Comment : Auntie could outsource herself out of existence
Friday 30 August 1996
There is no reason why Mr Birt should stop at resource management. The transmission system will be gone shortly and 35 per cent of programming is already contracted out. Why not go the whole hog and contract out the lot? In theory, nothing is sacred. The logic of the process is that everything should go, leaving the BBC as no more than a cyberspace organisation - a collector and spender of the licence fee. If you can "outsource" the basic resources of the BBC, why not also contract out its news, current affairs and chat shows. Why, eventually you might be able to outsource the director general himself.
To be fair on Mr Birt, his dream of the virtual corporation merely reflects the current management fashion. "Outsourcing", as EDS's extraordinary growth in the US and Britain amply demonstrates, is now big business and there are few industries completely untouched by it. Even the sleepy old life assurance industry is waking up to the potential savings and advantages of shared, arms length administrative facilities.
The attractions are obvious and alluring. Time consuming, costly support and adminstrative infrastructure is put in the hands of someone else, who because this is their business, can do it better and for a lower price. The company is thus freed to concentrate on what it does best, whether it be selling insurance, making motor cars, or in this case, producing TV and radio programmes.
The other advantage is that it divorces the company from difficult and awkward management decisions and tasks, the downsizing and reform of working practices which is a part of every organisation these days. Indeed the main criticism of "outsourcing" is that it is a form of management abdication, a cop-out, just a method of getting someone else to do the dirty work.
Furthermore, the net effect can be to add layers of previously unnecessary bureaucracy and form-filling. The arms' length nature of the support structure destroys flexibility and the ability to adapt to changing needs. It can also lead to a confusion of purpose and goals. In other words, the case for outsourcing is by no means proven; in recent years there has been a backlash against it. The BBC needs to think long and hard before it goes radically down this route, for a company that exists "in essence" but not "in actuality" comes dangerously close to one that fails to justify itself at all.
Jardine brings back unhappy memories
It would be easy to dismiss the Jardine Fleming case as just another securities scandal from Hong Kong, a market that makes London's behaviour look prim and proper by comparison. Rat trading and other scams for making profits at the expense of clients are notoriously rife over there. Think of Standard Chartered and its problems a couple of years ago, the spate of high-profile arrests of senior figures in the Chinese business establishment in recent weeks, or the indictment last month of Chen Po-sum, former vice- chair of the Hong Kong Stock Exchange, for accepting a bribe to approve a transfer of an exchange seat.
But, in fact, the gun-slinging, anything goes, culture of Hong Kong is only an uncomfortable reminder of London in the 1960s, 1970s and even 1980s, when too many professionals failed to see any distinction between their own and their clients' money. ( Lloyd's carried on the tradition into the 1990s.) Hong Kong's busy regulators at the Securities Commission are now frantically trying to clean up their markets, 10 years after the Financial Services Act made a start on London. None of that excuses Flemings, whose failings in this case were breathtaking. It bears repeating that not only has one of its investment management offshoots lost its authorisation to trade but Robert Thomas, the man in charge, and Colin Armstrong, the fund manager at the centre of the scandal, have been barred from investment management.
Flemings appears to have been aware of difficulties in reconciling trades since early last year or late 1994 but did not take the problem to its London regulator, Imro, until October. That should set alarm bells ringing for the bank's shareholders. With the name Barings ringing in their ears they should be setting in train an in-depth investigation of all aspects of internal control. They should also be asking why Mr Thomas is still working for the group in a senior role.
Cloud cuckoo land and the environment
Nothing could be more ridiculous than the search among economists and others for an alternative measure of national prosperity to that of gross domestic product. The latest stab at the exercise is the UK's new environmental accounts. Environmentalists have been at the forefront of the quest for a better measure of well-being than GDP, but it is difficult to see what these accounts add to the sum total of knowledge. Nobody would want to argue with the general principle that a cleaner environment would improve well-being. But beyond that the environmental accounts fail to tell us anything.
Take the assertion that national income has been overstated by about pounds 2bn due to the depletion of Britain's North Sea reserves. Fair enough, but there are other potential environmental adjustments to national income that could go the other way: the conventional national accounts exclude industry's spending on pollution control because these are counted as intermediate spending and netted off total company profits.
Some experts think this spending - also about pounds 2bn - should be added to national income because it helps deliver the benefit of clean air. Others think it should be deducted because it would not have to be spent if we still had clean air in the first place. It can readily be seen that we are here entering the logic of cloud cuckoo land. In principle, as well as in practice, there is no easy answer to the question of how the environment affects national income.
Indeed the green accounts actually emphasise the daftness of seeking to replace GDP with an alternative, single measure of the state of the economy. Conventional GDP has its flaws but does measure something that can be precisely defined and does not depend on political or moral judgements. The quest for a replacement measure of "real" prosperity is a futile one.
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