Robert Heller tells the story of an unlikely phoenix which has turned conventional wisdom on its head.
In most privatisations, change of ownership has demanded massive changes in attitude and performance. At the Post Office, transformation - from ugly duckling to commercial swan - has already occurred. Furthermore, the Royal Mail, not content with leading Europe's postal services, is cheerfully pursuing far higher targets.
Few enough British businesses have world-best standards in their sights. Few have based sweeping transformation on a top-to-bottom revolution in quality management. For any company, the metamorphosis would be remarkable, but for an ancient nationalised operation to rise from the ashes of ill-repute and under-performance, stands conventional wisdom on its head. The transformation also weakens the argument for privatisation. Why privatise? 'No post office is in better shape', according to Bill Cockburn, who masterminded the revolution at Royal Mail and is now chief executive of the whole organisation (RM makes up 70% and Parcelforce and Counters the other 30%). What is lacking is 'the freedom to be more successful'. The corporation needs to escape from a public finance system that is 'very insensitive' to differences between spending income and investing capital, in order to be free to shape its future.
The vision does not stop at Britain's frontiers, or at carrying mail. In a global market, Royal Mail wants a large, growing slice of communications in any appropriate form - ranging from serving all the European postal needs of multinationals, wherever they operate, to taking electronic input from customers and producing hard copy for mailing. In theory, the organisation ought to have the freedom to follow this vision inside public ownership, but, given British reality, the umbilical cord may need severing.
This urge for new frontiers is not exactly common in British business. What lit the spark at the Post Office, which seemed much too shamingly soggy to catch fire? The answer is partly shame itself. The top management hated the awful reputation and the wretched performance that explained it - though both traced back to price rises and cost-cutting moves (such as stopping Sunday collections) that stemmed from misguided government controls in the 1970s. When, in 1976, the Post Office plunged into a world-record nationalised loss, it 'shocked the system', says Cockburn. Amid 32e 'huge discontent', the search began for ways out of a 'monopolistic, bureaucratic, operational culture... We had to work really hard to reform the place.' The initial payoff came relatively fast. Thanks to price rises and economies, the record loss-maker moved into steady profits from 1976. But Cockburn had identified demonstrable shortcomings. Royal Mail was growing, but its share of the communications market was declining. The letter-carrying monopoly was under threat - and still is, waiting on the privatisation decision.
Not surprisingly, Cockburn has strong views about that argument. Above all, he wants the post preserved as a unitary system. 'If you slice it up into lots of Balkan states, it could be severely prejudiced.' It is a network, not a chain of stand-alone businesses, and its £5-billion turnover is vulnerable to top-slicers - if they are allowed to compete unfairly: 'you don't have to be Brain of Britain to see where the profit is made'.
Royal Mail needs to preserve both the profit and the progress made since 1988. Then employee and customer dissatisfaction was all too explicit: employees were voting with their feet - one in six labour disputes in Britain affected Royal Mail, while customers made no secret of their dissatisfaction. At a meeting with the Mail Users Association, one large company complained that its first-class mail survey showed only 70% arriving the next day. Senior post managers argued sturdily with the company's statistics, saying, 'they're not in our data'.
One man who kept out of the argument was Ian Raisbeck. He had joined Royal Mail in September 1987, after graduating from Xerox Corporation's Leadership through Quality programme in the US. By 1988 he was leading Royal Mail's infant quality drive, to which delivery performance was plainly central. What was the truth? Raisbeck found that 'we measured from the point of time the letter was date-stamped to the point of time it was ready for delivery'. The time spent before stamping the post, and before completing delivery, was neatly excluded from the calculations.
Total quality hinges on finding the truth, the whole truth and nothing but the truth about present performance. That is achieved by establishing accurate measures of performance which can faithfully record meaningful improvements. It is not always easy to find either the accuracy or the relevance - but Royal Mail was exceptionally well placed to do so. A postal organisation, after all, exists to deliver letters. Reliability and elapsed time are therefore absolute measures of quality. Work began on an 'end-to-end' measurement system: it took 15 months to acquire valid data, which showed a 74% result; the 70% complaint, given interim improvements, had probably been correct. 'End-to-end', at a current cost of £6 million a year, is now deeply embedded in the culture.
The end-to-end story illustrates crucial aspects of total quality. First, that the new initiative originated from customers and resulted in a methodology based on satisfying their expectations. Many companies begin with problem-solving. Raisbeck believes this starts the process at the wrong end; he sees customer feedback as an 'important opportunity' - the improvement process at Royal Mail 'always starts with focus on the customer'. That way you avoid having two processes, with each possibly under-performing.
Second, that TQM is a progressive activity which must not be hurried. This need not mean long-delayed pay-offs: next-day delivery rose successively from 74.5% in 1989, to 78.1%, 85.5%, 89.8% - and now stands at 92%; while profits, £116 million pre-tax in 1988-90, have risen to £247 million. The quality programme was changing and evolving throughout this period. Thus, after end-to-end had become a factor in fixing management bonuses, it was joined by profit and later by assessments of both customer and employee satisfaction (unusually, these outweigh profit in bonus points).
The story also demonstrates the necessity of chief executive commitment. Cockburn recalls that the next-day revelations 'stung us into action'. Management applied 'a lot of ideas, energy and investment' (including use of air services, hugely cutting back BR and making point-to-point deliveries) to signal the need to change 'to the whole organisation'. Above all, improving its total quality had become imperative and here Raisbeck's appointment proved to be the catalyst.
He arrived, coincidentally, on the same day that another Xerox graduate, Sir Bryan Nicholson, became Post Office chairman (succeeded early this year by Michael Heron, from Unilever). The national strike that hit Royal Mail a year later starkly emphasised the need for greater employee focus in managing change. Employees took action over proposals designed to benefit customers - and over more pay. This time, instead of treating the issue as one of industrial relations, it was tackled as a matter of employee strategy.
The key meeting for the organisation's change of policy took place on 26 September 1988, when the Letters Management Committee agreed 'that Customer First (the total quality process for Royal Mail) describes the way of working that will enable the business to achieve its mission and objectives. The members commit on a team and individual basis to positively pursue all the actions necessary to fully implement the process.' The 17 people who took this decision included Peter Howarth. Then head of field operations, he is now Cockburn's successor as Royal Mail's managing director. The group had committed themselves to a programme of training workshops which would cascade down until they and their teams had all been trained; and to a lengthy haul - 'it will be between five and 10 years before we will be able to consider ourselves a mature organisation in terms of total quality and that very maturity will mean we constantly identify opportunities for improvement'.
It has been a long-haul business all round. Cockburn reckons it took over 10 years to recover its loss of reputation. A string of successes he loves to enumerate are: mail volume up 50% in the 1980s; prices 13% behind inflation; productivity up 25% since 1989 in a lagging service sector; and £750 million of surplus cash created. But good is not good enough.
'My job', says Cockburn, 'is to lift sights. The danger is mediocrity. We must set a new agenda for change.' The main competition is now electronic - 'every letter has a range of alternatives'. Royal Mail had to 'sign up' for productivity improvement, new technology and new products or 'go into spiral decline'. He is not gloomy about the prospects, though the 10 times larger US postal market shows what position mail can win in 'the communications menu of choice'.
The success to date means that 'you can sign up emotionally and intellectually to heroic goals. You can, in a curious way, demand even more.' Cockburn has asked a truly heroic question: 'Why don't we try to be world-class?' The business is the largest employer in Britain, and has the largest distribution fleet. Why should it not, in its major activities, become 'a beacon of best practice'?
The change, however, did not begin grandly. The reformers did not start by promulgating lofty statements about mission and values (though these were used in the workshops). The aims are now boldly displayed on the walls, but they seem perfectly reasonable. Had they been published immediately, says Raisbeck, 'people would have fallen about laughing'. They also took a conscious decision not to create a vision of the future until 1990.
'People would have said, "that's not us". They always felt that the Royal Mail was so special,' he explains. 'So a motor vehicle workshop would cost three times as much as a commercial one and take years to develop - it had to meet our special needs.' That nonsense brought home the need to understand the true meaning of quality, and how it goes to the heart of what an organisation does, why, and how. To find the what, answer the why, and improve the how, Raisbeck spent almost a year drawing up the quality plan, involving the senior management team, along with 200 others. That may not sound many among 180,000 employees, but a huge number of man-hours were nevertheless devoted to defining the crucial issues: such as what were the purposes of each of the management teams which drove the business, and what were their true outputs. As Royal Mail was 'forced to define' the tasks, and decide what areas had to be managed in an integrated way, the issue went far beyond narrow quality definitions, 'What we were talking about was a business strategy,' says Raisbeck.
Planning that strategy called for a minor revolution: 'In the early days, planning was regarded as something of a wimpish activity'. Head office consisted of 2,200 people (it now has a mere 160). They managed on a day-to-day basis, with all management processes linked to the budget. The reformers began again from scratch. The business teams had to define what they did as a team. That meant talking to customers, who quite often informed them that a particular service provided was not used.
Initially, 'we had to spend a lot of time on the top people', says Cockburn. Typically, there was an attitude of 'we're all right' - it was the others who had to change. But senior managers who 'weren't singing from the same hymn sheet' were converted into singing the same songs. A new, multi-disciplined management process was created in which horizontal teams did the work, 'instead of forcing everything up through one funnel'.
In achieving improvement, the network of Quality Support Managers created early on is 'still fundamental'. Each of the 85 teams was given a QSM. Raisbeck, for instance, is QSM to Cockburn's senior management group. Of these 'change agents', 75 were internal recruits, each given seven weeks' training. But the trap of building a quality bureaucracy was avoided: for six months Raisbeck worked single-handed; then he recruited three 34e others as management began to change - 'moving', explains Cockburn, 'in parallel with the quality work'.
There had been operational reforms before, but these had not improved measured performance. The reformers considered whether the problem might be to do with attitude. When this proved to be the case, the quality solution bred a virtuous circle. There was, understandably, 'lots of scepticism, suspicion and cynicism' at the start, but, as Cockburn points out, 'improvements breed successes, which breed better attitudes'. Five years on, the quality programme has reached the front line - 100,000 postmen and women. They are now 'consultants' in the task of improving working processes in small, voluntary teams with a real 'sense of ownership'.
One early improvement was to heighten people's recognition of the different ways in which the 64 district postmasters could operate. For instance, length of service bonuses were improved. Specific anniversaries were agreed, with any monetary rewards to be the same, regardless of status. The reward for 22 years' service, say, would be backdated to 20. The reform produced an astonishing backlog of 78,000 veterans.
It would have been tempting to rest on such laurels, but the same discontent that prompted Royal Mail's revival and then renewal remained alive and well. By December 1990, all seemed set fair. End-to-end delivery and employee satisfaction had improved markedly, while financial performance was far better. But Cockburn's own team had launched an improvement project on management process - and it found 'major inhibitors'.
In January 1991, he assembled the 30 top managers to discuss more massive change. They were shown one particular slide, which contained a host of total quality messages, all requiring new responses. A fundamental difference in approach re-sulted from the ensuing 16-month reorganisation. Out went the 64 postal districts. In came new groupings which took the 120 postcode areas and placed them in nine divisions. The astounding 90% cut in head office was part of an exercise that directly involved a thousand managers in focus groups. The strategy steering group met weekly during a process which saw 10,000 people go through 24-hour assessments. To illustrate the radical impact on people's lives, in April 1991 only seven managers knew what job they would have in April 1992.
In the end, numbers fell by 3,500, without compulsory redundancies; 20% of the white-collar jobs were lost. Restructuring went right to the top, where five top managers now have lead roles in terms of five key strategies - plus line responsibility for divisions. The upheaval could hardly have been greater. 'It seriously shook the culture,' says Cockburn. But nobody was allowed to use reorganisation as an excuse for failing to meet targets for return on capital (a 13% target which came in at 16%), end-to-end delivery, and costs.
'There was no glitch while we made the change,' says Cockburn, adding that this showed the 'fundamental resilience' of the business. The upheaval, he believes, resolved 'a disconnect' between the mission statement and the organisation.
It took courage to reorganise so radically, but the results were worth it: 'better management process, smaller overheads' (though that had not been the main object), and 'less layers, with shorter lines of communication'.
That still left an important area of investigation: top management itself. What was its role? How could the top team be made a more effective strategic unit? Consultants Kepner-Tregoe were called in to help Royal Mail plot its future to the year 2002. Their contribution helped to show the potential, if sights were raised beyond the post - and beyond Britain. The question, 'What is our core business?' appeared, to top managers, to have a self-evident answer. But it did not. Strategy had developed in a 'scattergun, blurred way'. Under the consultants' stimulus, they discovered their 'key distinctive strength': the Royal Mail had a 'unique pipeline from the business community into the residential area'. This was 'grossly underused', since only hard copy passed through. The insight opened the door to much greater creativity and 'stretched vision'. What sort of business will it be in 10 years' time?
'Successful' is one clear intention. 'Success', says Cockburn, 'is cheaper than failure.' But what is success? For individual senior managers, it is a bonus that can add 25% to salary. For the organisation, it has been speed and reliability of delivery. Now, 'the manifestation has got to be delighted customers'. So 'customer perception' is becoming the 'key measure to manage...it's much more nebulous, but it determines the buying decision'.
In turning round an organisation which focused on failure and problems, rather than success and customers, much has been accomplished, but, says Raisbeck, 'there's a tremendous way to go'. All managers are still required to be involved in two current improvement projects - as they were from the beginning of a quality drive that has meant, and still means, a huge training effort.
The most pleasing dilemma is that so much progress has been made in, to take a prime example, next-day delivery, that '95% no longer seems so heroic'. So what can be done to keep the quality momentum going? Work is in progress in areas from measurement to unit self-assessment, via leadership and 'peer feedback', to culture and further 'benchmarking' against the world's best standards. And, symbolically, head office is going open plan.
Cockburn swiftly draws a diagram to show how the Post Office has been turned literally upside down. The traditional pyramid puts top management at the apex and the mass of employees at the bottom. In the drawing, the pyramid balances on its point: top management is supporting the rest of the organisation, and at the top of the inverted pyramid the frontline employees make an interface with those vital customers.
Many frontliners work in the rest of the Post Office. Cockburn has no desire to turn his back on either Counters or Parcelforce (although privatisation of the latter is promised), as he sees important business synergies. At Counters, wholly-owned offices number 1,000 out of 20,000. The rest are already franchised to private sector postmasters, who need, he argues, wider commercial powers to protect their futures. As for quality, programmes elsewhere are 18 months to two years behind Royal Mail, but progress is being made: 96% of Counters customers, for example, are served within five minutes; the average is nearer two.
Cockburn believes that 'all of our businesses have got the flame of enthusiasm and achievement'. They will need it if his Scots vision of the task ahead is to be realised. 'We've got to the top of the Cairngorms - quite big, but not world-class mountains. We need to climb the Alps. Then, Mount Everest.'.