I remember an illuminating conversation with a senior executive of a recently privatised water company. I was puzzled that so many companies seemed to be able to issue peremptory edicts to their managers to reduce costs, or headcount, and see these edicts fulfilled. Could it really be that there was so much inefficiency and, to get rid of it, little more was necessary than to tell people to sort it out?
The person I was talking to explained that water supply was largely automatic. Rain fell, and flowed downhill, the water went through treatment works and along supply pipes, all untouched by human hand. Most people were at the company to stop things going wrong, or to fix them when they did.
The system could always operate with fewer people. In fact, if you sacked the whole workforce, except for the billing staff, profits would soar and everything would be fine – for a bit. Over time, however, problems would first accumulate, then emerge. My informant predicted that his company, in common with its rivals, would engage in successive rounds of efficiency savings, and be congratulated by analysts and regulators. Eventually, he predicted, there would be a big problem – or several. Then politicians would compete in the vigour of their denunciations. Money would be thrown at the problems. He hoped he would have retired before this.
