Examination of Witnesses (Questions 80
- 99)
WEDNESDAY 10 MAY 2000
PROFESSOR MICHAEL
WILSON, MR
PETER SIDDALL
AND MR
DAVID TEMPERLEY
80. Why is this? I have an interest in agriculture
but even I have not quite understood it. It is a very secure job.
If you are any good at it, you are in a job for life, like anything,
talking about redundancy situations, when you move from one part
of the industry to another, but why is it that you are not able
to get these people?
(Professor Wilson) With the sort of work that we do,
we are the end user of the people who are trained, coming through
the system, the employer. [2]I
have spoken with Nigel Snook, the chief executive of LANTRA, about
this and he has asked us to participate in some of their discussions
on horticultural training. We will be trying to raise the quality,
profile and focus and development of those sorts of training programmes
and certification schemes. Recruitment and retaining of staff
is very tricky these days, not just in the public sector but in
science in general. It is rather hostile at the moment, being
in science and research and trying to do biotechnology. I get
visitations frequently from members of the public. If it is not
the Synod of the Church of England, it is somebody coming along
to talk about biotechnology. You are always having to justify
the pursuit of knowledge, virtually. We seem to have gone anti-knowledge.
81. Could I move on to retention? What sort
of practical schemes do you operate to keep the people that you
have?
(Professor Wilson) We have a very formulaic BBSRC-generated
annual staff review process called the PPDR, the personal performance
and development review. That generates a marking and scoring system
and opportunities to put people forward for exceptional pay awards
if an exceptional job has been done. It is a tricky thing because
it involves setting milestones and requires exceeding the milestones.
We also have a promotion system, again BBSRC-run, so that people
would normally progress up through a pay spine, through a number
of bandings. There are limited opportunities for Directors to
provide bonuses and special recruitment and retention allowances
to staff who are in key positions which they might otherwise lose.
Built into the pay grading system in which we work, is a BBSRC
envelope. Within that there is some leeway, but not a lot.
(Mr Temperley) We also have the non-pay element, if
you like, family friendly policies. We are currently building
a creche, for instance, at Wellesbourne, and other non-pay aspects
of HR Policy which are quite strong in terms of retention of staff
which we try to develop significantly.
(Professor Wilson) We have just set up an intellectual
property review group within HRI and that is looking at mechanisms
by which we might reward inventors in house for particular pieces
of intellectual property. This is very much in tune with the Baker
Report and we see it as a helpful way ahead.
82. Are you uncompetitive when it comes to the
ability to keep people? Are people leaving the industry? Are they
going abroad? Is it an age profile problem?
(Professor Wilson) It is components of all of those,
in particular subskills within the overall discipline. Good people
with street value will always be head-hunted elsewhere. There
is an age structure component as well. A lot of the classical
skills in horticulture are now retiring and not being replaced
because they are not being trained.
83. Moving to the redundancy programme that
you have in place for the 1998/99 financial year, given the problems
you have of getting and keeping staff, you have been making some
staff redundant. Can you explain?
(Professor Wilson) That package was a voluntary redundancy
programme, if I read you right. That was money provided by MAFF.
It was £1 million. In the end, was it 17 people?
(Mr Temperley) 17 staff. Inevitably, we have areas
where we need to take out cost from the organisation, where our
income is falling. We address the cost elements as well. In any
developing organisation, services as well as research, some areas
are sun-setting and other areas are opening up. It is inevitable
that there will be areas where we have people with a skills mismatch.
(Professor Wilson) As a management tool, voluntary
redundancy schemes are not particularly helpful because frequently
it is the very people we do not want to lose who put themselves
up to get a "golden hand shake". It is a bit of a wild
card but if they are vital you can stop it. That creates morale
problems because you are blocking them from going and not getting
their golden hand shake. It is a "can of worms", quite
frankly.
84. Is the redundancy programme over now?
(Professor Wilson) Yes.
85. At the moment, people are in a very secure
position?
(Professor Wilson) The end result was I think it saved
us about £350,000 on our bottom line.
(Mr Siddall) I do not think we should give you the
impression that it is the end of the road.
86. It is ongoing because of the nature of the
change of people's skills base and your requirements? There will
be further redundancies but you hope to fund these from within
the organisation itself?
(Mr Siddall) That is a big question. The reshaping
of, if you like, the asset base in the way that I have been talking
about will require more of this, I am afraid, and we should not
leave you under the impression that that is not contemplated.
It is.
Mr Jack
87. We have touched on a number of the financial
dimensions to your operation already. I wanted to try and explore
with a bit more rigour some of the numbers and issues which are
going to affect matters, particularly page 38 of your Corporate
Plan, table 4.3, which lays down an overview for us of your financial
prospects. In your memorandum to the Committee, you say—and
it is a stark and honest statement—"HRI has been unable
to increase its commercial income to cover the recent reductions
in public sector funding. As a result HRI are moving into a loss-making
situation. HRI is now examining, in discussion with MAFF, the
options for turning this situation around without access to significantly
increased public funding, including a realistic targeted increase
in commercial receipts, reductions in operating costs ...".
I wonder if we could just examine some of these words. We see
in table 4.3 a line of rising income. Mr Temperley, how robust
are these numbers? Can you tell us of these numbers here, what
are firm contracts and what are aspirations in breaking out this
flow of income in the first line of table 4.3 and 4.2.1 here?
(Mr Temperley) On the HortiTech sales, which is the
first line of the table, we have a revised corporate plan in the
final draft stage and these figures have been significantly changed
within that, although still increasing over the period. In the
year ended 1999/2000, HortiTech income, subject to final audit,
is of the order of £2.7 million.
88. That is an interesting point. HortiTech
income is at £2.7 million and this document which is the
1998/2003 Corporate Plan showed it at £4.35m. Why did you
not make the target?
(Professor Wilson) The word "realistic"
is important.
89. That is an interesting observation. Would
I be right in saying that the words in paragraph 12 of the memorandum
you sent us are amplified by that word "realistic" in
terms of the difficulty you are facing in generating the commercial
income? What I am anxious to find out, looking at these numbers
going forward, is what proportion of your future income is certain
from the HortiTech area and what is uncertain?
(Mr Temperley) From the HortiTech area, the amount
of contracted income for the future, beyond the current financial
year, would be less than ten per cent.
90. Less than ten per cent of the projected
figures?
(Mr Temperley) No, less than ten per cent of our current
turnover of £2.7m in that area for any one year.
91. I am trying to establish where the shortfalls
are coming in on your income. You say, "HRI is now examining,
in discussion with MAFF, the options for turning this situation
around without access to significantly increased public funding
...". When ministers say to you, "This is what MAFF's
picture is. This line on the graph here is heading downwards",
I presume at some point it either levels out or crosses over or
whatever; we do not know what happens but you are going to have
to have a robust financial model to put to ministers and say,
"This is what we can hope to get". If you have not got
the numbers now in order for us to understand the viability of
your future finances, perhaps you could let us have a more up
to date picture of where you are going, because I am unclear as
to what is certain and uncertain in your income generation area
and equally what is certain and uncertain in terms of your public
funding.
(Mr Temperley) When it comes to any commercial income
projection, it is subject to past trend and future growth. We
are in a start-up business, in effect. The areas where we saw
the most significant growth were in what are called Research and
Development Service business units. That is the element which
has been proving most difficult at this stage to develop. It is
longer term in nature. It is the area where we still see the increased
income coming in and we have a number of new business managers
appointed into the three business units within our Research and
Development Services area. There is no certainty over commercial
projections, particularly when you have no historic trend to build
from. We have a new database in CROCUS. We will build that trend.
There are a large number of contracts and the expected probability
is attached to individual ones and as we progress through time
we will build a trend analysis and our forecasts will become more
accurate.
92. Your direct cost of sales, which I presume
is your way of saying your expenditure, your running costs—tell
me if I am wrong about my understanding of table 4.2.1—is
CROCUS going to generate a ten per cent saving, a five per cent
saving? Is salvation in cost cutting or income generation? Give
me an order of magnitude. What are your projected reductions in
cost on that particular line in that table?
(Mr Temperley) Our current projections for reduction
in costs that we need to make are of the order of three million
pounds or 15 per cent of our costs.
93. Are you confident you are going to achieve
that? As confident as you are about the sales side?
(Mr Temperley) I am more confident that we can make
savings. We have control over costs. The timing of sales is more
difficult to be confident about. When it comes to cost reduction,
subject to things like redundancy programmes and the cost of implementing
that cost reduction, it is quite easy to cut costs. The trick
is to cut costs and leave an organisation which is still capable
of growing and moving forward. We have to cut the right costs.
94. You have to take about three million a year
out of the costs of running your business?
(Mr Temperley) Yes.
95. You are reasonably confident of that. I
get the feeling that you are about two million or three million
a year adrift on your HortiTech sales and that leaves us with
this thing called HRI science sales. Is that 20-odd million the
sum total of all your public funding, including MAFF?
(Mr Temperley) Yes.
96. MAFF is running, roughly speaking, at £11
million a year?
(Mr Temperley) Yes.
97. Roughly half of your sales income is MAFF.
How far forward is there a certainty of that £11 million?
(Mr Temperley) I will be repeating myself to a certain
degree but there are two elements to the MAFF £11 million.
Approximately £8.5 million is what is called commission funding
and £2.5 million is competitive funding. Of the £8.5
million, one third of it comes up for review every year. If we
do a good job and they still have the funds there, we will win
more money as with any other customer.
98. MAFF are about to go into their fundamental
expenditure review, another of these great government exercises.
You cannot be certain of anything from them for the future, can
you? They are spending lots of money in all kinds of areas so
you might be in for the chop.
(Mr Temperley) We might be, yes.
99. You have no indication from Ministers at
this juncture as to what you ought to be planning on?
(Mr Temperley) Yes, we have had an indication. MAFF
have indicated that we should budget on the basis of an annual
2 per cent to 5 per cent reduction in our funding over the next
three years.
2 Note by Witness: HRI also trains horticultural
research scientists. This year HRI has 98 research students (MSc/PhD)
registered at 28 UK Universities, many on shared projects. Back
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