4 Tips on Improving Performance

Improving business performance takes strong leadership and immense effort, but neither will have impact if the company’s customers, staff and other stakeholders don’t believe in its future. A good leader will be able to create buy-in from everyone involved and use it to drive change.

When looking to bolster the performance of a company or division, Matthew Tait, Business Restructuring Partner at BDO, emphasises the value of communicating a clear strategy to all involved.

“One risk to recognise about businesses in distress is management’s tendency to lock the doors to the bunker. Despite the evidence, they can believe that no one sees what’s going wrong. Nothing could be further from the truth. Staff, customers, competitors, will know what is happening,” he says.

“A good turnaround plan needs to be agreed by the stakeholders as opposed to being imposed on them. You must understand what you need from each stakeholder – it could be time, funding, or a change in work practices. You also need to understand what the turnaround offers them; if it doesn’t give anything to key stakeholders then the turnaround won’t work.”

Change can be worrying for anyone, but the greatest fear comes from not being informed about where it will lead. As Joe Berwick, Business Development Manager at Criticaleye, highlights: “A clearly communicated strategy is the cornerstone of any successful change programme, and it is the leader’s responsibility to ensure it’s well-received by all stakeholders.”

We spoke to a range of business leaders, each of which have been through a restructuring, to find out how they managed their stakeholders. Here’s what they had to say:

  1. Reassure Your Customers 

When Vanda Murray, Criticaleye Board Mentor and Non-executive Director at Bunzl, led the turnaround of conservatory provider, Ultraframe, where she was UK MD and Group Marketing Director, she knew all key stakeholders had to be involved. “You must engage with them on a meaningful level about what they need, what their issues are and how you will work together,” she says. “The core of the turnaround story should always be the same and it should be based on reality, but you will clearly want different messages for different stakeholder groups.”

One move Vanda made early on in Ultraframe’s turnaround was to reassure customers that the company was reacting positively to market changes.

“The competitor had copied the product and halved the price, the product wasn’t quite as good but it was good enough. Our customers were leaving us in droves; it was a critical situation and action needed to be taken very quickly,”Vanda explains.

“I spent a week on the road speaking with all of the top customers to really understand what was happening. I spoke to most of the senior people in the company and then modelled how it could survive. We made it very clear what we hoped the timeline would be and we told them about our milestones to show we were on track. That was really important for them.”

  1. Build the Right Executive Team

When Andrew Richards took over as Managing Director of Britvic’s newly acquired Irish operations, recession had just hit the country. “We saw a procession of poor numbers, poor productivity and a poor marketplace performance across almost the entire spectrum. The business was failing,” he explains.

Andrew realised that he needed a team fit to take the business through Ireland’s recession; that meant very honest conversations with his executives, culminating in five of the seven leaving the business.

“In my first 90 days, one of my goals was to assess the nature of the loadbearing team,” says Andrew. “When I arrived, the Britvic Group Chief Executive had confidence in the Britvic Ireland executive team we’d inherited, but as we spent time pressure-testing the plan it became apparent that a lot of people weren’t capable of making the journey.

“The first person to exit the executive team, which was within three or four months, was the HRD. He was very well intending but not capable of managing a progressive HR agenda, and he recognised that.”

This process needs to be maintained throughout the change programme – while it’s common to make initial changes to the executive team, continued assessment will ensure the team still carries the skills it needs as the business evolves. “Those who initially feel they’re engaged and involved can begin to lose the energy to continue,” Andrew explains.

  1. Restore Staff Morale 

Low morale will take its toll on any business in decline; it can blight productivity, stain your company culture and lead your best staff towards the door. While emotions are bound to run high, there are ways to improve things – the most important of which are openness and clarity.

“People know when you are being straightforward with them. I talked to the staff in small groups of their own teams, so they felt comfortable enough to ask questions. I was as honest as I could be with them about the changes that would happen,” explains Vanda.

The greatest fear for many employees will be redundancy, so it is important to ensure it is handled properly. “We allowed people to leave with dignity and their heads held high, as much for them as the people left behind,” says Vanda.

It’s also important to understand how cultures vary across regional and international operations. Bryan Marcus, now Chairman of JBR Capital, recalled his experiences while being CEO of Volkswagen’s Latin American financial services division, VWFS.

Tasked with the turnaround of loss-making businesses, Bryan says: “I was a Brit leading a turnaround of German-owned banks in Brazil and Mexico, so the cultural, regulatory and operational challenges were numerous. From my experience, the critical success factors were openness with shareholders, consistency with local stakeholders and to ‘walk the talk’ with the local management teams.

  1. Communicate With the Board

Having led the turnaround of an international division, Bryan is familiar with the complexities of dealing with a distant board, as he explains: “Having worked in a local corporate, one of the challenges I faced was being part of a global corporation with global standards. You need to manage the pressure from headquarters and meet shareholder expectations while creating the time and space for the transformation to take root locally,” he explained.

Andrew faced similar issues at Britvic Ireland and found face-to-face communication was the remedy. “Some of my group executives and board colleagues had less sympathy or understanding of the situation I was in,” he explained.

“One of the ways I tried to work through that was to get the Chairman and a couple of non-execs over to explain what we were grappling with, that’s how I tried to manage my stakeholders back at the group level. Once I’d got them on the ground to see the situation first hand, they started to understand the challenges better.”

Whether you meet your stakeholders in person or build a rapport from afar, it’s imperative that you earn their confidence. As Matthew explains: “You need to have a trusted starting point otherwise people will hear the same messages reiterated but never believe it.”

And as much as you may want it, widespread improvements won’t happen without the belief of others.

Read more on managing your staff through a turnaround and rebuilding a business.

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Getting NEDs Up-to-Speed

“As a new non-executive director there are so many things that you need to be involved with from day one; you need to hit the ground running. You should make sure you get up-to-speed as quickly as you can,” says Geraint Anderson, Non-executive Director at Premier Farnell.

“You’re not expected to know everything but you have to contribute. Every company has a different rhythm, pulse and way of communicating. You need to understand that to add value. Each chairman will run things differently as well.”

According to the UK Governance Code, the chair of listed companies should ensure that all directors receive an induction that is ‘full, formal and tailored’ when joining a board. Beyond that, there is a lack of practical advice on how to achieve this and room for interpretation.

Criticaleye spoke to non-executive directors and advisors in order to answer some of the questions about the NED induction process and reveal others’ experiences.

1) Why is it important to get the induction process right? 

Geraint Anderson, who is also a NED at manufacturing company Fenner, joined the board of electronic products and repair services Premier Farnell in November last year and is currently going through an induction process, which he says has been comprehensive.

“The induction process is very important. Going into that first board meeting with some sort of visibility of the business apart from what you can read, getting out and meeting as many of the team as possible, is hugely important – it gives you a much better perspective,” he explains.

“At the first board meeting I felt a lot more comfortable knowing a lot about the business, rather than just reading board papers – it helps to build context and enables you to contribute more.”

2) Which key colleagues should you build relationships with?  

In order to create the right boardroom dynamic, it’s vital to build relationships in those first few months. Julia Fearn, Director at executive search firm Warren Partners, says: “A NED will want to make an impact quickly, but they need to establish key relationships and earn respect before they jump in with both feet.”

Alison Carnwath, Chairman at FTSE 100 commercial property company Land Securities, notes some of the key relationships that need to be developed and the information that should be shared: “The company secretary should kick off proceedings by providing the legal framework. HR should provide the organisational and talent outline and, for those members of the remuneration committee, how these schemes work.

“The CFO should provide management accounts, medium-term plans and, for audit committee members, the key issues relating to the annual reporting cycles.”

A NED’s relationship with the chairman and CEO is fundamental. Looking at the role of each, Alison comments: “The chairman should provide details of succession plans for board members and executives, go through board effectiveness reviews and shareholder feedback, as well as critical strategic matters. They should also explain the workings of the board and set a warm, friendly, open tone.

“Then the chief executive should spend time answering questions and outline how they expect NEDs to contribute, both in and out of the boardroom.”

Geraint adds that it’s also important to approach to a variety of individuals: “Don’t just speak to the CEO, CFO and fellow board members. Spend time in the field talking to a wider group of executives.

“I enjoyed getting a different feel for the business from various individuals and now I understand how they can be of more benefit to board meetings. It was great to show you are a real person, with real experience and spend meaningful time with them.”

Tom Beedham, Director of Programme Management at Criticaleye, comments: “While it should be controlled by the chairman, all the other key non-execs and executives should be involved and take part.

“If you’re going to be an effective non-executive director you need to have a deep understanding of the business and the personalities within it, so you can ask the best questions, provide the best input and be trusted as a valued member of the team.”

3) How long should it last?

The larger and more complex the company, the more detailed and longer the induction will be. Tom notes:  “If the company is spread wide geographically, I would recommend that non-execs visit the key regions; that might take time and effort. The NED will have to get up-to-speed quickly, particularly if the company is heavily regulated, such as in financial services and the NED doesn’t come from that sector.”

Geraint says: “It could take six months or 12 months but I don’t think you should put a firm time on it. It will take a while to go through that process and no one should say that after a handful of meetings you’re fully inducted.

“My induction process is still ongoing at Premier Farnell. It will take a few more months – I have more people to meet and need to build a better picture. The first wave was helpful but I expect more to come over time.”

Alison echoes this point: “Businesses do this in different ways – some have sessions that are not board agenda items, such as training after meetings. The process should be relatively formal and the chairman should keep an eye on how it is going by checking in with the NED.”

4) What is the NED’s responsibility during the induction process? 

It’s as much up to the NED to help steer the induction process as it is the organisation to deliver it, according to Julia.

“NEDs should ensure that an appropriate induction programme is in place and need to be clear on what a good process looks like. They should build an external network in order to benchmark their induction against other organisations,” she comments.

Geraint adds: “It’s the NED’s responsibility to let the chairman know if there is anything they are uncomfortable with. If there are areas you want to see or people you want to meet, you need to make that happen.”

By Dawn Murden, Editor, Advisory

Do you have a view on this subject? If you have an opinion that you’d like to share, please email Dawn at: dawn@criticaleye.com

Paul Brennan, Chairman of cloud management software solution company OnApp, will share insights about his career at Criticaleye’s next Aspiring NED Dinner

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Getting Fit for the Board

Plaudits garnered during an executive career are no guarantee of a breezy transition into a non-executive director role. This can come as a surprise to both an aspiring NED and one growing their portfolio. Often, they realise that competition is fierce and the criteria for candidates is only getting tougher.

Tom Taylor, Chairman of the Consumer Council for Water in Wales and former Chief Executive of the Agriculture and Horticulture Development Board, recalls that he applied for a NED role that had attracted 138 applicants: “It’s a tough world, so start early is my advice. Companies are not waiting for you to be a NED. Life’s not like that.”

A shift is occurring in the market for non-execs, as Andrew Tallents, Director at Warren Partners, notes: “It’s starting to change. A number of boards we’re speaking to now are saying: ‘I want a contemporary non-exec director.’ Particularly with digital experience.”

As such, planning needs to begin while still in an executive role. Ruth Cairnie, Criticaleye Board Mentor and NED at Keller Group, ABF and Rolls-Royce, says that in the early stages of seeking a NED position, she took the opportunity to ask numerous contacts for feedback on her CV.

She realised that charting her progression through a set of impressive roles was not enough. “I can write a beautifully crafted list of what I’m good at, but the trick is in telling the story − helping people understand how your experience is relevant and what you can really bring to the table,” she explains.

Bill Payne started to think about how to make the move into a NED role when he turned 50 and was General Manager of Customer Experiences and Industries at IBM. “I made an effort to build my network and my personal brand,” he recalls.

“I wrote articles and became interested in lots of different things, including academia, so I did teaching. I also became involved in venture capital, investing in [companies] and doing pro-bono work for VC-backed businesses.”

Bill, who is now a Non-executive Director at the AIM-listed technology and intellectual property services company Tekcapital, insists there has to be a degree of experimentation and discomfort when first transitioning to a NED role. “You need to create the time and space to do things that are different to your normal daily life,” he says.

Balancing act

Some companies are open to the idea of an executive taking a NED role, but this must be carefully scoped out and there has to be buy-in from the top. Ruth, who was Executive Vice President of Strategy & Planning at Royal Dutch Shell when she landed her role at Keller, says that “it was important to know exactly how the final decision would be made”.

She was grateful to have had a line manager with board experience, which meant he understood the responsibility and supported her. “I could say: ‘I’m sorry I can’t do this internal meeting, it clashes with a board meeting,’ and there was never any push-back or further discussion. If you have a line manager who doesn’t understand the commitment, it could be very tricky,” she warns.

Andrew notes that it’s also essential to understand the board dynamics when applying for NED vacancies as an executive. “You need to convince the board that you’re actually going to be a non-executive as opposed to an executive, which you obviously are in your day job. And that you’ve got the time to commit,” he says.

It’s all too easy to take that first offer of a NED role as soon as it’s made. Charlie Wagstaff, Managing Director of Executive Membership at Criticaleye, says: “Particularly if you’re a first-time NED, it’s flattering when you get the call that says: ‘Come and join this board.’ But do your due diligence and work out if it’s actually the right thing for you.

“Boards work brilliantly when you’ve got the appropriate level of challenge and support. You’ve got to make sure that you can work with the board’s chemistry and tone, in particular that of the chairman, especially if you’re simultaneously keeping an executive role going.”

Don’t be afraid to ask questions about company performance, risk management and the culture within the boardroom. Of course, there’ll be conversations with the chairman and other directors, but also speak to advisors to get the fullest picture possible.

It takes patience and planning to make the transition to the boardroom. Relying on past glories just won’t cut it anymore.

Do you have a view on this subject? If you have an opinion you’d like to share, please email Mary-Anne at: maryanneb@criticaleye.net

Jane Furniss Criticaleye Board Mentor and NED on the board of the National Crime Agency will discuss how she took a portfolio NED career at Criticaleye’s next Aspiring NED dinner.
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What NEDs Bring to the Table

Would you accept a role as a non-executive director that required you to work for 120 to 140 days a year? Thought not. And yet one of the UK’s major financial institutions is apparently scouring CVs and conducting interviews in the hope that somebody will make that kind of commitment. It’s another example of the ever-increasing demands put on independent directors today.

Those aspiring to a seat on the board need to be careful what they wish for. While 140 days a year is obviously extreme, the time NEDs are required to commit is generally creeping up from the standard of 18 to 25 days a year, as is the depth of insight they’re expected to bring into the business.

This is testing the notion of what it means to be independent. For David Dumeresque, Partner at executive search firm Tyzack Partners, there is a real danger that, with all the talk of providing digital expertise, sharing global know-how and contributing to boardroom debate by drawing on other areas of operational experience, the real purpose of the position is being forgotten.

“[People are] beginning to confuse the role of the non-executive and conflate it with that of an advisor,” he explains. “The non-exec is focused on governance: it’s about holding the board to account, not second-guessing them or being appointed because of specific knowledge gained in an executive environment…

“One of the things that I hear quite regularly from chief execs is that non-execs are interfering in their work.”

There needs to be balance. Gerry Brown, Criticaleye Board Mentor and Chairman of private equity firm Novaquest Capital Management, argues that an independent director can only properly fulfil their duties by being strategic. This means actively contributing to the debate on questions of operational excellence, especially in areas such as risk management.

Risk is an area where independent directors are expected to check that the right procedures and policies are in place, but for Gerry this doesn’t go far enough. He recalls when he sat on the board of a global construction business and it was felt safety improvements needed to be made.

“We decided we would have a health and safety sub-committee and it would be led by one of the board members who was very experienced,” he says. “We then developed a strategy and policy about strengthening the whole area of risk prevention and awareness throughout our subsidiaries around the world.”

Rather than solely looking at compliance and adopting a box-ticking approach, the NEDs went further than was necessary, pushing the executives to improve the business. Ultimately, this is what executives should seek from their independent directors.

Be committed

Given the onerous liabilities and expectations, it’s more important than ever for those considering the transition to NED to understand the demands of the job. Ruth Cairnie, Criticaleye Board Mentor and Non-executive Director of Keller Group, ABF and Rolls-Royce, says: “You really need to think through why you want to do it and what you want to get out of it. In my experience, unless you’re clear about this then you’re probably not going to succeed…

“Linked to that, it’s important to try and understand what boards do. So, what is the role of a NED? There are lots of things you can do to find this out… I’ve found it helpful to really understand what I could contribute.”

Ian Stuart, Chairman of manufacturing concern Aspen Pumps, says: “Go and talk to some people who are NEDs or [those] who want to employ NEDs. So, for instance, I’m in private equity and I think it would be critical to talk to people who are either existing NEDs in private equity or private equity sponsors…

“You should understand what is truly involved. You also need to know what you’re bringing to it; what is your prime selling point?”

If an opportunity does arise, don’t be reticent about undertaking some thorough due diligence. “Talk to the brokers, nomads, accountants and investment bankers and as many other members of the board as you can,” says David. “I would consider it a massive red flag if you’re not allowed to.”

Vanda Murray, Criticaleye Board Mentor and Senior Independent Director at manufacturing company Fenner, comments: “You need to believe you can make a valuable contribution to that company. Be sure that it’s the right board for you, not just in terms of the mix of skills around the board table, but in terms of culture…

“If the board have done their job properly, they’ll know what skills they’re looking for and you can have a conversation around those skills. Then… you will have to assess to what degree you’re the right fit for that board culturally. Does this group of people share the values that I have? Will we be able to work together as a team?”

Increasingly, it makes sense to take on a not-for-profit or charity role before looking to step up to a public company or private equity board position. It provides a platform to gain experience about how a board is run, governance procedures and the different ways to express a point of view as a non-executive in the boardroom.

“There are all kinds of organisations with good corporate governance regimes that can teach you the basics of being a NED,” says Vanda. “That will make it so much easier when moving into a large private, private equity-backed or a quoted company board.”

It underlines the need to be fully prepared so that you, as a representative of shareholders, know what you should be doing. “The reality is that you are there as an influencer,” says Ruth. “You don’t have direct authority, and you shouldn’t be trying to tell the executives what to do. You’re there to provide the input, the stimulus and the challenge to help them formulate their views.

“Things do happen more slowly, but then the satisfaction comes over a period of time, when you see the executives really starting to embrace some of… your ideas.”

The competition for independent director roles remains fierce. To succeed, you will need to educate yourself, expand your network and then think carefully about what organisation will be right for you, especially if you’re being asked to work for a third of the year.

I hope to see you soon

Matthew

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Looking Back on 2014

Comm update_31 DecemberWhen reflecting on some of the central themes to be discussed by Criticaleye Members over the past year, be it digital, the changing consumer, an ageing population, innovation or culture change, it’s abundantly clear that successful senior executive teams understand the need to be collaborative, curious and open to new ideas and insights. How else can they be expected to navigate complex and fast-changing global markets?

Steven Cooper, CEO of Personal Banking at Barclays, said: “The environment that leaders need to create, I think, is changing. They need to be much more inclusive, more visible and they need to be engaging with a broader spectrum of colleagues to create partnerships.”

It’s a point echoed by Andy Clarke, CEO of retail concern Asda: “If you turn the clock back only ten years, the pervasive style of communication for leaders was very much tell-and-do. It’s a dying style of leadership today; you have to operate with a level of openness to challenge that you wouldn’t necessarily have seen a decade ago.”

A CEO has to look to build a team that can thrive in a business environment where strategy is far more dynamic and agile. “The most common thing to do in the world of strategy in business these days is to complain about the V.U.C.A. world we live in – so everything is volatile, uncertain, complex and ambiguous – and then say that because of this it’s impossible to do strategy,” said Roger Martin, Criticaleye Thought Leader and Academic Director of the Martin Prosperity Institute at Rotman School of Management.

“But if an organisation doesn’t understand it has to make choices about where to play and how to win, it might as well not do strategy. That’s why more than eighty per cent of all strategic plans are pretty much useless.”

A numbers game 

The strategic implications of a multigenerational workforce is certainly an area that requires careful thought. Mark Purdy, Managing Director (Economic Research) and Chief Economist at Accenture, commented: “We’ve recognised that there’s a major trend around ageing and increasingly organisations are thinking about this, but maybe what we haven’t recognised is that we have a lot of millennials in the workforce too…

“[T]he successful organisations are going to be defined by their ability to bridge the gap between the ages and capitalise on the inherent strengths of both young and old.”

It’s leading to new ideas on how technology can reshape working practices, from home-working to hot-desking and job-sharing. Vanda Murray, Criticaleye Board Mentor and Senior Independent Director at manufacturing company Fenner, said: “Businesses need to invest in IT to enable flexible working, which may be from home or any remote location, as it is now expected that we are all ‘connected’ wherever we are.

“There are huge benefits to businesses that embrace more flexible working patterns and practices. It helps recruitment and retention – in particular those workers with family commitments – be it younger children or elderly parents. Young mothers often find they cannot balance work and home life without this flexibility for example.”

The way digital continues to change organisations has been another area of debate and discussion for executives. Bal Samra, BBC Commercial Director and Managing Director of BBC Television: “Digital disruption is inevitable so business leaders need to recognise it, collaborate and foster a culture of learning within the organisation so that more is understood with every new project.”

One of the biggest risks for companies is to do nothing with digital. If you’re not constantly testing, learning and evolving, you will be left behind. Simon Johnson, Group Managing Director for UK & International at publisher HarperCollins, said: “Innovative digital leaders are those who are completely obsessed with inventing things and with customer experience… They also need to create the right culture internally, encouraging the people within the business to think more like a start-up.

“This might mean starting-up a skunkworks for innovation, for example… or setting up new business units in direct competition with legacy ones.”

The question of how organisations can excel at innovation remains fiercely debated, especially as new business models emerge. Neil Stephens, Managing Director for the UK and Ireland at food company Nestlé Professional, comments: “The narrative I always put around the need for breakthrough innovation is that the customer is constantly changing and they are always eager to find new ways to enrich their lives…

“[That’s why] we are trying to bring our customers into the innovation loop as early as possible so that, by the time we go to market, we already have customers who are attuned to the opportunities and who have been part of the process from the beginning.”

George Yip, Criticaleye Thought Leader and Professor of Management at China Europe International Business School, observed that Western companies need to learn how to innovate faster and take more risks, whereas Chinese organisations need to learn how to innovate in a more formal way. “Being pragmatic about the kind of innovation companies do is the key to achieving profitability in the digital age,” he said.

If a business has any hope of performing to the highest level, it needs the best people. Creating a culture that attracts and retains those individuals and allows them to flourish is perhaps one of the biggest tests confronting senior executive teams.

Rudi Kindts, Non-executive Director for technical recruiter Matchtech and former Group HR Director for British American Tobacco, said: “We don’t know what the future will look like, so I think increasingly the skills required to be a successful leader will be around agility, curiosity, being able to work in teams and having an acute awareness of the environment around them and themselves.

“What is for certain is that leaders need to build organisations that are able to adapt to the future [and be flexible].”

For CEOs, it’s a case of asking more of the Human Resources Director. Steve Varley, Chairman and Managing Partner for UK&I at EY, explained: “A key benefit of the HR Director is to help leaders understand the link between the inputs and outputs of an organisation.

“Effective ones do two things: they understand the business model – how the business makes money – and, secondly, they work hard to build relationships with the CEO and the board.”

Doug Baillie, Chief HR Officer for consumer goods company Unilever, said: “When I came into this role three years ago, the first thing I did was to get key senior business leaders into a room together and ask them what they expect from HR.

“From this, the choice that came to me was clear: do we, as HRDs, want to be the ones laying the road for the journey ahead or are we content to just fill in the cracks as someone else lays out the path? Actually, I don’t differentiate between a HR Director and a business leader.”

The bottom line is that CEOs need to be great communicators and collaborative if they’re to be good at leading change. As Glen Moreno, Chairman of publishing and education company Pearson, said: “It is extremely rare today for a new leader to come into an organisation with a mandate for business-as-usual. That wasn’t always true. There were times when companies had locked market share and there wasn’t much of a technology challenge, nor was it global.

“It’s all changed now and there are virtually no maintenance jobs anymore because companies are either in trouble when a new CEO comes in, or they clearly need to rethink their position on what they’re already doing.”

I hope to see you soon

Matthew

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Why the Internet of Things Means Business

Comm update_17 December3If the Internet of Things (IoT) achieves the scale many experts are predicting, the changes will be far reaching. From how energy is used, to simply going to the fridge for a snack, the widespread adoption of sensors to connect machines so they can, in effect, ‘talk’ to one another has the potential to transform the delivery and capability of products and services.

It’s certainly not an exaggeration to say the IoT is already happening and is only set to get bigger. In 2013, approximately 10 billion sensors were shipped worldwide, and this year that figure will be just over 24 billion. By 2017, it’s estimated that nearly half of all IP traffic will be from non-PC devices (2013: 33 per cent).

“It will have a transformational effect over the next five years,” says Matthew Smith, Global Head of Market Development for the Internet of Things at Cisco Systems. “What we’ll see in the first phase will be a lot of process improvements – it’ll be processes that already exist that can be combined.

“So if you have a supply chain, you’ll be able to combine that with your e-commerce strategy and your fleet delivery and transport to make sure everything is ‘talking’ to each other at the same time. You’ll receive real-time updates and that really allows you to conduct the scenario planning that is required.”

It will lead to increased volumes of data. Geraint Anderson, Non-executive Director at component supplier Volex, says: “The competitive advantage will lie in how to make sense of all this information and use it to inform decision-making. It’s about understanding key trends and issues by sifting through the volume of information that is available.”

Paul Brennan, Chairman of cloud storage provider OnApp, says: “The Internet of Things is a huge opportunity for data mining. If you’re running a company that is, for example, going to be looking after and maintaining office complexes, student accommodation or hospitals, this will provide the ability to analyse the data within different systems.

“So if you’re looking at the optimal way to heat apartments in cold countries for instance, you can start to do things very intelligently in order to manage the flow of energy, as opposed to a monolithic approach which is to turn the temperature up for the entire building.”

As a result, significant growth can be expected in device manufacturing. “There will be software companies which are writing the applications and the programmatics to help manage and optimise the Internet of Things,” says Paul. “It will then be people looking at the way in which they can integrate [the various elements] across the IoT platform.”

Get connected

There is a lot of excitement and speculation about the impact the IoT can have on healthcare. Matthew says: “In the longer term, there will be things happening we haven’t thought of yet. So, if you have a [fitness tracker wristband like] Fitbit, it could be connected to your refrigerator, which could be connected to your supermarket [order] and your scales, so you know what you’re eating and [why] you weigh [what you do].

“From there, you can gauge how much exercise you’re taking and [this information] can be [seen by your] doctor, who can then provide real-time healthcare advice rather than sick-care. All of this can be connected to the insurance company you use, which can start to provide dynamic pricing.”

This new eco-system, or the ‘sharing economy’ as it has been described, will lead to the creation of different business models. However, as every part of our lives becomes tracked and open to scrutiny, there are understandably concerns about privacy and how secure this information actually is.

Steve Muylle, Criticaleye Thought Leader and Professor & Partner at Vlerick Business School, says: “There are quite a few risks, such as security. If you look at health, what if somebody hacked your medical records and changed your drug prescription?

“It goes beyond that. If you are in a hospital and the Internet of Things is used to treat you, what if that treatment was changed automatically by hackers?”

Transparency over data policies will be increasingly important for organisations and, ultimately, they will have to invest more on protecting customer information. Heather Savory, Independent Chair of the Open Data User Group, which provides advice to the UK Government’s Data Strategy Board, comments that “cyber security is going to be absolutely paramount because since you’ve got automatic control of things, you need to be sure somebody can’t tamper with automated processes”.

That said, the positives brought about by greater interconnectivity should be kept in mind. “There are real issues around how people fear personalisation,” says Heather. “But the Internet of Things isn’t about Big Brother, it’s just about using data more effectively for the benefit of the economy.”

Fact or science fiction?

As ever, there is a lot of PR and marketing about the IoT and some of the expectations around what can be achieved may prove to be outlandish or downright silly.

Ultimately, the growth of the IoT will depend on customer demand, reliability and the price points being right, as was seen with Web 2.0 and mobile.

Matthew of Cisco doesn’t doubt for a second that once critical mass is gained, the impact of the IoT will be game-changing. “We’re looking at this over the next ten years being a $19 trillion opportunity… In fact, it will be five times as a big as the internet.”

While difficulties can be expected, from technical issues around the compatibility of devices to regulatory scrutiny, there is a strong sense that the IoT is something that businesses need to be paying close attention to.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Coming Back from the Brink

Comm update_3 DecemberCool heads are required to reverse the fortunes of a business that has fallen on hard times. The priority for anybody coming in will be to stabilise the company by examining the balance sheet and communicating with all of the relevant stakeholders. After that, it’s a case of implementing a plan for recovery which has both internal and external buy-in.

“You’re focusing on the daily control of cash-flow [and engaging] with the various groups of stakeholders [to] understand what their positions are,” says Roger Bayly, Turnaround Partner at professional services firm KPMG.

The board might be unaware or simply in denial about the root causes of the problems, so it’s prudent to go deeper into the business for the answers. Stuart Laird, Group COO of construction company United Living Group, who formerly led the turnaround of support services giant Jarvis, says: “People might not understand the type of information that you require or simply don’t have the capability of getting hold of it. You want reliable financial and statistical operational information and you may find that there are people blocking you [from] getting it, perhaps because they wish to protect themselves from mistakes that have been made in the past.”

Lord Stuart Rose, Chairman of online grocer Ocado Group and former CEO and Chairman at retailer M&S, comments: “My technique would be to interview the top 20 people in the business and say, ‘Tell me what you think is working; tell me what you think isn’t working.’ At the end of that period… you’ll find they all tell you the same thing.”

It’s an approach which others also believe to be effective. Gary Favell, CEO of retail concern Bathstore, says: “You need to go down a couple layers, below the board and senior management team… [and] talk to the people who are actually doing the day job, because their perspectives on where the issues are will normally point you in the right direction.”

All of the main stakeholders need to be engaged. “The shareholders, lenders, employees, customers and suppliers, the pension fund, credit insurers can all get involved,” says Roger. “When you are in the critical period, any one of these groups can destabilise the process and trigger a terminal tailspin.

“Understanding the positions of the different stakeholders is key – you can have the best plan in the world in theory, but it’s worthless unless you can get sufficient support across the stakeholders, each of whom have different and often conflicting interests… Getting agreement around a sensible plan is a great balancing act.”

Pam Powell, Non-executive Director at Premier Foods, which earlier this year completed extensive refinancing, comments: “In our case the business was being strangled by debt; everything was about the balance sheet. It was probably one of the most complicated refinancings in history, because there were so many stakeholders to deal with – banks, equity investors, bond investors, pension trustees – and they were all contingent on each other. So we needed to have lots of conversations.”

Without that security around finance, discussions about recovery will be treated with scepticism. Stuart Laird says: “It’s a case of interrogating your plan to make sure it’s credible, communicating to other stakeholders, be they shareholders, banks, advisors or the City, and saying, ‘We want to come and tell you about our plan because we want your support in delivering it.’

“Certainly, if you’ve broken or are about to break some bank covenants, the bank’s main advisors will be demanding to know what it is you’re going to do to move the business forward.”

Onwards and upwards 

Once the most immediate threats to the business have been dealt with, the next step is to establish a longer-term strategy. Paul Cardoen, Managing Director of Bank of Tokyo-Mitsubishi UFJ, says: “You need to find and form a group of people that have enough power to lead the turnaround, you can call it a kind of guiding coalition. [Then] you have to remove from that group, or at least avoid having, blockers – people who may sabotage you during the process… It’s about finding trusted people that have the right skill-set and resources to help you.”

Neil Matthewman, CEO of the charity Community Integrated Care, says: “Restoring trust and confidence in the business is essential. Setting targets and being recognised for achieving them internally, as well as externally, creates a definite ‘can do’ culture and builds on tailored communications and good leadership.”

It will be important to celebrate where the business is changing for the better. Martin Hess, VP of Enterprise Services at IT concern Hewlett Packard, comments: “You’ve got to highlight the successes, point to heroes, hold them up and amplify them… You name the successes and talk about the impact on customers.”

Clodagh Murphy, MD of Eclipse Internet, which over the last five years, has moved from providing consumer broadband to technology services for small to medium-sized enterprises, explains that the emphasis for her has been on drawing up a “roadmap of what we’re trying to do and where we want to sit in the marketplace”.

For those brought in to conduct a turnaround, there will be harsh realities that must be dealt with head on. Then, as ever for any leadership team, the focus has to be on building confidence and inspiring others to see where the future of the business lies.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

The True Value of Risk

Comm update_2 July1A healthy approach to risk is one where a board has a robust framework in place which allows it to focus on the most important threats. Success will mean an organisation is not only resilient and well-drilled in how to avert or respond to a crisis, but strategically directors will be able to make informed decisions that can outsmart the competition.

Alison Carnwath, Chairman of commercial property and investment company Land Securities Group, says: “In 2010, we took a gamble to start our big development programme in London. There were commentators at the time who said we were taking a very risky view on life… but we calculated financially, and in the context of the property cycle, that we were doing the right things… and we’re seeing the payoffs now.”

What risk cannot be is purely a box-ticking exercise. Barbara Moorhouse, Non-executive Director of the Lending Standards Board, comments: “As directors we have very well developed models for good governance, internal controls, and risk management. Professional services firms in the UK – accounting and legal – would rightly see themselves as setting high standards by international comparisons. While this may help the balance of the UK’s ‘invisible trade’, it may increase the focus on governance issues disproportionately.”

Board directors must have the time to think strategically. Allan Cook, Chairman of engineering consultancy Atkins, says: “The balance between risk and strategy, and taking full advantage of opportunities that exist, is down to the quality of the leadership in the company. It’s in the balance that you have between the executive and non-executive directors.”

A system should be in place whereby directors aren’t overloaded with information. “Boards need to focus on the big risks and make sure that they are properly considered, debated and addressed,” says Andrew Allner, Non-executive Chairman of public transport concern Go-Ahead Group. “You can end up with an incredibly long list which is not particularly helpful, and there’s a lot of stuff that, really, shouldn’t take up the time of directors.”

Peter Shore, Chairman of telecoms concern Arqiva, comments: “We have developed a risk matrix… [whereby] only the top ten risk items come up through the business to the main board… If they aren’t realistic or actionable, or it isn’t a material performance risk, they don’t actually make it onto our risk register.”

For chief risk officers (CROs), internal auditors and chief finance officers, this is posing some interesting questions about how to manage data, the general flow of information and what should be communicated to risk committees. Sue Kean, CRO at financial conglomerate Old Mutual, explains that while wide-ranging monitoring reports and trend analysis are conducted and examined, only identified trends or exceptions are passed up to the board.

Across an organisation, there has to be an embedded sense of accountability and openness. Judith Nicol, Director at executive and non-executive recruitment specialist Warren Partners, comments: “You have to make sure there are internal processes to measure and monitor known areas of risk. But perhaps the more difficult thing for boards is to ensure they have a culture and a system in place to allow issues of concern to be surfaced that may not even be on their radar.”

Getting this right is easier said than done, especially for global entities. Peter says, “If you’re across a whole range of countries I think [the question of risk management]… is increased, because the probability of something going wrong in those countries is increased…

“Rather than tight central controls, you’ve got to find a way to distribute some of the decision-making authority and risk assessment. That then has to take account of different cultural and business practices and markets, regulatory risk and the whole swathe of things that you have to deal with. It’s just bigger and more complex.”

At board level, a mix of individuals will be needed, including experienced non-executive directors who are bold enough to provide a different perspective, while not acting like blockers. Allan says: “Having a balanced board means that you’re able to take a longer-term view, in terms of what you should be looking at with regard to risk, and actually what [you] should be looking at in terms of strategic options.”

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

The Digital Dilemma for Banks

Comm update_11 June2Empowered customers are demanding a seamless experience across multiple channels. For traditional financial services (FS) providers, this is presenting a number of challenges as they look to create an integrated, flexible offering which caters to online services, apps and utilises data effectively. As ever, this is easier said than done given the changes required, but it’s clear that failure to move with the times is not an option.

Sandra Leonhard, MD of Digital Channels, Personal & Business Banking at Barclays UK Retail and Business Bank, says: “[A cohesive] digital strategy in FS is customer-centric as well as commercial; it will be disruptive and transformational. The digital strategy will go far beyond a distribution channel and will incorporate digital to drive product changes, transform back-end processes and technology, reinventing the customer interface and evolving the underlying core operating model of the business.”

It means making deep rooted, structural changes to an organisation. Stephen Ingledew, Managing Director for Customer and Marketing, at savings and investment business Standard Life, agrees: “It’s not something that stands alone… it’s integral to what the business is trying to achieve with customers and its commercial objectives. It’s not just about the front-end or having an exciting, engaging website or mobile way of engaging customers … it needs to be end-to-end, up front as well as operationally.”

Sandra adds: “The key is to offer channel choice but to be in line with changing customer behaviour. This means if more customers are demanding… sophisticated digital services, then banks need to evolve and rebalance their offering to remain competitive in the market.”

A similar point is made by Neil Jones, Consultancy Partner at business solutions company TCS (Tata Consultancy Services): “It’s really about understanding what your customers want in the future, and then shaping your digital strategy to deliver those needs.”

Cause for disruption
There is much talk and speculation about how digital is going to change retail finance, particularly in terms of personal interaction and customer service. Brian Stevenson, Criticaleye Board Mentor and Non-executive Director of the Agricultural Bank of China (UK), says: “The branch is going to die just like high street retail is going to die and is dying because people don’t need it anymore… there isn’t a really fundamentally important reason for branches to continue. There is still a need for people to have face-to-face interaction but it doesn’t have to be in a branch the way that people think of it today.”

By contrast, others argue that there is a compelling reason why the branch will remain a core feature of the customer experience. Steve Pateman, Head of UK Banking at Santander, says:  “I have no doubt that technology will play a massive part in the retail and corporate and commercial bank of the future. People will want to have the ability to pay-on-the-move and access information wherever they are… But this is not going to replace the relationship managers.

“It will not replace the branch. You can have the best information system, but if your delivery system with people isn’t up to scratch, then it will backfire. Too many people don’t understand that.”

While the degrees of personalisation may be open to debate, advances in the use of data and analytics have certainly made engagement more complex. Stephen comments: “Our traditional approach to financial services has been to push products out… What the data allows us to do is actually know customers better, engage them on a much more personal basis and then apply how we help them and make things easier for them, based on their experience.”

Banks are in a privileged position when it comes to data, with access to customers’ transactional patterns and often the broader financial make-up of their lives, but many are not taking advantage of this due to restrictive legacy systems. According to a report by TCS from 2013, almost 80 per cent of the 300 FS senior executives surveyed said they were losing opportunities to improve the customer journey in real time due to failings in their existing systems and processes.

Brian comments: “They are relying on core systems that don’t actually analyse the data or produce the data in any way, shape or form that’s user-friendly… financial service providers should ultimately know their customers’ needs better. That should avoid things like mis-selling.”

For traditional financial institutions, utilising information across channels can be incredibly challenging. Neil comments: “You can’t easily change your legacy system… what you’ve got to try and do is build something that sits on top. A good example is Barclays’ Pingit, which enables you to use your phone to send money to someone else’s phone.”

As well as legacy issues, the regulatory environment can be seen as another barrier to digital innovation. Neil adds: “It’s a millstone around the neck of every single financial service operator… the barrier is often: A, the quantity of regulation, and B, how many organisations and regulators interpret it. So ensure you comply, but use compliance to change the way you operate and try to innovate.”

Expect a surge in ‘pure-play’ digital financial service providers over the coming years. While they may not have the scale of established institutions, they may bring brand new ways of providing services and engaging with customers which will cause ripples in a sector that has been set in its ways for far too long. “If you are a new player… you don’t have [the] history and you don’t have to migrate old products to new platforms, or old technology to new technology,” says Brian.

There are some real strategic and operational dilemmas for financial service providers if they are to deal with the transition to digital. What is beyond doubt is that while risk, trust and security need to be managed impeccably, change is inevitable because it is all being driven by the customer.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk 

Why Business Strategy is Changing

Comm update_2 MayA shift in strategic thinking is underway as boards come to realise that they must respond faster to the changes shaping the global marketplace. The old notion of a set five-year plan has been transformed by the use of more emergent strategies, where assumptions about the future are tested more frequently and, if a new direction is needed, the business is fluid enough to be able to adapt quickly.

“I am seeing a change taking place where the top-down, long-term view needs to be supplemented by more focus and agility in recognition of how you are going to achieve it, so the building blocks within corporate strategy are definitely becoming more dynamic,” says Ruth Cairnie, Non-executive Director of the FTSE 250 engineering firm, Keller Group, and former Executive Vice-President for Strategy & Planning at Shell.

Rebecca Lythe, Chief Compliance Officer at retailer Asda, comments: “Technology is moving so quickly and the landscape has changed in terms of how easy it is to do something quite disruptive, so mature businesses have to learn to be a lot more agile. It is still important to set a strategic direction looking some years ahead, but it’s how you get there, the time horizons within it and how you keep your strategy up-to-date which have all accelerated.”

The pace of change knows no bounds. Kevin Craven, CEO of the Services division at infrastructure provider Balfour Beatty, says: “You only have to look at what’s happened in the telecoms industry, where miles and miles of cables and wires in the ground have been replaced by mobile phones and masts. The entire economic model just shifted dramatically…

“No market is free from disruptive influences, so you clearly have to be monitoring your world and your customers and think about how you might respond to those shifts.”

Clearly, leadership teams must be better prepared when a disruptive shift does occur. “You should have at least envisaged the tough questions and how you might answer them, otherwise you’re not providing genuine value to your shareholders,” says Kevin. “One of the answers might be to say: ‘We need to close our doors.’ Another could be to sell to the innovator that’s tearing up your marketplace… [and] if you don’t want to go to those lengths then at least be prepared to be radical.

“For example, last year, because of a divergence with the group strategy, we decided to dispose of a business unit. It was one of the most profitable businesses in the group but it became clear that we were no longer the right parent for that business to achieve its potential.”

Big decisions

If CEOs delude themselves about the need to adapt, strategies will fail. Roger Martin, Criticaleye Thought Leader and Academic Director of the Martin Prosperity Institute at Rotman School of Management, comments: “The most common thing to do in the world of strategy in business these days is to complain about the V.U.C.A. world we live in – so everything is volatile, uncertain, complex and ambiguous – and then say that because of this it’s impossible to do strategy.

“But if an organisation doesn’t understand it has to make choices about where to play and how to win, it might as well not do strategy. That’s why more than eighty per cent of all strategic plans are pretty much useless.”

Peter Shore, Chairman of Arqiva, the UK’s national provider of TV and radio broadcast infrastructure, says: “Once a year we go offline for two days… to look at our individual industry segments from the bottom up. We look at where we are, assess our strengths and weaknesses, then from the top-down we try and assess where the big technical shifts or the big industry or customer shifts are going to be in our markets, and therefore where the big opportunities are for us to push our next investments.”

The board-level strategy has to be clear but the roll-out for a global business will not necessarily be homogenous, which does present some risks. Simon Dawson, Associate at leadership and organisational change consultancy Transcend, comments: “Emergent strategies are fine so long as there is connection across the organisation and rules to operate by. The danger is that people fall into a state of ‘self assembly’, whereby they go off and do their own thing believing they’re contributing to the whole strategy but, in reality, different parts of the organisation are moving in different directions.

“For example, when I worked in a telecoms business that was supposed to use emergent strategies, things were fine until the board got rid of the CEO as a result of the business underperforming. Then it quickly became clear that [the business] was just formed of little silos of people doing their own thing, none of which really connected.”

Communication must be frequent so that the vision remains relevant. Roger says: “As a business grows larger, the delusion of believing you can have uni-directional strategy set from the top just becomes more and more far-fetched.

“What you have to do is lay out a strategy direction from the top then say to the business units: ‘Here’s what we’re trying to accomplish as an organisation, please try and make something consistent with that.’ It’s then a process of going back and forth between the top and the bottom, which hones, refines, tightens and aligns your strategy.”

Ruth comments: “You need constant communication so that the view from the HQ about what the world is like, and whether the strategy can be implemented, is constantly up to date. You mustn’t be in the position where your assumptions are out of date, so it’s about constantly testing whether your assumptions are still valid and whether you are delivering on the strategy you set out; if not, an adjustment may be needed.”

For Rebecca, it’s about senior management being as candid as possible: “Strategy execution today means… having open and honest conversations within the leadership team about whether something has moved faster than you thought and, therefore, what the new implications are for the business.”

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk