Thursday, 9 July 2009

June's Business Bloop Award

It is some time since we have awarded Business Bloop of the month. This is not due to shortage of candidates, but because we have been very busy on the launch of our new business Achievement Coaching International. To find out more about this go to the website .

One candidate is Total Oil who nearly won the award earlier this year. For the second time this year their contractors at their Lindsey Oil refinery provoked a wild cat strike. (one is unfortunate but two sounds like carelessness) The project is 6 months behind schedule with 100 million euros of additional costs. Under pressure from Total the contractors effectively caved in to the strikers, thus demonstrating that illegal strike action can still be an effective weapon in an industrial dispute. So there is now the potential for the UK’s industrial relations clock to go back 25 years. Quite an achievement all round when you think about it.

However even this has been eclipsed by the joint efforts of National Express and the Department for Transport (DfT) to bring about the collapse of the East Coast rail franchise. Having significantly outbid competitors in 2007 with a pledge to pay the government £1.4bn to run the service till 2015, National Express’ assumptions of 9 – 10% annual passenger growth have been shattered by the recession. After 5 months talks with the DfT recently broke down and National Express announced they would cease funding its East Coast subsidiary later this year.

This prompted the Transport Minister Lord Adonis to announce a temporary nationalisation of the line, and mutter darkly about stripping National Express of its other two franchises. Under the cross-default rules if an operator walks away from one franchise, it risks losing its others. So having risked a knock out bid to win the East Coast franchise, National Express may now be threatened with losing the whole of their rail business. Not too good for a company capitalised at just £428m, facing £460m debt refinancing next year and with predators, notably First Group, circling.

National Express insists that Lord Adonis has no legal powers to strip them of their other two franchises. In Dad’s Army the catch phrase was “Don’t Panic!” – in this case it’s “Let’s Pannick!” – as National Express have appointed Lord Pannick QC to advise them. We wonder just how confident they really are!

The key question though is how did National Express get into this position and is there a lesson for the rest of us? The easy answer is that they bid too much for the franchise and several commentators and competitors said so at the time. However a study of the motivations and decisions of two people get you nearer the root cause. These two people are Richard Bowker, until recently Chief Executive of National Express, and Lord Adonis himself.

Bowker arrived at National Express via Virgin Trains and the Strategic Rail Authority (where ironically he had taken the Southeast franchise off Connex). He had played a big part in designing the franchising contracts. Who could be better qualified to lead National Express and grow its rail business? Unfortunately National Express promptly lost two of its existing franchises on renewal, Midland Mainline and Central Trains. At two nil down, far from taking the rail business forward, Bowker appeared to be taking it rapidly backwards and was understandably desperate for a deal. Hence the bid for the East Coast line had a strong flavour of Win At All Costs about it.

Was Bowker just unlucky? With passenger numbers growing at 11% p.a. at the time of the bid without the recession it might have all worked. Our question is, did he consider the Competitive Strength of the National Express business when assessing the risks of his bid?

Competitive Strength is about understanding:

  • how capable a business is compared to those that want to beat it AND

  • how capable it is of mitigating the impact of those forces out there that can cause it to be beaten

Our own assessment of National Express’ Competitive Strength is that it was Comfortable at best and the losing of two franchises indicates that it was deteriorating towards Constrained. In this condition the company was very vulnerable to The Abyss “those forces out there that can cause it to be beaten” and so it has proved to be. Bowker therefore, through a combination of either ignoring or not understanding the company’s Competitive Strength condition and his own need to shore up his personal reputation and position, took risks with shareholders’ money that had not been fully and thoroughly assessed.

Equally the government, by ignoring or not understanding the same factors accepted the highest bid which, predictably in our view, has turned out to be the highest risk for the taxpayer. Lord Adonis has stated that he will not renegotiate a franchise “on principle” because then other train operators would seek to do the same. This sounds like sense on the face of it, though he if he has not been “renegotiating“, what has the DfT been talking to National Express about since February? Also, according to Lord Adonis, out of the 16 franchises, the only one in trouble is the East Coast.

Lord Adonis’ hard line has gone down well with elements of Old Labour and any new Secretary of State will find it hard to resist playing to the political gallery. He invited himself on to BBC’s Today programme to announce the temporary nationalisation. That may be good for Lord Adonis but is it good for the taxpayer? Probably not. Franchise contracts come with a revenue sharing or revenue support mechanisms to prevent excessive profiteering or failure. In reality, unless the passenger growth figures in National Express’ bid were maintained throughout the contract, it was very unlikely they would have paid the government anything like £1.4bn. In fact it has been calculated that the actual sum at stake in the present circumstance is £150 - £200m.

So it is not about the numbers at all and it is not about luck. The root cause of all this is the way the personal agendas of two powerful individuals became the dominant influence in decision making. The Business Bloop Award is for decisions that contain an “oops” factor that leads to unwelcome consequences. National Express has already experienced some of these, with more to come, at significant cost to their shareholders. Lord Adonis’ “on principle” stand on renegotiation has already effectively bounced the taxpayer into revenue support on the East Coast through the temporary nationalisation. He has no hope of re-assigning the franchise at a decent price. There is more bad news to come for the taxpayer.

So we award June’s Business Bloop of the Month jointly to Richard Bowker and Lord Adonis for reminding us to beware of clever people whose decisions are mostly about demonstrating how clever they are, without consideration for the people they are really accountable to.

Business Bloop of the Month Award is brought to you by Steve Goodman & Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at - Exceeding Expectations - You're having a laugh ... seriously - Capitalism or ... Common Sense .

Tuesday, 3 March 2009

February's Business Bloop Award

There were a number of candidates for February’s award. First we thought it might go to Total Oil. This company “lost sight” of the contracts it awarded for work on its facility in Lincolnshire and ended up with a boatload of Italian workers unable to start work whilst a series of wildcat strikes and blockades were mounted by disgruntled British workers. Total’s oversight managed to offend its local community, spark off wildcat strikes at other companies’ facilities and drop the Prime Minister in the hole he had dug for himself with his “British jobs for British workers” grandstanding. However when you are in a business with the difficult public image and relationship problems of the oil business, all three of these are constituencies you want on your side, rather than hating your guts!

However along came British Gas, who could probably qualify for the award every month. On this occasion they lost an appeal to strike out a claim from a lady wrongly threatened over gas bills. Lisa Ferguson changed her supplier from British Gas in May 2006, but still received bills followed by letters threatening to cut off her supply, start legal proceedings and report her to credit agencies. Ms Ferguson is now suing British Gas for unlawful harassment, claiming damages for distress, anxiety and financial loss. British Gas unsuccessfully attempted to strike out the claim before it reached trial. Their argument was, wait for it, that the letters were computer generated and Ms Ferguson should not have treated the letters as seriously as if they had come from a person. Those of you who buy your energy from British Gas might wonder if, since your bills are computer generated, you no longer need to treat them seriously?

However both these howlers were eclipsed by the England and Wales Cricket Board. As we all know they had signed a £70m sponsorship with “Sir” Allen Stanford who is now being investigated for alleged fraud and other possible criminal charges. This has not just been a blow to the finances, but it is seriously detrimental to the image and reputation of English Cricket. Not many sponsors are now likely to be queuing up to replace Stanford.

Much has been written about what the ECB should have done and should do, especially its Chairman Giles Clarke. However there is one lesson for us all in this which has not been picked up so far. It is often said, but much less often practised, that what really matters in business are people and relationships. Get this right and the money will generally work just fine as well. In the case of Stanford he had already been rejected by the Indian and South African boards and now it turns out, also by the ICC, as “not someone we can do business with”.

The lesson to learn from focusing first on the people and relationships is especially relevant when the money issues are “urgent/desperate” as they were in this case. Had the ECB, and in particular Giles Clarke and the Chief Exec David Collier, done their due diligence first and thoroughly on the man, and only then on his money, it is likely that they, like the other cricket boards, would have rejected any deal with Stanford.

But they didn’t. Therefore February’s Business Bloop Award goes to Giles Clarke and the England & Wales Cricket Board, with our gratitude for the lesson we can all learn from this, even if the ECB does not look like it has learnt anything. “If you always do what you always did, you will only get what you always got.” They just did, again by re-electing the failed – “Too much change all at once, not a good thing, don’t you know”!

Business Bloop of the Month Award is brought to you by Steve Goodman & Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at Exceeding Expectations, You're having a laugh ... Seriously? and Capitalism or ... Common Sense .

Monday, 12 January 2009

January's Business Bloop

We thought we would have to wait till the end of January before making our first award. However we are confident that this story will not be beaten and are awarding January’s Business Bloop of the Month to the Manor Restaurant, Waddeson Manor near Aylesbury.

This is described as offering fine dining and some of the best Rothschild wines amid the splendour of a 19th century stately home. However when the Fletcher family went for a treat they were disappointed with their meal. Marilyn Fletcher wrote to complain about poor food and slow service that had cost £127 for four. She described the food as “not much better than a school dinner”. She was astonished by the reply.

Simon Offen, the catering manager sent her an e-mail to say that he disputed her version of events after he had “watched and listened with interest to the video recording of her table”. Mrs. Fletcher may or may not be the customer from hell but she was understandably concerned that the meal had been recorded on CCTV and said that her family found it “disturbing” and felt “outrage at the invasion of our privacy”.

Now there is plenty of research on customer complaints and their consequences if not handled effectively. A satisfied customer is likely to tell no more than five people but dissatisfied customer will tell 10 or 12. Furthermore only around 1 in 10 dissatisfied customers will tell the service/product provider of their dissatisfaction. Also a complaint that is handled effectively will invariably turn a dissatisfied customer into a satisfied customer and advocate of your service/product. Finally, when it comes to judging the value of a service or product, extensive research has established that this is “whatever the customer perceives it to be”.

We do not know whether or not Mr. Offen is aware of any of this. However by using the CCTV and telling Mrs. Fletcher that “It is quite clear that whatever we do you will not be happy with us” and alleging her attitude was tainted by “a vindictiveness which belies the spirit of Christmas”, he appears to have provoked her to express her dissatisfaction to rather more than 12 people. We read the story in this weekend’s Sunday Telegraph which means she has now told over 635,000, the circulation of the Sunday Telegraph!

This is quite an achievement, a 52m% increase on the norm! This comes just after Christopher Rodrigues, Chairman of VisitBritain, warned that 50,000 jobs could be lost this year as a result of the recession and poor service would be responsible for some of them. “Poor value for money and poor service costs jobs and will cost more jobs in a recession," he said.

So we have no hesitation in awarding January’s Business Bloop Award to Simon Offen and Waddesdon Manor, with our gratitude for the lesson we can all learn from this.

Business Bloop blog is brought to you by Steve Goodman & Tony Ericson of ChangeWORLD. For more and less serious information and comment go to our Exceeding Expectations & You're having laugh .... seriously? blogs and the ChangeWORLD website