Thursday, 6 September 2012

Old dog, new tricks

The mainframe has clocked up 48 years of sales by adapting to new technologies and demands

IBM have moved on since then
To the less technologically inclined, IBM’s new Z enterprise EC12, launched August 28th, appears to resemble something closer to that of a large refrigerator than a piece of tec wizardry. Yet the mainframe is one of the industry's most enduring innovations.
Without knowing it, most readers probably used a mainframe computer today, albeit indirectly. From credit card payments to monitoring exports, the mainframe provides what is termed “mission crucial” processing, 7 days a week, 365 days a year.  

When IBM chairman, Thomas Watkins, bet the company’s future on the success of a new family of mainframes in the 1960s, only the most optimistic IBMers would have dared dream that the firm would still be introducing new versions in 2012. Two years is a long time in the tech world, fifty is an eternity.     

The mainframe has had its fair share of ups and downs. Starting in the 1980s, businesses started to desert “big iron” in droves. The idea that bundles of hardware in a metal shed could compete with the emergence of the new client/server model of computing struck many geeks as farfetched. The mainframe seemed Triassic compared to the PC.

With a tip of the hat to the dinosaur naysayers, IBM code named their then current crop of mainframe computers T-Rex. As data proliferated with the emergence of the internet, the mainframe found itself back in demand. While the server model abetted most data needs, the plea for more secure transactions, needed for e-payments, provided the mainframe with a lifeline.

Still, the mainframe story is one of inertia as much as innovation. Core customers, such as large banks, suffer from high switching costs. Rakesh Kumar of Gartner, a market-research firm, wonders, “If it is even possible” to change the current transaction process, “How would you even go about reorganising such a system?”

A captive market in the developed world and growing sales abroad, has allowed IBM to invest heavily in the new Z12 mainframe, knowing that a decent rate of return is all but assured;  “We have invested over $1 billion in the Z12” states Doug Balog, the system Z head.

The investment has led to some impressive features. The new mainframe is 25% quicker than its predecessor, the Z196. But it’s not just increased processing power that has tech-types salivating. The new model provides, “embedded analytics” where by patterns of data are analysed for fraudulent activity mid transaction. It also uses the, “fastest processor on the planet” cues Nick Sardino in an IBM promo on YouTube. 

Given its credentials, it won’t surprise readers that the Z12 ain’t cheap. But the $1 million starting price, often going much higher, still leads to dropped jaws. That however, says IBM, is a small price to pay relative to Z12’s benefits; the firm reckons it saved Eurocontrol, an air traffic control firm, around 50% in additional software costs.

For all its new features, the mainframe remains popular due to its reliability and security. “The Z12 is encrypted from the chip to the software” says Balog. This makes the mainframe crucial for IT infrastructure where masses of sensitive data are processed. “If you’re a bank or a credit card firm, you’ve not really got any other option” confesses Toni Sacconaghi of Bernstein Research.

While only around 4% of IBM global revenues come from direct mainframe sales, once additional hardware, storage, software and servicing have been factored in, the mainframe accounts for a quarter of revenue and nearly half the business’s profits.

Burgeoning demand from China has been instrumental to the resurgent mainframe. According to IBM, online banking transactions have tripled in the country since 2009, compelling companies like the Bank of China to invest in the mainframe. Sales of Big blue’s hardware are up 11% in emerging markets for the 2nd quarter according to a recent announcement by IBM’s finance director, X.

Like its chief patron, the mainframe has stayed relevant by evolving with new technologies; from the arrival of the PC to the smartphone. It would be a pleasant irony for big iron if its supposed slayer were the first to go. “PCs are a dying platform; more and more data is accessed via smartphones and tablets”. Who would have thought that in 1996?

Thursday, 30 August 2012

Next day delivery

A UK fashion retailer profits online by remaining in-store

Even Next themselves sound surprised by their continued strong performance. In the firm’s latest annual report they outline a nightmarish environment starring an anemic consumer and featuring spiralling manufacturing costs before concluding that actually Next performed “remarkably” well.

The firm has been surpassing expectations year after year. How the company has managed to consistently generate profit while operating in a fragmented and saturated industry is of interest to floundering fashion retailers globally.
Just returning something I bought online

The reason seems to lie on the web. While retail sales in bricks and mortar stores were down -1.4% from 2011, Next Directory, the online catalogue, grew by over 16%. This easily offset retail losses; online sales now generate a third of group revenue.

Typically, fast fashion retailers have struggled to convince consumers to come online (Fashionistas often want to try before they buy). Next profits have primarily come from convincing consumers to part with cash over the internet hence squaring the circle many rivals had been struggling with.

Of Mortar and Modems

The company’s approach to online fashion is promising for tangible retailers, but less so for their online counterparts. Next operates a system whereby anything purchased online can be returned in store; around 60% of online refunds are now done through Next stores.

This may look like poor cost control to the more hardnosed retailers, but it is vital for putting would be customers at ease. Picky and busy thirty-somethings can merely go down to one of Next’s 500 retail stores and return those shoes should they not look just right.

Next has also shown notable ability in catering to a customer base which demands instant gratification. Anything ordered before 9pm will be delivered first thing the next day. Rivals are envious of such logistical prowess.

Yet consumers are demanding nothing less. Next continues to profit from a mix of store ubiquity, customer trust and almost instant delivery. That will be hard to replicate anywhere.  

The Reconquista

Mexican oligarchs are expanding abroad

Mexico both benefits and suffers from its close proximity to the United States. When the ‘gringos’ on Wall Street trigged a financial crisis, Mexico was plunged into an even deeper recession than its northern neighbour.

Still, the benefits may be coming round again. Mexico houses a growing number of firms with global ambitions. Grupo Bimbo, a bread maker, purchased Sara Lee Bakeries in 2010 to become the US’s biggest baker. Another giant, Grupo Modelo, has long been exporting its wares abroad. Corona extra, one of Modelo’s most popular brands, sells strongly in the US but also in places like Hungary.

Not the only one with money to burn

It’s not merely bread and beer which are developing a Mexican taste. Cemex, a large cement producer, has grown from its Monterrey base to be one of the largest producers globally. A recent acquisition of Rinker, an Austrailian cement materials firm, for £15.3 billion has added to its global credentials.

What does Mexican beer, bread and cement all have in common?

The decision to expand a firm’s operations abroad often stems from a mix of opportunity and necessity. This doesn’t seem to apply to the likes of Cemex. The firm has a 35.7% operating margin in Mexico and a paltry 0.2% in the U.S. Bimbo doesn’t fare much better; a 9% Mexican margin is eroded to 2.7% in the U.S.

What allows these firms to expand is their dominance at home. Grupo Modelo holds over 60% of the beer brands Mexican’s are guzzling. Cemex and Bimbo hold over 80% in cement and bread.

Such control over captive markets provides the Mexican oligarch with security and room to focus on foreign expeditions without worrying about pesky Mexican consumers. The recent strong performance of the Mexican economy, growing at around 4% annually, has further lined the pockets of such firms.

The Reconquista excites many in the country as it is seen as about time Mexico exerted itself on those across the border. Yet the strategy of expanding with low margins abroad, whilst protecting entrenched monopolies at home, is likely to benefit foreign consumers more than Mexican ones. 

Wednesday, 1 August 2012

Électricité de France (EDF)

The state backed behemoth that is shaping the nuclear industry

When E.U heads’ of state promised to reduce carbon emissions by 80% by 2050, the world seemed a more agreeable place. The dilemma now flaring up between nuclear, wind and fossil fuels has left some wondering how the E.U intends to keep the lights on.

One company which will shape the nuclear future is the French state colossus, EDF. The company owes its origins to a nationalisation of over 1700 energy minions by the then industry minister Marcel Paul. The French government used the firm to drive an economic revival following WW2. It has been of “strategic” importance ever since.

However, beginning in 1999, the firm has gradually been exposed to market forces. EDF was compelled to share its monopoly over French energy markets, ceding 20%, under the instruction of the E.U commission. This was followed in 2004 by the floating of a 15% stake in the firm on the CAC 40. (See graph)

Chart forElectricite de France SA (EDF.PA)
Just  Fukushima and the Eurozone?

Private investors have been unimpressed. From a high of €80 the stock has dwindled to €16 today. Mr Porgolio, group CEO, cites the Eurozone debacle and Japan’s Fukushima disaster as drags on performance. This has some substance to it, Since Fukushima, rival firms’ stocks have also plummeted, yet EDF leads the pack in poor performance.

The nouveau président français may have something to do with this. Prior to the election, François Hollande promised to cut nuclear energy dependency from 75% to less than 50%. Yet on arrival to the Elysee Palace this has become more an “aspiration” than a “policy” as Monsieur Hollande seeks to grapple with réalité.

Policy or not, Hollande is not Porgolio biggest fan. The EDF CEO campaigned rigorously for the now departed Sarkozy and slapped down Hollande’s energy plans as “unrealistic”. Rumours have sprung up suggesting Porgolio may not see out his 5 year term to 2014.

The double edged sword for EDF is that it exists at the behest of the French government. The firm advanced in the 70s as France looked to reduce its exposure to oil price volatility. Its fortunes may now turn the other way.   

Don’t write nuclear or EDF off just yet   

Just as Hollande begins to grapple with the practicalities of government amidst the see of promises he made in opposition, so the UK coalition are waking up to the implications of their own green energy promises.

The Liberal Democrats have long modelled themselves as the clean energy party, and the Conservatives have played up their green credentials, yet their coalition is looking likely to commit the country to a new era of new nuclear power stations. The Hinckley point plant in Somerset next year, should a deal with EDF be agreed, will be the first since 1995.

EDF UK head, Vicent De Rivaz, sees the Somerset deal as crucial to the group’s attempts to diversify from French income dependency and the UK government’s efforts to move away from fossil fuels.

Still, the plan could go awry. When the Blair government announced its commitment to new nuclear, energy back in 2007, energy giants boasted they could build without any sort of subsidy. This now looks misguided as additional safety costs following the Fukushima disaster are driving up the cost of nuclear. A look across the channel reveals just how costly it may turn out to be. Flamanville, the site of a new nuclear plant managed by EDF, has run over budget, by around double, and time, by over 4 years. This hardly bodes well for the new nuclear revolution.

It is therefore unsurprising that not many firms are willing to get involved in British nuclear renovation. EDF and Centrica, a rival firm, are now the only two companies willing to part with capital. Hence the government is trying to concoct schemes to tempt investment. The latest idea is a “strike price” for the price of energy per megawatt hour (MW/H). Essentially, the government would subsidies firms if the price of energy were to fall below the agreed price.

EDF agree in principle to this pricing strategy, but not in detail. The current price of energy stands at 41 MW/H. EDF is hoping to get a strike price of potentially over £100 MW/H. Given that offshore wind generation comes in at around £130 MW/H some are wondering whether the government should bother with nuclear at all.

EDF also faces grumbles from its UK customers. The firm was recently fined over sales practices to the tune of £4.5m. Customers on This Is Money, a popular consumer finance website, rate the firm bottom of the big six for customer service every year. With energy bills shifting from £422 in 2004 to £1258 today, expect many more irate consumers.

Like its main backer, EDF suffers from large debts and low productivity. Some are hoping nuclear will make a comeback in a more efficient form. Whether it does, is partly down to EDF. 

Friday, 27 July 2012

Racing for growth

A trade surplus in car exports bodes well for Britain

The XF Sportsbrake is Jaguar’s new ‘Tour De Force’. The new estate can be seen running parallel to this year’s Tour De France winner Bradley Wiggins on his quest for the yellow jersey. The estate is the latest in a range of fancy new jags to be produced at the Castle Bromwich assembly centre in Birmingham, shepherding in an extra 1000 jobs.
Jaguar XF Sportbreaks
The Tour de Force Jaguar  follows Wiggins 
Jaguar Land Rover (JLR) isn’t the only one revving up their UK operations. Nissan and GM are both upping their capacity, expanding their Sunderland and Liverpool plants respectively.

This accelerating sector of the UK economy exports some 80% of its wares. This has helped rein in a whopping automobile trade deficit of £7.5bn in 2007, and even produce a small surplus of £212m today. 

This reversal in fortunes is now being touted by Britain’s Prime Minister, David Cameron, as a symbol of UK manufacturing prowess. He may like to thank India’s Tata group or Japan’s Nissan for it.

A couple of decades ago the car manufacturing industry stood for something rather different. Plagued by shoddy design coupled with a overpaid and pampered workforce, the assembly line was more likely to be run by shop stewards than managers.

If car manufacturing was a UK symbol, it was of “British Disease” typified by Triumph’s Speke plant in Liverpool, notorious for its poor quality and a combative unionised workforce.

Today Liverpool’s automobile industry is shifting into second gear. A far cry from the 1980s, JLR are expanding their Halewood plant to make room for more Range Rover Evoques. This was the same factory which made the dull Ford Escort in the 90s and was almost closed at the turn of the millennia.

Britain’s car industry owes its renewal to foreigners. Not only does the UK sell over 1 million of the 1.25 million it produces to them, the firms which have rejuvenated Britians bumbling brands hail from Germany, the US, Japan and India.

Tata and Toyota are just two of a menagerie of foreign firms which now dominate the British automobile industry. While doing wonders for operational efficiency, many have kept the British allure. BMW continues to make hay with the Mini brand, squeezing out efficient motors while maintaining some sixties charm.

Car Manufacturers’ are often said to be representative of the wider UK economy. In the early 1980s a sclerotic industry needed a total revamp much like the overburdened state. In the boom years of the later 2000s, excessive deficits in the automobile trade demonstrated how Britain had failed to keep pace, importing German motors, living on borrowed money and hiding inefficiencies behind superficial growth.

The industry now finds itself shifting from a trade deficit to a surplus as despite the shadow of the Eurozone; sales are up in key emerging markets such as China and India. UK PLC will be hoping that the car industry will once again prove to be a reliable barometer of British economic fortunes. 

Wednesday, 25 July 2012

UK Dairy farmers squeezed as the global market price for cream hits a new low, exacerbating local problems.

Tanking wholesale cream prices hit a $1020 low from their $1800 peak

Not many industries display the friction between global markets and local practices as plainly as the UK dairy market. Processing conglomerates and a small set of supermarkets purchase vast quantities of raw and pasteurised milk from a widely dispersed group of dairy farms. Arla foods, a milk processing firm, source raw milk supplies from over 1400 local providers.

British farms have become increasingly inefficient relative to American peers

This large but diffuse group of local farmers is now under stress from a menagerie of factors. Weak bargaining power, inefficient production methods and a tanking world market price for much of their produce has culminated in many British farmers losing out on every litre of milk produced. Dairy Co, a trade body, prices the cost of production at 30p a litre while the average price the farmer gets is thought to be nearer 25p.

The burden cannot squarely be placed on powerful buyers. The price of cream globally has plummeted from its high of $1800 in June 2011 to a new low of $1020 as recession weakens demand in previously buoyant emerging markets such as China.

Cream is particularly prescient for the dairy farming industry as the high demand for this more lucrative commodity allows farmers to offset losses from the falling price of milk. Due to the steep fall in cream prices, processing firms are keen to pass further losses down the supply chain to dairy farmers.

These global forces are exacerbated by local inefficiencies. Eastern European and US farms typically operate on a much larger scale. This allows them to benefit from economies of scale, better technology and greater bargaining power. By contrast, British farms operate on a much smaller scale making production inefficient relative to US farming behemoths. 

Changing industry dynamics favour consolidation as larger producers are more capable of dealing with increased market volatility, whereas smaller farms find it difficult to cope with even small falls in prices.

Yet there remain significant disagreements in Britain over how dairy farms should be structured. The agriculture secretary, Caroline Spellman, has made calls for a “fair price” for farmers. However with global prices falling it is unclear what this will mean.

British farms operating with a small herd of cows tend to produce at a cost level above what is now seen as globally efficient or profitable. This has been apparent in the number of small farmers leaving the industry. Over the last 10 years, the National Farmers Union (NFU) reckons that 40% of small dairy farms in the British Isles have become insolvent.

Milk prices will continue to be a sensitive issue as farmer protests in the UK tend to attract public sympathy in a way which is likely to spur jealously amongst passport control officials. With the Olympic opening ceremony due to commence Friday 27th, ministers will be hoping for a quick resolution to the latest milk price protest. 

Tuesday, 24 July 2012

“Turn these games into gold”, maybe for the IOC Mr Cameron, but not for Britain.

When Britain first held the Olympics back in 1908, the event was of a more modest sort. White City Stadium was chosen in Shepard’s Bush as the Franco-British expedition offered to fund the event in return for 75% of ticket revenues. Needless to say, the Chancellor of the Exchequer was not contacted.
The only people certain to profit from the Olympics, The IOC
With a government budget of £9.3 billion, the modern day event bears little resemblance to its humble origins. Prime Minister Cameron has promised to “turn these games into gold for Britain”. While the games are likely to bring the spotlight to Britain, it’s not entirely clear they will bring much else.

Some argue that the velodrome or the aquatic centre will pay off long term, this looks misguided. While the swimming stadium is impressive, the people of East London don’t really need an Olympic pool, they’d rather a couple of splash pools for kids. Those mass stands look equally suspect; swimming isn’t really a spectator sport, especially not in Stratford. With a price tag of £269 million, the aquatic centre hardly looks a bargain, indeed it is emblematic of the whole games: immense and exuberant but ultimately inefficient and exorbitant.

Still, the payoff to the International Olympic Committee (IOC) is assured. The emphasis on amateurism allows the committee to get their main product for free; athletes. Rather than be paid, athletes merely receive a medal and a bouquet; and that’s the lucky ones, most go back to fairly innocuous lives, not much bettered by the games.

This amateurism, coupled with distaste for ‘crass commercialism’ has given the games a hint of exclusivity which has served the IOC well. Big brands aren’t allowed to blemish the arena, hence they advertise frantically outside, providing the IOC with a great marketing tool. Yet it is unclear how the barrage of branding facing the consumer, from washing tablets to fast food, is entirely related to the Olympics or of any clear benefit to anyone other than the IOC.

When Mount Vesuvius erupted, Rome was in no position to host the 1908 Olympics; Lord Desborough, spotting an opportunity, made the offer to host the Olympics in London. Like his counterpart today, Desborough had some luck and showed certain ingenuity in getting the Olympics to London.

Desborough saw the games as a place where nations could compete in place of the battlefield. His legacy was sadly scuppered by the more tragic events that followed; he became disillusioned with the whole movement.

Lord Coe has shown equal cunning and serendipity in bringing the games back to London. Yet his hopes for an Olympic rejuvenation of Stratford looks like another legacy which may not stand the test of time. 

Monday, 23 July 2012

Coconuts and subways

Running a business in times of uncertainty can have its benefits

Businesses need to plan for uncertainty; however they shouldn’t be so concerned with predictions. Large firms have scores of economists and statisticians analysing data, busily trying to forecast events. It seems that the more uncertainty is created, the more experts seek to predict. Yet one struggles to see a positive correlation between proliferation and prescience.

A benign coconut event for its founders

Indeed, it is during times of uncertainty that experts begin to get things quite wrong. Public statements from the IMF back in April 2007 reckoned, “not withstanding the recent bout of financial volatility, the world economy still looks well set for continued robust growth in 2007 and 2008”.  By October 2008 this had changed to, “The world economy is entering a major downturn in the face of the most dangerous financial shock since the 1930s”

The IMF is not alone in their flimsy forecasting; individual businesses are equally shoddy. Google for instance tried to sell itself for $1.6m in the late 90s. This would have been a shame, the firm’s now worth around $230 billion.

The credit crunch and the rise of Google are what Insead’s Makridakis calls ‘coconut events’, rather than ‘subway events’. We are terribly good at predicating the latter and hopeless at the former. The analogy comes from a man who predicts how long it will take him to get to work via the subway. The times follow a normal distribution and hence the average journey on any given day can be estimated.

Coconut events by contrast are unpredictable. The same man whilst on vacation is struck by a coconut; such an event is unpredictable like the rise of Google or a major economic downturn.

Humans struggle with this type of event. It prevents key decisions from being made; it can scupper even the most reasonable investment decisions. Hence, we see businesses sitting on piles of cash, factories running at maximum capacity and workers taking on overtime all while the unemployment rate rises and the purchase of new equipment remains shelved.

Yet this is making firms more efficient whilst opening up opportunities for the brave. Since 2008 businesses have been doing more with less and corporate profits have been up at firms like Volkswagen and Pirelli. These companies are supposed to be struggling with Eurozone uncertainty, but instead have used a weak euro to their advantage.

Businesses should get used to it. Rather than trying to predict the future, they should become adaptable. This will happen anyway as those companies which make the investment in spite of uncertainty reap the benefits over timid competitors.

The Eurocrisis can no longer be blamed, it has become the norm; those operating within the zone should look to Germany’s Mittelstand or France’s luxury consumer firms. Sections of the Eurozone economy are prospering.

Forecasting is a mugs game, planning for uncertainty is not. Predicting the next event is fortunately impossible, it is the wonder of free enterprise that it adapts to such uncertainty while the central planned economy flounders. Firms should be flexible and ready to move, rather than trying to anticipate which coconut will fall. 

Thursday, 19 July 2012

Quantitative Wheezing

Division within the monetary policy committee (MPC) demonstrates the need for a different sort of stimulus

Counter factual arguments are a policy makers dream. Regardless of how dire the current state of affairs may be, just imagine if such assertive action had not been taken. This is the argument made in favour of another stint of monetary stimulus. Like the policy itself, the argument suffers from diminishing returns.

The Bank of England’s (BoE) statisticians reckon that the first round of quantitative easing (QE) raised GDP by 2%. Conveniently for the bank, we will never know if this is true, it is merely a complicated guess relative to a counter factual argument of how things might have been.

Still, there are two pieces of simple data not premised on econometric modelling, which should make one suspicious of the effectiveness of the latest round of QE. Since the BoE’s first round of stimulus back in 2009, bank reserves are up 58%. Yet lending has barely risen, up a paltry 0.2%. If ever QE did work, it was never reflected in increased lending to businesses.

This opinion is not limited to the blogosphere. Spencer Dale, the BoE chief economist is sceptical of another dose of QE, voting against the latest £50bn injection citing that the “conditions are not right” for more printing. Indeed the MPC was divided on the issue, with several key figures voting against the measure.

Two things can be gleaned from this. Firstly, that like everyone else, the BoE does not know what the correct course of action is to avert recession. Secondly, without confidence, banks will not lend to businesses no matter how much cash they are given.

The banks, fragile and anxious, borrow cheaply from the UK government; the UK government, delicate and nervous, receives cheap financing from the banks. The analogy of two drunks being propped up by one another is depressingly apt.

Osborne and Hester?
Stop Wheezing, start fracking

Fracking is the bane of environmentalists everywhere; it could be a boon for the UK’s economy and energy mix. Regulation prevents effective exploration of this lucrative market. It should go ahead with vigour. If the country is serious about rebalancing the economy, then this high tech engineering industry cannot be neglected.

Shale gas exploration could cause pollution, it may underwhelm, most importantly; it may fail to spur the economy.

Still, fortunately for your correspondent, the counterfactual, of how awful things would have been without such bold measures, can always be used in defence. 

Monday, 16 July 2012

Liberal Arts and the Art of Business

A new book by Philip Delves Broughton emphasises the simple logic of Peter Drucker

One sale leads to another
Today’s business world can seem focused on the minutiae, blindly pursuing seemingly important deadlines whilst missing the bigger picture. In many ways Drucker’s career was about bringing humanity and simplicity into the realm of management science. According to the great guru there are only ever two important aspects to business: innovation and sales. The rest is mere detail.

While the first of these is positively revered; the latter is often sniffed at. Broughton’s book, life’s a pitch, tries to fight for a noble view of the salesman. In a fashion reminiscent of Drucker, the author opts for engaging anecdotes rather than facts. Broughton draws on history and psychology to explain management puzzles in place of cold empiricism.

A young Drucker, attending a conference at Cambridge University delivered by the eminent economist John Maynard Keynes, quickly recognised he didn’t fit in with conventional thought.  “I suddenly realized that Keynes and all the brilliant economic students in the room were interested in the behaviour of commodities,” writes Drucker, “while I was interested in the behaviour of people.”  

This observation typifies Drucker’s view of macroeconomics: complex, impressive, but ultimately mistaken. Drucker felt that the macroeconomist didn’t incorporate the human aspect into his theories, hence making shrewd forecasting difficult.

However Drucker’s own prescience proved remarkably accurate on a number of fronts. The rise of the knowledge worker, outsourcing and Japanese industrial power were all recognised by Drucker in the 1950s. Instead of rigorous empirical analysis, Drucker drew on the simplicity of relationships. Consider his irrefutable logic on the rise of outsourcing:

As employees of a college, managers of student dining will never be anything but subordinates. In an independent catering company they can rise to be vice president in charge of feeding the students in a dozen schools; they might even become CEOs of their firms. If they have a problem, there is a knowledgeable person in their own firm to get help from. If they discover how to do the job better or how to improve the equipment, they are welcomed and listened to.

This demonstrates Drucker’s commitment not only to more efficient business, but to improving the lot of individuals by participation in capitalism. It is interesting that Drucker saw business as a noble enterprise whose main role was to serve its customers rather than make profit.

Though Drucker wasn’t fond of Keynes, another economist, Joseph Schumpeter had a lasting effect on him. A friend of Drucker’s father, Schumpeter introduced a young Drucker to entrepreneurship, a running theme throughout both men’s great works.  This helps to explain why Drucker saw entrepreneurship, simplicity and ‘real life’ examples as vital ingredients to a good business book. 

Broughton’s own work seeks to emulate this tried and tested formula, applying it to the salesman. Providing provocative anecdote rather than hard facts, the reader is introduced to the culture and historical perspectives of salesmanship. From classical Greece to medieval France, Broughton ties seemingly uncorrelated happenings.

Perhaps Brougthon’s greatest insight stems from his analysis of the resilience of the salesman. Given the choice between closing a sale 9 out of 10 times and 1 in 10 times, a salesman worth his salt would opt for the latter. Why? It is due to what Broughton terms, ‘the hero’s journey’. This is the battle that by virtue of wit and charm combined with remorseless energy, the salesman brings home the deal.

This refreshing take on the human psyche is reminiscent of Drucker. Business is often perceived as a hardnosed aspect of life, a necessity which needs to be carried out, but not something to enjoy. This somewhat British view of enterprise has become ever more entrenched since the onset of stagnation in the developed world.

Still, the cultural aspects of commerce are enlightening. From the negative sentiment surrounding the salesman to the engineer placed on capitalism’s pedestal. Drucker and now Broughtons’s, multi-faceted approach to the discipline of management not only makes for more interesting tales, but more insight.