Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 171 - 179)

TUESDAY 11 DECEMBER 2001

MR PETER CARR, MR GREGOR MCGREGOR AND DR IAN LEIGH

Chairman

  171. Good afternoon. I am sorry that we are a wee bit later starting than we would have hoped but I noticed that you have been in so you will have seen what happens. We will get right into things. Perhaps you could introduce your colleagues, Mr Carr?
  (Mr Carr) Certainly. This is Gregor McGregor, who is the Chief Executive of Postwatch, and Dr Ian Leigh, who is one of the senior directors.

  172. Thank you. You used to be POUNC. Many of us had the idea that the word POUNC implied a cat but we also felt a cat with neither claws nor teeth. Are you different from your predecessor and in what ways?
  (Mr Carr) It is a part of my life that I am happy to have forgotten. We are very different. We are an organisation that was constituted under the Postal Services Act and we came into being at the beginning of January of this year. We have considerably more legal powers, in fact POUNC had virtually no legal powers, and we have a position to occupy within the framework of the Government of the postal services industry linking with the regulator and obviously with the licensed operators, but with a specific duty to represent all the consumers, and that is important, all the consumers, and we do this by having a regional organisation which did not exist under POUNC.

  173. Thank you. You have got a modus operandi, I imagine, which involves research projects and things like that. What are you actually engaged in at the moment apart from servicing complaints, as it were?
  (Mr Carr) The complaints side is fairly straight forward and it was also part of the POUNC activity, although since Postwatch came into being there has been a significant increase in the number of complaints because obviously there is a much greater awareness of our existence. I believe that in the ten months that we have been operating we have had an increase of 29 per cent. I think that has also got something to do with the fact that the rate of service failure is increasing and obviously more people are being upset by these failures. We do research in a number of areas. Firstly, a lot of our work is being focused on the policies of liberalisation within Europe. We need to increase our awareness and knowledge of those processes and the different parties involved in that. For example, currently this month we are undertaking a research project into the quality of information being given in post offices to people using the parcel services. You are probably aware that it can be quite a complicated process of knowing which product it is you want to buy. Because this is not something you do too often there is a great dependence upon the quality of information that comes over the counter to you by the counter clerk. They are not always particularly well informed. It does affect people's rights to compensation thereafter because on some of the products, if you do not know what the content is and they go missing or are damaged for any reason, their right to compensation is a matter of the choice of product they have chosen in the first place. That is one other area. We are researching into pricing mechanisms which are going to be required under the new licence arrangement, as the regulator moves on, and other areas which concern delivery, part of which Jerry Cope was just referring to.

Mr Lansley

  174. You heard the Chief Executive of Consignia talk about the reasons for their losses. What do you regard as the fundamental problems facing Consignia in the light of those latest results?
  (Mr Carr) I think it has to be seen in the context of the five year performance because any one year in a commercial organisation is not always indicative. But a move from £600 million profit into loss in five years, particularly when you have to remember it is still a monopoly, there has been no competition and no prospect of competition during that time, but more importantly to spend £2 billion on the capital account in the process—and I believe there was another £600 million spent on overseas acquisitions—so that has to be in its bare bones analysis a pretty disastrous trend. The only thing that might give you comfort is some knowledge that they are going to come out of this at the bottom of the trough. If you then say "Okay, that is the analysis, what are the real drivers in this?" well, very simply, there is some degree of accuracy in the comment that the volumes are declining but, of course, in a stable market and a monopoly if you are in charge of a business you must know they are going to decline because the variables do not exist through competition. Therefore, costs have been allowed to grow quicker than sales and that in very simple commercial mathematics says you make a loss. So if you look deeper into that, and ask why are these things happening and what can be done about it, the thing that one has to remember is this is basically still a very sound business, it is still a monopoly, and at the rate at which the regulator is moving it is likely to remain a monopoly for quite some time. Therefore, if it is fundamentally still sound, and is providing a service which is still growing at the rate of 2.7 per cent per annum, albeit that a lot of that growth is coming in the lower margin sector, you have got to say "Well, how is it that they cannot make a profit?" Clearly costs are out of control at the moment and this attempt at a £1.2 billion reduction is clearly very important indeed and so fundamental that it is surprising that it was announced on October 5 and, as far as I am aware, we heard this evening they still do not know where that is coming from. If you are going to take money out, you have got to take it out quickly because then you get the benefit for a longer period. It is absolutely vital that happens. What is also vital is to look at the positive side of things and that is to grow the business as well, to arrest the decline which is so obvious and try to find new products and new methods that do not involve cost cutting to grow the market, to get the people who are your customers today to spend more and to get new customers to come in who are not your customers today. Now I know that sounds quite simple in theory but I do repeat that this has been a very profitable business at times and it has invested £2 billion in it, it has got into the trouble it is but there is no reason why it cannot be got out of this trouble in two to three years.

  175. I am not clear. Are you supporting, in a sense, the target of savings of £1.2 billion or are you looking for more? Are you looking for different kinds of savings or a faster timescale? What kind of action are you looking from the Post Office?
  (Mr Carr) First of all, you will appreciate they do not share their figures with me, and that is for reasons of confidentiality. I think it might be a good idea if they did. Personally I am worried about £1.2 billion. My own fag packet sums produce a figure of nearer £2 billion and that is, if you like, just building on 30 to 40 years' experience as a shopkeeper. When you get into this kind of position it is an opportunity—as well as being a problem—to reinvent Royal Mail and to reinvent the Counters network. The danger is that the current management, or any management, might focus on patching up today's engine when in actual fact what is needed for the future is a brand new engine. There is inevitably an element of patching up that has to be done because you have still got to keep the machine moving whilst you are building the new engine. I fear that what I am seeing at the moment is a focusing on patching up what we have already got, and adapting it and trying to squeeze a bit more profit out of it rather than taking the opportunity of reinventing Royal Mail, reinventing the Counters network, arranging new products, new methodology and something which is more focused on the requirements of customers and specific groups of customers.

  176. I think at the moment in my own mind I see this as two rather confused things. One can say to the management of the Post Office you have to meet very challenging cost reduction targets or the habits of the monopolist of the past have to be foregone, but the existing management are the people who can probably identify where you can make quick substantial savings in operation. Alternatively, you go down the path of saying it has to be structured anew, it has to be done afresh and it has to be done afresh with new management. Now, which of those do you think should happen?
  (Mr Carr) I think it is well known that my choice would be the latter, in fact we have gone public on this as recent as two weeks ago. In fact, it resulted in the beginning of that change in that I believe there is now a new Chairman to be appointed. We do not yet know the name but that is the beginning of the process. We have heard evidence that referred to the need for a cultural change and that is quite right, it is a change of culture, it is fundamentally the change that is required. Sometimes it is necessary to bring in people who have a fresher view of things. I would like to say two things. In the two years that I have been involved, I have come across a lot of very able, competent, intelligent people in the middle to senior management of this organisation who have a lot of ideas and who know the solutions to these problems. The difficulty is connecting those people with that ability, with that knowledge, with change and having a situation in the organisation where change can occur and it can occur rapidly. This is a consumer business which is uncompetitive, or at least not in a competitive market at the moment. The consequence of that is the change is too slow. In normal consumer markets you have to be ahead of change, you have to be ahead of the customer, you have to be anticipating what they want and driving change through your organisation. The products in Royal Mail have hardly changed for years, probably 20 or 30 years, it is still the same product. It is the same in Counters, they have a product range of 177 items to which I believe only two or three items have been added in the last ten to 15 years. If you do not change your consumer product in line with what your consumers want then clearly you are going to end up with this kind of result. Then you have to say "Well, are we going to give this management another £2 billion in the next five years with the possibility of the same consequences?"

  177. Certainly there is to be a change of Chairman but when you said these things a couple of weeks ago, Ms Cassoni said "You are making headlines but outsiders cannot see what is being done inside the Post Office and all the right things are being done". Do you stick by your contention that the fundamental problems are not being addressed and how can you back up that proposition where she says the right things are being done?
  (Mr Carr) I did read the comment and smiled because we do know a lot more that goes on for obvious reasons. We have a lot of contact with them. Your point was do I believe that the fundamental things are being addressed. I do not want to leave you with the impression that everything at Consignia is bad news, it is not. There is a lot of good work being done and increasingly a lot of it is being done with our organisation as well because there is recognition, for the first time I might add, that consumers matter to consumer providers. It is the case that you could never have credited Consignia as being a consumer led organisation. Hopefully in our own small way this is something that we have been able to achieve by changing the focus of their leadership to recognise that this has got to happen. As I say, there are a number of good things which are happening particularly on the delivery performance side, the detail of which we will discover tomorrow. There is a need, as I say, to review the whole of the activity and that includes the delivery specifications. One should not get deflected by focusing on second delivery which is only one part of delivery. It is the totality of the delivery organisation that has to be reviewed and it is something that they are getting on with.

Sir Robert Smith

  178. I think that leads us on. From correspondence I know the answer to this question but for the record, for the Committee, what is your view of the customers' value of the second post and what do you feel about the decision of Consignia to get rid of it?
  (Mr Carr) We support the policy to review the whole of the delivery specification, and that includes the second deliveries. The research that we have done through our focus groups gives you as many different answers as you want to get, it is as simple as that. There are 26 million homes that are delivered to each day and 60 million people in the country and depending on the question you ask you get the answer you want. What is clear in practical terms is that the post is something that people depend upon, they respect it, they rely upon it, and it is something that can disturb their lives if it does not happen. What they are looking for is delivery at the same time by the same person each day, that is the ideal. There are others who will then build on that who will say "I would like it before I go to work because that is what I am used to having", but it is a question of reviewing the whole project and not just focusing on the delivery times and so on. For example, 0930 was mentioned a lot but in actual fact that is not part of the Universal Service Obligation, that only requires people to go to a house once a day, it does not say by 0930. That is, in fact, a self-imposed target by Consignia, by Royal Mail.

  179. On targets for levels of service, what are the main customer service problems facing Consignia? What do you get the most complaints about at the moment?
  (Mr Carr) The biggest single cause of complaint is loss, lost mail. If I could just make one or two comments on what John was saying earlier about the million letters a week, which you kind of attributed to us, which is true. The test that he questioned was, in fact, a test of Consignia's, it was done by the MORI Group who do the testing for the Post Office. It was a test set up by them. The qualification for the test was that it was confined to three or four standard sized envelopes, fully typed addresses, fully post coded, and that did not include handwritten or window envelopes or anything like that. That represented about 22 per cent of the stamped and metered first class mail. The result that it produced in the range of probability was at one end half a million letters a week and at the top end 957,000. In view of the fact it was confined to first class mail only and none of the other products, and the fact that it was confined to the specifications I have just given which are designed to give you the best possible result, we took the view that it was reasonable to assess this result at the upper end of the range of probability, which got us to a million. What I should also point out is that lost mail is defined as something that fails to arrive at its destination within 15 days of posting. Probably a very high proportion of that million a week is mis-delivered as opposed to lost. That is something that has not yet been tested but it could be as high as 80 per cent of that. That would comply with John's belief that we have not got a million letters a week lying around on delivery office floors, but an awful lot of it is going through the wrong letterbox and it does not always get passed on.


 
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