How the ‘blues brothers’ fixed Serco
Serco is a vast corporation about which most of us know very little. Globally, the public services company operates across four regions – the UK and Europe, ASPAC, North America and the Middle East. It protects borders, operates prisons, manages refuse and waste collection and runs Dubai’s metro system to name but a few of the 500-plus contracts for which it is responsible around the world. It employs more people than the British Army and is involved with numerous public sector contracts from NHS blood labs to nuclear warheads.
The company transports more than 70,000 prisoners between courtrooms and prisons each year in London alone. It runs IT networks across Europe, aeronautical and airport tech services in the Middle East and it provides services to the federal government across the US.
Having said this, on the very day its new CEO, Rupert Soames, joined the company in 2014, the company was issuing its third profit warning within six months. Soames, who came to Serco from energy provider Aggreko, called his former CFO Angus Cockburn – at this stage acting CEO of Aggreko – to join him and turnaround the foundering leviathan.
Nicknamed ‘the blues brothers’ by the Evening Standard, Soames and Cockburn quickly put in place a turnaround plan and two years later, the underlying profit for 2016 is expected to reach £80m.
This interview with Angus Cockburn captures the story of one of the most significant corporate change programs in recent years. An MBA graduate from IMD Lausanne and Honorary Professor on the MBA program at University of Edinburgh Business School, Cockburn describes the route that brought him to run the finances of Serco.
“When I graduated from Edinburgh University with a degree in Business Studies and Accountancy I went to KPMG, where I worked for several years in the UK’s Edinburgh office, and latterly in San Antonio in the US,’ he explains.
“I advised companies and often found it difficult to walk away from businesses when the projects were finished. I wanted to move out of the accountancy profession into an interesting commercial financial role. And that’s why I decided to take the MBA at IMD.”
What is completely typical of all Cockburn’s roles post-MBA is that none of them are comfortable or ‘cushy’. The intrepid leader actively sought out positions that satisfied his apparently insatiable thirst for challenge.
“After I finished the MBA at IMD, I took a finance role with Pepsico and went to Hungary to open a business there, complete with potato chip factory and distribution throughout Central and Eastern Europe. Working in Hungary was a great opportunity to apply the knowledge from the IMD MBA in real life – it was a brilliant experience, being based in a corner of an ad agency and operating like a startup in Eastern Europe.”
While at Pepsico, Cockburn focused on developing the finance function across the region and was promoted to finance director for Frito Lay Central European region.
Following his return to the UK, he went on to join Dawson International, as the managing director of high-end apparel brand Pringle of Scotland, which whet his appetite for challenge, given that the company had lost more than £100m over the previous four years.
“At Pringle we wanted to steer the business back from making big losses, so we downsized from 2,000 people to 240 and moved lamb’s wool production to low-cost countries, while keeping cashmere production in Scotland.
Pringle just could not compete in high-volume knitwear given the labor cost differential,” he explains.
During Cockburn’s tenure, Pringle was completely overhauled, restructured, repositioned and subsequently sold to a Hong Kong-based company. In 2000, Cockburn moved to join Aggreko, the world leader in temporary power.
“Aggreko was an incredible experience growing from 25-odd countries to over 100, and seeing its market capitalization increase from £280m to £6.5bn at its peak, and a place in the FTSE100.’
This marked the beginning of the partnership between Cockburn and Soames, who collectively worked as a turnaround dream team attracting attention from the then chairman of Serco, Alistair Lyons, who recruited them both to save the business.
Cockburn recalls: ‘When the telephone rang and Rupert said ‘do you want to come to Serco?’, I did not hesitate as I had strong success at Aggreko and was ready for a new challenge. I stayed for nine months as acting CEO to do a proper handover at Aggreko and then joined him at Serco.’
But he adds: “Due diligence is hard when you move around listed companies so I didn’t know what to expect. The company was near going bust and I had a tough induction. We had to have an emergency rights issue and renegotiate all our debts.
After six months in charge, Soames and Cockburn issued investors with £1.3bn of write-downs and asked for £550m to prop up the business. Two years on, Cockburn is pleased with the progress the business has made, but is pragmatic enough to realize the journey has been hard and the challenges look set to continue. “We are still in the foothills of the turnaround,” he admits.
“We have a strategy in place, but we have to execute it by delivering operational excellence. We’ve had to transform the finance department, put management accounting systems in place and establish firm financial control.
From a cost perspective, the challenge has been to reduce the cost base as revenue has fallen, and to date, some £700m has been removed, including £70m of overheads. But there is a lot more to do, he says.
“We have to put in place greater efficiencies because our margins are so low. It will get worse before it gets better because we have attrition and a number of loss-making contracts that don’t finish until as far away as 2023, so we have to continue to make big savings.”
Approximately 60% of Serco’s business is in the UK and there are a number of major loss-making contracts in areas such as asylum seeker housing and prisoner transportation. ‘Over the years, the company, which was traditionally an outsourcing provider to the public sector, had also attempted to diversify and win private sector contracts, but under Soames and Cockburn’s leadership, a return to traditional roots is being adopted to secure long-term success.
“Serco’s work with the private sector was not compatible with challenging frontline service provision for government,’ says Cockburn. This led to the £250m disposal of Serco’s private sector business process outsourcing business, Intelenet, as well as a number of other smaller disposals. We want to focus on governmental work globally.”
“This work ranges from running the Dubai Metro, to administering Obamacare to running the support boats for the British Navy and prisons in Australia.”
The cultural change piece comprising employee engagement, values definition and the generation of pride has been successful in keeping the global workforce focused on the goals ahead, despite ongoing turbulence. Cockburn explains this has also successfully turned the tide on the palpable sense of shame and disillusionment among some employees after issues led Serco to withdraw from delivering electronic monitoring to convicted law breakers in the UK. But his engagement piece is still very much a ‘work in progress’ according to Cockburn, the change agent.
So years after the completion of his IMD MBA studies, and with a wealth of experience in turnaround and business change programs under his belt, does the prolific Scottish accountant believe the business qualification was worth it?
Absolutely. “The IMD MBA taught me to think more broadly,” he muses. “It taught me to think through strategic challenges and ascertain common themes across culture, customers, markets, teams and industries. This has helped me throughout my career.
“The IMD MBA is very much about empowering business people to develop their mindsets, learning from the experience of other people in the cohort – in my case, these ranged from engineers to HR professionals and investment bankers. I learned to listen to their views and respect their input.”
And this mindset has also encouraged Cockburn to keep these academic roots close to his heart and continue to work with Business School MBA programs to develop the next wave of global leaders. He explains: “I’m an Honorary Professor at University of Edinburgh Business School and have spent time talking to MBA classes about growing international businesses such as Pringle, Serco and Aggreko; I have more than 20 years’ international experience and the cohort is very international, so I feel I have something to bring to the table.”
Considering how MBA students need to transform their own mindsets and attitudes in order to survive and thrive in increasingly complex environments, he adds: ‘MBA graduates need the resilience and agility to remain relevant and the ability to adapt quickly to changing external factors.
“There are macro-shocks all the time – such as Brexit, the Scottish independence referendum, ongoing instability in the Middle East or rapid political change – which make strategizing for business success difficult, but at the same time vital. Great leaders are those who can navigate around these obstacles.
“We, as leaders, can no longer put detailed roadmaps in place for business. Strategy is no longer static – but that’s not to say strategic goals shouldn’t change in the long term.
“The destination remains the same in the long term, but the precise routes to take in the short term will be ever-changing. Businesses need leaders who can think broadly, paint a picture of where they want to take their organizations and address this holistically and flexibly. This attitude is what will lead to the best outcomes.”
In light of Cockburn’s experiences, what would be his advice to aspiring MBA graduates and business leaders?
“The best thing I did was volunteer to go to geographies where no one else wanted to go because I was willing to take on opportunities that, in more mature and bigger countries, would not be available. This allowed me to put my skills into practice,” he explains. “In the future, MBAs need to be bright enough to process huge amounts of data, to have energy, resilience, and adaptability and also be great communicators.”
Finally, and considering a more abstract question about economics in general, given his credentials internationally and in businesses from fast-moving consumer goods to energy and now public services, does Cockburn feel positive about doing business in such a volatile environment – and does he feel optimistic about the future of business and leadership?
“I think the traditional model of Anglo Saxon capitalism is under threat,’ he asserts. ‘More needs to be done to address the ‘haves’ and the ‘have nots’ in the global economy. More walls are going up from a free-trade perspective around the world and if free trade is restricted, the impact will be not be good for the global economy.”
But then after a pause, Cockburn, who has carved a career out of turning failures into successes – perhaps most effectively when the odds were stacked against him – adds: “Capitalism does need to evolve but it is still the best way of creating wealth and ensuring the lives of the poorest people are improved. I’m optimistic about the future of capitalism and, allied to Serco’s values of care, trust, pride and innovation, it offers a positive future. I’m really excited about seeing how that happens.”
What’s the point in doing a job if it isn’t challenging, after all is said and done?
Find out more about the IMD MBA.