Newsletter June 1. Something old, something new
Since its last newsletter OCP has acquired several new clients, and has also deepened its relationships with organisations for whom it has worked for many years. A consistent theme has been our role in helping clients to specify, design and manage organisational change resulting from mergers, changes in processes or technology and a general desire to do better. In this regard we have assisted organisations engaged in financial services, rail infrastructure provision, criminal justice and a well-known central bank.
We have also conducted strategic reviews and supported strategic decision-making in the insurance sector, including a project for Polaris UK Ltd, the standards body that facilitates e-trading in UK general insurance. With the help of Geoff Horton we have trod where angels fear to tread, and advised the UK Government’s Department for Culture, Media and Sport on how to resolve the failure-to-agree between the Horserace Betting Levy Board and the Bookmakers’ Committee on the 47th Horserace Betting Levy Scheme. New business start-ups in healthcare and professional services have drawn upon our services, including work on programme design and help with business development and bid strategy. A public sector shared services provider has used OCP help to sell its wares to other Government departments, and Frank Kaye has been perfecting his Spanish through his work for Barclays Global Payments in Madrid. Finally, Colin Carmichael has guided the National Fallen Stock Company (a not-for-profit, farmer-led organisation that assures the biologically secure disposal of fallen agricultural livestock) in developing its business plan and then outsourcing administration from the UK Government's Rural Payments Agency. 2. Increasing capacity and capability for change in the police service
The police service in England & Wales has enjoyed massive increases in public funding in recent years. Now the drive is on to deliver improved outcomes from this spend. But improving policing practices and performance is not organisationally
straightforward. The police service is not a single, integrated organisation. Each of the 40-odd police forces is made up of several Basic Command Units (BCUs) which consist of a hundred or more police officers providing services to hundreds of thousands of citizens. Ultimately, most changes need to make sense, and be deployed on the ground, at BCU level.
Forces differ in their organisational philosophies. Some have a highly centralised approach to delivering change, with a strong programme management culture which instigates and directs change within BCUs. Others devolve both resources and accountability for change to BCUs. The organisational context, therefore, provides ample opportunities for multiple disconnects. It is inherently difficult to get the message of change through the hierarchical layers: from the national level, through to individual forces and down to BCU level where change is implemented and benefits realised. Programme and project management has rightly become a more disciplined and professionalised activity within the public sector, with the introduction of Prince2 methods and Gateway reviews. But just using the required bureaucratic tools will not of itself guarantee success. Like the emperor in his new clothing, many senior responsible officers typically say that “my programme sailed through all its Gateway reviews and yet common sense tells me that it won’t do what it says on the tin”. How can change be made to happen more effectively in a dispersed and distributed organisational structure? The National Policing Improvement Agency (NPIA) was set up by the Home Office to orchestrate the commissioning and delivery of change in the police service. NPIA acts as change portfolio manager, determining the amount, sequencing and prioritisation of change initiatives. OCP helped the NPIA to increase understanding of the available capacity and capability for change in the police service. These insights could then be used to improve portfolio management and to modify the way in which change is delivered. We worked with two large, metropolitan police forces, a medium-sized force covering a mix of urban and rural areas, and a predominantly rural force. Within each force we involved several BCUs which had to handle different kinds of policing challenges. From this work we derived three main lessons. Lesson 1: size the available capacity for change Before embarking on any centrally-driven change initiative, it is essential to understand the impact of that change at the sharp end. In policing, this means sizing the demands on a BCU in terms of: • what resources will the change require – how much, and of what type?
• what demands are already being made on the same resource?
• where will the change interfere with or distract from other priorities?
• where will the change assist other priorities? It becomes easier to answer these questions if you have an operating model of the organisational unit into which the change is to be deployed. A given change will not impact uniformly on all processes and activities within a BCU. For example, if benefits are to be obtained from Neighbourhood Policing, then the consequential effects in the operating model need to be considered for:
• Planning and Deployment (without this, the officers will be deployed
without any clear purpose or objective which relates to local priorities)
• Operations (otherwise adverse tensions will build up between the local
• Community Partnerships (because Neighbourhood Policing will not
achieve success unless local relationships are developed).
And everyone in the BCU needs to believe that Neighbourhood Policing actually will lead to improved policing outcomes that are about more than ‘visible reassurance’. Lesson 2: assess the capability of organisations where change is to be deployed The capability to deploy change successfully comes from the knowledge, experience and skills in the organisation – embodied in the wisdom of the leaders and the collective memory from past changes. We have developed a structured approach to assessing change capability based on John Kotter’s model of organisational change. This approach has been used to facilitate and shape organisational change in contexts as diverse as nuclear engineering (where we advised BNFL) and healthcare (where we assisted BUPA Hospitals in transforming its business). In essence, this approach provides a structured assessment of the behavioural capabilities necessary for successfully delivering change. We found that these capabilities differed between forces and BCUs. For example, one BCU was capable of delivering well packaged incremental change (‘doing the same things better’), but would have needed additional support to deliver more ambitious changes. Whereas another BCU was potentially capable of delivering a more ambitious, transformational change agenda (‘doing different things’). Lesson 3: manage the portfolio to take account of capacity and capability In fulfilling its role, NPIA needs to be able to take into account the impact of the total portfolio of change on the capacity and capability of the police service at force and BCU level. The key lesson here must be: “do not impose changes greater than the available capacity and capability; otherwise, expect to fail”. If the demands of change exceed the available capacity and capability, then the practical options include: • modify the individual programme or project
• increase capacity and capability in the affected police forces and
• adjust the total portfolio of change by changing the sequencing and
phasing of individual projects, building a stronger interaction between outcomes and developing a joined-up view of the impact of the total portfolio on outcomes at BCU level.
Essential interventions to build capacity and capability for change Achieving sustained change more an art than a science. But the right kind organisational tools can help the change effort. Above all else, those who are developing and specifying national change programmes need to take greater account of the reality of deployment on the ground. 3. Retail Distribution Review - a road to ruin?
On 29 April the UK’s Financial Services Authority published its Interim Report on the Retail Distribution Review (RDR), proposing the way forward for the regulation of the distribution of financial products. The RDR has been criticised for not solving problems that it actually didn’t set out to solve. It’s not about regulating products - it’s about how products are distributed. It doesn’t cover the distribution of mortgages and other credit offerings. And it doesn’t embrace all of the sources of advice and assistance that a consumer can use to sort out their financial affairs.
The RDR will be unpalatable to financial advisers and product providers who don’t want to change. For those who do, it could offer opportunities to the fleet of foot. Change for advisers Advisers have the opportunity to reposition their business so that more sustainable customer relationships are developed, leading to longer-term, recurring income. However, to capture this opportunity advisers will need to make big changes in their business models, customer propositions, processes, capabilities, systems, cost base, sources of revenue, risk management arrangements and levels of capital provision. Challenging the product manufacturers Although the RDR is about distribution, and not product manufacture, the implications for product providers are potentially more significant than for advisers. If the RDR proposals are implemented, product providers won’t be able to use adviser remuneration as the primary means of getting their products to market. In a world of factory-gate pricing, transparently better value-for-money will be essential. Products will need to offer the end-customer clear, simple and understandable benefits. Investments will be required in new systems and processes to ensure that operations are highly cost-effective. It is unlikely that most providers will have the required competence to sustain a presence across the whole of their current product range. Cool appraisal of the match between available market opportunities as compared with internal competences will be required, so that providers can home in on those areas which they are likely to be good at. An unbundled world In essence the RDR is about unbundling the industry’s end-to-end value chain so that the costs and benefits of each link in the chain can more easily be evaluated. This means that each player needs to be very clear and confident about the value they are providing to their counterparties – and therefore the basis for the charge they are making for their products or services. The RDR, in our view, is most importantly about incentives (and hence adviser remuneration) and professionalisation. The RDR alone will not guarantee success. In the absence of more robust product regulation, the move to factory-gate pricing should act as a discipline which clarifies the costs of a product as compared with the benefits it confers. Consumer education also has an essential part to play, and the role that the workplace can play here is also very important. The RDR still has some way to go until changes are actually implemented at the target date of 2010. There is some risk of planning blight, hampering decisions on investments such as systems or training, until the way forward is clearer. Despite this, there is a lot that both advisers and providers can do in the meantime, to understand their current processes and capabilities and get ready for change Contact or to discuss further.
Newsletter June 4. Innovation part 2: why is it so difficult to disseminate best practice?
In our last newsletter David Taylor discussed the preconditions for innovation. In this article we look at a downstream idea: how one person’s innovation is disseminated and becomes adopted more widely; or more often doesn’t. It seems so obvious: Hospital A or Council B or Tax Office C or Police
Force D has found an innovative way of doing something more effectively, or cheaper or faster. Surely all other hospitals or councils or tax offices or police forces will immediately adopt the innovation? Actually no, they won’t. Why doesn’t dissemination happen?
• Not Invented Here? To the exasperated National Performance
Improvement project manager the resistance is simply perverse, and a reminder of the fundamentally unreasonable and inertia-ridden nature of the average workforce. As far as he is concerned it’s another nail in the coffin of all those improvement initiatives based on decentralised initiatives and if he had his way it would simply be a case not of NIH but JFDI.
• Under estimated complexity? Adherents of another school of thought
take a radically different view. The Tavistock Institute has coined the pejorative label of the “Tyranny of best practice”, pointing out that most significant innovation takes place in complex systems whose features are seldom replicated. And that many players in these systems have choices about their behaviour, more choices than a simple mechanistic best practice model can accommodate. Richard Grice of IDeA has written that “…. effective innovation starts at the interface between the service and the user. ….Promoting, supporting and scaling up …innovation is far more complex, nuanced and localised than the mechanistic view suggests. What we are talking about here is a “system” of innovation with each part ……feeding into and off other parts.” For Grice the role of the centre is to “create the conditions for cultivating and sorting the wisdom of the system as a whole.”
Well we’ll see. Those of us brought up in a liberal, open systems intellectual tradition might welcome this humanistic stance. A cynic might argue that Grice’s argument reduces to a revisiting of the old Theory X v Theory Y debate, is more service provider centred than customer centred, and is predicated on a model of human nature that is itself a gross over- simplification. And the cynic could have a point: a customer waiting for the benefits of disseminated innovation might well be tempted to mutter “JFDI”. 5. People of our time: the parable of Nigel the banker
On leaving university a bright young physics graduate called Nigel applied to the City banks and investment houses - along with all his other physics degree friends also called Nigel. He was thrilled to be offered a job by a well-known international firm, and though his parents would have preferred him to have entered one of the professions, they were delighted too. The
pay seemed generous until he discovered that he was expected to work an 80-hour week, but being a physicist he had no social life to lose so he was happy to buckle down. Within a year or two he became involved in the derivatives markets and was able to earn bonuses that seemed to rise exponentially each year.
Life was going extremely well and got even better when he met a sweet young woman called Jane with a yearning to breed children and Labradors. They moved into a house in Notting Hill, which became a project for Jane, and soon it had every modern facility and a funky collection of contemporary fine art from the Hoxton galleries. They had lovely neighbours, many of whom were also called Nigel and most of whom also seemed to be bankers, or at least hedge fund managers or corporate lawyers. There didn’t seem to be much opportunity for breeding but Nigel did find time to buy a vintage Porsche. He couldn’t park it close to his house and its battery seemed to have a problem but it was rather special and his father absolutely loved it. (The poor old chap had been a teacher all his life and had sometimes struggled to make ends meet. Nigel was terribly fond of him and very sad that they didn’t often meet anymore.) His work in the derivatives markets became more and more complex. He knew in his heart that he’d never really been very good at physics and he sometimes wondered whether the wheezes he and his pals were brewing might be as robust as the really inventive brains made out. What he did know was that he was a lot cleverer than his managers and they seemed to believe in him. Indeed they gave him tens of millions of pounds of the Bank’s money to invest. In truth no one in the circles in which he moved seemed really to understand the creature they had created, but they were far too busy to care. What Nigel and Nigel and Nigel did care about was who earned the largest bonus. What else was there to care about anyway? The money they were playing with it wasn’t their own – and he and his friends were putting their bonuses into wine, land and property, far away from the City. Until rather suddenly in the summer of 2007 it seemed that the Bank didn’t have much money to invest anymore, nor to pay those enormous bonuses. By the spring of 2008 it seemed they didn’t have the money to pay Nigel’s salary either. For three months he went on saying goodbye to Jane at 6.00am and returning at 10.00 at night. But he soon exhausted all the galleries in town and fewer of his old friends were up for supper in the evening. He became a bit depressed, especially when people not called Nigel started to blame people who were called Nigel for starting the financial decline and triggering a recession. The Director General of the CBI made a speech in which he blamed the Banks’ bonus schemes for encouraging excessively risky behaviour. The Governor of the Bank of England went further and spoke of “moral hazard” and the dangers of offering incentives to short-termism. And though Nigel may not have been a very good physicist he wasn’t a complete bleeding idiot and it occurred to him that this demonisation of investment bankers was a bit rich - when captains of industry were paid a thousand times as much as most of their staff - and then received pay-offs of zillions when their strategies turned shareholders’ funds to dust – or when democratically expelled politicians could earn millions a year on the US lecture circuit - or when retired senior civil servants could take jobs as non-executive directors of dodgy arms companies and double the return from their index-linked final salary pensions – or when over 800 managers in local government earn more than £100k a year. Indeed he didn’t think it fair at all. Do you?
Newsletter June 6. In regulation, one size certainly doesn’t fit all
Better regulation promotes a more sensible relationship between effort and risk and a focus on outcomes rather than inputs. The Financial Services Authority was proudly in the vanguard of this movement, but in March this year it admitted it had failed to regulate Northern Rock adequately, and that there had been “a lack of adequate oversight and review”. We know what has happened to the reputation of the FSA, but where does Better Regulation now stand? The Better Regulation Task Force, and the Hampton and Macrory reports
have together created a coherent and attractive basis for the honourable goal of minimising regulatory red tape. Taken together they seek to maximise the cost effectiveness of the regulatory authorities, and to reduce the burden on those regulated by,
• assessing risk on the basis of evidence and relating regulatory
• regulating outcomes rather than inputs
• improving the transparency of decision-making
• applying sanctions in a manner that optimises compliance, and
• minimising burdens that result from poor coordination between
The thrust of the principles is clearly towards light- rather than heavy-handed regulation but it cannot offer a single solution for all circumstances. The reality is that a regulated community is not uniform. Typically it contains some organisations that wish to be compliant, are competent and possess good internal systems of control and governance. But it will also contain organisations that for a variety of reasons fall short of this state of grace. Such organisations would appear to present a higher risk and it would therefore be consistent with at least one component of Better Regulation thinking that regulatory scrutiny might be more intrusive here. In other words the appropriate regulatory style should take into account the capability and trustworthiness of the organisation being regulated. There is no great surprise in this, but in the matrix below we can identify not just two but four different modes of regulation, and these contain some surprises. For a start, two modes are arguably always wrong. And it can be seen that there are more advantages to the regulated body in close regulation than might be initially obvious. The matrix plots the style (from the light touch based on outcomes to the heavier hand of an examination of inputs) against the competence and trustworthiness of the organisation being regulated.
Relating regulatory approach to operator capability
2) The “just too late” regulator 1) The mature relationship “earned autonomy”
• hands off • ineffective - not offering
• effective (capable of offering assurance assurance) and efficient
• not offering sufficient guidance
• proportionate • burdensome – in terms of compliance activity required approach 4) The micro-managing 3) The burdensome and regulator compromised regulator
• in control (at least of control but offering too the predictable) many get out of jail free cards
• simple and certain for operator
• burdensome and
• burdensome but not disproportionate for the disproportionate operator
• expensive Capability and trustworthiness of the regulated body Earned autonomy The state of grace (Cell 1) is the happy combination of light touch with a competent and compliant regulated body. In this circumstance there can be a mature relationship between the regulator and the regulated, in which the latter has “earned autonomy”. If the underlying risk assessment is correct this offers an effective and proportionate stance. This is the condition to which a simplistic interpretation of Better Regulation would have us aim. It sounds ideal for all parties, but paradoxically it can actually make very heavy demands on internal controls and governance. Light touch does not mean a total elimination of “burden”. Indeed it can imply a transfer of work from the regulator to the regulated body, if for example the monitoring activity is performed not by the regulator but by the operator, with only spot checks resourced by the regulator. Just-too-late By contrast, if the assessment of competence is wrong, ie an incompetent or untrustworthy operator is subject only to the light touch, the relationship is better described by Cell 2, the “Just-too-late regulator”, and this is a position that is always inappropriate, as the FSA recently discovered. Burdensome and compromised regulation The bogey stance for Better Regulation is represented by Cell 3, the “burdensome regulator”, where the regulated body is competent and trustworthy and the regulatory style heavy handed. This is clearly a disproportionate position, but again there is a paradox in that it can suit the regulated organisation to be governed by inputs, if the consequence is that it escapes the severest penalties for harmful outcomes. Such a stance can lead, actually, to the regulator becoming compromised, since by engagement with inputs it has shared responsibility for the outcomes and may therefore be unable to impose suitable sanctions. Like cell 2, cell 3 is arguably always inappropriate.
Newsletter June Micro-management The last cell (4), the “micro-managing regulator”, presents different problems, in three forms: • first, this style would seem to ignore the spirit of Better Regulation
(though it might still be proportionate, transparent and targeted), and is therefore vulnerable to an attack in a general sense. Smart regulated bodies will trade on this argument
• a larger problem, however, is that it requires a very different kind of
regulator. After a few years of operating a hands-off style, the regulator may no longer have the competence in staff and process to shift to hands-on. If it has ceased hands-on monitoring, for example, it is no easy task to reinstate it (and this may have been part of the FSA’s problem)
• finally, managing inputs only works in a predictable environment and
these are increasingly rare. New technologies and emerging markets are not easy to micro-manage, still less to assure at one remove, and there is an attraction in leaving that responsibility to the regulated body and demanding only acceptable outcomes.
What does all this imply for a regulator? It might be, we suggest, that:
• basing risk assessment on real evidence can actually be very difficult.
And this is particularly true in the context of relatively immature technologies and markets. Northern Rock’s reliance on leveraged sources of finance now looks like reckless gambling, but at the time international financiers had convinced themselves, and their regulators, that their products were safe. Getting that assessment wrong can lead to excessive burdens, or worse a regulatory failure
• most regulators will face situations in which regulated bodies are
rightly judged as competent and trustworthy, and the pursuit of “earned autonomy” must be worthwhile here; however
• not all regulated bodies are likely to be so capable and well meaning,
and even those that seem to be may fall short in some circumstances.
• reference to Better Regulation principles will offer scant defence
against political and press criticism in the event of “failure”, and effective regulation, which exists to support confidence, cannot survive many such failures.
The prudent regulator might therefore want to ensure not only that it is avoiding the no-go areas but that it can respond in both Cell 1 and Cell 4 terms, and maintain this capability for flexibility. It won’t be easy, it won’t be cheap, and it won’t be popular, but it might prevent revisiting the embarrassment the FSA is facing. 7. Grumpy Old Man Column - The Road to Abilene
First-generation practitioners of Organisation Development will fondly remember Jerry Harvey’s parable of the Abilene Paradox. This describes a situation in which a family conspire to agree to something none of them really want, ie make a visit on a hot day in a car without air conditioning to a place, Abilene, Texas, that everyone hates. The parable was used to
characterise a form of organisational behaviour in which an excessive concern for consensus and a corresponding lack of challenge can lead to perverse and undesired outcomes. “Business leaders typically believe that managing conflict is one of the greatest challenges faced by any organisation, but a corollary of the Abilene Paradox states that the inability to manage agreement may be the major source of organisation dysfunction.” , by Jerry B. Harvey
The causes of such behaviour in organisations are not hard to identify, and often include: • a leadership environment based on power, and
• a culture that inhibits sharing and questioning,
• the employment of data only as supportive evidence, never as a
source of challenge, or hypothesis testing
• intrinsically complex problems, with different patterns of advantage
And many of the emerging models of improved organisational life explicitly attack these shortcomings. So why does Government take us to Abilene all the ****ing time? • why did we go into Iraq and why are we still there?
• how on earth did we end up with the prospect of super-casinos?
• how have we allowed our pension provision to dwindle so
• why are we spending untold billions on the Olympic Games?
• why are we re-organising the NHS yet again?
• why are we taxing people who we are meant to be encouraging into
• why are we extending the detention period for terrorism suspects
seemingly against the advice of most people closest to the problem?
Could it be that the same diagnosis applies to Government? • a leadership environment based on power, and
• a culture that inhibits sharing and questioning …….
• the employment of data only as supportive evidence, never as a
Hmmm… I think I’ll go and lie down for a while. OCP is a growing management consultancy partnership formed at the beginning of 1993 by a group of people with extensive experience of large blue chip consultancy firms. OCP was set up in the belief that a firm with this profile could offer better service, and better value for money, than those relying on large teams of relatively inexperienced consultants.
Organisation Consulting Partnership LLP, 22 – 24 Ely Place, London, EC1N 6TE Tel: +44 20 7831 9000. http://www.ocp.co.uk
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