March employment data suggests continuing weakness in the Australian economy

 

The latest Australian employment statistics suggest continuing weakness in the Australian economy.

The graph from the Australian Bureau statistics on the left shows employed persons. You can see how the seasonally adjusted numbers shot up then down. These stats are very volatile, but its quite a big fall.

A better feel is given by the numbers. In summary:

• Employment decreased 36,100 (0.3%) to 11,592,700. Full-time employment decreased 7,400 to 8,111,300 and part-time employment decreased 28,700 to 3,481,500.
• Unemployment increased 25,900 (3.9%) to 686,900. The number of persons looking for full-time work increased 30,900 to 501,900 and the number of persons looking for part-time work decreased 5,000 to 185,000.
• The participation rate decreased 0.2 pts to 65.1%.
• Aggregate monthly hours worked decreased 5.0 million hours to 1,627.3 million hours.

The graph on the right hand side from unemployment. You can see the kick-up in the seasonally adjusted rate. The unemployment rate increased 0.2 pts to 5.6%.

ABS normally prefers to use trend estimates, because these flatten things out. But both seasonally adjusted and trend show an upwards drift in unemployment.

During the week the Australian currency measured by the trade weighted index reached a new high. So long as quantitative easing continues in certain advanced countries, the dollar is likely to remain high with consequent pressure on domestic economic activity.

With so many Australian workers now on contract work, the fear of unemployment also exercises a downwards effect on spending and on economic activity.

FTI to acquire Taylor Woodings?

Back in September last year, US based FTI Consulting announced that it had acquired the assets of KordaMentha (Qld) (KMQ).

Founded in 1992, Brisbane based KMQ had operated under a licence agreement with KordaMentha since 2003 and specialised in turnaround and restructuring, corporate advisory and corporate recovery. The acquisition added nearly 70 professionals in Brisbane and the Gold Coast and market FTI's entry into the insolvency marketplace. It was a bit of a blow to KordaMentha. They have re-established in Brisbane, but the web site states that the Gold Coast office is being operated out of Brisbane. 

Now the Financial Review reports that FTI is close to finalising a deal to acquire insolvency firm Taylor Woodings to further extend its reach. Insolvency is interesting because its one of the few professional areas where service and market conditions actually facilitate multidisciplinary working. 

Policy, programs, control and complexity - ICAC on problems in NSW public policy and administration

I fear that this has been a sadly neglected blog. In this, the first post for 2013, I want to return to a common theme in my writing across all platforms, problems in current approaches to management in both the private and public sectors. One part of my message has been the way that organisations are drowning in their own systems.

The trigger for the post was a November 2012 article in Corruption Matters (Number 40), a twice yearly publication from the NSW Independent Commission Against Corruption  intended to raise awareness about corruption related issues, Can those at the helm see where they are going? If you want to see the original, go here, click on publications by date and then click on November 2012. I agree that it's not a very user friendly approach; to many pdfs!

While I disagree with aspects of the analysis in the article, it does illustrate some of the points I have been making. For that reasons, I am reproducing it in full with commentary.

The article begins:   

"Almost exactly 20 years ago, David Osborne and Ted Gaebler described the importance of uncoupling policy and regulation from service delivery when it comes to driving transformational change in government; that the act of “steering” the boat, if you like, works best when separated from the act of “rowing”.

The idea that those who steer should be separated from those who row has been taken up with gusto throughout the public sector; although not necessarily in the way envisaged by Osborne and Gaebler. Theirs was a call to action for a decentralisation of authority by separating the macro-level function of government from the micro-level creation and administration of public programming. In other words, have government influence direction in a broad sense in order to empower frontline agencies and communities to solve their own problems by creating and delivering services that resonate with the needs of their specific audiences."

Comment: I actually have some problems with the Osborne/Gaebler approach because operations and policy need to be integrated and inform each other. Indeed the article recognises this. Part of the problem is that what constitutes policy gets totally confused. The simple steering/rowing classification fails to recognise the distinctions between different types of policy and operations and is, as we shall see in a moment, part of the problem. The article continues:   

"The reality, unfortunately, is that in some cases agencies and communities are stripped of this power almost completely. Frequently, almost all aspects of policy, procedures and program design are centralised within  distinct policy groups (those under the guise of steering), with little discretion devolved to staff in the operational units (those rowing). A cursory examination of almost any agency’s organisational chart will show a policy group in head office that is separated from the operational group."

Comment: Boy, did that strike a chord. However, it's much more complicated than that. A whole variety of delivery aspects get centralised, from policy through risk management to communications and reporting. As soon as you classify something as "policy", and this includes organisational policy, then it gets complicated. Create a policy or indeed oversight group, and it has to do something to justify its existence. The article continues:

"Disconnected policy

The result is that a disconnect can develop between the policies, procedures and programs directed from above and the operational realities of service delivery at the coalface. Operational staff are often unaware of he relevant policies, are unable to comply due to on-the-ground realities,or deliberately work around these policies to achieve the necessary outcomes.

For example, the Commission has seen corruption inadvertently facilitated because one policy in a given organisation, which required delegation and signature-checking for a transaction, was made impossible because of a supplier-payment timeframe dictated in another. In other cases, corrupt individuals have claimed the complexity of a policy was such that they could not understand what gifts were permitted."

Comment; Again, this struck a major chord.  You make me responsible for delivery. Then impose policies and procedures that mean I can't deliver. Of course if I'm serious about my job, I'll find a way of working around the problems created. That does open the way for corruption by unscrupulous staff. Sometimes, however, it's actually the only way in which audit trails and accountability can be preserved as honest staff fight to create ad hoc procedures that will meet the intent of policies and procedures despite the formal detail. The article continues:

"Often procedures for tendering cannot be followed in remote areas because there are neither enough suppliers nor staff to run the tender process as it has been designed. In one case heard by the Commission, a policy required an academic to be responsible for staff security vetting in specific situations, which did not work out."

Comment: I put this next paragraph on it's own because it has a certain personal resonance. I'm not sure that Sydney based ICAC staff would know what a remote area was. There are no tertiary institutions there. My own alma mater was recently the subject of an ICAC inquiry, but while its headquartered outside Sydney it cannot be classified as remote. But more importantly, rules laid down in Sydney designed for big urban centres can have unforeseen consequences.

I recently listened to a discussion on a building program in remote areas. The tender rules required a specific approach intended to protect subcontractors. The program manager said bluntly that either people would lie or we could not build. The builders did not have the financial resources to comply with well intentioned ideas. The article continues:    

"In some human service organisations, there are tens of thousands of pages of policies designed to cover every future operational eventuality and in response to almost every previous problem encountered. This so exceeds the cognitive capability of any staff that they cannot, and do not, follow much more than the broad intent that is communicated by their manager.

In short, the uncoupling of steering and rowing at this micro-level can result in policies, procedures and programs that are not suited to operational realities. Control of operations is neither by traditional policy prescription and compliance nor by devolved accountability for outcomes. All too often, the result is wasteful, low quality services. In turn, the waste, complexity and unworkability that stems from disconnected policies becomes conducive to corruption."

Comment: What can I say? Sigh, it's true!, although the problem really lies not in the uncoupling of steering and rowing, but in the attempt of the steerers to over control, to move into areas that are not properly their space. The problem is further compounded by multiple layers of steerers, multiple decision and control points. The article continues: 

"Integrating design and operations

The waste, mistakes and overall escalation of costs that results from the separation of design and operations is a central concern for personnel in the manufacturing industry. Far from seeing a benefit in separating the steering from the rowing at the micro-level, the approach of “designed for manufacturability” (DFM) aims to bring together those who design the product with those who make it. By designers understanding operations and vice versa, a product can be designed that the operations function of the organisation is suited to making. Costs and waste are reduced, and quality improved through a joint focus on, for example, simplicity, fewer parts, standard parts, ease of fabrication, minimal handling and use of modular components.

To integrate the design and operations functions of a given organisation requires significant organisational change. Culturally, the division between the designer elite and the operations staff has to be broken down. This is often difficult, as organisations may exist as silos with few connections between them. There is often a physical separation of designers from operational managers that must be overcome; as is the case with the physical separation of policy staff and operational staff in government. When coordination mechanisms are consciously developed to link design and operations, they often function for a short period at the initial stages but tend to revert to the designer-driven norm as the product is modified and upgrade – again not dissimilar to initial rounds of consultation by policy units followed by top-down directives."

I found this writing a little confusing. Design for manufacturability is a two stage process, both requiring better integration with design, manufacturing and sales staff. The first stage aims to get products that deliver better results at lower manufacturing costs. However, once the product hits the market, the process continues with the aim of further improving functionality while reducing manufacturing costs. The process takes place within a framework of corporate policies set by management.

Expressed in this simple way, we can see that policy development and then implementation can be equated to to the manufacturing process. Again, we have an issue linked to the meaning of the word policy. In equating policy to design, there is a danger that the main message - the need to achieve better integration of policy and operations - will be lost. The problem lies as much in what are now called governance systems, the framework within which policy operates and which equate to the corporate policies within which the manufacturability process operates, as in normal policy operations.

In the big organisations, the mega departments, that now dominate the public sector, you find a hierarchy of policy areas that actually suffer from very similar problems as operational areas. The result is a bit of a mess that cannot easily be resolved through better integration of policy and operations. If you actually map one of the main policy fields and its supporting programs, you will find a complex and somewhat crazy spider web of reporting lines, decision points and policy/service interactions that nobody really understands.

The article concludes:

"While there is no doubt that uncoupling steering and rowing at a macro-level is important in driving transformational change, such an uncoupling may become dysfunctional at the micro-level. For a single frontline officer to require multiple and vastly different performance reports from the one non-government organisation that is providing services under several contracts with the one agency can be seen as a symptom of problems generated by the separation of program design from operations.

Another symptom is the prevalence of policies that run to tens of thousands of pages in length or a child protection officer, in a remote location, that sleeps in their office with at-risk children, against policy, because there was no other option. Separation of the function of steering – as intended by Osborne and Gaebler – from the accountable, devolved responsibility for operational outcomes is sensible. But the separation of micro-level policy and program design from operations under the guise of steering may well be counterproductive and conducive to corruption."

Comment and conclusion

I agree. In narrowing the focus to the separation of program design and operation, the article focuses on a real problem. The examples given are real. However, the old saying that a fish rots from the head is germane.

The malaise that the article refers to starts at the top where the interaction of theories of management and governance interact with institutional structures and politics (politics is just as prevalent in the private sector, although the form may be different) to create the framework within which the delivery mess occurs. Without change at the top, reform further down the chain becomes very difficult.

Australia in the Pacific century

Interesting short piece by Robert Gottliebsen (Obama spearheads an Asian coup) in Business Spectator on the implications for Australia of the US's re-engagement with Asia. The key point is that Australia risks being sidelined. 

I'm not sure that's right, but it is a risk. Over on my personal blog I have been musing from time to time about the changes taking place globally and the implications for Australia. It's a sort of check and update thinking series. We all have to do this from time to time.

This morning (Art, pop music & a dash of fracking) I mused in part about the implications of the US's growing energy self-sufficiency. The US is a very big economy. I know that seems self-evident, but we tend to forget it in all the discussion on the rise of China. As the US changes direction, it has a lot of economic levers to attract Asian interest.

How this might affect Australia is unclear. Here Mr Gottliebsen's point is worth considering. Australia may be a member of the G20 and may have passed Spain to become the world's twelfth largest economy, but it's still a small economy. 

Focus not on Asia, but on the Pacific. Where might Australia fit in a world where the economic centre of the Pacific gravity shifts to the US?  Should Australia be talking about a Pacific rather than Asian century?   Just a thought.

Keddies and the need to revisit billing practices

My major post yesterday was on my personal blog - Sunday Essay - Keddies and the importance of values. That post looked at the growing avalanche affecting the partners and former clients of Keddies, previously a major Australian personal injuries law firm. The post includes links to previous writing on my part as well as external sources.

In writing the post, I looked back over my previous posts on alternative professional services billing practices. It's probably time to revisit this. There is no perfect answer, but the Keddies approach actually bet the firm. 

The future for the Australian economy

Note to readers: This column appeared in the June/July edition of Australian Business Solutions magazine. It was written just before the budget. It's not on-line, so I have re-published it here.

In my last column I spoke of the economic forecasting mess. Since then, the International Monetary Fund has released its latest forecasts on global growth. This was greeted by some in the Australian media with glee - “Australian economy leads the world” screamed one headline.

The reality is a little different, for the IMF is actually a good example of what I have been taking about. In recent years, its forecasts have been all over the place like a dog’s breakfast! So what did the IMF actually say? Well, not quite what the headline would suggest.

To begin with, the IMF suggested that there was some strengthening in the global economy, although this was heavily qualified in some ways with recognition of the various risk factors. But what did the IMF think of Australia? The IMF actually projected some further weakening in the Australian economy. We are still forecast to do relatively well by the standards of other developed nations, but hardly well enough to suggest that the Australian economy leads the world!

But in all this confusion what can we actually say about the Australian economy? The first and most important point is that world commodity prices will continue to weaken, reducing returns on our major exports. Why do I say this? It’s simple. The structural imbalances that developed in the global economy over the long boom are still there. They will take time to unwind. So long as they continue, global economic growth will continue to be weak. In turn, this means weakened demand for commodities.

Yet despite the fall in commodity prices, the Australian mining investment boom will continue, if at a lower level than previously forecast. Work already under way guarantees that. This means, in turn, that pressures on the non-resource sectors will continue. However, it’s not all doom and gloom.

A very significant proportion of the inputs required for all those new mines and supporting infrastructure, over 40 per cent, will be imported. With lower export prices, the current account deficit will grow. This will place downward pressure on the Australian dollar.

The Australian dollar may not go lower than now, but it will go lower might otherwise have been the case. Both export and import competing industries will be better off as a consequence. There will be more time to adjust.

But the story doesn’t end here. World growth may be slow, but it is still positive. This means that the total marketplace for Australia’s non-resource exports will grow. Importantly, the fastest growing marketplaces will continue to be in our immediate region, which gives us an advantage. The decline in commodity prices will also increase the relative return on non-mining investments, encouraging investment outside mining.

Taken together, we are likely to see a smaller resource sector than would otherwise have been the case, a larger non-resource sector.

For the present, the Australian economy should continue to grow if below the trend rate - and the biggest immediate economic risk? It’s actually the budget!

By the time you read this, we will know what Treasurer Swan has in mind. Looking at the numbers, the size of the apparent spending cuts required to return the budget to surplus will place considerable downward pressure on economic activity. That pressure will be felt most by the non-resource sectors of the economy, just those sectors adversely affected by the mining boom. That would be a pity.

Coming back online

Just a short note to say that I have largely been of-line for personal reasons. I am now coming back on-line, so you can expect more regular posts here.

Australian budget day

A post on my personal blog, Australian budget day - what will I examine?, briefly looks at tonight's Australian budget. I will bring the follow up post here tomorrow.

Navigating the economic forecasting mess

It is extremely difficult to keep a level head in the face of current economic forecasting and reporting. One minute it’s all doom and gloom, the next things suddenly seem better.

The gyrations have been quite remarkable, beyond anything in my own experience. They have also continued for some time now - since the onset of the global financial crisis, in fact. Measures of consumer and business sentiment have followed the gyrations.

From a practical business perspective, both economic forecasting and reporting have become a burden. They affect, but do not inform.

So how do you navigate your way through this mess? The first thing to remember is that forecasts are just that - forecasts. In all cases, they rely on past data and incorporate assumptions about the structure of the economy and of the relations between different types of economic activity.

But there is a further problem. Most prominent business economists work for financial institutions. Because their primary internal role is to provide advice on what might happen in financial markets, the economic reporting that follows from their public utterances is also markets’ focused. This means that both forecasts and reporting often do not provide the type of longer term information most businesses require.

Business wants answers to questions like: What’s happening to my market place or to my costs? By contrast, many forecasters and reporters are concerned with the immediate market impacts of changes in longer term expectations. How will it affect the dollar or shares, or the financial markets in general?

Perhaps the best course may just be to ignore the whole lot unless there is something there that seems directly relevant to your business! If this sounds extreme, consider all the reporting of interest rates over the last twelve months. How much of that has actually been in any way useful to the majority of Australian businesses?

I am not saying that you should ignore economic conditions or all economic reporting. I am saying that you should be selective and focus on information relevant to your needs.

Say that you an engineering business that provides components to certain firms in certain sectors. It is safe to say that you have a direct interest in developments in those sectors and especially in your own customer base. This includes the likely demand for your own products or services, as well as payment patterns. It is critical that you know if your customers paying more slowly and, if so, why?

If, like most businesses, you have borrowings, then you are interested in interest rates. But, more importantly, you are also likely to interested in the availability of credit.

Each business needs to define the economic information that is directly relevant to their needs. A lot of people in business do not focus properly on the economic and industry conditions that are relevant to their businesses. They will tell you how awful the economy is when, in fact, their business is doing just fine. These perceptions about the economy can affect actions, and the results can be quite damaging.

Note to readers: This column appeared in the April/May edition of Australian Business Solutions magazine. It's not on-line, so I have pre-published it here.

Cloud computing, consolidation and the carbon tax cull Australian data centres

My posting continues to be irregular. I have lots to say, but am struggling to find the time away from my professional activities.

My last post was Problems with cloud computing - and paperless offices. Following on from this, I was interested in a story in IT Wire on Australian data centres. 

According to Gartner the number of Australian data centres will peak this year just shy of 50,000. That's a huge number. However, by 2015 the number of Australian data centres is forecast to drop to around 45,500.

According to Gartner's Phil Sargeant, there was a great deal of consolidation going on in the Australian market, and that more and more companies were looking to satisfy their ICT needs through a move to cloud computing.  The impost of the carbon tax would also have an impact.

Most Australian data centres are relatively small by global standards.

“You get economies of scale in the big data centres and they can bring that to bear re their ability to purchase energy,” Mr Sargeant said. “They have better energy characteristics than smaller data centres.”

The energy issue is important, for the data centres chew power.