Putting a first class stamp on the Royal Mail
Adam Crozier, chief executive of Royal Mail, says: "The first thing I do every day is check how we performed last night. Any mail centre that failed to meet quality of service targets is on a conference call with me to explain what happened and whether they have a plan to put it right."
The introduction of private sector disciplines was one of Mr Crozier's first actions on being appointed to run the UK's state-owned postal company just before Christmas two years ago. Then, Royal Mail was losing Pounds 1m a day. Now, it is making a profit of Pounds 1m a day.
As Royal Mail tackles its busiest time of the year, with households sending sacks of cards and presents, there is optimism that it is starting to show signs of a turnround.
But the next few weeks will tell Mr Crozier and Allan Leighton, the Royal Mail chairman who hired him, whether their ambitious plans are working. Christmas represents the ultimate stress test. Royal Mail normally handles 82m items each day. This week and next the figure is more like 140m.
"So far this has been our best Christmas yet, though it is hellishly hard work for everyone," says Mr Crozier, speaking at Royal Mail's functional headquarters in London.
He is monitoring how the new systems and working practices he has introduced as part of a three-year turnround plan are faring under the pressure of the seasonal business.
When Mr Leighton was appointed as Royal Mail's chairman in March 2002, the government asked him to do whatever it took to turn the loss-making group, beset by industrial relations strife, into a profitable, modern organisation. In essence, he was asked to run a public sector entity as if it was a private company. Mr Leighton picked Mr Crozier, previously head of England's Football Association and a former executive at Saatchi & Saatchi, the advertising agency, as CEO.
Mr Crozier was given a deadline for change: 2007. That was the year when the UK postal market would open up to private sector competition. Now, it seems the date could be brought forward by a year. Also, Deutsche Post of Germany and TPG of the Netherlands have entered the UK market.
Can he introduce sufficiently radical change, sufficiently quickly, to enable Royal Mail to compete?
Turning a Pounds 1m-a-day loss into a Pounds 1m-a-day profit suggests there has been some financial progress. This has been attributable to some straightforward cost-saving tactics. Through voluntary redundancies, outsourcing and natural wastage, the workforce has been slashed by 35,000 to 195,000. The scrapping of the second daily postal delivery and a move to a more efficient transport system have, with the staff cuts, produced savings of Pounds 1.2bn over three years.
But Mr Crozier says there have been significant structural changes. "Effectively, we've changed the way 195,000 people work on the ground every day," he says.
Implementing these changes has not been easy and, as suggested by Mr Crozier's conference calls, is a daily struggle. Earlier this year, the reliability of the postal service was damaged when the delivery changes were being introduced. "I wish the major transition between April and June could have been smoother," says Mr Crozier.
He has endeavoured to persuade staff to think differently. "We have tried to instil the private sector discipline of putting the customer first," he explains. For instance, there is now a focus on quality. Figures for quality of service – showing what proportion of letters was delivered on time – used to be viewed by staff as "just a figure that appeared at the end of the year", says Mr Crozier.
The next step is, as he says, "fundamentally to modernise and automate our organisation". "We need to redesign all of our business products around what works for customers. And the most important thing for a competitive market is to have market-led prices, which we are a long way from at the moment."
Last week, Royal Mail announced that the price of a first-class stamp will rise by 2p to 30p from next year. But business customers, who constitute 90 per cent of the market, will pay 29p. It is part of an attempt to alter the pricing structure, recognising that non-business customers sending so-called "social mail" are being subsidised by business customers. Beyond this, Royal Mail plans to start charging by size and shape rather than by weight in order to reflect more accurately the real cost of sorting.
Mr Crozier believes that, however much work he still has to do, his efforts to import private sector thinking into a public sector organisation are starting to pay off.
Royal Mail's staff are, he thinks, more committed than those of his previous companies, especially since a marked improvement in industrial relations. Following what he calls a "dust-up" last year when many workers staged wildcat strikes, management and unions have been brought together by a common enemy, says Mr Crozier. "They are beginning to understand that, whereas the old adversary was company management, now it is important that everybody retrains their sights on the competition."
POST-HASTE: EFFECTING CHANGE THE FAST WAY IDENTIFY THE PROBLEMS Adam Crozier spent months examining the company. "We took a look at the whole system," says Mr Crozier, "and then we could see all the faults and start tackling them."
* Too many staff.
* A complicated (and expensive) transport and delivery network.
* Costly second delivery.
* Non-commercial public sector mentality. DEVELOP STRATEGIC SOLUTIONS Mr Crozier devised a three-year turnround plan, tackling each problem in turn.
* Staff cut by 35,000. Method: voluntary redundancies, outsourcing and natural wastage.
* Transport system symplified. Method: the route network for post lorries and vans has been streamlined, so there are 6,000 fewer journeys every night.
* Second delivery scrapped.
* Private sector thinking introduced. Method: focus on quality of service statistics and help staff understand customer service. MONITOR PERFORMANCE ON A DAILY BASIS Mr Crozier has regular meetings with staff – especially where expected progress is not being achieved.
