree of choice involved in working excessive hours on Wall Street or in other competitive environments. Such a choice was exercised by cricketer Zafar Ansari who announced that he was giving up the sport after achieving his childhood ambition of playing for England. As Michael Skapinker, FT columnist and executive editor of the FT | IE Corporate Learning Alliance points out, the 25-year old Ansari, who boasts a double first in psychology and sociology from University of Cambridge, didn’t retire because he deemed cricket to be insufficiently stimulating. Rather, ‘he realised he was just not competitive enough.’ He couldn’t match his team-mates’ hyper-competitive spirit.
Being hyper-competitive isn’t always the right thing to be, even for the most ambitious high fliers whether in banking, sport or other field. The demands of a job can change as one’s career progresses. When put in charge of others, you can no longer be their mates. You must ‘take tough decisions that may hurt individuals but are necessary for the organisation.’ You may need that ‘splinter of ice in the heart.’ Crucially, you must act within an ‘atmosphere of fairness, of decent respect for the effect their decisions have on people’s lives,’ a point clearly lost on the aforementioned New York bank. Ultimately, the ‘very best understand when they are not right for the job.’ It isn't necessarily a sign of lack of ambition. However, it takes real self-awareness to come to that conclusion.
Similar lessons might apply when we do get to relax. This is especially true when it comes to our obsessive consumption of media, as described by the FT’s technology writer Jonathan Margolis. He refers to the ‘panic-inducing’ amount of content and streaming services we feel obliged to consume in our downtime. Some cope by expertly multi-tasking; others decide to delete Facebook and Twitter to cut down on the number of stories they need to read. Bizarrely, ‘some people listen to podcasts speeded up...up to five times the normal rate, rendering artfully produced programmes to Donald Duck on helium.’
As with overwork, the impact of trying to consume too much knowledge too quickly is usually counter-productive. As one perplexed consumer noted: ‘One way or another, I get a lot of information each day. It’s just weird that I’m not smarter.’
Corporate lessons from WPP after Martin Sorrell
What can business learn from the resignation of Martin Sorrell, CEO of WPP? His departure from one of the world's biggest media agencies touches on many important learning and development and corporate transformation issues. As well as strategic questions such as the efficiency of conglomerates and the limits of an acquisition-led growth strategy, executives can also learn much about ‘founder versus manager’ confusion, and difficulties around succession planning. Many of these issues are touched upon in the FT’s continuing coverage.
Having acquired shell company WPP in 1987, Martin Sorrell used it as a vehicle for an acquisition-led growth strategy, buying up iconic industry players such as Ogilvy & Mather, Young & Rubicam, Grey and J Walter Thompson. WPP soon became the world’s largest advertising agency. As FT’s management writer Andrew Hill observes: Sir Martin was ‘the advertising industry’s most tenacious, most outspoken and — not to be forgotten — most successful conglomerateur.’
However, his leaving is also a tale of corporate over-reach in an industry undergoing its own change. An enterprise that took 33 years to assemble now looks set to unravel. WPP’s PR assets and its data investment unit are prime candidates for disposal. ‘WPP’s particular ill, as with Napoleonic France, is imperial over-reach,’ say FT Lex writers. ‘Removing the conglomerate discount and reducing the debt that goes with it could substantially lift WPP’s market valuation.’ Hill notes that ‘the conglomerate model Sir Martin pioneered is under strain.’ Over the past 18 months, WPP share price has fallen by one third, as the top advertisers such as Procter & Gamble cut ad spend.
As a corporate learning case study, Sorrell’s departure is sure to provide numerous insights into succession planning made difficult by a domineering CEO. Although he retains only 2% of the group, he was often viewed (and paid) more like a founder/owner. Analysts described him as ‘the glue that bound much of WPP together.’ As Hill notes, ‘the real test of Sir Martin’s legacy will be the durability of the structure he oversaw, without him to oversee it.’ The outlook for his successor isn’t promising (not helped by the fact that Sorrell’s contract contained no non-compete clause). To put it another way, ‘WPP chairman Roberto Quarta kept three succession options in his top drawer: “run over by a bus”, a two-year plan and a four-year plan.’ The first option seems most relevant.
Opportunity-cost calculations require honesty about our motivations
FT columnist, Tim Harford, highlights an important, yet often misunderstood, aspect of consumer behaviour—the opportunity costs of our purchasing decisions. The concept is relatively simple: every spending decision can be set against the alternatives that we forego. Yet how often do we consciously and rationally assess such a trade off? ‘We would make better decisions if we reminded ourselves about opportunity costs more often and more explicitly,’ writes Harford.
As behavioural scientists point out, ‘individuals neglect information that remains implicit.’ Our brains are far from trustworthy. ‘We think we can summon to mind a clear image of a tiger,' says Harford, 'but asked to draw a tiger we start to struggle. It’s the same with opportunity cost’ he notes. ‘We spend money simply out of habit or instinct.’
This is a significant point for L&D professionals, as well as executives especially in marketing. An essential problem of any opportunity cost equation— one that Harford does not address directly—is that it’s hard to calculate when we ignore the true value we ascribe to our purchases. This may be because we fail to identify it precisely enough or simply because we haven’t admitted to it. The reason why one might spend hundreds of dollars more on a stereo system (an example Harford uses) may not be because of its higher quality, but because the buyer hopes that it will impress friends. More honesty is needed.
Yet so much marketing is geared to reframing those motivations that lie behind purchasing choices. Advertisers often play on subconscious desires, as the FT’s Jo Ellison points out acidly about a certain soft drink. The murky reasoning underscoring our purchases makes it hard to assess the alternatives realistically.
One might pay vast sums for, say, a wristwatch. The choice may be justified by the time-piece’s aesthetics, technical complexity or superior timekeeping, as this FT letter-writer claims. Any opportunity cost calculation would therefore pit the alternatives against those stated benefits. But the true value of the watch might lie in an indefinable pleasure associated with a brand image or a sense of exclusivity that derives from the high price itself. In that case, the trade-offs are harder to calculate, and less likely to be made. It all lends support to Harford’s argument that thinking harder about opportunity costs would help us make better decisions. It might also reveal something new about ourselves.
Regulators take on tech companies, but will consumers wise up?
If your company is not already aware of how and why regulators are cracking down on tech companies, and what this might mean for your company, then several FT articles and opinions should become essential reading. The FT analyses why Facebook’s Mark Zuckerberg has been under fire over the use of Facebook data; why Uber has halted its self-driving cars following a pedestrian death, and new EU taxes on tech giants. Perhaps most important for HR and marketing are the new EU privacy rules due to come into force on May 25th.
Even before the Facebook-Cambridge Analytica revelations, the EU had been drafting its tough General Data Protection Regulation (GDPR) that will affect marketing, HR and other business functions, and even business models. The new rules will mean that any breaches of EU citizens’ data can result in fines of up to €20m, or 4 per cent of a company’s annual turnover (whichever is highest). This compares with the maximum fines imposed for privacy breaches in the UK of £500,000.
Any company collecting or processing personal information will have to gain clear consent from consumers on what it is doing with their information. When it comes to using data for political purposes, as the Cambridge Analytica issue has highlighted, personal information can only be used for limited purposes, for example, by political parties or campaign groups compiling newsletters or electoral lists. Despite the EU lead on the issues, privacy advocates still fear that Europe’s authorities will lack the resources to enforce them properly.
Real change will probably require more than just regulatory intervention. Consumers also need to understand what’s at stake. FT columnist Merryn Somerset Webb urges social media and internet searchers to value their data as highly as their pension assets. The difference between Facebook and Google on the one hand and financial services on the other, she writes, is that the assets held by the former are not stocks and bonds but personal data. Yet ‘if customers actually knew how much they were paying for their ‘free’ online services, they might be less enthusiastic about signing up for them.’ This realisation may be one big reason why Facebook, Google and Amazon shares all fell hard this week, she says. As Apple’s chief executive Tim Cook recently noted in relation to Facebook: ‘If our customer was our product, we could make a ton of money.’
Putin, political risk and the fall-out for business
For executives looking to get a better grip on political risk, Russia is always a good place to start. Over the past quarter century, the country’s twists and turns provide plenty of useful risk lessons. Perhaps the greatest shock to foreign investors—from the biggest banks to the smallest importers—came in August 1998. It was the moment when the chaotic reforms of the immediate post-communist period led to an economic crash, bond default, and a 75% rouble devaluation, paving the way for authoritarian rule.
The rise of President Vladimir Putin, whose 18 years in power now exceed that of any Soviet leader except Joseph Stalin, has created a new set of political risks. The President’s assertion of domestic control has inevitably led to political projection abroad. Rising tension regarding Russian influence in the West, especially following the recent spy poisoning scandal in the UK, could lead to another important inflection point, that should give investors pause for thought.
Many of the issues are covered in the FT Collections ‘How do you solve a problem like Russia?’ Philip Stephens, the FT’s chief political commentator writes: ‘The attempted murder of Mr Skripal cannot be seen in isolation. It is part of the pattern that includes fostering corruption in the former communist states of eastern and central Europe, fomenting instability in the Balkans, the spread of fake news and disinformation, and financial support for populist extremists.’
Gideon Rachman, the FT’s Chief Foreign Affairs commentator, notes that ‘much stronger measures aimed at Russian business and finance’ will affect the many ‘rich Kremlin-connected individuals who use London for both business and pleasure.’ But he asks how Brexit might affect the UK’s willingness to take a tough stance against an important non-EU trading partner, and whether the UK’s western allies will come to her defence?
Lex columnists argue that ‘London is the main overseas capital-raising venue for Russia, but other financial centres could be used. For now, financial markets regard the threat as minor; Russia is busy planning a new eurobond sale.…Similarly, the appetite for trade sanctions is limited. The UK is one of Russia’s smaller trading partners and estimates that less than 1 per cent of its gas comes from the country.’ It adds that ‘the UK can do more by targeting individuals.’
Retaliation against UK investors in Russia might follow. Political risk strategists will have to consider how, when and why they might be affected as the latest international spat plays out.
How to decide what to believe: advice on a postcard
How do executives decide what is really true – especially when their resulting actions are likely to affect others? Inevitably, there’s a strong temptation simply to endorse ideas that support your pre-existing views. However, applying a few simple tests can ensure your analysis is reasonable, rational and rigorous.
When it comes to statistics, FT economist Tim Harford has tried to simplify the task with six essential guidance points that 'can fit on a postcard.' These are: observe your feelings (defensiveness, triumphalism, righteous anger etc) and how these affect your decisions; understand the statistical claim (what it means, is it causal, and what is left out?); get the back story; put things in perspective (size, history, and significance); embrace imprecision; and be curious.
Renationalisation: fairness, efficiency or ideological capture?
The UK’s opposition Labour Party wants to bring key utilities back into public ownership—a marked policy shift from the free market model of almost four decades. The implications for senior executives are significant on many levels. For some, it is a simple issue of whether private-finance-initiatives (PFI) remains an effective way to manage utilities, such as water. To others, these are ideological waters—a siren call towards uncharted dangers. How business executives choose to analyse the implications goes to the heart of their understanding of the risks ahead. Two FT articles help to frame this discussion.
In his article, John McDonnell is right: Britain can easily nationalise water, Jonathan Ford, the FT’s City editor, considers whether renationalisation would be ‘cost free’ as the Shadow Chancellor (finance minister) states, or whether it would ‘dynamite the public finances.’ He writes: ‘The real issue is not whether Das Kapital could supplant private capital, but rather whether it would make sense. It is about what might work better for the public as both consumer and taxpayer.’
According to economist Dieter Helm, ‘governance issues posed by private capital dissolve if you replace self-interested financiers with public spirited bureaucrats. This ignores old problems such as union capture and the politicisation of pricing.’ But Ford warns that ‘private companies cannot simply dismiss nationalisation as impracticable.’
Another perspective is presented by FT’s Chief Political Correspondent, Jim Pickard, who suggests that ‘some investors in private finance initiatives might not receive any compensation if contracts are renationalised under a future Labour government.’ According to one of McDonnell’s PFI adviser, the issue of compensation would depend on the ‘balance of political forces’ at the time of nationalisation. Comparing the PFI industry to the 19th century slave trade, she explained that when ‘the slaves were freed, the slave owners got nothing. Why? Because they were in no political position to get anything.’
Equity prices and the global economy
FT reporters explain what’s behind US stocks which suffered their worst fall in more than six years, erasing gains for the year. Investors who expected a period of calm have been confounded, they write. Whether or not one views the recent falls as anything more than a technical correction is a matter for the chartists, as John Authers explains in several very useful charts.
For corporate strategists, the movement in US equities raises fundamental questions about the global economy, wages, inflation and productivity. The FT’s economics editor, Chris Giles, asks ‘whether the economic outlook in the US and around the world has changed sufficiently to justify weaker financial prices, or whether the correction has come without a definitive trigger.’
He cites 2.9% growth in hourly wages in January, the highest annual rise since 2009, as evidence that the US economy might soon run into the normal capacity constraints. This in turn would empower the hawks in the Federal Reserve to raise interest rates.
It’s not just the US. The Eurozone and China are also performing strongly, ‘suggesting long-quiescent inflation might be beginning to stir.’ The global economy overall is growing at a 4.5%, and advanced economies are expanding beyond sustainable rates. If market interest rates rise this would dampen bond and equity prices.
However, ‘if global economic prospects improve more rapidly than expectations of higher interest rates, write Mr Giles, ‘high valuations for equities would still be justified.’ Moreover, there may be some slack in the system, especially in Europe. Eurozone unemployment at 8.7% provides scope for non-inflationary job creation. According to analysts, the rise in hourly earnings might have been driven by an ‘unusually large’ drop in recorded hours worked.
What signs should business leaders watch out for? One important indicator would be more marked wage inflation in the US spreading to other tight labour markets, such as Germany or Japan, which would deepen fears about valuations.