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It is interesting to me that one of the great criticisms of the public sector is that it has a myopic attitude to the world, that it does not have the discipline of market forces to ensure that it takes a good look at the outside world. The relevant metaphor is that the organisation without the discipline of a robust competitive market risks not looking, external, long term and responding to shifts in the external world. In a Darwinian mould, it is the concept of the public sector as zoo animals, denuded of the need to compete and struggle, and fed in a cosseted world of plenty.

Yet perhaps the argument works the other way. The need to compete means that management in the private sector is driven by short termism in stock markets and the need to issue, rather than risk, manage. Thus the 3rd quarter earnings are far more important than long term planning and business model strategising.

As an auditor and CAE I have often felt lonely with both my private and public sector clients in wanting to look at the macro, the long-term, the bigger risk-based picture. Take as a case study, HMV. It’s business model, from a lay-person’s perspective (and I would not claim to have studied it in great detail), is fatally flawed. Technology has simply made it irrelevant. The need for a large retail footprint is gone, the business will continue to haemorrhage cash until it dies in my view. Why then do people persist in saving it? Surely the rational thing to does is for HMV’s shareholders and board to demand either a new business model, or to arrange an orderly return of its capital so that it can be used for another business.

Take an opposing case study. Apple. Yes it is the darling of the corporate world, but why? I think because it has looked longer term and has seen beyond making computers, it is actually about creating a personal user experience and platform within a single ‘eco system’. On top of that it retains the style and aspirational element that makes the lived experience better. For me, this longer, risk management, view is what Steve Jobs brought to Apple. I do hope that Apple continues to keep its sights on the horizon and not get sucked into short termism that so plagues other corporates. If the long term is managed the short term will, in my view, look after itself.

A good well-founded business will not falter under short term issues if long term risks are managed. Businesses in my view (as long as they are of a reasonable size and complexity) fail due to a failure to manage long-term risks, not short term issues. For most businesses it takes a 1,000 cuts to kill them, not a single event or blow.

As the Olympics comes to a close it is interesting to think that the elements protected by the inherent long-termism of the public sector, the ability to invest for the long term (the infrastructure), has been successful. The delivery of the experience (through volunteers and supporters) has been good. The issues have been with the private contractors for security and strange marketing of the event. Perhaps the public sector does sometimes  lack a sharpness to efficiently deliver, but it does have the ability to be long term. The Olympics can perhaps teach us that to combine the public and private sectors does have some benefit.

I guess the lesson for me as an auditor is that long termism, a lack of myopia, is key to business success whether public or private. We as auditors should be in the vanguard of establishing this through our focus on risk management. Let’s never confuse ‘what worries us now’ as being a proxy for risk management. It isn’t. It is myopia, plain and simple.

 

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