busineses management

Page 1 of 3

Strategic Change Case Study 1

Signalling Change at Ascension plc This case explores the changes that took place in the transport engineering division (TED) of Ascension plc, a construction and maintenance company, between 2012 and 2014. TED was established as a division of Ascension in 1994 following the privatisation of the UK railway system. The division handles track and signalling maintenance as well as larger transport engineering construction projects. The largest current project forms part of the London Crossrail development. Ascension’s main competitors include Balfour Beatty, Babcock International and Carillion plc. What problems did the company face in 2012?

Ann Hingston, the Finance Director of TED: most of our revenues before 2008 were from track maintenance and repair which produced a steady income stream but little growth, so the

business had started taking on larger projects which, with hindsight, it did not have the systems and processes to manage. As a result, costs rose and the new projects were loss making. In addition the costs were badly monitored. The projects were being managed by a team of project managers and there was a lack of clear ownership and accountability. Managers also struggled to cope with a new information system that Ascension had introduced company-wide in 2010. Despite lots of different change initiatives within TED, by 2012 we were on the brink of financial meltdown. The Ascension board were running out of patience and we were told very clearly that, unless we could turn the division around quickly, it would be sold off or closed. What was working at TED like in 2012? Alik Rana, the Commercial Director of TED: in 2012 the situation was actually getting worse not better. The Managing Director at the time decided to close projects that were loss making and not to bid for any new large-scale construction contracts. This had a huge impact on turnover. It was hard to recruit because people had heard that Ascension might sell us

1 The case is broadly based on real-world events but the company names and dates have been changed. It is a heavily adapted version of original work by Gerry Johnson.

off. Staff motivation hit rock bottom and some of our best people left us. They could see that we were not winning new contracts. They could also see a lack of collaboration and camaraderie in the senior management team. Staff talked openly about the company problems and speculated about whether the business had a future or not. There had been lots of change initiatives but they did not achieve very much. The whole service ethos was wrong; we weren’t listening to our customers and we thought we knew better. This attitude was damaging our daily interactions with customers. There was very little knowledge sharing internally between people and very little transparency or trust. Effectively it was a fear culture and project staff avoided giving bad news to the senior team. As a result, bad news tended to come as a surprise and late in the contract. Finally, we lost a major maintenance contract and that was when Ascension plc decided to act. They very publicly terminated our CEO’s contract and brought in Jack Warner as the new Chief Executive in late 2012. Jack had worked in a number of Ascension divisions and had a good track record of managing change. So how did you assess the situation at TED when you arrived in 2012? Jack Warner, TED CEO from 2012: Ascension was ready to close the division if I failed but they also understood that, if I was to have a chance of turning the business around, then they would need to invest. So there was money available but not a lot of time. I also found very different views within TED about how much change was needed. Some people were in denial and thought that things could just continue. At the other extreme there were people who were certain that the decision had already been taken and the division was going to close and most jobs would be lost. When I talked about change there were people who just thought it had all happened before and never made any difference and others who knew change was vital but just weren’t sure if we could do it quickly enough. I felt that the core business was reasonably sound. There were issues in terms of project management skills and team-working but technical and engineering capability were all there. The way people were talking about the business was much worse than the reality. So, for me, the real challenge was to turn things around financially, but without losing things that were working. Some change experts tell you to fire the entire senior management team so that you break with the past and people

Page 2 of 3

realise there is a need for change. But that wasn’t needed here. There were very good people at all levels but they just weren’t working well together or were not being listened to. The senior management team were frustrated because they did not trust or support each other, so it was hard to initiate anything new that had any real impact. There were lots of disagreements and very little sense of unity or common direction. At middle management level they were less sure about why change was needed; some blamed the senior management team and others the customers. There was a lack of agreement about what changes were needed and gossip about which jobs might be axed. The attitude of staff to each other and to customers needed to change and that required a significant cultural change on top of the financial challenges. So how did the change take place in 2013? Jack Warner TED CEO: I began to understand the problems and action required by consulting with key stakeholders e.g. customers, senior management, key middle managers and front line staff. This resulted in a list of key issues which were then discussed and agreed with the senior management team. We called the change programme ‘Future First’ and it kicked off in January 2013. It was a three-year plan consisting of three major phases: phase 1 – six months rapid turnaround, phase 2: 6–18 month return to profitability and then phase 3, long-term growth. Phase 1 was the most significant as this would determine whether Ascension would let us continue or not. We deliberately developed a plan that had manageable chunks. We communicated a clear change strategy to people. Change involves a lot of fire-fighting and can look like disorganised chaos, so it’s helpful to show that you have a specific approach that you use and that it’s worked for you before. I also spoke to everyone face to face to be honest about the problems and what change was needed, and what I needed from them. I needed them to see I was in charge and, as a senior team, we knew what we were doing but I also needed ‘buy-in’. Then we broke each phase down into a set of clear goals that everyone understood and could work towards. We just focussed on 8 things that we felt could make the biggest impact; we gave each of those a named individual and then focussed them on delivering. Once they were completed, we had another 8 but, at any one time, there were just a small number of key goals that were clearly communicated and understood. Once we had

our 8 priorities we introduced a short fortnightly review process. For each objective we had a one slide PowerPoint with key dates, a red, amber, green progress indicator and key issues or risks. The owner would provide the one page report and a face to face verbal update every two weeks to a steering group. A business plan was also produced and distributed to employees and customers with the key challenges and priorities. Early on we had a big setback when a major contract went out for renewal and we lost the business to Carillion. It was one of our largest contracts so we had to do something radical to reduce costs quickly. The size of the TED senior management team was reduced by half and we reorganised the entire management structure down to supervisory level, so everyone’s job role changed. A whole layer of management was removed creating a flatter organisation with more devolved responsibility. We also moved managers out of their private offices and into more open shared spaces. Teams that needed to communicate regularly were physically close. The moves were practical but also symbolic of the shift to a more open and sharing organisation. Everyone’s job was at risk so we interviewed all the managers and reappointed people we thought would be able to adapt to the changes that were taking place. One benefit was that our industry has a reputation for tough unions but, given the loss of income from losing the contract, they accepted the cuts, even though it was over 400 people (about a quarter of the workforce). The unions accepted that cuts had taken place at senior level as well as front line staff and that, if we didn’t turn the business around, closure was a very real possibility. The structure of the business was also changed. Some areas that had operated as stand alone business units were actually quite small, so some of these were grouped together and this resulted in further savings through middle management staff cuts. A major priority was to improve relations with customers. Some of these problems seemed to stem from the previous CEO. People told me he was rather distant and unapproachable. He had his office door permanently closed and officiously guarded by a steely personal assistant. People saw this as symbolic of his general unwillingness to listen to staff or customers. All I really had to do was to open my door and tell the senior team that I would support them in any way they needed in order

Page 3 of 3

to better serve our customers. I was also able to help by managing our interactions with Head Office, the group level executive team at Ascension. By dealing with them myself I was freeing up my senior team to fix problems with customers. The transformation required a widespread attitude change and my belief was that better two-way communication would lead to this. I had to believe that, deep-down, people knew that the business needed to improve and were looking for a way forward, even if they were not sure what the right solution was. Face to face communication matters because people want to see your face and want to ask you questions. Smart memos and company newsletters are just going to be ignored or misunderstood. You need to put the kettle on and sit down with people in their own working environment and talk honestly without using management jargon, so that’s what I did. In June 2013 we got some good luck for a change. One of our biggest competitors, Park

Life, filed for bankruptcy. We did track renewals for roughly half the country and they did the other half. Network Rail immediately asked if we could take over their track renewals program. It provided about £50 million a year additional turnover,

about the same as the major contract we had lost six months earlier. We wanted to make sure the new contract was profitable so we hired some Park Life people, but not all of them, and we closed two of their depots. The transition went very smoothly which also helped us to build trust and openness with Network Rail, a major customer, and to show we could deliver on our commitments. It’s July 2014 now, so how are things going? Jack Warner TED CEO: By the end of 2013, the change programme had been running for a year and the division was receiving top customer ratings and customer feedback is continuing to improve. In eight out of ten categories we are ahead of competitors. We have recently heard that we have been nominated as a Network Rail supplier of the year. Our 2013/14 turnover of over £160

million means we are back in profit. In our business margins are low so we are doing very well. Ascension plc is delighted and the threat of closure is off the table for the moment. There is certainly less sense of fear of redundancy in the organisation but also less fear of speaking out or challenging senior management. We have an employee led, ‘Ministry of Fun’, which runs social events for all employees and we recently entered a team of 10 for the London Marathon, a mix of everyone from the senior team to the front line. They have raised £7000 for charity so far. We provide resources for them such as a meeting room for events and some funding. We have also agreed a discounted rate with a local gym so it’s not unusual to find me or my team in there. All these things have helped to reduce the sense of ‘them’ and ‘us’ between different parts of the organisation. There is much more sense now of one company and one team. People are proud to work here and they are showing off to their friends about the customer feedback we have received and the money they have raised for charity. 18 months ago all the talk was about closure and who was to blame for poor performance. We instigated a series of project management training events and there is much better coordination and clear ownership and accountability. There are still challenges though. We couldn’t make changes to the company wide IT system that was introduced in 2010. It seems to work well for some divisions but it’s not tailored to our needs. Project administration is taking longer than it should because so much tinkering is needed to get the system to do what we need it to do, like track performance measures in the format required by Network Rail. But we are back in profit. It is an amazing achievement to turn things around in such a short time frame. Phase 3 of the plan is growth, so we are bidding for new contracts at the moment and looking to expand in 2014/15.

Railway Signal Box