Use of the corporate guidance manual might not be as routine as before as companies increasingly aim to be more entrepreneurial
We have just witnessed the hostile shareholder revolt on FirstGroup. It did not succeed but the policies it was advocating – the progressive sale of UK Bus – is underway. It also ousted the Chairman, and former Arriva CEO David Martin is in his place.
Meantime Arriva itself is up for sale. Deutsche Bahn (DB) needs to reduce its debt and here is how. Arriva is tricky to sell in one mass for competitive reasons – there are only a few potential buyers to take the whole thing so we may or may not see a progressive sale.
There are factions around both companies keen to buy selectively. Management teams, competitors and aggressors.
Is smaller better?
It starts to feel like ‘small and local is beautiful’ which is exactly what we heard from Nick Ridley in the late 1980s – entrepreneurial spirit, release from the dead hand of central planning, empowered management…
What we might have learned on the way is that it is small local monopolies that deliver highest margins.
Whilst both companies have arrived at their present situation through totally different routes, and are in different situations, it feels as if some of the consequences of consolidation are catching up.
Those ‘economies of scale’, the ‘global procurement’, ‘purchasing power’, are now being questioned. As a senior director of one of them said – ‘my parent company knows the price of everything and the value of nothing’.
Central purchasing
Many PLC subsidiary MDs have heard about the ‘power of central purchasing’ but have never seen the profit and loss benefits. Too often the central purchasing function delivers you a £50 computer mouse eight weeks after you needed it.
Have the PLCs spent too long streamlining and reorganising? Trying to create systems and feed the centre? And in so doing spent too little time being entrepreneurial?
It feels like local management might once again be overcoming the frustrations of central control, using their good connections with stakeholders, having slightly discreet visits to the pub with the Trades Union, and thwarting the central functions much as they did 30 years ago.
Is local best?
Of all the PLCs, Go-Ahead has, perhaps, been the one that has consistently given the local subsidiaries the most headroom and had the thinnest central bunker. First Bus under Giles Fearnley has made much progress in the decentralisation thanks to a huge improvement in employing local talent.
There are obviously some central functions – like legal and HR – where the centre can be hugely supportive, it feels to me, though that the lesson is that whatever the attractions of more centralisation and a ‘cookie-cutter’ approach to structure, most of the rest is best done local with a large degree of autonomy.
And it feels like the industry might just be learning this again for the second time?
