Technology is going through a revolution. Will local government embrace the change or, like scientist Joseph Priestly, cling on to the old ways even when it is obvious they have become irrelevant.
Joseph Priestley (1733 to 1804) was one of Britain’s greatest ever chemists. He showed that air was a mixture of different substances, discovered a range of important chemical compounds and even developed the process for carbonating water used by Johann Schweppe. But he is mainly remembered for the one thing he got spectacularly wrong: his support for the ill-fated phlogiston theory.
The theory sought to explain why and how things burned and was widely accepted well into the second half of the 18th century. But, then Antoine Lavoisier developed the rival oxygen theory which subsequently proved to be the foundation of modern chemistry.*
The surprise isn’t that Priestley was a phlogistonist. Rather it is that he wouldn’t ditch phlogiston, even when confronted with overwhelming evidence that the theory just didn’t hold together. Phlogistonists, can I think, teach us something important about local government finance.
Revolutions
Thomas Kuhn in The Structure of Scientific Revolutions concluded that scientific progress is neither as linear nor as rational as we would like to believe. He identified periods of ‘normal science’ but also periods of revolutionary change when an existing paradigm is challenged by newer ways of thinking. A key feature of these revolutions is that many scientists hang on to old ways of thinking and refuse to move on.
Established and respected businesses have been caught napping by digital disrupters that have turned their business models upside down. Take the digital case study of your choice (Uber, driverless cars, the music industry, Amazon) and a pattern emerges that is eerily similar to that proposed by Thomas Kuhn for scientific revolutions:
Beliefs
So, what does this have to do with our role as finance leaders in local government? In short, everything.
Over the next ten years, technology will drive changes in the way financial services are provided that will far exceed anything we have seen to date. And if some of the great minds in scientific history and some pretty impressive businesses managed to totally miss the point during periods of great upheaval, perhaps we might too.
Furthermore, it strikes me that whilst we need to establish strategies and processes for digital transformation, none of this will deliver results unless we are able to change attitudes and beliefs about the way we need to work.
And on the basis that we need to start challenging our own thinking before we start to influence others, here are three questions to get you thinking.
Q1. What is your attitude to driverless cars?
A. It’s not going to happen anytime soon. People like driving and being in control. There are too many practical issues in the way. How will the issue of insurance be resolved? Will it be OK to have a drink when getting into driverless car? What happens when a human needs to take over? How can a computer make a choice between bad choices, such as crashing into a cyclist or a pedestrian?
B. It’s going to come sooner or later but (because of the practical issues) will take time and be mainly for the rich.
C. Bring it on. This will be a transportation revolution that will liberate both the old and the young. There will be no need to own your own vehicle and calling for a driverless car will be easy, cheap and reliable. Local government needs to start thinking about our response. We’ll need to make sure our infrastructure (road markings and drop off points?) are up to scratch. We’ll also need to think about what do with all those town centre car parks.
Q2. You’ve read that 95% of jobs carried out by accountants and auditors are likely to disappear. Which of these most closely matches your thinking?
A. All computers do is generate more and more complex information. Services managers will always need accountants to interpret financial information, keep them in line and dig them out of holes they create for themselves.
B. As we automate processes, we can streamline the back office and secure efficiencies, but a computer is not going to replace an experienced accountant with a respected qualification.
C. We need to seize this agenda. Compliance and audit checks will be carried out more accurately and more quickly by robots that will learn to identify patterns of unusual activity. Financial analysis and interpretation will be provided by artificial intelligence. We have to start thinking now about the people and skills we need for the future. In the short term we will business analysts and data scientists to help us automate and learn how to extract and manipulate data. In the longer-term our role will be about relationships and financial counselling.
Q3. Month 8 budget returns are showing an unexpected £10m overspend. At the same time an audit report tells you that 70% of budget holders don’t bother to access the budget monitoring system or update their monthly budget returns in the first six months of the year. What is your reaction?
A. Hit the roof. Services need to take more responsibility. They signed up to their budgets.
B. Deliver some training and then run monthly reports that identify budget holders who still don’t access the budget monitoring system. And then hit the roof.
C. Make the budget monitoring system focused on the needs of the customer.
Conclusions
Did you answer mainly A, B or C? You will have your own views on what this says about your attitude to the digital revolution, but for the sake of completeness here is my (very unscientific) evaluation.
Mainly As: you are the digital equivalent of a late 18th century phlogistonist. Early retirement?
Mainly Bs: you can see glimpses of what is coming, but you are still hanging on to the familiar. It’s time to expand your thinking.
Mainly Cs: you can see the possibilities that the future holds, but you can’t do it on your own. How are you going to bring others along with you?
Graham Liddell is Head of Finance (Technology and Process Improvement) for the Orbis Partnership.
* The phlogiston theory was based on the very reasonable assumption that substances burned because they contained something that enabled them to burn. This was called phlogiston (from the Greek, ‘burned’). Fire was created by phlogiston leaving the substance.
The theory provided a practical framework for some important advances in 17th and 18th century chemistry. However, it ran into serious trouble when the French chemist, Antoine Lavoisier, began weighing substances before and after combustion. He confirmed that many substances (such as wood) lost weight on burning. This was consistent with the theory that phlogiston had been absorbed into the air leaving behind a residue.
However, he also found that some substances (such as metals) some gained, rather than lost, weight. Lavoisier correctly concluded that this directly contradicted the phlogiston theory and that the weight gain was because something (oxygen) was being added to the burnt substance (eg to produce a metal oxide).
The phlogisonists couldn’t accept such a radical change and found all sorts of explanations for this anomaly, including the bizarre suggestion that in some circumstances phlogiston had negative weight.
