An Appalling Vista

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ISME’s recent Business Trends Survey makes for grim reading. Employment is down. Sales, investment, orders, and exports are all down. And owners and managers of small and medium enterprises (SMEs) are extremely nervous, as well they should be. A hard rain is starting to fall. Of course, ISME knows who to blame: the public sector, trade unions, wages, home-grown inflation, a strong Euro. Some of these are legitimate, but some are so far off the mark that it raises questions about ISME’s ability to represent their members’ interests. And there is one issue they don’t address. Won’t address. One issue that should make all of us afraid. Very afraid. It is this: What if, despite the economic climate, we have a class of managers in the SME and indigenous sector who are just not up to it? What if one of the core issues in Irish competitiveness is widespread managerial incompetence? If this is the case, then, regardless of the economic weather, we have a problem that is chronic, endemic and highly resistant to correction.

Official agencies have been investigating this issue that dare not speak its name, and what they reveal is a catalogue of ineptitude, incompetence and ignorance. As Forfas observes:

‘There is a strong positive relationship between high standards of management practice and high levels of productivity . . . Improvements in management capabilities . . . increase productivity, returns on capital employed, sales and market share, irrespective of the country of operation, sector, firm size or other similar characteristics. . . . Firms with skilled and experienced management teams are more likely to attract higher skilled staff, to effectively use other determinants of productivity such as ICT, and to excel at both operational and strategic management. Simply put, those in well managed firms work more effectively than those in poorly managed firms.’

FAS puts this issue in even sharper focus:

‘Management skills are critical to the success of an enterprise and hence the national pool of management expertise has a crucial bearing on the economic development of a nation.’

Yet, report after report offers up a desultory diet of management underachievement, to put it mildly. The recent Annual Competitiveness Report produced a catalogue of management failure:

  • Limited management expertise in innovation, international sales and marketing.
  • Adoption of best practice management techniques among Irish owned firms remains relatively low.
  • Many indigenous exporters are dependent on a limited number of international markets and customers.
  • A limited number of Irish services companies have not grown real scale. Given low profitability, for most of these companies, shareholder value is released through trade sale rather than dividends.
  • Underexploitation of ICT, particularly among smaller firms.
  • Limited capabilities to absorb the output from State funded R&D.

isme_appalling_vista_1.JPGFAS, working with private management consultants, undertook a comprehensive survey of management capabilities. It stated there was ‘a pressing, and compelling, need to improve management skills.’ But policymakers will have their work cut out for them:

‘Overall, general management skills in Irish SMEs were assessed as poor. One respondent stated that “they don’t manage, they firefight”. Another noted “the passion and the work input are there, but they can’t manage”. Others expressed surprise at how many small companies actually survive despite having grossly inadequate management skills.’

FAS used 22 categories to assess management capabilities. In 17 (or over 77%) they were judged to be poor or inadequate. In only one were skills rated ‘Good to Excellent’: crisis management. This is actually a back-handed compliment.

‘It was observed by some that SME managers have to be good at managing crises because they happen so frequently.’

It is not often that official reports engage in such irony.

FAS emphasises the need to increase the quality and range of management development courses that are relevant to the needs and time constraints of SMEs. But the take-up rate has been poor. Why? FAS quotes the response of one interviewee:

‘One interviewee explained his perception of the problem thus: “often, time and cost are thrown out as a disguise. In reality, many are afraid of exposing their educational deficiencies, in front of others, in management development programmes.’

To the extent that this is true, it suggests that all the programmes and state supports will amount to little until there is a sea-change in management culture. In 2005, Enterprise Ireland published a comprehensive study of the print and packaging sector, a 200-page report into all aspects of enterprise capabilities and government policy, backed up by international benchmark indicators. It found a largely indigenous sector incapable of competing internationally or domestically in the face of global competitors. It described

‘. . . significant deficiencies in key management and technical skills; a traditional management culture; and an over reliance on the domestic market.’

The Report went on,

‘The vast majority of companies in this industry are private Irish-owned firms. Many companies are run by their owner-managers; many have had . . . little or no management training. There is a belief in the industry that the lack of management expertise among many owners has had an adverse impact on the strategic direction and performance of the industry.

When it comes to comparing the industry with other EU countries, Ireland comes out poorly:

‘. . . management performance is poor, particularly in the areas of finance and stock control. The absence of appropriately qualified financial personnel in many of the companies, revealed by the industry survey, is undoubtedly a contributory factor. Poor management performance was a feature of both printing and packaging companies and the industry was also found to have relatively high levels of staff turnover.’

Driving home the point, the Report said,

‘1. Some managers have a lifestyle approach to business which manifests itself in an absence of good governance and of succession planning. 2. Some managers display a lack of appreciation of the value of strategic planning and training.’

How does management respond? Enterprise Ireland’s Transform Programme, which was developed in response to an identified need for strategic and change management for owner managers and senior management, was poorly subscribed. Anecdotally, employers often state the view that training is a waste of time and money. They suggest that the trained staff simply leave to work elsewhere or that courses limited to industry participants are somehow dangerous because the exchange of ideas can result in competitive disadvantage. These are the usual backward and self-serving rationalisations trotted out in the face of the report’s findings. US studies show that:

‘. . . a profit leading company is seven times more likely to have engaged in management training than poorly performing companies.’

We have traversed this ground before: Irish companies that don’t take the trouble to get proper tax planning advice, that adopt labour relations strategies, regardless of the impact on productivity. We have seen that wage levels and labour costs are not an issue in our competitiveness. Any objective reading of the literature that is now piling up shows, instead, a profound deficit within the conduct of management itself – a deficit which management refuses to address or own up to. Can anyone really wonder why our indigenous sector is so poor?

ISME is becoming irrelevant to the resolution of deteriorating competitiveness. First, it is out of kilter with its own members. While it continues to bang the ‘wages and regulations’ drum, less than one company in six that they surveyed said labour costs were a problem (only one in ten said regulation was a problem). In fighting inflation, why doesn’t ISME join with ESB unions and attack the Energy Regulator’s policy of artificially hiking up electricity prices in the name of ‘competition’?

Second, by not acknowledging and addressing the considerable management skill deficit, they are pretending there’s no elephant in the room when in fact it’s standing on top of them and us.

And that is the appalling vista. Every cloud in the economic sky could be removed, a blue sky of wealth opportunities and prosperity awaiting the citizens of the land.

But our home-grown management, following the lead of their representative organisations, will remain indoors, trashing the furniture and shouting vainly at the empty walls and torn-up floorboards.

It might not be such a problem, except that we have to live there, too.

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