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The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

‘The power of technology’ and ‘How long is long in years of service in the same organisation’ are the twin themes of the latest BBC/Open University The Bottom Line programme. Evan Davis's three guests are drawn from General Electric International, SES Global, which brought us the Astra broadcasting satellite system, and Ford Europe. The central thrust of their argument about the power of technology is that partnerships with the state are crucial in enabling technological change and innovation. The guest from SES Global, echoing the Open University‘s new Vice Chancellor, suggested that technology is not enough in itself: it is about the role of processes and people engaging in entrepreneurial and innovative activity. The rider should have been added to all three guest contributions that the love of the “new” does not preclude the “old”. That is, many of the technologies their companies deal in are based on “old” technologies, including the internal combustion engine and the aero engine. Indeed, the inspiration for Astra came from the first Soviet Union satellite, Sputnik, launched in the late 1950s.

BBC Micro in Broadcasting House window.
Picture © copyright Rain Rabbit, used under Creative Commons licence.

The fixation with the new informs every society as the art historian and critic, Robert Hughes, wrote and narrated in his 1980 television series entitled The Shock of the New: Art and the Century of Change. In the accompanying book, Hughes examined the development of art and culture from the late 19th to the late 20th century: the period of what is known as modernism. Essentially, modernism is a view of the world that posits the progress of science and technology and its underlying culture as the organising principle of rational modern society. The early proponents of modernism proclaimed that it had dramatically changed the world in a very short period.

The late architectural writer, Reyner Banham, was the author of the book, Theory and Design in the First Machine Age. For Banham, the First Machine Age was ushered in by the invention of electricity which created the conditions for innovations like the telephone, the gramophone, the washing machine, etc. The Second Machine Age, starting around the 1960s, is characterised by mass production techniques producing electronic devices, which are consumed universally and symbolised by a single source of mass communication – the television. The Third Machine Age can be said to have started with the invention of the personal computer and the mobile. Whether the Internet represents a fourth age or a fifth Kondratieff wave (named after the Soviet economist Nikolai Kondratieff, who developed the idea of 50 year cycles of technological innovation) is open to question. But, despite the recent febrile claims that we live in a weightless economy, it is the mass of human interaction with technology that appears to be the central condition of our species.

This truism leads us to the question of employment longevity. There have always been claims that how we organise our economy is a break with the past. Labour market flexibility, portfolio and virtual workers are part of the heady stuff reported by journalists every day as though it was the global reality of the contemporary work environment. Unfortunately, journalists too frequently psychologically externalise their own experience onto everyone else. My grandfather was a flexible worker: he was part of the casual labour system at Southampton Docks at the start of the 20th century – he worked when he was chosen from the queue of men similarly seeking a day’s pay. My father worked for 30 years for a nationalised industry that, in the 1950s, threatened to sack all the staff at the engineering base on a Friday night and re-employ them on inferior contracts on the following Monday morning: flexibility is nothing new.

The average length of employment in the same company is 5.6 years in the UK, yet there appears to be a cultural aversion to long service in this country as though it was antediluvian. It was heartening to hear that the three guests on The Bottom Line had been with their companies for a long time and that a third of Ford workers had spent twenty-five years there. In a society in which there are more 60 year olds than 16 year olds, it is doubly curious. Moreover, the loss of corporate and policy memory was shown to almost devastating effect at the onset of the financial crisis. In many important sectors of the economy, experience is at a premium. Yet discrimination in the workplace and too strong an emphasis on the beauties and beatitudes of new technology, sui generis, and every associated ‘nouvellle vague’ blights all our lives. Ageism like any form of short or long discrimination is not rational. More importantly, it is not right.

Find out more

Over 50 and in their prime

Radical innovation

The long view on innovation

Courses

Technology Strategy

Creativity Innovation and Change

Strategic Human Resource Management

About the author

Leslie Budd is Reader in social enterprise at The Open University Business School. He is an economist and has written extensively on the relationship between regional and urban economics, and international financial markets.

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Blogging about

The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

This week’s recording of the BBC and Open University’s The Bottom Line is concerned with the impact on business in an apparent age of hyper-mobility and feedback in organisations. The three guests are drawn from: the Engine Group, an international communications company; the leading global electronic stock exchange NASDAQ (the National Association of Security Dealers Automated Quotation system); and the worldwide corporate travel services company Hogg Robinson. The title of this blog is taken from the name of the 1975 book, Faith in Fakes: Travels in hyper-reality by the Italian writer Umberto Eco, and the book serves as an introduction to semiotics: the study of the interpretation of symbols.

It seems that discussion of the socio-economic impact of globalisation is frequently symbolic and the claims to the hyper-mobility of society are in fact hyper-real, that is to say the inability to distinguish what is real and what is not. In more prosaic terms, it is the tendency to confuse form and function. The form is the growth of the World Wide Web, the Internet and other related electronic media, which appear to break down national barriers to business and social mobility, while the function relates to the purpose of ICT (Information and Communications Technology). ‘Form follows function’ is a long established principle in architectural and industrial design, but the reification of virtual media leads to the conflating of the two. It is a bit like modern economics in which technique has triumphed over thought, as the financial crisis and global recession has shown to all our costs.

The City of London skyline.
photo © copyright Jupiter Images

For any idea or concept, one should apply a simple test: “Where’s the theory?”, “Where’s the evidence?” and “Where’s the data?” And, like globalisation, hyper-mobility is strong on theory, weak on evidence, and the data almost non-existent. If one looks at telephone, internet and airline traffic, there is a distinct supranational regional clustering which in turn reflects the economic strength of the world’s three dominant regions: North America; the European Union and East Asia. Also, if one looks at the digital divide, there are strong intra- as well as inter-national differences. If one adds in the locational decisions of firms, we can see that access to market still remains a prime consideration.

For example, Rolls-Royce Engines have a joint venture to produce engine parts in China – rather than exporting them from its UK manufacturing base in Derby – thereby reducing transport costs and environmental impact. NASDAQ had first mover advantage in being the global electronic stock exchange, yet it owns several stock exchanges in Europe, including NASDAQ OMX, the Nordic electronic financial trading platform, and a joint venture in the Gulf, NASDAQ Dubai. Although global in scale, the scope is distinctly regional. Furthermore, in an apparent age of digital determination, advanced business activities still crowd together in the world’s dominant cities, suggesting that agglomeration of these activities is an important source of competitive advantage. It is thus less about managing the impact of imagined hyper-mobility, but rather how to manage the real regional distribution of international activities for firms with global reach.

This brings us to our second possible fake, feedback to customers and employees. The comparative advantage of the Japanese economy and the competitive advantage of its firms have for many years been based on the process of kaizen (continuous improvement): incremental change with ideas coming from employees. However, for Japanese firms, customer feedback is also crucial in order to sustain the quality of the goods and services they provide and thus also their market share. Similarly, Motorola introduced the Six Sigma methodology to iron out defects and maintain quality of output. The caricatured British firm of the past, characterised in the Peter Sellers film, I’m All Right Jack, used the suggestion box, which often included appeals to the management of a physiological nature, but, by and large, feedback to employees was a didactic call to work harder.

Many contemporary firms cite their employees as their major asset and institute customer relationship management systems, but these are frequently mere rhetoric rather than an engagement with the internal and external reality they face. Feedback needs to be systematic and personal, whether it is to a customer or an employee. If firms don’t respond to the market, they go out of business. If employees are treated as liabilities rather than as assets, an organisation’s reputation will ultimately suffer.

Our faith in fakes is commonplace but if there is a prospect of a hyper-mobile society with all it entails, the dominance of white men of an uncertain age in the board rooms and executive committees will have to come to an end. This is one important feedback from the contemporary business environment, if whose existence is not to become counterfeit then travels in hyper-reality will have to be constrained, otherwise any future mobility, hyper- or not, will be limited.

Find out more

Keeping customers

Courses

Living in a globalised world

Creativity, innovation and change

Managing knowledge

About the author

Leslie Budd is Reader in social enterprise at The Open University Business School. He is an economist and has written extensively on the relationship between regional and urban economics, and international financial markets.

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Blogging about

The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

Does the Internet herald the death of a salesman? Not according to leading retailers like the John Lewis Partnership. Charlie Mayfield, CEO of the partnership, recently said customer service in the store is likely to play a big part in the future success of the business.

Over the last 30 years, there has been a general sense of willingness on behalf of suppliers and customers to develop increasingly close ‘emotional’ relationships based on trust. Buyers reward suppliers with brand loyalty, suppliers in turn develop strategies to energise this ‘connective’ relationship.

Until the Internet became a commercial tool, relationships were developed personally through sales representatives and customer service staff. As customers and suppliers become increasingly physically connected to one another via the Internet, the big issue is whether the nature of the relationship is changing as a result of transactions taking place online.

Technology companies have eagerly taken on the challenge to create digital solutions which can replace human interaction. Recently, Skymol has launched new software to add the human touch in a virtual world where customers can expect to engage in live voice and video chat to aid their purchasing decision. In other words, businesses can do personal selling online.

However, digital sales personnel are nothing new. In 2001 LifeFX created business avatars to help make customers feel more ‘at home’ when using the Internet to purchase goods and services. The company added a human face to standard email communications but it never became a mainstream business application.

Perhaps the heart of the question lies in whether online sales are based on short term transactional relationships, like those in the 1960 and 70’s, whereby sales personnel were concerned about making the one-off sales. Or alternatively, whether they’re based on longer-term close connective relationships.

Relationship marketing was a fundamental shift in the philosophy of the organisation, which rapidly grew in the 1980. It’s based on the fundamental premise that it’s important to develop ongoing relationships with a customer by focusing on quality, marketing, and customer service.

At the turn of this century prophets of doom suggested the internet would annihilate existing business methodologies and professions. Indeed, leading retail consultants predicted the demise of the high street in late 1990 as a result of online selling via the Internet. However, as we approach the end of the 00s, personal selling is still very important to many businesses. Whilst Internet sales continue to grow, and in some sectors account for a significant proportion of sales, this is not the case for all businesses and for the time being at least the high street remains with us.

Find out more

Keeping customers

Marketing in a complex world

Stephanie Flanders on online sales

Blogging about

The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

In this week’s The Bottom Line, there was a lot of talk about the demise of the traditional salesperson and how they’ve become obsolete in our online, low-cost world. And there’s a lot of truth in that. In my “civilian” life as a consumer, I rarely deal with salespeople these days. In the past week, I’ve bought a holiday, books, insurance, baby clothes and a DVD, all without even speaking to a living soul. Like many others I find that convenient, cheap and, whilst I might miss some human contact, I don’t miss the traffic jams or the surly young man who doesn’t even know how to smile or make eye-contact when I give him my money.

But in my working life, as a management researcher looking at how firms create and implement strategies, it’s a different story. In particular, B2B (that is, business-to-business) selling is very different from B2C (business-to-consumer) selling. That’s not to say the traditional salesperson has been left untouched by the tsunami of web-based innovation. The firms I study are keen, where they can, to reduce the numbers of costly and, let’s be honest, often hard to manage road-warriors who burn expenses and are often inflexible. Because of these drawbacks, they’ve shed their traditional “order-takers” and replaced them with call-centres and on-line channels, just like in the consumer world.

What’s left, in many B2B sales operations, is a small, better paid and more important sales force. In particular, those salespeople who survived the shake-out now tend to have different titles (almost no-one is called a ‘sales rep’ these days) and have different roles. There are three of these new, super-salesperson roles worth mentioning here.

The first is the technical specialist. Many products that companies or organisations buy are very technically complex. IT, pharmaceuticals and capital equipment are obvious examples, but lots of outsourced services, like maintaining the buildings and recruitment, are more complex than you might think. In these cases, the old-fashioned salesperson has never had much of a role.

Technical specialists have the job of selling these complex products and services and to do it well they need to be well-educated, well trained and at least as much as a consultant as they are a sales rep. These people aren’t under threat of replacement by a website or a call centre and in fact most companies have trouble getting enough good technical specialists. To quote one executive I met “Getting geeks is easy; getting reps is easy; getting geeks who can sell is very hard.”

The second species of salesperson for the modern world is the key account manager or KAM. As is the way of things, companies sometimes re-label ordinary reps with this grand title in order to make them feel more important, but a real KAM is a very different beast. Their task is to make sure large, profitable accounts stay that way in the long run. They spend little of their time actually selling and most of it as a sort of project manager or, as one KAM told me, an orchestra conductor.

In key account selling, contact between buyer and seller is complicated. Our techies talk to their techies, our lawyers speak to their lawyers, our accountants speak to theirs and so on. The job of the KAM is to make sure this happens, that nothing falls through the cracks and that the customer remains happy and a source not just of profit but of market knowledge too. This takes a very different skill set from old-fashioned selling and many more reps aspire to KAM than can actually do it. Like technical specialists, good KAMs are worth their weight in gold.

The final species of super-evolved salesperson is less common and found in markets that are technical and where the buying process is complex. In this sort of market, certain customers become experts and influence the rest of the market. In pharmaceuticals, for example, these might be professors in medical schools. In corporate IT, the IT directors of big multinationals fulfil this role. The industry jargon for these influencers is Key Opinion Leaders (KOLs) and the über-reps that work with them are typically called KOL managers.

Their job begins like a technical specialist, persuading the KOL that their product is best through a very detailed scientific sell. But the KOL manager isn’t measured by his sales figures. Their goal is influence and success is measured by getting the KOL to publish, speak and otherwise endorse the product so that the more mainstream customers will follow. Like the other two kinds of advanced salespeople, good KOL managers are priceless. This is especially true since KOL management is often a team task and a good KOL manager has to combine the technical skills of a specialist and the management skills of a KAM.

So, as with many things in management, the picture is more complex than the headline. The traditional salesperson is fast becoming obsolete, but there’s more to it than that. The best salespeople have become specialists, KAMs and KOL managers. In doing so, they’ve become more important, better paid and much more employable.

Further reading

An introduction to business studies

Myth, reality and requirements in pharmaceutical Key Account Management
by Brian D Smith
in Journal of Medical Marketing 2009

An Exploratory Study of Key Opinion Leadership Management Trends amongst European Pharmaceutical Companies
by Brian D Smith
in Journal of Medical Marketing 2009

About the author

Dr Brian D Smith is a Visiting Research Fellow in The Open University’s Marketing and Strategy Research Unit. He is the author of over 100 books and articles and runs PragMedic, a specialist strategy consultancy.

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Blogging about

The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

Traditional management practices are associated with an approach that emphases the monitoring, evaluation and control of organisational activities. Some people feel that this approach treats workers like children who need to be told what to do and that a more open approach treating workers as adults is more likely to draw out the best from staff.

Over the past several decades there have been competing trends - on the one hand to empower workers and, in theory at least, push more decisions down to the front-line, and on the other increasingly intrusive scrutiny of daily work. We know people are more likely to be happy when they have control over their actions suggesting that managers maybe be well advised to give employees as much freedom as they can over how they achieve their goals if not the goals themselves.

Quite a bit of research suggests that creative companies tend to have more open cultures where staff are able to challenge the received wisdom and do not feel obliged to look busy. In contrast non-creative climates are often much slower to react because committee-bound procedures slow the decision process and a 'do not rock the boat'/
'watch your back' culture inhibits the possibility of ideas for improvement being heard, let alone acted on. If your company is checking every last penny of your expenses be worried!

However, one size rarely fits all. National values also affect the expected style of the organisation culture. For example historically Chinese companies have run medium size organisations much more informally than their Western counterparts (who they view as somewhat hampered by procedure) whilst accepting that Western style governance practices are necessary for large enterprises.

Staff also differ in the extent to which they favour openness and guidance and this variation is related to the nature of the job they perform as well as personality. Those at the creative end of the spectrum, in research and development for example, tend to be motivated by job satisfaction and work much better if given maximum freedom to explore areas that interest them and follow their own hunches as to how best to move from an idea to a prototype. Further along the innovation process, in production for example, employees often prefer more direction with clear goals and milestone and can move more rapidly with group rather than individual incentives.

Find out more

For more on management style, organisational culture and innovation management around the world see the Open University Business School's Creativity, Innovation and Change course.

Do we need rules in the work place? Evan Davis ponders a workplace without rules

About the author

Jane Henry is an applied psychologist. She chairs the Open University Business School Creativity, Innovation and Change programme.

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Blogging about

The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

Questions such as these have fascinated sociologists for more than a century. The German sociologist Max Weber identified what he described as the formal rationality of rule-based bureaucratic organizations - i.e. the predictability of organizational outcomes as a result of expertly trained people following established organisational rules as a key element of their increasing success.

These ideas and a series of studies led many organizational theorists to argue that the ‘bureaucratisation’ of our society was both increasing and inevitable. For example over 50 years ago, Alvin Gouldner carried out an extensive study of the below and above-ground management operations of a gypsum mine. His work suggested that there were a number of different types of bureaucracy:

• representative bureaucracy
• punishment-centred bureaucracy
• mock bureaucracy

Each of these exhibited different attitudes to rule-following.

Although in a mock bureaucracy a rule might exist, nobody paid much attention to it. Gouldner, writing of 50s America discussed the attitudes at the mine to the ‘no smoking’ rule. Despite a plethora of signs, one miner is quoted as saying

‘We can smoke as much as we want. When the fire inspector comes around, everybody is warned earlier… The Company doesn’t mind’.

This attitude was in stark contrast to that towards safety. Perhaps for reasons of enlightened self-interest, people here adhered closely to the rules. Safety systems supported by paperwork were devised and relevant statistics collated carefully. In the third bureaucratic type Gouldner identified, not following a rule resulted in direct punishment. Perhaps times have changed. Gouldner found who initiated the rules, whose values were enforced, explanation of why rules were ‘broken’ and how they affected peoples’ organizational status differed markedly between these three organizational types.

In mock bureaucracies, Gouldner found no-one paid much attention to the rules, there was little conflict between different interest groups and joint ‘rule-breaking’ served to reinforce community spirit.

In representative bureaucracies, however, everyone enforced the rules. This might create some tension, but, since there was general agreement on what the rules ought to be, there was little conflict. Indeed, there was a sense in which everyone pulled together to ensure that rules were followed.

The situation in punishment-centered bureaucracies, however, was rather different. Rules set by one group were evaded by others, tension and conflict were rife and rule-breaking led to punishment that reinforced the entrenched (and often negative) attitudes of one group about the other. So what, if any, lessons can be applied from these ideas and historical studies to the present day?

The ‘formal rationality’ described by Max Weber referred to procedures that determine, in numerical or legal terms, how the efficiency of bureaucratic rule-following can be measured. As Weber was at pains to point out, however, just because we can quantify and monitor something, doesn’t guarantee that the rules produce efficiency. Recent evidence- not least from the English National Health and police services - suggest that bureaucratic performance targets can become something of a self-fulfilling prophesy.

Targets may divert peoples’ attention away from other, perhaps more important, concerns. Rule-following and target-achievement can become displacement activities which become ends in themselves. This phenomenon is referred to as bureaucratic dysfunction.

Although there is a lot of quantitative data available about public sector performance, and as such, it provides an easy target, clearly dysfunctional behaviour is not a public sector preserve. Private sector investment bankers’ remuneration provides a topical, if now rather well-worn, example of just how badly wrong things can go for everyone if highly-motivated and talented people zealously apply particular rules.

Given the tumultuous economic and social changes such ‘rule-following’ has bought about, perhaps this is a good time to re-think whether or not tighter control is the only, or indeed the right, solution to achieving the sustainable and efficient socio-economic organisation of work.

Find out more

Do we need rules in the work place? Evan Davis ponders over a workplace without rules

Managing in the Workplace

Managing Performance and Change

Fundamentals of Senior Management

Strategic Human Resource Management

‘The Ideal Bureaucracy’ by Max Weber
in Organizations and human behaviour: A Book of Readings edited by Gerald Bell
Published by Prentice-Hall

Patterns of Industrial Bureaucracy by Alvin Gouldner
Published by Free Press

Control and Ideology in Organizations edited by Graeme Salaman and Kenneth Thompson
Published by The Open University Press

About the author

Caroline Emberson is a lecturer in retail management at The Open University Business School, having previously worked in the fashion and textiles industry. Caroline's research interests include managing in supply networks and the development of customer-responsive supply chains, in particular the use of business-to-business information systems.

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The final programme in the documentary series The Love of Money finishes by ascribing the causes of many financial crises, including the most recent, to a “reckless love of money”. Over the series, we have seen how reliance by banks on imprudent investments in property loans with high default risk led to the near total collapse of the world’s financial systems.

Was this the consequence of the actions of a powerful few, driven by extraordinary levels of greed and recklessness, or can the roots of the crisis be found in much more commonplace aspects of human psychology? I am going to argue that there is a great deal in common between the psychology of every day decisions about money and the psychological processes involved in the creation of this global financial crisis.

Consider two examples:

Jenny has recently lost her job, she knows that money is tight and she needs to reduce her costs dramatically, but every time she tries to think about sorting things out she feels bad and ends up by going shopping to cheer herself up.

Jared took on a 100% loan to buy a house with repayment levels he could only just afford. As he thought about this decision from time to time, he felt anxious about the possibility that he would not be able to meet the payments. He was able to avoid this anxiety by focusing on the way in which house prices seemed to keep on rising and by telling himself it was really a ‘one way bet’.

In each case there is a common factor: employing a strategy to avoid bad feelings and maintain good feelings, rather than facing the real problem or risk. We all behave like this from time to time. We all have strategies to regulate our emotions and often do so with the goal of avoiding bad feelings. However, when we feel particularly anxious or are powerfully motivated by an important goal, this tendency can cause us to ignore the important information that negative feelings can carry. Often this can involve fostering illusions about ourselves and the world around us which help us feel better.

Stock market results in a newspaper.
[image © copyright Jupiterimages]

We might imagine that professional financial decision-makers would be better at avoiding such traps. After all they work in a climate which places a great premium on rational decisions. However, in a large-scale study of 118 traders in four City of London investment banks, myself and colleagues found traders to be just as prone to these kinds of illusions as the rest of us. In particular we studied traders’ propensity to suffer from the illusion of control: the tendency to believe we are more in control of events than we really are (especially under stress). We found a significant relationship between a tendency to suffer from illusions of control and poor trader performance (including poor management of risk).

How might this relate to the causes of financial crises? One example back in the early 1990s is worth recalling. Peter Baring has been reported as telling shareholders at an AGM one year before the collapse of Barings’ Bank that, on the basis of the previous year’s performance, he had concluded it is easy to make money in the derivatives market. A year later the bank was valued at £1.

Any banker understands that there is a strong relationship between risk and return. Faced with unusually good financial performance in part of a bank’s operations, an important question to ask is “What hidden risks are we carrying that account for this high return?” However, faced with good returns, it is tempting to foster the illusion that good performance is a result of our unique skills and capabilities, while failures are due to events beyond our control. This tendency is known by psychologists as the self-serving bias.

This unwillingness to seriously question what hidden risks lay behind unusually high returns seems to have been an important factor in the recent demise of Lehman brothers and other major banks. A reckless love of money seems to have fuelled collective illusions about the risks being faced.

We need to understand more about how these kinds of emotion regulation processes work in financial decision-making. Current research is helping us understand these processes and how such blindness to risk can be reduced. The European Commission has funded me and an international group of researchers to conduct a major study looking at ways of improving financial decision-making. This study is looking at traders, investors and private citizens, and is paying close attention to the role played by emotions in their decision making.

Take it further

• Trading on emotion
• Has Robert Peston caused a recession?
• Bankers won, politicians lost

Further reading

Traders: risks, decisions, and management in financial markets, by Mark Fenton-O'Creevy, Nigel Nicholson, Emma Soane and Paul Willman, was published by Oxford University Press.

About the author

Mark Fenton-O'Creevy is Professor of Organisational Behaviour at the OU Business School. His research includes investigations into the performance of traders in financial markets, and the problems that occur when management practices are transferred from one country to another.

He is also a National Teaching Fellow, and Principal of the Centre for Practice-Based Professional Learning.

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