Feature

posted 30 Jan 2007 in Volume 10 Issue 5

Case study: Royal Mail Group

Special delivery

When Royal Mail Group’s losses reached £1.5m a day, it launched a renewal plan intended to return it to profitability – and its HR department was one of many to face major upheaval. It therefore used KM to support the re-organisation – to retain knowledge that might otherwise walk out of the door.

By Mike Barker and Simon Sheppard

Royal Mail is almost 500 years old, dating back to 1516 when English King Henry VIII established a ‘Master of the Posts’ to convey vital messages around the kingdom. Its service was opened up to the general public in 1635 and in 1840, of course, it introduced the world’s first stamp, the Penny Black, to certify that the delivery of a letter had been paid for by the sender. Before then, letters were paid for by the recipient.

Until 1969 it was a department of the British government, when it became a public company. But by the new millennium it faced the twin challenge of its first recorded financial loss in 24 years and looming competition in the UK postal market – as required under European Union directives.

To return to profitability and prepare for full postal competition – which came into effect on 1 January 2006 – the business embarked on a major change programme to improve efficiency and service.

The Human Resources (HR) Transformation programme was just one part of the response. This involved a corporate shake-up from the top down, combined with an inevitable reduction in staff numbers – always a sensitive operation in a unionised public company.

At the time, each operational unit within Royal Mail had its own personnel team. This may have been logical when the structure was first introduced a number of years earlier – in a bid to make each unit a pseudo profit-and-loss entity – but it had led instead to a bloating of staff numbers in many duplicate activities, as well as rising costs.

Indeed, the HR community had reached 3,200 in total – covering a total workforce of about 220,000 – but despite their numbers, performance was not highly rated, coming in the bottom quartile of most objective benchmark data, including:

Employee/HR ratio;
Cost of HR;
Cycle time of key HR processes;
Effectiveness of HR interventions.

In addition, this structure also encouraged HR teams to become inward-looking and to concentrate on their own activities rather than community effectiveness. Process performance in terms of demand levels was used as a justification for resourcing levels, rather than cycle time or capability.

The key principle underpinning this article is that knowledge only adds value when it enables action. We believe that action results from the application of information, skills and experience within a culture that is both supportive and open. We describe this through the following formula: information + [skills + experience]C, where ‘c’ stands for culture. Sub-optimal performance in any one of the components doesn’t prevent action from being taken, but will limit the effectiveness of the outcome.

Applying our knowledge equation to the HR service in 2003, we had:

A wealth of information about the different activities that the HR community was engaged in;
Skills that were centred on policy development and process conformance;
Experience derived from years of Royal Mail service;
A culture of delivering whatever the customer demanded and valuing ‘being busy’ rather than being ‘effective’.

Project objectives

The HR contribution to Royal Mail’s transformation programme was to be:

A 40 per cent reduction in the costs of the HR service – equating to a reduction of 1,400 staff;
An improved employee/HR ratio of 1:140;
Improved satisfaction with HR services.

Easier said than done. From a knowledge perspective, the incumbent HR community was poorly equipped to manage the transformation. While it had a wealth of process-related information it had little experience of viewing HR performance through other lenses, such as customers and people.

The first step in the transformation was to appoint a new management team for the services arm of the HR operation. They would be responsible for delivering the programme’s objectives. This management team was selected because its members had the experience of delivering an equivalent transactional-services transformation to similar timescales.

The application of external best practice was integral to the project, so an external programme director was contracted to lead the initiative, bringing with them experience of establishing HR shared services and process rigour through the Six Sigma quality-management methodology. The introduction of Six Sigma was an important element in improving the information quality, giving the initiative a focus on process-performance data as opposed to process volumes – that is to say, doing it right, first time.

During transformation

A key principle throughout the transformation was that commitments would be met and the pace of change maintained – there could be no let-up or relaxation until the programme was satisfactorily completed. A critical element of this was a rapid restructuring of business processes at the same time as the 40 per cent reduction in staff numbers over a two-year period.

From a knowledge perspective, managing the inevitable loss of local skills and experience was a key challenge that we needed to handle as processes were centralised. People affected were offered the option of voluntary redundancy or joining a surplus pool for re-deployment.

Information

The information strategy focused on expanding the existing HR contact centre to become a knowledge hub of the service, supporting all the HR processes that were being centralised.

Capturing and transferring the tacit knowledge within the local process teams was the responsibility of a process-improvement team within each process. Their responsibility was to transfer the explicit knowledge [information] through process maps and working instructions, as well as converting tacit knowledge into information through a question and answer database.

A second element of the information strand concentrated on capturing information about customers and demand levels – rather than demonstrating value through utilisation levels, the processes would measure value through customer perception and process performance.

Skills

Interim roles were introduced to facilitate effective knowledge transfer. The transfer of technical skills relating to the processes was as important as the information supporting them because service levels would need to be sustained during the transition if customer confidence was to be maintained. A loss of key knowledge would inevitably mean a decline in service levels at a very sensitive time for Royal Mail.

A major weakness in the knowledge-transfer process was the initial decision to use the holders of tacit knowledge to map the processes: we identified a number of examples where processes were mapped without error-correction activities being recorded. Error correction had become a natural but unwritten response to mistakes earlier in the process – sometimes this was as simple as someone formatting a Microsoft Excel spreadsheet cell incorrectly.

The result was that when central teams tried to operate the processes they initially delivered a worse service than the previous decentralised one.

This can be associated with the much discussed Nonaka and Tageuchi example of bread making, where the tacit understanding of the required strength of kneading couldn’t be identified through observation alone.

Experience

Throughout this phase it was essential that levels of service were maintained so that customer confidence could be developed.

We were mindful of the many examples in which organisations instigate cost-cutting exercises and let people leave the business, only to realise a short time later that the business could not maintain service levels because the knowledgeable, experienced staff had been shown the door.

We were determined not to fall into this trap. A critical enabler of this was our plan to harness the existing experience within the operation by creating a small number of interim posts through which surplus people (who would eventually leave the business) were given specific tasks associated with the transfer of work in to the centre.

Culture

Throughout this period we were operating within a culture that still viewed the concept of ‘value add’ in terms of individual utilisation rather than individual contribution.

We were risk averse, protective of the process rather than the customer, and resistant to personal change. Using our experience of the transformation we executed, we kick-started a number of initiatives to transform that culture into one that embedded some of the following elements:

A clear collective and individual focus on customer service;
Process and service excellence;
Process improvement as a natural way of working;
Skills acquisition through continuous development;
Making measurement the basis of information acquisition;
Utilising information and insight to drive action.

Transformation and beyond

We emerged from the transformation with 1,400 fewer staff, but with our knowledge largely intact. However, we knew this was not going to be the end of the story – this was just the start of a new chapter.

To sustain the change meant that we needed to engage people and maintain effective processes and technology.

Technology

From an information perspective we needed to eliminate our reliance on information silos – local databases and shared hard-disk drives. Following a number of workshops with our people we identified a common requirement for a single reliable and trusted source of information. Everyone acknowledged that they had little confidence in the accuracy and appropriateness of their current information sources but, in the absence of anything else, they were the best available resources.

A portal system was therefore developed using Microsoft SharePoint that, as well as linking people to vital information, also enabled us to link people to people through both individual ‘Yellow Pages’ entries, as well as collaboration spaces for professional communities.

Using Six Sigma Lean Improvement and 5s [Sort, Sweep, Simplify, Standardise, Self-Discipline] management approaches we reduced our data-storage requirements by more than 70 gigabytes (GB) and introduced automated version control and document ownership. Our advisors can access both the current version as well as previous versions of documents so that we can apply advice based on the information relevant to the enquiry.

We also have more than 65 professional communities of practice and 1,700+ personal profiles through which we can search for people with relevant skills and experience.

People

Moving from local HR teams co-located with customers to central teams supporting a geographically-dispersed audience requires HR professionals to demonstrate consistency in the advice and support they deliver. This demands great flexibility because they must deliver their services while bearing in mind particular local circumstances.

Staff development itself is delivered primarily via an employment framework that recognises and rewards knowledge acquisition and utilisation together with skills development and excellent performance.

We are using the UK’s National Vocational Qualification (NVQ) scheme to develop a consistent standard of customer service training, combined with complementary HR modules aimed at particular technical subject areas. This is supplemented by a structured approach to continuous professional development that focuses on both professional skills, such as those provided by the Chartered Institute of Personnel and Development (CIPD), as well as customer service.

A key enabler of knowledge acquisition is our approach to development moves, in which staff get the opportunity to spend at least three months on another team or in another process – to date we have had more than 300 such moves.

Process

Within the HR services contact centre we handle about 80,000 contacts per month, each of which provides a wealth of data from call metrics to the call subject and reason for the call. Historically, customers have measured our contribution to their performance through the efficiency of our processes and the application of our technical skills. Going forward this will not be sufficient and will need to be augmented by the knowledge we gain from our contacts with customers. This will mean progressing through a structured filtering process:

Collate the data;
Combine the data into meaningful information;
Analyse the information to produce customer specific knowledge;
Develop key insights that will drive action within the customer community.

Bringing unique insights to the relationship will transform our role from passive supporter to proactive player in the end to end processes of the customer operation.

Our culture has to be one that promotes customer service, that goes the extra mile while, at the same time, rewarding performance and supporting a fair work/life balance. Much of this depends on the quality of our relationships and the trust that exists between our own teams and our customers.

What have we learnt?

This article has covered the role of knowledge in managing major transformations and, in this context, the key lessons we have learnt are:

You never know when a major transformation will occur – knowing where your key skills and experience are captured and well understood, helping to ease the migration and ensuring that important knowledge is retained;
The tacit knowledge of the old processes is key to identifying inherent inefficiencies and securing a successful re-engineering of the new processes.

However, going forward the knowledge requirements are different – the acquisition and development of knowledge needs to be driven by the customer and their requirements, not the process:

Deep technical knowledge needs to be supplemented by the ability to produce insightful analyses of HR performance and the services provided to customers;
Developing both the breadth and depth of people’s skills and experience are crucial to delivering the flexibility required for effective shared services;
Including people factors on the scorecard indicates the behaviours that are important in the new world and helps to build and define the new culture;
Knowledge needs to be accessible – explicit knowledge in documented form and tacit knowledge held by people both need to be at the employees’ fingertips from the desktop.

With the European Union insisting that domestic mail services across the continent should be opened up to competition, a sharper focus on retaining the knowledge required to deliver a quality postal service is essential. It has also been central to Royal Mail’s overall turnaround strategy.

With approaches such as these in place it will be possible to create extra capacity and enable the unit to deliver additional value adding services for its customers.

Mike Barker is a business manager at Royal Mail. He can be contacted by e-mailing mike.barker@royalmail.com.

Simon Shepherd is head of customer operations at Royal Mail. He can be contacted by e-mailing simon.sheppard@royalmail.com.