Episode 7 The Bottom Line

BBC News it's time for our inside look at the business world in - the

Bottom Line. When things go wrong in companies,

or what are the details - market has all conspiracies? Will delve

into those those files. Why do they occur and hound you avoid them. --

We start by spending a few minutes meeting of the guests. Andy Green

is chief executive of Logica - a business and technology service

provider. It is a big company, a well-known name, I am not entirely

show I know what you do. We operate mainly across Europe. Lead design

systems for people. Having done a lot of people, we explain how those

businesses can - those systems can improve the businesses. Give us an

example. All the courts system in the UK, the Ministry of Justice, we

run their system for them. We have designed and implemented at the

police and data bases for, the first time there we collected all

the information. Very technically difficult. Your staff, they're

software writers? They are mainly business people who support clients,

thinking about business but they are also capable of integrating the

software and hardware. We often use other people's software and

hardware - people from Oracle or Cisco, IBM. He anybody to make sure

we deliver the right system to the client. Phil Smith is chief

executive for the UK and Ireland of the US multinational Cisco. I think

of Cisco has making servers but I am sure it is more than that?

was only recently its services but it is the coming of the internet

which has been Cisco's business for the last years. Building the things

they are connected together and making it accessible - everything

from a wireless to video to telephone to all the things that

sit in your house - BT's. Data centres. You have a service

element? But you also have manufacturing? How much would you

say is manufacturing? We are much more a significant manufacturing

company. 16-70% service. All the rest is predominantly manufacturing

and distribution. What is your relationship to the people like

Logica, sitting next to you? assume it is good. We do not and

generally do not sell directly. With typically would not sell or

transact with them directly. We would be... Finally, returning to

the programme, Luke Johnson who runs the private equity form of

Risk Capital Partners. He is also an investor in many businesses,

especially restaurant chains. UB is at the moment is patisserie

Valerie? As of last week, we have 85 across the country. I remember

there being one, I think, he spotted a formula that worked?

is not far off. We took control six years ago and it had six branches.

We have grown up organically it ever since then. We hope to open

the best part of 20 this year. There's been an explosion of a

bakery type products out there - chains like Paul, the coffee chains,

the sandwich makers, the grapes - patisserie Valerie is positioned

differently? We offer table servers. What we represent is affordable

luxury for those who want something slyly classy. We emphasise cakes, a

few minutes' respite from the stresses and strains of everyday

life. Cakes more than bread? Is it working? It is doing very well. We

have a great management team. We are very ambitious crowd. The theme

of the day - corporate nightmares of one kind or another. I that

cock-up or conspiracy. Let's start with mistakes. The new IT

businesses, they are probably more than their fair share,? I think it

is fascinating to see. A lot of cock-up is happening every day,

people are making mistakes. It is worth thinking about your history.

I remember shipping some catalysts to Saudi Arabia in my mid-20s, and

then having to hire a jumbo Jets to get it back because it was the

right -- the wrong ones. This is happening to people all the time.

It can be very simple, somebody can leave the laptop on... We have a

very careful process. If anything happens I personally get notified.

There is a risk. It is encrypted, there are things to protect. There

is the it issue that risk is a good thing. You are going to be pushing

the edges. In this industry we're watching the hedges all the time.

As a result, scale can catch you out. Many, many years ago, I have

been involved in the internet before Cisco, I was at IBM, the

Womma you got charged a couple of pence if you got an e-mail. Someone

in one of the centres sent an e- mail to everybody and everybody got

charge. And we all said, stopped spanning me. That is often the

issue around big projects. You are going from something that is easy

to manage to something many the enormous and scary. It is hard to

deal with. It is big projects, it is a fair sum you have ever done it,

it would be surprising if you do not make mistakes. The IT systems

for the UK National Health Service - it has caused billions and

billions of pounds. It has achieved nothing at all. It has been running

for years and years. What is the story there? There are good

mistakes but there are also bad mistakes? Lots of things went from

there. Some things went well. There is a patient record. I was one of

the bidders when I was at BT. I was involved in that. For example, this

has report the same system in every possible, half through a Aviv

Foundation Hospital was invented and it did not have to go with the

same process. There were fundamental errors. Real difficulty

in delivering what had been promised. What had been promised a

supply chain was fantastic software that had not been signed yet and

was going to completely revolutionise hospitals and in

delivering that proved to be horrendous. There were significant

errors in every phase. Is it not part of the nature of IT supply, I

am not an expert but I thought quite a lot of projects have been

involved in as a customer, rather like the building trade, that it

goes wrong and that it is in the nature of the economic model, there

was a recent study that on average out of the 1,500 IT projects worth

over $170 million, one in six went 200 % over Budget. As a customer,

it is a very scary thing because clearly you are not an expert, your

providers are experts and yet they do not seem to be able to get it

right often enough, it seems to me, given how much they charge. My view

about this is that there is definitely at a higher figure.

Failures occur for lots of reasons. Some are common. The kind centre

with one view at the beginning and then they have to change it. What

builders call variation. Exactly. Be sensible defence is partitioning

into small items and relationship. We blindly always think of our

clients over the long run. We have to think about. You need to know

people so they can actually sit down and have a decent conversation.

Too often, when these things go really wrong, they start to go

wrong and everybody runs. Inexperience -- experienced buyers

and sellers put it back on track. Too few people understand that. It

is because, one thing that is happening is technology is catching

on so much in our personal lives, buyers, business buyers, a getting

much more savvy. That is great. It is great for the provider as well

as for the climb. Ayrton it is that you that matters. What can you do

that would transform a business. If you can get that done, then if you

overrun up by 20% it probably does not matter. It depends how much

money you've got. That is true. is about feeling your way? And the

comparison to the building trade is per annum. What you're doing the

thing for the first time, not very often, you are not terribly

experience as a customer and all the advice is that if you change

your mind halfway through, that is when the bills begin to rocket.

the whole issue of specification and getting it done is part of the

issue. When you see government programmes having the biggest

problems because they squeeze so much in procurement that there is

little good value left. As Andy said, the good project is when

people get together and try to solve things. Every piece of know

you has been squeezed out, the truth is, your only option is try

to get some back from it. Across virtually every area of business

purchasing, if the procurement expert takes control, whose

ultimate mantra is all about price, it can very often lead to trouble.

I fear that in many aspects of this business, it gets down exclusively

to prize rather than value. Quality is out the window. They can show a

saving so they justified their bonus. Unfortunately, the supplier

may be rubbish and the cost will increase down the road. Everybody

is BT says that. The cause is going for the cheaper speak every time.

In government, they are in a difficult position. Let's be honest,

I am on a lot of balls, if you sit on a boardroom and the acting

director comes in until you is going to cost you 20 million and it

is going to be done in a year - you think maybe 1418 months. If you are

in government, you are in a situation where that is impossible

to have a conversation about we need to put this thing back on

track because you are stuck it into a procurement and what is more, the

individual responsible is almost certain will is facing a union

could has not won the thing to happen anyway. It is more systemic

than that. The person who is individually change in this project

has to demonstrate to the superiors that it is not too expensive. It is

only by taking the cheapest but you can sell the produce. Down the line

it will cost more. In many sectors there are providers will take

things across the river less. With the view that they will somehow or

kit out and make a margin on the way. They know the client will need

variation. We have been working with some people for 25 years.

It is lower? I think manufacturing is one of these things, it

superevolved. It has got pretty good at picking up things. There is

a challenge. I remember years ago going to IBM manufacturing and

watching the robots woshing. Of course what happened was, --

working, if one gets out of sync, you catch it later. We were there

when Margaret Thatcher visited is factory at the time. One of the

robots went slightly awry, and one of the guys walking down the

supersophisticated factory and he took a hammer out and smacked it on

the side. Well that's the hi-tech world. It was very interesting. She

had her appropriate comments about what was that about. And

manufacturing has got sophisticated. It's become multicompany now, so

although we are in manufacturing, the bulk we don't do ourselves,

it's done by subcontractors. So there's a complex supply chain

connected together, which in itself bring opportunities, and challenges

of making sure the quality is good. You remain quite shyly come tem

play tiff. A non-IT one. contemplative. A non-IT one. I thu

you made mistakes in terms of judging. Some partners and I

decided New York needed a huge new Belgian Mussels and Chips

restaurant. I think we probably made every

mistake many the book. We recruited as a joint venture partner a big US

group that went into chapter 11 halfway through the project. We

used non-union labour to build the restaurant, and failed to realise

in New York you tended to need to use union labour, so the unions

stuck a giant 25-foot inflatable rat outside our restaurant. We

built it in the wrong part of New York. We didn't budget that the

Belgian gear would cost a fortune. We blew I think $5 million on that.

If you want an innovative society f you want a society that's willing

to take risks to generate new technologies, new jobs, new

businesses, then it involves failures and cock-ups. I think the

British have got vastly better in recent years at accepting that as

part of the journey. I find that if I meet entrepreneurs or journalists

or politics -- politicians or any group really they saw see now that

is a necessary part of business, that mistakes happen t world is not

perfect. We learn from the mistakes and we move on. I think that's

incredibly healthy. We've dealt with mistakes, cock-ups,

now tiek to -- time to turn to malpractice and conspiracies.

There's been a lot in the hair, the scandal around News International,

alleged payments to public officials, phone hacking and all of

that. Let's talk a bit about when things go wrong because of some

maligned practice. Firstly, do any of you think this is a rather

overrated problem? Do you think this is not something that happens

very often, that business do do stuff like collude illegally,

engage in corruption, bribe, evade taxes. Is this something that

happens? It clearly does happen, because you know, it's been

publicised successfully. I would say in general, and this is my

perspective, when I'm in business, most people are not colluding,

being con spir tear yoral. They're try -- conspirtorial or whatever.

They're trying to do their job. In general people are trying to do a

job that's successful and there are examples where people are attracted

by the rewards or somehow get involved in something they're not

particularly aware of. I think in the UK we're reasonably transparent

but it is clearly a danger. I think in general people have good intent.

I think what is more of a problem and that is often pictured as a

conspiracy is office politics generally. I think actually that

this idea amongst observers that there is a property afoot, but in

fact it's just the chaos of rivalry and power struggles and things like

that, it sometimes gives the impression that there's goings on

when it's not that. Internal politics. Yes. I think

we're facing a different phenomena. The first thing is newspaper man

giving a platform a few quid. How surprising? That's been going on

forever. So two things are happening. We're in a world where

you can't hide anything. Because of what's happened with social met

working, nothing is hidden. People talk about transparency, you can go

and read about me on Glass Door. My employee also post things every

time I do anything they don't like. I think it is exceedingly difficult

if you are involved with running a very large organisation with

perhaps tens of thousands of staff for argue's sake, how can you

possibly know what is going on everywhere? The idea of perfect

corporate governance and complete controls and total knowledge, I

think is a fallacy. Just as mistakes will happen, there will be

flaws. Throughout my career in business every so often you come

across a fraud, from a major rip- off that you're a victim of to

petty stealing in a shop. This is a fact of life. There will be

negligence as well as dishonesty. To pretend it doesn't exist and

won't continue, no matter what checks and balances you install, I

think it is an illusion. One has to ultimately not necessarily forgive

it but allow for it because it is inevitable in my opinion. I saw

this quote from the Chief Executive of Wall Mart. He has 1.9 million

employees. Apparently someone in the boardroom walked out and said:

"If you were a town you'd have a jail".

It's true, you will have all sorts of people doing all sorts of things.

You have to install a culture and a set of policies and communications

that allow you to do with it. can blame the top management for

1.9 million people, but it's not sesable, you won't get many people

doing the job if they have to be personally responsible for the

behaviour of 1.9 million people. It's tough out there now because

you have for example legal ramifications as directors, where

you can be criminally prosecuted under for example, health and

safety legislation. Someone I know well, director of a private

business, retailer, there was an accident in the store which he'd

never even visited which any reasonable man would have said was

the employee's fault, but there was one tiny error that the superviseer

had not committed. A criminal prosecution was brought, which

thank God was dropped halfway through. But the consequences now

for mistakes like that can be very severe. So you know, not only

directors -- insurance is more important than ever, but systems if

best, if humanly possible, to ensure that major disasters like

deaths, don't occur. There are criminal sanctions.

You have the act in the United States where the companies are

responsible. The sense in all of those is you have systems that are

sensible, reasonable and will probably do the job. If you have

those systems in place, usually you're not going to get prosecuted

etch if something does go wrong. think that's right. Thank God,

other wise the system would break down. So it's all about proportion

and balance. We need to remember business creates a lot of jobs,

people are taking risks, people are deciding to drive the world forward,

to do ifrpbt things for consumers, that you know, drives wealth,

drives growth, which we desperately need here in the UK. If we end up

con straining everyone too far, we'll stop all that. I think you

know, at the top of an organisation you have to say, we're going to do

everything we can to control things, but we don't live in a zero risk

world. What we've got to do is be proud of what we do and feel

comfortable that we'll be prepared to defend ourselves legally and

with consumers. On that note, let's draw this to a