The Game of Privatisation

The Medibank Private float. It’s like both a grand final and Melbourne Cup all rolled into one for finance and investing geeks. Some 800,000 mum-and-dad investors have pre-registered interest along with some of the largest fund managers in the country—much more than a passing interest in the largest public float in a good while.

There’s been a good bit of spirited debate over whether the opening share price will be good/poor value, but after the dust settles and the short-term trader sharks have moved on, longer-term value investors will be resting on the business being a profitable, growing entity over time.

Intensive care for Medibank

This isn’t a patient on death’s door by any stretch of the imagination.

The biggest in their market. Tick.

Great cash flow from day one. Tick.

Brand awareness. Tick.

But you can bet the management team at Medibank will have the crash cart at the ready in the first couple of years. Much of the commentary around Medibank’s value lies in the business’s ability to shift from government mindset to private enterprise business principles. Intensive focus on slashing costs, finding efficiencies and applying a heightened rigour to their suppliers (fancy speak for screwing them over) will certainly help their bottom line and should see some shorter-term returns to shareholders through an improving balance sheet.

There’s plenty of historical evidence to show this can be done very well; CBA, Aurizon, CSL, IAG and a host of others have competed well—some exceptionally well—once their DNA changed from government to private.

But all this is still relatively short-term thinking in a rapidly shifting market. Put it this way. While you’d be happy to have holdings in all of the above when they floated, you’d also be a little miffed if your investing chart was weighed down with, say, Qantas or the Telstra 2 train wreck. Get me the paddles! Stat!

The change worth investing in

There’s little doubt Medibank CEO George Savvides should already be sharpening the scythe for the coming years—there’ll be hell to pay from investors if he doesn’t streamline the business—but there’s a bigger question for long-term investors. Can Medibank shift its culture? 

Cutting staff and downsizing people and processes can have either a positive or a negative effect on workplace culture. And while Savvides may placate shareholders by slashing and burning, he may fire up his workforce of nearly 5000 employees for all the wrong reasons. Even though Medibank will hold number one position in its market on the first day it becomes a listed company, its future will rest in how engaged its workforce is in helping it become the ‘new Medibank’. This transition is so much more than just numbers.

The cultural focus

A cursory look at Medibank’s annual reports suggests all is well with the people at Medibank Private (though I’m yet to read an annual report that says ‘Bob is being a pain in the backside…and don’t get me started on Nancy in payroll’). They’re words on paper, and they all read well. Medibank’s potential investors, though, would love to scratch a bit deeper than the surface.

Personally, I’d love a cup of coffee with Kylie Bishop, EGM for People and Culture. Largely speaking, that’s who I’d be deriving confidence from one way or another. CEO Savvides and Chair Elizabeth Alexander obviously carry full responsibility for strategic direction of the company, but Bishop is a key player in this cultural game of chess. Bishop. Chess. #seewhatididthere

Specifically, I’d be looking for three key areas in her cultural change effort.

1.     Narrative is key

The workforce in Medibank Private has a story. They’ll need a new one. The internal communications strategy has to throw off the shackles of boring government/corporate speak to bring Medibank’s people into a marketplace where results matter. The issue is no matter how much data you throw at your people about why we rationally need to change, human beings just don’t connect with data like they do stories. Stories underpin all revolutions, beliefs and cultures.

2. Clarify the key behaviours needed

The organisation’s recent annual report suggests above 90% of the workforce support the values. Sorry, but what a waste of ink on paper! Of course the majority are going to support values like ‘integrity’, ‘respect’ and ‘accountability’. Imagine someone saying ‘no, I don’t like integrity’. Puh-leese. The true measure is how we decode these values into observable behaviours. People will trust what they see, and if we’re to effect cultural change, the Medibank crew will need to see this (in all levels of the organisation) in their behaviours.

3.     Visualise progress

While the way people behave will have immediate visual impact if the culture is shifting, artefacts and designing progress are key. Dr Jason Fox, author of ‘The Game Changer’, suggests one of our most powerful motivators is a sense of progress, and most organisations undergoing cultural change are typically pretty awful at this. Y’see, data at the end of the reporting period is not an ideal way to allow someone to see how their efforts are contributing to the overall game. It’s lazy management. Invest in how you design the game of work to help people stay motivated beyond token awards and reports.

So, personally, I’m still not committed to the Medibank game just yet. But I’m cheering for them on behalf of the 5000-odd employees facing an uncertain, possibly exciting, probably scary time. I’d suggest your Executive General Manager of People and Culture is your kingpin. Rally behind her (and her team) and trust the strategy is as daring and innovative. Long-term investors will be hoping she is grandmaster-esque as she manoeuvres around the board (and boardroom). Your move, Ms Bishop; there’s hundreds of thousands of spectators watching with keen interest. I wish you well…what a game to play!