Why Economies of Scale Can Lead to Higher Prices

Once again we have a government talking about saving money through shared services and combined procurement. It seems to make sense. If you buy 100, say, televisions you would expect to be able to negotiate a better price than if you only bought one. The same must be true for when the government buys services, mustn't it?

Actually the answer is often no. Let's look at my industry, training delivery. Parts of central government are now talking about combining all their training spend - for IT, management, health and safety and much more - across many departments. To bid you will have to be a truly massive company, the likes of Capita or Serco - and they certainly won't be as cheap as buying direct from a training provider. And control of quality will be fair more indirect.

For a government agency in, say Exeter, the best value training would probably be sourced from the local college or a small local provider. But neither of these will bid for a national contract. By making the contract so large, the competition is cut down to a small number of big companies who are rarely either best for value or best for quality.

Small Companies Can Provide Better Value and More Flexibility
One agency I know, after a full procurement some years ago, hired a one person company to provide their IT training. They provided the best value, most flexible, most responsive service I have come across anywhere outside of my company. (I know about it because Happy Computers was the back-up provider, for any courses he couldn't train.) But he certainly couldn't bid for any national contract and the large providers would have little reason to include him.

At the same time as going for larger procurement contracts, the government talks of including more small businesses - apparently unaware of the obvious contradiction. I've heard government representatives talk of how small businesses can be included as sub-contractors to the big bidders.

But this is a profoundly stupid approach. The benefit of contracting with small firms is better value and greater flexibility. You lose both by only contracting these companies as part of large contracts.

If the government goes ahead with its determination to centralise procurement you can expect some very complex legal contracts (yes, the one set of people who will definitely benefit are the lawyers), less direct contact with the providers and a far more bureaucratic approach. What you almost certainly won't get is lower cost.

The Happy Manifesto: 9 Steps to a Great Workplace

The latest draft (beta 1.6) of the Happy Manifesto can be downloaded from here. Here is the manifesto, the key 9 points:

1. Trust Your People
Step out of approval. Instead pre-approve and focus on supporting your people.

2. Make Your People Feel Good
Make this the focus of management

3. Give Freedom within Clear Guidelines
People want to know what is expected of them. But they want freedom to find the best way to achieve their goals..

4. Be Open and Transparent
More information means more people can take responsibility

5. Recruit for Attitude, Train for Skill

6. Celebrate Mistakes
Create a truly no-blame culture

7. Community: Create Mutual Benefit
Have a positive impact on the world and build your organisation too

8. Love Work, Get a Life
The world, and your job, needs you well rested, well nourished and well supported.

9. Select Managers Who are Good at Managing
Make sure your people are supported by somebody who is good at doing that, and find other routes for those whose strengths are elsewhere. Even better, allow people to choose their managers.

Thoughts, comments, feedback, additional suggestions welcome.

Is the Government Serious About Supporting Small Business?

I'm not a great fan of the coalition government but it was great to hear David Cameron talking about the role of small business. Personally I have always thought the complaints about red tape were so much hot air but he is spot on when he talks about "the shocking way in which small and medium sized firms are locked out of procurement opportunities by central and local government".

This makes sense. Small businesses can often provider more flexibility, better value and a more local approach.

But does Cameron mean it? Since June the only trend I have seen is to larger contracts aimed at the largest suppliers. I have just written to Cameron to ask if he will reverse the move of the Skills Funding Agency to minimum contract values for apprenticeships. From 2012 they say they will only sign annual contracts of £1 million or more. Clearly they have no wish to work with small business.

Here's my letter. I will post any reply I receive:

David Cameron
Prime Minister
10 Downing Street
London
SW1A 2AA
3rd November 2010

Dear Mr Cameron

As a small business owner can I say how delighted I was to see your statements this week on supporting small business, especially in giving us a fair chance in government procurement. As a training business that provides extensive services to government, I hugely welcome your proposals.

Let me make you aware of one place where the government has, since June, introduced changes that appear to be designed to prevent a government agency contracting directly with small businesses. I write in the hope that you will be able to stop it

The Skills Funding Agency is introducing new minimum annual contract values for delivery of apprenticeships. Last year Happy Computers, as a small business, had a contract for £170,000 which enables us to deliver excellent training and certification to around 75 apprenticeships. This year a minimum contract value of £250,000 has been introduced. Next year this is to be raised to £500,000 and, we are told, the year after it will become £1 million.

At the moment a small local business may be the best provider to meet the needs of the local community and may only have demand for around 20 apprenticeships. In the future small businesses like this, and like ourselves, will not be allowed to contract directly with the Skills Funding Agency.

Instead small businesses will have to sub-contract through larger training providers. This will introduce an extra layer, mean more non-delivery work and will mean a % top sliced away.

This would only make sense if the government believed the way to improve services was to use only large organisations. It makes no sense for a government committed to small businesses, entrepreneurship and innovation.

Yours

Henry Stewart
Chief Executive
Happy Ltd

Assess Learning not Teaching

This morning I took part in a trial Ofsted at the secondary school where I am a governor. The inspector commented that, in assessing teachers, the focus needed to be more on learning than teaching.

I like that approach. Changing the focus from whether the teacher has carried out the 15 different tasks on the checklist, to the quality of the learning that is taking place has the potential to transform the classroom.

Learner Focused Training
It is similar to the change that Happy Computers went through around 8 years ago. Challenged by the Institute of IT Training on whether we were focused more on course objectives or personal objectives, we developed a new approach. We called it Learner Focused Training.

Most trainers go into the classroom focused on the set objectives to be achieved and the material to be covered. Instead be guided by these objectives but flexible to the needs of the individuals. Always remember that your role is to help your learners be more effective in their job, which is much more important than what material has been covered.

A Change in Direction
So stop assessing what the teacher or trainer is doing. And instead assess the learning that they are enabling. Look more at what the students are doing than what the teacher is. I look forward to the effect this change in approach could have.

Five Steps to Great Service

I've just been brainstorming with a colleague who is teaching a 50 minute Active Listening course tomorrow. It brought to mind a great story from "Influencer" by Kerry Patterson et al - a book I strongly recommend. It is about a regional hospital in the US where feedback was that families didn't feel treated with care, dignity and respect.

The core message of Influencer is to find "positive deviance". This is to identify where people are successful, identify what are their key behaviours and copy them. In this case they identified 5 specific actions:

1 Smile
2 Establish eye contact
3 Identify yourself
4 Let people know what you are doing and why
5 End every interaction by asking "is there anything else that you need?"

None of this is rocket science and none of it is about medical expertise. They are simple behaviours that make people's experience better. But relentlessly pursuing them resulted in dramatic improvements in customer feedback and the centre becoming best-in-class among its peers within a year of the new focus.

What simple steps can you and your people take to ensure your customers feel appreciated?

Employees First, Customers Second

That is the core philosophy of HCL Technologies and the title of the new book by its CEO, Vineet Nayar. It is a title very similar to one of the key books that influenced Happy Ltd from its earliest days: The Customer Comes Second by Hal Rosenbluth.

HCL is one of the leading Indian IT out-sourcing companies and employs 55,000 people. He took over as CEO in 2005, when he felt HCL was slipping - only growing at 30% a year! He used the philosophy of Employees First, Customers Second (EFCS) to radically change the culture, empower the staff and deliberately reduce the power of managers and of himself. Some examples:

Transparency: HCL introduced full transparancy of the performance of every unit in the company. Seeing their benchmarks, and being able to compare their performance with others, increased shared learning and provided powerful incentives to improve.

Internal Service Tickets: Most IT support companies have external service desks, with tickets and response times. HCL introduced this for all internal services, like HR or finance. The effect was to reduce the involvement of managers (who'd previously been called on to get another dept to respond) and improve response. especially when the target became not quick response times but reduced tickets.

Beyond 360 Degree Evaluation: Most big companies now get managers to be evaluated by peers and by some of those they manage. HCL's innovation was to open this up, so you could evaluate anybody in the company that you came into contact with. As well as the widespread feedback, the unexpected result was that managers began to be judged by how responses they received. It became a measure of their circle of influence.

Sharing CEO Problems: I love this idea. Vineet decided to create a portal to share the problems he was having difficulty solving as CEO and the challenges he saw for the company. He involved the whole company in understanding his role, the big picture and in coming up with solutions.

Employee Passion: HCL decided to survey not just employee satisfaction (for which the company was ranked no. 1 in India in 2009) but also their passion, and to share the results. People got to think about what drove them to act passionately and how they could best leveredge this at work.

Employee First Councils: To get people to embed their passion, Employee First Councils were created. Initially on subjects like health and hygiene, art etc but were extended to core work areas. Now there are 2,500 Councils - each with elected leaders driving forward change throughout the company and, as Vineet explains, pushing control away from the office of the CEO and the conventional hierarchy.

Customer-Employee Value portal: This portal is for employees to put forward ideas, which custoemrs then read and feedback on - leading directly to improved ideas and improved service.

Make all manager plans public: Previously the 300 most senior managers had prepared their plans for the next level up. Instead HCL published them all to all staff in the MyBlueprint portal, so they could see and compare them. As well as increasing transparency, Vineet comments that it led to much more work being put into getting the plans right.

Thriving in Difficult Times: Faced with the challenge of the 2008, and seeking to avoid wholesale layoffs, HCL reached out and asked its people how they should respond. From the massive response, the HCL management drew up 15 initiatives which were to result in "huge" cost savings and enabled the company to continue to grow. When Vineet asked their customers why they thought this had happened, they responded: "Your employees made the magic happen".

And it was the Employees First, Customers Second philosophy that made this possible. Indeed one impressive aspect of the story is the way the philosophy is shared with customers - explainign to them why HCL puts its philosophy first. Rather than putting off customers, it has actually led to many adopting some of the same ideas.

When I tell the Happy story, people often ask if the ideas of trust and freedom for staff would work in a large company. HCL is another example of how these kind of ideas work brilliantly in the largest of enterprises.

Why Presentations Must be Inter-Active

I liked this from Seth Godin's Tribes:

People don't believe what you tell them
They rarely believe what you show them
They often believe what their friends tell them
They always believe what they tell themselves

For Seth this means that leaders must give people stories, that tehir people can tell themselves, rather than directions. True but also it emphasises that any presentation must include involvement. The more you get the chance to talk (and tell yourselves) or discuss, and have your friends and colleagues tell you, the more chance there is of affecting attitudes and beliefs.

Anybody who just stands at the front and tells people things (even with nice graphics) is not going to have much effect on beliefs and attitudes.