POL00039876
POL00039876
@ To: Sarah Mullen HMT Copy: Working Group Members
~ suggest that by means of some “presentation” we could overcome the very difficult
_ commercial, contractual and political issues which would be involved. The last
“RESTRICTED - POLICY AND COMMERCIAL
From: Jonathan Evans POCL Date: 10 November 1998
BA/POCL automation programme: towards an inter-ministerial decision
This is to add a few comments to the exchange of notes between you and Sarah’
Graham. :
First of all I do not-think it is really for me to comment on how you Government
officials should brief your Ministers. All I can say is that if I were recommending a
course of action to the Post Office Board, I would want to expose all the main
upsides and downsides of each option as accurately as possible. I would receive no
thanks for attempting to smooth over differences of view, or indeed to downplay
significant facts, by means of some clever presentational fudge.
I will restrict myself to comments on four areas.
Would it be easy for BA and POCL to agree a way forward under options 2&3?
Answer: we would all like to think it would be easy, but the issues and the history
suggest otherwise. The plain fact is that we would (once again) be trying to resolve
two conflicting Government objectives - to reduce the costs of benefit payments via
an early move to ACT, at the same time as maintaining a nationwide network of
post offices in a politically non-upsetting way. I believe it is simply fanciful to
attempt to reconcile these objectives produced Horizon - but only after a good deal
of negotiation and debate, and a long period of uncertainty.
That this issue is not just an interesting macro -economic one, but one of real concern
to customers, is reinforced by CITU’s recently published research which found that
70% of benefits recipients would prefer to receive payments at the post office.
Cancelling Horizon-might cause post offices to close, but POCL wants to do that
in any case, doesn’t it?
Answer: not if we can avoid it. In both of Sarah Graham’s notes - and more
explicitly in the second one - she makes an underlying assumption which is not true:
that we in POCL already have plans to run the network down in any case. Our
work on our new business strategy - which is still evolving - has pointed to a
number of different scenarios for the network, with the current main line
assumption being the need to increase the number of access points by 2015. This
could be achieved in part by introducing a virtual network, alongside some pruning
POL00039876
POL00039876
RESTRICTED - POLICY AND COMMERCIAL
@ of the physical urban network. But the end state has not been defined with any
certainty at all. The illustrative work done to date - which has been the subject of
discussion elsewhere in the context of the Post Office Review - is no more than that;
it was an attempt to describe from a theoretical standpoint the minimum size and
shape of network which might be needed to support the commercial vision. It
certainly does not represent the basis on which POCL is today planning for
managed change.
A further key distinction I would draw is that between the minimum network
which might be required to support POCL commercially, and the “politically .
acceptable” size of the network. There are presently, and have been for many years,
far more post offices in the network than would be needed if we had the luxury of
designing the network again from scratch. Our last foray into a sizeable closure
programme was in the mid-late 1980's, when we set out to close 1000 town sub-
offices, but ended up closing many fewer than that - mainly because of political
intervention. But this isn’t just a matter of politics, it is also a commercial issue.
Closing post offices loses us business - people don’t all simply migrate to alternative
post offices, some choose alternative channels. Furthermore, closures damage our
brand - some 10 years after that last closure programme, research shows that
customers and the media still believe that we are actively and deliberately closing
. The publicity last week which surrounded the possible closure of the
‘subpostmistress’ 's office in Norfolk is a good example of what we come
In Sarah’s second note, she suggests that“managed” change could be used to ensure
that offices with a “social “ value to Government are sustained, with the implication ;
that the “force majeure” closures which occur now could be avoided. In reality, we
make every possible effort to fill all rural vacancies; the level of net overall decline
each year takes account of offices which re-open as a result of imaginative solutions
being devised to reverse closures which may have taken place some time before. Of
course, everything has its price, but the evidence is that to keep all these offices open
in circumstances in which the options are very limited indeed, the price would be
significantly higher than we pay today.
The ability to manage the political risks of major network change even over a period
of some years will be influenced in part by the extent both of overt government
support for a modernised post office network, and the credibility and’ public
acceptability of technology-based Post Office branded solutions as a trusted
alternative to traditional service delivery mechanisms. None of that would be made
any easier if Option 1 were to fall. The important point to note is that the key factors
which determine the ability to make network change in a managed as opposed to
an unmanaged way are the extent to which, firstly, there is confidence in the future
of post offices, and, secondly, the pace and nature of change can be aligned with
required capacity.
Our policy is, and we believe should continue to be, to avoid closures if we can. In
other words, although there may be a theoretical case for a smaller network, and
over time, for access to POCL’s portfolio of services to be available by means other
than physical post offices, significant network reduction should be an action of last
POL00039876
POL00039876
RESTRICTED - POLICY AND COMMERCIAL
Se resort brought on by unavoidable cost reduction , as would be required if a major
tranche of business were to be lost. Our hope is that the income streams which will
arise from implementing POCL’s new vision will make such action unnecessary.
The final point to appreciate here is that while the effect of benefits payments
business and future banking opportunities are going to be a crucial element of
determining the future, they are not the only ones; BA business is around a third of _
our total, and clearly the aspirations of the clients of the remaining two thirds (both
public and private sector) will also have a major bearing on our future network
configuration. ‘
, -Legal Issues
As you will know from my letter of 30 October, we too believe that the legal annex
requires further attention , and agree that Robert Ricks’ involvement in that would
be helpful. I note that he is going to contact Sarah Graham, and we shall ask Jeff
Triggs of Slaughter.and May to speak to him also. As with the issues surrounding
_ the main decision, however, if the advice cannot be agreed, then I believe that
Ministers should be made aware of both views on the risks associated with any
decision to terminate.
On the question of the confirmation which I gave that POCL would not stand in the
way of a Ministerial decision to terminate, I should perhaps set that in the context in :
which it was given, namely that any action by the public sector to terminate,
whether unilaterally or bilaterally, requires the positive consent of POCL. In
deciding whether that consent should be given, the Board of the Post Office is, of
course, obliged to act in what it considers to be the best interests of the Post Office.
The latest advice, as I understand it, is that the public sector parties are not on safe
enough ground to terminate contracts immediately and-litigation would be
uncertain, lengthy ,messy and costly. In addition, there would be some complex
commercial and contractual consequences, including future payment levels,
between POCL and BA, which would need to be resolved. This will need close
contact between DTI and ourselves to try to‘avoid a situation where Ministers have
to force the Post Office down a route which may be against its commercial interest.
Progress report
Finally, I'attach a copy of a paper which we have put together with DTI in response
to the request to show in the progress report how we would manage some of the
issues and risks in each option.
GRO
Jonathan Evans
+
RESTRICTED - POLICY AND COMMERCIAL
current policy to maintain
nationwide network access
sustained over the period
¢ POCL and individual subpostmasters have sound basis
for investing in the future and embracing change
BA/POCL AUTOMATION PROGRAMME: CHANGES FOR POCL TO MANAGE UNDER EACH OPTION OPTION 1
base assumptions:
¢ Horizon continues, including BPC - roll-out complete by 2001
¢ BA moves to compulsory ACT from 2006-2008
¢ POCL introduces limited banking in 2002, full facilities in 2004
© managed reduction of 1000 offices in town sub-office network, plus 2000 force majeure rural closures, by 2009/10
nature of changes actions likely success
rating
technology ¢ Horizon programme rolled ¢ strong programme management e high
out to plan :
¢ whole of network automated I measures in place to ensure no manual offices allowed to I « high
¢ integration of Horizon with remain outside Horizon .
back-end automation systems I ¢ implement existing well-advanced plans ¢ high
commercial ¢ POCL becomes front-end of ¢ partnerships with main UK banks established from a ° high
UK banking system position of strength
© POCL becomes a significant © prove commercial logic for POCL and Government « medium
channel for better Govt against positive background of Horizon programme
: ¢ secure support of Govt departments ¢ medium
¢ existing clients broughtonto Ie effective account management, coupled with Govt ° medium
Horizon support
-I customers no change to customers’ ¢. introduction of BPC followed by seamless migration to Ie high
: preferred point of payment ACT in post offices
network/ ¢ minor rationalisation of town I closures back-end loaded with time to plan network e high
subpostmasters network after full ACT change in line with customer response to ACT migration
high
POL00039876
POL00039876
POL00039876
POL00039876
RESTRICTED - POLICY AND COMMERCIAL @
© present positive and credible I ¢ maximise PR advantage from confirmation by ¢ high
picture of POCL’s commercial Government that programme continues ,
future and network I ¢- positive PR campaigns built upon successful roll-out of I¢ high
sustainability Horizon and commercial strategy, and customers’ :
© opinion formers and lobby continuing ability to collect benefits at post offices.
groups embrace and support
changes
base assumptions:
RESTRICTED - POLICY AND COMMERCIAL
BA/POCL AUTOMATION PROGRAMME: CHANGES FOR POCL TO MANAGE UNDER EACH OPTION
¢ Horizon continues without BPC
eoecee
roll-out complete by 2001
BA moves to compulsory ACT from 2002-2004
POCL introduces limited banking facilities in 2002, full facilities in 2004
managed reduction of 1000 offices (KPMG modelling assumption, with subsidy), 6000 offices (POCL working assumption, no subsidy),
plus 2000 force majeure rural closures, by 2009/10
OPTION 2
nature of changes actions likely success
rating
technology I * introduce Horizon without I remove BPC from programme, refocus on banking technical -
BPC : requirements medium I
¢ reconstruct contract with ICL, avoiding procurement ° medium
difficulties
¢ roll-out to plan * reconstruct contract with ICL which secures their ongoing I very.low
viability ;
¢ integration of Horizon with I ¢ seek to recover lost time and momentum from recasting of I * low
back-end automation programme ‘
systems ¢ review impact on back-end systems, and implement ¢ medium
changes within existing timescales
commercial ¢ POCL becomes front-end of I « try to agree a revised ACT implementation plan with ° low
UK banking system DSS/BA before BPC termination announcement is made
¢_ try to establish commercial relationships with main UK
banks:
¢ before ACT takes effect « medium
e tomaximise POCL commercial opportunity e low
¢ POCL becomes a significant I * prove commercial logic for POCL and Govt ¢ medium
channel for better Govt ¢ secure support of Govt departments ¢ medium
¢ existing clients brought
onto Horizon ¢ effective account management, coupled with Govt support I medium
.3
POL00039876
RESTRICTED - POLICY AND COMMERCIAL _
customers no change to customers’ ¢ try to work with DSS/BA to agree revised ACT ° low
preferred point of payment, implementation allowing customer preference to use PO
despite post office closures network to be maintained
including some 1000° * try to introduce front-end banking capability before ACT Ie very low
managed rural closures bites, and without damaging commercial POCL prospects
network/ creation of major subsidy ¢ establish subsidy regime in such a way to command ¢ low
subpostmasters regime to sustain network network confidence and avoid external challenge
(with NPV c £1billion) :
close offices in advance of _I ¢ POCL would need to start closing offices in a structured ° low
and during ACT migration way to try to avoid unmanaged network change,
¢ maintain asset values of ¢ early Government guarantee around future subsidy ¢ very low
‘ sub-offices in the face of regime
uncertain customer and ,
income streams
PR present positive and © conduct damage limitation exercise to retain confidence of I * low
credible picture of POCL’s customers, clients and subpostmasters following
commercial future and announcement of BPC cancellation
network sustainability © positive PR campaigns built upon successful roll-out of ° low
opinion formers and lobby automation without BPC and commercial strategy, and
groups embrace and customers’ continuing ability to-collect benefits at post
support changes
offices, despite network closures and forced customer
migration .
POL00039876
POL00039876
POL00039876
POL00039876
RESTRICTED - POLICY AND COMMERCIAL - . @
BA/POCL AUTOMATION PROGRAMME: CHANGES FOR POCL TO MANAGE UNDER EACH OPTION OPTION 3
base assumptions:
¢ Horizon cancelled
¢ BA moves to compulsory ACT from 2002-2004 .
¢ POCL introduces limited banking in 2002, full facilities in 2004
¢, managed reduction of 1000 offices (KPMG modelling assumption, with subsidy), 9000 offices (POCL working assumption, no subsidy),
plus 2000 force majeure rural closures, by 2009/10
nature of changes actions likely success
: rating
technology ¢ introduce new automation I re-specify system focusing on commercial strategy ¢ high
platform requirements
* new procurement and implementation within current * very low
planned timescale
¢ integration of new front- ¢ cancel existing programme and re-specify revised e high
end with back-end requirements ;
D automation systems ¢ cancel programme without implications for client systems I ¢ very low
and or cancellation costs
¢ new procurement and implementation within current ¢ very low
planned timescale
commercial ¢ POCL becomes front-end of I try to agree a revised ACT implementation plan with « low
UK banking system DSS/BA before termination announcement is made
¢- try to establish commercial relationships with main UK
banks: . .
¢ before ACT takes effect e¢ medium
¢ to maximise POCL commercial opportunity ° low
© POCL becomes a significant I ¢ prove commercial logic for POCL and Govt, despite delay I¢ low
channel for better Govt to new automated platform
. ¢ secure support of Govt departments ° low
5
RESTRICTED - POLICY AND COMMERCIAL
existing clients brought ¢ effective account management, coupled with Govt support, low
onto new automated despite delay to new automated platform
platform
customers no change to customers’ ¢ try to work with DSS/BA to agree revised ACT low
preferred point of payment, implementation allowing customer preference to use PO
despite post office closures network to be maintained
including some 3000 © try to introduce front-end banking capability before ACT very low
managed rural closures bites, and without damaging commercial POCL prospects
network/ creation of major subsidy ¢ establish subsidy regime in such a way to command low
subpostmasters regime to sustain network network confidence and avoid external challenge
(with NPV c£l1billion) .
close offices inadvance of I ¢ POCL would need to start closing offices in a structured low
and during ACT migration way to try to avoid unmanaged network change
maintain asset values of ¢ early Government guarantee around future subsidy very low
sub-offices in the face of regime
uncertain customer and
income streams
PR present positive and ¢ conduct damage limitation exercise to retain confidence of very low
credible picture of POCL’s customers, clients and subpostmasters following :
commercial future and “announcement of Horizon cancellation
network sustainability * positive PR campaigns built upon successful roll-out of very low
opinion formers and lobby
groups embrace and
support changes
new automated platform and commercial strategy, and
customers’ continuing ability to collect benefits at post
offices, despite network closures and forced customer
migration
POL00039876
POL00039876 _
Pan