The flying accountant
BA's Derek Stevens has transformed the way the airline's financedepartment operates. As he tells Leon Hopkins, business acumen andanalytical skills are now as important as traditional 'beancounting'
BA's Derek Stevens has transformed the way the airline's financedepartment operates. As he tells Leon Hopkins, business acumen andanalytical skills are now as important as traditional 'beancounting'
Derek Stevens says the dreaded ‘b’ word. You can do that once you’ve transformed accountancy into the corporate hot ticket. Not only that, but done it at a multi-facetted giant like British Airways, amid pressure on costs and ever more elusive profit growth. ‘When I came in, I fear most line departments saw accountants more as beancounters and didn’t expect very much input into how they made decisions. Over the years, as we’ve brought in good people, they’ve come to recognise there’s a very good contribution to be made.’
It’s seven years since Stevens became the airline’s chief financial officer.
It’s been a period of continuous change as much cultural as operational.
BA has trimmed a massive u800m off its costs since 1991 and recently revealed plans for a further u1bn worth of cuts over the next three years. The process will require the loss of 5,000 staff and their replacement with almost the same number but with different, customer-driven skills. Stevens’ contribution to sharpening up the business has been to build a finance department capable of providing analytical input and commercial acumen wherever there’s a need. ‘A large part of my work now is about planning and managing a business, and a rather complicated business’, he says.
Dominating the back wall of his office is a map of the world inherited from a predecessor. There are no pins, stickers, flags or lines. Stevens doesn’t need them to remind him of BA’s massive reach – nor of the devolved nature of its management.
Locally-made decisions
It wasn’t that way back in 1989. ‘One of the messages from a survey of managers was that there were too many decisions made centrally,’ Stevens explains. ‘Line managers said if only they’d more authority they could act faster and smarter. We bought into that. What we’re doing in finance is helping line departments understand the business economics, the financial side of what they’re doing, so they can better evaluate propositions and make decisions within the agreed parameters.’ Finance staff are integrated into the management teams not only to monitor and report back but helping each department run as a successful business. They’ll certainly have their work cut out now as every nut and bolt goes under the microscope of the efficiency programme.
Management by persuasion through times of massive corporate upheaval and within a weave of regulatory constraints has become something of a Stevens speciality. BA headhunted him from TSB. The savings bank too had recently privatised and in the process battled through the swamp of financial regulation to transform itself into a customer-focused business. The big difference was that while TSB was essentially a holding company, the airline was, and is, an operating company.
BA is the logical climax to a very varied career that has taken the 57-year-old chartered accountant through the oil business, management consultancy and high finance. Stevens was born into accountancy. The son and grandson of men who both served as chief cashier for GEC, he took a BSc at the London School of Economics and signed on, not entirely coincidentally, with the electronics giant’s auditor Touche Ross (then Touche Ross Bailey & Smart). But what happened next cannot have been pre-programmed. Articled clerking was pretty tedious, so Stevens packed his bags for California.
It was the middle of the Vietnam war, the flower power revolution was in full swing, and he paid his way through an MBA at Berkeley by teaching.
A bolder move than it sounds. The business degree was still an unknown quantity in this country. His principal at Touche Douglas Morpeth did promise to take him back, but only at his leaving salary.
It didn’t even cross Stevens’ mind. Much more attracted to the idea of working abroad, he took a summer job with Shell International in New York (where he met his wife) and later a two-year posting to Venezuela. The living was good, the work interesting and the pay high, but for an ambitious man, it wasn’t enough. ‘I wasn’t entirely clear that my career was going to develop as fast as I thought it should.’
So he came home, joined PA Management Consultants and got the concentrated experience of finance departments to make up for not grafting his way up one from the bottom. But, when he got held up again, in an overly long stint at Prudential Assurance, Stevens moved to United Dominions Trust’s industrial division as financial controller.
‘It was quite a diversified group of companies in distribution, construction and plant hire run with entrepreneurial flair. I gained a lot of business experience in acquisitions and disposal.’ That included the final sale of half the division after TSB bought UDT.
‘TSB was emerging from being an old-style savings bank and was building up a commercial side,’ explains Stevens. ‘It decided it’d be a great deal to buy out UDT and capture its commercial lending book as well as some personal business, along with some experienced bankers and hire purchase-type people.’ It was certainly a great deal for him. The UDT finance director took one look at the TSB group – a central board trying to control 16 unruly savings banks – and opted for early retirement. Stevens by-passed UDT and moved straight to the top.
Accountants in banking
But the banking world had yet to learn to love the chartered accountant.
‘The finance portfolio in banks was still a job for a career banker. I think financial control of banks’ own operations at that time was not of a quality that it would have found acceptable in a client. The TSB was more responsive to change than some other banks might have been. It was being freed of its government shackles ready for privatisation and flotation.’
Stevens set about installing decent management reporting and monitoring systems. When the privatisation finally did go through, TSB found itself with ‘a vast amount of capital far in excess of what it needed to run and develop organically’. It embarked on the acquisition trail. ‘Shareholders expected us to do something with the money,’ he says. ‘I was concerned there was going to be such huge pressure to spend the money that we’d spend it unwisely. Inevitably, in that situation there’s a tendency to be rather gullible to good arguments.’
Indeed, too much was paid for some, with the benefit of hindsight, but the price wasn’t the only problem. Shortly before BA lured Stevens away, TSB had the chance to buy Hill Samuel and took it, dazzled by the Midas-like reputation merchant bankers enjoyed at the time.
‘We let them tell us how to run things to a certain extent,’ he admits.
‘Merchant bankers are terrifically good at telling other people how to manage their money, but not too experienced at managing a large pot of money themselves. One could say we didn’t get sufficient grip of that business early enough on, we didn’t get inside it enough to see what made it tick. It was a very important lesson.’
Stevens claims BA enjoys the best of relations with its bankers, in part, presumably, because he does know how they tick now. ‘We work very hard on long-term banking relationships. We have what our treasurer calls a “charmed circle of bankers” who we keep very well informed about what’s going on in the business. They don’t hear surprises from the market.’ Which is lucky as nothing the airline does is small potatoes, from co-operative deals with Qantas, of which it owns 25%, and US Air to the more recent link up with American Airlines.
These deals also explain the devolution of decision-making: the airline regulators block straight takeovers since the acquired company would then lose its international traffic rights. ‘The trick is to get the maximum synergy even though you have independent management teams. It’s not the easiest thing in the world. It was particularly difficult in the case of US Airlines because, unlike Qantas, it had been strapped for cash for many years. There were a lot of things that needed to be changed. But, if you have an organisation which has been together for some time, things won’t happen overnight even if you do have three seats on the board.’
Today, BA is a u7.8bn turnover business. Pre-tax profits stand at u585m and it has an unbroken growth and increased profitability record for the last four years. ‘Profitability comes from judging the market and the competition in the market, having a competitive cost base, and motivating your staff. It is also about having good partners.’
Airlines are special, but the basic business essentials still apply: satisfying customer requirements in a cost-effective way. And that doesn’t just mean the paying public but internally too. Stevens knows that: demand at BA for the finance department’s services already outstrips supply.
Leon Hopkins is a freelance journalist.