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Short term change management model for Serco Plc
- 1. Business Improvement and Change A presentation on SERCO plc during 2011-2014 By Lohet Ramesh
- 2. Introduction • What are the services delivered by Serco • Profiles of the senior management team • Issues and shortcoming faced as a global service provider • The reasons for the corruption charges and lack of transparency • Critical success factors and the KPI’s during this period • A short term change model to handle the crisis
- 3. Background • Serco is an outsourcing and services provider • Establishing their presence globally in different sectors made them unique with sparse competition • Employs 120,535 people as of December 31, 2013 • Caters to the government agencies and also private companies to a smaller extent • Dependence on public sectors • A steady fall in the company’s profits for the past 3 years
- 4. Board of Directors of SERCO • LeonardVan Groneu who was a long standing non-executive director leaves SERCO in 2013 • Chief executive Chris Hyman is replaced by Ed Cassey in the later part of 2013 • Three new non-executive directors were appointed in 2013 • Andrew Jenner, the financial director leaves the board in May 2014 • Owing responsibility for the company’s poor performance, the chairman Alastair Lyons steps down
- 5. Changes observed • A change in the culture of non-executive directors and their respective responsibilities and duties • A poor executive decision to move into private sector and to win as much government contracts as possible regardless of risk or poor returns • Mounting debts as a result of poor decision on contracts, unfavorable political environment in other countries where it has major contracts • Frauds in prisoner tagging, losing money on accommodating prisoners contract, falsification of NHS data caused a irreversible reputational damage to the company • The reputational damage caused their share prices to tumble down by 45%
- 6. Analysis of Serco from 2011 - 2014 Balanced geographical portfolio, partnerships & strategic acquisitions, high win rate, AMEAA & BPO penetration, proactive portfolio management strategy Dependent on public sector, fraud allegations, unfavorable conditions in international markets. Strong growth in Business Process Outsourcing (BPO) with robust demand in UK market which afford them multi-year contracts. Market penetration strategy in AMEAA regions especially in defense Government regulations, austerity measures due to recession, increase in competition
- 7. Critical Success factors and KPIs 4.6464 4.913 4.2881 5.13 6.15 2.49 11.93 15.37 5.39 0 2 4 6 8 10 12 14 16 18 2011 2012 2013 ChartTitle Turnover Profit margin ROCE
- 8. Unfreeze Move Refreeze • Need for immediate change communicated • Foster stability in the process • Inform and enforce change across Serco uniformly • Proper accountability and proactive leadership • Ensure proper information dissemination using all channel communication model • Adhere to the change for the short term through the transition process Kurt Lewin’s Action research model
- 9. Conclusion • From the above critical analysis , the proposed short term change model should be implemented to successfully sail through this crisis
- 10. Recommendation • With a short term change model stressed for the current situation, it is suggested to implement a long term change model for the sustained growth of the company.
- 12. Reference lists Adams, C. (2013). Serco soars on hint of further dividend hikes. City AM. [online] Available at: http://www.cityam.com/article/serco-soars-hint-further-dividend- hikes [Accessed 12 Mar. 2015]. Aggreko, (2013). Annual report. [online]Aggreko, p.p2.Available at: http://ir.aggreko.com/~/media/Files/A/Aggreko-IR-v2/respres/2013/aggreko- ar2013-web.pdf [Accessed 18 Mar. 2015]. Anonymous (2009), Apr 16. www.companiesandmarkets.com: Serco. M2 Presswire. Barber, L. (2014). Serco share price spikes as chairman Alastair Lyons stands down. City Am. [online] Available at: http://www.cityam.com/1416209537/serco- chairman-alastair-lyons-stand-down [Accessed 15 Mar. 2015]. City AM, (2012). G4S and Serco sign asylum deal. [online] Available at: http://www.cityam.com/article/g4s-and-serco-sign-asylum-deal [Accessed 12 Mar. 2015].
- 13. City AM, (2012). Serco offloads German unit to look for growth. [online] Available at: http://www.cityam.com/article/serco-offloads-german-unit-look-growth [Accessed 12 Mar. 2015]. City AM, (2012). Serco pays £55m forVertex. [online] Available at: http://www.cityam.com/article/serco-pays-55m-vertex [Accessed 12 Mar. 2015]. Cook, R. (2014). Serco and theWest Australian hospital with no patients. the guardian. [online] Available at: http://www.theguardian.com/commentisfree/2014/feb/13/serco- fiona-stanley-hospital-perth [Accessed 15 Mar. 2015]. Hope, K. (2013). Contract wins boost Serco. City AM. [online]Available at: http://www.cityam.com/article/contract-wins-boost-serco [Accessed 12 Mar. 2015]. Jefford, K. (2013). Serco caught in prisoner escort fraud claims. City AM. [online] Available at: http://www.cityam.com/article/1377736615/serco-caught-prisoner-escort-fraud-claims [Accessed 12 Mar. 2015]. Maidment, N. (2014). Serco chastened by costly lesson in outsourcing risk. Reuters. [online] Available at: http://uk.reuters.com/article/2014/11/14/uk-britain-serco- idUKKCN0IY0VL20141114 [Accessed 4 Mar. 2015].
- 14. Neuwirth, S. (2013). Serco confirms new £810m US health contract. CITY AM. [online] Available at: http://www.cityam.com/article/serco-confirms-new-810m-us-health- contract [Accessed 12 Mar. 2015]. Plimmer,G. (2015). Serco sinks under a sea of troubles. FinancialTimes. [online] Available at: http://www.ft.com.proxy-lib.anglia.ac.uk/cms/s/0/2eeec226-89b8-11e3-8829- 00144feab7de.html?siteedition=uk#axzz3Sls0kW4X [Accessed 25 Feb. 2015]. Plimmer,G. and Aglionby, J. (2014). Soames moves to tighten grip on Serco empire. FinancialTimes. [online] Available at: http://www.ft.com.proxy- lib.anglia.ac.uk/cms/s/0/f6ed52c4-f6af-11e3-b271-00144feabdc0.html#axzz3Sls0kW4X [Accessed 25 Feb. 2015]. Rankin, J. (2014). Serco chairman Alaistair Lyons resigns. the guardian. [online] Available at: http://www.theguardian.com/business/2014/nov/17/serco-chairman-alastair-lyons- resigns [Accessed 15 Mar. 2015]. 'Serco Group plc SWOT Analysis' 2012, Serco Group, PLC SWOT Analysis, pp. 1-8, Business Source Premier, EBSCOhost,Available through: Anglia Ruskin University Library website <http://libweb.anglia.ac.uk> [Accessed 4 March 2015].
- 15. 'Serco Group plc SWOT Analysis' 2013, Serco Group, PLC SWOT Analysis, pp. 1-10, Business Source Premier, EBSCOhost,Available through: Anglia Ruskin University Library website <http://libweb.anglia.ac.uk> [Accessed 4 March 2015]. 'Serco Group plc SWOT Analysis' 2014, Serco Group, PLC SWOT Analysis, pp. 1-9, Business Source Premier, EBSCOhost,Available through: Anglia Ruskin University Library website <http://libweb.anglia.ac.uk> [Accessed 4 March 2015]. Serco, (2011). Annual report and accounts. [online] Serco. Available at: http://www.serco.com/Images/Serco%20AR2011_tcm3-39494.pdf [Accessed 25 Feb. 2015]. Serco, (2012). Annual report and accounts. [online] Serco.Available at: http://www.serco.com/Images/Serco_AR12_WEB_tcm3-40447.pdf [Accessed 25 Feb. 2015]. Serco, (2013). Annual reports and accounts. [online] Serco. Available at: http://www.serco.com/Images/Serco_AR2013_tcm3-44453.pdf [Accessed 25 Feb. 2015]. the guardian, (2014). Serco apologises after dismissals related toYarl'sWood allegations. [online] Available at: http://www.theguardian.com/business/2014/jun/24/serco-apologises-dismissals- yarls-wood-allegations [Accessed 15 Mar. 2015].
- 16. Waterson, J. (2013). G4S and Serco shares plunge on fraud claims. City Am. [online] Available at: http://www.cityam.com/article/g4s-and-serco-shares- plunge-fraud-claims [Accessed 12 Mar. 2015].
Editor's Notes
- Serco Group is a holding company which operates via its subsidiaries and its joint ventures and offer services by managing people, processes, technology and assets. The company primarily caters to the government agencies and also private companies to a smaller extent. Serco is headquartered in Hampshire, the UK. Serco specialises in delivering front-line support activities such as facilities, infrastructure and property management. The company recorded revenues of £4,288.1 million ($6,707.9 million) during the financial year ended December 2013 (FY2013), an increase of 5.6% over FY2012. The operating profit of the company was £143.8 million ($224.9 million) in FY2013, a decrease of 47.2% compared to FY2012. Its net profit was £95.4 million ($149.2 million) in FY2013, a decrease of 60.3% compared to FY2012.
- Serco Group plc (Serco or the company) is a service and outsourcing company that delivers essential public services. The company has a strong geographical footprint including in both developed and developing nations ensuring a balanced growth. However, strategic failure lead to loss of contracts to the competitors which has affected its revenue. The incompetency of Serco’s senior management to deal with debts, ethical shortcomings and mismanagement led to the change of the chief executive and other board members. This can be seen in the change of roles and responsibilities of the directors. Serco admits it changed GPs’ out of hours performance data 252 times. The strategy of delving into diversified areas of business where it had little experience cost them in wiping out market shares worth millions of pounds. It is seen from the annual reports of Serco that their focus shifted from International growth to customer social responsibility thereby indicating a change in the culture in the way they approached their business due to the allegations of fraud. The finance and audit teams were brought under the company’s CEO to minimize the damage being caused.
- Timeline of Serco 2011 – The year of immense growth Serco wins a £140 million in Auckland jail deal. The chief executive was confident that their domestic growth would be strengthened by more government contracts. All the more reason as to why they focused on public sectors -- irrespective of the profits -- and not too much on the private sectors. Serco even assured the government to work alongside, delivering cost effective services which won them £470 million deal for prison transport; a 7 year deal. Serco acquires India-based outsourcing firm for £380 million to strengthen their Indian subcontinent expansion. The government policy in the UK led to reduction in the revenue of Serco while the revenues in the international market strengthened. When compared to 2010, the revenue, the operating profit and the net profit saw an increase of 7.4%, 10.3% and 11.7% respectively. 2012 – The year of strategic changes G4S & Serco sign a collaborative deal asylum deal with UKBA for £175 million; a 15 year deal. They even went on to buy outsourcing firm vertex for £55 million. In August, Serco’s profits plunged due to heavy austerity measures, adding to that due to the presidential elections in the US, their spending plans were further curbed. In the pursuit of expansion, Serco buys 50% stake in Australian defense firm. 2013 - The year of ethical issues Serco went on to win an extension to operate DLR lines in London for £100 million and by March there was a significant hike in its dividend by 20%. With new contracts in the pipeline, increased organic revenue growth is expected & all the resolutions were passed at the AGM of Serco board including its remuneration report( 4.4% voted against). Serco saw the first of its continuous ethical issues in July when they falsely tagged criminals who were freed or even dead. The company billed for 18,000 prisoners whereas the exact figure was found to be 15000. Amidst this scandal Serco bagged a contract by the US department of health for £810 million which was followed by another scandal where they were exposed in the prisoner escort service and falsification of NHS data for out of hours GPs. This resulted in the worst ever trading day for Serco where the share prices fell by 11 percent. 2014 – Ripple effects of the scandals An ethical issue again where an yet-to-be-opened hospital was being run by Serco in Australia where they justified saying that they were doing things like cleaning, conducting safety checks, maintaining the gardens, moving furniture and identifying hospital defects. All for a hospital that is blissfully free of the inconvenience of a single patient. Serco revealed 10 staff were dismissed in relation to allegations of improper sexual contact with immigration centre detainees. They even lost the DLR contract amid such serious allegations. With such allegations and falling share prices, the company had to get an able candidate, Mr. Rupert Soames who has got an excellent track record at Aggrenko.