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Showing posts from March, 2008

Have all the good economics stories been told?

I've just finished Steven Landsburg's book, More Sex is Safer Sex. I guess I had been led into an expectation of what popular economics books are like, by Freakonomics and by Tim Harford's two recent books, The Undercover Economist and The Logic of Life. And my expectations may not be a good basis on which to judge a book. Still, I suspect many readers may have a similar measuring stick. So I expected a series of unexpected results based on interesting research by contrarian economists.

But perhaps the well of real experiments has run dry. Because what we get instead is a lot of thought experiments. The economic theory is mostly conventional but Landsburg takes it to its logical (and unconventional) conclusion by advocating fully free market solutions for many social ills.

Amusing and thought-provoking to an extent, but ultimately I'm left with the feeling of having consumed a calorie-free intellectual meal. We know very well that few of these solutions will ever be adop…

Budget, competitiveness, and SMEs

Last week the CBI suggested that the way to fix the UK's "uncompetitive" economy is to reduce corporation tax from 28 to 18%. Economists might be surprised to hear that a tax on returns to capital investment is meant to have an effect on productivity and boost economic growth; but that is their thesis. Perhaps, to be fair, it would encourage an incremental increase in total investment across the economy, which should bring increased returns to labour productivity - but only if the returns are very marginal indeed will a 10% change in taxation on the profit make the difference between investing and not.

The evidence for the UK's decline in competitiveness is that India and Russia have now overtaken it in a survey of investor preferences by Ernst and Young. Surely there are bigger trends responsible for that change than the UK tax level?

Tax arguments in general are very weak grounds for talking about economic growth and business performance. It reminds me of the old IR3…

Unusual structures for professional services

In my last article I looked at typical structures for professional services firms, and why you would want an explicit structure at all. This time I’m examining some less common structures, which nevertheless work very well for some of the firms that have adopted them. Each of these is based on a specific company that we work with, so we know that these models can work in practice.
Bespoke consultancy with process-driven unitsBespoke consultancy with product joint venturesFully productized firmBespoke consultancy with product-driven units

This firm has evolved from a consultancy providing expert services on a project basis. Having noticed that there was a high demand for a certain specific service, the firm made the effort to analyse the structure of the service and turn it into a standardised range of four products. Each of these can now be offered at a fixed price (with discounts for high-volume clients) and each of them triggers a particular well-documented process.
These processes div…

What is the best structure for a professional services business?

Most professional firms start out with one or two people. If they are successful in winning enough business they may take on more, whether another fee-earner, a PA or administrative person, an IT or other support person, and perhaps even someone responsible for sales or marketing. When there are only a few people in the company, the relationships and systems don’t matter too much – everyone pitches in and does their best to help the company grow. What’s important is cashflow, customer service, and the distinctiveness of the firm’s offering.
But as you grow to a team of ten people or more, it starts to become important how this group is structured. So what does ‘structure’ mean?

According to the dictionary it is:
An arrangement of parts to make a wholeA repeatable or standardised way of breaking down an object into its components
In a business that means:
What different roles are there in the companyWhat business processes do they followHow clear is the information that flows in and out of …