conference management papers
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THE FIRST PAPER, by Sir Reginald Wilson, chairman of Transport Development Group, was concerned with fundamentals of "Management in Transport". After explaining how differences in management style, scale and complexity resulted from the technologies of each particular mode of transport as well as from the type and size of enterprise concerned, Sir Reginald inveighed against complexity.
"The job of managing transport need not be as complicated as often appears. But why should anyone be ready to tolerate, or make, unnecessary difficulty? Well, there are people who actually prefer things difficult; life then becomes more interesting. And tycoonery is itself a profession."
All in all, with internal and external pressures and suggestions, and the tendency for the Public, Press and Politicians — the "three Ps" — to be impressed by intricacy and bigness, it was often quite difficult to keep things simple, and only too simple to have them difficult.
The management which was most successful in everyday transport, said Sir Reginald, was that which kept things relatively straightforward and which coupled this simplicity of approach with a thorough-going structure of accountability. "How this is to be achieved is a matter for intelligence rather than standard formulae or techniques. All I can hope to do in this paper is to pick out some of the more important and 'old and true' aspects of transport management."
And while one should certainly not discard business and transport education, experience was the great teacher and common sense was invaluable.
He went cln: "Meantime I might perhaps allow myself the somewhat surprising suggestion — surprising to a lot of people, at least — that a great part of the superiority of road freight transport over rail, for example, can be ascribed to the superior effectiveness of the forms of management available to the road operator, given the right circumstances properly exploited."
Looking first at small to medium units of management — road fleets up to 20, which represented nine out of 10 of British road freight operators — Sir Reginald emphasized that even the smallest needed managing; for example in keeping records, charging customers, satisfying the authorities and looking to costs, maintenance and provision for vehicle replacement. The small haulier's great advantage was that all his costs were "direct", he had no problems of allocating them, and his revenue was similarly directly attributable to his vehicle.
Between the one-or-two vehicle business and the somewhat larger but still relatively small fleet the chief difference was that the owner was now managing other human beings as well as himself; but the profit centre should still be the individual vehicle — unless it was a parcels business in which there had to be some taking of the rough with the smooth. Sir Reginald continued:—
"Subject to this, once the haulier. starts telling himself that a bad loss on one vehicle can be made up by a super-profit on another, and that after all it is only the total that matters, he is in danger of stepping on to a very slippery slope. Why? Because presumably he works in a competitive market; any 'over-plus' earned on one particular vehicle or traffic will sooner or later be eroded away whereas his competitors will gratefully leave him with the loss-maker. Elementary, no doubt, yet how often it is forgotten. For these and other reasons the paper work begins to acquire more importance, though only a little because fortunately the owner — either himself or through a traffic manager — can still see what is being done and assess it personally and intelligently.
"Taking the small-to-medium category as a whole, the transport business of this size need not be at any decisive competitive disadvantage, on balance, against the large business. It may be a little 'short' on certain economies of scale, but the small man can utilize vehicles just as large as the big man, and the track, tyres and fuel as well as the vehicle are supplied to him at prices not vastly different; his merely marginal disadvantages on this score, or in regard to commercial negotiations with customers, can then be substantially offset by the fact that the small or medium business may very easily be 'long' on other ingredients essential to successful transport management, notably hard work, clear accountability and quality of service.
"According to certain published figures (The Road Haulage Industry Since 1968— Bayliss, HMSO, page 35) professional hauliers in this 'small-to-medium' category (i.e. up to twenty vehicles) earned nearly £170m. in 1971. Admittedly this was before charging any wages for onevehicle operators or 'managerial wages' for two-vehicle operators, but the 'profit' attributed to operators in these sub-classes was sufficient to compensate for the missing wages; in respect of the more successful operators in these sub-classes it also left something over, no doubt, to remunerate the risk-capital employed, and if the bankruptcy rate among the less successful is not something to be ignored, this is part of the inevitable price to be paid for freshness and flexibility in the industry.
As to own-account carriers in the small-to-medium category, the test or check of the two-sided profit-and-loss account cannot normally be applied. But there is no need to suppose that they fail to do their individual cost-benefit studies, as it were, any more than the larger own-account carriers do, and in view of the high value which ownaccount transport in general gives to speed, flexibility and 'responsiveness' of service, especially in those light industries and distributive functions which to-day dominate the economic scene, it is hardly surprising that as already remarked the numbers of such operators in this category — and for that matter in total — and the average sizes of their fleets, are somewhat larger than in professional haulage whatever may be said about tons carried or tonmileages.
Medium to substantial units "Coming, then, to the next category of operational size, the medium-to-substantial fleet, the aim of management must be to retain, during and after expansion, a lot of the virtues of the small-to-medium fleets and at the same time achieve the benefits of a more developed organization. This is not impossible. And the benefit of particular importance, perhaps, is that a medium-to-substantial undertaking and management can use its greater resources and standing to resist that undue exploitation by the customer, and that suicidal cutting of rates in extrernis, which are sometimes to be found in road haulage. Hence the tendency for the middle size of fleet-management, subject always to the nature of the business, to show better profits than the small man; it also shows better profits than the integrated-giant type of management, though this latter comparison may be a little unfair on account of the close association between 'giant-ism' and public ownership (especially road fleets inherited from railways).
"The category of medium-to-substantial haulage is identified, for present purposes, as fleets with 21 to 200 vehicles, adding up to some 230,000 vehicles in all, but only some 4.500 operators. That is, the average size of the fleet — whatever this figure may mean — has risen from about 34 vehicles in the first category to about 50 vehicles in this category, "As to staff, it is probable that in general road haulage there are still no more than 14 men per vehicle, and in own-account haulage a little less, but in some specialized business like the parcels business which now comes upon the scene there may be something like three to four men per vehicle (rather as in bus fleets). However, the proportion of this type of business is too small to affect the total statistics in any degree."
Remarking that the management of business in this intermediate category of size began to contain an element of hierarchy, Sir Reginald emphasized that the plan of organization still rested on only three sub-managerial responsibilities — the traffic manager, the engineer and the accountant. The top manager could no longer see things for himself but must rely increasingly on what he was told, or the figures produced by the accountant, and these figures became increasingly important.
The plan of accountability had to identify .th,smallest possible entity which could be regarded as a cost centre, and in professional haulage as a profit centre also. There were, no doubt, disadvantages in having too small and too autonomous profit centres but at least the two-sided profit-and-loss account had the advantage that it compared the expenditures in money with the revenues they produced in money, and consequently fastened a much closer and more effective accountability on those concerned.
Said Sir Reginald:—
"The true nature of the change which comes about for the professional haulier was aptly summed up by the operator who complained that when he was smaller he thought he was managing the business, whereas he felt after he became larger that the business was managing him. It depends, of course, on what one means by 'managing the business'. After a certain size and complexity has been reached, one can no longer expect to manage the business in detail. One is fast approaching the position when, as in giant concerns, one can only manage the managers, but fortunately for road haelage its world of business contains few undertakings that are really in the giant class — and those which might seem to be in that class understand perfectly well, most of them, how to structure their business to preserve individual managements (and accountabilities) of a reasonable size."
Substantial to giant units Taking 200 vehicles as the start of the "substantial to giant" fleet category, the paper made the point that there were few fleets of more than 200 vehicles in general haulage, and that between 100 and 200 was ordinarily the maximum for effective operational management. In own-account transport, fleets tended to be distinctly larger, and where great "distribution" fleets were engaged on regular and predictable services there could be real relevance in applying sophisticated aids; while transport management might have to become a close partner in the management of physical distribution as a whole.
The National Freight Corporation, said Sir Reginald, was a special case, since its subsidiaries' very large fleets stemmed from the original nationalization; and subsequent legislation demanded continuance of a central responsibility for matters like staff negotiations, political relations, investment, research, education and so on. Like its predecessor, the Transport Holding Company, it nevertheless structured its management and accountability on "non-monolithic, non-bureaucratic and non-subsidized" lines.
It might be thought that the privately-owned Transport Development Grouts was another special case, but though the mainsprings of the managerial philosophies of NFC.and TDG might net be too far apart, the circumstances and the ultimate characteristics of their managements in action would seem to be rather different.
Railway complications The largest single freight concern in Britain today remained British Railways, said Sir Reginald, and he devoted a section of his paper to examining "the appalling and almost unfair complications inherent in its management".
The first difficulty was that its smallest unit of economic movement was the big train — itself a large task to organize — and behind this lay track, signalling, motive power, timetabling, maintenance and so on. The sheer scale of the railway business resulted in long chains of command with the inevitable hierarchies and a flavour of "administration" rather than of "management".
Unlike road management, rail management had no traffic managers who could actually visualize the vehicles and payloads and who took immediate responsibility for matching them, with a simple and direct authority and accountability for what was going on. On the costing side, cost allocations were notional rather than real; while rail equipment had a life of 20 to 30 years so that quick adjustment to ,Jevelopments was a problem.
Sir Reginald made the point that "the managerial question of structure and accountability may go nearer to the root problem and root solution of the economics of British Railways than some of the other questions of which we hear so much".
The great and "single system" type of undertaking with an integrated network of service might well be virtually unmanageable except in conditions dependent on monopoly or wide-ranging restrictions, dominating market power or technological leadership.
If, in the realities of the rude world of commercial freight transport, it was neither possible nor desirable to introduce the exceedingly artificial conditions in which an otherwise over-integrated management could be successful, what then? Well, unless the course could be adjusted to the horse, it must mean different horses for different courses and this certainly applied to road freight management, perhaps more than to most other forms of transport management.
Sir Reginald's paper continued: — "However that may be, if road freight management can be attacked for 'fragmentation', the alternative of 'integration' does not seem particularly attractive. Objectives, Size, Structure, Methods and Accountability — all these are interdependent, and management must keep them in balance. Indeed, as in life altogether, a sense of balance is required throughout. One balances art and science together, inspiration and method, hunch and fact, courage and carefulness, impetuosity and steadiness, ambition and prudence, freedom and discipline, individuality and co-operativeness, the broad sweep and the detail, rapid change and stability, the up-and-coming and the established, the small and the big, the young and the old, the specialist
and the generalist, and of course devolution and centralization — and so on. One does not compromise, however, with the need to keep the record (not to be confused with bureaucracy) and to enforce accountability.
Wherever this balance may lie in individual cases it cannot be denied that in general there is an advantage in combining, if possible, the strong points of the relatively small-scale and even "fragmented" type of transport business, with the benefits flowing from larger financial and human resources, better information, bigger commercial power, and decreased vulnerability — but this usually involves an association, somehow, with greater scale of one kind or other.
"If integration into a single giant organization is 'out', and alternative protection via an individual service-licence as in the public bus industry is not practical, nor a severely restricted entry-system acceptable, there are still some other possibilities. The small man can get rid of some of his managerial difficulties, and obtain greater stability, by going on long-term charter. He can even become a kind of journeyman, but this changes the real nature of the business. And whereas the 'co-operative' type of organization can be successful in private-car hire, it has not worked well, usually, in road haulage. Neither has the possibility of cartels, on the lines of shipping conferences. Union is strength, but in a shipping conference the members already have in common the precise route of the traffics, which are clearly categorized and charged on a schematic basis; there is at least some homogeneity about the business handled; and the membership is itself very limited. Moreover a liner is a large and expensive unit of technology and is already backed up by an elaborate organization. None of this is true about road freight transport. Large and shifting groups of operators would be involved in the working of the cartel; the traffics and the conditions and costs of service are exceedingly various, both as to time and destination; and the individual organizations in existence would not take the strain.
"The trade associations and such-like bodies have a role to play, however, and managements can be vitally assisted with information, advice on rates questions as well as on general questions, and leadership in the political or labour problems affecting management not to mention the invaluable "inter-firm cost comparisons" which ought to be used more than they are. In particular, if I may say so, I would have thought many professional haulage managements could give much closer financial and other support to the Road Haulage Association than they do at present, especially in view of the tremendous effort that is required to counter the mass of hostile propaganda and public mis-enlightenment that is now being poured out. Institutions like training boards also have a role, provided their objectives, powers and output are duly subordinated to the requirqments of the customers i.e. the future employers. Then there are the facilities for study and transport education available at various establishments. All these help the individual management.
"Ultimately there is the possibility that managements, especially if already of medium size, can be successfully 'brigaded' together so that they actually become members of a larger community which provides them with help from a higher level in matters that are normally outside the compass of a medium-sized unit, and which exacts improved performance in return without taking away their autonomy in day-to-day matters — or the responsibility and accountability that go with it.
The working of TDG "In this connection it would be of interest, I am told, to explain in more detail how this works in the case of Transport Development Group, where there are 13,000 employed altogether, with a current capital valuation of some £80 million. This looks like giant-ism, as already hinted, but in fact TDG is primarily a financial and holding company. As its name implies, it exists to 'develop' the management and operation of individual businesses. It does not itself manage or operate. The most significant feature of its organization is that it is based on the free, close and individual accountability of its several scores of separate and different companies, each of them virtually autonomous so long as it produces results that are satisfactory. TDG itself has no customers and has no contact with customers; it has nothing to do with prices; it does not employ staff, except for the small administrative staff at its own office; it does not deal with wages or with trade unions. All these matters are left to the individual companies, no two of which are alike. Almost without exception these companies — some 120 in all — are engaged in activities which do not lend themselves to a recognized scale of charges, and they operate in an intensely competitive market. Finally, on the average each TDG company employs little more than 100 people — though there are considerabledepartures from this average where appropriate.
"The importance of this is that a unit with 100 people is manageable. There is close contact between men and management, even a sense of belonging together, because each company keeps its own identity, name and livery. The Group denies itself a Group symbol. The manager can really see what he is doing, and every person in his company can see it also. Each operating company is a genuine profit-centre on its own, and the responsibility and accountability of its chief executive is built up in every possible way. The operator becomes a business man. The accounts are his, being the accounts of his company; they are iSrepared locally, and not at some remote computer-base which nobody trusts or understands, and he has at his elbow his own accountant. There are over 100 well-qualified accountants to be found in the various companies. The only standard factor introduced throughout each trading company has been the accounting system, with its up-to-date forms of operating statistics, costings and control. Even this is standard only in its end-product, the means to produce this end-product being tailored to suit the individual requirements of each company. Budgets are used, and weekly, monthly, half-yearly and annual figures prepared. To his employees the manager is the top director and the ultimate point of negotiation, as he is with his customers on service and rates. He is also the chief man in the eyes of the world at large, having his own image and his own public relations to look after. In consequence there is absolutely no alibi for the results he produces.
"The insistence on local accountability does not mean, however, that there is no monitoring by the owner. Within seven days, in fact, the TDG knows for each week how the approximate results of each of the operating companies have worked out, and once a month there are the normal accounts. So just as the local managing director can take 'fire-brigade' action in regard to operating matters in detail, so also the centre can take instant action in relation to the performance of each managing director. Any falling off is enquired into almost at once. Where necessary there will be advice from the centre, and if poor results or problems continue there will be investigation or reorganization — or even liquidation or disposal. In no case, however, will a company be operated from the centre. Where it continues as a distinct entity, a new managing director will be put in and a full local accountability will be restored.
"There is no formal training scheme for executives. However, due effort is made to attract people with academic qualifications, and every encouragement is given to young men to make use of the educational facilities which are so easily available. And as to on-the-job training, which is vital, it has been found that certain chief executives have the special interest and the ability to watch and help young men intent on a career in transport management. Encouragement is therefore given to chief executives with this talent to use their companies as a 'nursery' for future executives, and at meetings with chief executives this item is always on the agenda — which in a sense is the prime control. However, training should not take place exclusively within any one organization; men who have 'been around a bit' must be imported at various levels. As a result of these methods, informal though they may seem, there is always a reasonable supply of individuals who are being trained, and are training themselves, to assume responsibility in due course as chief executives.
"But if power and responsibility for the actual running of the operating or trading companies is thus highly devolved, the same does not apply to matters of finance, capital expenditure and accounting, where decisions and procedures are highly centralized. The use and flow of money is handled on an integrated basis; except for closelycontrolled working funds, all balances come to the centre. As to capital expenditure, not a pound may be spent without authority; this stresses the importance of a control which cannot rest on profit-and-loss accounts from year to year, and ensures that plans for the further future are properly drawn. As to the standardized accounts, it is realized that no two of the businesses are exactly comparable, but .considerable value can be derived from being able to compare them nonetheless. (This is where a monopoly, or a highly departmentalized business, is always in serious difficulty, for its internal accounts lose half their value in that no comparison exists — even imperfect comparison — with the figures of other and like businesses.) But as to standardized operating techniques, this is avoided like the plague. The manager one is looking for the whole time is the manager who can, and will, introduce something new and better.
Good and fair owner "And so the need for individual authority and action in the field is reconciled with the need for an informed central control and a common discipline in the pursuit of simple objectives. It is the aim of TDG to be a good and fair owner — which is significant for all things owned — but not soft. And it is neither so self-important nor so foolish as to attract to itself, sitting as it were in the 'hot seat' at a single apex and centre, all the problems of public relations, local politics and other 'external' factors which arise from place to place. But doubtless the Transport Development Group is fortunate; this type of managerial structure and organization, and the philosophy which informs it, would not be possible in many industries."
Summing up, Sir Reginald emphasized the need to suit the type of transport organization to the individual circumstances, and said if given a chance to start from scratch he would favour a relatively small entity, flexible and based on a means of service that was fairly simple and involved short-term rather than long-term investment.
Both customers and employees preferred the type of management which provided the close attention (or accessibility) of the "boss" — and so did the profit-and-loss account.
Transport organization and management still showed considerable "untidiness", which the 1968 Act had affected but slightly. The critics who would like to see a more professional state of organization in the industry had an understandable and acceptable point of view; but road freight management relied on individual accountability and local flexibility rather than a rigidity which smacked of bureaucracy.
The small operator was in many ways the salt of the earth, from whose ranks the industry drew the fresh growth it needed. Above all, management in road freight transport today was the very source of the great vitality and urge to develop which had been one of its chief recommendations during the last half century.