Examination of Witnesses (Questions 1-19)
MR ARCHIE
HUGHES AND
MAJOR GENERAL
DALE CBE
20 JANUARY 2009
Q1 Chairman: Good morning and welcome.
I hope that this session will be helpful in reminding the Committee
about the merger of ABRO and DARA and bring us up-to-date with
where things are in relation to that merger. We hope that you
will be able to look a bit into the future as to the role of the
Defence Support Group into recuperating and regenerating Armed
Forces' equipment, partly as a result of the drawdown from Iraq
and partly in the light of the current study by the MoD on recuperation.
If I may ask you both to introduce yourselves, please, and you
are welcome as witnesses in front of the Committee.
Mr Hughes: I am Archie Hughes
and I am the Chief Executive of the Defence Support Group.
Major General Dale: Good morning.
I am Ian Dale. Just by way of background I am a 30-year front-line
soldier and I am now working in Defence Equipment and Support
where I have been for four months now. I am the Director General
of Land Equipment, which means that I am responsible for the acquisition
and sustainment of all land equipment to the Armed Forces. My
role with the Defence Support Group is to act as the defence equipment
and support customer focus.
Q2 Chairman: Thank you very much.
I warn you, General Dale, that most of these questions are likely
to be addressed to Archie Hughes in the first place but do feel
free, please, to come in on any of the answers or any of the questions
that you want because, as you have just pointed out, you are very
important to this whole process.
Major General Dale: Thank you.
Q3 Chairman: Mr Hughes, before the
merger you were the Chief Executive of ABRO and of DARA for a
period of some months in order to help meld the two together.
What were the main challenges that you faced in that amalgamation
between the two organisations?
Mr Hughes: The first challenge
was obviously in understanding both businesses. I had previously
been Chief Executive of DARA for a number of years so I obviously
understood the DARA business and the DARA people, the products
and the processes. There was then a process of trying to understand
the ABRO business and to look at the similarities and differences
between the two businesses to see how they could come together.
It was relatively rapidly evident that although they worked on
different products they were very similar businesses. They were
both in maintenance, repair and overhaul of defence equipment,
and so what we had to do initially was look at how we would best
bring the two businesses together from a managerial point of view,
so the early part of the work was in looking at the management
structures of DARA and ABRO and what the management structure
should be for DSG, and how best to bring the two businesses together,
whilst at the same time doing all the necessary legislative work
to formulate the new trading fund that was going to be DSG. We
had to run DARA, run ABRO and do the work to create a new trading
fund called DSG, and therefore it was a pretty busy time in looking
at how the two would come together. Also remember at the same
time we were looking at selling some of the constituent parts
of DARA, which was the rotary wing part of the business and the
components part of the business, so it was quite a complex arrangement
that happened at the time. We brought the new management teams
together and did a lot of quite intense work to come up with the
new structure for DSG. We did that quite successfully and therefore
DSG was able to vest from 1 April 2008.
Q4 Chairman: What remains to be done
in terms of difficulties to be overcome?
Mr Hughes: I do not believe there
are any difficulties to be overcome now. I would say that ABRO
and DARA are now merged and we are very much the Defence Support
Group now. We regard ourselves as the Defence Support Group and
everybody in the business sees themselves as the Defence Support
Group and we now operate as a new single trading fund. There is
still lots and lots of work to do because you do not overnight
immediately become one harmonised entity. We have still got a
lot of work to do in relation to the people dimension of the business
in how we bring together the disparate human resources policies
and procedures and terms and conditions of employment. Some have
been harmonised already but we have more still to do over time
and we are working closely with the employee representatives in
dong that. We have lots of work to do in terms of delivering the
benefits associated with the merger in embedding best practice
both ways between what was DARA and ABRO and in delivering the
best value for the defence customer. We are continually looking
to the future as to what the future size and shape of the business
needs to be. I regard it now that we are DSG and we are operating
as DSG. We are proceeding with a degree of pace in transforming
the business, trying to make it better, and taking the best out
of both businesses. There is an awful lot of work going on at
every level in the business to try and do that.
Q5 Chairman: What do you think the
timescale is for completing that amalgamation so that for example
the human resources rules all become the same?
Mr Hughes: We are looking to August
this year to harmonise where appropriate the terms and conditions
that apply to the various bits of DSG because, although it formed
out of ABRO and DARA predominantly, we have also taken on board
an element of what used to be DSDA at Stafford and we have taken
on an element of what used to be DE&S at Sapphire House in
Telford, so in actual fact there are four constituencies of people
who are now under the DSG banner. August of this year is when
we are targeting because that is our normal annual pay point with
the trade unions as to when we are working between now and then
to get the major stuff in place. Thereafter, we will roll out
on a process-by-process basis improvements as and when we deliver
them but that is a key point in time for us.
Q6 Chairman: Are the IT systems the
same, do they talk to each other or what?
Mr Hughes: The IT systems are
different. Both businesses operate in a manufacturing/engineering
type of environment, so the air side (ex-DARA) operates on a BAAN
system and the land side operates on a CINCOM system. They do
come together and we have done an awful lot of work already to
bring together the next level up in terms of financial control
and management, so the management information is already harmonised
into one set of figures, one set of documentation. The operating
sides can work quite effectively on their existing systems and
we have no immediate plans to harmonise one to the other or one
new system. It would be a very complex and very expensive process
to put them on one system at the operating level but as time progresses
and we reach a natural point to review the IT systems then we
might make some decisions to harmonise. Effectively, the land
system operates on its system, the air system operates on its
own, and we have brought them together at the information-sharing
level, one level above. Quite a lot of work went in in the latter
part of the year in the run-up to DSG and then the first six months
of being DSG to get that information, which gets presented to
the likes of me as management and then I present further up the
chain, to be consistent between the air and the land side. I think
we have now got to the position where I get one report as opposed
to I used to get two. I used to get DARA reports and ABRO reports;
I now get DSG reports.
Q7 Mr Jenkins: Mr Hughes, in your
answer you mentioned that you identify good practice and move
it across the company. Who exactly is responsible for identifying
and evaluating and then embedding that across your company? Which
section of your management team does that, the accountants?
Mr Hughes: No, not just the accountants.
I have a Chief Operating Officer who runs most of the businesses,
and what I have now got in place is a transformation programme
and it runs on a classical programme project management basis,
so I run a change board, which I chair, and on that change board
are all the various directors of the different bits of the business.
John Reilly, who is my Chief Operating Officer, runs most of the
businesses and because he runs most of the businesses he employs
most of the people and therefore most of the change is in that
area of the business. Underneath him there are a whole lot of
change programmes that he runs. There are certainly change programmes
in the finance area and the Finance Director is looking at change
programmes in finance and he also looks at the pull-through of
financial data across functions. Every one of the directors has
got their own series of change initiatives, change programmes,
and improvement initiatives that they run. I run a change board
and each of them then run workstreams and have project boards.
The project boards are made up of subject matter experts, and
the subject matter experts might be an ex-DARA person or an ex-ABRO
person. They come together and they will look at for example benchmarking
ABRO/DARA or they might look outside to benchmark best practice
outside, and through a process of proper investigation, trialling
and piloting and so forth they will implement across the business
what they believe is the best practice. All of that comes up to
the change board for endorsement and ratification and so forth.
There is a very clear, rigorous and disciplined process of implementing
best practice across the business which is on classical industrial
lines. It is generally the same way that you would do it anywhere
else.
Q8 Mr Hancock: Before I ask my first
series of questions, can I ask the General a question: how have
you found this challenge so far as your role in the Army is concerned?
Major General Dale: I guess the
bottom line is that the Defence Support Group has not dropped
the ball on any occasion and so, despite the turbulence of the
change and the amalgamation and the internal drive for efficiency
that Mr Hughes is following, we have not had any perturbation
on the outputs whatsoever. As I understand it, our outputs have
been fine, so they have been timely, they have been on cost, and
they have been to quality, so we are quite happy with the outputs
at the moment.
Q9 Mr Hancock: What would be your
route for taking complaints from lower down through you on to
the new organisation? What is the route for that?
Major General Dale: There are
several routes actually. There is almost a daily interaction between
the staff in my project teams and the relevant staff within the
Defence Support Group, so many of the issues are discussed face-to-face
at the working level, and if there is something that goes beyond
that then there are regular meetings between the IPT team leaders
and the section leaders within the Defence Support Group. Personally
I attend a regular board together with the Chief Executive and
his main players, so if there are any issues that need to be resolved
at that level that is where it is done. There is connection at
almost every level and I think our communications and liaison
with the Defence Support Group is pretty sound.
Q10 Mr Hancock: You said that you
had spent 30 years as a front-line soldier, and I do not know
how you feel about three months in a backroom in Whitehall or
wherever you are located at the moment, and during that experience
you would have come into testing times when you wanted modifications
or changes to equipment and there was a process for doing it.
How do you feel our commanders now in the field, and more importantly
the people who use the equipment, feel about the way in which
they can get their modifications made to suit their needs? Is
it that your staff, Mr Hughes, go out to theatre or do some of
the soldiers intimately using equipment come back to advise about
what they actually need?
Major General Dale: There are
a couple of ways again of doing that. We have a regular process
in the Armed Forces of equipment failure reporting, so if there
is an issue with an item of equipment that needs attention, it
is highlighted through that process of reporting, and the integrated
project teams at Bristol monitor the trends so they can highlight
where there is a particular issue on particular equipment. It
is the IPT that will then through that connection engineer a solution
directly with the Defence Support Group. The requirement to change
equipment would then be implemented through the Defence Support
Group capability before the equipment is deployed, or indeed when
the equipment has come back from deployment they will be upgraded
as they come through, so there is a routine process for updating
equipments. To give you an example, I had a team out in Afghanistan
a couple of weeks ago checking through the equipment status and
it was quite good news. I do not think we got any complaints about
the type of equipment that we were delivering to them. It all
seems to be quite fit for purpose. There were glitches in the
communication systems on the equipment failure reporting system,
but nothing that could not be resolved by liaison. I have officers
permanently embedded in the headquarters both in Afghanistan and
Iraq that monitor the situation, and the Defence Support Group
regularly deploy people into both Iraq and Afghanistan so that
they can help where help is needed.
Mr Hughes: I do not think I have
anything further to add; we send people where they need to go.
Chairman: By the way, may I commend you
both on the clarity and brevity of your answers because they are
hitting the point straight on.
Q11 Mr Hancock: Can I then raise
with you the amalgamation and when it took place. You had experience,
as you said, of being the head of DARA. You went over to ABRO
and you saw that in the time that you were Chief Executive there.
Now you are in sole command of the operation, what was the duplication
that you found, and have you been successful in eliminating that
duplication to your satisfaction or is there still work to be
done?
Mr Hughes: When you look at DARA
and ABRO there were a number of functions that were the same in
both and therefore they overlapped, for example we had two corporate
head offices, so there was an obvious overlap at the head office
side of the business. There was a DARA head office and there was
an ABRO head office and therefore there was a degree of duplication
at the support staff side of the business; there were two boards,
two chief executives, etc., etc. Therefore there was an immediate
synergy that could be gained by looking at the way the senior
management was structured and the corporate head offices were
structured in ABRO and DARA. Therefore relatively quickly I was
able to put together a single board and look towards generating
a single head office and a head office with a reduced number of
people because there was synergy benefit to be had. We have moved
pretty quickly there and we have slimmed down the head office
somewhat already. I believe there is probably more to do over
time because you might want to slim it down but you do not want
to reduce your capability at the same time, so you need to work
through a pretty steady process of getting there. We have slimmed
down the head office and we have also combined the two boards
into one board and there was obvious synergy benefit there. There
was very little operational overlap because we were repairing
tanks in one factory and electronics in another factory and there
was not an operational overlap to any great extent. Although there
were different operational organisational structures, I have also
streamlined the operational management for DSG compared to what
the ABRO and DARA businesses were. In terms of looking forward
we have instituted a number of studies to seek out where there
might be more synergy benefit to be had. An example of that could
be in relation to the electronics activity that we do across DSG.
There is an electronics business in DARA at Sealand; we do electronics
and electrical work at Donnington in the TESS business; and we
do some electronics work at Stafford, so we have three different
sites all doing electrical work. I have instituted a study to
see whether or not there is any potential synergy or harmonisation
benefit to be had there, but we are not going to mix the aircraft
product with the land product because they are different. To date
we have done quite a lot and we are continuing to look for future
synergy benefit as it arises.
Q12 Mr Hancock: Thank you for that.
If I had been an executive team member on ABRO I would have been
slightly cheesed off that I and most of my colleagues went out
the door and most of the DARA executive team remained. What was
the motivation behind that, was it competence, ability, or just
that it was better to keep one team in place than try to mix two?
Mr Hughes: It was a mixture of
a range of factors. I do not think we set out when we amalgamated
the two boards to end up with a primarily DARA-related board as
opposed to an ABRO-related board. Some of if was through my choice;
some of it was through the individuals' choice. For example, the
Deputy Chief Executive of ABRO retired at 60. I do not have a
Deputy Chief Executive anyway, but he chose to retire at his normal
retirement age, and that played my hand for me in that regard.
The Finance Director of ABRO moved to DE&S in Abbey Wood.
Others chose to leave and others' jobs were not there any more.
The intent was not to set out to have a DARA board; it happened
a bit by design, a bit by default, but the clear intent was to
have a reduced, slimlined more effective board, and I am more
than content with the board I now have. There were a number of
non-executive directors in both businesses and we also streamlined
that down as well.
Q13 Mr Hancock: In your memorandum
to us you said that you have already identified £10 million-worth
of savings and they have been achieved. Did most of that come
from the corporate management part of the business or did if fall
mainly elsewhere in the business of actually repairing equipment?
Mr Hughes: Most of the saving
came out of the support areas of the business, primarily first
of all in having one board, you save a fair amount of money having
one board, and you save a fair amount of money with the direct
support staff who support those two boards. We also saved a fair
amount of money in reducing the corporate head count. As I mentioned
earlier, we brought two into one. We saved another bit of money
in relation to people when we brought on board the land supply
business from Sapphire House because we now have something like
219 people in Sapphire House in Telford and the previous activity
was done by over 300 people, and it came across. Then a further
element is in the operational area of the business where we have
saved a fair amount of money in material cost and things of that
nature. The initial tranche of savings, if you like, were primarily
to do with the support areas of the business. We are obviously
focusing quite heavily this year and going forward into how we
make the operational end of the business more effective and efficient
and better value for money. I am pretty sure there are more savings
to come at that level of the business. Looking at the operational
management for example, in the ABRO bit of the business we used
to have a director, a regional manager, a local manager and ops
manager. At least two of those layers no longer exist.
Q14 Mr Hancock: That is good. Would
you say the rationale for the amalgamation is as sound today as
it was nearly two years ago when it was first put together? Would
you say there were any surprises that you have discovered since
the amalgamation has taken place which you did not foresee but
which have actually arisen, and are they to the benefit or detriment
of that amalgamation?
Mr Hughes: I would say the rationale
has been proven by the implementation of DSG. The output, as the
General said, is at least as good if not better in terms of the
quality and delivery and so forth, so we have maintained the output
at reduced cost and therefore the rationale for producing the
DSG out of ABRO and DARA was sound and has been proven to date
by delivering those types of benefits. Obviously when you take
on any new role you find things that you never knew were there,
and in relation to the ABRO business in the last six months of
last year prior to the DSG being formed we unearthed a number
of cost surprises in the ABRO side of the business and we unearthed
some financial forecasting/financial control surprises in the
land side of the business, which were a bit of a surprise to me
in terms of running the DARA side of the business. The good news
is that we have recognised them and we have now put in place the
actions to improve them and there are much better financial and
cost control mechanisms in place. Taking over any business every
week you find a new thing that you never knew; that is running
a business.
Q15 Mr Hancock: Despite all the obstacles
that were in the way, DARA came into this partnership in profit
and ABRO came with a loss situation, and one could argue that
this was done to smooth over the loss-making one to make it an
organisation where one carried the other. Has that proven to be
the case or is it now that you will see this organisation stand
on its own two feet, both elements of it now one, which will actually
turn a profit?
Mr Hughes: If you look at last
year, obviously DARA made a profit and ABRO did not, and the cost
situation in relation to ABRO was one of the surprises that I
unearthed. I think the way we have set the business up now DSG
will be profitable and I believe the land constituency and the
air constituency will both be profitable this year.
Q16 Mr Hancock: That is great, thank
you.
Major General Dale: Can I throw
in a customer perspective on this. One of the advantages to me
as a customer of the DSG formation is that I have now got a single
point of contact that I can deal with which makes my relationships
with the organisation so much simpler and so much clearer. I am
assured now that the organisation is beginning and has made quite
a lot of progress in getting to grips with its costs, which is
important to me as a customer of course because the more they
can drive down their costs the more I can push through the organisation,
which is what we want.
Q17 Robert Key: In his May 2007 statement
Lord Drayson said that the MoD wished to retain the intellectual
property and design skills required to maintain operational sovereignty
in key areas. Can you remind us therefore why the rotary, components,
fast jet and engine businesses were not included in the merger?
Major General Dale: It is a difficult
one for me to answer because I am afraid I do not have the legacy
history of that so what I am going to say to you is dredging my
memory and, if you wish, I can get a clearer written answer back
to you after the meeting. As I understand it, one of the tenets
of the Defence Industrial Strategy was to optimise and lever more
effectively the power and capacity of industry, and one of our
mantras within defence equipment and support is to move our support
contracts up what we call the transformation staircase. That is
to say moving away from support solutions that rely on DE&S
to manage, procure and deliver support to in-service equipment
to contracting with industry for them to do it instead, because
they have a greater capacity, they can drive down costs more effectively,
and they can provision more accurately, so one of the reasons
for moving to that kind of support for helicopter engines was
exactly to achieve that kind of efficiency in support.
Q18 Robert Key: Is it because you
no longer have the volume and the capacity to cope with the high
level of requirements from theatre?
Major General Dale: I do not think
that is the issue. In terms of volume and capacity I think Mr
Hughes can answer more directly.
Mr Hughes: Just going back to
the earlier part of the question, because I was around at the
time and was involved in the selling of the businesses and whatever,
from a strategic point of view in the air side of the business
there were a number of people who were in the same space, essentially,
doing the same type of work. We have reviewed in other fora the
fast jet decisions in terms of rolling forward, because there
were people other than DARA who did fast jets. The same was true
in the helicopter world. The contracts we had in the DARA business
on helicopters, on Chinook for example, were through Boeing and
there were a number of other alternatives to DARA doing it, so
the strategic options were wider for MoD than just actually in
relation to DARA, as opposed to some of the businesses we do now
where we are the unique and sole provider. In terms of the capacity
question, there is certainly capacity in what is now the Vector
Aerospace business at Fleetlands to do all of the requirement
for helicopters that is currently around, and we would still have
had the capacity to do it. In actual fact, there is more capacity
out there than just the helicopter facility that is in Fleetlands
because a range of different industry players also do the helicopter
MRO.
Major General Dale: One of the
key things I might add about the Defence Support Group that I
look for as a customer is the ability to deliver services and
functions that are not readily available in industry, so for example
support legacy equipments or equipments that are running towards
obsolescence. Where the knowledge and the skill sets required
to support those equipments is beginning to fade through industry
and where the capacity exists in industry, the aim would be for
them to support it because it is cheaper and they are better at
doing it. Where the capacity demands a particularly unique skill
then that is where we would lever the power of DSG. We would hope
in the future as part of our contracting for availability work
with industry to have DSG included in that as a sub-contractor
delivering those unique capabilities that industry cannot.
Q19 Robert Key: So you do have the
technological skill, including computer software and design and
so on, to handle the most sophisticated helicopters? You could
do it but it is just more efficiently done somewhere else?
Major General Dale: Correct.
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