Failure by consensus

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Before ITV Digital, there was Taurus, EFTPoS and BSB. Each of these schemes failed because the problems of decision making and responsibility in industry-wide schemes was not tackled successfully.

The collapse of ITV Digital is another victory for Rupert Murdoch. It is a replay of a bigger victory a decade ago, when British Satellite Broadcasting collapsed after only six months of operation.

Like ITV Digital, British Satellite Broadcasting was a consortium of established media interests (including Pearson, owner of the Financial Times). Mr Murdoch’s Sky Television was an unlicensed entrant to the market, benefiting like so many other businesses from the accommodating regulators of the Grand Duchy of Luxembourg.

BSB was the British government’s candidate. To secure this official favour, and to meet the varied requirements and objectives of its members, British Satellite Broadcasting emphasised its advanced technology, the quality of its programming, the inclusiveness of its offers.

But to prepare the best takes longer than to prepare the merely adequate. And it takes much longer to steer a project through a committee than to make a decision in News Corporation. British Satellite Broadcasting might have had a better product than Sky – but it was late. The consortium did not manage to get anything on the air until spring 1990.

By then, Sky had covered the nation with satellite dishes. You needed another device – the squarial – to receive BSB programmes.

And as it became clear that the battle would be bloody and expensive, the consortium had another disadvantage.

A platoon governed by democracy cannot be braver than its most timorous member. The consortium became unstable as its fortunes faded. BSB programmes were on the air barely six months before the surrender was agreed.

While media businesses were collaborating to produce satellite television, financial institutions were collaborating on Taurus – the planned electronic settlement system for the London Stock Exchange. Well, it was not just financial institutions, and it was not exactly collaborating.

It would take a full page of the Financial Times to list interests that needed to be placated and demanded to be represented. The registrars feared that a centralised computerised system would put them out of business. Listed companies wanted to make sure they could find out easily if arbitrageurs were on their share register. Private client brokers wanted to protect their customers’ rights to hang share certificates on their walls and make cheap crossings on the English Channel with their concessionary shares. The government insisted that communications should be as secure as the Government Communications Headquarters and investors’ funds as well protected as the gold in the Bank of England.

And so it went on. And on, and on, through interminable committees and working groups.

In 1992, when the planned implementation date had passed, a consultant’s report explained that making the system work would take another four years and double the cost. At this point, the stock exchange abandoned the project and its chief executive resigned.

The Bank of England took the lead in designing Crest and told the multiplicity of interests to like it or lump it.

The financial services industry had already had a similar experience with Eftpos – electronic funds transfer at point of sale. In the early 1980s, banks attempted to agree common procedures for electronic processing of plastic cards. Retailers were miffed at being left out and several government departments wanted to express their views. Each bank wanted to advance its competitive position while establishing a common platform.

By 1986 several other European countries had functioning card systems. But Britain had only committees.

The solution was to establish a taskforce to construct another gold-plated system that reconciled all conflicting interests. Eftpos was to be permanently online, universal and virtually fraud-proof. It was to be rolled out experimentally within two years and nationally thereafter.

It wasn’t, of course. The first pilot projects began in 1990 and by then individual banks, frustrated by lack of progress, had launched their own proprietary systems. Like British Satellite Broadcasting, Eftpos folded within a few months.

There are two common elements to these failures. One is that consensus is achievable only if there are shared interests. People have reason to compromise only if failure to do so means others will proceed without them. This is a frequent problem for consortia and often an intractable problem for attempts to implement new technologies and products through industry-wide agreement.

Second, decision-making is usually better and always faster where there is a clear line of responsibility. Taking the decision is often more important than the decision itself.

British Satellite Broadcasting and Eftpos were good systems; the central cause of their failure was that they were too late.

One’s best chance of taking others along is to be prepared to move without them. And one can make effective decisions only with a single chain of command.

President George W.Bush may not know much about these episodes of business history. But they are lessons he nevertheless seems to have taken on board.

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