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Business Turnaround

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 Business Turnaround Powered By Docstoc
					Revolutionising Performance
Through Co-sourcing and
Transformation


Ian Ailles
Thomas Cook


15th June 2004
         1
Agenda

 Thomas Cook

 The light/train at the end of the tunnel

 Sourcing Partners

 Risk and reward

 Leveraging relationships




                                             2
Thomas Cook –
A Global Leisure Group

 Canada
  Canada

                                                                  China
                                                                  China
            Ireland
             Ireland                     Egypt
                                            Egypt        India      Thailand
                                                                   Thailand
                                                          India

                   U.K.
                   U.K.
                       Netherlands
                           Netherlands
                         Belgium         Poland
                                          Poland
                  Belgium     Germany
                              Germany

                                              Slovakia
                                            Slovakia
                   France
                    France
                                 Austria
                                  Austria   Hungary
                                             Hungary
                                     Slovenia
                                     Slovenia




                                                                               3
Our brands within the Group
Travel Agencies



Tour Operators




Airlines



Hotels


                              4
THE TRAIN AT THE END OF THE
          TUNNEL




                              5
In 2001 the UK market drastically needed to turn around
our overall business performance to ensure survival.

                                                             Challenges
     Profit Before Tax Trend (1999-2001)
                                                 Comparatively heavy „Financial
                                                  Services style‟ cost base.
   Thomas Cook
                                   INDICATIVE    Limited management focus on
   MyTravel / Airtours
   TUI UK
                                                  margin and profitability.
   First Choice                                  No vertical integration.
                                                 De-centralised and un-aligned
                                                  organisation.
                                                 Inefficient business processes.
                                                 Geographically dispersed.
                                                 Lack of customer centricity.


       1999              2000       2001




                                                                                    6
The Transformation Agenda Started by appointing
a new Group Management Team
Leadership                  Develop
              Appoint new                   Create and
    &                       customer                        Communicate
              CEO/Board     focussed        develop         vision
 Strategy                   turnaround      turnaround
              Members       vision          team


Improving
                            Review          Radically
   Core                                     improve core    Continually
                            Cost            processes
Processes                                                   improve
                            Base            and extract     processes
                                            cost


 Cultural                   Develop new     Invest in       Design new      Lasting
 Change                     culture                         reward          change
                                            People
                                                            systems



                            Delayer/        Job – roles –
   Re-                                      individuals –   Review
                            Divest /        teams –         structure and
Structuring                                                 plan career
                            Co-source       Teams -
                                            processes       routes


Marketing                   Define brand/   Roll-out        Continually
                                            brand           scan Int.
    &                       Market                          market and
                                            /Market
 Branding                   positioning     focus           modify
                                                            vision
                                                                              7
Since April 2001 we have completed a number of major
milestones on our journey to turn around the business.

            TC AG Brand              Relocation              Co-sourcing    Blue Sky                Business
               Launch             and Co-Sourcing          Agreement Signed Launched             Transformation
                                     Announced
                                                                                      Launch ‘Creating the
                                                                 Staff
         New CEO      Business
                                   Distribution Mix           Transferred                            New’
                   Transformation                                                      TC AG
                                       Change                   to SSC
                     Programme                                                       Re-branding
                       Initiated     New Exec.                 Offshore               Initiative
                                        Board                 IT Support
                    ‘Fixing the
                                              Business            New
                         Old’              Restructuring       Tour Ops.
Profit                                       Completed          Brands
                                                               Launched
                                                 TC TV
                                                Launched

    0
                                                                Tour Ops.   TC UK Strategy Launch:
                                                                 Supplier       1. Value Innovation
                                                                                2. Customer Centricity
                                                                Contracts       3. Operational Excellence
                                                               Renegotiated     4. Cultural Change



    March 2001             July 2001                Jan 2002               July 2002                   Jan 2003




                                                                                                            8
        Year one of our Business Transformation programme
        has resulted in a strong turnaround of our business.

                                                                                    Achievements
       Profit Before Tax Trend (1999-2003)                         Group
                                                                      Operating as „One Company‟ instead of siloed
                                                INDICATIV              business units.
                                                      E               Changed the Thomas Cook culture to a profit
                                                                       oriented organisation that is determined to deliver.
                                                                      Cost reduction: historic cost base reduced by over
                                                                       £140m through tough, unanimous decision-making,
                                                                       re-structuring and strategic sourcing.
                                                                      Created a shared service centre for Finance, IT, HR
                                                                       administration and Project Delivery under a co-
                                                                       sourcing agreement with Accenture.
                                                                      Investments in strategic opportunities (TC TV, Blue
                                                                       Sky, BeachPlus, Re-branding).

1999            2000      2001               2002           2003   Business Units
                                                                      Tour Operations – delivered significant
                                                                       improvements to margin.
                                                                      Tour Operations - significantly improved customer
       Thomas Cook     MyTravel / Airtours                             satisfaction ratings.
       TUI UK          First Choice
                                                                      Distribution - transformed distribution mix: Share of
                                                                       in-house products sold up from under 30% to over
                                                                       60%.
                                                                      Airline – significantly improved on-time performance
                                                                       and reliable record.




                                                                                                                      9
  There have been a variety of major challenges in
  achieving business transformation to date.
                                            Time



                             Severely Underperforming Business



                             Conflicting Priorities within the UK



                             Pan-European. Vs. Local Priorities



                                            9/11

Business Transformation
                              Relocation & Knowledge Transfer



                                     Cultural Demands



                               Changing the Distribution Mix



                                Managing Multiple Suppliers



                                     People and Morale




                                                                    10
   The key enablers for transformation have been ‘speed to
   delivery’ and consistent, open and honest communications
   with staff.
Speed to Delivery

 We are setting tight & achievable                  Fast and efficient
  deadlines.                                          delivery for the
 We have achieved buy-in from TC-AG                  Business
  without letting the procedures slow us down.        Transformation
                                                      programme.
 We created a closely aligned management team.
Communication Policy

 We moved from a „good news‟ to an „open and
  honest‟ communications culture.                                             ENABLED
                                                                             SUCCESSFUL
 We centralised and synchronised communication                               BUSINESS
  to ensure that we spoke with one voice across 3    Staff prepared for
                                                      major                TRANSFORMATION
  business units.                                     organisational           TO DATE
 We kept staff informed and involved through         change.
  regular communications.                            Increase in staff
 We aligned internal and external communication.     loyalty.
 We ensured that internal communication took        Decrease in staff
  place prior to external communication.              turnover.
 We framed all our messages under the
  transformation strategy:
  'Fixing the Old' and 'Creating the New'.
                                                                                    11
Our initial focus for Business Transformation was to
aggressively reduce the cost base. While maintaining the
appropriate level of investment.


                                                   ‘Creating the New’

             Cost Focus                        Investment focus
   1. Restructuring                       1.   Re-branding
       •   Centralise business/budgets         •    Airline re-branding
       •   Streamlining – change of            •    TCTO brand strategy
           Management structure                •    Thomas Cook AG
       •   Cost control                   2.   People
       •   Reduce number of projects      3.   BlueSky – Direct business
   2. Strategic sourcing                  4.   Beach Plus – Activity brand
       •   Create Shared Service Centre   5.   Thomas Cook TV
       •   IT offshore model              6.   Revenue management
       •   Other outsourcing suppliers         software
   3. Reduce Tour Operator capacity       7.   SAP software
   4. Eliminate unprofitable flying
      routes


             ‘Fixing the Old’

                                                                             12
SOURCING PARTNERS




                    13
  Strategic Sourcing has become an important enabler - key
  suppliers are providing us with a service that is core to
  their business.
                                                                                  Benefits 2001/2002
                 In-House Cost Base vs.                                Accenture
                 With Strategic Sourcing                                Shared Services Centre
                                                                        for IT /Finance / HR Admin /
                                                                        Projects.                 £3.15m
       INDICATIVE                                                                                          Innovation
                                  Without Strategic Sourcing           Syntel                               clauses
                                  With Strategic Sourcing
                                                                        Use of offshore model for          included in
                                                                        Distribution Application             contract
                                                                        management.               £0.82m
                                                                       PinkRoccade
                                                                        Desktop Management        £0.10m

                                                                       Strat.OS - Procurement
                                                                       Ernst & Young                       Over
                                                                        Internal Audit
                                                                                                            £10m
                                                                       Hayes - Mail Distribution
                                                                        / Archiving
                                                                       Caxtons - Facilities
2000      2001      2002   2003    2003        2004            2005
                                                                       Eurest -Catering



                                                                                                             14
 Offshore impact




       Offshore Arrangements            TC Costs    Off-Shore £m   % Savings


     Syntel – IT for Distribution         1.73          0.82         53%


BPO – Invoice & Ticketing (Lufthansa)      1.7          1.0          41%


         Web Development

                                           % of
                                                      Malaga       Programme
       Offshore Arrangement             Programme
                                                     Savings %     Savings %
                                         Offshore

      Accenture – SAP Malaga              15%           45%           7%




                                                                               15
A major element of our strategic sourcing strategy has
been the Co-Sourcing arrangement with Accenture.



                                                                                          Benefits
                    Cost Impact 2001 - 2011
                                                                          Strategic long-term partnership.
     £m
                                                      Current             Shared responsibilities and goals.
                                                      IT/Finance Cost
                                                      Trend               Shared financial returns.
                                                      Thomas Cook /
                 Profit                               Accenture Co-       Commitment to innovation.
Total Costs




                  gap                                 Sourcing
                                                      Arrangement         Structure and funding to drive
                                               Risk                        additional transformation.
                                                      Strategy Without
                                                      Co-Sourcing         Retained control of investment,
                                                                           policy, procurement and strategy.
                                                                          Flexibility.
         Today      2 yrs   4 yrs    6 yrs   8 yrs    10 yrs              Project delivery by Accenture.
                              Time




                                                                                                              16
The first major programme has been the creation of
a Shared Services Centre for IT, Finance, HR
admin, Project Delivery and the implementation of
SAP.
                         Scope of the SSC

                                        SSC
                                                                     Consolidated in one
                            Finance, Payroll, HR Admin, IT            location.
                                                                     One system, one set of
                                   Strategic Partners
                                                                      consistent processes.
                                                                     Focus on service delivery
    Service Management




                             Desktop / Help Desk Services
                                                                      to the Thomas Cook
                               Applications Management                business.
                         Project Delivery    IT Offshore Support
                                                                     Strict metrics and
                                                                      performance tracking.
                               Operations Management                 Continuous improvement.
                                                                     Flexible assets with
                                        Network
                                                                      potential for expansion to
                                    IT Infrastructure
                                                                      further functions and
                                                                      geographies.
                          Accenture                     3rd Party




                                                                                                   17
RISK AND REWARD




                  18
Procurement

 Procurement in Thomas Cook was outsourced to an
  external supplier

 The deal comprised
   - A significant fixed fee for procurement services
   - Commissions payable to outsource provider based on savings
   - Complex gain share mechanism


 Savings were delivered and costs were avoided, but
  ……


                                                                  19
Benefit Realisation Challenges:

- No significant market knowledge
- Reliance solely on the expertise of the individual
  team members
- No aggregation of multiple client‟s expenditure
  volumes to increase market leverage
- An in-house “Virtual Procurement Team” had to
  be set up to deliver the savings with significant
  internal management re-invested
- No ability to draw on commodity specialists ad-
  hoc



                                                       20
Costs and Benefits alignment with Risk
and Reward

  - Relatively high fixed cost to performance levels

  - Savings increasingly difficult to find as cost base
    restructured

  - Little flexibility to use different approaches in
    structure

  - Deal structure difficult to understand and explain


                                                          21
Conclusion



 Fixed cost element too high in light of performance
  issues

 Deal structure too complex

 Lack of flexibility




                                                        22
Shared Service Centre - Overview

 Finance, IT and HR
 Consolidated in one location.
 One system, one set of consistent processes.
 Focus on service delivery to the Thomas Cook
  business.
 Strict metrics and performance tracking.
 Follows standard Thomas Cook Budget
  process
 Continuous improvement.
 Flexible assets with potential for expansion to
  further functions and geographies.


                                                    23
              Shared Service Centre Responsibilities

  Core                                                                                              Accounting Services
Business                             Operational Review Board
                      Thomas Cook
                                                                                                    HR Admin & Payroll




                                                                      Service Management
Specialist
Business                                                                                           Project Management
                                                   CSSC
                                                                                                 Applications Management
 Airline
                                                                                                 Operations Management

                                                                                                      IT Infrastructure

    A jointly-controlled centre giving us the required level                               Customer Services (Pink)
     of control
    We have ownership of strategy, policy and investment                                     Network (Energis/BT)
    accenture have operational control
                                                                                           Distribution Legacy (Syntel)

  Accenture Business Process        Accenture IT and Programme Mgmt




        Thomas Cook                            3rd Party




                                                                                                                           24
accenture – Risk Reward

 Two mechanisms for gain/pain share

   - Achievement of Business Plan

   - Balanced scorecard (Margin risk)


 Governance

   - Steering Committee

   - Functional Forums



                                        25
Elements of the Balanced Scorecard


Qualitative Elements (worth c.70% of the margin-at-risk)
 Cultural Fit
 Process Improvement
 Quality and Standards
 Innovation


Quantitative Elements (worth c. 30% of the margin-at-risk)
 Service Performance (SLAs)



                                                           26
An Example of Measurement - Cultural Fit

This measures Thomas Cook‟s perception of SSC staff and how
   well the service meets their needs.

 Mechanism:

   -   Twice yearly survey measuring perception of SSC staff and service


 Scoring:

   -   Survey results will be translated into an average score. It will then be
       translated into a score out of 10




                                                                                  27
Conclusion

  Risk reward didn‟t work well enough in isolation
   without flexibility and correct deal structure

  Risk reward works well for Thomas Cook/accenture
   shared service centre

  We enjoy an unexpected extra balance from
   accenture themselves

    - accenture are responsible for improvement and service
      delivery
    - So they don‟t sell what they can‟t deliver!


                                                              28
Summary


 Thomas Cook UK has dramatically turned around performance
  – from a significant loss to a very satisfactory profit - in two
  years.


 This has been achieved through a major Business
  Transformation programme with an initial aggressive focus on
  the cost base, whilst continuing to invest in new opportunities.


 We are now changing our focus investment in „Creating the
  new‟ to reach our aggressive profit targets for the future.




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