06/02/2007 - 22:00

The conflict facing contractors

06/02/2007 - 22:00

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Conflicts of interest have been in the news lately, but mainly at the top end of town, and mainly because of internal boardroom squabbles.

Meanwhile, Briefcase has been watching another layer of business conflict; one with the potential to do far more damage than falling out among directors.

Contractors, who now fill a multitude of roles across all aspects of a business, are the focus of attention, because they are a class of professional that sees everything but dares say much.

At a time when contracting out most business functions is fashionable, from office cleaning, to information technology, and even managing banking and treasury needs, it struck Briefcase that a serious loyalty question has been created.

In a nutshell, contractors face this problem: if they see something so wrong in a business that it is damaging to their client, should they say something (and risk losing the contract), or keep quiet (and let the client suffer) while they look for a replacement contract.

Management theorists would argue that a good business manages its contractors in a fair and even-handed way, and encourages an open flow of discussion. In that way a full-time employee in charge of contractors gets the feedback essential to maximise efficiency (and profit).

But, that’s just a theory, which works well in normal times, and with normal companies able to staff themselves with competent people – especially those in charge of the outside contractors.

These are not normal times.

The boom has stretched the supply of middle management and labour to breaking point and, apart from that, many companies now seem to think they can get away without middle management because the contracting world provides them with everything they need.

Try this for a recent real-life experience, which Briefcase has watched at close quarters.

A business (which must remain nameless) employed a manager to oversee an important part of its production process, and create new products. He presented very well in the initial job interview, and appeared to walk the walk, and talk the talk.

But, within a few months it became quite clear to his direct employees, and to external contractors, that the manager was not as good as he said he was.

Problems developed. Good full-time staff left because they lost respect for the person they reported to, and didn’t dare go over his head. Revenue started to fall.

It was a case of a moderately competent person promoted beyond his level of competence, a classic example of the Peter Principle, which was penned by Dr Laurence Peter in 1968 when he wrote: “In a hierarchy, every employee tends to rise to his level of incompetence”.

What the good Dr Peter should have added, and perhaps did in his lectures, is that once that incompetence level is reached, it is awfully hard to shift the dud employee out of the job he holds.

Now, add the boom.

Get the picture? Companies are desperate for workers. Incompetent people are floating to the top, many by default, and in many cases the incompetent ones are last left as full-time employees because their smarter colleagues have left to make more money as external contractors.

In the example cited by Briefcase, it is highly likely that senior management at the business in question could see the same problems as junior staff and external contractors, but faced the dilemma of how to replace him should they sack him.

Remember, the boom has dried up all forms of labour – from management to manual.

Inevitably, the departure occurred. But at what cost? Good staff did leave. Revenue suffered, and rather than growing the core competencies of the business, a series of hare-brained schemes were pursued which now required unwinding, or re-shaping.

Throughout this sorry saga, which is being repeated across WA as the boom sucks businesses dry, a small group of external contractors met occasionally to discuss what to do with their client. Who did they tell? What did they say? Would they lose the contract if they spoke up?

Naturally, because their first loyalty lay with their own business, they took the prudent route. Said nothing, expanded their business with additional contracts, and let the troubled client sort out its own problems – which it did, after two years of trouble rather than the two months it should have taken to fix.

•••

On the question of wasted effort, which is really what incompetence is all about, two additional thoughts occurred to Briefcase.

The first was the astonishing effort we go to promoting tourism, and the second was a remarkable example of how the boom has changed the way we get financial news, and why a subtle change could make daily newspaper publishers a lot of money (or be a major cost saving).

In WA, the latest tourism debate has been about which pretty face will be used to market the state.

The real debate should be about why is any form of marketing left to civil servants in a government department when it has been proven repeatedly that government can’t run any business – and can’t even deliver water, power, hospital, police, or land development services competently.

That’s why, when you look at tourism nationally, it has dropped from representing 4.5 per cent of gross domestic product in 2000-01 to 3.7 per cent in 2004-05; visitor number have risen, but people are staying a shorter time.

The tourism industry employs a lot of people in low-paid jobs, and is contributing less to the national economy each year – a perfect example of something under the control of government.

•••

The money making (loss saving) suggestion comes in the form of a question. How many readers get their share price information from a morning daily newspaper?

‘Lots’, would have been the correct answer 10 years ago. ‘Far fewer’ is the correct answer today.

There are two reasons for this. One, the prices are, by definition, yesterday’s. Two, you can get it faster, easier, and almost instantaneously (and almost free) from any number of web sites, including the Australian Stock Exchange itself.

In the case of a large morning newspaper in Perth (which must go nameless), three pages are consumed each day with old share market data.

Simply dropping the tables would be a major cost saving. Dropping the tables and selling the space created for advertising could, by Briefcase’s rough calculation, bring in an extra $10,000 per page, say $30,000 a day, say $150,000 a week (five trading days), say $7.8 million a year.

Will it happen? Probably not, because it would require (a) a courageous management, and (b) a management prepared to admit that the web can be a better way of delivering timely information.

•••

“There is no more dreadful punishment than futile and hopeless labour.” Albert Camus

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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