How we manage to fail: British industry's long-term surrender to foreign manufacturers is a direct result of management inadequacy in a society that favours the shop-floor hunch over educated decision-making And we still delude ourselves, argues Simon Cau

How we manage to fail: British industry's long-term surrender to foreign manufacturers is a direct result of management inadequacy in a society that favours the shop-floor hunch over educated decision-making And we still delude ourselves, argues Simon Cau

by SIMON CAULKIN
Last Updated: 31 Aug 2010

In all the finger-pointing that followed the near-collapse of Rover, the shadow never quite fell where it belonged. The truth is that Rover was an accident waiting to happen and the cause was the chronic national affliction - poor British management. Blaming it on a lack of commitment by BMW or the government's maintenance of a strong pound is as simplistic as blaming a car crash on the driver or road-builder, while ignoring the failure of the car's previous owner to maintain it over the past 30 years.

What happened to Rover is not an aberration but the logical culmination of a saga of decline that was of purely British making. In his account of domestic industry since the war, From Empire to Europe, Sir Geoffrey Owen calls the British-owned part of the UK motor industry 'an avoidable disaster'.

The shrivelling of the great British motoring names to just one, Rover, is in striking contrast to the world stature of continental firms such as Renault, Volkswagen, Mercedes, BMW, even Fiat. It is a story of defeat snatched from market dominance as a result of misguided strategic choices, hopeless merger integration, technical weakness (the Triumph Herald, among others, was so badly made that it couldn't be exported) and marketing complacency. Dire labour relations were, too, a symptom of management inadequacy, not an excuse.

The unreality of the Rover debate is mirrored everywhere in the UK economy.

Although the top UK companies are highly profitable, the veneer is thin to the point of transparency, and while the Competitiveness White Paper of 1998 noted that the best British firms are excellent, overall performance is disappointing: 'Skill levels are too low across too much of the workforce.

Too many British companies have low ambitions. Too few match world best practice.'

Despite its celebrated labour-market flexibility, UK productivity is still between 20% and 30% below that of European and US rivals. British firms invest less and do less research and development than continental firms. Out-of-line prices for everything from transport to hotels and restaurants to cars are further evidence of uncompetitiveness.

Finding excuses for limp British economic performance has become an industry in itself. The defence routines that British managers have perfected prevent them from realising how blinkered and unattuned to the rest of the world the UK management model is. The posturing of the Thatcher years and the talking-up of the benefits of flexibility have been powerful aids to complacency. Thus the boasts that British football, the police and the NHS - even, heaven help us, London's restaurants - are the best in the world, when all the objective evidence points to the reverse.

Take the UK's record on inward investment, a classic case of necessity masquerading as virtue. It is true that foreign investment has created jobs, and Japanese car-makers have conducted the most important in-depth tutorial that British managers have ever had. But underneath Japanese politeness, the attractions of investment in the UK have been - what?

Cheap assets and labour, the English language, and invitingly high selling prices in the uncompetitive UK market. What's more, the implants prove that there is nothing wrong with British labour that good (read foreign) management can't cure. The other side of the coin of impressive productivity in Japanese-managed car plants, revived Jaguar under Ford or Japanese electronics plants in Wales, is the miserable failure of UK management to do the same.

In a competitive world, British-style management is suffering from a kind of economic dry rot. When Bob Bischof took on the task of turning round Boss, the ailing forklift manufacturer acquired by Jungheinrich in 1994, he was obliged to appoint German bankers to replace the UK institutions that had refused a loan for a long-term investment plan. Next came German insurers and, finally, to provide meaningful training, Boss joined other German-owned companies to set up a European Vocational College.

Inward manufacturing investment, Bischof points out, is all too often a Trojan horse for the services that go with it. Think about it: in January the last significant UK investment bank, Schroders, passed into foreign ownership.

Bischof warns that the City is well on the way to becoming another Wimbledon tournament - 'a beautiful place, an icon of Britishness, but with no real British participation'. In doing so, he underlines studies that suggest that the most potent threat to London's financial pre-eminence comes not from outside competitors but from its own lack of management vision.

Chairman of McIntyre & King, the direct marketing firm, and an Anglophile German who has worked in the UK since the '70s, Bischof points to one of his great passions, football, as an example of England's management malaise. English football clubs, he points out, are among the richest in the world, but the national team has seldom been seriously competitive in the past 35 years.

He blames the chronic short-termism that characterises the economy as a whole. When the clubs became plcs, he says, 'they went out and paid over the odds for ageing foreign stars at huge wages. Anything long-term, such as developing their own players, went out of the window. There are now 300 or 400 foreign players in the UK, compared with five Brits in top European clubs. How could Kevin Keegan win anything with that?' Equally striking is the fact that none of the top five teams in the Premiership had an English manager - a situation unthinkable 10 years ago.

Getting strategy and operations right at the same time - the definition of effective management - is not one of the core competencies of UK executives.

When they manage it, it often turns out to be a coincidental fit between the firm's abilities and the environment, which astonishes them by disappearing in a flood of red ink when circumstances change. Never mind the British failures of the '70s and '80s - shipbuilding, motorbikes, white goods, electronics, machine tools. A classic current example is retail, supposedly one of the UK's strongest suits, where the fall from grace of companies such as Sainsbury's and Marks & Spencer (which won so many 'quality of management' awards in the '90s that the scheme was discontinued), has been brutal and ignominious. 'Marks & Spencer was never as good as the hype said it was,' says one prominent industry figure. 'Unfortunately, they came to believe their own press.'

The only surprise about the poverty of British management is that anyone should be surprised. It has deep roots. The historian Corelli Barnett, in his book The Collapse of British Power, traces it back to UK industry's obstinate reliance on 'the practical man' in the face of better-educated German and US managers and technicians in the 19th century. Not much has changed.

British managers 'don't have the education compared with their German counterparts', says Bischof, who typically did a commercial apprenticeship and took a PhD before going into business. 'They are technically weaker, which means they are not as good at managing complex processes.' Witness the unique shambles of the public sector: the outdated NHS, creaking transport, downtrodden schools and increasingly demoralised universities.

The same weaknesses go right to the shop floor, where poor basic education plus 'the horrible system of on-the-job training' results in people being able to understand little of the process they work in. This makes them less flexible than supposedly rigid continentals.

These failings explain the collapse of the UK engineering sector in the past 50 years, just as the reverse explains German engineering's success, despite Deutschmark revaluations.

There is an inexorable knock-on effect. Because of the inability to handle complexity, British managers prefer to out-source and simplify, and grow by acquisition rather than organically. Correspondingly, top executives are more likely to be accountants and deal-makers than engineers or marketers, reinforcing (and being reinforced by) institutional short-termism.

Such attitudes are a potentially crippling brake on companies' efforts to compete in a diverse global knowledge economy. They start at the top.

Lip service notwithstanding, British boardrooms are a depressing bastion of male monoculture, a no-go area for women, blacks and the young, a cultural wasteland. In a two-year study for the Economic and Social Research Council, Professor Richard Scase of Kent university concluded that straitjacketed management attitudes were 'the major barrier to Britain becoming a high-performing creative economy'. Corporate Britain is still in the grip of low-trust, low-commitment, command-and-control management styles that kill innovation and creativity, says Scase.

One mark of official disillusionment with established management and its works is that economic hopes are now pinned with such fervour to a very different management model. Entrepreneurial, science-based and closely linked to the university as a knowledge-generator, it might be called the 'new Cambridge enterprise' model. Officials and ministers, tired of trying to retrofit the cranky 'old economy' to go faster, now want to start at the other end, making schools and universities a production-line for creating entrepreneurs.

The aim is to build a knowledge-based, IT-enabled enterprise economy on the model of those of California and Massachusetts.

This is a radical switch, but it may be the only alternative.

After all, points out David Storey, who heads the Small and Medium-sized Enterprise Centre of Warwick Business School, more people work in companies with fewer than 20 employees than those with 500 or more. Research shows that improving their performance, and greater entrepreneurial activity generally, could have a real impact on economic growth.

But increasing the UK's 'entrepreneurship quotient' is no foregone conclusion. According to the 'Global Entrepreneurship Monitor', a joint study by London Business School and Babson College in the US, the UK sits midway in an entrepreneurship league table of the advanced countries. It is well behind the top-ranking trio of the US, Canada and Israel, on a par with Italy and ahead of Germany, France, Finland, Denmark and Japan. But that is not as good as it sounds, says Michael Hay, director of the LBS Foundation for Entrepreneurial Management.

Although the UK does have things going for it - government support, a good science and commercial infrastructure, a favourable funding climate and a reasonable level of new business formation - it conspicuously falls down on the ability to spot and seize opportunities. Says Storey: 'The major issue for the UK economy - the single most important issue to research - is why don't we have more pounds 1 billion companies founded in the last 10 years?' The most likely cause of the entrepreneurial deficit simply restates the problem: lack of ambition and/or ability, which suggests inadequate basic education.

Can the UK make the shift to a truly entrepreneurial economy? 'We're on the cusp,' offers Hay. On the one hand, the internet has given a healthy push to the flywheel. On the other, current activity is well short of critical mass, and the educational and cultural obstacles will take years to correct. It is already clear, as Hay admits, that much of the e-commerce froth has been blown away by the winds of business reality.

The big fear is that a really savage stock market correction would drain the bathwater, too. In that case, the idea of the UK as the enterprise centre of Europe would be left looking as hollow as all the other management boasts. The likelihood of Britain's established managers saving the day is ... well, about as strong as that of England winning the next World Cup.

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