(Extended version of the interview that appeared in the November 2010 issue of AM)

An acquisition strategy and a determination to improve performance across the business has seen a turnaround in Cambridge-based Marshall Motor Group that has taken it into the AM100’s top 10 for the first time.

Chief executive Daksh Gupta explains the company’s

AM: Single out an objective for you that you are working on consistently right now

DG: It’s a clear and consistent aim of this company to be in the top 50 of the Great Place to Work survey. Employee satisfaction is not a five minute fix. Getting the culture right in this company will take five years.

At the heart of the Great Place To Work survey is the question, taking all things into consideration do you consider this to be a great place to work?’

To be a top 50 company you need an 80% score and we’re at 71% now on the back of a 14% improvement in two years.

There are some fantastic companies to work for in this sector that prove what can be done.

Sytner has always been in there and I have a lot of admiration for because they get the people side of it right and the manufacturer side.

Inchcape is another one that you hear people aspire to work for. I want Marshalls to be another one.

Why is this a goal?

The amplitude of swing between a good and bad employee is a difference of 8% return on sales. A poor employee will lose you 4% RoS and a superstar will get you bring you an additional 4%. For a £20 million business like ours, his equates to £800,000 profit.

I’m pleased with the progress we’ve made. People who have worked here for less than two years have scored us 78%. Our induction process gets an 88% positive score for people who felt they had been made welcome.

What the strategic importance of the recent purchase from Pendragon of its north-west Mercedes-Benz territory?

Two years ago when I joined Marshalls I said we need to grow on a national scale.

Being so focussed in the East Anglia – and selling 35% of all new cars in Cambridge – means you will end up competing with yourself. A move towards scalable territories means you have more to go at in terms of opportunities.

The operating costs for operating in different territories are broadly the same – you still need CI, the same DMS and a general manager.

We started with our national strategy with the purchase of three Honda businesses in Yorkshire (from De Vries) in January 2009.

The Mercedes-Benz acquisition is another demonstration that we’re serious about being a national group. It also balances our portfolio, bringing a German premium brand to the group.

There are only 32 Mercedes market areas in the UK, six owned by the manufacturer and 12 by plcs which leaves only 14 available.

So, the opportunity to partner with Mercedes is arguably one of the hardest to achieve. It’s quite a big coup for us.

Our leasing business buys around 100 Mercedes a year. We can now source those ourselves.

In the last two years we’ve taken on 22 new franchises, growing to 62 in total, but a lot of those have been bolted on to existing territories or extending our regional boundaries. When I talk about being national I do not include Scotland, Northern Ireland, Wales or the south west and will avoid the major conurbations and inside the M25.

Our leasing business buys around 100 Mercedes a year. We can now source those ourselves.

How does the deal impact on the financial standing of Marshalls?

We’ve more than doubled the size of the company in two years.

Since 2008 we will have gone from being a £320 million turnover group to, with this latest acquisition, a run rate of £675m.

The Mercedes business acquired represents a £110m turnover.

Our headcount has gone from 1,350 to 1,980. About 70% of the growth has come through acquisitions and the rest through existing businesses – we’ve invested in people rather than going backwards and attempted to cut our cost base.

Given the very different brands you represent and the manufacturers’ demands for dedicated management, how are you going to organise a management structure that runs these businesses effectively particularly as your geographic spread grows?

One of the first things I did when I came here was change the management structure.

We used to have regional directors, so one for Peterborough, Cambridge etc. But I went down the franchise director route with one running each of the six ‘legs’ of the business, grouped by brands.

Each franchise director runs a division that turns over between £100-140m.

The six franchise directors are responsible for: PAG (Land Rover, Jaguar, Volvo); Peugeot and Kia (representing a dual franchise site); GM (Vauxhall, Chevrolet) plus Kia and Alfa Romeo on dual franchise sites; Volume (Ford, Seat, Hyundai, Chrysler and Saab); Japanese (Honda, Toyota, Nissan, Chrysler and Saab) and Mercedes/Smart.

These guys are quasi-managing directors; each has a divisional financial controller, an HR business partner and divisional aftersales manager.

You have to provide the franchise directors with this level of support.

The industry benchmark for aftersales absorption is 80%, but our focus in this area and the management structure means we’re at the mid-80s and at 90% for service absorption.

As long as you have the process and people you can handle the diversity.

When a group expands there is enough evidence to show how it increases middle management which simply adds cost, dilutes the strategy and slows down decision making. How will you prevent this?

The great advantage at Marshalls is that the management structure is me, the franchised director and the general manager for each division of the company.

There’s no MD, COO or multi-level brand director between me and the franchise director. Decision making is very fast.

In some companies to try and get say a recruitment request through could literally take days and if not weeks.

We turn things around within hours and in a maximum of 24 hours because the management structure is very flat.

The danger that you’re alluding to is that once you get to a certain size you have to put another tier of management in because you couldn’t be a £2-3 billion pound company with a structure like that because I’m one individual and wouldn’t be able to do it.

But we do want to restrict our size because we have always said that I don’t want to be the biggest, but the best.

Guiding my strategy is the maximum number of people I can have reporting to me to be effective. I believe it’s eight. Considering we have nearly doubled the size of our company effectively in two years, our growth in head office function has been probably 10%.

How much more can you grow and still maintain that core value about management structure?

I don’t see us growing beyond more than 80-90 dealerships because once you get over a certain size, unless you put another layer of management in, you lose all the culture. I can tell you now I know every single general manager’s first name.

How important is that?

It’s massively important.

We try to have a non-hierachical culture because if the guys on the ground need to recruit new salesperson they want to be able to say it’s a great place to work and get the right people, so we give them considerable autonomy compared to a lot of groups.

What they can’t do is say I want to recruit 50 sales people today, but what they can do is say actually I’d like another sales person.

We’d ask on what basis? The answer might be ‘I want a better business, a better unit’. I would say that’s fine, it’s your business, your unit, get on with it.

Is this a telephone conversation or do they have to put together a business plan?

No, they go through it with their franchise director and if the FD approves, it goes straight through. Probably 99% of these go through. Occasionally we might ask the question, where is the payback of taking that investment?

Do you think you have done something that most of the industry hasn’t done in in terms of the structure?

No I think there are quite a few companies to be fair that have adopted this franchise structure. Inchcape where I worked for many years has got this structure and are probably a good example of how they have done it really well. Sytner also

Have you improved on it? Are there weaknesses?

This structure works really well in a number of companies.

It’s not anything new and makes common sense.

A manufacturer wants somebody who they can have a sensible meaningful conversation about their business and if you are going to have your strategy and their brand aligned well doesn’t it make a huge amount of common sense – it’s not really rocket science. I wouldn’t say there is anything we have done differently.

So, looking at your six brand pillars, manufacturers understand the logic and the groupings?

With Vauxhall we are running at three times the national average return on sales; with Jaguar we are the number one dealer group for customer service, for Land Rover in the top three dealer groups for customer service, Honda one of the top three.

This is of the group understanding what is important to the respective manufacturers.

Another comment you hear quite a lot is about the lack of quality staff in dealer groups; weak managers that shuffle between businesses and dealerships. How do you attract the best without paying about the odds?

The problem is we are all chasing the top performing people and there are not enough good management to go around. What we are trying to do is to grow our own, which is not very easy for all sorts of reasons.

Why is it not easy?

It comes back to recycling the same old sales people again.

One of the things we do is put a lot of work into attracting new people to the industry.

Almost every month this year we have been running selection centres, attracting people outside of the industry and actually there are some really good people who have never considered the motor trade before.

What is a selection centre? Do you put out an ad in the local paper?

Yes, announcing we are recruiting. We get about 40 people come at a time, mostly from outside the industry, and we put them through tests with our managers watching them. You can identify who has and who hasn’t what we need. It’s far better than interviewing sales people.

Once we get them through the selection process we put them on a one week residential course.

Give them the Marshall DNA chip so to speak, talk about the customer service, why it’s important, why they are important as part of that, what our expectations around customer service are, make it very clear what our company standards are.

A favourite story is a girl we took on last year who came from Morrisons; a checkout supervisor.

She sold something like 30 cars in her first month. She’s not super slick, super sharp, but she is really nice and honest and straight forward. Customers love her.

We have processes, protocols etc and have to have a degree of control, but our culture is in making the management responsible and accountable for the performance of their business within a framework and the best people want to work in that environment.

Yes, they want help, support and guidance and that’s why on my board we have non-execs to help me. We all need help.

Manufacturers sometimes state a preference when selecting groups ie strong in regions, local heroes in their territory. How is your expansion going to maintain this?

Through the franchise director structure we have and we use common processes and systems.

So, for example, on day one of the Mercedes acquisition we had Kerridge running there, day two our inhouse KPI system Phoenix and within the first month our sales process in place, then scale purchasing economies.

And within 72 hours of purchasing a business we tell the new staff what is coming.

Twenty Marshall people will be there to welcome them and we have a management dinner too to overcome the unsettling feeling of being taken over.

I visited each of the Mercedes’ businesses, met every member of staff, told them their job was safe and gave them my number.

Then we introduce them to our vision and our values, drilling each into them ensuring they realise we will not accept own goals – mistakes that should have been avoided: “my car wasn’t clean when it was handed over”, “the car didn’t have any fuel in it”, “the invoice wasn’t explained”.

What’s your percentage return on sales?

For the group it is 1.6%. We’re probably ahead of where we should be as a group of this size.

I compare Marshall with every plc and most are at the 1.0 – 1.2% mark. Franchise mix is absolutely key.

If you have a prestige dominant portfolio you will make more RoS, such as Inchcape that has a good portfolio and territories. I would like us to get to 2%.

What will bring you to 2%?

A constant concentration on our strategy and values: optimise the performance of existing businesses and growth.

We still have a number of businesses that are under-performing, mostly down to people and structural issues.

So, in one instance we have a dealership with a rent of £225,000.

The franchise, territory and location are all fine, but the site is too big for what the franchise there should be holding. We will never make sufficient return on it. The issue is we’ve simply over-invested in that location.

Our PAG centre in Peterborough is a palace that we invested millions in. Within that the Volvo showroom, while it is a great franchise, we have over-invested in for the territory.

I can’t have fixed everything in the two years I’ve been here. We achieved a £70m turnaround in profits in 2009 year-on-year and will have a very good 2010 and are on track to have the most profitable year in our 100 year history.

It will take five years to get the business to where I want it to be, so 2013 is when I would like to achieve our 2% RoS.

What’s your staff turnover?

Annually it’s 18.12%. I think the industry average is 25-30%. I wouldn’t want it less than 10%, but would like to bring it to about 15%.

People leave because of poor management. Where we see sites returning poor scores in our staff survey it’s largely down to weak management and where you have that you have poor CSI, poor operational and financial performance.

What practical things do you do differently to make Marshalls a fantastic place to work?

We do a lot of stuff around people recognition – although we could do more. So, there are trips to Barcelona, Moscow and Marrakesh for the best staff.

Our pay plans are linked to individual and team performance and strike a balance between the two.

All schemes are linked to customer service to the point where if a manager is budgeted to make £100k, he brings in £1m and yet his customer service scores are poor he can earn almost nothing in bonuses because I would rather have less money, but great CSI.

We’ve got to get slicker at succession planning and talent management, however.

What are the key performance improvement projects you’re working on now?

We’re working on continually improving Phoenix. Recently we’ve improved it to allow KPI tracking for individual sites and trends to give managers a better understanding what the levers are.

Most management accounts have the month, the budget, the variance and the year to date.

But you can’t see trends and what the drivers are. We want the management to be able to investigate these.

The people agenda is massive. We now have six HR business partners, up from one two years ago, which demonstrates how much commitment we have made to attracting and retaining the right people.

Looking at operational excellence, aftersales is a focus. We made a massive investment in the divisional aftersales resource costing us £500,000 in headcount for an additional six people.

We invested in electronic vehicle health checks about a year ago and we’re driving for constant performance – is every technician carrying out EVHC properly, are we upselling properly.

The new aftersales resource will drill down into the processes to identify weaknesses and driving as many sold hours as possible. As a result our aftersales absorption is in the mid-80s when the industry average is 80%.