Interview with David Mills, CEO Post Office Ltd

POST OFFICE NEW BOY PROMISES TO DELIVER. FINANCIAL EXPRESS FORMER BANKER HOPES 40 YEARS' EXPERIENCE CAN REVITALISE AILING NETWORK, WRITES JEREMY HUNT

DAVID MILLS is something of a contradiction – for one of the new breed of highly paid bosses drafted into the failing Post Office, he is an engagingly old-school sort of chap.

Mills has been in position as chief executive of Post Office Ltd, which controls the 16,000-strong branch network, for only a month after a 40-year career in banking. But in his own view he is anything but a City boy parachuted into a public organisation: "I am just a seasoned, professional manager."

After being "worn down" by the headhunter looking to recruit him to the Post Office, the 56-year-old is looking forward to the challenge with all the verve of a man half his age.

"What needs to be done here excites me, and people would be very happy for me to succeed, " he says.

"The job is a turnaround and I am here to stabilise an unhappy situation and improve it. I think I can succeed.

I think I have got the management talent – isn't that naive?"

The challenge before him is immense. Putting aside the huge difficulties that face the larger Consignia group (of which Mills is now a board director), the Post Office's branch network is in crisis. Though it might not be losing the estimated £1.5million a day haemorrhaging out of Parcelforce, Post Office Ltd's last available figures show that in the financial year 2000/2001, the organisation lost £53million.

Mills' new constituency is not the postmen and women but the sub-postmasters, the people who run the nation's post offices. He directly controls only 600 of the thousands of post offices across the country. Most of the network is made up of independent businesses – Mills is unhappy with the term "franchises" – run by sub-postmasters who make most of their living from a parallel retail concern. Herein lie both the cause of mass closures in the network and also the seeds of salvation for those who remain.

Mills explains: "In 1950, 97 per cent of purchases were made somewhere other than a supermarket, now 85 per cent are made in one."

Such a seismic shift in retail habits has obviously hurt the corner-shop element of the post office network, but the Government will add to its oes when it introduces a massive change in the way benefits are paid – hurting the Post Office Counters business too. By next April, benefits ill be paid directly to claimants rather than collected, so the current income from the Government of £400million will be lost – up to 40 per cent of revenue for some branches – before the effect on "footfall" is taken into account.

Various rural lobbies have long voiced concerns about village post office closures, but Mills is aiming to keep in business as many as possible of the 9,500 rural branches. However, of the 8,000 urban post offices, up to 3,000 will be lost over the next few years.

Although the Government has applied to Brussels to be allowed to pay £210million to soften the blow, Mills believes about £180million of it will go straight to sub-postmasters looking to retire, leaving only about £6,000 apiece to spend on revamping the remaining urban branches.

Despite the limited resources at his disposal, Mills is setting about a plan to reinvent the post offices, both in terms of where they are and what they do. As he pointed out to a conference of sub-postmasters last week, post offices remain a fantastic proposition: "We have 28million customers visiting us 45million times a week – who else in the UK has a franchise like this?

"We need to capitalise on this unique opportunity to sell more products and services." Top of the list is to introduce banking services, including the acceptance of card transactions and the development of a vast cash-machine network.

"We have 1,600 ATMs and are aiming for 3,000, " says Mills. "We a re rolling out at 200 a month – something no bank could do at this pace."

This is something Mills knows all about because his banking experience comes not from some international merchant bank but from 40 years at the Midland, now HSBC.

MILLS is an Essex boy who left school straight for work as a bank clerk in Barkingside. He didn't go to university – his father had died when he was 14, so he became the breadwinner. His higher education came later when he was selected for the Sloan Fellowship to the London Business School.

At the age of 32, Mills had put himself on the fast track, travelling to the US to research consumer credit.

It was here he picked up two key ideas – taking out back-office operations from branches and the huge concentration on the customer.

Both these things he instituted back in England, not only creating clean branch spaces by installing large-scale sorting systems elsewhere but also coming up with the idea for, and bringing into existence, the First Direct telephone and Internet bank.

Mills says: "I have never had a good idea in my life, but I have plagiarised millions. I can bring to Consignia and the Post Office an understanding of how back offices work."

He could add to this a certain determination. It took him eight years to get his First Direct idea up and running. He eventually managed it while a regional IT director for the bank. As he says: "The ability to change things is important."

So what of his £250,000 salary?

Much has been made of the proposed "market rate" salaries to be paid to Consignia's new directors under Allan Leighton, the temporary executive chairman. The replacement for chief executive John Roberts is expected to receive £500,000 – £150,000 more than that paid to the BNFL boss, the only comparable public-sector post.

Mills is diplomatic, saying:

"Salaries like mine don't sit well against a postman's of less than £300 a week, but I was there once. Money is a signifier of what you are here to do – your importance. It's silly and a shame, but it's the case." Having taken a pay cut to leave banking and join the Post Office, Mills can say money was not the sole driver in his decision: "I am in it for the public service and the challenge."

He is confident Consignia and the branch network can be turned round in Leighton's timetable of three years.

He suggests the temporary nature of Leighton's position might change: "I don't think he would find it easy to leave after the commitment he has made. It is not so much Consignia has caught him, he has caught Consignia.

He is almost a postie at heart."

Track Record 1944: Born in Essex. Attended Beale Grammar School.

1962: Joined Midland Bank as a clerk initially in Barkingside and then in the City of London.

1975: Took a Sloan Fellowship to the London Business School.

1990: Launched First Direct as its chairman.

1999: Appointed general manager of personal banking.

2002: Leaves HSBC to take the newly created post of chief executive of Post Office Ltd.

CAPTION: BRANCHING OUT: Mills is aiming to draw on his banking experience to turn around an organisation that lost £53million in 2000/2001