Housing Technology 2013

Attending conferences has a number of benefits, one of them is to give you a quick overview of what is happening in an area of activity so that you can assess how you compare with others. The fourth Housing Technology Conference in Oxford was no exception. It was interesting to speak to other delegates from housing associations to hear what they were engaged in, and reassuring to hear a familiar list of current IT projects. Mobile working, business information systems, customer relationship management (CRM) were the most mentioned. More generally there was a lot of talk about the increased importance of IT in a world where resources are declining. Automation of functions, channel shifting to cheaper, on-line transactions were much discussed. It was noticeable however that in most of the discussions of these things there was little little quantitative analysis. There was talk about improving the service to the customer with CRM and improving the efficiency of staff by having all the information they needed in order to deal with a customer inquiry accessible in one place. Prima facie this should raise productivity freeing resource to be deployed elsewhere or saved, but often this was left as a prima facie assumption rather than being specified in any detail.

Of all the sessions I attended, and I went to as many as I could, there was only one which had a very clear quantitative approach to benefits and measurable outputs and outcomes, this was the one done by Adactus. Ironically, it was not about the introduction of some new piece of IT equipment it was about deploying an Access Database to the analysis of cost and productivity. In essence it was about adopting the analytical standpoint of Vilfredo Pareto, the Italian economist and rigorously following this through. Pareto’s essential insight has become known as the 80/20 rule. This suggests that if you analyse data about costs you are very likely to find that 80% of your costs are generated by 20% of your customers. If you doubt this try analysing the most expensive 20% of your stock in relation to response repairs and see what percentage of the response repairs budget it takes.

Adactus set themselves the task of identifying who were their most expensive tenants. To do this they established an access data base and a mechanism for analysing costs to customers. Obviously, this dealt with response repair costs but it also got at other management costs including staff time to collect arrears, investigate anti social behaviour and so on. From this they produced a list of their 100 most expensive tenants each month. This provided a way of then more effectively targeting resources on what was generating the most costs to the organisation. Importantly, Adactus did not see these 100 tenants as their “worst” tenants. They were simply their most expensive and the cause of the cost might have nothing to do with the behaviour of the tenant, it may be about an unidentified structural issue with a property.

Not content with this Adactus went on to use the same approach to analyse the productivity of staff. Again, not using some sophisticated new piece of kit but with the same basic Access Database. Again, monthly information was produced about the productivity of staff based on measurable outputs giving an objective assessment which could be used in 1:1 meetings and annual reviews. Because the information was generated by a central team there was no question of managers bias or preference for some people over others. Objective data provides a fair and transparent way of measuring performance.

All of this activity was illustrated with examples of cost reductions and the overall impact was an improvement on the bottom line from c£1m profit to c£8m profit.

Now, it is of course a truth universally recognised that when projects are reviewed the positives are very much accentuated and the negatives are discreetly forgotten. Furthermore, it is not unknown for IT projects which fail to deliver their original outcomes to have these redefined and thus success is plucked from the jaws of failure. In the case of Adactus, a number of other things were mentioned as being implemented at the same time as the above, notably the establishment of a telephone based customer contact centre, with a programme of local office closures. These would clearly have impacted on the cost base of the organisation.

Having said all this, what was very impressive about the Adactus approach was that they had started with question, not a solution. Having set out the question they considered how to address it in the most straightforward manner using technology that has been around forever in IT terms. They used this to transform data into useful information about their cost structure and their productivity levels.

To date many organisations have used increasingly sophisticated technology to capture more and more data. Few have really made the next step to transform that data into useful information which can be used to drive the business. Adactus seem to have taken that step and should be applauded for it.

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End This Depression Now

Paul Krugman’s book, “End This Depression Now” provides a radical alternative to the present governments orthodoxy concerning the way to deal with the current economic crisis facing Britain and the western world. His prescriptions are part of a Keynesian critique urging government in the US to come forward to fill the investment gap that exists in the absence of effective demand. The orthodox view that austerity is the solution has more to do with misplaced moralising than hard analysis according to Krugman.

The book is worth reading not least for the clear writing style that Krugman has honed over the years as a commentator on the New York Times. His intellectual credentials are impeccable (2008 Nobel prize winner  in Economics) and his liberal values are worn openly, his column is called “The Conscience of a Liberal”.

The book is a polemic starting with a very clear call to arms when Krugman claims, “As a purely economic matter, …, this crisis is not hard to solve: we could have a quick, powerful recovery if only we could find the intellectual clarity and political will to act.” He argument is that the key issue is a lack of demand and the normal policy response to this, an expansion of the money supply or the “monetary base”, is not possible in the current circumstances. The reason for this is that we are caught in a “liquidity trap”. This is where the increase in the money supply is so great that it has pushed interest rates down to zero.

Krugman illustrates the problem in the national economy with the example of a babysitting club which issues coupons to its members. They get coupons when they babysit and pay them when they want a sitter from the club. The problem comes when all the members of the club want to hold a surplus of coupons. No one will want to “buy” babysitting time and therefore no one will be able to sell it. The baby sitting economy comes to a standstill. The same process applies in the national economy, “…the private sector, collectively, is trying to spend less than it earns,…”

Analysing the antecedents of the current crisis Krugman calls on the work of Hyman Minsky, an academic not particularly well thought of in his lifetime. Minsky’s “financial instability hypothesis” which analysed the pernicious effects debt could have if leverage levels became too high. Further, he had a view that this problem was not just something that could happen but rather something that would happen. In times of economic stability and growth people “forget” the dangers inherent in having too much debt. When the level of debt relative to assets or income becomes too great any problem leads to a need to deleverage quickly. Even in normal circumstances this can be painful but if an individual has too much debt and decides to, say, sell their house when others are not in the same problem, they have a chance of solving their problem. It may be painful but so long as the value of their asset holds up they have a possible way out. Where the amount of leverage in the whole economy, public, private and domestic is too high however, as soon as there is a problem, everyone tries to deleverage their position at the same time and a painful problem becomes fatal.

The combination of the liquidity trap with an economy which is over leveraged means that the normal rules work in reverse creating three related paradox’s according to Krugman. The first is the paradox of thrift. In circumstances of normal demand saving is a good thing in that it provides resources which can be invested in productive activities. But if everyone tries to save at the same time demand goes down and investment does not happen because there is no one to buy the goods and services being created.

The second , paradox of deleveraging is the one referred to above.  When everyone tries to get out of debt at the same time, rather than reducing debt, it actually has the effect of increasing it, the more the debtor pays the more they owe as the value of their assets collapses.

Finally, the paradox of flexibility, which is the universal euphemism for pay cuts. In normal circumstances the theory is that people can price themselves back into work by taking lower pay crudely. In circumstances where all try this the net result is lower pay and no increase in employment with the knock on effects of lower demand and greater debt.

In essence these circumstances create a fatal downward spiral of demand and investment which can only be broken if some one does the opposite of everyone else, i.e. spend and invests. The only agent capable of this is the national government.

Krugman’s book goes on to provides a succinct critique of how the deregulation of banking over the past twenty years and more has contributed to the crisis. He charts the growth of inequality in the states and how this has created a second gilded age for those at the top with concentrations of wealth not seen since 1929. The issue of income inequality is suggested as having had its part to play in the crisis in that it blinded policy makers and others to the risks of  deregulation. Krugman quotes a great line from Upton Sinclair – “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” Great line and so true!

Clearly, Krugman comes from a particular political position and depending on whether you are sympathetic or opposed to that position your response to this book will be more, or less positive. For me, it played to all my prejudices so I thought it was a great read, however its limpid explanations of complex issues is impressive whether you agree with them or not. Krugman has a great turn of phrase and if I was to have one criticism it would be that this occasionally makes what he says sound glib.  When you have only a passing acquaintance with economics it is difficult to judge, however, I prefer to think it is my understanding rather than his analysis  which is the problem.

End This Depression Now by Paul Krugman – Published 2012 by Melrose Road Partners.