Death by accountancy

Jan 09 2009 by Philip Whiteley Print This Article

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 Ė again Ė they shrugged their shoulders and said: "It's nothing to do with us Ė 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.