Learning from the BBC

How many senior managers does it take to run the BBC?

Apparently it’s quite a lot less, 18% less to be precise, than previously thought according to the BBC Trust which has agreed to proposals from the Executive to cut the senior management pay bill by around 25% over the next three and a half years.

Other savings will come from freezing pay and bonuses for senior management until 2010 as part of a larger plan to cut a whopping £1.7 billion from costs between now and 2013.

Wow.  18% less senior staff!  Savings of £1.7 billion.  What a veritable feeding trough this must have been in recent years; a perfect illustration of how the interests of senior staff can diverge from that of the organization and its shareholders (the public in this case). 

Actually the salary and bonus savings are likely to be just the tip of the iceberg.   The primary cause of inefficiency is not too many staff and an inflated wage bill, bad as that is, but the organizational constipation they cause as they get in each other’s way.  All those staff have to do something, and when there are too many of them they invent work, creating endless and pointless meetings and paperwork, hoarding information, diffusing responsibility and playing (company) politics.   Trust me, I’ve been there, I’ve got the tee shirt.

But if the BBC is top-heavy and over-managed, what of central government?   I suspect the BBC is positively slimline by comparison.  Think about it; most long-established major industries have in turn experienced an existential crisis which has forced root and branch reform – think shipbuilding, coal, steel, motor manufacturing, telecoms and so on.   Some have failed to make the change, others have gone on to thrive (though often under foreign ownership).  The one obvious holdout, protected until now by the endless generosity of the taxpayer, is government.

Well, this party is about to end.  A country needs a government just as a large and diversified company needs a head office but it must add value and it can only do this if it is small and efficient.  If it gets too large it becomes inefficient and self-serving and subtracts value.  That sadly, is what HMG too often does.

Which is why I have always disagreed with the plan to save $20 billion from government spending.   It’s simply too small; it implies leaving the system basically unchanged and making it just a bit more cost-efficient round the edges.  For heavens sake!  If the BBC can find £1.7 billion after a few months what is the potential across government?  £200 billion is probably nearer the mark because that implies a root and branch change in the way government works.

It’s long overdue.

 

How unfriendly prices can damage your wealth

Quickly now, at your local supermarket which is better value - 4 rolls of paper towels for £2.79 or 6 for £4.29?

Most people take some pride in being careful shoppers but it’s not easy when you have to do sums like that in your head (especially if you have a fretful toddler in tow).   These are what my wife, a chartered accountant, calls ’unfriendly numbers’ meaning ones that don’t lend themselves to mental arithmetic.   

This is no accident;  you’re not supposed to compare them because unfriendly numbers and similar tricks are at the heart of the ‘trick and trap’ sales strategy now universally used by Big Retail.   The objective is to induce customers to overpay by confusing or misleading them about the price of items and, in particular, which about choices are best value.  

Although there are laws against misrepresentation Big Retail has discovered you can comply with the letter of the law while frustrating its purpose by exploiting psychological tricks.  These tricks don’t fool everyone all the time but they don’t have to.   It’s a matter of averages;  as long as they work for some people some of the time they serve their purpose and my guess is that they actually work for most people most of the time. 

Nor is it just supermarkets that resort to price confusion strategies;  it’s endemic in many sectors.  Did the banks selling worthless securitized sub-prime loans really want price transparency whereby their customers would have understood the real value of what they were buying?   Do you really understand your telephone bill?  (Do you think you are supposed to?)   Confusing customers about true value is one of the oldest tricks in the book.  

Just how effective this can be in the case of supermarkets was dramatically illustrated by the BBC’s Watchdog consumer program this last week (video – package begins at about 40 minutes).   They arranged for three couples to buy a list of just six items as cheaply as possible from a mocked-up supermarket stacked with retailing tricks taken from real life.   The cheapest it was possible to buy the list was just £11.96 but the three teams spent £14.52, £21.10 and £21.27 – equivalent to truly eye-watering premiums of 21%, 76% and 78% respectively over the best possible price.   While this obviously wasn’t a properly conducted scientific test it does show the effect of this chicanery is pretty huge.  Moreover, it’s reasonable to infer that it will disproportionately trap those lower down the social (and educational) scale.   

Watchdog’s package concludes with a spokesman from the British Retail Consortium (the lobby group for Big Retail) trying very unconvincingly to blame it all on ‘mistakes’.   The fact is that when your sales are in billions making just 1p more in every pound become hugely profitable and the supermarkets have a massive incentive to turn deceit  into a strategy.

Is it possible to estimate, however roughly, the scale of excess revenues garnered by the supermarkets?   Obviously not from Watchdog’s little test of the efficacy of ‘trick and trap’ which is, in any case, only one of many strategies employed.   However, we can get one estimate of how much cheaper supermarkets could be from Aldi and Lidl both of which claim to be around a third cheaper than the established competition.  Combine this with supermarket sales of around $90 billion and you get excess revenues of £30 billion – equivalent to a staggering £500 per annum for every person in the UK.

Is this a reasonable figure?  The supermarkets and their apologists would obviously say not but Im going to stick my neck out and say that, for all that it’s a bit approximate, I suspect it’s about right.   But even if it’s a substantial overestimate, it still dwarfs anything the government has yet come up with to help ordinary folk as opposed to bankers.  

Oligarchs or people: hopefully that will be the choice at the next election.

By the way, the answer to the question at the head of this post is that the 6-pack costs 2.2% more than the 4-pack on a per unit basis.

Stuck in a rut – but we can break free

Mark Thompson asks why we’re not doing better in the polls.   As he observes we are in the worst financial crisis in most people’s living memory, the government is deeply unpopular and out of ideas, politics itself is in crisis and politicians are seen as remote and untrustworthy;  yet for all this the Liberal Democrats are stuck at only around 20%, in the polls.  Clearly, something is very wrong.

The difficulty as I see it is that we have got stuck in a rut, winning a measure of success as a (largely) protest party, but with little idea of how to get out of the rut.  So, where are we going wrong and what do we need to change?  

There is so much one could say on this subject that I will confine myself for now to just two things that we should stop doing.    In a later post (or maybe posts) I will consider things we should do differently.

Firstly, we should stop complaining about the unfairness of the media and the voting system.   Of course they’re unfair (what do you expect?) but if we use that as an excuse it  becomes all too easy to stop right there and never get on with the things we can do.   If we had a coherent understanding of where the the country was at and what we would do about it, we would certainly get reported.  Vince Cable has shown that this works; unfortunately he is seen as a sage distinct from the wider party.  The conclusion is surely that developing a compelling narrative is a top priority; once this is done the ‘media problem’ will solve itself. 

Secondly, we should stop being so complacent.  After the last general election and yet another bad defeat, the Tories debated briefly what their strategy should be.  They all agreed (after debating in very much these terms) that it came down to a straight choice between (a) a radical reform of their platform, and (b) a ‘one more heave’ approach.   Almost without exception Conservatives from all wings of the party understood from the outset that the ‘one more heave’ strategy was, in fact, a hiding to nothing and that they had to change, distasteful as it might be to many.  The issue for the ensuing leadership debate was then what sort of change and, as we now know, that was won by Cameron.   His platform?  An superficially greener, more liberal interpretation of Conservatism based on an accurate perception of a gap in the market created by the weakness of the Liberal Democrats rather than on any ideological conviction.

Contrast this with the response of the Liberal Democrats;  we had no debate but just blithely assumed that, of course, it was back to ‘one more heave’;  it’s what Liberal Democrats do, it’s what we’ve always done.   In doing so we effectively surrendered any chance of winning the forthcoming election preferring instead to reheat and represent policies that voters had just rejected by a large margin.  Only now, belatedly, are we beginning that debate.  (Which makes me think that the election after 2010 might at last be the breakthrough). 

As Mark hypothesizes, this is the best chance we have had in decades.  It’s up to us whether we choose to throw it away or run with it.