Does Ownership Structure Matter In The Long Term?

Thanks to The Foundation for another entertaining Forum last night - this time on whether ownership structure is the only thing that matters for long term growth.

The discussion opened with some insights on ownership from Michael Green of Philanthrocapitalism fame, Luke Mayhew, former managing director of John Lewis (who also chairs the remuneration committees of some large corporations), and the inimitable Anthony Hilton, Financial Editor of the Evening Standard. 

And there was plenty of vibrant discussion about the merits of competing forms of business ownership, whether by employees, shareholders, customers, partners, joint venturers and even benevolent dictators. 

But it was clear that how a business is owned has little to do with long term growth.

Anthony Hilton said it all in his answer to my question whether solving the problems of customers or potential customers mattered more in the long term than ownership structure. He said that customers don't matter at all, as the City has done very well over the past 50 years dreaming up any old product and shoving it down peoples' throats.

To the extent that you believe that this demonstrates long term success, then I would only observe that City firms characterise every form of ownership. So ownership structures themselves have played no particular role in the City's exploitation of its customers.

But of course you might share my view that it would be wrong to judge the City has having done 'very well' with this strategy, as it is hardly in the best of health.

So ownership is just one of many dynamics that a business has to manage. 

If you are looking for the most important dynamic, then I believe it is whether a business is focused on solving its customers' problems, rather than solving its own problems at its customers' expense.

In other words, the key to long term growth is to be a facilitator, rather than an institution.

Image from The Philosopher's Magazine.

Facilitators and Institutions Defined

The distinction between 'facilitators' and 'institutions' is a theme that has emerged quite strongly in this blog and is discussed in Chapter 2 of Lipstick On a Pig. In essence, I've defined "facilitators" as organisations that exist to solve their customers' problems; and "institutions" as organisations that exist to solve their own problems at their customers' expense.

To be more specific, I've extracted the following characteristics that I believe mark an organisation as being one or the other. Broadly, these characteristics group into themes of alignment, openness, adaptability, transparency and responsibility.

So, a 'facilitator' is organised to solve its customers’ problems, operates openly, adapts well to changing circumstances, is committed to transparency and takes responsibility for the impact of its activities on the wider community and society.

I update this post from time to time and am interested in any comments you may have.

Facilitators:

 Alignment

• exist to solve problems that their customers encounter day-to-day as part of wider end-to-end activities (i.e. customers don't 'pay' or 'bank', they make a payment as a single step in a much longer purchase process);

• don't presume to 'own' the relationship with people who use their products, and see customers as the controllers of that relationship;

• accurately define real problems, assess their real scale, identify root causes and implement proportionate, efficient solutions;

• view the world through the eyes and experiences of people who use their products;

Openness

• are prepared to work with complimentary businesses to support their users' end-to-end activities (including linking to material produced by others);

• seek feedback, welcome input and criticism;

• interact well with users in open forums;

• are 'free-rider tolerant';

Adaptability

• are highly adaptable and responsive to criticism; 

• allow ideas to develop from staff and users bottom-up, generating passion and connection amongst them;

• see uniqueness, change and adaptability as a source of competitive advantage;

Transparency

• work to simplify their products and users' experience;

• their terms and communications are clear, fair and not misleading;

Responsibility

• seek to make the world a better place in which to live, addressing the impact of their activities on the wider world.

Institutions:

Alignment

• Exist to solve their own problems at the expense of 'their customers';

• View the world through the lens of their own products (whether goods or services), rather than the activities in which users are engaged when acquiring or using those products;

• Regard themselves as controlling the relationship with users. 

 Openness

• Resist criticism and change – believing that their own processes, judgement and publicity should prevail;

• Impose their own views on staff and 'their' customers, top-down;

• Interact poorly with users (if at all) in open forums, experiencing 'vicious cycles' of adverse publicity; 

•  Are 'free-rider resistant';

• Mandate the use of their own add-on services, even where these are inferior those available from third parties; 

 Adaptability

• See running with the herd, or 'fast-following' as a source of competitive advantage;

• Demand that 'their' customers must become more capable if their products or experiences are to improve; 

Transparency

• Deliberately adopt complex pricing, conditions and 'pressure' techniques in their sales and marketing activities;

• Rely on cross-subsidies to distort the attractiveness of new products;

• Their terms and communications tend to be unduly complex and legalistic;

Responsibility

• Avoid addressing the impact of their activities on the wider world.

4891: Orwell Had It Backwards

Thanks to George Orwell's Nineteen Eighty Four, and the film adaptation, most of us over 20 have grown up with the threat of an omniscient, totalitarian Big Brother looming over us.

While this is a tragic reality for the residents of a few countries, for most it is not.

Yet many of us are obsessed with our own privacy, imagining it as a defence to control by organised crime lords, governments, a "New World Order" or Facebook. Others relish the illusory voyeurism in the melodramatic Big Brother television series, and the phoney 'privacy battles' conducted between celebrities and the tabloid media by agents and public relations advisors for commercial gain.

But it is actually the overwhelming dislosure of information about ourselves that defies control by any single institution (as does the inherent unpredictability of human behaviour). The Chinese government, in particular, seems to understand this. Sharing our preferences, desires, fears and concerns (if not our birth dates and passwords) via social, retail, political and other facilitators enables us to gain greater personal control of our own lives. That process results in services adapted to our own actual or desired behaviour rather than a service provider's bottom line or a political party's dogmatic manifesto. There are literally millions of examples of this dynamic at work. But consider how:

• The UK recently opted for a coalition government amidst scaremongering by 'big media' and the major political parties.
• Newspapers complain about our 'promiscuity' when it comes to their content, and our refusal to pay for that content online.
• Sharing more personal data often results in better markets, e.g. in consumer credit.
Our networks are always changing, both within platforms and between platforms - we create new networks and still newer ones, and leave old networks very quickly.

Of course, George Orwell was writing a cautionary tale rather than necessarily predicting the future, so we at least have him to thank for a vivid image of how society must not be allowed to develop. In the meantime, we should go on sharing information about ourselves, even if only as a last defence to totalitarian control.

Image from Online Social Networking

Steampunk Mobile

The arrival of mass personal digital communications in previously remote areas might teach us a lot about enabling people everywhere to gain greater control of their lives - particularly as those scenarios have remained free of the top-down institutional constraints imposed by many of our retail brands to solve their own problems rather than ours.

You don't need to be literate or numerate in the true sense to communicate in the mobile world. Even the more literate amongst us need help in deciphering symbols used by young people when text messaging. So, while mobile phone-based literacy and learning programmes are important in themselves, it is more important to understand how mobile phones enable people of low literacy everywhere to seize control of their lives.

For example, a great Babbage post on how mobile numbers are identities for many in India provides a critical insight into how people left behind by government and other institutions actually use the latest technology - as do M-Pesa and the technology hubs used by Africa's 'cheetah generation'. And EduTech cites a valuable insight that emerged from a study by Matt Kam for MILLEE using gaming apps to enable Indian children to acquire literacy:

"The use of educational games on the mobile phones facilitated new ties between participants across gender, caste and village boundaries, and the new social relationships that developed transferred to real world, non-gaming settings."

In other words, certain online games may improve social mobility.

Meanwhile, Adaptive Path has studied the mobile phone usability and design needs of people in rural India. Those people cited the following features and functionality as the most important to them:

- Calling
- Texting (using voice to text or with assistance)
- Music
- Camera*
- Microphone
- Speaker
- Airtime
- Battery Level
*While most research participants did not have mobile phones with cameras, this was cited as a desired feature.

Saving contact information was the single most challenging task for non-literate users to perform.

To remove the complexity of entering and saving data, Adaptive Design borrowed from industrial tracking processes to suggest enabling users to photograph a QR Code or 'MobilGlyph' that contains the unique data required. Of course, the process of producing accurate and reliable MobilGlyphs would also need to be efficiently administered.

Adaptive Design's approach to the challenge of handset design is even more intriguing. They found "there is a strong culture of reselling, re-purposing, cobbling, and repair throughout India and this is especially true in rural villages". So Adaptive Design turned to Steampunk which, they point out, "...reflects the design and craftsmanship of the Victorian era...

"Similar to the exposed inner workings of a motorcycle, works of art created to reflect the Steampunk genre possess a look of craftsmanship and cobbling. It’s an aesthetic that invites the touch of the human hand and it encourages engagement and fosters curiosity and play.

[This of course echoes with the 'architecture of participation' at the heart of Web 2.0 trend.]

Taking cues from Steampunk’s “hack-able” aesthetic, we made the phone look like an object that can be opened and tinkered with by exaggerating seams and making the mechanisms to open the device obvious... vibrant sound is an important part of Indian culture and ... We chose to emphasize these elements by giving them a larger portion of the phone’s physical real estate .... Gauges are commonly used to convey quantitative information on cars and motorcycles in rural India. We echoed these familiar interface elements to communicate battery level and airtime minutes. Finally, we drastically reduced the feature set of the phone, allowing us to assign each function a single button. We borrowed “stop” and “start” buttons from stereos and placed them on the side of the device. Taking cues from a radio dial, our Steampunk phone contains a scroll wheel — creating a strong and intuitive relationship between the physical interface element, the gesture, and the UI inside the screen."

It seems to me that this design makes the device simple and usable without dumbing it down. As Adaptive Design point out:

"Empathic design is not about forcing conventions and models on users that feel foreign, it’s about empowering users with technology that feels appropriate and familiar. Designers and user experience professionals have a responsibility to avoid viewing illiteracy as a deficiency, but as an important design consideration for a large portion of the world."

This is consistent with the need for investment rather than donations in developing regions, "characterized by mutual dignity and respect", as Kiva puts it.

By taking that approach, we stand to learn how to meet similar challenges on our own doorsteps.

Images from Adaptive Path

Does Investment Beat Donations In Sub-Sahara Africa?

While we're on the lookout for new markets, reports on why Asia has taken a knock due to recent problems in the Eurozone reveal that China will also be competing strongly elsewhere in order to reduce its reliance on Europe. MF Global research director Nicholas Smith suggests:

"China is significantly more exposed to Europe than the US, and is also Japan’s biggest trade partner... when the euro plunged, one of the hardest-hit stock markets was China (“because China now sells around a quarter more to Europe than to the US, and is highly sensitive to a slowdown in exports”). [So, for Asia, a week Euro means]:

• Europe will buy less from Japanese companies.
• European companies, particularly German ones, will be made incomparably stronger and more competitive by the weak currency.
• Europe will buy less from China, which will damage Chinese growth and hence depress the prices of commodities, which “anyway tend to follow a similar dynamic to the euro exchange rate”.

One area of Chinese activity in the spotlight recently is sub-Saharan Africa. It's a sign of China's special focus on the region that 2006 was China's "Year of Africa". The web site devoted to Sino-African relations lists extensive contacts between the regions, and China recently announced its biggest deal in South Africa (to build a cement plant) since investing $5.5bn in Standard Bank in 2007.

Western government hand-wringing about the ugly track record of some African nations seems to hide a reluctance to engage effectively in the region generally, and perhaps a desire to undermine the success of more adroit competitors. The blurb for Patrick Bond's book "Looting Africa: The Economics of Exploitation" suggests why:

"Despite the rhetoric, the people of Sub-Saharan Africa are become poorer. From Tony Blair's Africa Commission, the G7 finance ministers' debt relief, the Live 8 concerts, the Make Poverty History campaign and the G8 Gleneagles promises, to the United Nations 2005 summit and the Hong Kong WTO meeting, Africa's gains have been mainly limited to public relations. The central problems remain exploitative debt and financial relationships with the North, phantom aid, unfair trade, distorted investment and the continent's brain/skills drain. Moreover, capitalism in most African countries has witnessed the emergence of excessively powerful ruling elites with incomes derived from financial-parasitical accumulation. Without overstressing the "mistakes" of such elites, this book contextualises Africa's wealth outflow within a stagnant but volatile world economy."

Other commentary on the significant development aid donors Germany, the UK and France is also less than flattering (though it's worth pointing out that France Telecom is a major investor in one of Africa's undersea cable projects, while Alcatel-Lucent is the lead contractor on another). The US approach to the sub-Sahara region has also needed realignment:

"With the collapse of the Soviet Union leaving both an economic and power vacuum, Bill Clinton began a program of engagement with Sub-Saharan Africa’s economic powers like Nigeria and in encouraging passage the Congress of the Africa Growth and Opportunity Act which reduced trade barriers between the U.S. several African countries... George W. Bush followed on Clinton’s achievements... and is widely regarded as the U.S. President who did most for the advancement of the African people by bringing American money to bear on myriad social and health problems... [including] the goal of eliminating malaria and offering AIDS treatment to many who need it with the backing of $20 billion in U.S. aid grants."

Against this background, it's worth carefully considering the criticism that:

"Chinese companies are the second-most likely (after India) to use payola abroad, according to Transparency International's Bribe Payers Index. Similarly, a World Bank survey of 68 countries last year found that the sub-Sahara leads in the "percentage of firms expected to give gifts" to secure government contracts (43%). That meeting of the minds has made for hyperefficient deal making in Africa."

What does this really mean? Are 'bribe payers' to blame for ineffective donor programmes? Is the Bribe Payers Index really "improving the lives of millions" as is claimed? The criticisms of these league tables suggest they are not helpful in teaching us anything about the presence or effect of real corruption.

In fact, Deborah Brautigam, author of "Dragon's Gift: The Real Story of China in Africa" suggests the reality of Chinese investment in sub-Sahara Africa is rather more effective for the local people than Western aid programmes:

"As a donor, China’s way has several advantages... The focus on turnkey infrastructure projects is far simpler and doesn’t overstretch the weak capacity of many African governments faced with multiple meetings, quarterly reports, workshops, and so on. Their experts don’t cost much. In addition, their emphasis on local ownership is genuine, even if it leads to projects like a new government office building, a sports stadium, or a conference center. They understand something very fundamental about state-building — something that Pierre L’Enfant understood in 1791 when he teamed up with George Washington in newly independent America: new states need to build buildings and dignity, not simply strive to end poverty.

The Chinese avoid local embezzlement and corruption by very rarely transferring any cash to African governments. There is almost no budget support, no adjustment or policy loans. Aid is disbursed directly to Chinese companies who do the projects. The resource-backed infrastructure loans work the same way. Of course those companies themselves might give kickbacks, as we’ve seen in Namibia..."

But that is not to say such alleged activity goes unchallenged, as reports of the Namibian case reveal. Nor does Brautigam gloss over China's role in the Sudan, which has attracted intense criticism. However, she points out:

"First, China’s role in Sudan has changed over the past several years. They were crucial in getting Khartoum to accept a joint UN/African Union peacekeeping force (one, by the way, authorized by the UN, but not funded as generously as originally pledged). They allowed al-Bashir’s case to be sent to the International Criminal Court for prosecution for war crimes (as Security Council members, they could have vetoed this). And as noted both by President Bush’s special envoy, Andrew Natsios, and President Obama’s special envoy, Scott Gration, Beijing is now working together with the US government and other major powers in developing joint strategies to bring the Sudanese government and the rebels to the negotiating table. As China-watcher Erica Downs put it, the West and China are now coordinating their “good cop” and “bad cop” roles in trying to end the crisis.

Second, there is no doubt that Beijing could have moved much sooner, and much more effectively, to become part of the solution. But they never held all the keys to solving the Darfur tragedy. In making a tactical decision to focus on China as the lynch pin to solving Darfur’s crisis, and using the 2008 Olympics as the pressure point, activists let the other major powers off the hook. To end the violence, Darfur needs a peace agreement, and that requires all the parties to participate in negotiations. The West has not yet been able to get all the major rebel groups to show up to start talking."

So, it's clear that Africa rewards investment in education and infrastructure, even if it comes in the form of work done by foreign companies directly rather than planeloads of cash. And it's also clear there is no substitute for effective international co-ordination to call recalcitrant regimes to account over human rights. That can't be achieved by a single nation - even a 'superpower', as we've seen elsewhere.

Yet I wonder whether a bottom-up approach to investment in sub-Sahara Africa might also be far more effective than top-down donations? Apart from the provision of basic infrastructure and health services, supporting the rise of the Cheetah Generation and facilitators like M-Pesa and the technology hubs may do more to enable individuals to seize control of their own economic destiny than merely benevolent giving. Kiva, the microfinance provider, is a great example of this bottom-up approach:

"Kiva promotes:

•Dignity: Kiva encourages partnership relationships as opposed to benefactor relationships. Partnership relationships are characterized by mutual dignity and respect.

•Accountability: Loans encourage more accountability than donations where repayment is not expected.

•Transparency: The Kiva website is an open platform where communication can flow freely around the world.

As of November 2009, Kiva has facilitated over $100 million in loans."

Image from Run For Africa

Inverting The Institutional Narrative

Fascinating to see big charities accuse big business leaders of putting their own interests first in objecting to Labour's planned increase in National Insurance. The charities insist that their own constituents - older people, lone parents and environmental groups - are all capable of great influence on the electoral outcome and we should be focusing the debate on them.

Either way, it's ironic that NIC changes - which will affect all taxpaying individuals - are being subverted by institutions seeking to draw the electoral battle lines around their own 'vested interests', rather than the needs of individual voters.

Another example centres on the rise of Google as a force in the consumer advertising market. Newscorp claims that Google is getting a 'free ride' on Newscorp's content. Local newspapers also claim to be victims. And Europe's big Telcos recently leapt onto the bandwagon, claiming that Google is getting a 'free ride' on their networks. I guess TV and other device manufacturers and electricity companies will be the next to climb aboard.

The problem with such narratives is they ignore the 'elephant in the room' - that individuals are ultimately responsible for each wave of service provider overtaking the last. You decide what to pay and to whom, and whether to pay at all. The real complaint for Newscorp, big telecos and the like, is an internal one. They've lost sight of their role in solving consumers' problems in favour of solving their own. They have ceased to be - and ceased to be rewarded as - facilitators. Unless they can regain their role as facilitators of people's actual and desired activities, they will die the lingering death of the spurned institution.

The institutional narrative dominates in our society, yet research shows faith in our institutions has plunged over the past few decades, and we have turned to direct action and single issue campaigns as an alternative to formal politics. A Eurobarometer poll also found that only "50% of EU citizens trust their local and regional authorities, a level slightly higher than for the European Union (47%). This level of trust in the local and regional authorities is considerably higher than the level of trust in national governments or parliaments (34%)."

So, while it is dominant, the institutional narrative is also misleading. To properly understand our motives at the ballot box or in favouring the rise of email over posted letters, or internet shopping over some high street retailers, or Google over Newscorp, and where that may lead, the narratives of history and current affairs - and of the future - need to be told from the bottom up, not the top down.

Not Travelling Light? That's Your Problem.

With its plans to redefine the expression 'travelling light' with coin-operated toilets on its flights and higher baggage charges during the peak holiday season, Ryanair's finally done it. Not content with the vicious spiral after its "idiot blogger" incident, and the piss-taking after the last time it suggested charging for Nature's call, the airline has crossed the line from facilitator to institution - from service provider that exists to solve it's customers' problems (how to cut the cost of air travel) to one that is primarily motivated to solve it's own (how to increase profitability).

Revealingly, Ryanair explains both initiatives as it's own attempt to change customers' behaviour, rather than adapt to suit their needs. It explains the baggage charge as 'urging' people to travel light, and it's spokesman is reported to have blatantly justified its pay-for-a-leak strategy as enabling it to pack more people onto each flight:

'By charging for the toilets we are hoping to change passenger behaviour so that they use the bathroom before or after the flight. That will enable us to remove two out of three of the toilets and make way for at least six extra seats.'

Not much comfort in either explanation - especially for those travelling with kids. Maybe they won't?

Bon voyage, Ryanair. It doesn't matter how profitable you say you are. You're doomed to a lingering death.

STOP PRESS: And in breaking news, Ryanair declares its refusal to comply with regulations requiring payment of passengers' expenses incurred while being re-routed during the recent flying restrictions.