FT.com / Columnists / John Kay - Think before you tear up an unwritten contract.
John Kay destroys the ideas behind shareholder value in one column. As he notes:
In my own work, I used the term architecture to describe competitive advantages derived from structures of implicit contracts with suppliers, employees and customers. Marks and Spencer exemplified the use of such relational contracts.
I had barely formulated this thesis, however, when the company began to put strain on these relationships, in the interests of shareholder value. If the success of M & S demonstrated the power of relational contracting, the company’s decline illustrated a process that swept across business — and above all the financial sector — from the 1980s. The substitution of transaction-oriented dealings for relationship contracting added to profitability in the short run; but in the long run it eroded relationships that had been the underlying source of much of that profitability.
But the whole is better than this part.
Highly recommended.
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Wasn’t it Will Hutton that mentioned the bus conductor: someone that was paid a modest salary to take the money of passengers. The bus companies got rid of him as he was an expense: the driver could do that. Ditto the milkman and the delivery boy from the grocers (I read about them every night in The Tiger who came to tea, a very good read).
And the result of all these “efficiencies”?
A lot more traffic on the road, delays for those stuck behind busses, less jobs for those who are rlatively unskilled but like working with people. Even worse, but impossible to measure, is a loss of the sense of community. All of those jobs increased social cohesion. But now we have supermarkets instead. Because people look at the part rather than the whole.
Problem is, how do you fix that?
Now that is a good question
Part of the logic is that it’s down to the state to create these jobs – because they add value in a way no one employer can appropriate for their benefit
Yes, I do mean subsidies