Man with a mission

Despite having been chief executive of United Utilities (UU) for only a few months and not having a background in the utilities sector, Philip Green already has some firm ideas on the direction in which he wants to take the business.

Green came to United from Anglo-Dutch container shipping company P&O Nedlloyd, where he led a flotation of the company before it was acquired by the Danish transport giant AP Moller-Maersk. Prior to that, he had held the position of chief operating officer at news agency Reuters and, earlier, parcel firm DHL.

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After a career in highly competitive global service industries, Green says he is often asked why he decided to join what must appear to outsiders as a comparatively mundane utility business. He explains: "First, I wanted another leadership opportunity, and United Utilities definitely gives me that. Second, most of my career has been with service businesses – especially with companies that don't realise they are in the service sector. Third, it is a challenge."

One reason Green was chosen as United's chief executive is his belief in putting the customer first, something the regulated monopolies operating the electricity and gas distribution networks and water and sewerage services have not exactly been famous for.

"My time at DHL taught me the importance of the focus on service and a 'can-do' culture. DHL is so focused on service because it has no product, but I would argue that United Utilities is also a service business. Unless you realise you are a service business, it doesn't drive the right behaviour," Green says. "The other lesson was the importance of a balanced team, and I am great believer in putting together the right team for the job."

While utility boards are coming around to the idea that a chief executive or managing director does not have to be an engineer with 30 years' experience in the industry, most of the previous generation of senior managers has had this sort of background.

"A recurring feature is that each industry thinks it is unique, when actually it's not. And many companies only have teams who have worked either in the same company or in the same industry," observes Green. "My view is that while the overwhelming majority of the team should come from that company or industry, you also need a bit of perspective because so many of the issues are common. At the front line, there is no shortage of industry experience. What there is a shortage of is outside perspectives."

Another key lesson Green brings to United is the importance of leadership and of ensuring that every employee has a clear understanding of the company's objectives and their role in achieving them. "It depresses me that I was halfway through my career before I realised the fundamental difference between management and leadership," he says. "I didn't get it, and a large number of middle managers in most companies don't get it."

Green quotes a British Army general's definition of leadership: "winning the hearts and minds of people to achieve a common objective", while management he says is delivering those objectives. "Leadership isn't the exclusive domain of the chief executive or the board," says Green. "In United Utilities there are several hundred people whose job needs to include an element of leadership."

Developing a vision for the future of the company and translating that into specific objectives is one of Green's priorities.

"We will be articulating a vision for the company over the next two or three years and putting in place a 'golden thread' that takes us from that high level picture down to the front-line staff," he says. "People need to understand their role and have some financial benefit in achieving those goals."

In the highly regulated environments that United operates in, it would be easy to say that the company's measurable objectives are largely set by the regulators in the price reviews. But Green believes that not all of the company's goals need to be set in terms of achieving regulatory service standards.

"A large number of our staff aspire to work for a world-class business and care passionately about it," he says. "Many of them realise that today they don't, and there is potential we can unlock by articulating what a world-class business would look like and mobilising our colleagues to deliver that."

This means that benchmarking United against its worldwide counterparts is a priority for Green, a process that will be helped by his previous international experience and United Utilities Contract Solutions' growing portfolio of overseas clients.

There was speculation on Green's appointment that he might look at selling the company's business process outsourcing division, Vertex. With an order book of more than ?5 billion, Contract Solutions now dwarfs Vertex's ?300 million annual turnover – a quarter of which comes from United. However, at United's annual results presentation in June, Green described Vertex's growth prospects as "promising".

"It is important to decide what are our core competencies and that will define what we do," says Green. "My experience is that you deviate from your core business at your peril. We need to decide what we are and stick to our knitting, as there are plenty of opportunities in the UK and overseas. In the UK, we estimate that 9 per cent of the business across gas, water and electricity is outsourced, and we have 60 per cent of that 9 per cent."

Contract Solutions has successfully applied the skills United has acquired in running its own north west of England water and electricity operations to other UK utilities, including Southern Water, Welsh Water, Scottish Water and, more recently, Northern Gas Networks.

"The core skills we have in our regulated businesses can be transferred to other utilities including gas networks," Green says. "The multi-utility model was originally justified on the synergies between the old Norweb and North West Water, but these have been largely delivered and it is now much more about sharing competencies across the business."

Within the regulated businesses, out-performing the price review is key to generating additional returns for shareholders, and Green is keen to improve the company's performance. "One of the positive characteristics of this industry, because it is regulated, is that the amount of data is huge, far more than any other industry I have worked in," he says.

"In terms of league tables, it is well served, and United Utilities does not perform well. We are very far from the top on most metrics and I find that unacceptable. I don't want to lead a business that is an average or poor performer, I don't think most of our staff want to work for an average company and most importantly the regulators and our shareholders want us to perform better."

United has just completed the installation of a new integrated billing system covering its water and wastewater businesses on time and on budget, and this is already beginning to have an impact on customer service and operating costs.

"If you look at the areas where we have performed less well, it is on the cost of delivering customer service and the efficiency of some of our bigger wastewater treatment facilities," says Green. "Those are what we need to focus on as well as out-performing on the capex and opex for this review period. There is no quick fix – I know where we are now and where we want to get to, and it will take two or three years."

The principle of utility regulation has always been to introduce competition where possible, though this has been slow in the water sector. Green's competitive instincts mean he is keen to see the pace stepped up.

"I believe absolutely that competition is good, and one of the reasons our culture is still 'public sector' is the lack of competition," he argues. "Of all the privatised industries, British Airways changed the most, soonest, because it had to survive in a fiercely competitive market. In water, there is even less competition than in gas or electricity, and that has to have an impact on the culture. I prefer evolution rather than revolution, but we have to change, we have to be more focused on service and operational performance."

As part of this culture change, Green sees no reason why the financial incentives often used to motivate staff to improve performance in non-regulated business should not be applied in utilities."I can find two or three measures that are critical to service for anyone at United and I can give them a percentage of their compensation related to those measures," he says.

"People who work in a public service do not have any different aspirations or behaviour. They might have a greater awareness of the impact of what we do on society, and we need to hang on to that passion, commitment and social responsibility. I don't think that is inconsistent with making an element of their pay performance-related."

The focus for Green's programme of change will be United's managers, many of whom will be expected to display the leadership qualities Green talks about."The challenge is for middle and junior management to grasp the need for change, and if they struggle with that they will struggle under the increasing pressure on service and performance," he says.

"In any change situation, there are normally three categories of people: the deeply sceptical, those who go along with it, and those who passionately support it. In the first category, some will find it too difficult, and those who are positively obstructive are unlikely to have a long-term future in the business."