And the problems are only going to get worse. The new postal services regulator, Postcomm, has put a freeze on postal prices while it decides whether Consignia is efficient. And theres a very real possibility that come next April (2003), the cost of mail will actually come down.
Competition will also intensify. Six new licences were issued by Postcomm last March. And competition wont be confined to UK-based start-ups; German, Dutch and French postal services have also made inroads into the UK market. Oh, and theres the small matter of email, which is expected to cause mail volume growth to slow or even shrink, despite the boon of direct mails burgeoning business.
With mounting pressure from the Government to get its act in order, Consignia announced a 1.2 billion cost-saving exercise in October 2001. But attempts to hack costs will not be easy. A national strike over the loss of up to 30,000 jobs was only narrowly averted in December when management climbed down over certain proposals. Evidently, management sees the possibility of a national strike as the final nail in its coffin.
There are many reasons to explain the current predicament. The problems are medically multiple, according to Bill Weinstein, professor of international business at Henley Management College (and a consultant to Consignia). When the pancreas goes, so do the other organs.
Many of these problems predate the Consignia charter of March 2001, when the Labour Government turned the old Post Office into a wholly government-owned plc in one of its trendy new public-private partnerships (PPP).
The biggest barrier to change is the culture, the shielding forces of a public-sector monopoly having encouraged the status quo, and focused the frame of reference on internal issues and hierarchies.
The history of conflict with the unions is also a lengthy one. It was the national strike in 1973 that gave birth to the courier business. At best the union, the CWU, can be described as conservative; at worst there is an activist element within it which brings to mind the hidden agendas of the late 1970s unions.
There is a flip side to this coin, of course, which says that management has failed to handle the unions, and that strategic and investment decisions have been either poorly conceived, or incompetently executed. Many believe that the management has given the old Post Office a smart new name, but has failed to change its thinking and its practices with enough speed and vigour. Others blame successive governments for their underinvestment in the business over the past 20 years. And even with its new commercial freedom, there is a cap on investment, so it cant even catch up.
There is also great concern within Consignia about the cherry pickers: Consignia believes that regulation and the framework for competition is too harsh and too sudden, with competitors lining up to cream off the high-margin business mail while leaving Consignia to pick up the costly remote delivery under the terms of its universal service.
And last but certainly not least among the major reasons commonly identified is the Push-me, Pull-you charter of Consignia. Many experts believe that the Labour Governments PPP is a confusing fudge, and that in attempting to be both a public social service and a profit-making commercial entity, Consignia is in danger of fulfilling neither role properly.
Many of the challenges facing Consignias HR departments will be familiar to anyone who has witnessed the privatisation of public-sector utilities (although technically, of course, Consignia has not been privatised).
Consignia must change the culture to engender an entrepreneurial, customer-focused, business environment. It will need to recruit and retrain staff to ensure that it is of sufficient calibre to tackle the challenges ahead. It must also support managements need to reduce costs by working with the unions to agree job cuts, new working practices and other terms and conditions.
So how is the HR team responding? Is it properly equipped for the job? Over the past five years, there has been a substantial reduction in HR personnel across the company. Today, there are 3,000 people working in HR, with plans to cut more. According to John Keggie, deputy secretary of the CWU, Personnel [at Consignia] is completely frustrated, because all the power now goes through the hawks at Consignia. Its always the financial and operational people coming first. Even if good ideas come through, theyre not taken seriously.
Others argue that its not a question of numbers but of focus. HR cant help Consignia out of its current hole, says John Smythe, chairman of communications and culture change consultancy Smythe Dorward Lambert. The HR culture is process mad. Its a contained culture, which looks to within for solutions. Thats not whats needed. HR has too much historical baggage to be the agent of change, adds a former management consultant to the Post Office. HR is backward-looking, because its managing relations with employees anchored in the past through collective bargaining. It has no history in getting the most out of people.
According to new group personnel director David Marshall, Consignia is addressing a number of these issues. First, its trying to take the nitty gritty away from the function so that HR is focused on the top of the pyramid.
Consignia is also bringing in new business and general management skills to the HR function as it seeks to align itself more closely with the strategic side. David Marshall was previously the finance director at Parcelforce; John Main, executive director of personnel at Post Office Ltd, was a general manager; and Jon Millidge, personnel director at Parcelforce, started life as an accountant and has also been a Post Office Ltd general manager. All personnel directors report to the divisional MD.
If HR is to succeed in supporting management objectives, of course, the support must be mutual, and none of these changes would be possible without the commitment of senior management. There is no HR director on the Consignia board, but Marshall is happy that the function is well represented at board level. As group personnel director he reports to company secretary Jonathan Evans, who came from an HR background. CEO John Roberts himself is a former personnel director. And other board members such as Jerry Cope, group MD of mail services, and Kevin Williams (logistics) grew up as operational general managers. Outgoing chairman Neville Bain even wrote a book on the power of people.
Two strands will determine the success of Consignia in the future, says Bain. Having the right plan; and having the right people in the right jobs, performing in unison. John Roberts [and the board] understands not just the IR aspect which is negative but getting the right people, and making sure they can communicate.
Weinstein believes that Consignia now has the right management team on board for the challenge. The problems cant be explained in terms of deficiency of strategic analysis or awareness. Nevertheless there is doubt, in certain quarters, that the current management team has the skills to implement them. One consultant we spoke to believes that. Its very tough to lead the revolution from within, and singles out Roberts, who joined the Post Office when it was still part of the Civil Service, as part of the furniture. Another former special adviser also believes that Roberts cant overcome his roots.
But wherever you stand on the calibre of the senior management, its clear that at a lower level, the cultural challenge is even greater. The Post Office has seen an endless stream of management consultants that goes back long before its recent rebirth, and many managers are reportedly cynical and suffering from initiative fatigue already. Says one former consultant, Many managers dont want a brave new world. Theyre five years from retirement. Its hard to break the mentality that despite the consultants, nothing ever changes. Change gets parked in the too difficult, or not today trays.
Consignia believes that to change the organisation, training will be vital for both managers and workers. On the management side, all top managers must now go through upskilling programmes with external training on communications, handling conflict, and a set of leadership competencies.
Whats less clear is the extent to which effective appraisal systems are in place. One of the key findings of the Sawyer Report, the results of a Government-commissioned inquiry conducted by Lord Sawyer, was the poor quality of middle and lower-level management in Royal Mail trouble spots. But one consultant believes there is a reluctance to take action.
It takes two years to get rid of people, so no one does it, she says. She also criticises the performance management process in general. The marks suggest that only 1% of people are less than good and everyone else is good or excellent. So why dont I see that when I walk around? That tells me theres an all the ducks are swans syndrome. Before you can get rid of the walking dead, youve got to identify the bodies. But they dont want to take on the unions.
Appraisal systems are in place across the company, although Marshall admits that some are not confronting the issue. He says that 180 reviews exist in many business units, and there are plans to roll out 360 reviews.
Some HR departments appear to have picked up on this with more alacrity than others. Its surely significant that its at Parcelforce the business unit that has been exposed longest to competition that most of what Millidge, its personnel director, calls radical HR initiatives are in place, including a behavioural feedback system, and strong review follow-through on managerial behaviour reports.
On the employee side, there are some massive training programmes coming through. Post Office Ltd has seen a 48 million programme to introduce computers in its 18,000 Post Offices, for which Mains personnel team trained all workers. At Parcelforce a new training programme for the introduction of hand-held computers was described by the drivers as the best ever, adds Millidge, who is also working on training sets associated with a pilot owner-driver scheme.
But its with the unions that the HR department can arguably play the greatest role in aiding management. They provide a massive obstacle to change. Theres a reaction to every change, says one personnel director. Even if industrial action is avoided the environment is threatening.
Some business units enjoy excellent union relations. Marshall notes: Weve worked very well with them at Parcelforce. But while there hasnt been a national strike at Royal Mail since 1996, a notorious statistic last year showed that industrial action at Royal Mail depot black spots accounted for 50% of all the industry-wide disputes in the country 95% of the action being unofficial.
This was the situation that prompted the Government to order the inquiry, conducted by Lord Sawyer. The Sawyer Report brought to light the sorry state of affairs in these black spots. The degree of local union involvement in the working arrangements of delivery offices and mail centres had plainly gone too far and had been an inhibition on necessary change. Union representatives did not attach any priority to the aims and values of the business and specifically to the need for change. In some cases, managers had ceded control of working practices to the union.
It was also discovered that the CWU could not control local level action. The union was described as increasingly anarchic. Even when changes were agreed at national level, they were not always accepted at local level and had to be individually negotiated. The attitudes of local branch officers were independent of, and often hostile to, the national union.
On the management side, it was no better. Managers were described as body watchers. Employees had to ask to go to the lavatory or get a drink of water. There was also a refusal to correct or punish unacceptable behaviour on the part of front-line managers. As to the overall culture, it was described as bullying and macho. Everyone bullies everyone else: senior managers bully junior managers; junior managers bully employees; employees bully each other.
Since the Sawyer Report was published theres already evidence of an improvement. At any rate, it led to a three-month ceasefire later extended for a further month which banned ballot actions on condition that no further revision be implemented to working practices which have not already been agreed.
Nevertheless, with 1.2 billion of cost savings to be made, the pressure is on to ensure union co-operation in deploying appropriate resources in each area of the business.
And co-operation from the unions will not be won lightly. The CWU does not acknowledge, even today, that there are too many people. Theres no way Consignia can stand 30,000 job losses, says the CWUs Keggie. Weve lost 20,000-30,000 already through efficiency measures. Ive been in offices the length and breadth of the country, and Ive never seen an office where there was a surplus of staff or staff that werent gainfully employed. They cant find enough staff.
Keggies only concession to the charge of overmanning is that at Parcelforce, theres an operational manager for every 10 employees. Parcelforce has outsourced so much, but protected its own patch, he explains. Significantly, these managers belong to the CMA union.
Marshall is currently working on a common redundancy package. Were looking to ensure we have an approach that deals with people fairly, and with respect. The fact is we wont have as many jobs as we did; but the corollary is to treat people fairly.
But its not just about job cuts. To convince the unions, the workforce must be deployed in new ways. One solution is to outsource non-core functions. A KPMG report for the Tory government in 1994 identified that 50% of services could be outsourced. But while some services (such as catering) have been outsourced, others including fleet management and HR itself have until recently been considered sacred.
Now under greater pressure, senior management recently tabled a proposal to outsource the fleet. Some argue that this change of heart has happened much too late. However, it was only on condition that this proposal be shelved until the CWU be given time to develop an alternative that a national strike was averted. We will not allow them to sell off parts of the Post Office that are integral, says Keggie, who describes the 360 million in savings as short-termism. When we had to hire extra vehicles [when the railways were closed down last year], 60% of the vehicles were faulty. Some might think its sentimental nonsense, but we are concerned for the health and safety of our members.
Another creative option, once again at Parcelforce, has been met by the union with a more favourable response, where mixed resourcing a mix of employed and self-employed drivers is now being introduced for the first time. Its the real key [objective], says Millidge. Every parcel carrier has owner drivers. The union has agreed to a pilot scheme that will convert 25% of drivers to self-employed status. Consignia eventually hopes to convert 75% of all drivers, but the HR department is handling this with deliberate caution, with pilot schemes and focus groups, backed up by a wide range of training, to ensure success.
Changes in working practices are also needed. The CWU insists its not averse to these. In the past two years, says Keggie, theres been 1,700 separate revisions to working practices. But these revisions are not necessarily accepted or implemented at local level. And even the most trivial and basic issues often have to be negotiated. At Post Office Ltd, for example, one consultant discovered that a directive to wear a name badge, and to smile and greet customers, were conditions of a performance-related bonus.
So, how can Consignia bring unions and workers along on terms that are favourable to the long-term future of the business? Its a question of building trust, says John Hart, HR director at Powergen: Getting buy-in requires very effective dialogue. And theres no quick fix. It took a year to build up trust [at Powergen].
Keggie insists the CWU is open to dialogue. We have a good track record of sitting down and working it out, he says. If we can work constructively we can meet the challenge. But before that can happen, Smythe of Smythe Dorward Lambert believes the internal symbolism needs to change. The union needs to have a strong sense that the enemy is not within. The management needs to create external demons and say, Lets line up our sights on DHL, Fedex, Deutsche Post. Equally, one might add, the Government needs to be absent from the list of management demons.
Bain believes the symbolism has already changed. Weve had our top 4,500 managers at a half-day seminar. Weve talked them through the new environment. A lot of people were thinking, The Government will bail us out; but it wont and I dont want it to. [Our feedback shows] thats well understood now; and its understood if not accepted by some of the top unions, who think this is privatisation by the back door. Says Smythe: Consignia needs to take the unions through their own how life could be better scenario, trying to imagine the future together.
Its in the area of pay and remuneration that perhaps the biggest disconnect exists. Its incredibly difficult to demand flexibility and creativity with complex, over-legislated pay scales, says Malcolm Higgs, academic dean at Henley Management College. If you want rapid reward and customer focus, you need a reward strategy that will support that. Another consultant adds, Consignia must focus on people performance. But performance-related pay is anathema to the CWU.
Its disappointing to report that the issue of pay scales appears to be relatively low on Consignias agenda. It was certainly a priority for Powergen, recalls Hart. We established an agreement with the union which was used as a model by the industry. We sat round the table with the union and created a framework which removed demarcations and provided the basis for continuing development.
But many believe that Consignias situation is more difficult, because its not just a question of negotiating with the unions but doing so within the framework of continuing government ownership. As a private company, share ownership, dividends and other bonuses would be possible. But as one management consultant says, The Government wants all of the commercial outcomes [of privatisation], but its not prepared to give it the wherewithal to make the transfer. Its still got all the public-sector trappings.
The missing ingredient in all this is a clearly lit path to an open market, and that is precisely what New Labour always fights shy of, says a former consultant, preferring instead a myriad of artifices (targets, regulators, surveys, partnerships, discussion papers) which are no substitute for red-blooded rivalry among well-matched competitors.
So will the HR department succeed in the cultural revolution? Theres certainly evidence to suggest that in its focus on higher-level strategic HR, it is making progress. But theres also evidence of residual fear. It took four weeks for Consignias PR department to agree to co-operate on this article. The story of the change and the need for it is surely better out than in.
But the biggest barrier to success lies not in the clash with the unions. Its the clash between public and private. And its not a pretty sound.
