Friday, December 03, 2010

Google targets Australian web service providers

I see from IT Wire that Google Australia is offering free training in its products and free AdWords advertising to companies and individuals that offer web services to SMBs in a bid to get them promoting Google's offerings to their customers. I quote:

In a blog posting, product marketing manager, Richard Flanagan, said: "If you're a webmaster, digital agency, freelancer, IT consultant, or provide any other web services to Australian small businesses, you can apply to join the program starting today.

I am a bit surprised that Google hasn't tried this before. The web has become a very crowded place. While Google dominates the search marketplace in Australia, the range of competitor offerings on different platforms grows all the time. Facebook is an obvious example.

Back in January 2008 in Google's growing market share I made a passing reference to Google's business model, including the way that Ad Sense arrangements provided a pool of working capital. I have a strong feeling that Google's revenue from Ad Sense has been under a degree of pressure.

Wednesday, December 01, 2010

Monday, November 29, 2010

A thought for Andrew Laming

Andrew Laming is the LNP member for Bowman in the Australian Parliament. Checking my stats, I found a visitor from Andrew's site. Checking, I found that Andrew had listed one of my posts, The Rudd Stimulus Package - Andrew Laming's view, under the In the Press segment on his web site.

I was very pleased. Let me explain why.

Back in February 2009, More economics 101 - the economics of Malcolm Turnbull looked at the differing economic approaches of the Rudd Government and the opposition. I said then that I was not especially interested in the differing rhetoric of the two sides, just trying to understand the variations in the economics.

This post drew a long and thoughtful comment from Andrew, so thoughtful that I actually turned it into a guest post without inserting my own views. This was the post listed above. Andrew then, rightfully, included it in his In the Press segment.

Now from my experience it is fairly unusual for a politician to treat a blog post sufficiently seriously to engage in discussion. As a blogger, I am obviously pleased. However, I also have a thought for Mr Laming.

He clearly has ideas. He is also prepared to support individual causes such as home birth. I wonder whether it might not be worth his while to do more writing.

I wonder whether Mr Laming is aware of the case of the NSW Parliamentarian Davis (Bill) Hughes. First as a back bencher and then as Leader of the NSW Country Party, he found it a little difficult to get publicity in the Sydney media. However, he did not respond with a multiplicity of press releases of that short form we love so well. Instead, he focused on more substantive material.

He did not get immediate publicity, indeed he wasn't seeking it. What he did do, was build a reputation with journalists as a thoughtful man who actually had something to say.

Later, when he wanted publicity he got it because he had built a reputation.

Just a thought.       

Friday, November 26, 2010

Australia capex stats September 2010

Yesterday the Australian Bureau of Statistics released Private New Capital Expenditure and Expected Expenditure, Australia, Sep 2010.

Capital expenditure This graph shows volume estimates. You can see how the numbers climbed and then dropped, only to recover.

On the surface, the expectations data also shows strength.

The release includes a range of other information that I am currently working through. However, to cut straight to the chase.

On the surface, the numbers are good. However, the growth appears to be driven pretty much just by WA.

More later.

Saturday, November 13, 2010

State of the Blogosphere 2010 a note

Just a short note so that I can delete the email and not lose the link.

Technorati has release its annual survey of the blogosphere, in this case State of the Blogosphere 2010. From a quick scan, the survey's results contains a range of interesting material.

Thursday, November 11, 2010

Paul Kelly's The Hawke Ascendancy

I use the term train reading to describe the reading I do travelling to and from work. This applies even where the travelling is by bus!

The thing about my train reading is that, quite consciously, I use it as an opportunity to read things that I might not otherwise look at. Inevitably, this translates into a series of posts under the train reading banner.

My present train reading is Paul Kelly's The Hawke Ascendancy: A definitive account of its origins and climax 1972-1983 (Allen & Unwin, Crows Nest, paper back edition, 2008). I originally bought this book as a present for my wife because I knew that she would be interested; she worked as one of the advisors to Minister John Button, a key player in the events of the time.

Originally published in 1984, the book itself is a  gripping account of the rise to power of Bob Hawke as leader of the Australian Labor Party and then, from March 1983, as Australian Prime Minister. It is also the story of the rivalry of three men: Hawke, Liberal leader and PM Malcolm Fraser and Bill Hayden, leader of the Labor Party before Mr Hawke. I found the book especially interesting because it is entwined with elements of my own life, providing a very personal perspective. 

I will write about some of the personal elements in due course in a post on my personal blog. Here I want to deal briefly with two professional elements: the way in which our differing positions affect  our perceptions, along with the rise of professional campaigning and what it means.

I have spoken before about the way our position in an organisation affects our views.

For the individual manager, I have emphasised the need to manage up and sideways as well as down. In so doing, I have also emphasised the need to understand the perception from the other side.

For the senior manager, I have emphasised the need to recognise that their perception of the world is almost certainly not shared, or shared only in part, by their staff. They actually need to know what their people think, not just assume.

How does this fit with Paul Kelly's book? Well, for part of the time I was a player in events.

In 1976, for example, I was an acting branch head in the Commonwealth Treasury when Malcolm Fraser decided to split the Department into two. In my acting role, I attended the last drinks put on by Secretary Sir Frederick Wheeler for senior staff of the combined department. I still remember Sir Frederick's distress and anger.

Later I was Assistant Secretary Economic Analysis in the Department of Industry and Commerce. Here my role was to act as a sort of Treasury in Exile for our Minister Sir Philip Lynch, a former treasurer who still wished to play an economic policy role. When Paul Kelly talks about the mining boom of 1980 and the way it affected policy, I was there as one of the official players.

By contrast, at other times I was a mere external observer, back at University undertaking post grad studies. Here I saw events from afar.  

Reading the book, I realised just how little I knew of certain developments, but was also struck by the way my varying positions affected my perceptions of the time. 

I have also written a fair bit on organisational change, most recently in Scoping the decline in organisational performance. As part of this, I have looked at the professionalisation of politics, and the way that this has adversely affected public policy. Many of these posts have been on my personal blog where I can be more opinionated, less objective.

As I write, NSW Parliamentarian Joe Tripodi has announced his intention to resign. Mr Tripodi is a NSW Labor numbers' man, part of the group that has effectively controlled the party and has led it to almost terminal decline. He is, in fact, the fifteenth NSW Labor Party Parliamentarian to announce retirement in recent months. Everybody knows that this Government will go in next March's elections, but the scale of retirements is still staggering.

In his book, Paul Kelly reports approvingly of the strength and professionalism of the NSW right. He also reveals clearly the way in which opinion polls plus qualitative research including focus groups affected policy and approaches. Mr Hawke became leader because polls showed that he had the best chance of winning.

Reading the book, I was struck not by the rise of professionalism in politics, but by the way each of the key protagonists had different views and values.

Each was an ambitious man, each wanted to win, but their views and values affected their approach. Professional political approaches including market research set a context, but the outcomes were determined by the interaction between individuals and the market research. This is very different from an environment where the market research itself comes to set, to control, the political and policy agenda.

I will finish here. I know that I will have more to say later.

Sunday, November 07, 2010

Hilary Clinton and web 2.0

A short post to record something for later reference.

Over at Club Troppo, Nick Gruen has long been banging the drum for web 2.0 as a way of making more Government information available and in a more useable form. For reasons that I will discuss in a later post, I think that the work done by enthusiasts such as Nick is very important.

At this point, I simply want to note that that Danielle Cave's post on the Lowy Institute blog, Chasing Hillary Clinton,  provides an interesting example of the use of various web tools for political and public policy purposes.  

Saturday, November 06, 2010

Digital Intelligence

Last month Thomas, one of my blogging colleagues, discussed in The future the possibility of doing a PhD on digital intelligence. Thomas wrote:

Howard Gardner’s multiple intelligences theory has always had me interested and somewhat of a believer. I certainly believe in the essence of the theory as he wrote it, but I feel that the theory has been abused and diluted and manipulated in wrong ways over the past few years (having read research about it for the past 6 years). But, yes, I do subscribe (as many probably do) with the notion of different intelligences.

What I would like to investigate is whether with this massive explosion in technology in people’s (see; children’s) lives, is there a new branch of the ‘intelligences’ that Gardner came upon emerging that we could term ‘digital intelligence’? That is to say, are people now developing new and distinct ways to comprehend technology, the new ways technology is creating and presenting information, and the way the digital world works?

For those who don't know Thomas, he is just completing an honours degree in education at the University of Sydney. I promised to provide a comment.

Much of the focus on the application of computing and communications technology in the classroom or in business has been on ways to better use the technology. I say computing and communications technology rather than just digital because the focus appeared well before the internet.

You can see this focus in the various Australian school curricula. There acquisition of various types of computing skills, the use of technology to do things, is built into every subject and every stage. You can also see it in teacher's blogs such as that of Maximos62 who is an enthusiast about the possibilities opened up by the digital technologies.

The actual impact of the technologies on the way that students, and people in general, think is less well understood.

We already know that technology shapes thought in often unseen ways. The rise of the motor vehicle is a classic example. It fundamentally reshaped the structure of life in country, town and city. It also changed the way in which we look at the world. It actually altered our mind settings, imbedding new perceptions of space and time.

We know that computing and communications technology is having similar effects. Indeed, we talk about it all the time. Yet the actual affects on the way we think are not well understood.

The initial stages of the computing and communications revolution focused on the storage, transmission and dissemination of data. Initial applications were business focused. The rise first of the PC and then the internet, added access and presentation to the original focus; the concept of interactivity emerged; the digital world became personal.

There are considerable tensions between the old and the new.

The use of the new computing and communications technologies in organisations, the desire to achieve uniformity and processing efficiency, led to the emergence of what I call command and control organisations. The bounds of individual authority were reduced, replaced by central decision rules and various types of performance measurement. My last post, Scoping the decline in organisational performance, is concerned in part with what I see as the adverse effects of these changes.

The internet and the associated new tools including social networking pose a fundamental challenge to the command and control paradigm because they transfer power from the organisation to the individual. To a degree, organisations including Governments that have used the technology to improve processing efficiency and to assert central control now struggle with changes that threaten that control. You can see this play out in, for example, the debate over internet filtering.

At individual level, people are still coming to grips with just what this new world means not just in terms of the use of the technology itself, but also in the impact of the technology on ways of thinking and acting. The debate over Facebook and privacy is an example.

Whether all this translates to a new type of intelligence, digital intelligence, is open to question. My problem here lies in the use of the word "intelligence". Quite clearly, new ways of thinking and acting are emerging. Quite clearly, people's ability to access and use the new technology varies enormously; the digital divide originally foreshadowed in this country by people like Barry Jones is here. However, does this constitute an "intelligence" in the way referred to by Gardner? It may, but it's also a question of definitions. 

To my mind, the more interesting question is the way the technology is actually affecting the way children think. If you look at the debate in this area at present, it seems to be generally problem focused. Cyber bullying is an example. There is, I think, much less focus on changes in structures of thought and of perceptions, on the way this affects learning and behaviour.

This is, of course, a huge topic. It may be that the use of Gardner's concept, a discussion of what constitutes digital intelligence and how we might measure it, is one way in. Whichever way Thomas goes, the topic is an important one. 

Thursday, November 04, 2010

Scoping the decline in organisational performance

Sunday Essay - why who signs what is important, a post on my personal blog,  discussed two examples of changing approaches to management that I thought had contributed to declines in organisational effectiveness over recent decades. This drew a comment from an old friend and colleague, Winton Bates.   

Winton was a senior official with the Industry Assistance Commission/Productivity Commission. There was, he suggested, some improvement in public service management in Australia during the 1980s and early 1990s when there was effective delegation of responsibility to a more appropriate level. Unfortunately, this had not been maintained.

For background purposes, I have repeated the post and the comment below in full. In this post I want to make a few general points and then ask for help.

One of the points about management theories and concepts is that their validity or otherwise finally depends on their practical application. Anybody who has worked for an organisation, or started a new business for that matter, knows this. It is the nuts and bolts, the systems and practices, that finally determine effectiveness.

My continuing discussion about what I perceive to be a decline in organisational effectiveness in the private as well as public sectors rests rests on this point.

So far as the public service is concerned, I think that Winton is right in suggesting that there was some improvement in public service management in Australia during the 1980s, although I would put both the start and end dates earlier than  he does. So we had improvement, and then decline.

I am not alone in talking about this perceived decline. Just at present, a considerable number of my older colleagues are are following similar lines, although the reasons given vary. One could argue that we are just getting old, but I think that it's more than that. There is a feeling of general unease, nor is this limited to the public sector, although it seems to be most pronounced there.

This brings me to the help I am seeking.

I would be interested in comments from fellow managers. Do they also perceive a decline? If so, when and why did they first form this view? Here I am especially interested in specifics, actual dated cases or examples, that might allow us to both test the argument and plot the process.

My original post follows:

"As a manager and adviser over a now considerable period, I have worked through a number of different sometimes overlapping management fashions. I think of them in my own mind as authoritarian, delegated, entrepreneurial, corporatised and now command and control.

I mention this because of a conversation last week over lunch during which those present returned to a common theme, a perceived decline in both the efficiency and effectiveness of modern organisations.

Organisation and management always takes place in a social context set by the society or societies within which the organisation works. That context plays an important role in the decline as we see it. However, put that aside. In this short essay, I want to look at just two features internal to organisations themselves.

I asked one of my colleagues, a former senior public servant, at what date he stopped being responsible for pieces of paper going to the Minister. He blinked, and said he always remained responsible. I rephrased the question: at what date when you were a branch head were you first required to get your Division Head's signature on it before you could send a piece of paper to the Minister? He then took the force of the question, and thought that it was around 1992.

A year or so back, I first had cause to do some work inside the NSW Public Service system. I found a multiple signature system on briefing notes, author, manager, branch head, division head, even CEO. 

So what do we have? In the period that I was a Commonwealth Public Service branch head or acting division head (1980-1987), I made the decision as to who signed the piece of paper to the Minister. My ability to sign myself was critical to getting things done. By around 1992, my colleague at the same level had lost that ability. By 2008 in NSW you had multiple signatures.

A small thing? Maybe, but let me ask you two questions.

First, on this type of paper, who has final responsibility? I think that the answer has to be the highest signature level appearing. As organisations have become more centralised, more command and control, final responsibility for many decisions has moved up the line. The practical effect is a reduction in flexibility, in the capacity of the organisation to respond quickly to the myriad of changes taking place in the world around.

Secondly, on this type of paper who now has ownership? Ownership is important because it is directly related to another question: who is going to make things happen? No sense of ownership, no drive. The problem with multiple signature systems is that no one in fact may take ownership. At one end of the chain, the nominal originating staff member may feel no ownership because he/she is just a drafter whose words and ideas may have been changed many times. At the other end of the chain, the final signatory is likely to be just too busy to take real ownership.

The second related feature that I want to look at is formal systems of delegation. Delegation systems are very important because they determine who has authority for what. They also provide part of the basis for financial control.

One of the things that I did in the two years I was CEO of the Royal Australian College of Ophthalmologists was to introduce new budget systems along with financial delegations that gave the CEO power to approve things within budget, subject to monthly management reporting. This replaced the previous system where individual expenditure items no matter how small required Finance Committee approval. The net result was a considerable improvement in College efficiency.

I make this point because I am in fact a strong supporter of properly structured systems of delegation. They can really aid efficiency as well as accountability. 

One of the things I have noticed over recent years, and this parallels the process I was talking about in regard to who signs what, is an apparent rise in the detail and complexity of formal delegation systems. This gives rise to several problems.

One is simply the time and complexity added to decision and reporting processes. A second is a growing disconnect in some cases between formal statements as to who can approve what and the realities of authority and responsibility in centralised organisations. No matter what the formal delegations say,  managers will not approve something where they feel that decisions might conflict with the realities of decision making power within the organisation. They will try to shift it upstairs.

More difficult still are cases are where managers are expected or directed to approve something in their power when the actual and specific decision has been made above them. Most sensible managers will simply protect their backs by documenting the decision/direction, "I approve this because", but it remains an issue and a risk.

One of the practical realities of management is that concepts and theories are always tempered by what actually happens on the ground. My purpose in this essay is to document two practical examples that show why modern organisations may, as I and my colleagues argue, have become less effective."

Winton's comment was:

An excellent post, Jim.

The only point I would like to make is that I think there was some improvement in public service management in Australia during the 1980s and early 1990s. For a period I think we had effective delegation of responsibility to a more appropriate level.

It is unfortunate if that hasn't been maintained.

Perhaps it is in the nature of public sector activities that responsibility tends to drift upwards. The success of the program manager is judged on the basis of vague criteria, including protecting the Minister from criticism. It is a lot easier to hold a manager responsible for decisions when she is responsible for a profit centre within the firm.

Wednesday, November 03, 2010

Blog Performance October 2010

With only 27 posts this year and no post since 15 August, this blog has been a real Cinderella. This is reflected in the stats.stats October 10 2

The attached graphic shows visitors (yellow) and page views ) yellow plus red) for the year to the end of October.

The slump in numbers is easy to see. Current traffic is all search engine from previous posts.

Over the last month, the most popular posts were:

Thursday, August 19, 2010

Pettis, China and the nature of structural imbalances

I have a lot of time for the views of Professor Michael Pettis. However, I am struggling a little with some elements of his analysis: it may be simply a lack of understanding on my part; it may be that we have different perspectives on time horizons; or perhaps a combination. Since I think that the issues are important, I decided to set down my confusions.

Let me start by outlining Professor Pettis's arguments as I understand them. I accept that I may be guilty of gross simplification; readers please correct me.

China has been following an Asian development model. This involves a focus on export led growth combined with a strong focus on capital investment. Consumption is squeezed to fund capital investment. The outcome in the Chinese case has been rapid growth combined with large export surpluses.

All this sounds pretty good, but there are problems. With time, structural imbalances emerge in the economy. Both capital investment and export activities are effectively subsidised from other parts of the economy. With time, these subsidies become more difficult to maintain: real returns on capital investment fall and may in fact become negative; investment and exports become so large relative to the rest of the economy that simple maths make it increasingly difficult to maintain the process; exports themselves become a problem.

By definition, trade surpluses in one country have to be matched by deficits elsewhere. When a country is small, this is not a problem. However, when the volume of exports and the consequent surplus becomes large relative to the size of world trade, surpluses are harder to maintain. In the Chinese case, the very large Chinese surpluses are especially matched with US trade deficits. The Chinese surpluses on the current account then flow into the US on the capital side; China effectively funds US consumption.

The logical answer to the growing structural imbalances is an expansion in Chinese consumption, thus increasing the size of the consumption share of the economy and of imports. The Chinese surplus declines, as do deficits in other countries. However, the sheer size of the structural imbalances makes this difficult to achieve. It is easier in political terms to continue with current policies even though this creates a growing risk of disaster.

Other factors are involved as well. One is the high Chinese savings rate, itself a mirror image of the investment process.

Accepting that my analysis of Professor Pettis' views may be simplistic , the confusion that I have links to the nature of the adjustment process. It is not clear to me that a simple expansion in consumption is the answer.

There are, I think, two very different sets of issues involved. One is the the nature of the structural imbalances that have emerged in the Chinese economy, the second the trade adjustment process. Let's leave aside the structural imbalances in the Chinese economy, focusing instead just on the trade adjustment process.

On the capital side, and as happened with the UK in the nineteenth century when it had a major funds surplus, I would expect long term Chinese overseas investment to rise. This means that an increased proportion of Chinese funds would be invested in specific off-shore activities rather than US denominated securities. This investment will lead to increased economic activity in other countries that will, of itself, affect trade flows. Those countries will buy more international goods and services as a consequence.

On the current side, and again as happened with the UK in the nineteenth century, rising Chinese living standards will lead to increased consumption. However, there is a scale and timing issue here. The sheer scale of the economic transformation including urbanisation taking place in China dwarfs anything seen before. I haven't attempted to run any rough numbers, but if you add an extra 400 million urban dwellers to a regular % increase in Chinese consumption associated with rising living standards, then you get some very large numbers indeed in the medium term.

This process may not shift the ratio between consumption and investment as usually measured as much as might be expected simply because so much capital investment is required. However, it will certainly lead to shifts in the trade balances. My feeling is that current Chinese surpluses may be more ephemeral than people currently realise.

None of this says that the short to medium term impact of structural imbalances in the Chinese economy is not important. I just think, and I am sure that Professor would agree, that we need to look at all the factors involved.          

Saturday, July 10, 2010

Cloud computing, risks and returns

I have watched the growth in cloud computing with interest. Wikipedia defines cloud computing this way:

Cloud Computing is Internet-based computing, whereby shared resources, software, and information are provided to computers and other devices on demand, like the electricity grid.

The ideas behind cloud computing are not new. What is new is simply the question of scale facilitated by technological and market change.

Despite the growth, I was interested to see an article by Gordon Peters on IT Wire suggesting that almost half of Oceania IT professionals say that the risks of cloud computing outweigh the benefits, according to the first ISACA Oceania IT Risk/Reward Barometer survey.

ISACA says that CIOs are increasingly interested in cloud computing because of its potential to deliver lower total cost of ownership (TCO), higher return on investment (ROI), increased efficiency and pay-as-you-go services, and that IDC has said that cloud services will outpace traditional IT spending over the next five years, representing approximately $51 billion by 2013.

“Yet IT professionals see risks in entrusting information assets to the cloud,” according ISACA which recently surveyed 218 Australia and New Zealand-based IT professionals who are members of the global, non-profit professional association.

I can understand the cautions, but also think the short to medium term economic benefits will continue to drive market growth. What we all do if entire systems go down is, however, a bit of a nightmare.  

Thursday, July 08, 2010

Is Australia's trade position as good as it seems?

On 6 July 2010 the Australian Bureau of Statistics released the latest Australian trabalance goods & services May 10de in international goods and services figures.

You can see from the attached graphic how the balance of trade on goods and services has returned to positive. This was greeted with a degree of glee. However, the results are not as clear cut as that. 

A very significant contributor to this result was a rise in non-monetary gold exports. These rose in seasonally adjusted terms by $772m or 66 per cent.

We can compare this with:

  • an increase in rural exports in seasonally adjusted terms of $235m, up 11%
  • An increase in exports in seasonally adjusted terms of non-rural goods of $385m, up 2 per cent.

The main components contributing to the rise in seasonally adjusted estimates for non-rural goods were:

  • coal, coke and briquettes, up $329m (10 per cent)
  • metal ores and minerals, up $157m (up 3 per cent)
  • other manufactures, up $52m (up 4 per cent).

If you look at these numbers, you can see just how important gold was.

If wecredit exports May 10 now look at other aspects of trade performance, I have had a particular interest in services, in part because of the importance of Australia's international education sector. I have been monitoring this closely because I expect this to drop by at least a third over the next year.

The adjoining graphic shows just how flat Australia's service exports have been. The country is simply not doing very well here.

While the overall return to surplus on trade in goods and services is welcome at this point in the cycle, it seems to me to be vulnerable.

In do try to adopt a slightly contrary position in my analysis. By this I mean that I like to test common assumptions and views. I am been concerned for a little while that the structure of our trade has been increasing Australia's economic vulnerability. However, detail here is a matter for another post.  

Thursday, June 10, 2010

Australian employment increases May 2010

Employment This graph from the Australian Bureau of Statistics shows the increase in Australian employment since May 2090. As a consequence, the Australian unemployment rate as measured by the statistics has dropped to 5.2 per cent.

In a post on my personal blog, Economic clouds gather, I wondered about the sustainability of the current Australian recovery.

I am still wondering. However, for the moment things remain positive.

Employment is generally a lagging indicator. The continued increase in employment should feed into further growth through increased demand. 

Increase in the New Zealand cash rate

The New Zealand Reserve Bank has increased the New Zealand cash rate because of the strengthening of the domestics economy. Of more interest, was the Bank's perception of the economic outlook.  This is broadly positive.

Wednesday, May 26, 2010

Profits, performance measurement and management

Over on my personal blog, I have had two posts looking at profits (here and here). Here I just wanted to flag a specific point.

My problems with our current focus on profit fits within the concerns that I started to outline in my reforming Australia's public policy series: the combination of focus with systemic rigidities.

Profit is a good thing. No profits, the business goes down, the economy suffers. In any market system, there will be businesses that can't make enough money and will go the wall. That's part of the economic adjustment process. But what happens when a focus on short term profits starts building instabilities into the whole system?

My view is that we are at this point now.  

Thursday, May 06, 2010

Lessons from the national school build program

The Australian National Audit Office's report into the operations of the National school build program makes for fascinating reading for someone like me interested in the details of management. While the report does not provide the type of smoking gun that the Australian opposition would have liked, it does provide an insight into the problems created by the Rudd Government policy approach and associated administrative structures and styles.

Although no-one so far has looked at the connections, this is in fact the second report into the operations of what are called National Partnership Agreements. The first came with the release by Indigenous Affairs Minister Jenny Macklin at the end of August 2009 of a report reviewing the initial operations of the $672m Strategic Indigenous Housing and Infrastructure Program. This program became part of the National Partnership Agreement on Remote Indigenous Housing and was intended to deliver 750 new houses by 2013 in Northern Territory remote indigenous communities. My then analysis of the report can be found here.

The ANOA report describes the overarching framework that is meant to guide Commonwealth-State arrangements in these terms:

Delivery of programs that span Commonwealth, state and territory
jurisdictions has been the subject of recent Council of Australian Government
(COAG) reforms. The reforms aimed to enhance public accountability for
service delivery by clarifying roles and responsibilities between levels of
government and improving collaboration. Rather than dictating how things
should be done, the new framework focuses on the achievement of mutually
agreed outputs and outcomes, providing the states and territories with
increased flexibility in the way they deliver services to the Australian people.

National Partnership Agreements are one element in this. These generally involve:

  1. Negotiation between Commonwealth and States of a framework agreement setting out objectives and broad approaches.
  2. Development of an agreed implementation plan setting what will be done and how, along with reporting arrangements on progress.
  3. Both agreements and implementation plans contain provisions for variation.  

On the surface, this all seems very sensible. However, problems can arise where:

  1. The Commonwealth as funder actually dictates the detail of what is to be included in the partnership on a like-it or lump-it basis. The problem is compounded where terms dictated ignore regional diversity, with a one size fits all approach. The only thing that the states can do in these cases is to try to negotiate on points of detail.
  2. The Commonwealth essentially dictates what must go into implementation plans. These may include, for example, requirements that require Commonwealth approval of particular and detailed expenditure plans before any action can commence. They may also include a plethora of requirements and sub-objectives.
  3. The Commonwealth is inflexible in implementation.

Problems are compounded because all states and territories have their own rules and accountabilities regarding expenditure that must be complied with, including formal legal requirements. These National Partnerships often involve very large sums of money.  The central coordinating agencies in the states and territories are concerned not just with efficiency and probity issues, but also with the management of cash flows.

Very real problems can be created for things such as state budget processes when the timing and scale of payments from the Commonwealth is uncertain. Further, coordinating agencies are concerned about ancillary costs that can arise in implementation that are not covered and which can affect other parts of state budgets.

If we now look at the Northern Territory report into indigenous housing, we find that program delivery there suffered from, among other things, from a multiplicity of sometimes conflicting and unranked objectives with over-complicated decision structures including no less than six decision layers.

Turning to the school building program, the ANAO summarised some of its criticisms this way:

The program design and funding variation process, which is focussed at project/school and ties funding to individual projects within schools, has not allowed the states to manage BER at a program level. The complex and constantly amended funding variation process has not enabled states to readily transfer funds between schools in order to achieve the agreed outcomes. The variation process and adherence to a narrow definition of approved project is considered increased input control, which is at odds with the principles of the IGA (Inter Governmental Agreement) to focus on outcomes.

Without going into the full detail in the report, some of the problems that arose can be summarised this way:

  1. The use of bands based on student numbers to determine project size created inequities between schools at the margin (a shift of a few pupils could have dramatic funding impacts), as well as an incentive to manipulate student numbers.
  2. The way that funding was announced meant that was meant to be a maximum spend per school actually became a target spend.
  3. The requirement that the Commonwealth approve spend on a school-by-school, project-by-project basis, together with over-complicated objectives and reporting requirements, increased administrative load and reduced flexibility. This was further complicated by a ruling that spend below maximum on particular school projects could not be transferred to other projects in the same jurisdiction but must be returned to the Commonwealth. School systems had no flexibility in adjusting spend between schools to achieve maximum value.
  4. Conflict arose between the Commonwealth's approach and the centralised approaches to public education in the various states. This was complicated by Commonwealth rules that created tensions between principals and their state employers.
  5. Budget confusions arose. In preparing costings, the Commonwealth Finance Department worked on the basis that spend would equal 90% of the maximum per school. This was interpreted by the Department as 90% of schools participating. Since the Department's aim was 100% participation, while the maximum spend had actually become target, it quickly became clear that spend would be greater than budget. This led to financial adjustments, including transfer of funds from social housing, to try to keep spend within aggregate budget approvals.
  6. Given the size of the program, variations in Commonwealth payments created cash flow problems in the states. While these were resolved, it cannot have helped state budgeting.
  7. In addition to difficulties associated with transfers of money between school projects, initial Commonwealth inflexibility created on-ground difficulties because of varying on-ground conditions. The intent was that all schools and areas should benefit from stimulus spend and in broadly the same time horizon. However, the actual impact of the downturn was quite variable across Australia, while there were also considerable variations in the available supply of skilled labour.
  8. Not only were reporting requirements overly complicated, but the data provided inevitable contained so many variations and was based on so many assumptions as to be unusable in measuring progress. 

I said at the outset that the report was unlikely to provide the type of smoking gun desired by the opposition. Despite building delays of the type I forecast at the time, the report concludes that the program did broadly meet the stimulus objectives. Further, in criticising both the Department and other Commonwealth bodies involved, the ANOA explicitly recognised the size of the program and the difficulties involved. The analysis makes it clear that the Department did try within its limits to be flexible and responsive.

  To my mind, and putting aside the inevitable problems always associated with the delivery of such a huge program, the problems that arose were due to the combination of failures in the way the way the program was specified in combination with the broader systemic features such as inflexibility, over-complication, over-specification and over-control that mark the general Rudd Government approach to public policy.

You can see why some of us are so cautious about things such as the Health proposals. Regardless of the general in-principle arguments involved, there has to be a question mark over the likely effectiveness of the proposals in the absence of a change in the Commonwealth Government's approach to public policy and administration.

Tuesday, May 04, 2010

Puzzles with the Henry Tax Review

You can find the full Henry Report here. The Government's promotional web site here.

At the moment, we are dealing with two very different things. The first is the Henry review itself, the second with things that the Government has accepted, rejected or left up in the air.

With taxation matters, the devil always lies in the detail. You also have to look very carefully at the language involved.

I simply don't have a view on much of this at the moment. My assessment of the Resource Rent tax as proposed strikes me as a bit gimmicky with a complicated and still unknown pattern of winners and losers. Further, I am not sure that the proposed Commonwealth investment of 40% in new mining infrastructure makes a lot of policy sense.

I am sure that details will change as consultation proceeds. I don't think that the use of the Government bond rate as a benchmark from which to calculate "super profits" is in any way sustainable, ignoring risk among other things.

We can be sure that the various interest groups will pick over the entrails. I will read with interest.   

Monday, May 03, 2010

Australian house prices rise further

While there is anecdotal evidence that the boil may be coming off, the rise in Established House Priceshouse prices in Australia has been quite remarkable by world standards.

This graph from the Australian Bureau Statistics shows the weighted quarterly average increase in house prices in Australia's capital cities.

You can see how prices came of the boil during the global financial crisis, only to start ramping up again. Average weighted prices in the March quarter 2010 were up no less than 20% from 12 months before.

The biggest increase came in Melbourne (27.7%), followed by Sydney (21%).

According to ABS, both the Melbourne and Sydney increases in the most recent quarter came especially at the high end of the marketplace.

ABS does not give non-metropolitan figures. However, while not rigorous, the numbers I have seen suggest significant rises in regional Australia as well.   

Wednesday, April 28, 2010

Non-tradable's and the Australian CPI

At 0.9% for the March quarter, 2.9% for the full year, the Consumer Price Index figures released today by the Australian Bureau of statistics were a little higher than forecasters had expected.

One thing that interested me was the difference in price performance between the traded and non-traded sectors.

The tradable component where prices are largely set on the world market makes up around 42% of the CPI basket. Prices here rose by 0.2% in the March quarter, up 1.1% over the year. This compares to 1.4% in the year ending in the December quarter 2009.

By contrast, the non-tradable component (58% of the CPI basket) rose by 1.5% in the March quarter, up 4.2% over the year. The equivalent figure for the year ending in the December quarter 2009 was 2.6%.

As you might expect given Australia's relatively good growth, the price pressures are presently on the non-traded side. This can be expected to continue.

Leaving aside issues associated with the definition of core inflation, the CPI is now very close to the Australian Reserve Bank's target range of 2-3%, above it in some capital cities and in non-tradable goods.

The Bank may or may not raise interest rates at its next meeting, but the raw numbers do suggest that Australia is facing inflationary pressures. The real sleeper is the tradable side since world economic growth is accelerating.            

Thursday, April 22, 2010

Hawke report into Australia's home insulation program

One of the problems that the Rudd Government has faced in Australia, one that I have commented on before, is simply that of delivery. In this context, the troubled home insulation program has finally been axed. 

The Australian has provided an on-line copy of the Hawke report into the program. The report is worth a browse for those interested in the practical processes involved in program delivery. 

Wednesday, February 17, 2010

Conundrums in the Australian economy

The release of the minutes of the Reserve Bank Board monetary policy meeting of 2 February 2010 contained no real surprises.

In terms of the economic outlook, the global economy was strengthening, if with some downside risks; underling Australian inflation was declining; while the medium term outlook for the Australian economy was good, the immediate picture was still mixed. In these circumstances, the Board felt under no immediate pressure to shift the official cash rate.

While the minutes are interesting and provide a useful summary of the current economic position, the 16 February speech by the Bank's Guy Debelle (Assistant Governor (Financial Markets)) is far more interesting.

In that speech Guy Debelle discusses the unfolding of the global financial crisis and the Bank's response. Certainly the Bank had a far easier time of it than its overseas counterparts simply because the crisis was less here. However, it also appears that the Bank's operating mechanisms - its experience, policies and processes - proved to be more robust. Crisis it may have been, but it could still be managed.

I found the description quite fascinating.

Looking to the longer term, Debelle made a clear distinction between the financial markets in the major Northern Hemisphere economies and those in Asia. To his mind, To his mind, there was still some distance to go before the effects of the asset bubble (my words) were fully unwound. This was likely to affect the US financial system outside the major banks. By contrast, Asian was expanding faster, while bank balance sheets were better there.

This brings me to the first conundrum in the Australian economy, China.

Reading Michael Pettis, I get the strong impression that Chinese banks are by no means as secure as Guy Debelle's analysis would suggest. The huge expansion in bank credit has been associated with something of an asset bubble, especially in real estate much loved by so many Chinese. The numbers I have seen quoted are staggering.

I just don't feel confident about China.

The second conundrum lies in the Australian data itself. Some economic data is good, some not. What does seem clear, but subject to China, is that a two stream economy is re-emerging again.

Monday, February 15, 2010

Management Perspectives - most popular posts 6

It is again a number of months since I looked at the most popular posts on this blog. Then the economics posts dominated because of the global downturn.

Looking at the last 100 visits, the most popular post by a considerable margin was Problems with computer lock-in, an economics/management post explaining what I meant by computer lock-in and its implications.

A way behind came two equal posts:

Then came three equal posts, again a bit behind:

In all, a reasonably mixed bag combining economics, management and public policy.

Friday, February 12, 2010

Friday Economics and Management Review 12 Feb 09.

This post reviews some of the economics, management and professional issues that have interested me over the last week.

The announcement of the opening in Australia of UK law firm (here and here) interested me because of the sheer size of the raid (14 partners) on Australian national firm Clayton Utz. While I don't expect A&O's opening to have the same impact on the Australian marketplace for legal services as some of the breathless commentary would suggest (the story made the front page of Australia's Financial Review, for example, with supporting material later), it is still an interesting development.

I spoke of the troubles affecting Australian environment minister Garrett in Insulation, pressure cookers and Minister Garrett.

While the problems that have arisen in the national home insulation scheme are in fact an example of the type of systemic problems that I have been talking about in current public administration, I am more sympathetic to Minister Garrett than you might expect. The genesis of the trouble lay in the pressure cooker atmosphere of Canberra at the time the scheme was developed, decided and first rolled out, a time when people feared an economic Armageddon.

Just looking at the economic stimulus side of the package, this one pumped money into employment far more quickly than any of us (me included) expected. The very speed of take-up was central to later problems.

Unfortunately, one outcome is likely to be a reinforcement of concerns about risk as opposed to risk management. I still see this as a major impediment to improved management, especially in the fish-bowl world of the public sector.

This links to the post I wrote on Will proposed international bank regulations cost all Australians?.

Most business people are worried about the increasing burden of regulatory compliance. There are two different types of costs here. One are the transaction costs directly associated with compliance. Apart from costs to individual firms, the higher the proportion of national resources tied up in this, the lower the proportion available for directly productive activities. The net result is reduced growth. The second costs are those that flow from distortions to the market place and economic activity more generally.

My problem with the proposed international bank regulations lay in the possibility that they might increase interest rates, while actually increasing sector vulnerability, I accept that this was based on very simple, some may say simplistic, analysis. Still, it at least there is a basis there for further thought.

Monday in Problems with computer lock-in I looked at some of the effects of what I call computer lock-in, the way in which past investment in IT and all the systems based on It could adversely affect economic performance. This discussion was triggered by question on an earlier post by one of my old Commonwealth Public Service colleagues Winton Bates, formerly a senior official with the Australian Productivity Commission.

Winton suggested that I should look at some of the later material on institutional economics for another economic explanation of some of the things that I have been talking about. As I admitted to Winton, I am very out of touch here, but he has given me some leads to follow up to re-educate myself.

One of the points I made about IT and communications technology is the way they could facilitate cost shifting as compared to cost reduction. Your costs go down, but this is actually at the expense of someone else, often the customer. Measured by cash and opportunity costs for all, overall system costs may not fall at all and may even increase. 

In the commercial case, this type of cost shifting may yield immediate profits after taking into account any adjustment costs. However, the sustainability of the profit then depends upon customer and competitor response. Where customers make some gain, then they are more likely to accept the costs and frustrations involved.

A related problem is that one set of costs can be seen and measured, the other less so. This can be a significant public policy problem, for in cost shifting associated with the delivery of centralised services you have defined gains to the taxpayer on one side, sometimes hidden if unmeasured costs to taxpayers on the other. The issue is further complicated.

I became interested in the Bellingen Hospital case because I noticed a new Facebook page Tuesday this week. I have been interested for quite some time in the way that different social networking tools can be used and the dynamics associated with them. In this case, an un-official Save Bellingen Hospital Page was started Tuesday morning asking people to say why the Hospital should be saved. By the time I noticed it later that day,  it had already gathered over 200 fans.

To provide some background information, Bellingen is a small town on the New South Mid North coast with a population a bit under 3,000. Health authorities are considering closing certain service there requiring people to travel instead to the bigger Coffs Harbour hospital. This is a bit over half an hour away from Bellingen by road.

I know Bellingen quite well, was sympathetic and very interested in the comments. So on Thursday morning I wrote a sympathetic supporting story about it on my New England Australia regional blog, Bellingen organises to save hospital. By this morning, the Facebook page had 812 fans, and I followed up with a second story,  Bellingen Hospital, Facebook and the costs to the community, looking at some of the community cost issues.

These are the type of cost issues that are generally not measured. One side effect - and this is not unique to Australia -  is the way that service centralisation has in fact had a quite devastating on the economic and social life of many smaller communities.

    As I finish, the number of fans on the Save Bellingen Hospital Facebook Page has just reached 1,046.

Thursday, February 11, 2010

Australian unemployment falls to 5.3% in January 10

unemployment Jan
Figures released today by the Australian Bureau of Statistics show a fall in the Australian seasonally adjusted rate of unemployment to 5.3% on a steady participation rate. Aggregate hours worked also increased slightly.

The numbers suggest a continued strengthening in the Australian economy. The Treasury November forecast of 6¾ peak unemployment that I mentioned yesterday in  Australia's financial outlook February 09 sure looks a long way away!


A number of commentators have suggested that aggregate hours worked have fallen, whereas I said they have increased. The reason lies in the difference between the trend numbers (just up) and the seasonally adjusted numbers (down).

Overall, commentators appear to be correct when they suggest that average hours worked had declined slightly (no of jobs worked, aggregate hours much the same).

Will proposed international bank regulations cost all Australians?

There have been several things that have caught my eye over the last day when it comes to interpreting the economic entrails. This post deals with one.

Jaime Caruana, general manager of the Swiss-based Bank for International Settlements, is reported as saying that Australian banks could not expect to be quarantined from changes taking place across the global system.The thing that really caught my eye is the requirement that mortgage lending be funded using long-term debt.

Now depending on the meaning attached to this, this would actually lead to a fundamental change in Australian banking. Older Australians will remember the Australian savings banks, banks who used generally short term deposits to fund housing. This is actually the Australian pattern.

In system terms, short term funds withdrawn from one bank simply went into another, so there was no system wide risk associated with short term lending. There could, however, be risks for individual institutions that might then translate into system wide risks if everybody tried to store their money under the bed. We saw this in the 1890s' crash and the associated asset bubble.

Now looking at the implications for Australia from the proposed change and working just from first principles. I stand to be corrected, of course, if I get things wrong.

If Bank A cannot use its retail deposits for mortgage activity including housing and has to borrow longer term, then on the surface it will pay more for funds, a cost that will have to be passed on.

Given the banks control over deposits, and excluding international borrowing, Bank A will actually need to access funds held by other banks, say Bank B, directly or indirectly. Bank B also wants to lend for housing, but also cannot use its deposit base. So Bank B will, directly or indirectly, lend Bank A money on a longer term basis, in turn borrowing from Bank A. We have a round robin in which interest rates go up, inter-bank dependency increased.

I accept that this may be simplistic, so please correct me if I have got things wrong.     

Wednesday, February 10, 2010

Australia's financial outlook February 09

In November 2009 in its mid year estimates, the Australian Treasury was forced to alter its its projections to take into account better than expected economic performance. Even then, Treasury was forecasting that unemployment would still peak at at 6¾ per cent in the June quarter 2010.

Since then, the economy has continued to strengthen. As a consequence, the Australian Government financial statements for December 2009 show  a further strengthening in the Government's financial position with expenses lower, revenue higher than expected. That's good.

There were two especially interesting things in all this.

The first was the increasing probability that the Government would run up against the 2% real spending cap far sooner than anyone had expected. As I understand it, once Australian economic growth returns to trend, then the Government has committed to capping increases in real Government spend at 2% to speed the return of the budget to surplus. Given other pressures, this is going to be interesting to say the least!

Quoting Peter Martin from the Sydney Morning Herald:

Speaking to central bankers from around the world gathered to celebrate the Reserve's 50th birthday Happy Birthday RBA), Mr Stevens speculated about how monetary policy should be handled if governments restrained spending to pay off debts, creating a drag on economic growth. ''The straightforward answer is presumably that it would remain more accommodative than otherwise,'' he said.

Apparently in this speech, the RBA's Stevens mused about the problems that might arise should the combination of Government fiscal restraint, low inflation and consequent low interest rates encourage future asset bubbles. Perhaps the RBA should take this into account in setting rates, taking pre-emptive action?

I remember a speech a number of years ago from Australian economist Don Stammer in which he suggested that now we had entered a period of sustained low inflation, we could no longer expect the increased asset values of the past. Ha!

Don's arguments actually made a lot of sense. It was a bit hard to forecast the way in which plentiful liquidity in combination with low interest rates might lead instead to asset bubbles. Mr Stevens' comments make a degree of sense.  

Tuesday, February 09, 2010

Rudd Government's problems with green policies

Nick Perry had an interesting post on New Matilda, Another Rudd Green Plan Bites The Dust?, that gives some further examples of the type of thing I have been talking about in my reforming Australian public policy series. A post on my personal blog, Education and Australian skilled migration: a policy catastrophe? gives a further example.

Oddly since it is such a big failure, I am a little cautious about arguing that the skilled migration example necessarily supports my case that we have a pattern of systemic failure in Australian public policy and administration. I suppose I say this because as a former senior public service manager, I am not sure that I would have spotted the particular outcome from the 2005 expansion of  MODL, the Migration Occupations in Demand List, while I might well have argued for hard responses in dealing with the problem.

To the degree that I might use this example in future, then I will be looking at three things:

  • the nature of and reasons for the lag in recognising that a major problem was emerging.
  • the wording of this announcement and the way this affected events.
  • the extent to which the Government has plans in place to respond to the problems likely to emerge from this decision.  

Monday, February 08, 2010

Problems with computer lock-in

In a piece on my personal blog, Sunday Essay - why it's hard to break out of the box, I said at the end:

If I was asked what was the biggest single impediment to change today I would say the computer.

The adoption of computers and IT more broadly has been one of the greatest causes of economic growth because it allowed existing things to be done more efficiently, new things to be done that could not be done before. Yet, as any IT professional knows, there is a considerable difference between simply computerising existing systems (this will certainly make them more efficient) and the design of completely new systems likely to yield the greatest benefit from the new technology.

I first came across the problem of computer lock-in a number of years ago when facilitating the development of a strategic plan for the Australian subsidiary of a global IT company.

Everybody at the workshop agreed that the company's IT and knowledge management systems no long properly reflected either company needs or the marketplace. Everybody also agreed that the sheer cost of changing the system meant that senior management would not agree. They just had to work around it.

You see, once entrenched, the computer protects what is at the expense of what might be.

In a comment, my old friend and now blogging colleague Winton Bates sought further clarification of just what I meant by computer lock-in. I started to respond by way of comment, and then decided that I should discuss the matter here because it is an important and interesting issue from both a management and economics perspective.

The discussion that follows does not address the claim that I made above that the computer has become the single greatest impediment to change today. My purpose is purely explanatory. 

Meaning of Computer Lock-in

By computer lock-in, I simple mean the way in which existing IT systems and approaches can actually impede change, reducing efficiency by locking in past approaches.   

This type of lock-in can occur in different ways.

To begin with, lock-in occurs when the cost of making the changes to systems exceeds the costs associated with system dysfunctionality. Lock-in can also occur where computer based standardisation across the organisation impedes organisational flexibility and response. Lock-in may occur or be intensified because of the interaction between systems, decision processes and budget structures. Finally, because systems affect the way we think, the term might also be applied to thought patterns created by or at least maintained by IT systems.

A Simple Amplification

To begin our discussion, cast your mind back into the past and consider computerisation of existing systems.

  The processing power of the computer allowed existing systems to be standardised and automated with consequent savings. This helped drive major gains in productivity, leading (among other things) to faster economic growth.

No system is perfect. Needs also change over time.

The computerisation of existing systems may have allowed substantial savings, but it also locked in systems as they stood at a point in time. Administrative and processing systems moved from people to capital intensive. Future changes to processes whether to remove existing weaknesses or to meet changing needs now faced a new cost, the cost of altering IT systems.

Fundamental process re-design had to take into account the write-off of existing investment, as well as new investment costs. This made incremental changes at the edges easier. Where fundamental change did occur, then those changes were locked in in the same way because of the capital and other costs of future change.

A Big Enterprise Example     

In the case I was referring to above, a large global IT company, we had a very large, integrated enterprise wide information system that had given the company significant advantage at the time it was introduced. As marketing, production and distribution needs changed over time, the system had been altered at the margin, patched.

At the point in time we are talking about, a growing gap had opened between business needs and system performance. This was recognised. However, the sheer costs involved (cash plus business disruption) in what would be an enterprise wide system replacement made action difficult.

The position was further complicated by the fact that the enterprise, then a household name in computing, had recently been acquired by another, much larger, organisation.

The two enterprise information systems were very different. Both organisations were wrestling as well with just how the two systems might be merged or, at least, interfaced.

Impact on Mergers and Acquisitions

This is actually an example of another lock-in effect, the way in which differing computer systems affect mergers and re-structuring. This one is quite important because system differences have become a significant reason for the failure of mergers to achieve the expected benefits.

To amplify, consider a professional services example, two law firms. Each has different IT systems covering accounts, time keeping and precedent management. Effective merger requires common systems to ensure integration. This comes at a cost, since one single system (new or existing) must be selected. Existing investment must be written off, new investment made, the cost of disruption accommodated.

The sheer size of these costs has been sufficient to prevent some mergers.

Interface with Conventional Economics

In one way, the type of effects that I have dealt with to this point that link to the rise in capital intensity fall within the field of conventional economics, although the focus on physical capital may have made economists initially slow to recognise the rise of capital intensity intensity in the services sector.

Take my law firm example. At one level, this is no different from one box manufacturer taking over another. The box manufacturer faces similar choices in deciding when, if and how to rationalise its expanded production capacity.

  I will return later to the issue as to whether IT investment has different effects from other types of investment. For the moment, I simply note that expressed in conventional terms, the new computing and communications technologies shifted the production function to the right. However, now that the IT investment has taken place and in the absence of further technological change, my analysis suggests that returns on future investment will be more akin to moves along the production function rather than shifts in the function. This is part of the reason I have argued that future productivity gains from IT are likely to be lower.

Cost, Benefits and Standardisation    

Another example of lock-in arises where costs and benefits are not evenly distributed or perhaps even properly identified.

Consider, for example, a case where a particular unit has a need that is not being met by the existing information system. They have the need and will benefit from the change. However, the cost for any such change must come from another budget bucket, while the proposed change itself must meet standardised enterprise requirements, including the need for protection of the existing network.

Here we have an example where the lock-in effects lie in the need to maintain a degree of central control over systems once established. We can think of these effects along a number of dimensions. I accept that one can argue as to whether these should truly be classified as lock-in effects in the way I am using the term. However, I would argue that we need to consider the effects in combination.

  • communications: emails provided an enormous initial productivity boost, but the sheer volume of email traffic created storage demands, risk management issues and retention and access issues. This meant that after the initial gains, organisations then faced added costs in managing and maintaining its email systems. There are also continuing problems with the inappropriate substitution of emails for other forms of communication including the telephone, personal contact or simply a hand-written note. 
  • internet and intranet: the increased use of the internet and internal intranets for communication and to access information yielded substantial productivity gains. Like the email, these gains have peaked with the need for rules on use, greater filtering against inappropriate use and network protection adding to complexity and costs.
  • access and retention: the ever increasing volume of often useless data, along with storage on individual hard drives, has created real problems for access and retention. In extreme cases that I have seen, up to forty different versions of the same document can be found. Just knowing which is the latest version is a problem, let alone the pain of key word searches as the computer chugs away trawling through the mass of material.
  • protection: the need to protect networks means that all organisations have had to develop rules as to what can be attached to networks and by whom. While necessary, this has its own costs such as delay and support costs, as well as individual frustration.

Cost Shifting vs Cost Reduction

A very particular problem has arisen with IT systems that I call cost shifting.

We all know about things such as call centres that centralise client service. This is actually cost shifting because it reduces the paid time to required to service customers, while increasing the amount of time the customer has to spend accessing the service. Of course there are cases where the customer benefits, but anybody who has spent long times trying to get an answer will know what I mean.

What is less well recognised is that cost shifting is alive and well within organisations from the measurable to the not so easily measurable.

Consider, for example, the replacement of word processor operators by individual authors. This does offer productivity gains. However, for certain types of documents, a word processor operator is far more skilled and can produce a document quicker and at a higher standard than any individual author. The problem here is that the costs of the word processor operator are easily measured in budget terms, the opportunity and quality costs of author production less easy to measure.

Very similar issues arise in other areas such as the substitution of on-line HR kiosks for HR staff. This can be far more efficient. However, it can also result in highly paid managers spending time on tasks that could be done more quickly by a lower paid HR person.

All this is in fact testable. However, and this is the connection to computer lock-in, once the on-line system has been set up, it can be very difficult and expensive to introduce an alternative.

Computer Lock-in and Innovation

All successful organisations depend upon a combination of people who do their ordinary job as well as possible with innovators who bring about change.

There is always a balance issue here. Too many of the first and the organisation will struggle to really improve. Too many of the second, and the organisation may become unstable, unable to deliver efficiently. 

The problem with the computer is that it in facilitating standardisation and control it has switched the balance between the two.   


Returning now to my point as to whether IT investment has different types of effects to other investments, I would argue that it does because it is just so pervasive.

The nearest equivalent that I can think of is the invention of the production line. Its impact on industrial efficiency was huge, yet it also had costs. The production line is still with us, but has now been part replaced by far more varied production systems in themselves based on computers.

I wonder whether the same thing will happen now with computer based systems themselves. Certainly I feel the current computer lock-in is past its use-by date.                    

Sunday, February 07, 2010

Australian wholesale bank guarantee to be withdrawn from 31 March 10

A bit over twelve months ago, on 19 January to be precise 2009, I was fulminating over Access Economics dire predictions on the Australian economy. On 5 February I wrote Are all the Australian economic forecasts wrong? I followed this on 23 February with A very odd recession.

My problem at the time lay in the fact that I was struggling to match the economic data with the dire predictions, something that had been worrying me for a little while. I was right, of course.

As the economy turned, Australia was one of the first if not the first major economy to start raising interest rates, full-stopping a sharp shift in economic perceptions. Now the Government has announced the withdrawal of its Guarantee Scheme for Large Deposits and Wholesale Funding to come into effect on 31 March 2010.

Simply put, the Government feels that Australia's banks can now borrow internationally without that support. This would have been inconceivable last February.

The guarantee has been a sweet little income earner. The Government was not required to make any payments, so the $A1.1 million collected from the banks to this point for the guarantee is straight profit. This is expected to rise to $A5.5 million over the life of existing guarantees. This represents a small but useful offset against the total cost of the various stimulus packages.

When I wrote  A very odd recession last February I had no idea just how odd a downturn this was going to be. At this point, it is as though the Global Financial Crisis did not exist so far as Australia is concerned.

It would pay Australia not to forget, of course. But for the moment, everybody is enjoying business as usual.

Wednesday, February 03, 2010

Surprising surprise at the RBA's decision to keep interest rates on hold

One of the most interesting things about the Reserve Bank's decision to leave Australian official interest rates on hold lay in the way it wrong-footed so many commentators as well as market participants. Pretty much everybody, me included, thought a rise was likely. In fact, so likely that the Australian on-line bookmaker Centrebet had apparently refused to take bets on this month's move for the first time since it started covering Reserve Bank decisions because it said the odds were so skewed towards a rise.

Thinking about it, I'm surprised that we were all so surprised. Here Michael Pascoe had a reflective piece in the Sydney Morning Herald that is worth reading. 

By its nature, the RBA operates with a longer term perspective than most commentators or market operators. It has too because of the time lags and uncertainty inevitably attached monetary policy.

The decision by leading Australian banks to raise interest rates by more than the last official rise increased the economic impact of the rate shift. Little has changed in economic terms since the last rise. So a rate hold isn't all that surprising.

I suspect that there may be another issue as well.

The Reserve Bank has been quite clever in managing expectations, something that's important in policy where expectations can be more important than actions. It's dramatic decision to first increase official rates had global impact on economic confidence. Australian opinion certainly swung towards greater confidence in the economic outlook.

Keeping interest rates on hold this time has the useful effect of making market participants a little more cautious when it comes to pre-judging Bank decisions. 

Tuesday, February 02, 2010

Problems with the definition of governance

Towards the end of my introductory post Problems with the concept of governance I said:

I have a particular personal problem with the way that the concept is now used because I find that in some of my professional roles, project management is an example, it actually interferes with effective service delivery. This leads to great personal frustration.

One of the reasons why governance has become such a difficult concept is that there is, in fact, no agreement on the just what the word means. People use it in many different ways. You can see this if you look at some of the definitions of governance on the Web. You can also see why I say that governance has become conflated in some ways to management, in fact a very different concept.  

  • administration: the persons (or committees or departments etc.) who make up a body for the purpose of administering something; "he claims that the ...
  • government: the act of governing; exercising authority; "regulations for the governing of state prisons"; "he had considerable experience of government"
  • In grammar and theoretical linguistics, government refers to the relationship between a word and its dependents. ...
  • Governance relates to decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems.
  • The process, or the power, of governing; government or administration; The specific system by which a political system is ruled; The group of people who make up an administrative body; The state of being governed; Accountability for consistent, cohesive policies, processes and decision rights
  • The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization ...
  • Measures put in place in order to ensure smooth functioning and control of a company. Such measures reinforce the importance of transparency of information.
  • Means in which the leading authority, often the board of directors in foundations, guides and monitors the values and goals of its organization through policy and procedures.
  • In the context of SOA, governance defines the model to ensure optimal reuse of services and enforcement of corporate policies (eg, business design, technical design, and application security).
  • issues related to the involvement of stakeholders - scientists, industry, consumers and public authorities - in the process of innovation policy design, implementation and evaluation
  • Governance describes dynamic distribution of power, learning and benefits among firms in a value chain Governance refers to the inter-firm relationships and institutional mechanisms through which non-market co-ordination of activities in the chain is achieved. ...
  • governance Governance is exercising authority to provide direction and to undertake, coordinate, and regulate activities in support of achieving this direction and desired outcomes. Source: Glossary – Framework for the Management of Information in the Government of Canada
  • is the process of overseeing a work activity at a level higher than direct managerial control. Governance processes provide executives and staff with clarity on stakeholders expectations. ...
  • shorthand term for political, social, economic and administrative institutions and policies that affect the supply of public services. ...

If you look at all these definitions, governance is used to refer to both structures and processes. It can be used in a top level sense, or can be cascaded down through the organisation. It can be used in terms of provision of a framework in which decisions are made or the process of making decisions. Or it might include the lot.

From a purely professional viewpoint in the delivery of services to clients or if acting as a manger, if the word governance is used in any of the documentation, then you must clarify just what the word means in that context.