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MANAGEMENT BY OSMOSIS

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Charlie Mayes

Written by Charlie Mayes, DAV Management

In July the National Audit Office announced that the Home Office’s Immigration Case Work (ICW) Programme had been closed in August 2013, and that despite costing around £350m it had delivered “significantly less” than was expected. The Programme was designed to give Border Force caseworkers a single accurate view of individual applicants and was intended to replace both the legacy Casework Information Database (CID) and other IT and paper-based systems, by March 2014. Interestingly in the same month, The Telegraph carried a report highlighting that Fujitsu was pursuing compensation, after its £896m Connecting for Health contract with the NHS was cancelled owing to disputes around the failed IT strategy. Fujitsu reportedly won £700m, although it appears the IT Services company is still pressing for higher levels of compensation. Of course, these are very large, complex programmes of work and understandably attract the headlines when things go wrong; however, it gave me cause to reflect more generally on the levels of success that are achieved by organisations undertaking strategic change initiatives.

With the business climate becoming increasingly more positive, many organisations are looking to capitalise on this via a range of strategic investment initiatives, be they plans for expansion, new market offerings, more efficient operations, or a combination of all three. All of these initiatives will in some shape or form involve ‘programme’ activity and inevitably require some form of change; whether it be organisational, cultural or technical. So let’s just take a moment to consider some of the statistics:

  •  According to a recent IBM study, only 40% of projects and programmes meet schedule, budget and quality goals. Further, they found that the biggest barriers to success are people factors.
  •  Geneca, a software development company, noted from its studies that “fuzzy business objectives, out-of-sync stakeholders and excessive rework mean that 75% of project participants lack confidence that their projects will succeed.”
  •  The Portland Business Journal found similarly depressing statistics: “Most analyses conclude that between 65 and 80% of projects fail to meet their objectives, and also run significantly late or cost far more than planned.”
  •  KPMG New Zealand’s 2013 report found that 70% of organisations had suffered at least one project failure in the prior 12 months and 50% of respondents indicated that their project failed to achieve what they set out to deliver.

None of these statistics should come as a surprise, over the years there have been plenty of well publicised stories of the kind highlighted above; however, project success statistics have remained stubbornly at these levels and we need to keep asking ourselves what else can we do to improve performance and deliver better value for money from the projects and programmes that consume so much time and money.

One of the anomalies that I’ve come across many times is where senior managers and executives don’t fully appreciate the difference between announcing a major change initiative or new project and actually making it happen. All too often such leaders assume that once the announcement has been made change will just occur without their ongoing investment in time and effort, as the sponsor, to make things happen. I call this ‘Management by Osmosis’ and from my perspective, there are a combination of factors that lead to this way of thinking.

Charlie Mayes

Charlie Mayes

An unfortunate legacy of the 2008 financial crisis seems to be a prevalence of short–term thinking that consequently drives short-term planning and targets, in equal measure. Organisations have become very action-oriented, pro-active and assertive, and there is an assumption that just by taking action quickly rather than planning the activities properly, projects and the changes required, will be delivered successfully. However, in practice, this pressure to ‘just get it done’ often leads to unrealistic timeframes, squeezing or cutting corners and a lack of appreciation of everything that needs to be done to manage and deliver the required change. If a piece of work should take six months to deliver but the sponsor wants it done in three, there will inevitably be an impact on quality and the benefits realised as a result.

An interesting by-product of this short-term approach is that I see business cases being put forward that are overly optimistic (in time, cost or benefit), based on the premise that if they were realistic then the board might not find the case attractive or aggressive enough and probably wouldn’t approve the work in the first place. Whilst this is often done with the best of intentions, in the belief that corners can be cut and timeframes squeezed, the outcome is nearly always that the project or programme is ultimately perceived as a failure; and yet would probably have been successfully delivered within the original, more realistic time and cost projections.

I have also found that in many enterprises, the matrix nature of decision making means that it is too easy for managers, even if they are the project sponsor, to abdicate their responsibility and accountability – everyone assumes that someone else is doing what needs to be done. For example I’ve come across situations where managers say: “I have delivered what is in my control” but nobody has taken full accountability for the overall outcome of the project leaving the project or programme manager to deal with the fall out of plan delays and escalating costs.

There is also a growing talent management problem in many organisations. For various reasons – the recession and internal cost cutting, shortage of skills and experience, the cost and time involved in successful recruitment – organisations are now over promoting from within. As a result I often find people in very senior positions who, whilst clearly competent and committed, are not experienced or skilled enough to do the job they have been given. Also, during the recession, many experienced staff were made redundant and not replaced without a full analysis of the impact of losing that skillset from the business; thus serving to exacerbate the problem. Ultimately, the consequence in all of this is that experience in the management team is lost, they come under increasing pressure to deliver short-term results and the collective ability to understand and manage the changes typically required is diminished.

This combination of factors – short-term approach with a “just do it” culture, lack of accountability, reduction in management skills and experience – also has an impact on the performance and morale of the rest of the business. Without clear leadership and sponsorship, prioritisation of work is almost impossible and functional teams are expected to deliver project and programme tasks with no additional time or resource allocated – effectively trying to ‘change the business whilst running the business’. At the end of the chain some relatively junior team member has to make a judgement call on what to prioritise and, unsurprisingly, they do this based on who shouted at them the loudest, who shouted at them last, what fits within their ability and comfort zone, or simply what they can do before they go home.

The end product of all of this, for many organisations, is that tasks don’t get completed on time because the priority was not understood, things quickly go wrong because responsibility is lost in the matrix structure, senior leaders don’t report, track and check that what they asked for has actually been done, and sponsors have no space in their calendar and are not accessible when important decisions need to be made.

Little wonder then that project and programme success statistics remain stubbornly difficult to address when this is the reality for many organisations. It is clear that continued “management by osmosis” will not fix these problems. Until organisations ensure that their boards of directors and senior executives have the appropriate time, the right skills and experience, are able to take a medium to long term perspective and can demonstrate the will to take on the accountability that goes with being a sponsor of change, it is difficult to see things improving.

About the Author

Charlie Mayes is a highly experienced Programme Director with an excellent track record of managing large-scale IT and business change to deliver tangible outcomes across many industry sectors including financial services, air transport, business support services and healthcare. He started his career at UK IT services company Data Sciences where he developed a full range of Systems Development and Integration lifecycle skills over several years working on complex technology projects. With this foundation, Charlie built his management career through roles in Project and Programme Management, Service Delivery, and in Sales, Bid and Business Management, in both Data Sciences and IBM Global Services.

Since joining DAV Management in 1998, Charlie has successfully applied this wide range of technical, commercial and management skills in a variety of interesting and challenging consultancy and programme management roles. He is at his most effective leading complex change programmes or technology business operations and enabling organisations to translate their strategic objectives into realisable business benefits. He has played significant leadership roles for a variety of well known clients including Thomson Reuters, Monarch and Alfred McAlpine and in the past 4 years has successfully delivered a number of high profile technology enabled business change programmes, with a collective value in excess of £300 million. Charlie has been Managing Director of DAV Management since 2007.

Business

Euro zone business activity shrank in January as lockdowns hit services

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Euro zone business activity shrank in January as lockdowns hit services 1

By Jonathan Cable

LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry hard, a survey showed.

With hospitality and entertainment venues forced to remain closed across much of the continent the survey highlighted a sharp contraction in the services industry but also showed manufacturing remained strong as factories largely remained open.

IHS Markit’s flash composite PMI, seen as a good guide to economic health, fell further below the 50 mark separating growth from contraction to 47.5 in January from December’s 49.1. A Reuters poll had predicted a fall to 47.6.

“A double-dip recession for the euro zone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.

“Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”

The bloc’s economy was expected to grow 0.6% this quarter, a Reuters poll showed earlier this week, and will return to its pre-COVID-19 level within two years on hopes the rollout of vaccines will allow a return to some form of normality. [ECILT/EU]

A PMI covering the bloc’s dominant service industry dropped to 45.0 from 46.4, exceeding expectations in a Reuters poll that had predicted a steeper fall to 44.5 and still a long way from historic lows at the start of the pandemic.

With activity still in decline and restrictions likely to be in place for some time yet, services firms were forced to chop their charges. The output price index fell to 46.9 from 48.4, its lowest reading since June.

That will be disappointing for policymakers at the European Central Bank – who on Thursday left policy unchanged – as uncomfortably low inflation has been a thorn in the ECB’s side for years.

Factory activity remained strong and the manufacturing PMI held well above breakeven at 54.7, albeit weaker than December’s 55.2. The Reuters poll had predicted a drop to 54.5.

An index measuring output which feeds into the composite PMI fell to 54.5 from 56.3.

But despite strong demand factories again cut headcount, as they have every month since May 2019. The employment index fell to 48.9 from 49.2.

As immunisation programmes are being ramped up after a slow start in Europe optimism about the coming year remained strong. The composite future output index dipped to 63.6 from December’s near three-year high of 64.5.

“The roll out of vaccines has meanwhile helped sustain a strong degree of confidence about prospects for the year ahead, though the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.

(Reporting by Jonathan Cable; Editing by Toby Chopra)

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Volkswagen’s profit halves, but deliveries recovering

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Volkswagen's profit halves, but deliveries recovering 2

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car deliveries had recovered strongly in the fourth quarter, lifting its shares.

The world’s largest carmaker said full-year operating profit, excluding costs related to its diesel emissions scandal, came in at 10 billion euros ($12.2 billion), compared with 19.3 billion in 2019.

Net cash flow at its automotive division was around 6 billion euros and car deliveries picked up towards the end of the year, the German group said in a statement.

“The deliveries to customers of the Volkswagen Group continued to recover strongly in the fourth quarter and even exceeded the deliveries of the third quarter 2020,” it said.

Volkswagen’s shares, which had been down as much as 2%, turned positive and were up 1.5% at 164.32 euros by 1158 GMT.

Sales at the automaker rose 1.7% in December, at a time when new car registrations in Europe dropped nearly 4%, data from the European Automobile Manufacturers’ Association showed.

Like its rivals, Volkswagen is facing several challenges due to the coronavirus pandemic as well as a global shortage of chips needed for production.

It also sees tough competition in developing electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owner PSA to create the world’s fourth-biggest automaker Stellantis adds to the pressure.

Volkswagen said on Thursday it missed EU targets on carbon dioxide (CO2) emissions from its passenger car fleet last year and faces a fine of more than 100 million euros.

The group is expected to release detailed 2020 figures on March 16.

($1 = 0.8215 euros)

(Reporting by Kirsti Knolle; Editing by Maria Sheahan and Mark Potter)

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Global chip shortage hits China’s bitcoin mining sector

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Global chip shortage hits China's bitcoin mining sector 3

By Samuel Shen and Alun John

SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines used to “mine” bitcoin, a sector dominated by China, sending prices of the computer equipment soaring as a surge in the cryptocurrency drives demand.

The scramble is pricing out smaller miners and accelerating an industry consolidation that could see deep-pocketed players, many outside China, profit from the bitcoin bull run.

Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoin they make and sell into the market affects its supply and price.

Trading around $32,000 on Friday, bitcoin is down 20% from the record highs it struck two weeks ago but still up some 700% from its March low of $3,850.

“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major provider of mining equipment.

Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.

Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritise supplies to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said.

The global chip shortage is disrupting production across a global array of products, including automobiles, laptops and mobile phones. [L1N2JP2MY]

Mining’s profitability depends on bitcoin’s price, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.

Demand for rigs has boomed as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.

“When gold prices jump, you need more shovels. When milk prices rise, you want more cows.”

CONSOLIDATION

Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”

“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.

Most of the products of Bitmain, one of the biggest rig makers in China, are sold out, according the company’s website.

A sales manager at Jiangsu Haifanxin Technology, a rig merchant, said prices on the second-hand market have jumped 50% to 60% over the past year, while prices of new equipment more than doubled. High-end, second-hand mining machines were quoted around $5,000.

“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.

The cryptocurrency surge is affecting who is able to mine.

The increasing cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.

“Institutional investors benefit from both large scale and proficiency in management whereas retail investors who couldn’t keep up will be weeded out,” said Yuan, whose company has invested over $500 million in cryptocurrency mining and plans to keep investing heavily.

Many of the larger players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research company TokenInsight.

“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he said.

Zhao said that while previously bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for around 50%.

(Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard)

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