Do politicians need to go to business school?

Channel 4’s breakdown of the careers of MP’s in June 2017 showed that 19% were career politicians, 14% were from business, 11% were lawyers, 8% finance and accounting and the rest were a very mixed set of occupations.

In fact more than a quarter of the candidates chosen by Britain’s political parties to fight in the 2010 general election had no experience of any career other than politics. And this was true in the 2015 general election when one in four (26 per cent) of new candidates contesting were political professionals source UCL and PCUK.

Going back to 1979, Nuffield election studies show no less than one in ten MPs from the three main parties have been barristers or solicitors. More recently research compiled by BPP University Law School has revealed that 119 of the 650 MPs in 2015 either studied or practised law before standing for election.

But it is clear that this isn’t what the electorate want.

A YouGov report in 2014 showed that voters would prefer if these trends were reversed. 57% wanted more factory workers elected to Parliament; 61% wanted more doctors (who made up only 1.4% of main-party MPs as of 2010) and 57% wanted more scientists.

Unsurprisingly, there is always a huge clamour for MP’s to come from less privileged backgrounds and indeed represent a wider societal view. However, there is way too little attention given to the need to have more people from business in Parliament.

A huge proportion of the issues that MP’s need to understand, debate and vote on relate to how organisations need to be run, how to improve efficiencies, leverage new ideas and technologies and motivate people. These issues are the bread and butter of business people.

So whilst the public may want more doctors and factory workers, actually we do need more business people before anything else, if we are going to solve the most pressing issues in our society.

Perhaps it’s time to train our MP’s to be better equipped to do their job. At least some of this training needs to be at a Business School or equivalent. Until then we shouldn’t be surprised if so many offices of state are poorly managed, and if too often politicians promise the earth and are unable to deliver it.

What are the sacred cows in the NHS and UK healthcare system?

sacred-cow

At a time when the NHS is creaking under the strain of ever increasing costs there are a number of sacred cows that frequently get commented upon, but never get resolved and must eventually be key to a better solution. These scared cows graze happily in the grassy uplands of healthcare largesse, content in the knowledge that it is incredibly difficult to deal with them once and for all. Here are eight of these sacred cows:

1.      The ever increasing number of NHS managers and administrative staff at the expense of frontline staff. In spite of years of cross party rhetoric about the need for more frontline staff and less admin staff, the reality doesn’t seem to get a lot better. In fact the number of NHS manager numbers has risen by a quarter in 5 years. More than 6000 managers have been hired since April 2013 taking the number from 26,051 to 32,133 in October 2017. Pay offs for managers have cost £2billion with at least £92million going to staff who were quickly rehired. Now of course this is consistent with other areas of government like the Ministry of Defence where frontline personnel numbers go down while the numbers of civil servants go up

2.      The rising cost of negligence compensation and the role of lawyers in this cost. The total potential NHS negligence liability has risen from £29billion in 2014-15 to £65billion in 2017-18. Legal costs account for 37% of payouts for negligence, but somehow the lawyers are not being chastised.

3.      The significant rises in the average level of GP pay. 15,190 GPs earned more than £100,000 in 2014/15. More than 200 ‘Super GPs’ in the NHS earned more than £200,000 a year in 2015/16. Some GP’s continue to do astonishingly well out of the system.

4.      The cost of agency staff.  The NHS spent £2.9 billion on agency staff in 2016/17 – down from £3.6 billion in 2015/16, but still £700 million more than in 2009/10. Source NHS improvement 2017. Even when employer costs are added, permanent staff working at plain-time rates are a much more cost-effective solution for employers source Royal College of Nursing 2015. Changes to the tax treatment of locum doctors were introduced in April 2017 with the intention of controlling costs further, but it appears that salaries have risen by an average of 6.3 per cent since these staff were moved from payment through personal service companies to PAYE source The Times 23/10/17

5.      The inequality in female pay in the NHS. Full time female consultants earned £14000 less than their male equivalents source BBC 2018

6.      The misuse of public sector time and resources by private consultants. Too many private consultants do use their public sector resources for personal gain. The British Medical Association said: “There should be no conflict of interest between NHS and private work, and this principle is contained in consultants’ employment contracts. Consultants who want to do private work must first offer to do extra work for the NHS, ensuring NHS work is the priority.” But the reality is that it is often hard for these 2 sides not to get blurred. As some have argued, time spent in the private sector deprives the NHS of consultants’ hours, and creates “a perverse incentive” to increase NHS waiting times to further private business. Either way this is a tough nut to crack and no Health Secretary seems to want to tackle it.

7.      Waste. A 2014 year-long study by the Academy of Medical Royal Colleges, the professional body that represents the country’s 250,000 doctors, found that the health service wastes up to £2.3bn a year on a range of procedures and processes that could be done better, more cheaply or not at all. In August 2017 Professor Tim Briggs, national director of clinical quality and efficiency, said the NHS wasted too much money on poor care and “doesn’t deserve more money until it puts its house in order”. The review of NHS efficiency by Lord Carter of Coles estimated that reducing unwarranted variation in how the NHS procures supplies and delivers care could save £5 billion of the £55.6 billion spent by hospitals each year. There is a genuine recognition of the problem, but will anyone actually solve it?

8.      Restructuring mania. Every government thinks that a “good restructuring” will sort out the NHS, but over the years the cold hard analysis would suggest that this is rarely the case. Certainly the Kings Fund concluded that “Politicians of all parties should be wary of ever again embarking on top-down restructuring of the NHS,” after the reforms of 2013.

If we are going to continue to improve the NHS and ensure that it is fit for purpose, then these issues need a resolution. The sacred cows can’t just be pushed into the long grass.

Why are entrepreneurs failing to disrupt the Professional Services industries?

There is continuous disruption in almost every industry today. So it’s amazing that the professions (lawyers, accountants, auditors, architects etc.) have escaped so unscathed.

Ok so every week we hear about attempts to disrupt one or other professional service. And yes the names on the top of the doors have changed around a bit, yes it’s much more competitive, and yes there have been some tweaks to the operating model, but relatively speaking they march on relentlessly, without any worries. Certainly for most customers, whether consumers, small businesses or Corporates, little has improved.

So what has changed?
The legal industry has seen some important changes, even if most of the effects haven’t been felt widely. These include the following:

1.      The legal industry has deregulated. By 2014, 3 years after this event, there were over 300 applications for Alternative Business structures to run legal services, Including Saga, DLG and PWC.

2.      There are new companies trying out different business models like Riverview Law, which offers a fixed-rate contract, rather than billing by the hour. Riverview Law charges clients an annual fee for all their legal needs up to the point of litigation.

3.      Technology is being used to reduce costs whether this be legal templates like Rocket lawyer, Epoq, or simply-docs or paid Q&A like Just Answer or online compliance checking like Cerico set up by Pinsent Masons. But legal comparison services remain in their infancy and the consumer has yet to engage fully

4.      Private equity has moved in to try to aggregate high street firms into consumer brands like Quality Solicitors.

The truth is that in spite of all of this activity, for most individuals or businesses outside of Legal Aid, access to legal services remains remarkably expensive. Even fairly average solicitors demand a minimum day rate of £1600. It is far easier to get a high quality engineer for less money than a relatively junior solicitor. Frankly it’s a scandal that entrepreneurs haven’t had a greater impact on the professional services. And I can say this as an entrepreneur who raised external investment to disrupt the legal industry, but hasn’t cracked it yet.

Why is this?

Well the main topics of discussion in the legal industry are whether the Partnership structure should survive and whether law firm profitability should be calculated before partner costs as they are currently or whether they should be treated as a cost of sales as in a traditional P&L. This was a core part of the discussion at the Business Leadership Summit organised by The Lawyer in London in September 2015. This is as good as it gets!

The conversation isn’t about what the customer wants and why trust in the profession is in rapid decline. The Legal Services Consumer Panel and YouGov found that only 42% of consumers trust lawyers to tell the truth in 2014, down from 47% in 2011. The decline is mirrored in other professions, the research acknowledges. Lawyers remain more trusted than accountants, bankers and estate agents, but less trusted than teachers and doctors. This is an industry unlike many others, that continues to get away with ignoring the voice of the customer.

In Management consulting, some things have changed in a similar way. There is pressure to reduce costs, there is much more competition and some of the names on the doors are different, but the core principles wouldn’t look out of place in 1980.  So what has changed?

1.      The classic strategy consulting giants have all moved downstream into more executional or implementation work. For example in 2007 Mckinsey launched Mckinsey solutions. This was based on software and technology-based analytics and tools rather than the traditional human capital business model.

2.      As Clayton Christiansen stated in Harvard Business Review in 2013; “the share of work that is classic strategy is now about 20%—down from 60% to 70% some 30 years ago.”

3.      There are more agile competitors like Eden McCallum and Business Talent Group

But in some ways there has been more consolidation and less choice amongst the big consulting groups. The old “Big 8” has been reduced to the Big 4 including PWC, Deloitte, EY and KPMG. This means that an increasing number of companies are having to use these giants for services from audit, assurance, tax, consulting, advisory, actuarial, and corporate finance to legal services.

Fundamentally it remains extremely hard to buy any form of consulting that is based on value generated or results achieved. The industry remains stuck on outdated day rates and continuous selling cycles that actually reduce value for clients.

 

What hasn’t changed?
In spite of all the razzmatazz, the key principles are undisturbed:

  • Most professional services remain as partnerships
  • Most believe that the day rate model should not be changed and have no intention of changing
  • A majority of lawyers and accountants believe that they should charge for every minute from the time they pick up the phone to a customer.
  • There is no sense of customer service.
  • Many of these professional services are so bound up with the establishment that they believe it is their divine right to be paid a high salary. This is particularly true of organisations like the Law Society.

 

Why hasn’t more changed?
Professional services are critical to the success of the UK economy, representing 15% of UK GDP, 14% of employment and 14% of exports source PWC. So it is no surprise and indeed in many ways a good thing, that it is highly respected and that much effort is expended in defending all aspects of the sector. Since 1979 Nuffield election studies show that no less than one in ten MPs from the three main parties have been barristers or solicitors. So although legal services only account for 1.7% of the UK GDP, it has considerable support at the heart of government. This ensures that the industry is well protected.

In the same way that business people used to say “you don’t get fired for choosing IBM”, you now don’t get criticised for selecting Clifford Chance, PWC, Spencer Stuart or McKinsey. And no Non-Executive Director will argue with you on that. This in turn creates a guaranteed market for the traditional professional service firms and little impetus to innovate more than is required.

The Professional services continue to claim that every argument, every problem, is different and requires an unique answer. The reality is that this is no longer true, if it ever was. Technology, outsourcing and business model change can transform the way that challenges are met and answers are given.

 

What should change?
As You Gov polled in 2014, “British people want fewer lawyers and more doctors, scientists and factory workers in Parliament. The professional services are over-represented in all aspects of government. And in spite of the well intentioned deregulation in legal services and other area of professional services, the end customer has not reaped any rewards yet, either in better service or lower costs.

The professional services will only change fundamentally when the following principles are ripped apart:

  • A dependence on hourly and daily rates. This should be replaced by value-based pricing
  • A belief that partnership structures benefit the customer. Firms should become proper corporate structures with standard financial accounting.
  • Traditional Corporate dependence on the big audit firms. This should be opened up to the wider market.
  • An unpreparedness to be judged on results.

The artificially high costs of most professional services keep them out of reach for most SME’s and consumers. This remains an incredible business opportunity for an entrepreneur. In addition very few professional services firms understand the power of the brand to engage the customer and disrupt an industry. It’s only a matter of time before someone builds a professional services brand that rapidly gains trust and takes market share, by improving the service it provides and changing the business model that drives it. Let’s hope that more entrepreneurs take up the challenge