Power Corruption and Lies: Volkswagen compliance

The Volkwagen cheating on emissions testing scandal is not on the face of it a Procurement issue, though it is rather similar to an old Procurement problem: lying about compliance.

Suppliers can and do fake certificates of compliance.  Part of the job of Procurement is working out when it is worth doing our own investigations into compliance.  Sometimes it is, and sometimes it is not.  Sometimes the non-compliance is just cutting corners...

This is not.  This is a deliberate and calculated fraud.  VW has already allocated $billions to the anticipated fines and law suits.  Is this enough?

In Procurement we would find a deliberate fraud a good reason for blacklisting the supplier (if such a thing is allowed, and let's be clear probably even it if is not).   Who could trust such as supplier ever again?

Standards and certification are sometimes seen as job killing and industry damaging.  Surely the market will deter bad behaviour?  In reality they are there to protect us all and prevent a race to the bottom in a (generally positive) drive for profit.  And so wrong doers are fined.

However the fines are not enough.  For a business they are a cost of doing business, and can be set against the profit and loss account.  They are, in short, a calculated gamble.  If it pays off and you don't get caught great - if you get caught, pay the fine (or in the case of Goldman Sachs agree to pay a fine without ever actually admitting to wrong doing).  That is not enough to deter fraudsters.  Not nearly enough.

We look at some of the great business scandals (Enron, Lehman, Libor, VW, Goldman Sachs, RBS) and can ask how many people went to jail?  Not many.  Literally on the fingers of one hand (mostly from Enron).  With those odds we are not detering wrong doing - the balance of risk and reward is too strongly weighted to doing whatever it takes.  Handing back your knighthood is not a risk of consequence.

If we want to change the risk balance we need to ensure that more corporate fraud is dealt with by jail time.  A nice cozy jail no doubt, but still jail time.  Nothing else will make managers think twice (and it will not make all of them do so either).  This needs to be a regular result too, not just a one off. 

We have to make managers aware that there are real personal consequences - not just corporate ones.

Bidding for HS2

The Chancellor, George Osborne, has attracted a bit of flak for inviting Chinese companies to bid for contracts for the High Speed 2 rail link from London to Birmingham.  A figure of £12bn has been bandied about, and there are complaints that he is being cynical in talking to potential suppliers before the legislation has passed in Parliament and that he should be promoting these opportunities to British businesses rather than Chinese.

Well, he is a very political beast and so we can assume that this is part of a bigger political plan (which appears to be to build better links to China).  From a procurement point of view it probably makes sense.  This is a very big project.  The Chinese have great expertise, having built far more miles of high speed rail than we have in Britain.  However they may not be aware of a decent project possibly happening on a small island on the other side of the world.  I cannot believe that there are any British (or European) potential bidders who are not aware of the project.

So it makes sense to do a bit of pre-market engagement, and effectively fire the starting gun for the competition.  A competition that will no doubt follow OJEU procedures, which will give an advantage to EU companies used to complying with them.  But it will remind them that there are competitors.  Competitors who now will have time to consider whether they would like to be involved when the time comes.  And whether a Chinese company could actually win.  The Chancellor must hope to convince them that they can... whilst fervently (and powerlessly) hoping that they don't.

Politics, eh?  Give me Procurement anyday.

Short Notice: Managing Innovation

Very, very short notice (apologies) but we are re-running the Managing and Developing Innovation course at Junction 25 conference centre in Brighouse starting tomorrow 9th September and finishing on Thursday.  If you are based in Calderdale this course will be free to you.  Anyone else will have to pay (don't ask me how much - not a lot)

If you are interested then we would be delighted to see you.  Run for University of Bradford School of Management Knowledge Transfer Network on behalf of Business Growth Calderdale.

The new season: Contract Management and Compliant PQQ courses in Manchester 16/17 September 2015

It's not just football that has a new season.  We always have a relatively quiet summer for training, and then things pick up again in September.  Like the transfer window a few things are usually up in the air till the last minute.

But, I can confirm that I shall be running a couple of courses for BIP Solutions Pass Training in Manchester this month
Wednesday 16th September I shall be running Drafting a Compliant PQQ - which is a rather interesting topic given the changes to PQQs this year.
Thursday 17th September it is Contract Management - which is a topic that I know I always drone on about, but has always been vitally important and given the changes in the PCR 2015 will now be even more important than before.

Both are at the Renaissance Marriot in Manchester, just off Deansgate and down the hill a bit from Harvey Nichols (in case you need any more incentive to come along), next to a multi-storey car park.

Hope to see you there.  Now where is that suit and tie?

KPIs in Education and Sport

It is exam result time, and as every year we have a strange situation.  Every year pass rates go up and (almost) every year this is seen as a sign of failure.  If the pass rate has gone up, then the standards must have gone done. 

It is hard to think of any other situation in which improvement in a key metric (pass rates) is seen as a problem.  Generally we think that if something is important, and measured, then over time the measured value will increase because there will be a focus on improvement.  This philosophy is rather at the heart of KPIs.

Of course there are complicating factors.  Newspapers tend to sell more copies when telling us that all is doomed and rubbish, rather than saying how bright and sunny things are.  This does lead them to finding some quite novel ways of highlighting the black lining in a silver cloud.

Politicians of course also have their own agendas - usually how rubbish their predecessors were and how brilliant they have been.  The spin again often has little basis in objective reality  (I note that this year the government were keen to push the idea grade inflation has stopped, when in reality more passed than last year - which in previous times was seen as a symptom of grade inflation).

One of the essential problems here is that we don't really know what we are measuring or why, and what we actually want to happen.  Are exams a way of determining the brightest and best?  Or are they about people meeting a certain standard?

If it is about meeting a standard then it is not surprising that pass rates increase over time - even if the standard itself is raised.  This is what we would normally expect in a business context - conformance increases, and output increases over time as people learn how to do their job more effectively and efficiently.  You would expect teachers to be the same.

If it is about identifying the brightest and the best, then there is no reason for pass rates to increase, and we could just be clear that it is a competition and top marks will go to the top say 5%, and so on down the bell curve.  Of course this does rather mean than only have of the students can be better than average (rather than most being so, as Michael Gove once rather optimistically targeted).  And it does mean that in a good year good but not great students will be penalised, and in a bad year poorer students will be rated higher.

Is it possible to achieve both meeting a standard and identifying the brightest and best?  Probably.  But that requires rather more sophisticated and complex measures than can be printed on the front page of a newspaper.

Which is where Sport comes in.  There is a suggestion that all athletes should publish their blood data, and Paula Radcliffe has had a few fingers pointed at her for suggesting that this is not a good idea.  No one has yet accused her of being a cheat, but there is a feeling some would like to.  I think she has a point.  The data is complex and needs considerable expertise to interpret.  My statistics are not great, but I do understand the main points that any repeated measurement has a variation in it, and that rogue measurements do occur.  Not only are 50% of measurements above the average (mean, assuming a Gaussian distribution) but 2% will be significantly above (and below) the mean - more than 2 standard deviations.  So we WILL get outliers.  Odd results.  Random high scores. 

Do you think that newspapers seeing one very odd high result will say "oh that is with the margin of error, and is probably random noise on the measurement"?  Or will they say "cheat"? 

And of course if you are a female athlete do you want your pregnancy to be announced through your drug testing results?  Particularly in the very early days when the body adapts but the pregnancy is not yet secure.

The point of both of these examples is that measurement is vital to improving performance - but we do have to be very clear about what we are trying to achieve, how the measurements will support that, and how we are going to interpret those KPIs.  It is not as simple as asking "what can we measure".

So, good luck to all those students who got their results this summer.  Your lives are ahead of you.  Go and do things better than us.

IChemE Engineering Procurement 22nd September 2015

I shall be running our popular Engineering Procurement course in Rugby on 22nd September.  We have already scheduled next year's date for about the same time, though that is quite a wait if you cannot make it this time.

In one day we cannot cover everything in great depth - but I do try!

If you are interested then you can get details here.

NHS Pricing on labels

Jeremy Hunt, the health secretary, is leading an initiative to put indicative prices on all NHS medicines over £20.  Though I have been negative about some government initiatives, this is one I support - though before you swoon in surprise I have to point out that I think the strapline "paid for by the taxpayer" is cheesy and unnecessary.  (I am though quite in favour of the proposal of a chap on BBC Question Time that MPs should have to wear the same line on a badge on their suits - but maybe it doesn't go far enough and we should insist they all wear HM Parliament boiler suits branded with that as a logo.  But I digress)

People are very unaware of the costs of the NHS.  A prescription costs £8.20.  I am not sure how much of that is actually administration costs (and I cannot find it - perhaps you know?) but given that a private prescription from a doctor may cost £15, and according to CIPS a Purchase Order typically costs £50, I believe that in fact ALL that charge is administration cost (and probably does not cover all of those costs).  So we literally do not pay for the pharmaceutical at all - just contribute to the administration of the process.

Which of course leads to the usual complaints that is is cheaper to buy Asprin over the counter than to get it through prescription.  People do not realise what they are actually paying for.

Let's do some back of a fag packet assessments.  (now that few people smoke, what can we use instead of fag packets?  Just asking)

Nearly 20 years ago my wife was taken ill in the USA.  Though we had medical insurance the bills we received (and had to pay before claiming back the money) where a real eye-opener.  The initial 5 minute consultation with a doctor was $50 - he said "go to hospital".  Kerching.  We went to hospital, where my wife had a 5 minute consultation ($150), and got a prescription for antibiotics, which cost us $80 at a nearby pharmacy.  Total cost $280 plus a bit of driving around.

Recently my son broke his ankle here in the UK.  A NHS doctor's consultation (she said "go to hospital"), a 5 minute consultation with a nurse, an x-ray, 5 minutes with a doctor, plaster clinic, and loan of crutches cost us £2.50 in car parking fees.  Subsequent new rubber ferrules for the crutches, x-ray, removal of cast, 5 minutes consultation with doctor cost us a further £2.50 in car parking fees.  A total of £5 and a bit of driving.

Looking on the internet the cost to the NHS might be £4 for the ferrules alone.  (Ferrules was a new word for me, so I am getting maximum mileage from it)  Based on salary cost of £50/hour that is £25 of staff time at minimum.  We haven't even considered overheads, infrastructure etc.

Based on my US experience I would expect that the cost might have been say twice what we paid 20 years ago, so $560 or £350.  According to this website that might be the lower end of a range that could run from $520 to $1000, or even $2500.


If you get something free you tend not to value it, but to take it for granted.  The NHS is free at the point of use, which is great because I did not need to consider the cost or call my insurance before taking my son to the doctor.  However I then did not actually value the service accordingly.

Incidentally my kids were born by emergency Caesarian section back in 2002.  The average bill for that in the USA according to a 2011 study by Truven Health Analytics was $50 000.  For that operation, and a month in Intensive Care Baby unit we paid just some car parking fees.   I call that a bargain.  How much of a bargain, I only realised by doing some research.

If I had been presented with an indicative bill for that service, then perhaps it would put the complaining about the price of parking into a bit of perspective.

The illustration incidentally is for a US bill for treating a snake bite.  Ouch and ouch again.