Making Progress

Trecroce summarized the transformation to date as an ‘‘ 80 million [$133.1 million] turnaround in 20 months, reflecting the organization’s progress from a 50 million [$83.2 million] loss in fiscal 2001 to a 30 million [$49.9 million] profit reported in October of 2002.’’ Thomas Cook had exited 16 of 23 corporate locations, reduced unprofitable capacity, cut the number of vendors from 17,500 to 5,000, reduced the number of IT projects from 119 to 23, eliminated 2,300 positions that lowered payroll expenses by 43.5 million ($72.4 million), and cut discretionary spending by more than 87 million ($144.8 million). Strategic sourcing, including implementing the shared-services center and making property consolidations, netted another 19 million ($31.6 million) (see Exhibits 6.7 and 6.8). Thomas Cook had also returned salaries to their 2001 levels, repaid employees’ lost pay, and added a 10 percent bonus on top for everyone who participated in the program. The senior management team congratulated the organization for delivering the level of profit they had originally promised Thomas Cook’s German parent.

Exhibit 6.7: Transformation accomplishments and future plans.

Exhibit 6.8: Transformation benefits to date.

As important as the cost savings were, the dual benefits of consolidation and information transparency promised even more value. Ailles recounted: ‘‘Moving functions to a third party helped us consolidate. That got us process efficiency, which is important. But it also makes visible the costs and implications of decisions. This is a huge win. When you run the machine yourselves, you paper over the cracks. But when you give it to a third party, it becomes quite visible when things are broken. This may lead you to make different decisions. For example, you may decide to stop offering a particular type of product because it costs so much to process that it is actually unprofitable. Before we co-sourced, business managers often didn’t understand the cost implications of their actions. I knew this capability would be valuable, but I had no idea how powerful it could be.’’

Trecroce emphasized the importance of meeting the deadlines set for the shared-services initiative. ‘‘From the time we transferred the people, until ten months later, we hit our dates. As a result our credibility both inside Thomas Cook and with our parent has shot up.’’ The CEO of Thomas Cook AG was so impressed with the UK and Ireland transformation that he outlined a similar agenda for the rest of the company, including outsourcing.