Organisational Change And Development In Royal Mail

This assignment has been undertaken in order to examine and evaluate the modernisation of the Royal Mail. It will begin with identifying the reason for change within the company, and how the need for change was detected. After which the implementation of planned change in the Royal Mail will be discussed and its effectiveness will be evaluated.

The resistant factors they met whilst trying to implement this modernisations programme will also be discussed. An evaluation of the planned change will be conducted in order to assess the extent of its effectiveness.

The report will conclude will an analysis of the Business Transformation 2010 and Beyond National Agreement between Royal Mail & the Communication Workers’ Union, implications for failure will be assessed from this agreement; theory will be linked throughout the report with evidence and discussion.

Table of contents

Introduction (p. 4-5)

Main Findings

Reasons for modernising the Royal Mail (p. 6-7)

How change was planned in the Royal Mail (p. 8-10)

Types of change (p. 11)

Resistance to change in the Royal Mail (p. 12-13)

Kurt Lewin’s 5 Force analysis applied to the Royal Mail (p. 14)

Kotter’s 8 step plan applied to the Royal Mail (p. 15)

Effectiveness of the Planned change in the Royal Mail (p. 16)

Implications of failure (p. 16)

Reference/Bibliography (p. 17-)

Introduction

“The Royal Mail is part of the fabric of the country and the lives of the millions of people who use it every day. Uniquely it has the network of people and sorting offices spanning the country that can deliver to every household and business at one price, six days a week. But the future of this network is under threat as people increasingly switch to digital technology as their preferred way of communicating” (Mandelson, 2009).

Rollinson (2005) identified the term “change” refers to an organisation having to move from one situation to another, in the modern world being able to change can also be the dividing factor of an organisation’s failure or success, Beer and Nohria (2000) also identified that 70% of all change initiatives fail.

Martinez et al (1997) identified five change objectives set out by Royal Mail in the 1980’s as: privatization, modernization, commercialization, separation and automation, of these modernisation, which is the main focus of this report, automation and privatisation are still not finalised, thirteen years after this article was written.

The Labour government has been pushing for privatisation of the Royal Mail for years ever since the Thatcher government, it believed the move would aid in financing part of the pension deficit and also make the company more competitive in this liberalised market, which was introduced in 2006. Lord Mandelson was pushing legislation up to 2009 in the hope of selling parts of the nationalised company (Hooper et al, 2008; Porter and Griffiths, 2008; Porter, 2009; Datamonitor, 2008).

Hooper (2009) states that modernisations without privatisation would be very difficult due to the constant intervention from government, Private postal companies throughout the world have identified this constant intervention as the major factor in union disputes (Hooper et al, 2008). Resistance from the CWU on modernisation has been a constant topic as they believe that modernisation will bring about job losses, such resistance has especially been seen in the last two years by way of two massive strikes by postal workers (Poulter, 2009; Hooper et al, 2008).

These strikes came at one of the worst times in UK history, a recession was in full force for the second in 2009, however after recording loses over many years the Royal Mail made a 4% profit in 2009 of £184 million compared to 2008 figured of £177 million, unfortunately this profit was overshadowed with the overall drop in group revenue due to a decline in mail volumes because of the downturn and a rise in digital media, this has led to a 5-7% yearly drop in sales since 2005, during this time staff were informed there would be pay freezes which inflamed already tense relations with the union (Royal Mail, 2009; Prince, 2009; Hooper et al, 2008).

In 2000 the postal services act which governs the postal industry within the UK was introduced, the act provided for the Post Office to be converted to a PLC, set in place a new licensing system, gave the postal services commission (Postcomm) powers to protect the universal service, promote greater competition within the UK market and offer more protection to consumers with the introduction of Postwatch (Hooper et al, 2008).

Main Findings

Reasons for modernising the Royal Mail

Hooper et al (2008) has stated for the Royal Mail to become competitive in this it must first become more efficient, in order to become more efficient it must modernise. It must be noted that even though the country is in a recession which had a major impact on the company, this was not a reason for the company to modernise (Hooper et al, 2008). There are eight reasons for modernisation of the Royal Mail listed below:

Universal Postal Service (UPS): The main reason for change which the CWU also agreed upon is the survival of the UPS, which is the collection of mail six-days a week from 28 million homes and business across the UK, at prices which remain independent and set at a tariff no matter the distance up and covers five areas: up to 2kg for letters and packets (priority and non-priority), up to 20kg for parcels (non-priority), registered and insured service, international outbound services and offering services which support the security of mail (Hooper et al, 2008; POSTCOMM, 2010).

Pricing: The introduction of a 5% weighted average increases by Royal Mail in 2007-2008 led to a reduction in revenues, sales volumes fell as customers increased their use of electronic media, business switched to competitors and there was an increased use of second class mail. It is known that the UK offers some of the lowest postal costs compared too many other European countries so increases are justify but the implementation must be able to offset lost revenue. As volumes fall due to digital media the better choice may be to implement price decreases instead to stimulate growth (Hooper et al, 2008).

Pension deficit: This is one of the largest within the UK currently standing at £4 billion; also until recently it was still possible to sign up for this pension. Figures in 2008 showed it had risen by £2.5 billion since 2006 (75% increase). Due to the costs in paying the deficit, which is currently £280 million per year and will continue for the next 15 years, competing within Europe’s liberalised market is made very difficult. The deficit is almost six times larger than the cash generated by Royal Mail making it a very volatile problem (Hooper et al, 2008).

Improved efficiency: The Royal Mail is 40% less efficient compared to its competitors. Its network of mail centres and delivery offices have not been upgraded in years, Automation is severely inefficient with 70% of mail being sorted by machine compared to 95% in European companies, also all mail is hand delivered compared to 15% hand deliveries in Europe with walking sequence machines cover the remaining 85% (Hooper et al, 2008).

Working practices: Certain working practices such as early finishes restrict Royal Mail’s efficiency to provide a better service, upon finishing rounds postal workers are eligible to return home no matter how early, they can also claim overtime on extra hours worked to finish a round or can decide to simply not finishing the round. Covering for absence only when receiving overtime, not using equipment at the instruction of the CWU and demarcation, employees refusing to work in other areas of the same site (Hooper et al, 2008).

New technology: The volume of mail sent has been on a decline even since 2005, this is due to the rising use of digital media, this is being felt across the world with the UK showing one of the highest fall off figures, -3.2% in 2006-2007, however the internet also provides opportunities by way of the online shopping market as home deliveries have jumped in recent years making this a highly profitable market, also the Royal Mail’s use of machines to sort letters covers 70% while the some of the leading European companies are hitting 95% (Hooper et al, 2008; Warner, 2009).

Competition: 2006 saw the Royal Mail lose its 350 year monopoly on the UK postal market, going forward any licensed operator can deliver mail to residential and business customers in the liberalised market of which Royal Mail controls 99% , although the Royal Mail still is “required to provide a universal postal service” (BBC, 2005), research conducted by Lawson (2010) indicates that the national operators in countries such as Germany and Sweden continued to hold onto the majority share of the market years after it became liberalised. Electronic media such as email is also a threat to the company as it become more popular.

Transportation net working costs: The rising costs of fuel is having a hugely negative impact on the Royal Mail, employees uses over 30,000 vehicles to deliver mail (Hooper et al, 2008), the Royal Mail (2008) has identified a loss in revenue due to higher costs of fuel. However, Attwood (2010) states the Royal Mail is set to trial new Ford Transit vans powered by hydrogen-fuelled internal combustion engines in an effort to reduce fuel costs, plus they are also environmentally friendly as they only emit water vapour.

How change was planned in the Royal Mail

“Planned change was a term first coined by Kurt Lewin to distinguish change that was consciously embarked upon and planned by an organisation, as averse to types of change that might come about by accident, by impulse or that might be forced on an organisation” (Burnes, 2004).

Hooper et al (2008) had reported that the universal postal service cannot continue under present policies, problem areas have been identified as the pension deficit, performance and relations between the Royal Mail, unions and the regulator.

The BERR report of 2009 includes recommendation made by the “Modernise or Decline” report compiled by Hooper et al (2008), in which it identifies three main areas for the Postal Services Bill to address:

Regulation: Transferring responsibility of regulation which Postcomm currently holds to Ofcom, providing for future financial support for the UPS, extending competition law powers to the postal market and providing for a new access regime (BERR, 2009).

Pensions: Provide powers to establish a new government scheme, rights to move members to the new scheme, amend the existing scheme, set out a new division for Post Office Ltd employees and the ability to transfer assets from the scheme to government (BERR, 2009).

Partnership: Royal Mail companies providing the UPS will remain in the public sector, part- privatisation of the Royal Mail, Hooper et al (2008) has identifies this as being a necessity if the company is to achieve modernisation and additional legislation being obligatory for a Government to sell more than a minority stake in the company (BERR, 2009).

Planned change is more related to the Royal Mail compared to Emergent change as it involves strategically thought-out and planned objectives/goals, which are used to change the environment of an organisation, whereas emergent change is unpredictable and dynamic, does not work off plan’s compared to planned change and is continuous (Burnes, 2004)

Although these changes were planned and most were implemented in the 2010 National Agreement, part-privatisation of the Royal Mail received alot of criticism from other party members and the CWU. due to the currently climate Peter Mandelson admitted he was unable to find a suitable candidate for the investment so ended the proposed privatisation plans from the postal service’s bill (Wintour and Webb, 2009).

To fully understand planned change it is necessary to look at the works of Kurt Lewin who is regarded as being the father of planned change, he believed that only through learning and the understanding of the environment in which an individual is based, could a resolution to social conflicts be achieved and improved. Lewin developed four methods which were necessary in reaching planned change; three-step model, field theory, group dynamics and action research (Burnes, 2004).

The Three-Step model: This is praised as being Lewin’s contribution to the study of organisational change, although the three-step model was not intended to stand alone but be part of his over-all Planned approach to change, which also included the field theory, group dynamics and action research (Burnes, 2004).

The three step model is based on Lewin’s belief that successful change is brought about by using three steps moving from one fixed state (Unfreezing) through an advanced shift (Moving), to another fixed state (Refreezing). Unfreezing involves the creation of the right conditions in which change can occur, people create a sense of familiarity with their surroundings and any change no matter how minor will cause resistance (Burnes, 2004).

The goal is to move a person to a “change ready/unfrozen” state. This was accomplished between the Royal Mail and the CWU through the 2010 National Agreement in which both parties, after years of bitter disputes have agreed to improve their relationship for the better of the company, employees and customers (Burnes, 2004; National Agreement, 2010).

Burnes (2004) identifies the next stage in Lewin’s model as Moving, which he describes as being on a journey taking people to the Unfrozen state, old ways are in the past and the new are in the development stage of being implemented, it is here that support should be given to employees to assist with the changes being introduced (Burnes, 2004).

The Royal Mail is in the Moving stage of the 2010 National Agreement as they try to implement new modern and efficient changes to the company by way of automation, technology and industrial relationships. This will take time to fully execute, Lewin’s model states that without reinforcement change is short lived, both sides must begin to agree soon on the changes otherwise relationships will begin to break down once again (Burnes, 2004; National Agreement, 2010).

Refreeze is the final step in which the environment is stabilised, it’s sometimes difficult to separate from moving, many organisations don’t fully implement the whole extent of the change as another form of change is usually on the rise. This stage cannot be evaluated as the 2010 National Agreement between the Royal Mail and the CWU is still being implemented at this time (Burnes, 2004; National Agreement, 2010).

Types of change

Due to outside influences driving change organisations are forced to keep up to speed, if change is required the appropriate changes are implements to reflect these external environmental factors in a timely and smoothly manner so to avoid putting added pressure on the company (Price, 2009).

Grundy stated that many managers viewed change as being the same whilst others viewed it as having a negative impact, he identified three types of change as smooth and incremental, bumpy incremental and discontinuous, the Royal Mail uses none of these types (Senior, 2002; Price, 2009).

Incremental change Continuous Change Punctuated Equilibrium

Burnes (2004) identifies two other type of change as continuous transformation, which identifies the need for regular dramatic adjustments in organisations change like regular training of staff, and punctuated equilibrium, this recognises that change can occur at erratic and explosive periods of time (Senior, 2002; Price, 2009).

Punctuated equilibrium is the type of change more associated with the Royal Mail, one outlining factor is the company has not changed in many years but in 2010 reached a groundbreaking agreement with the CWU for implementation for such things as a 6.9% pay rise plus working hours reduced to 39 (Hooley et al, 2008; National Agreement, 2010).

Resistance to change in the Royal Mail

“Resistance doesn’t necessarily surface in standardised ways. Resistance can be overt, implicit, immediate, or deferred. It is easiest for management to deal with resistance with it is overt or immediate. The greater challenge is managing resistance that is implicit or deferred” (Robbins, 2001)

Burnes (2004) identified resistance to change as the obstacles created by others to stop change; some forces will be more resistant than others such as the actions taken when people feel change to be a threatening factor, such as the modernisations planned by the Royal Mail, this has received huge resistance from employees and their union through planned strikes throughout the last two years, as they perceived the modernisation process would reduce staff numbers. The report identifies four main forces against the change process at the Royal Mail:

Union resistance: The CWU also known as the Communications Workers Union is the largest union for the communications industry in the UK; it has 250,000 members most of which are Royal Mail employees, and was formed in 1995 (CWU, 2010).

The sheer size of union makes it a very powerful force to be reckoned with, it’s also well documented throughout the years that the CWU and management at Royal Mail have very different views on what is best for the company, resulting in strikes against the modernised plan proposed by the Royal Mail, this was because the CWU felt its members were at risk from new technological advancements that they felt would result in staff numbers being reduced (Hooper et al, 2008).

This could also be a result of the CWU using this tactic as a means of living up to a unions reputation with Warner (2009) adding that “the chronic union militancy that once characterised shipbuilding, steel, car making and coal industries lives on in Royal Mail”.

Management and employee relations is poor: There is a long history of poor industrial relations between the Royal Mail management and CWU which continues to this day, this has impacted severely on the company to the extent that it has prevented the Royal Mail from modernising and expanding which has led to a high level of inefficiency (Hooper et al, 2008). However, with the introduction of the Business Transformation 2010 and beyond agreement “Both parties agree that central to success is the need to fundamentally transform relationships and quickly build a culture of mutual interest between managers, union and employees”.

Reluctance in staff to use new technology: Staff in the Royal Mail believes that through the use of new technology certain position within the company will become redundant, and due to advice from the CWU they have refused to use this modern machinery which would aid in the efficiency of the Royal Mail (Hooper et al, 2008).

Employees disliking the modernisation plan: Adam Crozier who was the chief executive of Royal Mail from 2003 to 2010 is quoted as saying: “Change is difficult for everyone, but Royal Mail has no alternative but to change and modernise if it is to compete in today’s highly competitive communications market.” This is against the wave of criticism from employees and unions against the proposed modernisation plan due to uncertainty felt for their position (Thomas, 2009).

Management at Royal Mail have declared that the plan is already seeing results with operating profits up £7 million in 2009 compared to the year previous, however employees and the CWU have stated that they “believe they deserve to be rewarded for the success they have brought to this change process, which has delivered a 4% increase in half-year profits. A pay freeze is no way to thank staff who have seen colleagues leave and workloads rise” (Thomas, 2009).

This pay freeze was proposed due to the recession in a bid to counter its affects; it only resulted in already strained industrial relations becoming more intense (Prince, 2009). A gradual introduction of more work due to reduced staff numbers would have been a better plan when engaging with staff.

Kurt Lewin’s 5 Force Field Analyses

This analysis by Lewin was developed in the 1960’s, it’s based on the assumption that when the need for change arises there will be forces for and against change; the theory states that when two forces are equal change can only happen if the force for change is strengthened and the force against change weakened (Senior and Fleming, 2006).

The forces for and against change within the Royal Mail Group are listed below:

Driving Forces:

Restraining forces:

Universal service

Pricing

Pension deficit

Improved efficiency

Working practices

New technology

Competition

Transportation net working costs

Modernisation process

Union resistance

Management and employee relations is poor

Reluctance in staff to use new technology

Employees disliking the modernisation plan

The restraining force of staff reluctance to use new technology is in direct contrast to the driving force of new technology, the driving force of new technology can only be accomplished if the restraining force to use new technology is weakened.

This was accomplished with the introduction of the Business Transformation 2010 and Beyond agreement which states, “Royal Mail’s investment in new equipment and technology is a fundamental part of transforming the operation”, this was accomplished by introducing new ways of working, including workload measurement, compliance to standard, engineering team coach, maintenance of equipment outside of the mail centre and technical operators (National Agreement, 2010).

A new development plan for training and professional development plus apprenticeships in line with standards applying to Engineers based at HWDC. This was agreed by CWU which meant the restraining force was weakened so the driving force for new technology was strengthened and is in the process of being implemented (National Agreement, 2010).

Kotter’s Eight-Step Plan

Burnes (2004) identified that in order for change to be successful all of the eight stages in Kotter’s plan must be completed in sequence, any deviation from these steps will result in problems for the organisation. The Royal Mail did manage to achieve some steps but many more have still to come as the company finally embraces modernisation.

Step 1 Create urgency: May 1997, deciding that modernisation was required, March 2010, finally implementing it.

Step 2 Form coalition: Management and unions agreeing to work on a modernisation plan.

Step 3 Create new visions – discussions on the Business Transformation 2010.

Step 4 Communicate the vision – (Unfreezing): Introduction of the Business Transformation 2010.

Step 5 Empower others

Step 6 Reward “wins” – (Movement)

Step 7 Consolidate improvements

Step 8 Reinforce the change – (Refreezing)

Effectiveness of the Planned change in the Royal Mail

With the introduction of the Business Transformation 2010 it gives hope to the belief that harmony has finally been reached between the Royal Mail, CWU and employees. Adam Crozier, commented: “This agreement is good for the business as it allows Royal Mail to get on with its modernisation, it’s a good and fair deal for our people, and it’s a good deal for our customers as it ensures stability over the next three years” (ICM, 2010).

The main points of the agreement will be the introduction of a 39 hour working week, 6.9% pay rise, more job security for employees, CWU to be involved in all change matters going-forward, and the Royal Mail to remain a 75% full-time industry (CWU, 2010). These changes have been agreed on the basis that employees will embrace the Royal Mail’s “£2 billion modernisation plan which includes the introduction of new automated machinery and delivery equipment” (ICM, 2010).

Dave Ward, CWU Deputy General Secretary, said: “It’s been a long time coming, but this deal delivers on the major issues which postal workers have fought for. There’s a balance of pay and operational changes which will help offset job losses and ensure our members are fairly rewarded for change.”

Both sides seem to be in agreement for the first time is years that modernisation is the way forward for the Royal Mail, but has this planned change been implemented too late, will the refusal of employees to let modernisation be implemented sooner be the downfall of the Royal Mail, rival companies such as Deutsche Post and TNT have still managed to make substantial profits even with the added downturn in the postal market due to the recession and the explosion of the digital era (BERR, 2009).

There is also the added concern of the pension deficit which stands at £4 billion, one of the largest in the UK, which the Royal Mail is required to make contribution into every year. It begs the question of how can a company who has such a huge cost output every year make proper investments into the future and still manage to return a profit (BERR, 2009), and will these investment in new technology and automation bring the rewards that Royal Mail believes it will, even with many people moving to digital media (BERR, 2009).

Implications of failure

“The universal postal service is important. The ability to deliver items to all 28 million business and residential addresses in the UK is part of our economic and social glue” (Hooper et al, 2008).

As agreements listed in the Business Transformation 2010 for the organization have finally been reached, the implication for failure for the Royal Mail would be the loss of the universal postal service. It has been mentioned many times in this report the importance of the UPS to the UK and its people, also the loss of a public service that so many have fought to keep in the public domain, against recommendations made by the Hopper et al (2008) and BERR (2009) reports to part privatise the company.

Without modernisation eventually the Royal Mail will decline taking with it masses amounts of tax payer’s money that was used to keep the company afloat, leaving many unemployed which would be a tragedy for the UK who are still suffering the effects of a world-wide economic recession.