Governance

The phrase “to big to fail” has been bandied around a lot over the last 12 months; specifically in regard to the (assumed to be unacceptable) cost to society of the failure of large banks and now to large manufacturing businesses such as General Motors and Chrysler.

There is no doubt that the failure of both large banks and manufacturers would cause significant immediate pain to both the local and global economies not just directly but through the knock on effects on confidence (particularly important in banks) and the supply chain in the case of car manufacturers (the usual figure quoted is 6 component manufacturing jobs for each car assembly job). There is also the likely long term damage to the manufacturing skills base (ref the UK in the 1980’s).

Politically this is dynamite as people expect government to help in these situations. The latest approach from GM and Chrysler to the Obama administration is the latest and clearest example of this.  What interests me is what happens next.

If these businesses are “too big to fail” then it seems to me that there are two options for society going forwards to ensure this does not happen again. Either:

1. These businesses need to be broken up into chunks that are small enough so that their failure does not wreck the socio-economic system.  Competition / M&A policy also needs to be tightened up significantly to include a “will this acquisition / merger create a business that is too big to fail?” (note this should not include any assessment of the risk of it failing)
2. If they can’t (or shouldn’t) be broken up then society needs to make sure, as best as possible, that the organisation can’t fail.  This is what has happened in the case of the banks through both implicit and explicit guarantees and significant equity investment.  In return for these guarantees the organisations will, in future, have to be run with “society” as a (possibly the) major stakeholder.  In effect they will have to become like the utility companies where their detailed business plans are vetted by a regulator operating on behalf of society.

What this means for politics is the return of some sort of “planned economy” to the US and the UK in particular (it never really went away in France and Germany).  The major problem with this is that there there are very few politicians that have any experience of industry.

A new socio economic system is emerging, which is neither capitalism as we have known it, or socialism as it was practiced before.  More on this in the next post!

I have been tempted to comment on the grisly road crash that is the financial markets for a number of weeks, but each time, just as I have got my thoughts together something else has happened.  In many ways this just highlights that it is too early to draw firm conclusions.

I would just like to highlight a prescient post of mine on this website, two years ago to the day!!

In “Stakeholder Capitalism and the Mutualisation of PLCs” I commented on a number of trends which taken together meant that raw capitalism, where the only measure that mattered was profit, was in the process of evolving into stakeholder capitalism, where other stakeholder demands (e.g. no child labour, reduced emissions, fairtrade) are almost as important.

In the post I only mentioned the financial services industry in the context of de-mutualisation, however recent events, particularly the re-capitalisation of the banks, re-enforces my view.  When push came to shove it was decided (correctly in my view) that allowing any large bank to fail was not an option as our economic system would collapse with potentially apocalyptic results.

My key point, both two years ago and now is that capitalism in its “raw” form is probably finished.  It is not profit, per see, that is important, it is more how and why that profit is generated that is critical.

The broader sustainability agenda plays in here as well.  From my discussions with contacts, it is clear to some global companies that they can no longer rely on being able to grab hold of the resources to be able to continue to grow.  This poses some fundamental challenges both for companies and for the global economy, specifically that the issue hat we can see that the global economy cannot expand infinitely and we can start to see the limits!

John Maynard Keynes is seen as the key economist in these times because of his work analysing and dealing with the 1929 crash and subsequent depression.  However John Nash in the Times highlights another aspect of Keynes work. This is an essay where he imagined a world where we had moved beyond crass materialism…

“I see us free to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour and the love of money is detestable…We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well.”

I have a couple of Keynes’ books on the shelf already.  Might be time to find a copy of this essay as well!

I’ve been musing (and occasionally ranting) about the procurement process over the last few months and have finally started writing a white paper on the topic.  Some of the issues were brought into sharp relief by two conversations yesterday.

On one hand I was talking to a prospective client where he highlighted that one of the questions with DSDM is “How do you procure system development services from a 3rd party when the features / requirements of that system are either not fully understood and / or expected to change”. He then went on to highlight the issue of which party is taking what risks.

This is one of the core tenets of traditional / competitive / confrontational procurement: in theory the procuring party is transferring risk to the supplier. In reality this is not the case as the lawyers and commercial people in the supplier are typically more expert in assessing the risks and making sure that their organisation does not accept more risk than necessary. This is because they deal with the area of expertise in focus all the time, where for the customer it may be the first or infrequent purchase of its type.

I don’t yet have a complete answer for this question and I know this is something the DSDM community is looking at more generally. What we are looking for is a model for collaborative procurement; so meeting one of the key principles of DSDM. By definition, this could be seen to be the polar opposite of traditional procurement.

I then went to meet one of the people that I have asked to quote for re-branding and re-vamping the Kubernetes website. Again by its very nature the output of a branding exercise is unknown at the start, there is likely to be a known process but being definite about how long it will take and how much it will cost is difficult.

What did I do? Lapse straight back into a competitve procurement mindset! It was only on the train home I realised the hypocritical hole I had fallen into.

So today’s task is to work out how to procure my re-brand collaboratively….. or at least to accept my latent hypocrisy!

We’d like to wish you a Happy and Prosperous New Year

Initally this was just going to be a one line post as above, but there is an interesting discussion about the nature of happiness in the news at the moment. There was an article in the Economist just before Christmas, another in the Telegraph yesterday and one on the BBC website today.

This may just be the usual clutch of mid-winter blues articles in the media; there was an article in the Sunday Times in January 2005 which I saved and have now uploaded here. I may just be more sensitive to it now for some reason. However there does seem to be a groundswell of opinion saying that society is not happy, asking what happiness is and trying to work out how to be happy.

The Sunday Times article quotes Epicurus and Aristole as saying that happiness must be the ultimate goal in life as people search for money, fame, power, beauty in order to make themselves happy and no-one seeks happiness for a higher benefit.

Clearly what makes each individual happy is different, but there does seem to be themes. Positive supportive relationships with others; friends, family etc, is a consistent theme as is feeling that you are doing something worthwhile

Which brings me back to my “Whole People” post in July and Stephen Covey’s core philosophy that for people to be fulfilled they need to live, love, learn and leave a legacy.

I was at the Agile Business Conference a couple of weeks ago and amoungst lots of very interesting presentations was a comment by Scott Ambler about research into the costs of Big Requirements Up Front (BRUF). By BRUF he means trying to pin down exactly what an IT system (and I would extend this to any system e.g. business, government dept. etc) will do before developing it.

Click here for Scott’s article on the study. In summary BRUF typically leads to significant wastage of resource.

While we didn’t have access to this sort of detailed research at the time, Solution 7 and I knew that to deliver the National Packaging Waste Database in the very tight timescales required, an aglie approach had to be taken. We have met the deadlines and are on course to meet the final go-live date of 1st February 2007, so the approach has been effective. It is nice to know that it was the most efficient approach as well!