© Malcolm Brady, 2006 Strategic analysis of a public sector organisational unit: the case study...

© Malcolm Brady, 2006

Strategic analysis of a public sector organisational unit: the

case study revisited

Malcolm Brady

Dublin City University Business School

OR49 University of Edinburgh,

3rd -5th September 2007


Yard

• Premises with large surface area• Hard standing for vehicles

• Indoor and outdoor materials store

• Maintenance and repair workshop

• 34 permanent staff• Fitters/ mechanics

• Vehicle drivers

• General operatives

• Supervisory and administrative

• Process analysis


Yard Processes

• Road maintenance• Surface dressing• Winter gritting• Pothole repair• Chippings transport

• Facility maintenance• Water/ Waste water works/ Hand pumps

• Stores• Fuel/ Safety equipment/ signage

• Miscellaneous• All-year hire out of vehicle and driver• Winter hire out of trucks


Motivation

• Imminent move to new premises– Large capital cost

• Work practice agreements– Led to high labour costs– Inflation linked– Regular rostered overtime

• What to do with the Yard?


Method

• Issues are strategic and operational• Multimethodology

– Strategic analysis techniques• 5 force analysis

– Operational analysis• SSM/ CATWOE

• Approach– Direct observation– Interview– Study of documentation


Surface Dressing: Five force analysis

• Buyers – Area Engineers

• Satisfied with product quality but not with price• Are price takers - cannot negotiate price• Can be mandated to use Yard service

– Traditionally have low power, but increasing

• Suppliers• Bitumen (3 no.): capable of forward integration, but reluctant• Stone• Labour: strong active union

– Traditionally have high power over incumbents but decreasing



• Incumbents • Monopoly• rivalry non existent

• Substitutes• Asphalt is a much more expensive alternative

» 10 times price but lasts 6 times longer

• Bitumen macadam is an alternative for road restructuring

» Area engineers are moving to this alternative

• Low threat in the short term



• New entrants • Neighbouring LAs• Road contractors• Construction industry is booming: plenty of work• Work is seasonal• Significant capital investment required

– fleet of 10-20t trucks/ hard standing – bitumen sprayer and chipping spreader– Rubber tyred rollers – articulated tractor and tanker trailer– Pickups for traffic control

• Low threat



• Should be an attractive industry for the incumbents, but is not

• Suppliers hold the power• Labour have appropriated the profits of the industry

• Bitumen suppliers generally assumed to be making good profits

• Incumbent traditionally has not bargained hard with suppliers


Surface dressing: CATWOE

• Customer (victim or beneficiary)• Public, road users (who use roads)• Area Engineers (who are responsible for roads and whose

budget pays for work)

• Actors • Machinery Yard Engineer and Supervisor• Surface dressing train: Drivers and machine operators (Yard

employees)• Traffic control (Yard employees and LA Area office

employees)• QA technician (quality check on bitumen binder and

chippings)


Suface dressing: CATWOE

• Transformation• Roads within LA area -> skid resistant roads• Poorly surfaced road -> a newly surfaced dressed road• Work at ordinary rates -> work at overtime rates

• Weltanschauung• Director: to ensure that road surfaces are adequate for the

volume of traffic using the road• Engineer: to ensure that surface dressing is carried out

efficiently and effectively• Others: to ensure that opportunitiy to earn substantial overtime

payment continues


Surface dressing: CATWOE

• Owner• Director of services (formerly County Engineer) (who can

choose to invest in or close down the unit)

• Environmental Constraints• Weather: work cannot take place during cold months (ie. from

October to April)

• Money: LA is seriously running over its annual budget

• Resources: LA is not investing in Machinery Yard vehicles or equipment and not replacing staff as they retire


Issues

• Employee rather than activity focused

• Little synergy between activities

• Culture of overtime

• High labour cost

• Charging based on inputs • No incentive for efficiency

• Poor timesheet control


Choices

• Close down

• Expand• Diversify -> macadam/ asphalt

• Expand -> other LAs


Recommendations

• Separate out activities• Increase control over jobs and timesheets• Negotiate an end to regular rostered overtime and other

allowances • Build travel, gate opening etc. into day’s work

• Close down stores• Transfer staff to strategic purchasing/ procurement

• Decentralise pothole patching to areas• Centralise water/wastewater facility maintenance• Centralise winter gritting budget

– Consider contracting out winter gritting


Recommendations: surface dressing

• Continue surface dressing • team is technically competent and efficient• but cost base must be reduced

• Charge based on work done, not inputs• Є/m2 according to dressing type and length of road

• Increase role for line manager (Yard Engineer)

• Authorise overtime• sign off timesheets


• Make Yard Engineer repsonsible for chipping dumps• Reinvest profits in new equipment

• Replace 10t with 20t trucks

• Consider contracting out some surface dressing work• To increase competition

• Safety recommendations• Accounting recommendations

• Full allocation of overhead• Report by job: cost/ revenue/ profit

• Rename the unit to Road Maintenance Service


Five force and CATWOE

• Complementary techniques

• Strategic and operational views of a situation

• Process decomposition– reduces complexity of overall situation


What happened since?• Detailed analysis of practices and costs carried out

– In 2005 basic pay made up only 40% of wage cost• Allowances total €0.6m

• Additional allowances uncovered

• Overhead burden to administer the allowances

– Yard breaking even• Making losses if depreciation taken into account

• No plant replaced in past 4 years

• ‘profits generated are shared between those working in the yard’

• Discussion with government department


Management decision to close the Yard

– Outsource the surface dressing operation– Gritting not sufficient to justify fleet of trucks– Shut down the stores– Centralise the water and wastewater maintenance– Decentralised pot-hole machines to areas

• Partnership discussions with unions– Other organisational units also being reviewed– Costs and practices no longer viable

• Cessastion of allowances/ compensation• redeployment

• Bluffing?


In practice

• Still operating from current premises – Owner requires MCC to vacate premises– Health and Safety improvement notice served Aug 06– Estimated cost of setting up new premises is €6m

• Work carries on as before– Surface dressing/ winter gritting– Still operating as a hire-out business

• Stores still open but little activity• Management paying attention to control systems• Unworked overtime practice found elsewhere


Issues

• Surface dressing– Core competency will be lost

• However demand steadily declining

– Possible holdup by outsourcees– Health and safety issue with surface dressing

• Clause 804 type roads less acceptable• SD on dense bitumen macadam to be carried out by contractor• Supervisory practices to be changed

• Must prevent unworked overtime practices migrating to other organisational units

• Individual accountability


Considerations

• Build up contractor expertise before complete closure

• Use several contractors to avoid hold-up• Compensation

– One-off payment to eliminate allowances?– Include allowance based work within standard

week– Will require tough negotiation

© Malcolm Brady, 2006 Strategic analysis of a public sector organisational unit: the case study...

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