Informal controls and staff capabilities - transport company

The business was a long established general transport and contract distribution company. It was run by the owner-manager. Performance was managed on a largely informal basis, for example:

• Assessments of operational performance were carried out on an ad-hoc basis by the owner-manager e.g. informal discussions with staff to find out how many lorries had left the depot that day.
• Pricing decisions were made on the spot based on the owner’s knowledge.

Performance was also reviewed more formally on a monthly basis using the standard (untailored) monthly accounts; this review relied heavily on the experience of the management team, led by the owner and the FD. The owner then judged the business was becoming too large to manage, and decided to retire.

The company was acquired by a Private Equity (PE) backed, highly geared, buy in/ buy out team. This team was led by a charismatic Managing Director (MD) with a large corporate background. An ambitious growth plan was created, based on setting up a national pallet distribution network, building on the existing branch network. The FD continued, but a new finance based non-executive director (NED) was also appointed. The new MD set about implementing the growth strategy. As the growth strategy was implemented and the depot network expanded, both service and financial performance began to deteriorate.

The existing BPM system was unable to provide the necessary management and control information for the new operations (BPM tension: informal vs formal systems). The new MD took a command and control approach but did not have the knowledge of the business and expertise to be able to rely on the informal BPM system (BPM tension: staff capabilities and interests).

The NED introduced a rolling forecast which indicated a severe and potentially terminal crisis was looming. This prompted closer involvement of the PE house, which led to:

• The reluctant exit of the new MD and old FD who were replaced by the previous operational director as MD, and the NED as Executive Chairman/FD. The operational director had a valuable understanding of what operational measures indicated success.
• A strategic change to focus on activities with profit potential and to withdraw from loss making ones.
• A change in the business performance management approach, including a new analysis by profit centre. Information was now pulled from operational sources (sales, fuel records, purchase orders, wages etc.) not general ledger accounts, and was presented in operational not accounting format. It was aggregated weekly into total company profitability, and was validated retrospectively by reconciling it to the monthly accounts.

This new approach to BPM supported the new strategy, especially through:

• Identification and elimination of loss making activities, and the ability to model and monitor the impact of profit improvement actions on a rolling basis.
• The ability to identify the potential of individual contracts, separate from their host depot, even if they were not coded separately in the general ledger.
• Close involvement of profit centre managers in the use of this weekly information to develop and implement profit improvement actions.

The company rapidly returned to profitability, pressure from the bank and PE house was eliminated, and the new BPM approach provided the base for future growth.

• Senior management are critical. The quality and commitment of the senior management are key to effective BPM. (BPM tension: staff capabilities and interests).
• An informal approach to BPM is unstable. BPM based on informal systems and the knowledge of specific managers can be both an opportunity and a threat. Such an approach offers speed and flexibility. The threat is that controls are dependent on an individual, and can become inadequate following changes in the size or nature of the business. (BPM tension: informal vs formal systems).
• A balance of operational and financial information is key. Effective BPM information will often be an integrated mix of financial and operational measures, and needs to be presented in a way that is understood by non-finance staff. (BPM tension: operational vs financial sources).
• Adaptive planning is useful. When fixed targets are no longer appropriate e.g. when the operating environment changes, rolling plans are useful for mapping out a new course. (BPM tension: fixed vs adaptive planning).
• Decisive action is critical. It is important to acknowledge and respond to significant BPM signals, even if the required response goes against the current strategy, senior management commitment, or stakeholder aspirations. (BPM tension: multiple stakeholder interests).

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