Interview: Mark Horsley, chief executive, Northern Gas Networks
“We’re only part of the way on the journey. I think we’re scratching the surface on customer, we’re scratching the surface on the operating model.”
It’s taken three years of asking to get Mark Horsley to agree to today’s interview. Not because he’s too grand to talk to the press, or because he hasn’t got anything to say – neither could be further from the truth. But because after a career of dizzying highs and the odd bruising low, the down-to-earth, friendly chief executive of Northern Gas Networks (NGN) has decided it’s best to stay under the radar, at least as far as the press is concerned.
So what are we doing here, meeting Horsley at a quiet cafe in the sprawling hotel over the road from his Leeds business park office? Perhaps it’s a pay-off for Utility Week’s persistence. More likely, Horsley has realised that just as gas, once the “silent sector” of the energy world, is having to speak up for itself, so must he. And a good thing too, because he speaks a lot of sense – and he does it with a degree of passion and conviction that stands out even in the public service-driven world of utilities.
In a gas sector that has recently found its voice and its confidence, NGN is a smaller player that punches well above its weight. The business, owned by Chinese investor CKI (of which more later), has a relentless focus on customer experience; Horsley has pledged to complete the network’s transformation by 2021, to deliver a “revolutionary” business model based on ways of working that would once have been unthinkable for a staid utility. He is also chair of the Energy Innovation Centre, and passionate about change across utilities and the wider business world.
Utility Week Congress
NB: Mark Horsley wuill speak at Utility Week Congress, 14-15 October, Birmingham. Find out more at: http://www.uw-congress.net/
NGN is performing well. It delivered an operating profit of £175 million in 2014, on a total revenue of £409 million; compared with an operating profit of £162 million in 2013. It is the leading gas network on complaints performance and has attracted the notice of the regulator and other businesses, in and outside of utilities, particularly for its ability to speed up change in a traditionally slow-moving sector.
The company was the most efficient on repex (replacement expenditure) throughout the last price control period and has a unique approach to contracting, working directly with 26 small organisations across its area. Efficiency has subsequently improved by a further 10 per cent as measured by the Ofgem model. It has taken all its training in-house and has 60 per cent of staff on modern terms and conditions. Improvements to the way that works are planned and delivered have increased the efficiency of the average repair team by one-fifth (two-fifths for those on modern T’s and C’s). The company claims its benefit-led approach to making investment decisions is reducing risk while delivering cost savings.
It’s been a long road. When Horsley joined NGN in 2011, most of the network’s operations were outsourced to United Utilities. The decision had been taken to end the contract, and he was there to implement it. “It was number one for efficiency. I knew that by bringing the contract back in, we would probably lose that position. We really needed to bring the thing together. It did mean making some hard decisions and it did reduce headcount.”
The winter of 2010/11 was extreme, and NGN suffered as a result. “It was the worst winter you can imagine, which resulted in a breach of licence [on reconnection times], and our repex programme was touch and go whether we would make it, so there was a real focus in two directions. One, keep the operations going as best we possibly could knowing that we had already breached the one hour and two hour standards with no recovery; two, looking at the business overall.”
Over the next 18 months, Horsley overhauled the supply chain and management team. “New managers were brought in reflecting what we really wanted – a highly efficient, safe, customer-focused business.” To create that focus, Horsley dragged the management team in for a weekly 7am meeting on a Friday to talk through health and safety, interrogating any accident that had happened that week. At 8am, the same for customer service.
Horsley’s passion is about changing NGN from a traditional, staid utility, to deliver a better experience for the customer (and ultimately, the shareholder and staff). As he proudly shows Utility Week around his HQ, pulling in staff members fizzing with energy and showing off team whiteboards and a shared wall in the coffee room where once-tortuous change programmes are boiled down to Post-it notes and progressed from left to right, the changes seem logical and intuitive.
So what’s the vision for 2021, the end of the current price review period? “A highly focused, customer orientated business – much more agile than it is at the moment; less corporatised, predominately locally driven and real, real colleague involvement in what we’re doing. And a conscious business – that’s breaking down what you typically have as a hierarchical approach to business and de-layering, so you could have heads-of doing work within the business as opposed to a traditional directorates which are very siloed. It’s much closer to the customer and allows us to move as technology changes, and the market changes as well.”
Horsley notes that the eight-year price review term, RIIO, which began in 2013 for gas distribution businesses, has enabled him to think longer term and enact changes that would have been impossible under the previous five-year regime. Under the contract, performance is measured against a wide range of targets, some of which need to be met or exceeded in order to earn revenue or avoid financial penalties. By keeping customer promises and improving efficiencies, NGN has generated significant savings, driving down costs for customers. He is confident that the mid-point review, which he welcomes, will show that the RIIO principles are being delivered.
Horsley also credits NGN’s owner, CKI, with allowing him the flexibility to change the business. Indeed, he can hardly find enough good things to say about CKI, which also owns UK Power Networks, now run by Horsley’s predecessor at NGN, Basil Scarsella; fellow GDN Wales & West Utilities; and Northumbrian Water. “One of the strongest, successful elements of CKI is that they run their businesses independently – that makes great business sense. They believe in keeping things in a locality. We work closely together, we take advantage, but the local management is very important. It’s a lesson I’ve learnt, as well, from being in larger organisations trying to bring things together and run it as a corporate.”
Horsley’s corporate experience has not always been as happy as the job he so clearly loves today. He started out as a craft apprentice cable jointer at the electricity board, in 1975. By 2003, he’d worked his way up to become president and chief operating officer of CE Electric in the UK (now Northern Powergrid), owned by billionaire investor Warren Buffett. The job ended badly when, in 2006, the company breached its licence conditions in relation to quality of service. Horsley won’t be drawn on the details of his departure but it is widely known that as chief operating officer he took the rap, leaving the company swiftly when the breach was announced in 2006.
It was a painful low point in what had been a strong career; the experience still moves Horsley, who explains how it changed his approach to business and management style, “humbling” him and leaving him less “command and control”.
“I’d gone through this progression from an apprentice cable jointer to heading the business, over 30-odd years, and then all of a sudden you’re back looking for a job like everybody else and that is a really humbling process for anybody, and I think I have carried that with me into this job. I drew on my own experiences of transformation and change and aimed to apply this to running a large utility. And I also hope I’ve brought some humility with me; a clear understanding of life; of getting to the top but also having everything taken away when you’ve got to the top, so that has made my style very different.”
After CE Electric, Horsley landed in EC Harris as a consultant, which he says was an “amazing experience”. During this time a chance meeting with Basil Scarsella, and good fortune, found him being interviewed for the big job. He was cautious about a return to the corporate world, but a trip to Hong Kong to meet CKI’s owners convinced him. “I was really geed-up by the interviews I had – it was all built on trust and promises and a family orientation, and it was completely different to the experience I had in the European firm and the American firm.” Horsley is now deeply committed to CKI and its business values.
Horsley’s time at NGN has played out against a backdrop of huge change for the industry. The first research he read in office was the Redpoint report on the future of gas networks – “they didn’t have a future!” – and the official government line was all about the electrification of heat. Today, things are very different. “There’s a recognition of the cost of what the alternative would be if we didn’t have gas in the mix… We’re passionate about having a future, and that’s not just about gas, that’s a future mix of renewables.”
Gas has not always spoken up for itself. Horsley is diplomatic, but muses as to whether the small number of independent players in the sector, and the mixed interests of the behemoth National Grid, which also runs the power transmission system, have kept it quiet. If so, times have changed.
Gas is one of the most exciting places to be in utilities right now. It’s bubbling with ideas for the future, from the potential for the gas network to be used as a hydrogen storage facility, which would effectively enable the storage of renewable power, to its potential role in shale gas distribution. All this while the networks are quietly getting on with replacing every metal pipe in the country with plastic, and still connecting tens of thousands of new customers a year, many of whom will come out of fuel poverty as a result.
So what’s left to do? “Really, truly take NGN to a different space. We’re only part of the way on the journey. I think we’re scratching the surface on customer, we’re scratching the surface on the operating model. The team and I are planning the next three year journey, and it’s about creating a conscious business built around capabilities. That’s a massive shift, even with willing and new people.”
That’s something to shout about – which comes hard to the gas sector, and to Horsley. But when fighting for your future, you’ve got to speak up. Horsley has been doing just that – he chairs the Energy Innovation Centre (EIC), led by Denise Massey, a collaborative forum for bringing forward energy innovation by introducing SMEs to gas and power distribution networks, identifying smart solutions and accelerating their route to market. Under Horsley’s chairmanship, the focus has broadened to include strategic, industry-wide innovation. This includes the advent of the EIC’s Strategic Innovation Summits, the first of which was held last summer, and this month will see the networks collaborate on the first ever Customer Experience Summit, facilitated by the EIC.
The EIC has been a passionate advocate for the future of gas, as has the Energy Networks Association, which is commissioning a major study into the fuel’s future role. And of course, Horsley is here today – finally telling his story.
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