The training merry-go-round

Morrisons report on the radio this morning that they are taking unemployed young people into employment via a spell in the voluntary sector: this ensures that they are accultured to work practices before they go into the supermarket.
This seems to be the latest spin in a tiresome merry-go-round which we have been riding in Britain ever since the First World War. It goes like this. People do not have the required skills. Government says that it is unfair to load training costs onto the taxpayer: industry or individual workers, who are the primary beneficiaries, should pay. Employers say that if a firm trains people it will just see them poached by a competitor who can afford to pay them more since he does not meet training costs, and it therefore cannot afford to do it. Workers cannot afford training costs themselves, and often do not have the knowledge to identify the skills needed by employers.
There have been any number of more or less half-hearted initiatives to try and break this vicious circle. Government intervention is lower than ever, with even the armed forces unwilling to offer engineering apprenticeships. Now – never mind trade skills – it seems that companies are not prepared to take on the costs of acculturing young people to the workplace, but are asking the voluntary sector to take on the task instead: this is not their role, and will not last five minutes.
Bring back John Henry Whitley?

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The New Zealand model

The economic and public sector management policies of New Zealand since the mid-1980s are sometimes known as “Rogernomics”, in deference to both “Reaganomics” and their proponent, the Finance Minister Roger Douglas. There is a current fashion for seeing this policy approach as a model of the way forward for democratic market economies.  The picture in New Zealand, however, is hardly rosy. 

That policy shift saw a radical deregulation and reduction in the role of government, subsidies for agriculture abolished, imports liberalised, controls on interest rates, wages, prices and the exchange rate removed, and rates of taxation reduced (at one time, with the aim of a single income tax rate).  It resulted for a time in an economic growth rate of over 6%, a good deal higher than in most other developed economies. 

Such policies resulted in various unintended consequences, such as the the “leaky homes crisis”, where the liberalisation of building standards in a vain expectation that market forces would assure quality led to thousands of faulty houses being built, at a remediation cost of over NZ$11 billion. But more fundamentally, what proponents of such policies miss is that they are socially intolerable. From 1982 to 1996, the top decile in New Zealand found their share of household income rise by 33%, while the income of the bottom 80% of households fell by 10%.  The result has been that although there have been both right-wing and left-wing governments since then, both have been paralysed: prevented by industry and international pressures from forswearing the market reforms, they have been driven by popular pressure to do what they can to increase fairness in society through initiatives such as better pension provision, while struggling to hold fragile coalitions together.  Meanwhile, the initial burst of productivity improvement has run out, with the GDP rating still a good deal lower than it had been the 1970s.  This hardly seems an attractive model for other countries. 

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Short-term contracts

Why do managers use temporary contracts and agency staff? Sometimes it is for short-term projects. But often it is simply a device to try and get round the constraints of employment legislation, in the hope of keeping flexibility in an uncertain future – in essence, shifting the risk of job security from the firm to the individual. Of course, European legislation has recently made this more difficult. But there is a bigger question underlying the practice: whether using temporary contracts improves or harms the organisation’s performance.
In general, the popular assumption has been that people will work harder if they have to get their contract renewed in a few months, and that that will improve output. On the other hand, it is argued that people on temporary contracts may be more dissatisfied and so perform less well. There has been useful work by psychologists in this area over recent years. And the results are not always what one would expect.
While at Birkbeck I tested the question in a small but representative study of UK public sector employers, by looking at expectations of staff performance (through scores in the recruitment process) against how they actually performed (through staff appraisal scores), and seeing whether this comparison was different for those on temporary contracts. The results depended on how employable staff felt. Professionals who expected easily to be able to find another job resented being put on temporary contracts and performed less well. But less skilled or mobile staff in areas with fewer vacancies did work harder and produced more.
A subsequent major survey-based study is now under way across a number of European countries, led by David Guest of Kings College London. Initial results suggest that staff often now prefer to be on temporary contracts – but that the reason is that it is a way of avoiding the more difficult or less visible work: this gets given to the permanent staff, who also have to put up with the long hours needed to deliver it, while their temp colleagues are already down the pub. The effect on organisational performance has not yet been measured, but seems unlikely to be positive.
We can conclude that the true position is complex, and that no-one should offer temporary contracts without a good deal of thought: motivational effects on both the temporary employees and on their permanent colleagues may be hard to predict. And a small early investment in expert advice may pay dividends later on.

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People management and organisational performance: recent developments

Does one get high performance by sympathetic management, or by discipline and fear? This question was first put in the 1920s, and has made repeated appearances in managerial literature – indeed, most of those who have done a management training course will have heard of Likert’s ‘System 4’ or McGregor’s ‘Theory Y’. For a long time, however, it was a matter of personal conviction which option you went for, despite repeated attempts by the human relations and related schools of management to demonstrate that the rigid discipline approach had negative effects.
Recently, however, the CIPD has been sponsoring serious research in Britain to try and nail this evasive problem down. And results so far are promising. The direction of travel was first indicated in the DTI’s Workplace Employment Relations Survey in the late 1990s, which echoed US experience in finding a link between a package of HR practices (eg performance appraisal, training, job enrichment, communication) and performance. But this operated as a ‘black box’. Though the existence of a link was clear, it was not possible to infer what exactly it was. Subsequent work, published in 2003, began to isolate strategic vision, job design and first-line manager quality as key factors. Further study is now under way to support these conclusions, seeking to bottom out some of the more difficult areas of the earlier research, such as application across employment sectors, reliability of findings, and what is meant by “good performance”.
There is still some distance to go. In addition, there seems to be a bit too much bias on HR rather than line management (perhaps understandable in a CIPD study), and one potentially important question is not yet being addressed at all – why managers who claim to understand the importance of participative management will often in fact, despite using all the right language, behave quite differently in their managerial actions. But the work being done is definitely on the right lines, and is helping us to bring within reach the long-sought goal of the happy productive worker. There are already indications, for example, that even very rigid and standardised rules and policies can be perceived by staff as positive if delivered and interpreted by supportive first-line managers. If findings of this sort can be fully established and generalised, and also disseminated through the managerial community, there is a chance that British management may at last move from being among the least satisfactory to among the most effective in the world.

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Groupthink and the civil servant

 Letter published in The Guardian, 15 October 2011:

It seems that Mr Werritty was being funded by extreme right-wingers from the US. The dangers of Ministers surrounding themselves with congenial opinions were highlighted by work by psychologists on the origins of the 1961 US Bay of Pigs disaster, which led to the coining of the term “groupthink”. These risks are why ministers should take advice from professional civil servants, who will be accustomed to evidence-based policymaking and to analysis which includes less as well as more palatable policy options. Now is not the time to be setting the rules aside.

Mark O’Sullivan

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Two perverse Treasury doctrines

Today I draw the attention of the reader and his dog to two Treasury doctrines which produce perverse consequences.

The first relates to European structural funds grants (mainly from the European Regional Development Fund). Despite the expansion of the EU, there is still a substantial amount of this money available for the UK. And it is distributed on a competitive basis, so we have to bid for it: how much we get depends critically on whether we come up with decent projects. This is not easy: rightly, to dissuade fraud the European Commission has put in place elaborate procedural requirements, and to ensure that projects are worthwhile they also insist on match funding from other sources. But these are not the worst impediments. The Treasury has also put in place a major barrier to people who might otherwise be prepared to put in the effort to get money for the UK from the EU: they insist that if a UK authority gets EU funding then the money involved must be deducted from that authority’s existing allocation of public funds. Thus people who labour away on these complex bids for their communities find, in effect, that their communities get no benefit at all.

The rationale they cite is the need to control public expenditure totals. One can readily think of a number of more effective ways of tackling this problem. But the Treasury will have none of these. A few years ago, this deeply frustrating policy led to the resignation of the Welsh First Minister. At a more humble level, I myself was involved more recently, in one of the most depressed and remote villages in Scotland, in a bid to restore the harbour, the only project with a chance of generating life-giving tourist income; I saw the project founder on the local authority’s awareness of the hopelessness of trying to get European funds. If this silly rule were replaced, additional grant would flow; it could be not only a lifeline for the poorest parts of the country, but also a useful way of getting more of “our money back” as Mrs Thatcher used to say.

The second issue relates to VAT. In general it is only business enterprises which can register for VAT, and reclaim the VAT on their purchases. An exception is made for local authorities, who are able to do this as well. But no exception is made for Government departments or public bodies (there will of course be fewer of the latter in future as a result of the recent quango cull; but, in general, work which needs to be done will still have to be done by somebody). Services bought by anyone are subject to VAT, but salaries they pay are not.

This has perverse consequences. If a Ministry needs to have a new IT project done, it has a choice: it can employ someone to do it (perhaps from its own IT team), or it can engage a consultant. In principle the overall cost of the two (including sick pay, training, workspace &c) ought to be similar: the Ministry ought to be able to choose the best person. However, it would have to pay VAT on the consultant’s fees, but not on employing its own staff. The result is likely to be that it either engages a consultant at considerably higher cost (losing funds which could have gone to other worthwhile projects, or been returned as an underspend), or reassigns in-house staff who are experienced in something else and not well suited to the work involved. In the former case the will of Parliament that a certain level of resources should be given to certain services will be undermined; in the latter there is a higher risk of inefficiency or waste. Bizarrely, there is no benefit whatever: even if the VAT is paid, the net position of the Exchequer is exactly the same, as the money is simply going out of one pocket and into another.

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Pensions again

With the publication of the interim Hutton report, pensions continue to be a big story.

I would say that in the long run the total reward package (pay plus pension benefits) of public sector employees has to be about the same as that of private sector employees, or else public services will no longer be provided. The issue is only how the reward is divided between salary and pension.

On this, my own assumption is that (i) the penalties which the media visit on politicians’ failures are fiercer than those which shareholders visit on directors, and that therefore (ii) the policies that politicians wish to follow in the public sector are more risk-averse, and that therefore (iii) risk-averse officials are more effective in the public sector, and that therefore (iv) a better pension and a worse salary is the best way of attracting the right people to the public sector. Hence, while some very recent increases in public sector pay may have been excessive, I’m not convinced that the general level and balance of public sector reward has in recent decades been incorrect.

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