Somewhere along the route from Liberty Hall to Austerity Towers #ukpolitics

This was a brilliant column on how frankly silly CFO’s and wrongful ideas on austerity can screw up perfectly good pragmatic solutions. I quote:

what is not in dispute is that the second most important man in the British government travels second-class…..Then Gordon Brown, then prime minister, expelled generals and admirals from first-class compartments. After the election in May, when Mr Brown was deposed, the pace increased. The new regime imposed the same ban on civil servants……

Somewhere along the route from Liberty Hall to Austerity Towers, one passes the dividing line between common prudence and blithering idiocy, and it seems to me that the British government has now crossed it……..

The fastest journey from London to Sheffield takes more than two hours. Second-class compartments on British trains are cramped, generally noisy, usually crowded and sometimes standing-room only. It is difficult to use a laptop or, unless you have the temperament of a Buddhist monk, switch off and nap. The exception to this are the “quiet carriages”, which are always noisy, acting, as they do, as a magnet for large families with small children, serial telephoners, chatterboxes and officials from the Welsh Environment Agency giving hour-long lectures to their colleagues (I am not making this up).

Mr Clegg is paid a modest £137,000 a year. Say he travels to his constituency every fortnight. That means he would be spending not far off 5 per cent of his working time on these trains. If he can’t work in those hours he is not saving the taxpayer money…..

This is by no means just a British phenomenon, nor confined to railways. The fashion for hair-shirt travel may be traced back to the dotcom boom of the 1990s when the bosses of then-new companies such as Microsoft and Cisco helped to establish their image by conspicuously travelling in the back of planes themselves and expecting employees to follow suit.

This was a minor inconvenience to Bill Gates (who nonetheless travelled business class to Europe), at least until he got his own plane, and to senior executives who were expected to pay for their own upgrades.

It also roughly coincided with three other developments. First, the income of such executives exploded, so paying the extra became a minor detail. Second came the discovery of the pack-’em-in principle. It is now largely forgotten just how roomy the original 1970s jumbo jets were. Then airlines realised that no matter how ghastly they made the experience of travel, passengers were too price-obsessed and (appropriately enough for cattle class) too cowed to rebel. The third trend was the rise of the corporate CFO, trained to know the price of everything and the value of nothing, who found travel costs the easiest item of all to cut.

I used to have this stupidity all the time due to corporate travel policies whenever I would be working outside a bank. They would force people to travel in cattle class for long distances (at one stage, all flights below 10 hours). So what happens? I would be basically be unusable for 2 days for one flight. The result being that they would end up paying more for hotels, the wasted time, the catchup time etc. etc. And when the company is being stupid like this, why would they expect me to fly on a weekend? I wouldnt, so they would lose out on even more business time, week days would just be 1-2 days out of 5. This was when I was flying around the world on a very regular basis. Anyway, I agree, stupidity is not restricted to corporates but also to politics.

Burials more carbon intensive than cremations

Now here's a counter-intuitive result but which makes perfect sense once I have thought about it. Burials are more carbon intensive once you factor in all the costs related to maintaining a grave! I quote:

The study found it was better for people to be cremated, compared with the long-term impact of burials, even though four times as much carbon dioxide was produced during the initial cremation process. "On the day that a cremation or burial takes place, the volume of carbon dioxide produced is higher for cremation than for burial," Centennial Park chief executive Bryan Elliott said.
"The report found that each cremation at Centennial Park generates approximately 160kg of carbon dioxide equivalent. "Each burial at Centennial Park generates approximately 39kg of Co2. "However, when the long-term environmental footprint is considered, burials at Centennial Park have a 10 per cent greater impact than cremations. "This is because we must look after the gravesite for a number of years by watering and mowing the surrounding lawn area and maintaining the concrete beam on which the headstone is placed. "Burial is a more labour and resource intensive process, consumes more fuels and produces larger quantities of waste than cremation."

Although you could quibble about what all you can include in the cost, but it does make sense. We can keep graves for 75 years here in the UK (I think), now think of the costs and that is not even including the indirect foregone opportunity costs (of using the land for something else such as a hospital or a business...)

All this to be taken with a grain of piquant salt!!!

Cutting Costs or changing cost structures

Ok, so this hasnt been thought out fully and I typed this on my blackberry late in the night while on the tube. But what the heck, if I cant witter on in my blog, when where else can i do it?

I keep on hearing about how we have to cut costs because we have to improve
our margins as there is greater competition.

Cost cutting requires a wee bit of imagination, some discipline and a beady
eye out on the bottom line. It is amazing how many people have an admirable
dedication on the top line growth but do not think about the bottom line
growth.

And typically, bottom line inflation lags and is of a greater magnitude
than the top line inflation. So you start getting higher costs right when
you can least afford them.

Counter-intuitively and this requires courage for people to push hard, best
time to think about costs is when there is no cost pressure. That's where
your margins are fatter in good time while you have scope to cut in bad
times, unlike your competitors.

So what you need to think about is to think 3 years ahead and change the
cost structure of your business, not cost cuts. Some examples

Invest in a workflow process and system which works on an exception basis
with a workforce which is location independent.

Can you pay your middle office people based upon error rates?

Why do you need your middle and back office people in with the traders? For
that matter why can't they work from home? For that matter, if you have
security and compliance sorted, why can't you devise a system such as The
Seti project, with temporary workers docking on to process, get paid by the
transaction, and dock off?

Think about changing your cost structure, not muck around with shipping a
process here and there, anybody can do that, what's the special thing that
you are coming up with?

A generational jump. Remember that 80 percent of a products lifetime
revenue is earned by the early innovators, 20 percent is squabbled over by
the 80 percent who follow.

So whether you are providing white label trading, operations, processes, IT
processes, market making, what have you, to reduce the cost of work, think
about how to change the structure of your cost and try to turn the
structure inside out, sideways, mutate it, don't mess about the edges.




All this to be taken with a grain of piquant salt!!!

Groups know little about value of IT assets

According to latest research, firms know very little about the value of their IT assets. I am not surprised at all. The frankly ridiculous way spend is carried out on IT assets leads one to this rather obvious conclusion that one doesn't know what they have spent money on.

Let me put this in another way. When you do not know the benefits that an IT development project will produce, how can you measure the value of the IT assets that the project has thrown out? In far too many projects, there is no mention of the benefits, or even if there is any mention, it is generally made on the basis of a finger in the air.

So the value of an asset is usually just the amount of money it took to produce the asset. If it took a contractor 1 day to make it and you paid the contractor £1000, then the value is £1000. People tend to do things in the IT world which are normally not done elsewhere. It is simply because people are scared of the stuff and jargon and do not ask silly questions.

The survey threw up some scary numbers:

Companies are spending billions of dollars on information technology every year but few boardrooms know the value of their hardware and software and the contribution they make to their businesses, a study published today has found.
The survey of 250 chief information officers and chief finance officers from companies in the US, UK, France, Germany and Italy found that fewer than half had tried to value their IT assets and 60 per cent did not know the worth of their software.

If you were an MD or a head in the front office or anybody who is going to pay for any IT development, here's a small test for you to try it out on your CIO or Head of Technology. Ask him to justify the spend he has made till today in 2007 and ask him for the value (not the book value but the market value). Best time to do this is when he comes to you for the 2008 budget request. More often than not, he will not know. When you consider that IT spend is most probably going to be the second highest spend line on your cost base, one wonders how you are going along blindly without knowing the value of it. Would you do the same with your personal investments?

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