People Perform – Organisations Don’t
David Arkless, Senior Vice President, Manpower David HRINZ Organisational Wellbeing Conference
Wellington, New Zealand
26 September 2003
It’s great to be back, I always organise myself to be in the southern hemisphere when this conference happens, mainly so I can go to the social functions like last night. It was another good do, it was top class, thank you very much everyone that organised it and put it on. By the way, this is an illusion this lap top it serves no purpose whatsoever other than to remind me of 6 different words, that’s it. That’s the slide by the way, that’s it, that’s my slides. I don’t do slides, I don’t do powerpoints, I don’t do overheads, because we did a retention survey for all of my speeches last year and we found out that nobody remembered a single thing that they were shown, equally they didn’t remember a single thing I told them so we thought OK just leave the slides out, so we might get some retention on what I am saying.
My favourite phrase has become over the years “………………….”, which in a loose translation says “The descent into hell is easy”. I found this in buying companies. What I am going to try and do today is to give you some insights, real practical, ground base level stuff on what works and what doesn’t between organisations and people. Because I have made more mistakes and wasted more of my corporations money than you could imagine. If you won the lottery, you couldn’t waste as much money as I have wasted on behalf of Manpower. We have done some good things, but also some pretty dumb things. I have done some dumb things. What I am going to try and do is to tell you some of the good and some of the bad things that I have done.
I will confine my comments to the businesses I have bought over the last 5 years. I have been Chairman and CEO of, and founded 26 companies worldwide in 17 countries. I am also an Executive Vice President of Manpower. And we have got 25,000 major customers so I have got a little bit of input from some of those customers on some of these examples as well, as to why people work and organisations don’t.
It is an interesting time isn’t it? Really interesting. SARS, Iraq war, the war on terror, 100 years of Harley Davidson, David Beckham becoming a global brand, when not one of you can remember a single Nobel Prize winner! Isn’t that interesting? We do live in a slightly strange time of unwarranted fame. Global branding for irrelevancies. How does that happen?
Those of you that have seen me before will know that I like to go big and then go small and practical. The first bit I am going to talk about is the current global situation. That will be brief, but the economic situation globally has a massive impact on the behaviour of organisations, which impacts individuals in organisations. The issue is that just like individuals, the outside environment affects what’s inside. Your outside environment affects you, outside of companies, affects companies and it affects them really, really brutally sometimes and causes organisations to behave, frankly, in a pretty dumb way. Let me give you the world’s best example from my old company, my old, old company, Hewlett Packard. Whenever business wasn’t quite on forecast, we sent out to 25,000 locations worldwide a cost restriction policy. So business is down a bit, there were only 2 things that we ever sent out cost restriction policy on. Anybody got any ideas what they were? Headcount, HR, brutal no additional heads right. Second one, no travel. So no travel and no new people. What did people do then? Hire contractors, temporaries, consultants, often at 4 or 5 times the price of a permanent hire and didn’t solve the problem. And didn’t solve the problem. So what would happen every time is that these brutal central accounting policies would be driven out into the organisation and then have absolutely the opposite affect to the one that was intended. So you’ve got to be careful about the way you treat an organisation given the external stimulus.
Second bit, I call observations of a deal junkie. Because I became a deal junkie over about 4 or 5 years and bought a lot of companies and I learnt a lot out of that. That the third bit will be post rationalising summary making everyone feel good so I can get off the stage and out of the auditorium without being assaulted.
Right, this is the first bit, this is the global thing. Is the world changing? I think so. Did anybody have a look at what was happening in Cancun the other day? World Trade Organisation, having a look again at the agriculture policy of the world. Did anybody see the Economist magazine this past week? It had a cactus on the front in the shape of that, like this. And it was actually brilliantly observed, because what happened in Cancun over global agricultural policy mainly was that for the very first time China, India and Mexico, the largest of the developing countries ganged up, supported the developing world and said, you bastards in the G8 are screwing us, so get lost. The very first time it’s happened. Get ready for new things happening in the world order, because they are starting to happen and they are happening very quickly. Cancun was a very interesting and salutary lesson for some of the big countries out there.
I am gong to mention Manpower for a second. I am not going to talk about Manpower; I’m just going to say that every quarter we run an Employment Outlook Survey which has been going for 40 years. It runs in 17 almost 18 countries. We start, by the way in NZ in the next quarter for the first time. And what it does is its asks Employers, over 45,000 of them worldwide, 3 simple questions. Are you going to hire in the next quarter? Are you going to do nothing in the next quarter? Are you going to lay off in the next quarter? 45,000 Employers, and we can look at the trends on this. So I’ll tell you what happened in the 3 economic regions of the world from the final quarter forecast, and it’s very interesting actually.
Everybody knows that North America has a massive impact on the global economy. Very often when something goes into decline it started in North America, very often when we emerge from a recession, it started in North America yet again. This is a very odd time for the North American economy. Lots of off shoring, employers aren’t rehiring. They are calling this, at the moment, because the economic trends are going up somewhat in North America, the great jobless recovery. By the way, in the whole history of economics, there has never once been a jobless recovery. Is this something new to the world? What they say is the consumer spending because of low interest rates is booming the economy, people putting money back into equities. So the markets are going up, all the signs on consumer spending are very positive, but there aren’t any more jobs.
Remember when it used to be, let’s go to a low cost wage location, like Thailand or Singapore or something? Those countries are becoming less and less low cost. Because what tends to happen when you move manufacturing from North America to another country, is that the local compensation and benefits levels norm upwards over a period of about 5-7 years. So eventually the labour ends up being about the same cost. However once you have shifted stuff offshore what are you going to go back to your Board of Directors and say? Um, you know that $6.7billion we spent moving all of our peripheral manufacturing out of North America to East Asia, well we didn’t do it right and we’ve got to move it back again. So this is an irreversible trend. So we are really concerned that the bubble is going to burst on this jobless recovery.
Second region that I can comment on in terms of economy, is Europe. What a mixture. Wow, France is flat, so the French economy is just stabilising – looks like it might pick up in the first quarter of next year. The UK, first increase in hiring intention for the first time in 4 quarters, so that looks very positive. Again, flat in light industrial and manufacturing. There is something weird happening here. Germany, basket case. As usual, Germany first into the recessionm, last out of the recession. Germany -7% in hiring trends for the last quarter. They are in big trouble, they really are. And unfortunately most of the rest of Europe can’t see a way to help Germany get out of it. So what we are hoping for is a boom in North America, strengthening of hiring, strengthening of jobs, increase in this consumer spending cycle into equities, stock markets go up, boom, 4-5 months later, passed over into Europe and then into the rest of the world. That’s usually what happens in an economic cycle. What we see in Manpower is the following normally. Quarter ahead we get an increase in intention to hire, which we’ve seen that is normally followed sometime, half way through the quarter by companies laying on lots and lots of temporaries. Many more than we see in the quarters before. That’s the next sign. If we see that sign, half way through this last quarter, then we will know that this trend is improving.
Asia Pacific, very interesting. If we look at Japan, Hong Kong, Singapore, Australia, - as I said we are going to do this survey from next quarter onwards in NZ, so look out for it in the press – every country, positive hiring trends in the final quarter. And we tried to get people to break it down into what’s the rebound here from SARS, and what’s real increase in your economic growth of the company, and its seems to be both. So the signs in Asia Pacific, North Asia Pacific, Japan, Korea area then South East Asia and Australia all seem very positive so we are looking for good signs into the first quarter of next year.
Why am I talking about economy when I am supposed to be talking about organisations? Well, because economy affects organisations, and organisations affect people and vice versa. So, all of those employers in Asia Pacific say that they are going to be hiring. The environment is extremely important to you. But no matter what the economy does, organisations don’t seem to work with people all of the time. And now I’ll move from the general economy and what you might see influencing your companies over the next 2 quarters into some specific observations as to what has happened to me, certainly over the last 4 or 5 years.
In Manpower a few years ago, we decided to create a professional services firm. A consulting company. Why would we do that, we are a staffing firm, we put temporaries in jobs. Every day in a country like France, we place 177,000 people and tomorrow it might be a different 177,000 people. They call us the McDonalds of the staffing industry in France. We have 670 branches and they just churn people through like at McDonalds, like this. So, lots of people going through the Manpower machine, you would think it was a great business. The old paradigm used to be the more offices you open, retail offices, in villages in towns, your revenue goes up by a certain amount and your retained margins, your profit goes up by a certain amount. Then 5 or 6 years ago we noticed something odd was happening. What was happening, is that companies like IBM, Hewlett Packard, the old digital Compaq, companies like General Motors were starting to realise they were spending billions of dollars on flexible labour on a global basis, and they started coming to companies like us and saying, “I spend a billion dollars with you, where is my global support team, where is my global account manager and director, where is our special intranet system so I can order electronically”. We are going, “We don’t do those, we are just the staffing company”. And of course that was the start, that was the wedge into increased costs, decreasing margins. Our volumes were going up by billions a year and our margins were going down at 25% a year. Not a good place to be.
So we decided to have a locum, we decided what we needed to do, was do the obvious thing, just like telecommunications, financial services, computer industry, everybody has done. We decided to put a professional services company together. Now, I must have been out of the boardroom when this happened. I am sure I went to the bathroom and I came back and somebody said how are you going to do this? I said do what? So I got the job of starting the consulting division in Manpower world wide. So we decided this is dead easy. All you need to do is go out and buy a consulting company right? Now hang on a minute, we better ask our customers what they might want to buy from us instead. So we went to 50 customers, did an in-depth survey about what they thought they might buy from an HR Consultancy. They said, we really trust you Manpower because you know we have been working with you for years and we spend a billion dollars with you, yes we would buy advice on compensation, reengineering, all this kind of stuff. So we said, right hey this is dead easy building global businesses. So I said, right I am off, I am going to need about $1.2 billion and I am going to buy a $750 million consulting company, so I went and looked for one in 6 specialist areas. And you know what, didn’t find one. Had to be global, had to be boutique, had to be strategic, had to be compensation, reengineering, psychometrics, boom, boom, boom, didn’t find one. Cut a long story short is what we found is that there is lots of boutiques, lots of functional specialist companies over lots of counties in HR, but very few global players that can offer strategic human resource , company reengineering and all of the bells and whistles. So, we went the hard way. And the hard way was to go buy boutiques. Now you know what a boutique company is in human resources, let me describe it. It’s a company that is run by a founder, owner, entrepreneur, genius.
The basic metrics of what we did was that we acquired 26 companies in 17 countries. The average purchase price was 1.5 times revenues for the companies, so turnover times 1.5 or between 4 and 7 times earnings or profits, those were the kinds of prices we were paying.