An article in the ‘Australian Financial Review’ magazine published yesterday, September 30, said to be based on interviews with former managers within Toll Group, describes a strategically incoherent company with chaotic operations bought by a Japanese institution with no idea how to control its purchase.
Toll Group was created through a string of acquisitions by Paul Little and Peter Rowsthorn over several decades and the structure of the company reflected this. Composed of numerous different businesses whose relationship to each other was often tenuous, the company held together under the founder’s energy and charisma.
According to the Australian Financial Review report, with the final departure of Mr Little the company rapidly broke-down into semi-autonomous fiefs that were difficult for the central management to control. Indeed, the article suggests that the company had increasingly little control over the day-to-day operations of its different divisions, with bad operational practice in areas such a procurement and sales increasingly common. As is so often the case, such problems were the result of weak management control systems. However, there were wider problems as many of Toll Group’s constituent businesses were found to be barely competitive in their markets and were incapable of responding to change.
Japan Post seemed to have been unaware of these problems when it bought Toll Group in 2015. According the report, Toll Group was on the brink of insolvency when the Japanese giant offered to buy the company for AUS$6.5bn. However, it also appears that Japan Post’s purchase was driven by a sense of urgency to diversify its own business, not least due to pressure from the Japanese government. Looking in envy at DP-DHL, Japan Post thought of Toll Group as a platform to enter global logistics and desperately grabbed at the Australian company without sufficient forethought or research.
The account in the ‘Australian Financial Review’ is somewhat melodramatic, with accounts of criminal activity and poor safety standards. In truth, any one who has worked in the logistics sector will know that such behaviour is not that uncommon. It appears as a result of weak management. The real problem at Toll was the inadequacy of senior management structures and the consequent inadequacy of strategy.
The lesson from Japan Post’s experience is equally strong. The institution made a decision of immense importance under pressure and without fully understanding the nature of its acquisition. Even after Japan Post had bought Toll it seems to have little control over its management.
What the future of Toll Group will be is unclear. It is widely assumed that the Group will be broken-up and sold in its entirety. However, its present losses should not obscure the fact that much of Toll Group has a useful presence in markets with good growth prospects and led by the right managers could expect reasonable long-term prospects.
Source: Transport Intelligence, September 29, 2020
Author: Thomas Cullen