Death by accountancy

2009

MFI used to be a household name furniture and kitchen retailer in the UK. But in November 2008, it was placed in administration and closed all its 111 stores a month later.

Yet it wasn't the recession that killed MFI. It's death warrant was signed by its own executives in a restructure some five years earlier. Like thousands of other companies, it has been killed by the absurd pretence, cemented in MBA orthodoxy, that a company consists of little more than costs and resources, and that people and skills represent the 'soft stuff'.

As we enter the 21st Century, with globalisation, easy access to market information, very high levels of automation and skills requirements, why are we persisting with a business model based on a 19th Century concept of the corporation, using a 15th Century invention (accountancy) as the principal source of business metrics?

Why are we persisting with a business model based on a 19th Century concept of the corporation?

In MBA case studies, demand is described in fatalistic or mechanistic terms, with no reference to the interaction between service staff and the customer. This filters through to the business pages. When MFI went under, the BBC website reported that 'the downturn in the housing market took its toll on demand for new kitchens and bedrooms. Sales had fallen in recent years due to competition from rivals such as Ikea.'

This is very far from the full story. As well as providing misleading indicators, and hiding the causes of business dynamics, accountancy and MBA-speak also create the lexicon for euphemisms and excuses.

In truth, the company was destroyed by a cost-reduction programme that took no account of staff skills and customer service. Take this quote from a customer on a website: "My bedroom furniture is now finally finished. It took five months of constant effort from us; the local store had no ability to return calls, or indeed do what they promised they would do without being repeatedly asked to do it ... Please, anyone who reads this, please, please, do not buy anything from MFI."

How do I know that this complaint is genuine? Because the same thing happened to me. And to hundreds, perhaps thousands, of others. At one point, BBC5 Live's consumer programme dedicated a regular section to complaints of delays from MFI.

When I asked the delivery guys why they had delivered the wrong items for our kitchen – again – they shrugged their shoulders and said: "It's nothing to do with us – take it up with MFI."

They were external delivery companies, hired by the retailer, with little training or commitment to deliver the service required. The store manager explained that an automated, centralized dispatch system, with outsourced van drivers, had replaced a system in which the local store took responsibility for deliveries.

On the finance director's desk the plans would have looked like a dream: a text-book case of streamlining and efficiency. And had someone, back in 2003/04, raised the point about training, staff engagement and customer service, doubtless there would have been a patronizing rejoinder not to bother the grown-ups with concerns about the 'soft stuff'.

Human capital indicators such as staff turnover, employee engagement, staff skills, and so on would have raised red flags very early in the reorganization process, had they been used by MFI, and alerted senior managers to the serious risks to customer service. Yet still, I am told that such matters are 'soft' optional extras; some sort of indulgence to satisfy the HR department.

Nearly all mergers are (mis)managed in a very similar way to the MFI fiasco, with employee skills and engagement relegated to the post-deal phase and overseen by relatively junior managers.

Will we ever learn? Is there even an awareness that learning needs to be done?

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About The Author

Philip Whiteley
Philip Whiteley

Philip Whiteley, co-author of the Radical Shift blog, is a journalist specialising in management, particularly the areas of leadership, motivation and strategic human resources. He is also the Chairman of the Human Capital Forum.

Older Comments

As a former employee of one of the mfi delivery contractors, i take issue with the comments relating to delivery within this article. MFI were dogged by major supply chain issues, be it by the introduction of SAP order management in 2004/2005 or more recently their inability to pay suppliers and subsequently source goods. The home delivery contractors were responsible for delivering the goods that were picked and loaded by MFI- there is nothing more difficult for a home delivery company to make a delivery where goods are missing or incorrect that they had no control over. Delivering a service in this respect is only possible if the goods are available and correct, that is not the fault of companies that worked day and night alongside MFI during both the peaks and the downturns and many of which are subsequently in administration as a result of non payment by MFI. The root cause of MFI's demise is the mismanagement of the company; why does a business have the overheads of 200 plus stores when IKEA have 17 stores across the UK?

delivery co

I was employed by M.F.I. since the mid 1970`s and left two years ago as I would not sign a new contract that would have an adverse affect on my terms and conditions of employment,presumably to make the company a more tempting purchase for the people who drove the final nail in the coffin. everything in this article is spot on.The really ironic part though is that is exactly what the staff at the retail sharp end Have been saying for years,from the top salespeople down to the store cleaners'and many,many customers!'although most of the retail middle management gave the impression of utter loyalty to the board,presumably through fear,as most of them gained their positions during the days when the job consisted of little more than ordertaking,and ensuring that not too much stock was stolen.

a.l.hatfull south devon

I appreciate your bringing up this point that is not commonly considered--that the rules for accounting that we use in the 21st century were created in the time of Christopher Columbus and remain essentially unchanged. Questioning the assumptions that have undergirded business decision-making for so long is essential, especially now as economic institutions are failing. I found Marjorie Kelly's book, The Divine Right of Capital:Dethroning the Corporate Aristocracy, full of ground-breaking (even alarming to some) ideas for rethinking corporate structures and groundrules. You pointed out that employee development is commonly relegated to the realm of fluffy stuff according to the traditional 'rules.' You might enjoy my post, 'Soft Skills'Call Them What They Are' at kathleenparis.com/.

Kathleen A. Paris, Ph.D. Madison, WI

“Think of markets as three overlapping circles: Transaction, Conversation and Relationship. Our financial system is Transaction run amok. Metastasized. Optimized at all costs. Impoverished in the Conversation department, and dismissive of Relationship entirely. We’ve been systematically eliminating Relationship for decades, excluding, devaluing and controlling human interaction wherever possible, to maximize efficiency and mechanization.” - Doc Searls, co-author of The Cluetrain Manifesto (Markets are conversations).

Leon Benjamin London

In my book 'The Manager's Indispensable Guide' there is a quote from one of my mentors who said 'Costs can be reduced to the point where there is no need for revenue.'

Check me out at www.TrainerMort.com.

I look forward to hear from you.

Mort Teisch

Mort Teisch

Thank you for all your comments. I think I owe an apology to some of the MFI delivery companies, who were not always themselves handed the correct items. This revelation, however, only serves to underline my central point: that it is skills and relationships throughout the supply chain that determines the quality of service and health of the business - not the arid and frankly euphemistic language of accountancy and MBA-speak.

Philip Whiteley UK