The Road Ahead: Organisational development at the Royal Automobile Association of South Australia

Speaker A So I'd like to introduce Ian Stone from the Auto Club of Southern Australia, who has traveled this time I'm getting it right, who came to us. You must have a tolerance and also be very motivated to withstand the physical trip of coming here for a very short time with us to tell the story. And we really appreciate it and I'm glad because we can get it on video here. Otherwise we'd do a telephone interview. But this is very important. You came for us, so we can't wait to hear your story. Please.

Speaker B I'm going to talk a bit about a journey that we've taken. I know Andrew Olivia presented four years ago, I think in Argentina on the start of this journey. So this is sort of the progress four years later. But I thought I'd just start with a bit about what RAA is. So for the North Americans, we're the equivalent of the AA or the CAA, depending on which part of North America you're in. Road service. Roadside service is our core product. And in fact, whilst we are quite a diverse group now, probably about 95% of our customers, the first product they buy from us is roadside service. We're an organization. When I've been in the role seven years, when I took over, we were 104 years old, and I'm only the fifth CEO in that 104 history year history. So I took over from someone who'd been enrolled for 20 years, who took over from someone who'd been enrolled for 40 years. And that's important when I get to some of the issues we were addressing a little bit later on. The reason we looked at Ro in the first place, the first part was around leadership structures, and I've got an example a little bit later on. But like a lot of organizations that are over 100 years old, your structures and roles develop over time and don't necessarily develop well. So we needed to bring in a structure and a framework that allowed us to address that. And the second was similar to Clement, we had a lot of bad operating procedures and structures within parts of our business that we needed to fix. One of the first things we did just after I started was set a ten year strategy. We did this with the board. So building on what Ron was talking about earlier, our structure is once a year. Myself, my leadership team, which we call the general managers and the board, get together and work through structure strategy. Sorry, that's the 40 hours travel and the strategy is set. So the first one we did was in 2008 was a ten year strategy. What we've done subsequently is in 2013, we were five years in, we've gone and set another five years out, so we've got another ten year strategy. The ones in between, very similar to what Ron was talking about, is very much about the detail of what we're implementing. Are we heading in the right direction and are the strategies right? Do we need to tweak them so they're not major resetting? That's done about once every five years. One of the things we found, one of the successes I think of Ro for us was in 2013 when we're five years in nearly every target we had set for the 2013 strategy, 2018 strategy, so ten years we'd achieved in five. When I took over, this was the leadership structure. The reason in the presentation that Amanda put together for me, those two roles are circled was within a month of me taking over, they'd gone and been replaced and I'll show you the next structure. But what was more important, and this is a bit of the history and culture of the organization, of those people reporting to the then CEO, only one had been promoted from a level three to the level four role, and he had been promoted 31 years prior to me taking over, and that was the CFO. That's one of the reasons why he left. So there was a culture of all the rest of those people at general manager level were appointed to that level. So as an organization, what you'd naturally develop was this culture and expectation that if I had a lot of capability, best thing for me to do was go somewhere else because I was going to be capped out at that level three. And that became a self fulfilling sort of prophecy. The structure now quite a bit broader and sort of brought in some new people. Of those there, I think only two from the original ones I took over and the others I've either brought in or we have started now promoting from within, which is not just to this level but at all the levels through the organization which has been an important cultural change. To show that there's career progression within the organization. One of the things when we started Ro, a lot of people in the organization got scared because requisite organization is a very scary term, because most people don't understand what it means. And I think what happened with the leadership team that I took over, as I said, two people went before we even started the process and a couple of others left since because they didn't necessarily agree with the journey we were going on. And I think between them and I, we saw that it was better for them to go elsewhere, sometimes me, sometimes me, but the team now, and I think this gets to a bit of the point about how do we get some sustainability in organization, how do we get other organizations to understand the better processes? So the point Ron was pointing out, I think part of what hopefully I'm growing there is a group of general managers who believe in Ro, who see the need for it, and hopefully some of them will go on to be CEOs either at the RAA or other organizations. And I think it's that growing the understanding of this whole process that Will Help change organizations over time. Unfortunately, you can't plan for what happened at the Red Cross, and it's quite possible whoever takes over from me will not be someone that believes in Ro, but hopefully part of this as well, developing people underneath me who want to take over my job. And probably in that team, there's about four or five who want my job. There's probably two who are capable. So when I first put the structure in place, much to Andrew Olivia's discuss, I actually had one of my direct reports who was a Level Three. And that wasn't to do with the role, that was to do with their personal capability. And I think my learning from it was that if I hadn't understood Ro, I wouldn't have been able to manage that person because I wouldn't have known that I would have had to drop down to Level Four to fulfill that hole in the role. And it was an important one because it was the role that had sort of delivery of the Ro and it enabled me to deliver Ro in the way I wanted to deliver it. So that was our structure. One of the things we've introduced, and again, it's been an interesting evolution in this process, is once a year we go through what we call People Day, and everyone at Level Two and Three in the organization, we put in one of these boxes. Initially, I think everyone in the organization got absolutely fascinated by which box they were put in, but we were trying to explain to them it didn't matter. It was more about how your manager then managed you. So basically underperformers were in Boxes Eight and nine. Our top talent was in Boxes One and two, one and Four, and the other boxes were sort of people in flow. Either the current role was perfect for them, at least for the next twelve months, or within the next twelve months. They'd been in the role for such a long time. They might have needed a change, but at the same level. What we've evolved this into is initially, some of the people in boxes one and four were high potential people who also delivered their KPIs really well. And what we realized after a couple of years of doing this was one of the problems with that was it didn't measure how they went about delivering those performance. So we had one person in particular who I think was in Box One, and Box One is someone who within the medium term, we're seeing be able to move up two levels in the organization. So they've got capability and they're developing and they could move from three to five or two to four within the medium term. One of the problems with that person was delivered. Great results were incredibly important within the part of the business that they worked in, but none of their peers liked them. And the term I always used was they didn't play well in the sand pit with others. And their results were good, but the overall organization wasn't maximizing its performance. So we started using behaviors and so that person went basically from one to nine and when you get into box nine it's a pretty ugly discussion that you get and they had that. The other thing we introduced during this process was what we call the mor or manager once removed discussion. So once a year I sit down with all the level threes and we talk not about their performance but about what they want to do in their career. So some of the discussions are pretty short, they want to stay at level three, which is good and that's easy. Some of them are really keen and part of the reason we brought this in, it's very difficult for them to tell their boss they want their boss's job and the other thing is it's not their boss to decide whether they're going to get their job, it's mine. So the discussion sort of would generate around they were very keen to move up to their boss's role but this one person in particular who thought they should have been their boss in the first place I was able to sit them down and basically say unless they changed their behaviors. They were very close to being asked to leave the organization, despite how well they were performing. And I'm pleased to say that that person did over time change those behaviors and we did see a real change. He subsequently just this year left the organization but for all the right reasons he's gone. He's actually left Australia, gone to the UK and got a job that's perfect for him and it's actually been good for us as well because we've sort of brought someone else in that's got a different perspective on that particular role. When we started this with Andrew and we did a scan and I think the initial one Andrew was somewhere in the mid two S when we measured all what we did and two years ago now, Andrew redid the scan and we came up with 3.2 Nas measured out of four. So I think we're just there but still shows that even though we're seven years into this journey or thereabouts, we've still got quite a long way to go. So this was just after we started this process. So we did the ten year strategy in 2008, about twelve months into the start of the Ro process we did a staff survey, we call it Mysay and basically the easiest way to interpret this is red and orange are really bad, and blue and green are good. And as you can see, there's not much blue and green up there. So this was staff talking about how they felt the organization was going. So we used this with our Ro team to start delivering and with the general managers and their senior managers to start delivering some of the change underneath with that, getting the processes right, getting the people in the right jobs, getting structures right. I'm pleased to say this was last year's results, so it's the most recent one. As you can see, there's only three orange up there. We're still working on those, but most of it's blue and green. And it's been a fairly dramatic change in four years and most of that's because of the consequences of the journey we've been on with Ro financial results. So obviously people being happy is one thing, but what does it do to your delivery of your financial? KPIs? This is our net assets, so they've grown from 100 million to nearly 200 million. In that sort of seven or eight years, revenue has gone from 83 million to this year. It'll be just over 250,000,000. Now, within that we purchased. So you can see the red groove very quickly. We used to own 50% of our insurance company and we bought the other 50%. So part of that jump was that. But as you can see, we've also grown a lot of income over the time because of we're actually a membership organization, so we're owned by our members, our key roadside products. So this doesn't include our insurance result. This is basically what we call traditional membership product or road service product. But we were going down a track when I took over of this is before investment earnings, relying on the investment earnings from our net assets to prop up the organization financially and together with the board, and it was part of that sort of ten year plan, we had to turn that around. Now, we don't want to maximize profit, but we want to be in a sustainable position where we can reinvest in the business to sustain it going forward and at an operating level, we want that to be a small profit. Now, on top of that, our insurance operation throws off about 15 million a year after tax. Plus we got investment earnings. So we've actually just introduced some new discounts which will return because we don't pay dividends. About 25% of our estimated annual profit will now go back to members in the form of discounts. So we're in a position where we can introduce those discounts because of the position we'd got in financially. Now, I talked about being 100 OD year organization and work systems and structures and positions and roles growing over time. This is our road service area. We employ about 120 qualified mechanics as patrols, largely operating in Adelaide, which is the metropolitan city in South Australia. And everyone in that system there that's got the red circle around it was a mechanic. So basically the only way you became a manager in that division was you started as a mechanic and you grew over time, sometimes by seniority, sometimes by shouting the loudest to become a manager. And that's how the structure grew underneath that in terms of the number of roles and what each position did gradually over time, as I got busier, I put up a justification to get someone underneath me. So in this structure, basically, as I got busier, I appointed someone underneath me. I gave them some accountabilities, but all the authorities stayed with me and then that would just keep evolving over time. So when we got in there in 2007, eight, when we started this process, basically that patrol manager, road service manager, sorry, at the top, had all authority. So every decision that was made in that department was made by him. Every other role had virtually no authority, had lots of accountability, but no authority. And there was so many layers because it's a 24 x seven sort of work group, it was very messy, very unhappy team. None of the managers liked it because they had no decision making authority, but they were held accountable for everything. So it was one of the first ones, and I think Adam, who is here now as a consultant, but back then he actually worked for me, was one of the ones that helped with this team straighten it out. But again, a bit of with Ro, we didn't get it right first time. So our first iteration was this and we got the structure better, we got the levels better, but the one thing we hadn't changed was the road service manager was the same person. So guess what, all the decisions were still being made by him, he wouldn't change. So we then went to a second iteration and one of the things we did here, so if you go back to the first slide, one of the reasons you became a manager was probably because you were technically the best road service patrolman. So in other words, you were the best mechanic. Here we split the leadership role from the technical capability and in those patrol team managers, so there's six of them when we first appointed them, five were mechanics, but one wasn't. One was someone we brought in with leadership skills from a different part of the organization. And he's now one of the top sort of two or three performers in that group of six. The other thing we did was, you'll see, there's senior patrols, there are technical experts, so they're the people. If I'm out in the road and I've got a job and I can't quite work out what's wrong with the car, they're the technical experts that I go to. They used to be the leaders. So we've divorced that technical expertise from leadership. And most importantly, we brought someone in externally as the road service manager, who brought some very different ways of viewing it. We've delegated the authority to the right levels and it's now a much better performing part of the organization. The only thing I will say is the road service manager we brought in was A Rand baggage handling for Qantas and maybe I should have left him there just before I go into question, looking forward, one of the things we're now doing in next part of our organization. So, as I said, we bought the other 50% of our insurance company and that's been a real financial bonus for us. But it meant we had to put in a new It system for insurance and we put an Ro structure in that project. So as an It project, it was a two year for us, a very big project. It was budget of 13 million and we came in less than 1% over budget and less than a month over time on a two year project. We then went and did straight. As soon as we finished that, we've just completed the next part. So it was another two year project. It's a $14 million project to put all our other products onto that same system because traditionally we had in house built systems which were very problematic. So this is an external off the shelf system and that went live on the 30 June. It was two months late and we're going to come in less than 5% over budget. But we started probably even the next level of developing, level threes into the project, sort of understanding a lot more in the second part of the project, just to give you an indication of how that compares to other organizations. So, at the time we did the insurance system, two of our sister clubs in WA and Queensland were embarking on the same system because we all divorced the same joint venture partner in our insurance businesses. One of them was 150% over budget and twelve months late on the insurance system. The second was 120% and nine months over on their project. And consequently, they haven't started the second part, they've just gone. That was so hard, we don't want to do it. So I think because the structures, the systems that we've put in place and getting the right people in the right roles, we're now two or three years ahead of them in terms of our systems development, which is then helping our people deliver more probably in the next phase for us. We got one more computer system to do, but the most important one is within our ten year strategy. Now, I don't know how many people know of the Google car, the driverless car, if you think about that. So motor insurance is our main product. If cars can't have accidents, guess what? Insurers don't make much money. If cars don't break down, you don't need road service. So what we need now is more innovation, more innovators in our business. So one of the challenges I think we've got with Ro now to take it to the next step is how do we identify and recruit those people who can bring those sort of skills? And more importantly, the capabilities you need? What are the capabilities, what level of work do you need to drive Ro? And I think Ron talked about a bit in a product development role, this is very similar. So that's some of the challenges we've got. And given I'm between you and lunch, I'll move on to any questions.

Speaker C Have you given much thought to the level of capability that you would like to have of your board members?

Speaker B Yeah, one of the things we did, and I've done quite a bit of work, is I've taken my board through Ro. So far, I think, Andrew, only two or three of them have been tested to see where their capability is. One was my previous chairman, who was a level six, which was perfect for me and perfect for the organization. And I think we do see the need to keep that sort of capability within that. And in fact, because we're a membership organization, we got 660,000 members. It's only a population of 1.5 million in South Australia. So we've got quite a big penetration rate into the population. We get maybe 15,000 people vote in our elections each year. And the risk we run is that it opens us up to small special interest groups running candidates and that could really hurt the organization. So we're doing work with our board to how do we let our members know that we are very complex organization and you actually do need the right skills to join the board? At the moment, we've got people who have run for the board, who run for the right reasons, but tend to be on our public policy sort of area. So we're big spokespeople on road safety, we've moved into public transport. We think we've got a role in that, but that's now where a lot of these special interest groups are coming in.

Speaker D Maybe it'll be great if you just talk a little bit about the role of the board and especially the chairman with the use of the manager once removed system.

Speaker B Thanks, Andrew. So, as I said, I do all the level threes, my level fours do all the level twos. It's a once a year process. But what we introduced with the previous chairman and it's ongoing now, is the chairman actually does my direct reports for the level fours and for the same reasons. I think it's really good for my general managers to be able to tell the board that they want my job. And that doesn't bother me, but I know some of them are very open, but some aren't in terms of telling me they want my job. And I think that's very healthy. But it's good for the board to understand and good for the board to be able to get, I guess, a better picture of what the general management talent is like. So if I fall under a tram or step in between two of your trams in Melbourne, they've got some idea of who could replace me. And then once a year with the board, after the chairman's been through that mor discussion, I give them my views on where we are from a talent point of view, and it actually delves down into that next layer, particularly identifying some of the high potentials.

Speaker C I know that you're a membership organization, but do you have an endowment that you have to deal with? Because some nonprofit organizations have endowments. Do you have that kind of situation?

Speaker B No, we don't. We've done a couple of things along those lines and it's a bit of a cultural thing in Australia. They're not a big thing, so we found it with our membership culturally difficult to build on. So no, we haven't.

Speaker E Perhaps this is just a comment, but it picks up on the discussion that we had earlier about how do you ensure that what you've built up doesn't break down. And building on what you've done there. On the manager once removed concept and the board. I wondered whether there's some work to be done by this society. On looking at how do you make things more sustainable? By involving boards in understanding this so that they don't choose a new CEO that is going to undo everything that was done before. Just a thought.

Speaker B Yeah, I think probably I'd see it in two ways. The board's, one boards. So our board now has a term life of twelve years per member, so that we do refresh it. So keeping some of those contacts, but also the level below the CEO who's championed it, I think is important. So that when some of my guys do leave, if I don't get crushed by a tram to take on CEO roles elsewhere, hopefully, as well as Andrew, they know other people who can help them deliver Ro into an organization. Because I wouldn't say every one of the ones I've got is a true believer. They at least pay lip service to it. But I think most do understand and appreciate and really believe in the Ro processes. So I think supporting them as well is important so that when they join new organizations, they can take the concepts. You know, just sharing some of this. So I know Sam from Playford Council is going to talk tomorrow, but one of the reasons he has Ro and his organization is his CEO is the partner of one of my general managers. So she was talking about it around the kitchen table, I think he talks about, and that's how he got interested. And there's a bit of that. Adelaide's a fairly small community. It's only a town of one and a bit million.

Speaker A I've heard rumors that you might speak fairly openly about your use of Ro and may have recruited some other people. Could you tell us something about how public you are about what you do and have you influenced other people to pick it up?

Speaker B Yeah, as I say, Adelaide's fairly small so I'm always actively telling people how Ro has been a success for us if we go back. The reason I'm an Ro believer is Andrew came into the organization I was at before and through that work which was only partially implemented at that organization, I sort of gained an understanding of what had been missing. So I think it's a bit of Ron's point about how do we get people to see that bad structures don't make good managers but good managers do flow to the top in some bad structures and that there are better ways. And I think that was a bit of what I learned and decided to bring across. So I think that's important. So I'm always happy to help Andrew. And Adam, who used to work for me for a large number of years and now Saw the Light, became a consultant because he followed his passion. And I think that was fantastic. And I think them generating more work in Adelaide helps me because I just think it's good that more and more organizations pick up the Ro principles.

Speaker D Thanks very much, Ian, thank you very much. I just want to go back to the sustainability issue just for a moment. BHP Bulletin is a mining organization and they have used levels of work and capability, CPA specifically for 35 years. OD when they were Gencore, before they became BHP Bulletin, their CEO, who was South Africa's Minister of Finance, was introduced to CPA and they made it a requirement for every level five MD to be assessed on their capability to operate comfortably at that level. As far as I know it's now gone through three CEOs, maybe four and it's part of the genes of the system, it's how we select people to be effective in the roles and I just thought I'd like to contribute that to the discussion about sustainability and I.

Speaker B Think just building on that if I can. Ken, I think one of the things BHP's done, so I think they're the world's largest mining company now is they took and I apologize to all the consultants, consultant jarga and turned it into BHP language. So that sustainability issue and I think how do you keep it going through organizations? And I think one of the things and the next iteration of this within RAA is how do we change some of the language into RAA language? So it becomes part of the culture and part of RAA. And I think taking it away from the language we have used for the first sort of seven years into making it unique to our organization may help. And it's just a personal view and hope. It's a bit of an experiment, so hopefully that may work, but time will tell.

Speaker A So Ian, with the magic of hindsight.

Speaker C Is there anything you would have done differently?

Speaker B I would have shot a few people quicker and I would have because culturally no one had ever been sacked at RAA. Until I started, and so the first two I did was a bit of a cultural shock. And then I sort of thought the best thing to because you want to maintain the best parts of a culture like that, and it is a great culture, but you want to get rid of some of the bad parts. And we probably tolerated some people who should have gone much earlier and probably did some harm, but eventually they left. But, yeah, just probably move quicker. Trust your instincts. As a CEO, I thought there were some wrong people. They weren't all at my direct report, some of them were further down and at the end of the day, the best thing was you saw the staff survey results. That reflects to me that the staff knew who the bad performers were, the staff knew who the bad sort of behaved people were, and when you got rid of them, they rewarded you because they were happier and their job was easier to do. So, yeah, I think it's trust your instincts and move quicker.

Speaker A Thank you very much for your story.