Memorandum submitted by the New Millennium
Experience Company
THE BUSINESS AND THE PRODUCT
INTRODUCTION
1. This is the third written memorandum
submitted by the New Millennium Experience Company to the Culture,
Media and Sport Committee to inform its fifth inquiry into the
Dome. The other two documents covered the National Programme,
and Transport and Travel Packages. This one addresses the Company,
its organisation, its finances and the Millennium Experience product.
BACKGROUND
2. The company does not operate in circumstances
comparable to a normal commercial business environment. Its dual
status, as a companies act company and as a public body bring
different requirements and responsibilities. Everything the company
has ever done has had to be done against massive time and budget
pressures, and has had to be done in the full spotlight of public
accountability and media interest. The normal circumstances applying
to commercial businesses—for example, five or 10 year forward
planning informed by market trends; testing and refining new strategies,
trialing changes to the product, and to new customer offers before
implementing them—do not apply to the Dome. Everything is
compressed into one year of operation and this greatly influences
the company's room for manoeuvre and the way in which the business
is run.
3. The company's funding arrangements are
also different, in many ways, to that of a normal commercial business.
It has received very significant financial support from the National
Lottery, via the Millennium Commission, and it recognises that
this in particular brings with it equally significant and comprehensive
public accountability responsibilities. The company has sought,
and will continue to seek, to meet these responsibilities fully
while also seeking to continue to operate as commercially as possible.
CURRENT STATUS
OF THE
BUSINESS AND
THE PRODUCT
4. Significant and fundamental changes have
been made to the business and the product since February—these
are set out below. More changes will be made to deliver yet more
improvements where they result in further operational efficiency
and further quality and value for money for our visitors.
5. The business is now much leaner, more
efficient and more commercially oriented with a clear focus on
meeting and exceeding the expectations of visitors and operating
competitively in the visitor attraction market place.
6. As a result:
— The Dome is the most successful paying
visitor attraction ever in the UK achieving more visitors in six
months (3 million) than any other attraction;
— It is currently the number two paying
visitor attraction in Europe, and one of the best in the world;
— It is a world class visitor attraction;
— Visitor satisfaction ratings with
host staff (at 90 per cent) are higher than any other visitor
attraction has achieved; and
— The vast majority of visitors (85
per cent) are satisfied or very satisfied with their day out at
the Dome.
7. The finances of the company (addressed
below) continue to be an area of concern as a result of the original
12 million visitor volume targets, which drove the cost base,
and other original business assumptions proving to be over-optimistic.
(These targets were originally set in May 1997 and informed the
Government's review of the project in June 1997 and the Millennium
Commission's agreement to the original grant of £449 million.
In January 2000 the volume target was re-set to 10 million revenue
generating visitors. The January Business Plan formed the basis
of the company's application for a further £60 million grant
which the Millennium Commission agreed in early February 2000.)
In addition, external factors such as the strong pound, have adversely
affected the UK visitor attraction market, and the tendency towards
negative national media coverage has influenced the public's perception
of the Dome.
8. However, the product, the operation and
the organisation have been fixed over the last five months, and
the 3 million people who have visited the Dome consider it to
be worth, or more than worth, the trip. If the success of the
Dome is gauged by these measures and those set out above, it is
a project of which the UK should be proud.
IMPROVEMENTS AND
CHANGES SINCE
FEBRUARY
9. From 1 January, after almost three years
of meeting extremely challenging targets across all aspects of
the project (often against incredible odds) the company faced
one of its biggest challenges—the switch, literally overnight,
into operational mode as the Dome opened to the public on 1 January.
10. The problems of New Year's Eve were
well reported although, again, the majority of the 10,000 people
who attended the Opening Celebrations thoroughly enjoyed the evening
and the spectacular entertainment and many took the trouble to
write to the company to say so. This, taken together with the
inevitable teething and operational problems of the first few
weeks, and with the unfolding performance falling below the original
business targets, made it clear that fundamental changes were
needed. Given the ever present time pressures, changes were needed
quickly. The Board decided in late January that a different set
of skills and leadership were necessary to meet the operational
challenges of the project and turn around performance after the
first few weeks. It was with considerable regret that this decision
was taken and the Board continues to have the greatest admiration
for the previous Chief Executive's (Jennie Page) leadership, commitment,
ability, drive and achievements in particularly difficult and
pressured circumstances over the three years from January 1997
to January 2000.
11. The new Chief Executive (Pierre-Yves
"PY" Gerbeau) was appointed by the Board on 7 February.
His experience in the visitor attraction industry and his instinct
for the business has been of immense value to the project. His
specific objective from the Board was to fix the product and the
operation of the Dome. Since his appointment he, and the team,
have driven through a wide range of positive and fundamental changes
to the business and to the product—aimed at moving the company
from one with a project development and construction focus to
one with a commercial, visitor attraction business focus driven
by the needs and expectations of visitors, by the quality and
value for money of the product, by cost efficiency and by optimisation
of revenue.
(i) The company
12. The new vision and aims are:
To put the visitor first in everything the company
does; to ensure that every visitor has "One Amazing Day"
and that every visitor wants to recommend the Dome to friends
and relations; to ensure that every visitor feels his or her day
was great value for money; and to ensure that everything the company
does, brings value to the visitor experience
To manage and operate the business in a way that
ensures all staff are accountable, have full ownership of their
responsibilities and targets, and are part of the team achieving
the company's overall targets.
13. The new management philosophy is based
on everyone in the company operating as a team; not driven by
hierarchies. Every individual has a role to play and each role
is of equal importance—from visitor hosts to top management.
Every individual is empowered to do the job and to own the budget
and targets for it; every individual is accountable for his or
her decisions within an effective and strong but supportive management
system. Every decision taken is based on adding value for the
Dome's visitors.
14. The new company values are reflected
in how the business is run and managed:
— Dedication and commitment to
meet and exceed our visitors' needs and expectations
— Is managed by committed business
people
— The focus is on business objectives and
targets through ownership and accountability
— Creativity is encouraged through empowering
people to take the initiative
— There is a positive approach to making
things happen—quickly
— The aim is to achieve better quality,
more efficiently—delivering "better with less"
— Management is a support function to the
front-line staff and leads by example.
(ii) The business
15. The changes since February are:
— Established new organisation and
management structure including new Visitor Services division and
Show & Live Events division which are focused more tightly
and effectively on meeting and exceeding the expectations and
needs of visitors and which are supported by a new Maintenance
division, and a new Food & Beverage & Merchandise division
more focused ensuring that the offer to visitors is attractive
and to meeting revenue targets (An organisation chart is at Annex
A).
— Re-organised Media/PR department
to re-align activities to support the "Visitor Attraction"
business.
— Introduced flatter management structure
focusing on the business priorities
— Established new Business Management
Team, Business Operating Team, Business Strategy Team, Forecasting/Yield
Management Team, and Cost Efficiency Team.
— Introduced new systems to manage
and control expenditure.
— Allocated new budgets, new cost and
new revenue targets for all divisions.
(iii) The Offer and Service to Visitors
16. The main improvements and achievements
to date are:
— Introduced ticket sales at the gate
to meet the needs of visitors (domestic and international but
especially the tourist market for which the "pre-book"
message and process are difficult to establish and where the majority
of decisions to visit attractions are made almost "on the
spot" in response to poster and other advertising).
— Addressed individual area and overall
site wait times—for example, Body wait time is now managed
through a time ticket system and live performers are positioned
to ensure that visitors are entertained while waiting; the average
Body wait time is now 15-20 minutes on peak days; less than 10
minutes on normal days as compared to over one hour on peak days
in January.
— Improved capacity in all zones,
— Improved visitor flow across the
site; new directional movements—incorporating sponsor village
— Introduced new signage.
— Provided more live entertainment.
— Making better use of Central Arena.
— Delivered a bigger and better Millennium
Show.
— Improved programme for "free"
schoolchildren
— Improved merchandise and food &
beverage offer, pricing and mix
— Ensured on the spot response/decision
to any visitor complaints/concerns through empowerment of front-line
staff
— Established more customer oriented
approach by management
— Established dedicated maintenance
team providing immediate response to on-site problems.
(iv) Sponsors
17. Relationships with sponsors in January
were not all running as smoothly as they should have been largely
because of operational and quality problems. Since February the
company has:
— Developed a partnership approach
which recognises the benefits to sponsors and to the Dome of both
parties working together to promote the Dome as a world-class
visitor attraction.
(v) Media & PR
18. Over the last five months the company
has had significant success with its regional media programme
(achieving consistently positive coverage as a result of the National
Programme and its direct impact on schools and communities across
the country—see the separate written memorandum on the National
Programme), and with its international media programme. However,
since January the project has received much negative national
media coverage. The company is now implementing a more pro-active
media relations programme, covering corporate, consumer and public
affairs, to address this type of coverage.
(vi) Marketing and Sales
19. At the start of the year the marketing
effort was more focused on the "generic" communication
of the Dome's content and less on driving sales. Since February
the effort has been aimed at generating volume traffic:
— Media promotions to drive attendance
on days with special events—Easter Treasure Hunt, "Diamond"
Sunday, McDonald's Our Town Stage and World Stage
— Targeted advertising to support the
Millennium Show and other live events
— Over 5,000 posters/tube cards on
London public transport.
— Over 10 joint promotions in each
month with partners such as regional/local newspapers, sponsors,
train operators and companies such as Microsoft.
— Over 300,000 leaflets distributed
at key tourist and commuter "hot spots".
— Repeat visit promotional schemes
introduced for Dome visitors to return for a second visit.
— £10 "taster" tickets
have been heavily promoted resulting in about 50,000 visitors
after 4.00 pm in just over two months.
— Key sales promotions with overseas
partners including Eurotunnel, Stena Line, SNCB, and magazines
in Northern Europe.
— Over 200,000 leaflets distributed
to in-bound travellers on Eurostar.
20. The commercial side of the marketing
effort has also been reorganised into five integrated teams, each
with specific targets, led by a very experienced project manager:
— Sponsor and Distribution Channels;
— Education and Youth Sector; and
— Specialist Business and Events Sector.
21. The lack of budget in the original business
plan resulted in a lack of available resources for marketing and
sales during the early summer—the time at which all the
Dome's competitors are starting their activity aimed at seasonal
business. The Millennium Commission's decision to award a further,
un-budgeted grant of £3 million has considerably eased this
problem and the company is now planning a major summer advertising
campaign using TV, partners, press, advertisements and sales promotions.
22. As stated above, these changes have
turned the business into a lean and commercial operation and have
made the Dome the most successful paying visitor attraction in
the UK in terms of volume (3 million at end June) and the number
two in Europe. Visitor satisfaction rates are also high (90 per
cent satisfaction with staff; 85 per cent satisfaction with the
product). The achievements and performance of the team and of
the product over the last four months show that, in a normal private
sector and ongoing business climate, there is scope for a viable,
longer-term visitor attraction business at the Dome just as there
is scope for non-visitor attraction uses. Each has its merits
and strengths and each offers the prospect of ensuring that the
significant regeneration of the Greenwich Peninsula and wider
East London area delivered by the Dome will continue into and
beyond 2001. The decision will be taken by the Government in the
early summer when the final stage of the competition, launched
in March 1999, to find a viable and sustainable future use for
the Dome reaches a conclusion.
FINANCES
(i) Background to early February 2000
23. The original cash limited budget for
the project was £758 million—agreed by the Millennium
Commission and the Government in June 1997 following the comprehensive
review of the project undertaken at that time. Thus, the cost
of the project was £758 million and forecast income from
a range of sources (primarily National Lottery grant, sponsorship,
commercial income comprising ticket revenue, catering and retail
revenue, corporate hospitality revenue and the company's share
of the proceeds from the legacy competition) was forecast to match
that £758 million cost, subject to actual performance in
the development and construction phases pre-2000, and in the operational
year of 2000 meeting the original business plan targets—including
the 12 million visitor volume. Importantly, the cost base of the
operational year (staff, performers and the Millennium Show, maintenance,
utilities and so on) was driven by the original business assumptions.
24. It was clear in the first few weeks
of the operational year that fundamental and critical changes
to the business and the product were necessary as performance,
particularly in terms of volume and quality of the experience
for visitors, fell short of the original targets. The financial
pressures on the business had grown in the last quarter of 1999
as the anticipated booking patterns (ie pre-booking tickets months
and weeks in advance) were not realised, as some sponsorship money
did not arrive to the anticipated timetable, and as the final
construction, exhibit zone production and Dome fit-out work was
completed to ever tighter timescales. The remaining prudent cost
and revenue contingency from the amounts factored into the original
budget took some of the strain, as it was meant to, but its use
meant that the company's subsequent room for manoeuvre was restricted.
The Board monitored finances particularly closely during this
period but when the actual revenue performance of the first weeks
of January was taken together with the cost pressures of the last
quarter, the Board concluded that additional cash flow grant of
£60 million should be sought from the Millennium Commission.
The Culture, Media and Sport Committee were informed of this at
the time.
25. On 7 February, shortly after the application
for additional grant, the new Chief Executive was appointed by
the Board.
(ii) Post February 2000
26. In addition to the business, product
and operational changes and improvements set out above the Chief
Executive's immediate priority, with the management team, was
to undertake an urgent and comprehensive budget review together
with an urgent and comprehensive review of the underlying business
assumptions—including visitor volume. The budget review
began immediately, and with visitor volume falling below original
business plan assumptions but with the cost base still driven
by those assumptions, an immediate freeze was placed on all expenditure
unless specified approvals were obtained. A new Cost Savings Team
was established in late February as the emerging outcome of the
budget review identified a potential net cost overspend over the
operational year of about £20 million and a potential revenue
shortfall as visitor volume, whilst still beating all other paying
visitor attractions in the UK and competing well with others in
Europe, fell below original assumptions made in 1997.
27. The key reasons for the visitor numbers
falling below original assumptions are:
— The original business plan assumptions
were over-optimistic.
— The advertising and promotion component
of the original business plan's marketing budget, at just 2 per
cent of that budget, on the basis that the Dome (together with
the "Millennium" point below) would sell itself, turned
out to be too low.
— Peoples' interest in the "Millennium"
was not enduring beyond the turn of the year.
— The strong pound has meant that tourists
are not spending as much and are tending to stay for shorter periods,
whilst it has enabled UK residents to get better value for money
abroad.
— Recent market research indicates
that negative national media coverage of the Dome has influenced
peoples' perceptions about the Dome and about visiting the Dome—even
though the majority of people who visit thoroughly enjoy their
day and believe it was well worth the trip.
(iii) Cost efficiencies and savings
28. The company's dual focus for the last
five months has, therefore, been on driving costs down and driving
volume and revenue up. The potential bleed of cost overrun was
stemmed in February with the introduction of an expenditure freeze
plan, and a freeze plan on recruitment of staff and replacement
of staff leaving unless absolutely essential to maintain the quality
and value for money of the visitor experience. Since then:
— Cost savings of £9.5 million,
largely on lifetime site and structures and maintenance budgets
were confirmed in early March in a first round review—whilst
maintaining full and proper health and safety standards.
— A second round review in April identified
further cost savings of £3.6 million across a number of the
project's lifetime budget lines—including security (which
was over-provided for) and including the switch back from 1 June
to 9.00 am-8.00 pm opening hours seven days per week instead of
9.00 am-11.00 pm at weekends and holidays (although the company
retains the flexibility to extend opening hours again if summer
demand requires it).
— A third round review in May identified
additional cost savings of £2.96 million across a number
of the project's lifetime budget lines by delivery of more with
less and better overall cost efficiency
— A fourth round review completed in
early June identified further cost savings of £3.94 million
again across a number of the project's lifetime budget lines.
(The company will be able to implement the above
cost savings without adversely impacting on the quality of the
experience for visitors.)
29. The company has committed to delivering
all the above savings and, therefore, to bringing the Millennium
project back to its original lifetime budget of £758 million.
Identifying this level of saving, to be achieved over the lifetime
of the project, within the short-timespan of the last five months,
and without impacting adversely on the quality of the product,
is considered to be a very significant achievement.
30. Alongside this comprehensive and ongoing
cost savings and cost efficiency drive, the management team were
developing a revised, detailed Business Plan, with revised volume
and revenue targets—informed by performance between January
and May.
(iv) Application for further grant
31. The evolving position of the business
since February has been the subject of regular discussion between
the company, the Millennium Commission and Shareholder. In May
it was clear that the 10 million revenue generating visitor volume
identified in the January Business Plan (and which formed the
basis of the additional grant application to the Commission),
was not achievable and that a volume of between 6 million and
7 million was more realistic—this would still place the
Dome, as far and away the most successful paying visitor attraction
in the UK which given its "one year only" operation
would be an incredible achievement. At that time the company indicated
that an additional grant requirement of about £35 million
was looking likely but that this was subject to finalisation of
the new Business Plan.
32. The new Business Plan was completed
on 16 May and submitted to the Millennium Commission. The Plan
indicated just over 7 million as an achievable total volume target.
As a result of the £758 million cost base (development, construction,
fit-out and operation) still being driven by the original business
plan assumptions but with income deriving from the revised target
(7 million total) rather than 12 million or 10 million, the Plan
also indicated a £38.6 million additional grant requirement—noting
that the original budget's cost contingency and revenue contingency
had been used by early 2000.
33. On 18 May the company's Board decided
to submit a formal application for additional grant of £38.6
million. The application was submitted on 19 May and was copied
to the Culture, Media and Sport Committee.
34. On 22 May the Commission offered an
additional grant of £26 million plus a further unbudgeted
and ring-fenced £3 million specifically to enhance the marketing
effort as justified by the company in the Business Plan. The Commission's
offer was conditional upon a number of actions by the company
including the production of an updated Business Plan at the end
of June, the strengthening of the company's finance team with
a senior officer responsible for managing the cost reduction programme,
allowing the Commission to post into the company a cost efficiency
monitor, and continuing effort to drive down costs.
35. The Board met on 23 May to consider
the Commission's offer. Regrettably, the Chairman (Bob Ayling),
who had guided the company since its inception in February 1997
and had guided the project through some exceptionally difficult
periods, resigned at the meeting. The Board places on record its
appreciation of his effective leadership and guidance over the
three years of his Chairmanship (A new Chairman, David Quarmby,
who has been a non-executive director of the Board since February
1997, was appointed later that day).
36. The company accepted the Commission's
grant offer on 23 May and agreed that it would meet the conditions
but noted that, as had been the case since the June 1997 Business
Plan), income from the legacy competition remained crucial to
the Business Plan.
37. On 5 June the company submitted a Supplementary
Document to the Business Plan confirming the second and third
rounds of savings identified (see above). During subsequent discussions
with the Commission, the company confirmed its commitment to bring
the cost of the Millennium Experience project back to its original
£758 million budget and stressed that the cost efficiency
drive would continue to be a priority as it had been since February
2000 as long as further cost efficiencies did not impact adversely
on the quality of the product and the value for money for visitors,
and stressed that whilst the Commission's concern with cost was
shared by the company, driving up revenue was equally important.
38. The current position is that the cost
efficiency and savings drive will continue but the team has to
place equal focus and effort on achieving the revised volume and
revenue targets; and legacy income remains important. The company
does not intend to return to the Commission for further grant
and is fully committed to run the project successfully through
to 31 December.
TIMELY PAYMENT
OF SUPPLIERS
39. This has been a particular issue for
the company since January 2000 when cash flow and cost pressures
combined and resulted in the company not being as timely with
some of its payments to suppliers as it would have liked—all
companies faced with similar pressures find themselves in the
same position although this company recognises that that is little
comfort to those of its suppliers who received late payments.
The injection of the additional grant in February 2000 eased the
situation but the ongoing cash flow and cost pressures (as it
became more apparent that the original business assumptions were
over-optimistic) continued and required effective cash management
measures. The injection of the further £26 million grant
combined with ongoing cost efficiencies and savings enables the
company to ease further and considerably the situation regarding
payment of suppliers.
40. Throughout the period the company has
sought to ensure, and will continue to ensure, that suppliers
are affected as little as possible. In a few cases the situation
has been exacerbated by inaccurate media reporting which the company
has sought to correct but such corrections inevitably have less
impact than the original reports.
SPONSORSHIP
41. The company has raised more sponsorship
for a single event than has ever been raised before—£160
million including the Ford and BT zones provided on a design,
build and finance arrangement, and including additional value-in-kind
over and above that which counts against the project budget. In
line with every other aspect of the project, there was no template
or ready-made package for the company to follow in seeking and
"selling" to sponsors. But, despite inevitable rocky
patches in the relationships between the company and sponsors
as their understandable commercial objectives created strains
with the projects "public" objectives, some very significant
names came on board and the company recognises fully that, were
it not for their support, the project would not have happened.
And, as noted above, during the last four months those relationships
have transformed into partnerships working together to make the
Dome a success. The company wishes to place on record its thanks
to BAA, Barclays, Boots The Chemists, BAe Systems, British Airways,
BskyB, BT, Camelot, CGU, Coca-Cola, Corporation of London, De
Beers, Ford, Kodak, L'Oreal, Manpower, Marconi, Marks and Spencer,
Mars, McDonald's, NatWest Group, Premier Brands, Prudential, Reuters,
Roche, Tesco, Walls and Woolwich. The company would also like
to thank the supporters of the Faith zone who include the Laing
family Trust, the Jerusalem Trust, three other trusts and foundations,
and the Hinduja Foundation.
42. Each sponsorship is subject to an individual
contract specific to the individual sponsor and the zone or other
area being sponsored. The majority of contracts provide for phased
payments over specified time periods. All the sponsors have now
paid, or are paying, according to their contractual terms except
Boots (who at the time of writing—22 June—are still
to make their final £2 million payment) and Tesco who, at
the time of writing—22 June—have still to make their
final payment which has been promised subject to resolution of
some marketing issues.
ATTENDANCE AND
TICKET SALES
43. Total attendance to 18 June was 2.87
million. Forward sales and reservations as at 18 June are in excess
of 600,000.
CONCLUSIONS
44. The company's finances will continue
to require very careful management and control over the coming
months as the executive and the Board seek to mitigate the implications
of the cost structure of the original business plan and the wrong
assumptions about volume and commercial income. The cost efficiency
and cost savings drive which has identified very significant savings
over the last four months will continue subject to ensuring that
any further savings do not impact unacceptably on the quality
of the product and value for money for visitors. Equally, if not
more importantly, the primary focus will be on driving up volume
through the new marketing strategy—recognising that much
of the risk in this respect is outside the company's direct control
particularly as regards the strength of the pound, and the nature
of national media coverage and its influence on the visitor market.
45. Having said that, over the last four
months the business, the organisation and the product have all
undergone a sea-change. The business is now a lean and commercial
operation. The product and the front-line staff are achieving
high satisfaction ratings (85 per cent and 90 per cent respectively).
In terms of volume (3 million in six months), the Dome is the
most successful paying visitor attraction in the UK; it is second
in Europe and will be amongst the top five in the world. It is
a world class attraction which has brought to the industry innovation
in its architecture, construction, content, environment, transport
strategy and management.
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