It is an axiom in most management textbooks that if managers make a vital and significant part of their business vulnerable, whether to actions by existing stakeholders or from external forces, they may lose the whole thing very quickly. It is a false economy to try to cut costs or scrimp on the most important parts of the business i.e. those which enable the business to deliver its products and services to its customers.
In most organisations this is the workforce.
Here is a lesson in doing just that.
Reports from the railhead indicate that operator Avanti West Coast has been told to 'drastically improve services'. Their franchise has been extended by six months so the regulator can monitor whether or not Avanti have succeeded in turning round what was, frankly, a pretty dire performance.
Apparently over the summer of 2022 Avanti ran only about one in three train services after disputes with unions. In August they cut services from seven trains per hour to four and suspended ticket sales. Staff shortages were blamed. Reports indicate that Avanti relied on staff doing overtime in order to carry out its operations and over the summer drivers stopped volunteering for it.
Passengers complained of poor service such as no hot drinks, no electric charging, unable to process card payments on trains all of which added to general disgruntlement and further eroded Avanti's reputation.
Avanti is now recruiting but it takes time, for example it takes between twelve and eighteen months to train a driver so those recruited in summer 2022 will probably not be able to make a significant impact until mid-2023.
PR burble from Avanti owners First Group and Italian company Trenitalia produced the usual mantra 'we are committed to providing services that meet the needs of customers and communities'. PR departments should by now realise that a) nobody believes them and b) the statement doesn't say how that commitment will manifest itself – so it is pretty worthless.
What does seem obvious is that they were not so committed that they employed enough staff to actually run all the trains properly and to a high standard.
Whether or not Avanti retains their franchise is moot but they are an example of an organisation which has been able to carry out its operations right up until the point when it couldn't – and the crisis arrived with a speed and finality that it put a wrecking ball through the whole foundation of the business. As ever someone has to fall on their sword and in September 2022 it was the CEO of Avanti West Coast who went.
The point of the story is this.
Avanti relied on a very slim foundation to underpin the crucial part of its business – the availability of drivers to drive the trains so passengers could be reasonably assured that the ticket they had bought would result in a journey as shown on the Avanti timetable. This reliance was built purely on the goodwill of employees to do overtime.
Drivers are expensive – the National Careers Service state that an experienced driver can earn around £65,000 per annum although trainees obviously earn a lot less. Some bright spark in Avanti – possibly an accountant – came up with the great wheeze that costs could be saved by not employing drivers but instead getting the existing drivers to work more hours.
The only problem with that is that the power in the relationship passed to the drivers. Once that goodwill was removed – either tactically to force pay increases or simply because the drivers didn't fancy working all the hours- a huge plank of Avanti's operation fell away and they were in trouble.
Of course Avanti can improve its performance and may well save its franchise, but this will take a lot of effort and expense – not least in recovering trust in the mind of the travelling public. Once lost this is hard to recover and it will take more than an expensive ad campaign or glossy PR events.
In a different, more fiercely competitive industry, there would be no time to do this – competition would destroy any commercial business which made such a fundamental error.
The moral of the story is this – do not make decisions based purely on maximising profits in the short term. By relying on overtime and not replacing or employing sufficient staff Avanti put at risk its whole west coast operation for the sake of reducing what it saw as an overhead but which was, in reality, a key profit generator – the train drivers.
It behoves accountants and managers to reframe their views of the business model and understand what it is that generates profit. In most businesses it is the workforce – in a manufacturing business as much as the NHS. This is the most important resource the business has and yet, quite often, managers are focussing on cutting staff numbers or reducing staff costs in other ways.
Delivering quality has to be paid for. Where the workforce plays a key role in delivering a quality product or service that workforce has to be treated fairly and with understanding of its needs and requirements. Obviously there are limits – businesses cannot afford to overpay or be reckless with these costs but one of the key roles of management is to ensure that the workforce will remain on board and loyal to the business.
If they feel that they are exploited and unloved they will respond – either by leaving or by reducing their level of co-operation. Both of these increase business risk – even to the point, as Avanti West Coast found out – of potentially not only losing them the west coast franchise but also the possibility of not continuing as the shadow operator of HS2 on a ten-year contract.
False economies increase risk and in an uncertain world where consumer expectations are high this represents a real and present danger.
John Taylor is an author for accountingcpd. To see his courses, click here.
You need to sign in or register before you can add a contribution.