Can Allan Leighton turn round Britain's troubled Post Office?
BRITAIN'S Post Office, horribly renamed 18 months ago as Consignia, is in a mess. On June 13th it announced a £1.1 billion ($1.6 billion) loss for the year to March 31st. Thousands of jobs are to be shed, in a frantic effort to reduce a bloated cost base. Discontent among its roughly 250,000 workers still simmers, after a wave of industrial disputes last year.
Enter Allan Leighton, who played a big part in the successful rescue in the early 1990s of Britain's Asda supermarket chain. Asda was later wooed and won by America's Wal-Mart. After that, the commonsense Mr Leighton was much in demand as a non-executive director. He took on a wide portfolio of jobs, ranging from soccer (deputy chairman at Leeds United) to dotcoms (chairman of lastminute.com, a travel firm). Almost as an afterthought, he became a non-executive director of the Post Office in April 2001.
He was shocked by what awaited him. “The business was imploding,” he says. From apparent health three years earlier, suddenly it was losing more than £1m a day. Brought in for his retailing expertise, Mr Leighton soon found himself the most influential voice on the board. By January he was interim chairman. In March, “seduced by the challenge”, he agreed to become chairman.
Is he up to the job? Mr Leighton says that the Post Office's problems neatly mirror those he found at Asda. “When everything is going backwards, it's basically a leadership challenge,” he observes, not needing to spell out the implication for former top managers. Moreover, modern retailing has plenty in common with postal services, he argues. Logistics and customer service lie at the heart of both.
Although he is contracted to work two days a week, Mr Leighton's commitment has made tongues wag within the group. He turns up at dawn to talk in person with staff in letter-sorting depots. He speaks bluntly to them about what is wrong, and about the impact that impending job losses will have on local communities. He expects colleagues to tell him with equal honesty what they think needs to be done.
Already he has had an impact. Despite its losses, the Post Office has delivered some better news in recent weeks. A two-year pay deal with the unions was endorsed by a strong majority, evidence that industrial relations are on the mend. Mr Leighton charmed and bullied his way to a one-penny increase in the price of a stamp, previously resisted by the industry's regulator. He is ditching the Consignia name in favour of the older (and more elegant) Royal Mail. Most important, he has skilfully fended off a tough regulatory proposal for the immediate opening of lucrative bulk-mail (eg, circulars) to competition. That had threatened to kill his turnaround plans.
All this, Mr Leighton concedes, is merely the start of a long march back to health. He has announced a three-year restructuring effort to revive the core domestic postal service. That means, for the moment, an end to the Post Office's headlong rush into international markets. His predecessor's strategy was to become a global logistics group. Now the goal is to be “world-class, not world-active”.
The core of the business certainly needs attention. With £8 billion of sales, it should make good profits. Indeed, as recently as 1998-99 it made almost £500m after tax, and paid a £310m dividend to the government, its sole shareholder. But appearances were deceptive. Profits were flattered by the fruits of surpluses from the group's £15 billion pension fund.
The business was further weakened by two other factors. First, the government continually raided it for money that would better have been reinvested—during the 1990s, around £1m per day was siphoned off. Second, the Post Office was prevented from raising its prices as fast as general inflation, a handicap that has cost it more than £530m in revenues since 1995. A silly decision in 1999 to drop the price of second-class mail hardly helped.
Mr Leighton's experience told him to concentrate on the group's trading profit before exceptional items, as the best measure of how the businesses were really doing. What he found was horrifying. The Post Office had let costs run wild, adding hundreds of managers and at one point loading on an extra £1 billion of costs in a single year. Now he is shrinking the company. Around 30,000 redundancies will trim the wage bill. Unnecessary layers of management will be taken out.
The Post Office is far from out of the regulatory woods. There is uncertainty over the price it will be allowed to charge competitors to use its infrastructure, particularly its “last mile” delivery. Mr Leighton argues that the price must be set at a level that is profitable for the Post Office. But the economics of pricing are complex, and competitors are trying to get into this market at a level way below what he deems acceptable.
Keep it simple
The essence of Mr Leighton's restructuring is a belief that getting the simple things right will lead to good results. Improving work conditions, including a postman's basic pay, will encourage better customer service. That should restore profitability, leading to cash generation. Then the group can think about investing anew, perhaps after a partial stockmarket flotation. It is sufficiently simple that colleagues at all levels appear to have both understood and accepted his strategy.
Is Mr Leighton something of a management guru, then? He modestly describes his management style as “bad”. He has no time for consultants, believing that a written strategy should be no more than a page long. He spends a lot of his time checking that middle managers are getting the message and acting on it. A business that cannot formally measure that process, he says, will have trouble executing its strategy. Above all, he says, managers should talk to people. Put like that, it all seems rather obvious.
