When Brian Groves and Nick Fulcher joined the U.K.'s East Midlands Electricity in 1966 and 1974, respectively, they saw it as a career that would see them through to retirement. After all, a job with the electricity company was a job for life.
After 34 years in Groves's case and 28 years in Fulcher's, both men found themselves in an environment with immense pressure from the regulator and shareholders to reduce costs and increase efficiency at the utility. Staff numbers dropped as more and more of their colleagues left the industry, and they realized their own future was uncertain.
Today, Groves and Fulcher still work for the utility, not as employees but as franchisees of an organization called Freedom. The men have revolutionized the way that they and some of their colleagues ply their trade.
Freedom Born Out of Necessity
Executive management at Yorkshire Electricity had to get costs down and were committed to create an innovative form of outsourcing within Yorkshire Electricity. In 1994, we (Simon Rigby and Andrew Webster) were give the task of re-engineering Yorkshire Electricity's maintenance department.
Although we had both held senior management positions within the company, we now faced the common task of reducing operational costs associated with the maintenance of the companies — 15,000 operational sites. Following an intense period of assessing the current status of the department, we reached the inevitable conclusion that the department suffered from poor productivity, high cost and restrictive practices.
While others had attempted to make the department an internal service provider that could compete with the external marketplace, both in terms of cost and levels of productivity, all failed because the culture that had developed over several years was so strong and no one had been able to change it.
Utilities all over the world face the same challenge as Yorkshire Electricity. Management knew it could not sustain the business by simply continuing with the status quo. We realized that big changes were in order. We had to act and act immediately. Of course, this is easy to say and next to impossible to do.
As we looked at every conceivable solution, it became increasingly clear that the only way to hit cost targets would involve some type of outsourcing. However, all the traditional methods brought with them inherent difficulties and problems, problems we were not willing to accept.
How would the trade unions react to outsourcing work to contractors?
How would we gain savings? (The employees had rights under European laws to transfer with the work under the same terms and conditions.)
How would the electrical engineers react? (They were used to having a degree of control over planned and reactive works being undertaken and there was a perceived fear of losing control.)
How would the press react to one of the main employers in the region shedding this number of jobs?
It became obvious to us that any sustainable solution would have to address all of these issues, otherwise the company was simply storing up problems for the future. It was at this time that we developed the New Start Conversion Franchise Model. We decided this was the logical conclusion only after we invested a great deal of time and effort thinking, not just about the issues, but around them. What we came up with was certainly unique, and in the conservative European world in which we operated, it would not be easy to gain approval from the Yorkshire Electricity Board of Directors, of that we were certain.
On hearing our proposal to create a franchise-type model, the board was not entirely convinced. The board would have preferred to see a safer, more traditional form of outsourcing, suggesting we simply employed the individuals concerned; surely this would be much simpler. This was also the solution the trade unions and employees preferred.
We did not see it that way. We were convinced that simply parcelling up all the problems (and benefits) of a large utility work force and putting them on our own shirt laps (as an MBO) would provide the same situation we were trying to get away from. We were committed to converting the people as well as the work. Ultimately, we received buy-in for the franchise concept, but it took two years to agree on terms and conditions and get buy-in from all parties.
From an early point in the process, we agreed that all interested parties would be involved in putting together the details. Trade unions and some of the employees joined the process to create a solution that would satisfy everyone.
One of the project's main success factors was that this was not just a couple of managers looking for a way to off-load the work force, the mangers were going with them. Everyone was in the same boat, which gave union workers confidence that this was not an interim solution designed to benefit the company, but that all parties were in it together for the long haul.
The result was an outsourcing model that would truly benefit all.
The utility received true market rates for the work undertaken and paid only for completed tasks. This delivered around 20% savings.
The trade unions not only retained their membership numbers but increased them. They did not lose their collective bargaining position, as they still represented the ex-employees as appropriate.
The staff continued carrying out the work, not as Freedom's employees but working in partnership with them through the franchise arrangement. Some of the franchisees have gone on to develop their businesses further and are employing their own staff with the guidance and support of the Freedom Franchise Support team.
After six years in the business, we are now more convinced than ever that the New Start Conversion Franchise Model empowers staff. The process creates hundreds of new and individual business that are empowered to work for themselves but not by themselves. We have completed more than 20 conversions and have seen some real entrepreneurs emerge from the process. For example, one man employs as many as eight people and relies on his former employer for less than 50% of his work.
The flexible model was designed to suit all those with trade skills and an interest in working for themselves. We had several people who were looking to reduce the amount of time they spent working and found that the franchise solution offered them the flexibility they needed. Many franchisees are not quite ready for full retirement and, therefore, continue to work two or three days a week.
Under existing arrangements, the franchisees are free to do what they do best — carry out their trade. They are responsible for their own tools, vehicles and materials. Freedom finds the work, handles the invoicing and collection of payments on the franchisees behalf, and provides all the business and administrative support, including taxation, insurances and pensions.
On April 1, 1996, the company launched Freedom Maintenance with 55 franchisees and a five-year contract to deliver maintenance services to Yorkshire Electricity. Today, the company has turned over more than US$100 million, has carried out conversions in several utilities and covered activities such as cable jointing, meter reading, transport maintenance, cable laying and grounds maintenance.
Freedom has renewed or extended the original contracts, and now has close to 500 franchisees. Among its list of clients is 24Seven, which was launched in April 2000 as the world's first specialist utility network services company. It manages the electricity networks serving the eastern and London region providing round the clock service. 24Seven realized it would gain efficiencies by contracting out work in specialty areas rather that maintaining the required staff in house.
24Seven's deal with Freedom enabled it to become more efficient and flexible, and allowed 24Seven to carry out repairs more quickly, resulting in a more reliable power supply.
Similarly, the work that we have done with Yorkshire and Northern Electric has delivered significant savings for our client (Yorkshire and Northern were combined recently to form one of the biggest distribution businesses in the United Kingdom.)
We have received many accolades for our innovative approach to outsourcing, including praise from British Prime Minister Tony Blair and the designation of Franchise Newcomer of the Year by the British Franchise Association.
Recently, our meter-reading model was benchmarked against other operations in Europe and North America. The results clearly showed that our cost levels are about 50% lower than the best performers, while our service levels are among the best and our accuracy rates are exceptional.
Our commitment to the franchisees is paramount. The concept of working for yourself but not by yourself has created hundreds of successful businesses. We recognize the hard work and entrepreneurship of franchisees with the annual Freedom Award. Our franchisees of the year for 2002 are Brian Groves and Nick Fulcher of Associated Mains Power Services Ltd. The team has grown their business significantly since they became Freedom franchisees.
Becoming self-employed has made a real difference in Groves's life. “I have managed to build a thriving business, and I am now employing more people to manage the high levels of work,” said Groves. “The New Start Conversion Franchising initiative allows me to get on with the business of running my company, while offering crucial support to ensure my customers are satisfied. With Freedom's support, I have some ambitious plans for my business.”
Bill Mottram is group strategy and development director with specific responsibility for the United States. Mottram held several management posts within Yorkshire Electricity during his 16 years there before leaving to join the Freedom Group in 1996. Prior to taking up the challenge of developing Freedom's international business, Mottram was managing director of one of the three main operating divisions of Spice Holdings plc.
Andrew Webster is managing director of Freedom's parent company Spice Holdings plc. Webster was formerly a senior manager with Yorkshire Electricity where he worked in a range of functions for 20 years. Webster left Yorkshire Electricity in 1996 to start the Freedom Group with his colleague and business partner Simon Rigby.
Simon Rigby is CEO of Spice Holdings plc. Rigby was formerly a senior manager with Yorkshire Electricity and left in 1996 to start the Freedom Group with his colleague and business partner Andrew Webster.
Editor's Note: After analysis of the business environment that led to the creation of the franchising concept in the United Kingdom and careful analysis of U.S. culture and market conditions, Freedom has decided to promote the New Start Franchise Conversion Model in the United States to address critical issues facing the electric utility industry.