Achieving transformational change - the Royal Mail experienceIan Jones

Operations Programme Director10th January 2013

Agenda …..

• Why is this transformation important?

• What are we trying to achieve?

• What are the challenges?

• How are we governing this?

• What have we delivered?

• What have we learnt?

But first, some context……

3

After 400 years of existence, Royal Mail continues to have a major presence across the UK and Europe…...

Our letters and parcels business - covering the ‘one-price-goes-anywhere’ UK universal service

Our pan-European parcels business employing over 14,500 employees across 42 countries

Our growing UK based express parcels business, delivering around 150,000 parcels a day

4

The UK mail operation currently delivers 54m letters and 4m parcels to 29m addresses daily!

• We collect from 115,300 post boxes, 10,700 post offices and 79,700 business customers six-days-a-week

• We operate 24 hours a day using a network of 40,500 vehicles, 56 flights and 11 trains

• Today, we employ 137,400 people, operating out of 50 mail sortation centres, 8 regional distribution centres and 1,356 delivery offices

5

Overall postal volumes have been in decline as technology and competition take effect…

m ITEMS

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

21,000

2007 2008 2009 2010 2011

20% DECLINE IN 5 YEARS

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Limitedaccess tocapital to

modernise

In addition, several other factors converged in recent years to create a challenging situation….

Marketliberalisation

beforemodernising

Legacypensiondeficit

Intrusiveregulatoryprice andconduct

controlsArtificialsortation

competition

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By March 2010, the prospects for the company looked pretty bleak…..

Group revenues were in decline, £120m less than 2009, due to the recession and the structural decline in our core volumes

The IT network and capability represented a huge risk to business continuity

Cash was flowing out, not in!

2%

£213m

£

£

The cost response was too slow, with the company unable to reduce costs at the same pace as revenues were falling. Unsustainable operating losses were the result

0%

£

The network continued to lag behind other postal operators in terms of automation and efficiency. This required significant financial investment to address changing mix and falling volumes

Our pension deficit had ballooned to over £9bn, with the pension trustee threatening tough action£ £9bn

8

By March 2010, the prospects for the company looked pretty bleak…..

Group revenues were in decline, £120m less than 2009, due to the recession and the structural decline in our core volumes

The IT network and capability represented a huge risk to business continuity

Cash was flowing out, not in!

2%

£213m

£

£

The cost response was too slow, with the company unable to reduce costs at the same pace as revenues were falling. Unsustainable operating losses were the result

0%

£

The network continued to lag behind other postal operators in terms of automation and efficiency. This required significant financial investment to address changing mix and falling volumes

Our pension deficit had ballooned to over £9bn, with the pension trustee threatening tough action£ £9bn

9

The Postal Services Act 2011 provided a level playing field…..

®

Historic pension deficit to Government

Private investment

Post Office in public or mutual ownership

New regulator and regulation

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• Trays not Bags

• Collections Optimisation

• Digital handheld devices on all collection routes

COLLECTIONS

• Network Optimisation

• Optimised Vehicle Service centre Network

• SAP HR – PSP

• Track & Trace

LOGISTICS & TECHNOLOGY

• Optimise Plant Capacity

• State of the Art Automation

• Enhanced Address Interpretation Infrastructure

PROCESSING

• Use of Automation

• New Delivery Methods

• Digital handheld devices on all delivery routes

• Convenient delivery

DELIVERY

The modernisation portfolio is extensive and covers every aspect of the operational pipeline, e.g....

We have invested £0.5 billion in proven technology supporting a high quality operation

INTEGRATED MAIL PROCESSOR x 138CULLER FACER CANCELLER x 74 LARGE LETTER SORTERS x 27

i LETTER SORTING MACHINES x 69 COMPACT SEQUENCE SORTER x 574

INTEGRATED MAIL PROCESSOR x 138

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We are almost two thirds of the way through an investment programme worth £0.75 billion to modernise our Mail Centre sortation network…Key design principles:

Safety: Safe ways of working with common standards

Quality: Optimal locations meeting quality of service requirements and delivering standardised performance

Efficiency Highly efficient, standardised layoutsand cost: with modern automation equipment

Reduced logistics and Mail Centre networks

People: Right tools for the job and an enhanced working environment

Enabling £0.2 billion of annual recurring benefits and property disposal proceeds in excess of £0.3 billion

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CLOSEFarnboroughLiverpoolCreweBoltonCoventryNorthamptonMilton Keynes

OPENWarrington South -Midlands

CLOSEWatfordStevenageHemelSouthend

OPENHome – CountiesNorth MedwayMount Pleasant

CLOSEMaidstoneTonbridgeDartfordCanterburyTeesideYorkLondon EastLondon SouthWorcester

CLOSEDarlingtonBradfordHullLeicesterDerbyShrewsburyGloucesterCambridge

CLOSEDoncasterIpswich

CLOSEPortsmouth

Modernising the Mail Centres….….our journey is well advanced

CLOSEPaddington

CLOSEReadingOxfordOldhamStockport

Key: Completed Final Decision Authorised for consultation

2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

69 6864

5957

4840

38 37

We are half-way through a £0.5 billion investment programme in our delivery operation….

1 • Safety Reduce unsafe acts and conditions

2• Quality of Service and Customer Satisfaction

Maintain regulatory Quality of Service and to provide leading customer service to a changing market

3• Methods for a Changing Mail Mix

New equipment enabling staff to carry increased volumes and complete a ‘single journey down the garden path’ to complete delivery of letters and packets

4• Productivity Increases and Cost Reduction

Enabling a cost reduction of £0.2 billion p.a. from the introduction of sequenced mail, outdoor walk planning and new delivery methods

5•People and World Class Mail

Involvement through engagement and training programmes in new methods and expansion of World Class Mail continuous improvement to all units

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And achieving a visible change in the way we deliver mail, creating capacity and capability for parcels growth…..

...delivering seamless change on this scale, whilst maintaining a high quality ‘business-as-usual’ service to the UK public every day

Our single biggest challenge to date….

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Supporting the transformation through skilled resource and robust governance….

• Projects aligned to programmes

• Reporting into a centralised PMO with satellites

• Working to a standard governance model

• Supported by a strong leadership and engagement focus

• Enabled by a peak of over 1,000 internal programme, project and change leadership professionals plus multiple suppliers

3

2008 2009 2010 20122011 2013 2014 2015

COLLECTIONS

Visibility & Tracking

PROCESSING

• Materials Handling/Traying

• MC Rationalisation

DELIVERY

Collections Traying Re-engineering

Large Letters Automation

Walk Sequencing National Deployment

LSM Replacement & Single Pass Sorting

Traying– Retail & Wholesale

Delivery Methods Deployment

People Systems Programme

RFID Install to DOs

Collections Activity Georoute Enabled

CFC upgrade and rationalise

RFID to All CSS sites

Address Interpretation

Service Centre Estate Review

Delivery Office Estate Review

Annual Network Review

Parcels Sortation Simplification

•Automation

•Sorting

LOGISTICS

Mail Centre reduction 69 to 37

Regional Distribution Centre Rationalisation

PDAs for All

WORLDCLASS MAIL

Mail Centres & RDCs

Delivery and all of rest of Collection/Logistics

SYSTEMS (OPS)

PDAs for Tracked Plus

Our modernisation activity is at an advanced stage with programmes tracking to time, cost

and quality

Parcels Automation

Safety

Industrial relations

Improving customer interaction

Deliver what we promise

People engagemen

t

Automating mail

processing

Reduce delivery & collection costs

New delivery methods

Mail Centre efficiency

World Class Mail

Optimise networks

and logistics

Upgrade our IT estate

Corporate Responsibility

and Sustainability

Reduce delivery &

collection costs

Dec 2012

Delivery Office Revisions

PDAs on Collections

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 Mar 2008 Today

Lost Time Accidents per 100,000 hours 4.11 1.29

Collections Trayed to MC’s 29% 69%

Machines – new, refurbished or upgraded 40 992

Mail Centres closures 0 24

Mail Centres opened 0 5

% Outward Mail Automated 72 94

% Mail Sequenced to Delivery Point 1 78

Delivery Offices Fully Modernised 0 693

Number of PDA Devices 0 48,015

People Employed (000's) 158.9 137.4

Cost of operation £5.4bn £5.0bn

Real savings (including inflation) £0.9bn

1c Quality of Service 85.2% 92.5%

Evidenced by our journey over the past 4 years…

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Plus external recognition for the Programme continues to grow….

Winner of the Association for Project Safety Awards 2012:

• CDM Co-ordinator of the Year Award

• Regional Health & Safety Award

Finalist for 3 major Association for Project Management Awards 2012:

• Programme of the Year

• Shell HSSE Award

• Project of the Year

Runner-up for the Constructing Excellence Awards for London and the South East 2012:

•Project of the Year, Client of the Year and Outstanding Customer Satisfaction

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We continue to learn as we go….

What’s going well?•Safety and service at the heartof the modernisation

•Clear governance

•Major successes in automationand mail centre rationalisation

What do we need to do better?•This is tough for all of our people

•Ensuring we deliver ‘sticky change’

•Establish momentum in modernising the rest of our delivery operation

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Summary • Transforming Royal Mail is essential for our future success and ability to deliver the USO

• The Postal Services Act 2011 has been a major enabler

• We are delivering a huge technical programme – but at the core it is a people programme

• We have invested £1.8 billion to date and enabled £0.9 billion of recurring annual benefits

• We have many successes under our belt and are hugely proud of what we have achieved!