Price Waterhouse report and its aftermath — a geological survey in transition
|From: Allen, P M. 2003. A geological survey in transition. British Geological Survey Occasional Publication No. 1. Keyworth:British Geological Survey.|
Chapter 12 The Price Waterhouse report and its aftermath
Though many of the right initiatives had been taken early in the 1980s to improve the BGS’s position in the market and replace commissioned research income that was being lost as the big Government contracts fell away, the cumulative achievement since then had not been very great. Those staff involved at the time, particularly in the Marketing and External Affairs Group, may argue that their efforts actually broke the back of resistance to the idea of a public service body doing marketing, so that change in the 1990s came about more easily as a result. This may be so, but there was still, in 1990, a considerable amount of resistance to the changes that were required within the BGS to align the organisation with the market philosophy of the Government.
There were good and obvious reasons for this. Most of the BGS science staff were middle aged and long serving. Many of them had been recruited into the Survey at a time when they had a choice between academia, private sector and public service. They came to the BGS because their preference was for public service. Geologists in general have a capacity to tolerate solitude. They are not usually gregarious people and those for whom the public service was first choice are rarely entrepreneurial. The administrative staff were also well imbued with the Civil Service ethic. Thus, there was existing in the BGS a powerful institutional culture that was intuitively resistant to the kind of changes that were required in government organisations by the new Tory politics. Despite the fact that all the essentials for change had been contained in the Charging Review report, the authors of that report themselves considered that the process of exposing this culture and raising the awareness of staff to the opportunities associated with change could only be led by outsiders, who were perceived to be expert in the field and impartial.
The matter of bringing in consultants to advise the BGS on marketing and business development had actually been discussed in the Directorate before the completion of the 1989 Charging Review report (Chapter 6) and its contents made known to managers. Brian Kelk had already let a small contract for advice on marketing, but others on the Directorate considered that something much bigger was needed. The Charging Review group thought the same. Recommendations in its report informed the choice of wording of the Secretary of State for Education and Science in his announcement on 15 November 1989 that he was awarding the BGS £6 million over three years to stimulate the generation of outside income which can be reinvested in core surveying. Both the Directorate and the Programme Board agreed that funds for buying in advice on how to do this should be the first call on the £6 million.
Price Waterhouse was commissioned in April 1990 and they submitted their report in November that year. The choice of a high-profile organisation, such as they were, was deliberate. There was a feeling in the BGS that it was important not only to react positively to the Charging Review recommendations, but also to be seen to be doing so. There was no better way of progressing than by bringing in a top-flight firm of management consultants, such as Price Waterhouse, who would give the BGS some credibility in political circles. This may seem to be somewhat cynical, but it strongly reflects the mood of the time.
The overall manager of their team was Mr Ian Beasley, a partner in the firm who, for part of his previous career, had served as a Grade 3 civil servant in Whitehall. Mr Adrian Haberberg, who was effectively resident in the BGS at Keyworth for six months, carried the main burden of the consultancy, though in the first weeks several additional consultants were active at any one time on foundation work. The remit presented to Price Waterhouse was to assess the BGS’s current and potential capabilities, determine the markets for the Survey’s products and services, and identify problems and opportunities in those markets.
They fulfilled their remit, and more. As experts in the field they understood the importance of the cultural change required for the BGS to sustain commercial success into the future. They conducted the consultancy at different levels. On one level, they initiated the process of culture change, involving in it staff at all levels from the new Director, Peter Cook (Plate 5), down. On another, they sought business opportunities, and on another they looked at the structural requirements for ongoing success in the future. Their method was to interview staff individually and in groups, interview customers, hold workshops and seminars and lead brainstorming sessions. Some of the last were with the Directorate alone to formulate mission and vision statements. Teams of staff were put to investigate potential business opportunities, carry out market research and write business plans for them. In addition, many administrative staff, particularly in Finance, carried out financial analyses of past performance in ways that had never before been tried. At the end of the exercise, most staff, in some way or other, had been touched by the process.
The final report ran to 272 paragraphs with five appendices. There were several other volumes, some of factual information only, accompanying it. It concluded that there was the potential substantially to develop the BGS’s commercial base over a three to five year period. Six opportunities were identified for immediate development and business plans for them accompanied their report. Four more were identified for development at a future date. There was a caveat, of course, that staff had to be given the resources they needed to achieve the business-plan objectives. The report went further. The consultants did not think that the BGS had a management system that was appropriate for a commercially ambitious organisation and regarded it as important that the Survey put into place the infrastructure necessary for the successful development of its commercial activity. There were four key elements to this:
- flexibility was needed in the manpower allocation process
- a new marketing structure was required
- planning and budgeting systems must be decentralised
- staff perception that commercial achievements are given less weight than scientific achievements had to be corrected.
The Directorate and the Programme Board accepted the report, although with reservations about some of the 63 recommendations. By Christmas 1990, some nine months after his appointment, the Director, Peter Cook, announced a new management structure for the BGS (Figure 7). A Business Planning Working Group was then set up to devise new systems and procedures for running commercial activity within the BGS to be implemented in April 1992.
The impact of the Price Waterhouse recommendations was profound. Hardly any aspect of life and work in the BGS was untouched by them. In essence, the 63 recommendations can be distilled into four major tangible outcomes:
- reorganisation of the management of the BGS along market-facing lines
- introduction of annual business planning
- target setting for levels of commercial earned income
- introduction of an internal market for staff and services.
Price Waterhouse recommended that the management structure should reflect customer sectors; in other words there was to be a direct, structural link between the BGS and the outside world. The notion that customers did not care how the BGS was structured as long as the goods were delivered was disregarded. Instead, the expected benefits of the psychological impact on BGS staff of finding that they were organised in such a way as to maximise their interaction with customer sectors was in the forefront of their minds. Price Waterhouse regarded the Group in the BGS as the basic business unit and the report recommended that planning and budgeting systems be decentralised so as to fit a group-centred model. Essentially, an internal market economy was to be created. Groups were to trade services and staff among each other as well as outside the BGS. There were to be minimal restrictions on the growth of groups so that they could meet increased demand in the market for their products and services. Ideally, groups should be free to hire and fire as necessary and their recruitment policies should reflect market demand and not be constrained by scientific discipline. Unsuccessful groups should be allowed to wither away. Group Managers should be allowed to retain a portion of their profits from commercial activity for the development of their group. There were to be limits on the levels of central support in the budgeting process to ensure that budget holders (Group Managers) ‘owned’ their budgets and accepted responsibility for income as well as costs. Groups were to be given a target figure to be taken from their commercial earnings for their contribution to the central running costs of the Survey. This was called contribution to overheads.
Both the NERC and the Treasury imposed limits to the full implementation of the Price Waterhouse recommendations, particularly with regard to staff and financial management, which made the implementation of the full group-centred model impractical. There was also some very valid internal resistance to the full model, most of which was aired during 1991 when the protocols for the new commercial management system were being developed by the Business Planning Working Group. In essence, what the BGS did was turn the consultant’s report into something that was practical to implement in the environment within which the BGS operated. In some ways, the fact that this had to be done was a criticism of Price Waterhouse, who ought to have been fully familiar, at least with the financial constraints that apply to Government bodies. Perhaps they had knowledge of something concealed from the BGS. Certainly, had the BGS succumbed, later, to the pressures to become privatised, the full suite of recommendations made by Price Waterhouse would have been completely relevant, but at the time they were introduced they were not.
In the new, market-oriented management structure (Figure 7) there were seven programme and corporate divisions, each managed by an Assistant Director. This terminology was taken straight from the structure before Malcolm Brown. ‘Groups’ replaced the ‘Research Groups’ and ‘Research Programmes’ in his structure, and all the managers at that level were called Group Managers. There were four programme and three corporate divisions. It was the programme divisions that were designed to be the main market-facing entities and, in theory, there was to be little or no overlap in the market interest of each of them. Some of the groups, however, were also structured to be market facing.
The four programme divisions were Groundwater and Geotechnical Surveys (GGS), Minerals and Geochemical Surveys (MGS), Petroleum Geology & Geophysics and Offshore Surveys (PGGOS) and Thematic Maps and Onshore Surveys (TMOS). The first choice of a name for the last division was Land Use and Onshore Surveys, but approval for this was not received from NERC HQ. Dr Bernard Tinker, who was the Director of Terrestrial and Freshwater Sciences Directorate, would not agree to the term ‘Land Use’ being used in any other directorate than his. On the recommendation of the Director of Earth Sciences, it was changed.
The three corporate divisions, each managed by an Assistant Director, were Corporate Coordination and Information (CCID), Marketing, and International. Though it was always expected to be a small division, Marketing was given independent status. Its head was given the rank of Assistant Director and a place on the Directorate to ensure the status of this discipline within the Survey.
In this reorganisation, the final remnants of the matrix management system were unstitched and the BGS returned to a conventional, hierarchical management structure. The posts of Chief Scientist were abolished, programme planning was carried out by the full Directorate, and staff deployment was controlled by the Group Managers within the internal market. The Core Programme was redesigned at the margins so that whole programme elements were managed entirely within a single division and managers were given their heads to develop their group’s commissioned research programme in any way that they saw fit. This certainly encouraged enterprise, and the entrepreneurs were able to flourish, bringing undoubted benefits to the BGS. But, and there is always a but, the interaction of this freedom with the other innovations brought into the process of managing the BGS was not always and entirely beneficial.
Price Waterhouse recommended a marketing division with eight staff. They argued that a centralised marketing group was necessary because the ADs were not yet experienced enough to deal with marketing within their own divisions. This issue, whether marketing should be led from within the divisions or from a central group, raged throughout the 1990s and was sufficiently emotive in 1991 to stop the full implementation of the Price Waterhouse recommendations on marketing.Their proposal was to have an international marketing manager and two product market coordinators, one for environment and land use, the other for resources. They were to work alongside a corporate marketing manger, whose job was to liase with the Group Managers. A services group beneath these four senior staff was to cover public relations, marketing information, publication sales coordination and promotions. The Head of Marketing was, among other things, to have a major influence on the development of the BGS business strategy.
What was set up bore little resemblance to this. A Head of Marketing was appointed from outside the BGS and given a seat on the Directorate. Beneath him were three sections: business development; market research and intelligence; and promotions and public relations. International marketing remained within the International Division. Publication sales and promotion remained within Information Services Group in the Corporate Coordination and Information Division. The three posts to cover market coordination and corporate marketing were not filled. Instead, two senior scientists were given the job of business development. The main marketing effort was to be carried out within the divisions. Funding for it was partly controlled by the Head of Marketing, who was able, this way, to coordinate some of the marketing effort.
This arrangement lasted only three years. By 1994, the Marketing Division had gone. After that, marketing coordination was done within International and Marketing Division by a member of staff operating at two grades lower in rank than Assistant Director. Promotions and public relations were transferred fully into the Corporate Coordination and Information Division. Marketing, then, became an almost totally distributed activity even though much of the funding for it was still coordinated from the centre. In fact, little marketing, in the proper sense of the term, was being done. But there was a lot of very vigorous and successful selling.
This situation was no more satisfactory than the one that preceded it. Senior managers were, by then, beginning to react against the fragmented structure and the internal competition, especially as it was becoming evident in respect to the commercial activities. Marketing information, often, was not shared. It was jealously guarded within groups and secrecy was normal. Attempts made by the head of International and Marketing Division to collate marketing information for the purpose of monitoring progress towards meeting the BGS income target were met with less than full enthusiasm and some information was always held back. What was clearly missing, and missed, was any mechanism for gathering information that the BGS as a whole could use to determine its corporate priorities for spending the marketing budget and to provide guidance on the sort of research and product developments that should be taken up for the benefit of the BGS as a whole.
The problem was that, throughout this period, staff that did understand the difference between marketing and selling continued to question the need for marketing. It was said that individuals who were astute enough to grasp opportunities when they arose usually brought in business, and that this was all that was necessary. True marketing had been done in the development of the highly successful Geohazard Susceptibility Package (GHASP), which was made for the insurance industry. With no other good, successful examples to quote, the case for investing in marketing as opposed to relying on opportunistic selling was not convincingly made. But neither was there a convincing case against doing marketing. Some senior staff still believed that the BGS badly needed a group of individuals who were to be free to talk widely within the user community, take a look at trends, be visionary and then plan a long-term strategy for the development of products and services. The Group Managers and divisional heads were quite able to look at the short-term without aid from outside their management units, but taking a long view did not balance the books within year, and it was not often done by these managers.
In the 1997 reorganisation (Figure 9) an attempt was made to address these shortcomings by re-establishing an independent group responsible for business development. Called the Business Development Group it was headed by a Grade 6 manager and was staffed by sector managers, whose responsibilities had something in common with the market coordinators proposed by Price Waterhouse. Public relations and the Press Officer were also part of this group.
To reach this structure an analysis was carried out of BGS business in terms of its clients, the first time it had been done this way round. It was found that practically all BGS business within the UK was conducted with clients who fell into twelve natural, client sectors. Each sector was a group of paying clients with common interests. Major sectors were central government, oil and gas companies, the water industries, and radioactive waste industries. Lesser ones were the local authorities, civil engineering companies and so on. The sectors were divided among the sector managers, who held the budget for marketing in their sectors. International marketing was managed separately with regard to work in the aid sector. However, any activity overseas that came within, say, the oil and gas companies sector was handled by the oil and gas sector manager.
Neither the Group Managers nor the Assistant Directors, all of whom saw in it a loss of some of their power, welcomed the new arrangement. After serious arguments, some of the marketing budget was given to them to aid their selling activities in any way they saw fit. The main battle, however, was for the sector managers to prove their worth. This was not easy, not least because the perception of them was that they were super salespeople not marketing people. The distinction between selling and marketing was still not being recognised, despite the best efforts of Price Waterhouse, and staff that were tasked to do marketing were being forced into becoming salespeople. Even the Programme Board, who ought to have known better, being largely from industry, became trapped into setting short-term earnings targets for the sector managers.
The first-ever business plan for the BGS was produced for the financial year 1991/92. It was built from the bottom up. Each division stated its key objectives for the year in terms of science, income generation and performance improvement, and identified the financial and human resources necessary to achieve them. The layout of the business plan changed almost annually with, in later years, individual group plans appearing and division plans being the sum of them. The document grew from a 22-page book in 1992/93 to 42 pages in 1997/98 when the NERC made it mandatory for its component bodies to write their business plans in two parts: a five-year forward look and a one-year operational plan.
In theory, the business plan should reflect the organisation’s business strategy. An attempt to develop one for the BGS had been made by the first Head of Marketing, but his position was so weak within the newly formed, group-centred organisation that it was not applied. Instead, the BGS business strategy became the agglomerated strategies of the groups and divisions, among which there was very little internal consistency. An analysis of the entirety of the BGS business was not carried out again until the Business Development Group was formed in 1997. This group recognised that the objective set by the Secretary of State for Education and Science back in 1989, for the BGS to earn a surplus from commercial work that could be put towards core surveying, could never be achieved by carrying out only commissioned research. An analysis over several years showed that average earnings for commissioned research no more than covered the full economic cost of the activity. The only way that a surplus could be generated was by developing value-added products. The business strategy that they proposed, therefore, recognised that extra effort should be put towards building a capability to generate value-added products. This remained the business strategy until 2000, but, as ever, it was almost impossible to pursue an integrated BGS policy in a distributed organisation that had practically no common aims.
Common to all the business plans, from the first to the most recent, was the inclusion of commercial income targets. Until 1996/7, these were presented for each group and division. From 1997/98 they were given in relation to earnings expected from each market sector. Only in the first year, however, was a target contribution to overheads given. It was an important recommendation in the Price Waterhouse report that groups should be given such targets. Otherwise, they would be free to find ways to utilise all earned income for the benefit of their group and make no contribution to the corporate BGS. An attempt was made in the early to middle years to calculate the profitability of commercial projects carried out in the year. A league table was set up; managers of the most profitable projects were given a reward; those at the bottom of the table had to suffer the indignity of everyone in the BGS knowing who they were. As a result, those project leaders at the bottom of the list devoted an enormous amount of time to analysing and explaining what they thought were the special circumstances that put them there. When the league table was abandoned, no further attempt was made to measure the contribution to overheads from the commissioned research programme.
Target setting provides, perhaps, the best illustration of the fundamental weakness of the Price Waterhouse report. The report was presented as a complete package by the consultants, who made no attempt to deceive the BGS into thinking that the organisation could pick out from it what it wanted and throw out the rest. By not fully taking account of the realities of working within Government or the public sector the whole edifice was put at risk even before implementation.
Setting targets for commercial earnings was not expected to be easy and it turned out to one of the most difficult tasks that faced the Directorate each year. There was more hot air, bluff, subterfuge and argument generated around it at Directorate meetings than any other agenda item and it was never really done successfully. Because of the manoeuvring by Assistant Directors, angling to get a good deal for their divisions, it was not unusual for some groups to finish the financial year having met their earnings targets, without using up all the available staff time in the group. Conversely, some groups found it impossible to meet their targets because they did not have sufficient staff. The overall desperate financial situation in some years meant that recruitment had to be frozen, which did not help these groups, but it was also not unusual for staff who were available for the commissioned research that was coming in to lack the appropriate skills for carrying it out. It was believed by many staff that in a private sector organisation this would not happen, because of the greater management freedoms available to it. This may or may not be true, but the constraints on hiring and firing Government employees did little to alleviate the difficulties that the BGS faced.
Driving target setting was a belief that setting challenging targets was a stimulus for Group Managers to excel commercially. It never quite worked that way. The difference between a target and a realistic forecast was never openly recognised, partly because the BGS was under such intense financial pressure in the middle and later years of the 1990s that meeting the targets, whether they were realistic or not, was necessary to balance the books. The cost base was already under almost continuous attack and managers were more inclined to struggle for even unrealistic targets than further to reduce expenditure.
Price Waterhouse had insisted that the BGS should regard the Science-Budget-funded Core Programme as a contract with the NERC and rank it equally with commercial contracts, to be carried out with a mind to budgets, schedules and target deliverables just as commercial contracts were. In this respect they were at one with the new Programme Board. At the same time, the Price Waterhouse consultants were concerned with what they perceived to be the apparent second-class status of staff that only worked on commissioned research. Commercial earnings targets came to dominate the minds of Group Managers, who ate, drunk and slept them from April to January, by when it was too late to do anything about it for that financial year. Acquiring commissioned research contracts became the highest of high-priority activities, way above meeting Core Programme deliverables in those divisions that did not have a high level of core activity. Staff were taken from core projects, particularly those that were led in other divisions, to work on the group’s commissioned research regardless of the consequences. Interdivisional mobility of staff required in multidisciplinary projects dwindled away as Group Managers deployed their own staff, even when they were not the best qualified, to work on their commercial projects. A prejudice grew against senior, highly experienced and skilled staff because they were too expensive to deploy in tightly costed commercial projects and some groups began to recruit junior, and therefore cheap, staff rather than use expert cartographers, for example, thereby keeping costs within group. In the end, it seemed that staff on the Core Programme became the second-class citizens and no one managed to treat the Core Programme as a contract equal to commissioned research programmes.
Included within the target culture was the idea that successful groups should be rewarded. Rewards could include freedom to recruit as needed without constraint, freedom to spend earned income on new equipment, also as needed. But also there could be a direct cash return. When discussed with staff there was by no means a consensus on the issue of reward. Many staff expressed the view that they would be satisfied by as little as the freedom to attend conferences of their choice. Corporate BGS, was neither happy nor able, by virtue of its relationship with the NERC, the parent organisation, to delegate recruitment to Group Managers. Nor was it happy to delegate control on major equipment purchasing to group level, but there was a tacit understanding that successful groups could be given priority over others in the bidding processes for staff and new equipment. This, however, ignored the needs of low-achieving groups which required high levels of re-equipment and recapitalisation in order to become competitive. There was no effective corporate policy to deal with this. A scheme was devised and agreed in 1990 to give groups a proportion of the income earned over the average of full economic cost, but it was almost impossible to implement because the BGS financial management system was inadequate for it. When a cash reward was given to groups in two commercially successful years it was done on a flat-rate basis, every group receiving an equal amount. Only the enquiry service was managed with a reward system embedded in it that recognised success. It ran for several years and did not reward those groups that achieved less than the cost recovery target that had been set for the year.
Eventually, some Group Managers, themselves, realised the damage that was being done to the BGS by target setting. The process, however, could not be abandoned. It might not be necessary for groups and divisions to have earnings targets, but the BGS had to have one. After an acrimonious senior staff meeting in 1996, the practice was changed. Earnings targets were now set against business or client sectors. The Group Manager was tasked to end the year with all his staff having been gainfully employed on what might be called ‘billable’ work. This change was important in several ways. Managers did not lose their awareness of costs, but cost alone was not now the driving force behind nearly all their decisions. In another way, the change was meant to reverse a mindset that had persisted despite being challenged in the Price Waterhouse report. Some staff had become good salespeople. They entered the marketplace with an idea, a service, a product, a skill or a research idea for which they wanted to acquire funding and they often managed to make a sale. Where they remained weak was in true marketing: i.e. looking at the marketplace and learning what could be done in the BGS to meet a market need. Setting targets with respect to external client sectors was meant to make staff do this and look at the BGS from the outside in, not the other way. It had some success, but overall the change, though it did ease some of the pressures, was not the whole solution to the problems that had been created by target setting.
One of them was that the BGS still had to find a way of making a reliable forecast of its earnings potential for the next financial year. Finance Section had always done this using their experience and knowledge of trends and business in prospect. It was a fairly reliable method, but it served only as a coarse financial forecasting tool. There was no way of looking at the detail of the forecast to gain information on how to target marketing activity, predict trends or judge its reliability. Detailed retrospective analysis of business, to be used as a mechanism for determining trends, giving guidance on marketing emphasis in the future and quantifying the reliability of forecasts, was possible for international business only. This was because the right sort of data had been collected over several years. It did not become possible for UK business until after the 1997 reorganisation when, after a detailed analysis of the Survey’s business, the right sort of financial data began to be collected. Forecasts could then be made to about 95% reliability, by using, amongst other information, analyses of past trends.
The received wisdom about internal markets was that they led to improvements in the internal delivery of systems; they gave users the information needed to make a choice between an internal and external supplier of the service; they gave organisations the choice to continue to supply the service or not, and they helped users prioritise demand, when resources were limited. To a greater or lesser extent all of these were experienced by the BGS.
The internal market was created for both staff time and services. Several services were unit-priced for both internal and external customers and protocols were developed for internal trading. Chemical analyses, photographic and repro-graphic services and thin sections were included. To a certain extent the trade in staff time already existed. For internal financial management purposes all staff time had been priced using average staff costs for each grade for many years. Day, monthly and annual rates were published internally each year and were used in calculating project costs. The change after Price Waterhouse was in the management attitude to staff costs. Managers would seek out the cheapest staff to work on their projects and the terms ‘buying’ and ‘selling’ staff entered the Survey’s vocabulary.
Internal markets are always criticised for the additional load of bureaucracy they require, but there is no doubt that in the BGS there were efficiency gains from the introduction of the internal market and there was a beneficial effect on the quality of project management. The gains from these might well have offset the increased overhead costs. The Business Planning Working Group introduced project cost analysis sheets (PCAS) to be used for each project during the planning process each year. It included all expected costs, including predicted expenditure on internal services, which were now unit-priced, and became the basis for the detailed level of financial management throughout the Survey. The impact was wide and complex. There were clear benefits in efficiency. For example, before unit pricing, an analytical chemist would be costed into a project team in units of staff time and he or she would be expected to take responsibility for seeing that the required chemical analyses were done. This did not always lead to the delivery of what the project required. Moving over to unit pricing, on its own, did not change this, but the discipline of having to devise a unit-priced service brought a sense of reality to the management of the laboratories, which allowed laboratory managers better to meet their targets in serving the science projects.
The system of preparing project cost analysis sheets worked well for the Science-Budget-funded programme but it was less than satisfactory for commercial projects, particularly where there was sales income coming into the project. Under these circumstances the system could be too restrictive, but there were flexibilities in it that clever mangers soon discovered to their benefit. Without exploiting the loop-holes in this system, in the years when there was an embargo on spending Science Budget on capital, it is likely that some groups would not have been able to re-equip themselves and remain viable.
Once services were unit priced, project managers did compare them with outside providers and in many cases went outside as a result. Photographic services suffered this way and there was a protracted debate on whether the BGS should retain its photographic department. By a process of erosion, the size of the department was reduced and the range of services contracted mainly to those that met specialist requirements. The thin-section-making facility was also scrutinised and only narrowly avoided being disbanded. The arguments in this case were interesting. It was impossible to reduce the department to an economically viable unit that only provided specialist services with difficult rocks, say, that were either not available or not satisfactorily available on the open market. As a consequence, not only was it necessary to retain the whole facility, but it had to be enlarged by taking in work from outside in open competition with laboratories to whom in other circumstances the BGS might have contracted its own work.
The chemical laboratories also faced stiff competition from the outside. Indeed the demand for chemical analyses within the geological mapping programme and many of the large commissioned research contracts had been met by mainly university-based laboratories for many years. There were several models for calculating the pricing mechanism for chemical analyses, some of which took full account of the cost of maintaining and replacing equipment and would have priced the facility out of the market altogether. The debate was initiated, therefore, whether the BGS should or should not have its own chemical laboratories. The arguments for and against were finely balanced, but once the decision was taken to retain the labs, other arguments came into play about how they should operate. One powerful one was that in any national analytical programme there should be common standards throughout, such that analysed rocks from Cornwall could be compared with rocks from Monadhliath. It was argued that this was best achieved by carrying out all analyses in one laboratory under a single quality-control procedure. Thus, the Directorate agreed that the BGS laboratories should always be given first choice, and almost immediately, the amount of work contracted out to external laboratories fell away, effectively achieving the opposite to what was originally intended in a free-market context.
Other services did not benefit. The photographic department, already diminished by losing most of its routine photographic work, also suffered a drop in demand for field photography. The BGS photographic library of over one hundred thousand images captured since 1904 has been systematically updated by the official photographer, who visited all field areas to build up an album of pictures of rocks and geoscientists at work in the field for each area as it was being surveyed. Field staff had been taking their own cameras into the field for decades, but their pictures were generally not professional in quality and the official photographers had resisted attempts to develop procedures for taking into the official BGS collection photographs that were not taken by them. With the introduction of unit pricing coming just before the start of a period of financial stringency, the demand for field photography stopped. It was too expensive to do and project leaders had higher-priority demands on their budgets. Eventually, field photography was dropped out of the internal market in an attempt to revive it, but a break in continuity had been created from which it is not possible to recover.
Cartographic and publication services were excluded from the unit-pricing scheme. Again, there was a good deal of argument about this. Nearly all the book publication effort and around two thirds of the cartographic effort was devoted to producing outputs of the Core Programme. Cartography in the BGS was then, and remains, highly specialised and technically advanced. Outsourcing was never a practical option because there were few other places where the appropriate skills, among which a working knowledge of geology was important, could be found. With the heavy investment in digital technology and the complexity of both the conversion from manual methods and the learning processes that staff were experiencing in the early 1990s it was never going to be realistic to calculate a meaningful unit-priced service. Efficiencies were gained by other methods. However, experienced and skilled cartographic staff are expensive, and several groups recruited and trained junior-grade staff to carry out routine cartographic procedures, rather than use the corporate drawing offices. Some groups also opted to manage their own desk-top publishing systems and handle their own product sales and enquiry services, rather than use those in the Corporate Coordination and Information Division. There were short-term cost advantages in doing this, but the medium and long-term losses more than outweighed them. Repeatedly, the inexperienced cartographic and publications staff operating in the groups encountered technical difficulties they could not handle and had to be rescued by the experts, but the main loss arising from the distributed system was the lack of corporate standards. When it became necessary to integrate work that had been done by several groups on their own systems it was expensive and sometimes technically, quite difficult.
One of the most serious consequences of the internal market was in the multidisciplinarity of the science programme. In 1989, specialist staff other than field mappers, provided about 35% of the staff effort in the geological mapping programme. In 1999 this figure had reduced to less than 15%. The imposition of strict annual targets of 20 maps and ten to 12 memoirs, which the Programme Board rigidly maintained for the mapping programme through a long period of declining budgets, first led to improvements in efficiency, then to cost cutting. For project leaders in the mapping programme, the highest priority was to meet the annual map and memoir targets. This could be done with a diminished input from the specialists with minimal loss in map quality. The main losses were in the level of understanding of the geology of the areas mapped and in the integration of geological mapping with research in other subdisciplines. The adoption of the internal services funding model for all research projects must, at least in part, carry some blame for this. For reasons not its own making, the age and grade profile for the BGS was top heavy. There were (and are) more quite senior and highly paid Grade 7 staff than any other grade. The funding model was based on average staff cost for each grade. A simpler, less discriminatory model might have had a different effect on the proportion of staff other than mappers that it was possible to have in a project team, but though alternatives were discussed, none was considered suitable.
Probably, the weakest aspect of the Price Waterhouse model was the market-facing management structure. There were signs of its potential failure even before it was established. The largest of the divisions, the Thematic Maps and Onshore Surveys (TMOS) was, at its creation (Figure 7), only partly equipped to deal with the market sector it was to face. This division was revolutionary in one respect. It brought together under single management at AD level the whole of the Land Survey for the first time in the history of the Survey. It also brought into the division Regional Geophysics Group, to accompany the seismic interpreters in the Tectonics and Database Group. This completed the process of building a division with the full capability to carry out three-dimensional analysis and modelling of the crust that Geoff Larminie had started. What was lost in the reorganisation were those parts of the two Land and Marine directorates that would have enabled TMOS to pursue its market in land use. For nearly a decade the Department of the Environment had been commissioning the BGS to generate suites of thematic maps for planners in urban Britain. A full suite of maps would include engineering geology, potential geohazards, mineral resources, both coastal and estuarine flooding potential and a summary map showing planning constraints. The Department of the Environment’s programme had been managed almost entirely within the Land Survey. Now, in the new organisation, Engineering Geology was put into the Groundwater and Geotechnical Surveys Division; Marine Geology (South) became Coastal Geology and was part of the Petroleum Geology, Geophysics and Offshore Surveys Division; responsibility for all industrial and construction minerals except sand and gravel went into the Minerals and Geochemical Surveys Division.
At a time when the BGS was deliberately decentralising and creating groups as semi-autonomous business units with a remit to face specific market sectors, it was unrealistic to expect inter-divisional co-operation in this one important area and it did not happen. Instead, there was interdivisional conflict, with three divisions competing with each other for leadership of thematic mapping contracts from the Department of the Environment. The reason for the competition was simply that there were financial and staffing benefits to the group that won and took control of the contract. A Land Survey group leading a contract might discriminate against engineering geologists in staffing the project team, while an engineering geologist leading it would ensure better representation of engineering geologists, probably at the expense of field staff.
In practice, the Director was driven by the numbers game in his first restructuring. One division with the capability to deal properly with mapping the three-dimensional structure of the landmass and land use would have been huge compared with the others and it was not managerially sound to do this.
Other weaknesses in the market-facing structure became evident soon after implementation. PGGOS, for example, was not alone in having an interest in the petroleum industry. Both the GGS and MGS divisions were also finding that their skills were in demand in the oil industry and there was a strong interest in it within TMOS. Here the seismic interpreters in the Tectonics and Database Group had close commercial contacts with the onshore industry both in the UK and overseas. This internal conflict of interest was tackled in 1994, during Peter Cook’s second restructuring (Figure 8), by removing the seismic interpreters and basin analysts from TMOS and transferring them to PGGOS. This spoiled the TMOS Division’s three-dimensional modelling capability, but more importantly, by separating the geophysicists from the seismic interpreters, it damaged the progress that had been made in developing a combined potential-field and seismic-interpretation capability for dealing with the intermediate and deep crustal levels. This was to become critically important once the oil industry migrated its exploration interests to the Atlantic margin. The Regional Geophysics Group, which was left behind in TMOS, continued to earn most of its commercial income from the oil sector, often in competition with interests in PGGOS.
There were two other major failures in the system, and one that succeeded despite the management structure. The failures were geophysics and information technology (IT). The success was in the handling of contract work with UK Nirex Ltd.
The Geophysics Division created by Malcolm Brown was dismantled and divided among three divisions in the new structure. Among other things, this slowed or stopped the process of integration of the Global Seismology and Geomagnetism groups into the mainstream BGS. It also made it difficult for geophysicists to pursue the business opportunity that Price Waterhouse had identified for them, which depended heavily on an integrated approach to geophysical problem solving. In the model for the new structure there was nothing wrong with groups or divisions expanding their multidisciplinary capability internally, as long as they had the revenue to sustain their expansion. There was, however, a good understanding in the BGS of the importance of achieving and maintaining critical mass among skill groups to keep their expertise levels high and up to date. Apart from information technology and information systems (IT/IS) staff, who were taken into many groups, there was little recruitment directly into groups of staff who did not have skills that conformed with the majority in the group. The prereorganisation Regional Geophysics Group was divided along lines that separated geophysicists with potential field skills, useful for deep crustal studies, from those with experience in electrical methods that were suitable for engineering geophysics research. In fact, nearly all geophysicists had experience in both and to separate them this way reduced their career development prospects. That the split did not lead to rivalry and competition between the two groups was due very much to the characters of the two Group Managers, who amicably divided responsibility for shared assets and did not compete against each other.As for IT, for about twenty years NERC computing was organised along centralised lines, with NERC Computer Services (NCS) maintaining the hardware and common software. With time, they relaxed their control of software and applications, as it became more and more difficult to please the whole of the NERC with common software. The spread of PCs throughout the NERC was also antipathetic to the ideals of a centralised computer system. Within the BGS, all prospect of having a central geoscience database, such as Malcolm Brown wanted, had disappeared in 1983 by Directorate agreement. NCS had forced the introduction of the ORACLE relational database management system throughout the NERC and though this did something to mitigate the worst aspects of distributed database management, it did not fully compensate for them. Thus, by 1991, when the new structure (Figure 7) came into being, database management, computer applications and commonly used software were already largely uncoordinated across BGS and an unsatisfactory position was allowed to get worse.
By the middle of the 1990s the Data and Digital Systems Group in TMOS (Figure 8) was bigger than the supposedly central computer group, Information Systems, in the Corporate Coordination and Information Division. Both PGGOS and MGS, although they did not possess identifiable IT groups had a pool of expertise at least as big and as competent as the two divisions that had IT/IS groups. The one thing that is undisputed about IT is that it is ubiquitous and universal. No group or division in BGS acknowledged that they did not have a right to exploit it, even competitively against each other. It was not uncommon for three divisions to submit individual expressions of interest for the IT parts of big contracts. Not only were they competing with each other for work, they were in competition about ideas and systems and not afraid to criticise each other’s work in the hearing of third parties.
NCS was demolished in 1997 and responsibility for all computing in the BGS was handed to the BGS. The Survey had by then agreed to adopt the distributed model for computing and when it took over from NCS it was decided that only the provision of networks and the main element of the infrastructure should be done centrally. Anything that went on the desk top was to be the responsibility, both to purchase and maintain, of the group using it. Database management and applications had never been under central control and after NCS abandoned standards for commonly used software, such as word-processing packages, the BGS did not replace them. None of these issues were taken up until after the 1997 reorganisation.
The success story is UK Nirex Ltd. In one year Nirex was the largest single commission, bigger than any Government department except the Department of Education and Science, who provided the Science Budget. In that year over 200 individuals from all divisions and most groups were committed for all or part of their time to the contract. Radioactive waste was the market-sector responsibility of the Fluid Processes Group in the GGS Division, but the contract had made multidisciplinary demands on the Survey for many years and it was beyond the capability of any one group or division to handle it. The solution reached was to appoint a contract manager who sat outside the management structure and followed his remit with the impartiality of a key account holder, whose first responsibility was to the customer. It worked well and if nothing else pointed to the inadequacy of the market-facing approach to the management structure, this did.
It is difficult to evaluate the impact of Price Waterhouse on the BGS. It was not all good, nor all bad. Some that was bad was nothing to do directly with either Price Waterhouse or BGS, but reflected on the determination to pursue market economy ideals within government bodies, which engaged many in Whitehall at the time. In positioning the Survey to face the market economy Price Waterhouse did expose the BGS to market populism, the worst aspects of which were in the management of staff. Flexibility in staffing is of central importance within market economics. Although the progress of change in the BGS was slow, long service and loyalty did become devalued as staff, particularly new recruits, were expected to move on out of the BGS to develop their careers. While unit costs influenced most decisions, the price of long experience, a high degree of specialisation and wisdom came to be seen to be too high to bear. Staff who were not aggressively commercial came to be valued less than those that were and the organisation lost its tolerance for the low achievers and the ‘workhorses’. An ‘unfunded’ category of staff emerged, which stigmatised individuals. These were, often, highly skilled scientists for whose skills there was no immediate need in the Commissioned Research Programme and who were the victims of cost cutting in the Core Programme. Even leading-edge, sometimes recently promoted scientists fell into this category when the Nirex contract collapsed.
On the other hand, staff learned to exploit their skills in selling if not marketing and began to appreciate the value of a satisfied customer. The insularity of the BGS from the community that used the information it held or was capable of delivering was also broken down in the process. The importance of this should never be underestimated in any analysis of the effectiveness of the consultancy. Coming, as it did, at the same time as the Programme Board, which was set to improve the efficiency with which the Survey conducted the Core Programme, its effect on the BGS culture was considerable. Matters such as working to time and budget, fitting the quality of work to the customer’s specification, and taking account of customer needs all became part of the new culture, even though there was not uniform success in applying them. This was particularly important now that the presence of a Programme Board ensured that there was a customer for all the work.
In terms of the specific remit given to Price Waterhouse, however, there is quite a different outcome. If there is one single criterion by which to judge their success it could be whether, as a result of them, the BGS achieved what the Secretary of State for Education and Science asked for. That is for the BGS to use its 1990 PES award to stimulate the generation of outside income for reinvestment in core surveying activities. Many indirect benefits came from the enhanced, not to say frenetic, commercial activity that came in the wake of Price Waterhouse, but there is no calculation that can be done that shows that surplus income derived from commercial activity was used to expand the activities in the core surveying programme. It is evident, though, that through the 1990s the BGS expanded the breadth of its commercial and commissioned research activity sufficiently to remain economically viable and this prevented the attrition of the Core Programme. The annual gross income of between £17 and 18 million made a contribution to the overhead that was essential to the Survey’s survival. So, although there was no cash transfer from the Commissioned Research Programme to the Core Programme, there was a financial benefit to the Core Programme.
This, though, is not the whole story. In the decade from 1990, income from commissioned research instigated by the major Government departments halved. During the same period, income from the private sector doubled, but it did not make up for the fall in income from Government. Cost cutting was also required. Apart from UK Nirex Ltd, the biggest contributor to the private-sector income was the oil industry, and that only happened because of a good deal of hard effort put in by many staff in chasing the work, cultivating the customers and then delivering a good product. The importance of exploiting all these skills, which are inherent in many BGS staff, was learned from Price Waterhouse. Interestingly, though, of the six high-priority business opportunities that Price Waterhouse helped BGS to develop, the only one to feature the oil industry involved the development of a series of products that did not flourish. Prospects within the industry as a whole were not thought to be good. It was argued that demand for geoscientific services would decline, as exploitation in UK waters diminished and there was an expectation that this would begin in the short term. None of this came to pass. Of the other five business opportunities one was spoiled by the separation of the Regional Geophysics Group into two parts. The others showed no short-term return at all, though now, ten years on, two of them are beginning to pay dividends and the potential that was forecast for them in 1990 now looks realistic. In the case of these, it was the lead time for the development of the new markets that was grossly underestimated by Price Waterhouse. Their two so-called ‘generic’ opportunities were to utilise the BGS multidisciplinary capability and exploit the skills, knowledge and databases to provide high-value services. Carrying out both became increasingly difficult in the organisation as it became progressively more fragmented into non-co-operating, business-fixated groups.
Even at the time, it was evident that Price Waterhouse was a mouthpiece, albeit indirectly, for the Government. Mr Beasley had maintained his contacts in high places and was in a good position to know the current Government thinking on all relevant issues. In 1990, privatisation of state-funded bodies of all kinds was well established and Prior Options was not many years away. It would have been no more a secret to him than it was to the BGS senior management that, only two years before, in 1988, the BGS had been threatened with privatisation. Such a threat was not going to go away as long as the current Government remained in power. It made good business sense for the consultants to act upon this knowledge and understanding. It prepared unwitting bodies like the BGS for their fate and ensured that repeat contracts were a serious possibility if privatisation were to happen to them — and it made the consultants look good in Government’s eyes.
Although in detail some of what was implemented after Price Waterhouse was not successful, the overall impact has to be regarded as having been beneficial. In 1990, the bottom line for the BGS senior management was the survival of the BGS. Only later did it become the survival of the BGS in the public sector. While it may, in retrospect, be tempting to be critical of this single-minded attitude, it worked. The proportion of the BGS work programme that was commissioned and commercial was on the point of reducing to around 55% because of the PES awards. This level, the lowest since 1973, was to be sustained within a few percent throughout the 1990s despite the enormous pressures under which the BGS operated. In other parts of the NERC there is a different picture. In the year 2000, two of the other major research centres, were in financial trouble. One, the Centre for Coastal and Marine Science, is to be demolished and distributed among universities. The financial viability of the other, the Centre for Ecology and Hydrology, is being questioned. Neither of them had been through the rigour of anything comparable to the Price Waterhouse review and neither of them has managed to get control of its Commissioned Research Programme in the way that the BGS has. The reason for the commercial self-assurance evident in the BGS must be traced back to Price Waterhouse.