John Linton
A colleague sent me this last night:
http://www.thewest.com.au/default.aspx?MenuID=30&ContentID=71966
which added some interesting background detail to the formal announcement to the ASX.
I was struck by two things in this brief article. Firstly the statement that at the time of sale Westnet had 550 employees and 215,000 services (I'm not sure whether 'services' are distinct from 'customers' but that makes little difference) and a revenue of $A134 million. It doesn't (as you would see) split the employees by category (and neither from what I recall did the ASX announcement which, again as I recall, didn't make any reference to employee numbers). Neither document references annual salary numbers so that makes it more difficult to come to grips with the analysis but using an average would get fairly close to the actual detail.
What struck me was the number of employees per customer that Westnet deploys - it seems to me to be 'dizzyingly' high and very difficult to comprehend in what they all do each day - and I realise that Westnet's management would be of the opinion that they all do something valuable and necessary. But some simple arithmetic on these numbers makes it hard to work out just how Westnet is operated.
Just take the financial numbers first.
Revenue = $A136 million - divided by 550 = $247,000 per employee per year.
I dont know what the average salary is but, including superannuation and 'accommodation costs' and shift loadings it's difficult to see that it would be much less than $A40,000 a year (Exetel's average is more like $65,000 a year but it doesn't have the same huge low end employee percentage).
This means that Westnet spends a little over 16% of its gross revenue on personnel - roughly twice what Exetel pays and 60% higher than the 'rule of thumb' figure common to most service industries business models.
It's easy to see how the losses in FY2006 and FY2007 were incurred and why the dramatic end user price rises were necessary in February/March 2007. Of course the upside was clearly that the "best in Australia service" was generated by this staffing level which also ensured enough ongoing loyalty to prevent any significant loss of customers thus allowing the price increases to actually turn around the loss situation.
Customer Service and Brand Loyalty are thus demonstrated as being very valuable.
Now look at personnel productivity and retention
What on Earth do 550 people do in a business with 215,000 'services' and a revenue of $A136,000?
I think I can remember, and I may well be wrong, that Westnet once stated in a WA newspaper that they had over 300 personnel in their call centre.
What do they do all day?
If you assume an 8 hour working day with 20 working days per month per call centre employee and an average of 4 inbound calls per hour (a pretty average assumption) that would mean that their were 640 inbound calls per employee per month. Assume that half of these were sales calls (unlikely given the net increase of services per month quoted in the ASX report) and that means that there are 96,000 support inbound calls a month - or one call for 40% of your total number of 'services' per month?
Bear in mind that this means that you are allowing for 15 minutes per call (allowing for each inbound call to require two additional outbound call backs per situation resolution and that your 'services' experience problems requiring supplier attention 4.8 times a year). There are either huge problems with the services being supplied or my math is totally off the planet.
However if these numbers are somewhere in the ball park it would also mean that any support or sales call should be answered instantly (which is what you'd expect based on the 'best service in Australia' reputation. However if you ring a Westnet sales or support number during the working week you will find this isn't the case - in my experience so t.here is something really wrong with the assumptions I've laid out above.
I can't begin to get my head around what the other 250 people do to fill in their day.
However the net result is that Westnet survived and prospered and delivered, over an extended period of time, a set of services that their customers found to be the best on the market and, in the end, delivered a handsome financial return to the company's owners.
Something to continue to consider.