| January-June 2012 ExceptionalFI… · Peter Englisch Strategic Growth Markets Leader GSA, Ernst &...

Entrepreneurship + Innovation = Growth | January-June 2012EPerpetual motionMichael Dell says that staying still isn’t an option for his company

Survival kitTomas Puusepp wants patients worldwide to benefit from Elekta’s pioneering approach to cancer care

Variety showWhy Virgin Group’s diverse portfolio has become the brand’s greatest strength

Exceptional

Exceptional Germany, Sw

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Germany, Switzerland, Austria

Sébastien Tondeur of event management company MCI on the importance of human interaction

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Exceptional January–June 2012 11

WWelcomeThe economic downturn transformed the environment in which companies worldwide do business. Gone are the days of quick wins, easy credit and high consumer spending levels. Today, companies have to work much harder if they are to seize opportunities and outperform the competition.

It’s not all doom and gloom, though. Entrepreneurial companies, such as the ones featured here, are finding innovative ways to outgrow traditional boundaries. Regardless of the economic conditions, these companies are improving performance in relation to four growth drivers — customer reach, operational agility, cost competitiveness and stakeholder confidence — and striking the right balance in their approach to each.

Mastering growth strategies was at the top of the agenda at the 2011 Ernst & Young Strategic Growth Forum in Palm Springs, which brought together more than 2,300 American business leaders. And you can join us at the Forum’s next meeting in Cape Town, South Africa, to hear how some of Africa’s most successful business people are unlocking value in this inspiring continent.

In this issue of Exceptional, we speak to Sébastien Tondeur, CEO of MCI, whose vision knows no limits. He tells us how an innovative and imaginative approach to business, combined with his passionate belief in the powerful role of human interaction in business, has led the company to success.

Another CEO who has helped his company to realize its potential is Michael Dell, the first ever winner of Ernst & Young’s US Entrepreneur Of The Year® award program. An opportunist at heart, Dell believes that growth depends on experimenting with new products and market-transforming processes.

Deep customer insight is also crucial to growing a business. Dr. Amjad Aryan of Jordan’s Pharmacy1 and Anthony Thompson of the UK-based Metro Bank tell us why they decided to put customer service back at the heart of their businesses.

Finally, the G20 Young Entrepreneurs’ Alliance recently commissioned Ernst & Young to create a “barometer” that highlights how G20 governments are supporting entrepreneurship. Turn to page 46 for a summary of the research, which launched just before the G20 Business Summit.

I hope you enjoy reading this issue of Exceptional.

Editor Frances HedgesAssistant Editor Laura EvansConsultant Editor Molly BennettSenior Designer Lynn JonesPicture Editor Johanna WardDesign Director Ben Barrett Production Jack MorganAccount Director Emma KingProduction Director John FaulknerManaging Director Claire OldfieldCEO Martin MacConnol

For Ernst & YoungMarketing Manager, SGM, GSA Andrea BaarsMarketing Director, SGM, EMEIA Penny Cooper Senior Marketing Executive, SGM, EMEIA Victoria NiceExceptional is published on behalf of Ernst & Young by Wardour, 5th Floor, Drury House, 34–43 Russell Street, London, WC2B 5HA, United Kingdom. Tel. +44 (0)20 7010 0999 www.wardour.co.uk Exceptional is printed by Newnorth.For further information about Exceptional, please contact Andrea Baars at [email protected]

Ernst & Young

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About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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© 2012 EYGM Limited. All rights reserved.

In line with Ernst & Young’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

The opinions of third parties set out in this publication are not necessarily the opinions of the global Ernst & Young organization or its member firms. Moreover, they should be viewed in the context of the time they were expressed.

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28“Crisis is always a business opportunity if you change your glasses and look toward possibilities”Tomas Puusepp, CEO of Swedish medical technology company Elekta

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Safety netMarcel van Galen is turning the information world upside down through the creation of the independent online framework Qiy

Firing on all circuitsThe best businesses succeed because their leaders are prepared to take risks, says technology entrepreneur Michael Dell

A cure-all solutionHow Dr. Amjad Aryan, founder of Pharmacy1, overcame regulatory challenges to make his retail pharmacy chain the market leader in Jordan

The world at her fingertipsA commitment to high standards of research and development has given Bio Sculpture’s Elmien Scholtz the lead over her competitors in the beauty industry

Playing to win GSC Game World founder Sergiy Grygorovych on how he turned a childhood fascination with computer programming into a successful business

ProfilesThe new face of banking The future of retail banking lies in providing a personalized service, believes Anthony Thompson of Metro Bank

Turn of events From a bohemian upbringing in a Parisian commune to entrepreneurial success at event management company MCI, Sébastien Tondeur has never lost his faith in the power of community

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WelcomeAn introduction to the exceptional entrepreneurs profiled in this issue

AgendaEvents, programs and research from Ernst & Young that will help your business grow

Doing business in ...Tax, cultural and regional tips for companies looking to expand into China

Beyond profitSue Riddlestone on how BioRegional is helping to build a more sustainable future

RegularsAnalysisAbove and beyondWe explore some of the strategies business leaders are adopting in order to succeed in a volatile marketplace

Entrepreneurs speak outErnst & Young’s entrepreneurship “barometer” helps identify the steps G20 governments can take to accelerate economic growth by supporting start-up businesses

Flavor of the monthJean Mane on the challenges and rewards of taking the reins at his family’s 141-year-old aromatics business

Going the distanceMusic, travel, banking: is there nowhere Virgin Group is afraid to go? Outgoing CEO Stephen Murphy predicts big things for the brand

The science of successScience, innovation and intrapreneurial spirit lie behind the growth of science-based company DuPont, as CEO Ellen Kullman tells us

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Profile: Qiy

Safety netMarcel van Galen, founder and CEO of Qiy, outlines

his vision of a digital world that places users firmly

in the driving seat

words Gary Rudland_ photography Jan Banning/Panos

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Profile: Qiy

he internet revolution has placed more data at our fingertips than we could ever have imagined. But this freedom has come at a price:

every time we open an online account, we not only gain access to information, we also give away information about ourselves.

“The internet is a fantastic resource, but companies and organizations have been allowed to dictate the way in which individuals interact with data,” says the Netherlands-based entrepreneur Marcel van Galen, founder and CEO of Qiy (pronounced “key” and derived from the Chinese word “qi,” meaning “lifeforce”). “We have gradually and unwittingly allowed information about ourselves to be spread all over the internet and to be owned by organizations that use it virtually as they please.”

Van Galen spent years working as a consultant to various businesses in the IT and communications sector. During this time, he became increasingly aware that the interaction between individuals, online

resources and their owners was out of balance. People were storing personal information in so many different online locations, all of which required different usernames and passwords, that they had no overview of their own affairs and no control over how that information was used.

In 2005, Van Galen saw an opportunity

to develop an online framework that would enable people to use just one program, one screen and one password to gain access to all the information they needed, from bank statements and insurance bills to music and entertainment.

“In 2005, I realized we needed a different approach,” he says. “People thought I was crazy, but I did some research with students and became even more convinced of the need for change. When, at the end of that year, my previous company was bought out, I saw it as the perfect opportunity to invest in the creation of a new ideology.”

A fresh perspectiveHis vision was to “turn the information world upside down” by reversing the traditional relationship between individuals and organizations in the online sphere. “We have been conditioned to believe that individuals need to adapt to systems implemented by organizations,” he explains. “Qiy’s philosophy is that an organization’s systems should adapt to the individual.”

Working with a team of about 15 people from IT-related fields, Van Galen spent three years researching how to turn his idea into reality. “I discovered that I would need millions of dollars to achieve my vision,” he explains. “Some venture capitalists were prepared to invest, but this would have meant giving up a large amount of control.” Instead, he found a way to finance the project independently, partly through the Dutch Ministry of Economic Affairs, Agriculture and Innovation and partly by issuing profit-sharing bonds to people or organizations that wanted to contribute to the project. This network of financial supporters became known collectively as the Qiy Foundation.

In 2010, after investing about €11.6m (US$15m) in R&D, the Foundation launched Qiy, an independent and secure online framework that aims to give individuals greater control over their personal data and minimize its unauthorized

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online dissemination. In the Netherlands, the company now employs about 30 people, but works in partnership with organizations around the world.

Van Galen targets organizations with what he calls “closed groups of members,” such as clients of an insurance company or students at a particular university. Members are invited to set up their own Qiy domain and have the option of asking other organizations, such as banks, postal services and insurance companies, to add applications to the platform.

“In this way, Qiy restores individuals’ control over their digital lives by allowing them to ‘pull’ the data they need from the organizations they choose, rather than having largely irrelevant information constantly ‘pushed’ at them,” says Van Galen. Meanwhile, the companies that add applications to the framework benefit from reduced marketing and distribution costs, as well as deeper customer relationships that can, in turn, help them generate more revenue.

Building partnerships with trustworthy organizations is essential to Qiy’s growth. “We collaborate not only with technology partners, but also with governments, associations, privacy organizations, business partners and universities, which provide access to the latest technology,” says Van Galen. “You could describe Qiy as one big platform for collaboration.”

This collaborative ethos is reflected in his approach to governance: he takes advice from a board of governors, an engineering taskforce and various other third-party

“We try to avoid talking in terms of ‘success.’ We would rather keep Qiy organic and let it do its own natural thing”

Inside Qiy’s eclectic headquarters in the Netherlands

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organizations. Much of this consultation focuses on finding the best organizational model for Qiy. “We’re constantly evaluating the smartest legal structure for Qiy in order to maintain continuity and trust, which are our prime objectives,” he explains.

The organization is split between the Qiy Company, which is responsible for business development, maintenance and day-to-day operations, and the Qiy Foundation, which acts as an independent holding company and governing body. The latter provides a regulatory framework for the business, as well as overseeing corporate social responsibility and charity projects.

Within the the Qiy Foundation, each licensed group pays a fee to run the Qiy framework. While the Foundation sets certain standards for the framework’s usage, each group has sufficient autonomy to create its own business model and revenue.

“Based on these licensing agreements,” says Van Galen, “the Qiy Foundation’s revenues remain within the Qiy community, whose three main goals for reinvestment are continued growth, research and development, and giving back to society.” This innovative model enables him to fulfill social goals while meeting commercial objectives, such as investing in the latest technology to enhance the security and effectiveness of the framework.

International expansionVan Galen describes Qiy as “more like a movement than a conventional business.” Success, for him, is a process of organic growth, whereby customers spread the word about Qiy and take it to new countries where a concrete business case can be made for its uptake. Qiy already has a presence in Belgium, and organizations from Australia, the US, Germany, France, Spain, Switzerland and Singapore have recently expressed an interest in adopting the framework. Growth generates more growth: the greater the number of global organizations in Qiy’s international network,

“Listen to the market, create a vision and dare to have your head in the clouds while keeping your feet on the ground”

Profile: Qiy


Viewpoint

Fostering strategic alliances can be an invaluable way to obtain technical know-how, improve performance and gain access to investments. An effective partnership — especially in the technology sector — can define the growth trajectory of a business at every stage of its life cycle.

During the start-up phase, partnerships can be mutually beneficial, with both companies deriving equally significant benefits. At this stage, joint ventures with partners that have specific skill sets or knowledge of particular markets can offer opportunities for

fast growth. Ideally, these partners will help your company to grow its revenue and develop its client list.

Successful collaborations rely on close working relationships that are based on trust. This trust may be put to the test if long-term objectives change or if the limited quality control each partner can exert over the other’s products or services presents a problem.

The second stage, defined by rapid growth, can be fueled by investment, perhaps through private equity firms or venture capitalists. While it is easy to focus on the financial implications

of these arrangements, investors can also bring access to global networks and knowledge of improved company structures. Even in a downturn, such collaborations can create jobs and, more importantly, value.

Finding a partner that fits your company’s ethos and shares its goals relies on thorough research and background checks. After that, face-to-face meetings will confirm or contradict your initial judgment.

In the final stage, when a company has achieved market-leader status, the emphasis shifts to new markets. The hunt is now on to find opportunities to collaborate with smaller companies — through mergers and acquisitions, for example — that have an international foothold or are developing complementary technologies.

More than three-quarters of such partnerships fail to add as much value as the market leader expected. To maximize their benefits, preparation is vital. Plan how each side will adapt to the new arrangements and stick to that strategy.

Collaborative ventures can support your growth strategy, but they are also open to abuse. So it is important to protect your business at every stage of the cycle. Clear, detailed contracts help define expectations for both parties, especially when it comes to anticipated returns on investment. These contracts can be restricted to short-term periods or extended over a longer duration, but the key is to identify which type of contract is applicable to which relationship.

Trusted partnerships

Andrea Vogel, EMEIA Strategic Growth Markets Leader, Ernst & Young Frank Blenderman, BeNe Strategic Growth Markets Leader and TMT Leader, Ernst & Young

More informationTo request an Exceptional Enterprise session where you can discuss these strategic growth opportunities, contact Victoria Nice: [email protected]

An effective partnership can define a company’s growth trajectory

the wider its sphere of influence and potential for expansion.

“Awareness and usage of Qiy will expand as more international organizations apply for licenses and take Qiy into new territories,” Van Galen predicts. “In the meantime, we will continue to fine-tune the concept from both a technological and legal perspective, so that it can be easily reproduced while catering for regional variations.”

He prefers not to set specific financial goals, commenting that plans for the movement are constantly evolving. “We try to avoid talking in terms of ‘success,’” he says. “We would rather keep Qiy organic and let it do its own natural thing. Our prime goal is to put individuals in full control of their online data.”

Although some analysts have likened Qiy to other online databases and portals, Van Galen believes that it goes one step beyond these. “The closest comparison I can draw to Qiy is with the internet itself: no one owns it, but we’d all be lost without it,” he says. “In five years’ time, I believe we’ll all think about Qiy in the same way.”

When it comes to starting a business, Van Galen’s advice is to think big. “Listen to the market and create a vision,” he says. “Dare to have your head in the clouds while keeping your feet on the ground.”

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AAgendaEssential reading: the latest thought-leadership publications from Ernst & Young

Entrepreneurs speak out: a call to action for G20 governmentsHigh-growth companies run by the world’s leading entrepreneurs are able to find

opportunity in adversity. They not only navigate through, but also thrive within, today’s difficult economic conditions. Ernst & Young’s report, based on a survey of 1,000 entrepreneurs, provides global examples of how innovation can create employment and economic growth.

Trading places: the emergence of new patterns of international tradeNo longer just a trend, globalization is now the dominant business environment and we are seeing

new patterns of trade clearly emerge. This report investigates the surge of investment from West to East and how businesses will need to adjust their strategies to reflect the changing patterns of world trade that are developing over the next decade.

Cleantech matters: seizing transformational opportunitiesThis fourth annual cleantech report features insights into the cleantech transformations

that are taking place in technology, business models, corporations and national strategies. The report shows why the cleantech industry is likely to trigger the next industrial revolution.

Innovating for the next three billion: the rise of the global middle class This report investigates how and the extent to which Western and rapid-growth market

multinationals are targeting innovation at lower-income customers in emerging markets. In the next two decades, rising per capita wealth in these markets will generate a key growth opportunity for multinational companies. Understanding this market, and developing products and services that meet its needs, will become a strategic priority that cannot be ignored. Innovating for the next three billion is a major opportunity.

Global venture capital insights and trends report 2011Our ninth report on venture capital (VC) explores the key trends in the VC market. It includes insights into VC

investment, IPO, M&A and valuations, based on data from 2005 to 2011. It features interviews with top VC investors and entrepreneurs from around the world, and in-depth analysis of the global VC hotbeds of China, Europe, India, Israel and the US. Available in March 2012.

Risk management after an IPOThis guide will help newly public companies and those planning an IPO to understand how the business risks they face will

change and how to prioritize actions for risk management improvements. Better risk management can not only help the business to avoid unpleasant surprises, it can also function as an important new source of value and advantage.

Growing beyondIn uncertain times, top performers choose to accelerate, not go slow.

These reports reveal that high-performing companies excel in four key areas: customer reach, operational agility, cost competitiveness and stakeholder confidence.

Exceptional goes digitalWant to be able to enjoy the latest edition of Exceptional on the move? Now you can. The January–June 2012 edition is available at ey.com (under the Services/

Strategic Growth Markets section). You can also download it from EY Insights on your iPad, iPhone or Android device, through our new global thought-leadership application.


Ernst & Young Entrepreneur Of The Year®

For a quarter of a century, our prestigious Ernst & Young Entrepreneur Of The Year (EOY) awards program has recognized the exceptional men and women who create the products and services that keep the global economy moving forward. Awards are given to entrepreneurs who have demonstrated excellence and extraordinary success in areas such as innovation, financial performance and personal commitment to their businesses and communities. EOY gives these fast-growth businesses an opportunity to join an influential business network, make contacts and build new relationships. To learn more about the program, visit ey.com/eoy

Ernst & Young Entrepreneur Of The Year CEO Retreat 2011The Ernst & Young EOY CEO Retreat (formerly the EMEIA EOY Forum) will take place in Cape Town on 2–4 March 2012. Preceded by the inaugural Strategic Growth Forum Africa event on 1–2 March, the Retreat provides an opportunity for EOY alumni to learn from prestigious speakers and network with other outstanding EOY winners from around the world. To find out more about the Retreat, visit ey.com/za/eoyretreat

Initial public offerings (IPO)Ernst & Young has guided thousands of companies on the journey from start-up to listed company to major market leader. While we thrive on helping companies to deliver successful IPOs, we also recognize that an IPO is not right for everyone. That’s why we help you to evaluate the pros and cons of an IPO, demystify the process, examine the alternatives and prepare you

for life in the public spotlight. To learn more about our IPO services, email Penny Cooper at [email protected]

Venture capital and private equityErnst & Young’s Venture Capital (VC) Advisory Group and Private Equity (PE) teams work with leading VC and PE firms and their portfolio companies in all global hotbeds. They offer creative approaches to issues facing fast-growth companies and their investors. They provide quarterly and semiannual insight, as well as market data to help VC and PE firms, their partners and portfolio companies achieve their potential.Email Tricia O’Shea at [email protected]

CleantechAs climate change moves up the corporate agenda, cleantech investment is reaching record levels. Ernst & Young recently launched its Global Cleantech Center, which offers a worldwide team of professionals who understand the business dynamics of cleantech. We intend to become the service provider for emerging cleantech market leaders around the world and to help multinational corporations understand the cleantech landscape and the opportunities that it brings. For more information on Ernst & Young’s cleantech capabilities, email Robert Seiter at [email protected]

Family businessesFamily businesses make a significant contribution to EMEIA’s economies. Our latest European family business report concluded that they outstrip non-family businesses across several key financial measures. Our research also indicates that family businesses have a longer-term perspective, flexible and focused

How we can help you grow your business: events and activities from Ernst & Young

ContactsErnst & Young has teams throughout the world dedicated to working alongside fast-growth businesses. Visit ey.com to find your local contact, or contact any of the EMEIA team members below.

EuropeAndrea Vogel +31 088 407 [email protected]

Russia and the CISAlexander Ivlev+7 495 705 [email protected]

Middle EastAshraf Abu-Sharkh+971 4312 9135 [email protected]

IndiaFarokh Balsara+91 22 4035 [email protected]

AfricaSugan Palanee +27 31 576 8077 [email protected]

Financial ServicesGeoffrey Godding+44 (0)20 7951 [email protected]

governance, superior talent management and stronger customer relationships. Ernst & Young has a history of working alongside family businesses, providing both personal and company, as well as domestic and international, advice and services. For more information, visit ey.com/familybusiness

Exceptional January–June 201212

Profile: Dell Inc.

Michael Dell, once the whiz kid of computing, is using his boundless energy not only to transform the company he founded, but also to help other entrepreneurs succeed

words Roshan McArthur_ photography Robert Gallagher

Firing on all circuits

Michael Dell and his team hold regular

brainstorms at the Dell Education Think Tank,

New York City

Exceptional July–December 2011

“What excites me is all of the unsolved problems

in the world and how technology is at the fulcrum

of solving those problems”

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Profile: Dell Inc.

14

“I’ll care about Dell after I’m dead. That’s a pretty long time!”

ichael Dell has always been in a bit of a hurry. As a young entrepreneur, “I was always trying to go a little bit faster,” laughs the computer magnate. At eight, for example, he decided to graduate from high school, only to be told that he was too young.

Undeterred, young Michael set about finding alternative ways of getting ahead. By the age of 12, he was assistant maître d’ at a Chinese restaurant in his hometown of Houston, Texas, with a sideline selling stamps. At 16, he sold subscriptions to the Houston Post and was soon out-earning his high

school economics teacher. His early career sounds rather like

a Hollywood screenplay, and Dell, now 46, once described it as being “like a big, big game.” Asked if it’s still like a game to him, he is quick to say no. “That could sound like it’s not serious, but it is,” he says. “I like competition. What excites me is all of the unsolved

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Creating a spark

Technology, says Michael Dell, is about enabling human potential. These days, the Dell Inc. CEO is using his business acumen to encourage job growth and influence public policy. He recently joined the board of Startup America, an initiative created by the US Government to encourage the development of start-ups as a path to economic growth.

“You look at companies that have managed to double in size in a four-year period, and that’s where all the job growth comes from in our economy,” he explains. “We need more of those kinds of company, which means we need more risk-takers, we need more capital and we need more environments that are conducive to those kinds of job.”

Dell Inc., he adds, is closely involved with small businesses and entrepreneurs; one initiative is the global Dell Women’s Entrepreneur Network, which empowers women entrepreneurs to achieve their goals, using technology to support them.

“That’s been a big focus of ours, promoting and helping to mentor those women entrepreneurs, who are a big source of growth in our economy,” says Dell. “We see small and medium businesses as the growth engine for economies all around the world.”

problems in the world and how technology is right at the fulcrum of solving those problems. That is really exciting: to see the impact that technology has on our world, to see how our technology can help our customers grow.”

It’s the stuff of legend: Dell started building computers in his college dorm room in 1984 with US$1,000 in capital. He soon developed a direct-sales computer business and dropped out of college, making more than US$6m in his first year.

Five years later, at 24, he was named Ernst & Young’s first US National Entrepreneur Of The Year for his exemplary entrepreneurial spirit. Since then, Dell Inc. has grown into a company of nearly 110,000 employees, with annual revenue of more than US$61b. And Michael Dell ranked 44th in Forbes’ 2011 list of the world’s billionaires.

Dell stepped down as CEO in 2004, but three years later came back. “The business was changing pretty rapidly, and we needed to make some swift and decisive changes,” he recalls. “The board asked me to come back. I’m still a fairly young guy, and I wanted to do it. I’ll care about the Dell company after I’m dead. That’s a pretty long time!

“I absolutely care about the people, what the purpose of the company is and the contribution it makes to the world.”

Like its founder, Dell Inc. is in perpetual motion, constantly adapting to customer needs. In returning to run the business, Dell said one of his goals was to reignite

Opposite page: Dell’s executive briefing room at its HQ in Round Rock, Texas. This page: (clockwise from left) Dell HQ; details of some of its products

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Profile: Dell Inc.

“As a company grows, there’s a tendency not to want to take risks. But taking risks is different from being reckless”

risk-taking. “The sense that we can grow the business and experiment, try new things, was really important in the company’s early success,” he explains. “That comes with an acceptance that not all the things we do are going to work. You have to take risks, you have to accept risks and you have to make sure that learning occurs when things happen either positively or negatively.

“It’s often the case that as a company grows, there’s a tendency not to want to take risks,” he adds. “But taking risks is different from being reckless.”

Another strategy was to reintroduce the company’s customer focus, using modern tools such as social media

to build customer relations. For Dell, his customer base is everything. He credits it with influencing and inspiring him more than any individual.

And he looks to his key customers when he needs advice. “A lot of times, if we have a new idea we’re working on, we’ll

Dell’s annual revenue, driven by the company’s 110,000 employees around the world

US$61b


Viewpoint

The aggregate value of global technology M&A transactions saw a significant increase in the third quarter of 2011. This is because a big wave of innovation is taking place in the technology sector, driven by smart mobility, cloud computing and social networking. Companies therefore need to position themselves to better compete in these emerging areas. Those that do not have the technology themselves are looking for attractive businesses that do.

These acquisitions can involve start-ups, or more mature companies that are public or ready to go public

because they have developed a niche or market presence in one or more of these high-growth areas. Even larger, well-established companies may become acquisition targets.

Hardware companies, in particular, have over time been looking at offering products or services that complement, or take them beyond, their traditional strengths. With more and more companies seeking ways to improve the functionality of their products, as well as to increase margins, we are seeing a continued shift into offering services, software or other products being sold by competitors. Many companies are making small and large acquisitions to fill these technology gaps, so that

they can compete in an increasingly innovative sector and provide a full suite of products and services.

Strategic alliances are also growing in popularity. If another business has particular areas that are attractive, an alliance may be an efficient, and less costly, way to take advantage of those areas without having to acquire the whole business. Going it alone can mean not being able to move fast enough to take advantage of market opportunities.

Another factor that has driven recent deals is the building of patent portfolios. Companies are looking for intellectual property, especially related to mobile technology, as a way of strengthening their position when they go to market.

At the end of September 2011, the top 25 global technology companies had a total of US$632b in cash plus short- and long-term investments, and that number continues to grow. This cash gives the technology sector a lot of financial flexibility to take advantage of strategic M&A opportunities when they arise. For US-based companies, much of this cash is held offshore and cannot be repatriated without a high tax burden. This makes cross-border acquisitions much more attractive.

Careful planning, appropriate valuation and thorough evaluation of all potential M&A opportunities will help you to identify the transaction that best suits your company and its growth strategy. Working with advisors throughout the process, including the important integration phase, will then enable you to gain the best possible value from the deal.

M&A in the technology sectorJoe Steger, Global Technology Industry Transaction Advisory Services Leader, Ernst & Young

More informationFor advice on how your technology company can make the most of M&A opportunities, please contact Joe Steger: [email protected]

sit down with the CIO of a really good customer, explain it in detail and get their input,” he says.

Most significantly, however, the company is shifting focus from being a product-only business to an end-to-end, diversified technology solutions company that offers server computers, storage and networking equipment alike. Dell sees data as being key to this shift.

“As we understand more of the actual problems our customers are trying to solve, we are able to build a stronger and more significant business,” he says.

“For example, Dell is number one in healthcare IT. We are providing health information systems and hospital systems, electronic medical records, evidence-based medical systems to thousands of hospitals and creating better outcomes for patients.

“Whereas before it was about the box,” he adds, “the box by itself doesn’t do very much without all of these other systems and solutions. So that’s really how business has shifted.”

Sparking ideasAs company founder, Dell has a certain liberty to make sweeping changes, especially in policies he originally put into place. “I do think that the founder has this kind of special permission that allows the company to fundamentally put itself on a different course,” he explains, “but nothing is guaranteed.”

There’s no such thing as the perfect plan, he adds. “And to some extent planning is overrated, particularly in a business that changes rapidly. You make your plans and then you kind of set them aside, learning by doing, learning by experimenting, learning by making mistakes and then rapidly adjusting based on all the data that’s coming in.”

There have been plenty of mistakes, he admits, but luckily nothing “really enormous.” “We have a culture at Dell that is very realistic,” he says, “so if there’s a mistake, people talk about it.

“That was probably one of the best pieces of advice I ever got. If you find a problem, fix it right away, instead of waiting a week, a month, a year. Problems don’t get better.”

Strategic alliances are growing in popularity

than they were at the start of the crisis. In 2008, 74% of businesses that Ernst & Young surveyed said they were focused on survival, compared with 51% today. In 2008, only 19% intended to take advantage of the economic situation, compared with 29% today.

The report reveals that high-performing companies excel in four areas: customer reach (optimizing the potential market for their products and services by targeting and satisfying customer needs), operational agility (responding quickly to new opportunities and threats, and moving away from a traditional supply chain to an integrated value chain), cost competitiveness (finding the right balance between price and cost to move from cost cutting to cost competitiveness) and maintaining support from shareholders.

Customer reachHigh performers have a focus on their customers that runs like a red thread through their operations. It determines where they wish to sell, what they sell and how they organize themselves in order to supply the markets in question. They have sought to get ahead by responding to new patterns of demand and cite the need for a strong market interest in their product or service as their number one success factor for market entry.


The current economic whirlwind — triggered by the banking crisis and currently ripping through the Eurozone — has made many traditional business models unsustainable, but it has also created

opportunities for shrewd companies.A recent report from Ernst & Young, Growing beyond: how high

performers are competing for growth in difficult times, analyzes the ways in which high-performing companies are responding to the new economic landscape. The report shows that leading companies are striving to grow beyond traditional boundaries by expanding into new markets, promoting innovation in products and services, and nurturing new talent.

Today, companies are operating in an economic environment that the report describes as the “new normal.” This is characterized by twin-speed economic growth (slow in Western developed countries and fast in emerging economies such as India, China and Brazil), increased volatility in financial markets, cost pressure and more assertive shareholders, who have collectively lost more than three trillion dollars since the start of the financial crisis. In addition, companies are facing a higher level of competition than would be expected during a normal economic recovery.

There is some good news, though. The report finds that businesses are generally more optimistic about their prospects

Above and beyond

How high-performing companies are finding opportunities for growth in difficult times

words Nick Huber

Analysis: Growth strategies

19

Companies that are successful at expanding internationally have a deep understanding of consumers’ buying habits in their target markets. They also work hard to find the right distribution channel for selling their products and services in the destination market. The continuing success of high performers demonstrates that the careful choice of customer segments allows a company to create a distinct and long-lasting competitive advantage. For example, companies have always been able to sell premium products to wealthy consumers throughout the world, as the strength of the global luxury brands attests. Only recently, however, has a significant opportunity arisen to sell products and services to the emerging middle class in economies such as India and China.

Operational agilityFlexibility is essential if companies are to cope with changes in the economic climate or regulatory environment in their own or foreign markets. The top performers are focusing on making both their back- and front-office processes more efficient so that they can gain a competitive advantage. More than a quarter of our survey respondents are seeking to organize their processes to suit customer needs.

Getting a product to market ahead of rivals can make or break a business, but speed isn’t everything. The most successful companies have realistic time frames for developing new products and services, aiming to respond swiftly to specific, short-term needs, while remaining aware of broader, long-term goals. The increased use of locally sourced materials, or products assembled in their final market destination, has prompted many companies to rethink their supply chains. Companies that want to stay close to their markets and improve supply chain performance are creating regional “hubs.” By combining local execution with regional

and global management, they can improve responsiveness, while reducing costs through shared internal services.

Cost competitivenessControlling costs is a perennial challenge for companies, and never more so than in a tough economic climate. High performers have a holistic approach to pricing, costs, cash and capital that covers both their organization and its wider supply chain. This gives them a deeper understanding of where value is created.

Low costs are not a guarantee of success. Cost competitiveness is about selling products or services at a price that generates sufficient returns to satisfy both stakeholders and investment needs. Successful businesses pay close attention to their competitors’ pricing, as this helps them to spot opportunities in their market and counter threats from rivals at an early stage. They try to maintain “premium pricing,” rather than slashing prices to boost sales — a short-term tactic that can ultimately damage profit margins. In addition, capital costs can have a significant impact on bottom-line results, so companies need to take steps to control their capital allocation, measure the use of — and return on — capital and maximize acquisition value.

Stakeholder confidenceSustainable growth depends on gaining the trust and support of stakeholders. High-performing companies go well beyond minimum requirements for corporate governance; instead, they focus on specifics. They identify the risks they face and are transparent about the actions they are taking to minimize them. They give stakeholders detailed information about both market entry and product development, including any problems that have arisen.

High performers also focus on their long-term reputation management and build sustainable relationships with key stakeholders, including employees. In return, shareholders are more likely to give management the freedom to take calculated risks and make long-term plans, even if these do not yield a quick financial return.

The economic outlook remains uncertain, but there are opportunities for companies to turn risks into rewards by responding quickly to changing market conditions, innovating constantly, reviewing costs and engaging stakeholders. Returning to business as usual simply isn’t an option.

High performers’ strategies

Customer reach

Focus on key segments

Identify and explain risks

Accelerate speed of response

Improve collaboration

Inform pricing process

Sustain cost reduction

Pass on cost pressure

Create flexible work/delivery platforms

Master innovation

Optimize capital

Reinforce brand

Re-engage with internal talent

Broaden product/service offer

Enhance reporting

Prioritize markets

Anticipate regulatory compliance

Stakeholder confidence

Operational agility

Cost competitive-

ness

How leading companies are competing for growth in difficult times

More informationFor more information or to obtain a copy of the Growing beyond reports, please visit ey.com/growingbeyond


Profile: Pharmacy1

Dr. Amjad Aryan has always believed in being a big fish in a small pond. After spending five years working with his father at the helm of a small pharmacy chain in Florida, US, he realized that the business was never going to be a major player in the saturated local market. Rather than accept a safe wage and a small market share in Miami, he returned to his native Jordan in 2003 to establish his own business, Pharmacy1.

“Knowing that we weren’t going to be one of the big boys in the US, I started in Jordan and have become the big boy here,” says Aryan. “We now hope to become a major player in the Middle East.”

The journey from start-up to market leader took time and determination. The first challenge Aryan faced was how to finance the business — no mean feat in a country in which all retail pharmacies were small, non-bankable operations under the control of Jordan’s powerful pharmacists’ guild. Although the country’s Ministry of Health had passed a law in 2000 that permitted the establishment of pharmacy chains, the guild strongly discouraged any changes, such as the introduction of retail chains or heightened competition.

“When I first came to Jordan, no banks would lend to us,” recalls Aryan. “I had to finance Pharmacy1 myself for the first five years, until a local banker called me and said he believed in the company’s future.”

The timing was fortuitous: in 2006, Jordan amended its law on the manufacture and sale of drugs, weakening the grip of the pharmacists’ guild and opening up the market. This, together with the additional financial support, enabled Aryan to take his business to the next stage. Today, Pharmacy1 is Jordan’s leading pharmacy chain, with 53 domestic outlets and revenue growth of more than 120% since 2009.

The human touchAryan puts much of his success down to his extensive experience in the pharmaceutical sector. After studying pharmacy in Boston, he spent time doing work experience at his family’s pharmacy, followed by a stint at a leading American pharmacy chain. He learned useful lessons in the US, particularly in terms of how not to treat customers.

“The US has lost the edge on customer service,” he says. “Pharmacists are so busy with doctors’ prescriptions that


Profile: Pharmacy1

Eleven years after leaving the US to launch a pharmacy chain

in Jordan, Dr. Amjad Aryan has overcome financial and

regulatory challenges to build a market-leading company with the potential to expand in the

Middle East and beyond

A cure-all solution

words Paul Cochrane_ photography Ivor Prickett/Panos

22

branches, choosing not to open them close to hospitals or clinics. “My idea is that people will go out of their way for good service,” he explains.

Recruitment driveBy offering better-than-average salaries and the prospect of moving up the career ladder, Aryan has encouraged a large number of expatriate Jordanians, many of whom had been working in the pharmaceutical sector in the US or elsewhere, to return to their home country and work for Pharmacy1. This has helped to keep employees in the company and

reverse the “brain drain” phenomenon, providing a strong incentive for young pharmacists to remain in Jordan.

Aryan has also sought to attract more women to the pharmaceutical profession. Out of the 1,000 pharmacists who graduate every year in Jordan, 70% are women, but faced with a lack of opportunities locally, many of them end up “with just a certificate on the wall.” At Pharmacy1, however, 75% of the 296 pharmacists

are women — a figure that is significantly higher than the national average of 15% female employees per company.

“My dream is to reposition the pharmacist as a health professional instead of a merchant,” he says. The company therefore works closely with local universities to attract talented young pharmacists to the team and has established “simulation pharmacies” for training purposes. Today, almost 90% of Pharmacy1‘s 570 team members are in their late 20s. Through this rigorous approach to education, Aryan hopes to change the way pharmacists are perceived.

Profile: Pharmacy1

you wait half an hour to ask a question, and even then it’s like speaking to a machine.”

Aryan’s commitment to customer service has made Pharmacy1 stand out. “We aim to greet the customer in 30 seconds and to get out from behind the counter to help them, rather than saying ‘go to aisle 2B or 3C,’” he explains. “You can go into a branch of Pharmacy1 and speak to a human.”

Convenience is also the key principle behind the layout of the branches, which resemble supermarkets and have separate areas for retail products and prescriptions. Aryan has taken an unusual approach to the location of the

“My dream is to reposition the pharmacist as a health professional instead of a merchant”

Women account for 75% of the pharmacists

at Pharmacy1, where good customer service

is paramount


Viewpoint

Some of the most common adages related to service include ”the customer is king” and “the customer is always right.” Living up to such promises is not always easy, however, especially as the benchmark for good service is now so high.

During a downturn, consolidation or company expansion, good service becomes even more important. It can help generate client loyalty and drive customer retention, enabling companies to differentiate themselves in the marketplace and achieve growth. Companies that put the customer at the heart of their design typically have more sustainable, and therefore more profitable, business models.

The key is to maintain consistently high levels of service throughout the organization and throughout each phase of its growth lifecycle. To attain this standard, continued investment in customer-facing staff is essential, underpinned by a system of continuous assessment and regular training sessions throughout the year. You have to find an effective way of communicating what is expected of employees, as well as implementing a reward structure to provide incentives.

Governance models are often flawed because they only focus on establishing clear responsibilities at an executive level. Successful organizations, however, ensure that a clear delegation of authority filters down through every level of the enterprise. Empowering those at the coalface is critical to driving customer satisfaction. While this may sound straightforward, the

biggest obstacle can come from the employees themselves. They may, for instance, be reluctant to act on their own initiative, especially if they are worried about the ramifications of a decision that could jeopardize their job. This is why training is so important: it allows employees to feel comfortable about managing customer issues themselves.

Your focus should also be on putting the customer at the heart of operations, whether from an R&D perspective or in terms of selling fast-moving goods. Having a great product or store layout is not enough if service is not focused on the customer. Develop a mind-set that allows you to look at service from an outside-in, rather than an inside-out, perspective. Put yourself in the customers’ shoes and assess their needs and experiences.

At an organizational level, ask yourself whether you know how many people are coming into your branches every day. How promptly do employees at call centers deal with customer requests? What are the main queries and customer expectations? Ernst & Young’s research has shown that, typically, more than 80% of service-related issues come from just two or three specific areas. So, your priority should be to ensure that staff can effectively manage these issues.

Aim to get service right the first time in 95%–100% of cases, whether you are dealing with customer requirements or complaints. This will encourage customers to return to your business time and again.

Maintaining service standardsRoss Maclean, Customer Advisory Leader, Ernst & Young MENA

More informationTo find out more about customer advisory services, please contact our EMEIA Customer Advisory Leader, Pierre Pilorge — [email protected] — or Steven Gleed: [email protected]

Number of Pharmacy1 branches Aryan hopes to open in Saudi Arabia by 2014, up from six in 2011

100 Pharmacy1’s business model reflects

Aryan’s respect for the profession and the ethical concerns that go along with this. He chooses not to have sales targets for certain products and is reluctant to turn the chain into a franchise. “My fear is that a bad franchise could affect the whole company,” he says. “I want continual improvement and I want to ensure consistency.”

This hands-on approach to the business is one of the reasons why Aryan has decided against listing the company, despite having plenty of opportunities to do so.

“I enjoy operating the business and I want to watch it grow,” he says. “You might cut costs to increase the bottom line and satisfy shareholders, but that is short-term thinking. Pharmacy1 is all about looking for long-term growth.”

International expansion is therefore crucial. Aryan has already opened six pharmacies in Saudi Arabia and one in Iraq, and is aiming to have 100 pharmacies in Saudi Arabia by 2014. The next step is to move into countries such as Lebanon and Egypt, but this will depend on a change in Middle Eastern regulations.

Meanwhile, with the European Union about to change its laws on chains, Aryan is not ruling out the possibility of making Pharmacy1 one of the “big boys” in Europe as well. “Knowing how pharmacies are managed in the US and here, we could have the edge in Europe,” he says. “We have the know-how in specialized health care retail, and that gives us huge potential.”

If the results Aryan has achieved in the Middle East are anything to go by, Pharmacy1 could soon become an international success.


The world at her fingertips

South African beauty therapist Elmien Scholtz turned her quest for high-quality nail products into an internationally successful company

words Glynis Horning_ photography Nick Aldridge

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Profile: Bio Sculpture International

hen Bio Sculpture International founder Elmien Scholtz attended a recent function, her most celebrated features were concealed in black leather gloves. “I often use my own nails to test out new colors and see how long they last, so they’re not always presentable,” she laughs. “My left hand is my best guinea pig.”

Such dedication has been key to the success of a company that began its life 23 years ago, when Scholtz opened a modest beauty salon in Port Elizabeth, South Africa. “At the time, the beauty industry had terrific solutions for tanning, slimming and facials, but nail treatments were a disaster,” she remembers. “They were heavy to wear and damaging to nails. My idea was health and beauty, not beauty at any cost.”

Scholtz searched South Africa and the US for a better product, without success. That’s when she drew up her wish list. “I needed a product that was light, easy to apply and durable,” she explains. “It had to strengthen the nail but be thin and flexible, look and feel natural, dry quickly, come off easily, and be safe and healthy.”

Determined not to give up the search, Scholtz attended a beauty trade fair in Anaheim, California, where she found a gel product that was closer to what she wanted. She worked with chemists there to develop Clear Gel, the first nail product to be clinically researched for safety. She registered it in 1988 and Bio Sculpture was born. After four years of intensive research and development, she launched a colored gel, Number 19 Pillar Box Red, which remains a top seller in the company’s 200-strong range.

“When people work for themselves, they give their best, which benefits the entire company”

W


From day one, Scholtz worked hard to raise awareness of Bio Sculpture. “When I opened my second salon in Johannesburg, I would stop well-groomed ladies in the mall and invite them for a demonstration, applying gel to only one nail so they could see how it lasted compared with the others,” she explains. “I also gave flyers to every client, inviting their friends to free demonstrations. The reaction was overwhelming.”

As news of the revolutionary nail system spread, demand from salon owners increased. “But the products are only as good as their application, which requires specialist training in recognizing nail types and conditions, and knowledge of how to treat these to meet each client’s requirements,” she says. So, with assistance from a higher-education institution, the Stellenbosch Academy of Health and Skin Care, she wrote a training manual and set up the first Bio Sculpture training facility in 1992. “We now have 14 distribution area managers around the country, with 29 educators,” she says.

Starting small, thinking bigScholtz’s motto is “One day I want to go anywhere and see this product everywhere.” In the early years, however, it was a challenge to raise the capital she needed to finance Bio Sculpture’s growth. “I didn’t have much,” she says frankly, “but we never borrowed money from external funders and, at first, we distributed only in South Africa. Given the unique nature of our product and the growing demand, our limited

funds multiplied rapidly.” In the late 1990s, the company’s annual growth rate rocketed to 233%; it has since stabilized at between 21% and 28%, even during the recession.

It took two years of traveling, trade exhibitions and training for Scholtz to feel ready to export her products. She started with Australia, where an expat South African businessman had approached her, before using other contacts to move into Canada, the UK and Sweden.

Today, Bio Sculpture exports to 39 countries, with others in the pipeline. “We created our own business model, whereby we form partnerships with importers,” explains Scholtz. “We provide performance goals and guidelines in which to operate, but leave it to the importers to decide how they reach the goals, as they know what works best in their country.”

Potential importers have to qualify by presenting a business plan, along with proof that they have sufficient capital for their country’s head office to facilitate training centers and enough stock to meet demand. Scholtz and her team then spend time with importers to build relationships and ensure that they have the right work ethic for the brand. “We like to refer to ourselves as the ‘Bio Family,’” she says.

“It comes down to believing in your work and staying focused on it, remaining in close touch with customers and keeping on the cutting edge of R&D”

Bio Sculpture dedicates 5% of its annual turnover to R&D

27

Viewpoint

Companies that operate across many borders are likely to benefit from more growth opportunities than those that focus solely on their domestic market. Expanding internationally does, however, require considerable preparation. You should take into account factors such as location, competition, method of entry, financing and the attractiveness of the local tax and regulatory environment.

The first step is to decide which markets offer the biggest source of opportunity for your business. High-performing companies typically focus on building regional strength when expanding internationally. Most business leaders look to their own region as the first source of cross-border opportunity, before targeting adjacent markets for growth.

When it comes to thinking globally, African countries, such as Nigeria and Ghana, can provide high potential for growth, as can destinations in the Middle East and Asia. You should aim to gain a foothold in emerging markets as early as possible, while you still have the opportunity to establish a significant presence.

The next step is to select your method of entry into the new market, which will depend on your company’s specific needs and growth strategy. Franchising is the least risky route, but the returns may be limited, as you will have to give away a significant proportion of profit share. Setting up shop in the destination market is the riskiest, as it may involve investing in foreign property, but you are likely to capture a larger profit margin and retain more control over your brand.

Somewhere between the two is the distributorship or “strategic alliance” option. This allows you to capture greater profit than you would with a franchise, but you will have to give away a fair proportion of it as an incentive for the foreign partner. The quality of your relationship with the partner is vital; trust needs to be earned over time.

There are other challenges, too, such as how to define the parameters of this kind of relationship. It is important to create a legally binding agreement so that the responsibilities of both parties are clear. A key part of your job will be to act as an ambassador for your business, so you will need to invest energy and time in visiting the new destination.

Regardless of which expansion route you choose, you will need to prepare thoroughly for moving to a foreign market. It is worth developing relationships with local contacts or experienced advisors who can provide insight into the new market in areas such as tax policies or local customs. Your chosen destination should ideally include clusters of similar customers (your target market), a high degree of urbanization and a fairly reliable infrastructure (links by road, rail and possibly sea).

Finally, make sure that your marketing campaign is geared to local conditions, so that you can raise awareness of your brand. There is seldom a product or service so good and so unique that it sells automatically from day one, but preparation will certainly help pave the way to success.

Moving into foreign markets Derek Engelbrecht, Director for Assurance, Ernst & Young

More informationTo learn more about extending your customer reach, please visit ey.com/growingbeyond

The best business advice Scholtz has ever received is to be generous. “We don’t take monthly royalties on turnover, as this way, importers can use all their funds to develop the business,” she says. “When people work for themselves, they give their best, which benefits the entire company.”

Nailing itAs the business has become more internationally recognized, Scholtz has moved from appointing small importers to targeting large beauty companies that allocate a brand manager for Bio Sculpture. While the logo, corporate colors and training provision remain consistent for all markets, advertising and marketing materials differ to cater for specific market preferences.

Bio Sculpture now has a multimillion-dollar annual turnover, of which it uses about 5% for R&D, 5% for advertising and marketing and 5% for charitable purposes. In the year to August 2011, it sold almost 2.4 million products, a figure that Scholtz hopes to increase this year thanks to the launch of two new product lines: one with platinum packaging and the other a “spa” range of foot and body scrubs. “Our auditors have projected growth of 20% for 2011, and our aim for 2012 is at least 25% growth,” she says.

The company is building a new factory and laboratory to cope with soaring orders. “We’ll be mechanizing in the new factory, which will enable us to grow more quickly, but I won’t let anyone go,” says Scholtz. “My workforce is precious to me and central to our success.” Her management style is one of “mutual respect, warmth and appreciation. Give people those, and they will give you their best and great loyalty.”

This commitment to advancing the well-being of employees and customers has served Scholtz well in her career. “It comes down to believing in your work and staying focused on it, remaining in close touch with customers and keeping on the cutting edge of R&D,” she says.

In the competitive environment of the beauty industry, long-term growth depends on constant innovation and maintaining high standards. “Quality,” says Scholtz, “is everything.”

Profile: Bio Sculpture International

28

Profile: Elekta

Tomas Puusepp, President and CEO of Elekta, explains how the Swedish company has become a world leader in the medical technology industry by responding swiftly and sensitively to patients’ needs

words Christine Demsteader_ photography Mattias Rudh/eyes productions

The business of saving lives

30

aintaining profitability and sustaining growth in the current economic climate inevitably gives business leaders sleepless nights. But Tomas Puusepp, President and CEO of Swedish medical technology company Elekta, starts every day with a positive outlook. “It’s not difficult to wake up in the morning and think about how we can make a difference by fulfilling patients’ needs,” he says.

Headquartered in Stockholm, Elekta is a world leader in radiation oncology, radiosurgery and oncology software. Its first major product, launched in 1972 at the time the company was founded, was the Gamma Knife: a breakthrough in radiation medicine to treat brain tumors and cancer cells in a non-invasive way. The company has since expanded the range of innovative clinical tools and products in its portfolio to include those that are designed to target cancer throughout the body.

Elekta’s core business has a personal significance for Puusepp, whose father and sister both died of cancer. He recalls a recent analysts’ meeting in the US, at which he asked the 80-strong audience whether they knew someone who had been diagnosed with the disease. Nearly everybody raised a hand. “Many people are affected by this illness in one way or another,” Puusepp says. “Independent of the financial climate, people still get cancer, so, in that respect, we are relatively immune to economic volatility. Demand for cancer care supersedes supply.”

Reaching more patientsOver the past five years, Elekta’s net sales have increased from SEK4.5b (US$642m) in 2006–07 to SEK7.9b (US$1.1b) in 2010–11. In the year to November 2011, orders increased by 10% and Elekta is now one of the fastest-growing companies in its field. It aims to provide cutting-edge cancer care to even more patients than the almost one million who benefit from its products today.

M

Profile: Elekta

More than a million patients

benefit from Elekta’s innovative

range of clinical tools and products


It’s not all rosy, though. The company’s balance sheet may be healthy, but the financial crisis has infected the health care sector and resulted in spending cutbacks. The biggest threat, according to Puusepp, is stagnation in health care environments. “When there is pressure on budgets, it is especially important to communicate how we can help the health care system to reduce costs,” he explains. “Crisis is always a business opportunity if you change your glasses and look toward possibilities.”

To maintain momentum, Puusepp has focused on cost-efficient treatments, an area in which software has played an increasingly important role. He has devised his own

“We probably don’t have the best salaries, but I strongly believe we have the best environment”

equation — value is equal to outcome divided by cost — which he thinks gives optimal results.

“As long as we can work toward a lower cost and a better outcome, we will always be a winner,” he says. “In emerging markets, we have to be more affordable and adjust our design accordingly, while in established markets, it’s about conveying how cost-efficient our clinical solutions are.”

Elekta’s international expansion began from day one. “Sweden was too small, so

we were forced to look further afield from the beginning,” Puusepp says. “In the late 1980s, we moved into the US and Japan because they were the two largest single countries that offered demand in our field. From there, we expanded throughout the world.”

Puusepp’s leadership philosophy is to “walk the walk and talk the talk” — a buzz phrase, he admits, but one that he can back up with concrete examples. On numerous occasions, he has been a guinea pig for Elekta’s R&D gurus, testing their latest innovations in order to experience them for himself. He has personal contact with patients, advising them on the right treatment for their diagnosis.

32

“Sometimes CEOs are too remote from the market and customers,” he says. “It’s important that our people feel they have an impact, and that’s why we have been able to sustain a great talent base. We probably don’t have the best salaries, but I strongly believe we have the best environment — we call it the Elekta family.”

Emerging opportunitiesThe company’s long-term goal is to accelerate growth to between 13% and 15% by 2015. Historically, it has experienced rapid growth and demand from around the world has not slowed down. It has, however, spent time and money on consolidating business to make that growth sustainable. In 2011, for example, it acquired Nucletron, the world leader in brachytherapy (a type of internal radiotherapy) cancer treatment, for SEK3.2b (US$456m).

With each organic and inorganic transaction, the company has developed its strategy for growth. Today, emerging markets are high on the agenda. “It’s important to have a healthy mix of growth in different regions,” says Puusepp. “The single-digit growth experienced in Europe and the US is

Elekta has always had family values at its core. The pioneering innovations of the late Swedish neurosurgeon Professor Lars Leksell, complemented by the business acumen of his son Laurent Leksell, provided a strong foundation for the company’s success.

Laurent Leksell, who was the company’s first President and CEO, currently holds the position of Executive Director and is a member of the Board of Directors.

Tomas Puusepp began his career at Elekta in 1988 and took over the leadership in 2005. “We are like a family because we have been working closely together for so many years,” Puusepp says. “The Elekta family is about loyalty and innovation, which filters through the organization from the management team to the employees. I hope that I have taken that heritage with me.”

Keeping it in the family

more lucrative in terms of profit, but the Asia Pacific region offers the prospect of sustainable double-digit growth.”

Each market requires a different strategy, depending on how advanced its medical technology industry is. At present, Elekta has 400 employees in China, double the number it has in its Swedish operations. To strengthen its position, the company acquired 80% equity of the government-owned Beijing Medical Equipment Institute in 2006.

“China is a country of contrasts, so we have to adapt to local needs,” Puusepp says. “Clinics in the major cities are highly sophisticated, but they are far less advanced in rural areas. If we are to reach a broader arena, our products must be affordable, and training is important to ensure that our users can make the most of our clinical treatments.”

Indeed, the biggest barrier to Elekta’s growth in emerging markets is the need to teach hospital personnel how to use its tools. “We train between 3,000 and 4,000 people a year, but that is not enough,“ Puusepp explains. Since the company started to make inroads into the Chinese market in the early 1980s, the management has worked hard to establish training and research collaborations with several leading clinical

Profile: Elekta


Viewpoint

Cost competitiveness lies at the heart of a company’s ability to compete in the marketplace. Whether you are trying to accelerate growth or move into a new market, you should aim to contain expenditure while ensuring that your business is scalable.

This is driving two seemingly opposite needs in the supply chain. One is to maintain or increase margins; the other is to increase agility and responsiveness. Supply chains that serve developed markets need to take a “cost-to-serve” approach, securing bottom-line margins, while in the developing markets, they need to focus on creating topline growth.

Staying cost competitive must not mean compromising on quality. Instead, the key is to focus on creating cost-effective, consistent processes. Another technique is to build an organizational structure for your business that is truly global and scalable, even if you are not yet operating at that level. When implementing governance processes or collecting master data, a global outlook can help you not only to limit costs, but also to mitigate the risks that accompany business growth.

You also need to think about how to source, manufacture and distribute your products in a cost–effective way. Cellphone manufacturers, for example, rely on global sourcing models, so they can consistently look to develop a cheaper or more flexible approach to production and distribution.

There are, however, risks involved in building global supply chains and limited global sourcing operations, as became evident during the Thai

floods in 2011. Manufacturers were trying to shift production to suppliers or partners not affected by flooding in order to secure the delivery of certain parts and products. Without these parts, the company might be at risk of a substantial loss in sales volumes. This example shows that business leaders should work closely with risk management teams to minimize threats and create contingencies, ensuring supply chain responsiveness.

Another popular method for cost reduction is to decrease headcount. Some companies choose to cut employee numbers by up to 10% across all functions, without discrimination. This may appear easy to implement, but it can actually create more costs, not only in terms of making redundancy payouts, but also in terms of rehiring employees at a later date. By failing to retain talented employees for the sake of short-term cost savings, you may affect your company’s chances of establishing a solid platform for growth.

It is far more effective to view the business as a whole. Study your process and operations carefully, and take out costs in the right places. You may find that some areas of the business require fewer employees than anticipated, while others actually call for an increase, ensuring value creation for customers.

By adopting a more holistic approach to your processes, re-engineering them globally where required and targeting the needs of both developing and developed markets, you can achieve the cost-efficiencies and scalability that are crucial to competitive growth.

Keeping your costs competitiveLars Weigl, Global and EMEIA Performance Improvement Leader, Sweden, Ernst & Young

More informationTo download a copy of Ernst & Young’s report, Cost competitiveness: from complexity to confidence, visit ey.com/growingbeyond

centers in China. These centers enable Elekta to make cancer care widely available, as well as accelerating business growth.

R&D is an integral part of operations. While many people interpret this solely in relation to technological advancements, the company sees a need for a form of innovation that Puusepp terms “translation research.” “It’s about how we take the clinical needs, develop the right tools and feed them back to the patient as quickly as possible,” he says. The process has resulted in higher survival rates and a better quality of life for cancer patients, and is changing the perception that cancer is always a terminal illness.

“We won’t find a cure for every cancer in my lifetime,” Puusepp says. “But the medical world has made significant improvements. I’m proud that Elekta has contributed to that process and will continue to do so in the future.”

Playing to win

34


Profile: GSC Game World

ergiy Grygorovych is that rare thing: a schoolboy entrepreneur who has turned his hobby into a successful company. Sixteen years ago, while still at school in post-Soviet Ukraine, Grygorovych decided to set up a business. Today, he is Chief Executive of computer software gaming giant GSC Game World.

It is no exaggeration to say that gamers and industry insiders regard GSC as something of a dream factory. For example, the S.T.A.L.K.E.R. game series — set in the eerie post-apocalyptic landscape of Chernobyl, the site of the world’s worst nuclear accident — has become a cult phenomenon, selling millions of copies in Russia and the former Soviet Union.

Grygorovych, now 33, set up GSC in 1995. While attending a school that specialized in mathematics, he developed an interest in computer programming. “I wasn’t a top-level programmer,” he admits. “In fact, my ability was average, or even lower than that.” What he did have, however, was the ambition to turn his and others’ programming skills into a business.

At the time, the gaming industry in Ukraine and elsewhere in the former Soviet Union was dominated by English-language computer games, whose linguistic and contextual nuances local people often struggled to grasp. Having spotted this niche in the industry, Grygorovych began to systematically adapt existing games for the local market, translating both text and dialogue into Russian.

“It started out as a hobby and then became a company,” he explains, adding that many of his friends and co-workers would often work through the night to get the job done. “Our record was 26 adaptations in a month.” The company quickly took on more employees, and today has a workforce of 65 people.

Over the years, Grygorovych has had to adapt his business model to changing market conditions. In its early days, the company enjoyed a competitive advantage because salaries in Ukraine were much lower than in other parts of Europe, but it gradually lost this advantage as employees came to demand higher pay.

In 1998, Ukraine was rocked by a deep financial crisis that blew Grygorovych’s expansion plans off course for a time. Although it became increasingly difficult to sell enough products, he tried to avoid making too many redundancies by saving money in other areas, conscious that the company needed enough talent to thrive in the event of an upturn. Instead, he moved away from adapting other companies’ products and accelerated the development of GSC’s own games. He also kept a close eye on operating costs, ensuring that the company was not financially overstretched.

words Andrew Osborn_ photography Piotr Malecki/Panos SGrowing a business

is like playing a computer game, says

GSC Game World’s Sergiy Grygorovych.

It takes focus, discipline and a ruthless

determination to win

36

Profile: GSC Game World

only do one thing well at a time,” he explains. He tries to devote GSC’s resources to one or two games at each stage of growth, concentrating on those he believes will be successful.

This focus on quality has helped Grygorovych to grow the company organically, attracting an increasingly global customer base. In 2004, impressed by Cossacks and a clutch of other GSC titles, the software publisher that owned the rights to Oliver Stone’s blockbuster Alexander commissioned

GSC to create a game version of the movie. The contract gave Grygorovych his first experience of working with a Hollywood studio, which helped to make the brand an international name.

Winning waysGrygorovych has maintained a hands-on approach to driving growth. Perhaps unusually for an entrepreneur, he is not afraid to admit that there is an element of authoritarianism in his management style. “There

has to be a sensible balance and creative people need to feel free,” he acknowledges, “but it’s a collective enterprise and it requires the right level of discipline.”

No matter how much talent an individual software developer may have, Grygorovych expects every employee to work hard and collaborate with the rest of the team. Keeping employees motivated and preventing churn is, he says, a priority for GSC. Whereas most companies have traditionally kept their employees loyal by offering them financial rewards, Grygorovych maintains staff motivation by appealing to their competitive instincts, which he says is a more effective, and more sustainable, approach.

“People’s desire to realize their potential is a more powerful motivator than money,” he claims. “We try to portray rivals as absolute enemies and encourage our employees to vanquish them.” As in the fantasy game worlds GSC creates, business is “all about winning.”

An essential part of this winning strategy is diversification. Having already launched a movie tie-in with the Alexander game, Grygorovych

“We have never made a loss and we have never found ourselves teetering on the edge of bankruptcy,” says Grygorovych proudly.

Even when times were hardest, Grygorovych says that he never lost sight of his dream. “I always wanted to come up with a game that would be sold all around the world,” he says. His big break arrived in 1999, when he showcased one of GSC’s games at an international industry exhibition. Cossacks: European Wars, a real-time strategic war game set in 17th- and 18th-century Europe, was rapturously received. This exposure helped to boost sales of the game, which now stand at more than five million copies worldwide. “Every person has a moment in their life when they make a breakthrough,” he says. “For me, that was it.”

Grygorovych puts much of his success down to his focused approach to doing business. “It’s an art and, in art, you can

“People’s desire to realize their potential is a more powerful motivator than money”


Viewpoint

Well-managed companies are crucial to the health and competitiveness of the economy. The people who work for these companies are — or should be — remunerated at market level and receive “pay for performance.” Yet there has been a considerable backlash against high bonus payments, fueled by sensational media coverage. Under pressure from investors, regulators and the public, companies are increasingly having to explore ways to motivate employees without resorting to financial rewards.

Engaged employees are likely to work harder from day to day and remain loyal to the company for longer. Devising effective employee motivation strategies is, therefore,

essential to attracting and retaining talent. Employers may want to take into account three critical success factors: people, passion and profit (in that order). If they engage their people in such a way that they develop a genuine passion for their company’s and clients’ success, this will, in turn, create profit for the company they work for.

The employee value proposition is evolving as costs continue to rise and satisfaction continues to decline, but the central challenges — attraction, motivation and retention — remain

the same. Companies therefore need to shift their focus from extrinsic to intrinsic motivators. Extrinsic motivators, such as rewards, status, titles, grades and bonuses, are important, but so are intrinsic motivators that take into account job satisfaction, development, purpose, ethics and values. Financial incentives can be useful in making a company attractive to potential recruits. However, employees rarely leave companies for purely financial reasons, so employers cannot rely on extrinsic motivators alone to attract and retain talent.

We are seeing an increasing number of companies make use of non-financial tools to motivate their employees. This “total reward” approach can include flexible working hours, clear career opportunities, the option of sabbaticals, community involvement or training. Strong leadership — which may involve leading by example — transparency and effective communication of the “total reward” approach are also important. They make employees feel valued and appreciated, and help maintain their faith in the company’s stability, especially during challenging periods.

Companies need to create a clear value proposition for their employees that includes both tangible and intangible rewards. They need to ensure that their employees have not only the skills, but also the volition, to meet changing business needs. By smartly investing in your employees, you are investing in the long-term growth of your business.

Motivating your employeesHarry Hofman, Human Capital EMEIA Markets Leader, Ernst & Young Netherlands

More informationTo find out more about trends in employee motivation, please contact Harry Hofman — [email protected] — or visit ey.com/humancapital

The employee value proposition is evolving as costs rise

hopes to broaden GSC’s product range by selling merchandise that will increase the popularity of its games. “I want to prove that combining films, games and books is innovative and can work well if done properly,” he says. The strategy has proven particularly lucrative for the S.T.A.L.K.E.R. games: GSC has published more than 60 different novels related to the series, selling more than five million copies in the former Soviet republics. A feature film to accompany the release of the new S.T.A.L.K.E.R. series is now in the works, and there is even talk of a television series.

While the global recession has prompted gamers to cut back on their expenditure, it has not seriously affected sales of top-flight games. The bigger challenge facing the industry, says Grygorovych, is the need to adapt to the popularity of computer tablets, which have lowered the entry costs for competitors. He predicts that, in a few years’ time, tablets will have replaced computers and televisions, which will push game companies to change their product ranges considerably.

To respond to this challenge, GSC plans to manufacture fewer games and concentrate efforts on new tablet projects, two of which are already in development. The tablet market is growing rapidly, but by building on the company’s strong brand, Grygorovych is convinced that GSC can stay ahead of the competition.

GSC’s S.T.A.L.K.E.R. game series has sold millions of copies in Russia and the former Soviet republics

38

The new face of BANkING


Profile: Metro Bank

For Anthony Thomson, co-founder and

Chairman of Metro Bank, the financial crisis provided an opportunity to revolutionize the Uk’s

retail banking industry

hen Metro Bank advertised for customer-facing staff for its new branches, it received 3,500 applications for just 60 jobs. But as Chairman Anthony Thomson explains, the company was looking for one thing in particular: “People who smile.”

It may seem surprising in these days of economic austerity, but Metro Bank is a resolutely cheerful place to work and Thomson is as upbeat a banker as any you are likely to meet.

“We have a great physical environment and a state-of-the-art IT platform,” he says, looking proudly around his glass-walled office above Metro Bank’s first ever branch, which opened in July 2010 in Holborn, London. Like all of the eight “stores,” as Thomson likes to call the branches, it has an airy, open-plan feel that is a world away from the formal atmosphere of some banks.

This relaxed environment is just one of the ways in which the bank is distinct from its competitors in the saturated UK financial

services market. Thomson, whose experience of the sector includes his current position as Chair of the UK’s Financial Services Forum, envisaged Metro Bank as a new kind of retail bank that would put the customer back at its heart.

Service with a smileWith consumer trust in the banking industry plummeting, the time was ripe for change. Thomson launched Metro Bank during the worst banking crisis in living memory. The company set out to attract disaffected customers who were fed up with the punitive charges and poor customer service they had encountered in so many other UK banks.

words David Nicholson_ photography David Ryle

W


Thomson’s vision for the company — the first new UK retail bank in 100 years — was based on the success of Commerce Bancorp in the US, which Metro Bank co-founder Vernon Hill launched in 1973. As the owner of a number of Burger King franchises, Hill understood the value of fast and convenient customer service. He developed the concept of a retail bank that would rely on good service, rather than competitive interest rates, to attract customers and deposits. The model proved so successful that, by 2007, he had turned Commerce Bancorp into the 18th-largest bank in the US and was able to sell it to Toronto-Dominion for a reported US$8.5b.

Hill, who has a significant shareholding in Metro Bank, has helped to instill a similar philosophy of superior

customer service that now permeates every aspect of the bank’s operations. This starts with making sure it has the right people in customer-facing roles. “It’s about recruiting for attitude and then training for skills,” says Thomson. “Anyone can learn to deliver basic banking transactions, but you can’t train people to give great service — they have to want it in the first place.”

Whereas most financial institutions give their employees incentives to sell products — one reason, says Thomson, for the thousands of customer complaints that UK banks receive each year — Metro Bank measures and rewards employees’ performance on the basis

of their customer satisfaction scores. It has a panel of “mystery shoppers” who visit every branch every other day, enabling it to monitor progress carefully.

Convenience, transparency, consistencyMetro Bank’s informal culture is reflected in its efforts to ban unnecessary “red tape”; it even offers a £20 (US$31) bonus to any employee or customer who suggests a rule that could be dropped. “It’s about aligning your culture with your model,” Thomson explains. “So many banks have a culture that clashes with their model: they’ll talk about listening to the customer and sharing ideas, but they won’t allow staff to use social media at work.”

The bank’s mantra for customer service is “convenience, transparency, consistency.” Stores open at weekends, customers can open an account in as little as 15 minutes and services are accessible via mobile, online or telephone channels. Most importantly,

“Many UK banks think that the only way to improve profits is to cut costs, but you can’t cut your way to growth”

Metro Bank’s flagship branch in Holborn, London (above and right) has an open, airy feel and a relaxed culture

41

Viewpoint

The level of confidence between banks and their customers has changed. There is a new “shopping” mind-set and more customers are choosing to change or diversify their banking portfolios.

As customer loyalty declines, banks have to start treating the customer experience as a priority. Some banks have been slow in implementing this, but more of them now understand that they need to protect their customer base.

Two or three decades ago, banks had a personal relationship with customers. People went into branches and did business with advisors. Now, with the emergence of the internet and call centers, banks have

minimized costs and moved to a more industrialized way of doing business. In some cases, this has gone too far: banks have sacrificed the personal relationship with their customers and, as a result, have lost their fidelity. Customers have gradually shifted their loyalty away from individuals and toward products or brands.

To increase their “Net Promotion Score,” banks need to ask themselves how many of their customers are prepared to recommend the bank and how far customer experience is improving. As part of this process,

banks should classify their clients into segments according to their behaviors, values and interests.

Call centers are a source of frustration for many customers. Yet it is possible for banks to strike a balance between lowering costs and maintaining personal relationships. For example, if a bank has a call center with 100 staff, it could create 10 groups of 10 people. These would become “virtual branches” that are targeted at certain sectors or audiences, such as particular age groups.

This way, the bank can provide a more personalized service and can benefit from greater customer affinity. Younger customers, for example, may recommend the bank because they feel that it understands their circumstances. This approach makes cross-selling and up-selling much easier, as well as helping banks to broaden their customer reach through word of mouth.

There are also many opportunities in the digital world, but this is not an easy option. Some banks promote their brand through social networks, but customers will not want to see them taking advantage of their online presence. Their marketing strategy needs to be one of “pull” rather than “push.” By using digital tools to develop “confident communities” that are small but share interests, banks can regain their clients’ trust.

Given the uncertainty in the economy, banks need to strike a balance between service and cost. This means repositioning themselves as more customer friendly, while keeping costs down.

Banking with confidencePierre Pilorge, Head of Customer Solutions for Financial Services Institutions, Ernst & Young EMEIA

More informationIf you would like to discuss retail banking further, please contact Pierre Pilorge: [email protected]

Banks should classify clients according to their behaviors, values and interests

“It’s about recruiting for attitude and then training for skills”

Metro Bank treats all its customers in the same way, irrespective of their profit-making potential. In contrast with the distant, computerized attitude that some banks have adopted in recent years, Metro Bank offers a personal touch that Thomson believes has been well worth the investment. “Many UK banks think that the only way to improve profits is to cut costs, but you can’t cut your way to growth,” he says. “Cost cutting is just good housekeeping.”

Although Metro Bank posted a pre-tax loss of £23.4m (US$36.1m) for the 16 months to 31 December 2010, this was a calculated strategy that came as a result of high capital expenditure on new store openings.

“We have no toxic assets and we have a clean balance sheet,” says Thomson. “We’re very well capitalized.” He adds that Metro Bank has no plans to provide investment banking or wholesale funding, preferring the “old-fashioned” business of taking deposits and lending out 75% of them.

He admits that he could not have anticipated the speed at which Metro Bank has grown. In its first year, it acquired 25,000 customers, with the Holborn branch alone exceeding the target for four branches. Metro Bank currently attracts 1,000 customers a week, but Thomson thinks this figure will increase to 2,000 by the end of 2012. Twelve branches are due to open this year, and he hopes to grow the network to between 200 and 250 UK branches by 2020.

His strategy for growth is straightforward: give people good customer service and they’re bound to tell their friends about it. By focusing on customer advocacy as the most powerful force for success, Thomson and his team may yet change the face of UK retail banking.

Profile: Metro Bank

Turn of eventsIn a world that is increasingly immersed in virtual reality, Sébastien Tondeur, CEO of Swiss event management company MCI, is making a convincing case for real-life interaction

words William Dowell_ photography Beat Schweizer


43

Profile: MCI

s an MBA graduate student at Boston’s Northeastern University, Sébastien Tondeur was often chided by fellow students for giving his best ideas to others. But when advised to concentrate more on his own success, he replied that he preferred winning as a team. “It’s more rewarding and fun,” he says, “when you are not on your own.”

It seems appropriate, then, that this consummate team player has encountered success as the CEO of MCI, the world’s leading event management company. Undeterred by financial crises and the uncertainty surrounding the euro, MCI has been expanding at an incredible pace. The company specializes in organizing large-scale corporate and institutional events, as well as in handling association management. Perhaps its greatest strength, however, is its global reach. With 47 offices in 23 countries, and a staff of almost 1,200 people, it offers companies a service that transcends national boundaries. It has annual revenues of about €288m (US$374m) and profits of about €3m (US$3.89m), and Tondeur believes he is operating in a field where there are no limits.

This success is, in large part, the result of MCI’s imaginative approach, which manifests itself in every event it organizes. When a sales company wanted to communicate its vision of aiming for the stars, MCI flew all the top sales reps to Cape Canaveral for an abbreviated course in astronaut training. When two Swiss electric power companies merged, MCI arranged for the employees of the newly merged

company to beat on drums so that they could personally experience the harmony between the groups. And when a luxury fashion retailer wanted to launch its latest watch,

MCI organized a gala event that involved everything from laser projections to antique bird cages.

Tondeur is passionate about the power of community and believes strongly in the role that events can play in promoting human interaction as part of day-to-day business. For organizations to create loyal communities of customers, employees and distributors around their brand, he says, they need to bring people together in a non-virtual environment that engages hearts and minds. “Events are a form of social networking that happens to take place in person, rather than online,” he points out. “MCI’s goal is to optimize face-to-face interaction.” The company is certainly on its way to achieving

a“What is special about Switzerland is that it is so small that it forces you to look outward and to become global”

44

this objective, having organized more than 3,000 meetings, events and conventions in 2011 alone.

Tondeur’s sense of community spirit has its roots in his early childhood, which he spent in communes in Paris, and then Tunisia, with his bohemian parents. “We supported one another,” he says. “Our passion came from believing in the power that is a result of getting people together.”

Family fortunes A talent for business and entrepreneurship clearly runs in Tondeur’s family. His grandfather, Michel, had experienced success in the European mass travel sector as the CEO of travel operator Carlson Wagonlit Travel. His father, Roger, was set to follow the same path until — encouraged by his second wife, Ursula Wigert — he decided to launch his own company. In 1987, together with two friends, he and Wigert opened an office in Geneva, Switzerland, under the name MCI. The initials originally stood for “Meetings, Conferences, Incentives,” although Tondeur says that the company has long since grown beyond this.

MCI soon won a contract to organize a major convention on technology for the Geneva-based International Telegraphic Union. The next lucky break came when Roger Tondeur teamed up with a British entrepreneur to launch the first large-scale European trade show for event organizers. “That brought in vendors and clients from all over the world,” says Tondeur, who was 12 when his father set up the company. “In just one day, MCI became known to everyone, everywhere.”

Tondeur joined MCI formally in 1997, initially as a project coordinator. At the time, the company had only 30 employees, so he used his business training to introduce a structure that complemented his father’s charisma. Suitably modest, Tondeur plays down his own role and portrays himself as a facilitator who, as CEO, works with his talented team to execute strategy.

“We build the business plan as a team,” he explains. “It’s a collegiate decision-making process.”

“In just one day, MCI became known to everyone, everywhere”

In addition to running MCI, he is Chairman of Meeting Professionals International (MPI), which represents event organizers worldwide. There, as at MCI, he sees his role as one of maintaining focus on long-term goals and ensuring steady growth. “Business is a marathon, not a sprint,” he says.

Tondeur works hard to prevent MCI from feeling the impact of economic peaks and troughs, which is one reason why the company has weathered recent financial crises well. According to Jurriaen Sleijster, MCI’s Executive Vice-President, 62% of the company’s business involves the health care industry, which is reasonably stable.

Tondeur’s goal is to maintain what he calls the “50-30-20” rule, whereby 50% of the company’s clients do business with

Profile: MCI

This page: MCI has a worldwide presence and

is expanding rapidly in China, Singapore, Dubai

and Brazil. Opposite: Tondeur’s belief in building

community underpins all the company’s work


Viewpoint

More and more companies have an international structure, with branches and divisions operating across borders. As a result, transfer pricing is becoming an increasingly important issue. In a recent Ernst & Young survey, respondents cited transfer pricing as their biggest concern. The Organization for Economic Cooperation and Development now estimates that 60% of cross-border global trade involves transfer pricing.

With many governments increasing the severity of their tax regimes, the risk of finding that a transaction has become subject to an investigation by the local fiscal authorities is greater than ever. Disputes between the fiscal authorities on both sides of a particular transaction can also result in double taxation for at least one of the companies involved.

The key to successful transfer pricing is the “arm’s length” principle: treat any transaction within the same group as if it were a deal outside the group. This means neither asking for favors, nor accepting unfair prices.

Maintaining clear documentation is also essential. Many companies still do not maintain adequate records of transactions and their pricing activities. If you do not have documents stored when a tax audit comes in four or five years after the transaction, you may find it difficult to locate the necessary information, particularly if the people involved in the original transaction have left the company. The authorities will eventually estimate a tax liability that could be higher than the true figure.

Companies must review their transfer pricing procedures. The transfer pricing department and the tax authorities are likely to be familiar with transfer pricing rules, but you should ensure that all departments know how to implement these rules. After all, if you want to be compliant in tax terms, you need to control your intercompany pricing.

Proper risk management should take into account the level of risk involved in transfer pricing. Companies need to create a matrix that covers the volume of transactions, the attitude of the jurisdiction toward transfer pricing and the type of transaction. This will enable them to measure and anticipate the risk. For example, while it is easy to measure the transfer price of cars, it is harder — but potentially more valuable — to evaluate the transfer price of a license.

Another option is to head off a possible dispute with the tax authorities by using an “advanced pricing agreement.” Such procedures already exist in many countries. If a company knows that transfer pricing is likely to prove difficult, it can choose to provide the tax authorities on either side of the transaction with all the necessary documentation in advance. This means that the company can come to an agreement about the pricing and taxes ahead of the transaction. Companies can therefore gain considerable advantages by taking a long-term, strategic view of transfer pricing.

A fair approach to transfer pricingThomas Borstell, Global Director, Transfer Pricing Services, Ernst & Young

More informationTo discuss transfer pricing in more detail, or to obtain a copy of the 2011–12 Tax risk and controversy survey or the 2010 Global transfer pricing survey, please contact Thomas Borstell: [email protected]. To find out more about global tax, please visit ey.com/gl/en/services/tax

more than one MCI office, 30% are repeat business and 20% are opportunistic. Last year, for the first time, more than half of its clients dealt with between two and nine MCI offices — an achievement that Tondeur describes as “proof of concept.”

Although MCI is rapidly expanding in China, Singapore, Dubai and Brazil, it has yet to enter the US market. “That is intentional,” Tondeur explains. “If we had started off in the US, we would never have become a global company because it would have taken all our resources. If we had started in Paris, we would probably be a French company today. What is special about Switzerland is that it is so small that it forces you to look outward and become global.”

So does Tondeur see MCI eventually entering the US market? “Definitely,” he replies. “It is up there on our list of priorities.” Which, given his record so far, probably means it won’t be long at all.


Entrepreneurs play a vital role in keeping the economy moving forward, but are G20 governments giving them the support they deserve?

Many of the world’s leading entrepreneurs seem not only to be navigating through today’s difficult economic conditions, but also thriving within them.

In doing so, they support economic growth and create jobs. Indeed, winners and finalists in the Ernst & Young Entrepreneur Of The Year® award program bucked national trends, boosting headcount by an average of 18% since 2009. During the same period, the combined jobless rates in many of the G20 countries increased by at least 10%.

Clearly, entrepreneurs are playing, and will continue to play, a crucial role in determining the future prosperity of the G20 countries and, by extension, the global economy. Yet there has never been a way of benchmarking what G20 governments can do to support entrepreneurship and innovation. Nor has there been any way of sharing governmental best practices. Until now.

The launch of Entrepreneurs speak out: a call for action to G20 governments, which Ernst & Young released ahead of the G20 Young Entrepreneur Summit in France in November 2011, examines the policies and actions that can most quickly advance recovery.

“Entrepreneurs are the key to a global economic recovery,” says Maria Pinelli, Global Vice Chair for Ernst & Young’s Strategic Growth Markets. “They create jobs, build economies and support communities.”

Ernst & Young’s “barometer” is a tool for G20 countries to measure their entrepreneurship ecosystem. It aims to kick-start a dialogue between entrepreneurs and government leaders, as well as to identify the tools that can encourage entrepreneurial growth and, in turn, foster economic recovery.

As part of the report, Ernst & Young carried out a survey of more than 1,000 entrepreneurs in G20 countries. It found that, although G20 governments are increasingly coming to recognize the value that new businesses bring to the economy, they can do much more to improve the overall entrepreneurial environment. This means fostering stronger entrepreneurial cultures; improving entrepreneurship education and training programs; broadening access to funding, particularly to young entrepreneurs; introducing more favorable regulations and taxation; and providing more coordinated support. Here are the key findings:

1) Entrepreneurship culture: strength breeds success. There is a strong connection between a culture’s perception of business failure and how favorable its climate is for entrepreneurs. Strong entrepreneurial cultures, such as the US and China, perceive potential failure less as a barrier than as a learning opportunity. The best way for governments to foster a stronger entrepreneurial culture

words David Craik

What entrepreneurs say

61%believe that promoting their role in creating jobs will improve their countries’ entrepreneurship cultures

80% say governments should facilitate access to funding for young entrepreneurs

61%perceive that simplifying start-up regulations in rapid-growth markets would have a high impact on long-term growth prospects

93%expect innovation incentives to have a medium or high impact on growth over the next three years

70%think incubators and mentoring programs will have a medium or high impact on growth over the next three years

ENTREPRENEURS

speak out

47

Analysis: Boosting entrepreneurship

in their society and business environment is to acknowledge entrepreneurs’ strong contribution to innovation and job creation. They are key to inspiring future generations.

2) Education and training: a broader scope is needed. There is a clear appetite for more targeted entrepreneurship education and training, particularly in rapid-growth markets. While 70% of entrepreneurs believe that students need to follow specific training if they are to recognize and seize commercial opportunities, most say that a broader education is necessary for success. Entrepreneurship training is too often viewed as a subdiscipline of business studies, when in fact it ought to embrace wider disciplines such as science and technology. Governments can help by broadening the scope of university entrepreneurship education and by creating opportunities to develop internship or work experience schemes that give young entrepreneurs the chance to work in business.

3) Access to funding: it is vital to tap into diverse sources. Funding continues to be the most significant challenge for the creation, survival and growth of successful

Startup America Partnership, USThe Startup America Partnership aims to bring the private sector together in order to maximize the success of US entrepreneurs — and to maximize the US’s competitiveness in an increasingly global society. Its partners provide high-quality resources that can help more start-ups to become high-growth firms.

Erasmus for Young Entrepreneurs, European UnionErasmus for Young Entrepreneurs enables new entrepreneurs to spend time working in an enterprise in another European Union country so that they can acquire the skills needed to manage a small or medium-sized enterprise. It fosters cross–border transfers of knowledge and experience among entrepreneurs.

Fonds Commun de Placement dans l’Innovation (FCPI), FranceFCPI funds are a form of Fonds Commun de Placement à Risques (FCPR) funds, created in 1997 to direct individuals’ savings toward innovative new companies

in exchange for tax advantages. FCPI funds specialize in venture capital (financing start-ups and innovative business ventures); innovative European companies must make up at least 60% of each fund’s assets. They allow for a 22% reduction in tax on the investment, as well as exemption from capital gains tax for all FCPI fund units held for more than five years. In 2007 alone, €624m (US$810m) was raised through 28 FCPI funds. Some major players (banks and insurers) have launched two new FCPI funds each year, ranging from €15m (US$19.5m) to €30m (US$39m) each.

R&D super-deductions, UKThis program provides tax benefits to companies engaged in R&D activity. The super-deduction is separated into two brackets. The first bracket, which applies to large companies, allows a 130% deduction on qualifying costs related to R&D. The second bracket, which applies to SMEs, allows a 175% deduction of qualifying costs and a provision for SMEs in a loss position to claim up to 24.5% of qualified expenditures as a cash credit.

Support structuresHere are just a few examples of successful initiatives from G20 governments and government partnerships that aim to boost entrepreneurship and economic growth

entrepreneurial companies. Notably, credit guarantees are emerging as an important means of addressing declining bank credit. Meanwhile, 14 G20 countries have launched public stock markets dedicated to fast-growth companies. More than a third (37%) of entrepreneurs state that they have experienced a deterioration in bank credit, with 62% observing that the situation facing young entrepreneurs is particularly difficult. In the absence of readily available bank loans, entrepreneurs are turning to business angels, venture capital and private equity funding. Governments can, therefore, help by providing credit guarantees, enabling business-angel networks to widen their scope and stimulating venture capital funding through tax advantages.

4) Good progress on regulation and taxation, but more can be done. Governments are increasingly recognizing that they have a significant role to play in shaping the environment for entrepreneurs. Indeed, in recent years, a number of countries have made it cheaper and easier to start a business. Many entrepreneurs (61%) feel that methods such as eliminating minimum capital requirements for new businesses would support their long-term growth

prospects. In the coming years, the most effective incentives will be those that are targeted at encouraging innovation.

5) Coordinated support: time to team. There is potential for better coordination among government agencies, business incubators, university resources and training programs to unlock greater entrepreneurial activity. In particular, young generations of entrepreneurs need help expanding internationally. Only 44% of entrepreneurs believe that these programs are coordinated well at present. Governments should do more to empower existing incubators, as well as providing more “one-stop shop” services that aim to simplify the registration and taxation procedures for people setting up new businesses.

At a time when economic growth may hinge on new business ventures, G20 governments would do well to listen and respond to the needs of existing and potential entrepreneurs.

More informationTo learn more about how G20 governments are boosting entrepreneurship in their countries, visit ey.com/entrepreneurship-barometer

Jean Mane explains how his family’s 141-year-old aromatics business has evolved

into a thriving international operation that is at the forefront of innovation in everything

from fragrances to flavorings

words Frances Hedges_ photography Ed Alcock

Flavor of the

month

Profile: Mane

48


T he walls of Jean Mane’s home are lined with paintings by local artists, and the shelves are stacked with curiosities he has gathered from antique fairs throughout the region. Clearly, this is

a man who values local history and tradition. “We have roots,” he says, “and we must never forget that.”

He isn’t just talking about antiques, either. Mane, the aromatics company of which he is President, has roots that can be traced back as far as 1871, when his great-grandfather Victor founded a small perfume distillery in Bar-sur-Loup, in the Alpes-Maritimes region of southern France. Today, the company boasts 21 manufacturing sites, 27 R&D centers and a workforce of 3,000 people worldwide, but its headquarters remain in the village where it was founded. The initials emblazoned on the factory roof — “V.M.F.” for “Victor Mane Fils,” or “Victor Mane and son” — provide a permanent reminder of the legacy that the current generation of managers owe to their forefathers.

Grasse rootsThe origins of the company lie in the vision of Victor Mane, who saw an opportunity to turn his bitter orange groves into a source of income. “In the early days of the perfume industry, farmers would grow flowers, pick them and sell them to wholesalers, who would then supply them to the factories in the nearby town of Grasse for distillation into essential oils,” explains Jean Mane. “By distilling the orange flowers into oil himself, Victor skipped two stages of the production process, and so the company was born.”

The focus on raw materials alone would not, however, have been enough to sustain the company in the long term. The opportunity to diversify came during the economic crisis of 1929, when the top French perfume houses could no longer afford to employ in-house perfume creators. Mane took on a number of those newly unemployed creators and used their skills to begin selling fragrance compounds, which were increasingly in demand not only for perfumes, but also for household products such as soaps and detergents.

The second turn of events came shortly after World War II, when the company seized its chance to move into supplying artificial flavors to the burgeoning canned-food industry. Mane’s growth target for 2016

US$1b

“Family governance has to be backed by independence”

Profile: Mane

That shift toward chemical production shaped the future of the company, enabling it to effect previously unimaginable transformations, such as the conversion of orange oil into spearmint for toothpaste. Jean Mane describes his father as “the first organic chemist of the dynasty,” while he himself originally joined the company as a research chemist.

The depth of scientific knowledge within the current workforce goes some way to explain the company’s success in manufacturing innovative products that include fragrances, food flavorings and ingredients for the pharmaceutical industry. Mane invests 9% of its annual revenues in R&D, as well as contributing a significant sum to the upkeep of production facilities.

“I want employees to feel they have the best possible conditions to work in,” he says. “That means having pristine factories and durable technology.”

Making his mark on the business took time, however. When Jean Mane became President of the board in 1995, his first task was to improve relations with the French Government, which was hostile to the company because of various positions his father had taken. “My challenge was to render the company politically correct, without compromising on the industrial and environmental results,” Jean Mane states. He rose to the challenge by becoming the first in his industry to adopt the United Nations Global Compact, a policy initiative for businesses that are committed to sustainability and social responsibility, in July 2003. “Corporate social responsibility was in our genes long before it came to the fore in the recent financial crisis,” he says.

Keen to ensure that future leaders do not inherit similar challenges — or, as he puts it, “so that we don’t transmit a hot potato” — he has planned carefully for the future of

the business. Although he will not name his successor until he retires, he intends to ensure that the chosen individual has been trained for the role, has a strong supporting team and, most importantly, has “the passion, the enthusiasm and the willingness needed to take the business further.” An independent holding company, Mane Investissements, secures 51%

of the shares and can take care of any disputes. “Family governance has to be backed by independence,”

explains Jean Mane, whose own experience confirms this. The lessons he has learned about leadership have come as much from the three male role models he calls his “spiritual

Mane’s innovative product range includes

food flavorings, fragrances and ingredients for the

pharmaceutical industry


Viewpoint

Family businesses have one key advantage over their competitors: their decisions are not dictated by external stakeholders. They can base their strategy on a long-term perspective without being at the mercy of short-term pressures, such as appeasing the bank or the capital markets with quarterly results.

Every advantage has a flip side, however. The long-term approach that characterizes family businesses relies not only on having strong financial independence, but also on achieving a consensus among stakeholders. Most of the time, enterprises governed by blood ties and a strong lineage are able to present a united front. Yet if a family

does enter into a disagreement about strategic direction, its problems will only be amplified by the added emotional investment that close relationships bring. This type of conflict is one of the key reasons why only 5% of family businesses make it as far as the fourth generation.

This is where independent bodies come in. A family business is more likely to make the right decisions if it employs an advisory panel. One option is to introduce a supervisory board, which can either have minimal influence, merely advising the

executive board, or can have equal powers, approving budgets and senior appointments. The right model depends on the family’s ownership strategy. More mature family businesses often have a holding company at the top, setting the strategy with the owners. Below that level, individual family members will take responsibility for separate divisions, running their own operation in different geographical areas or sectors.

The most common, and most significant, challenge that faces family businesses is that of succession planning. The selection of one family member over another to manage the business can result in conflict; meanwhile, the selected candidate may object to the direction in which the dominant shareholder wants to take the business.

The key is to communicate. Of course, not every member of the family will have the same level of interest in the business, but it is important to treat everyone fairly and equally. As the leader of a family business, you should let everyone express their interest in the business and balance those expectations with the needs of others.

Start this process early, and fix your retirement age as precisely as possible, whether you choose to leave at 65 or 80. Making your family aware of this date will enable you to plan ahead and avoid last-minute disagreements. By planning, communicating and inviting an independent eye, you can be among the 5% of family businesses that survive beyond the fourth generation.

Governing a family business Peter Englisch, Global and EMEIA Family Business Center of Excellence Leader, Ernst & Young

More informationTo learn more about the Ernst & Young Family Business Center of Excellence, please visit ey.com/familybusiness

Family businesses base their strategy on a long-term perspective

fathers” — one French, one German and one Japanese — as from his genetic father, who has always been of the “do-it-yourself” mentality. From one spiritual father, he learned the principle of the fourth week: the idea that a good leader devotes three weeks to his company and the fourth week to his clients.

“Clients are your best benchmark against the competition, so it’s important to meet with them regularly,” explains Jean Mane. “I spend more than 100 days a year abroad, whether in Asia, the US or Europe.”

Local focusThe strategy seems to be paying off: the company’s international operations are becoming stronger by the year, with 22% growth recorded in Asia in 2010. It was Jean Mane’s grandfather, Eugène, who launched the export business in the 1950s, when he founded affiliates in the US and Japan. Today, the company has a presence in 30 countries, with its own factories in many of these.

“I believe in keeping production local,” says Jean Mane. “For instance, we were the first in our industry to manufacture in Thailand. We employ local people and, although we train them in research centers in France, we recognize that they know best what appeals to consumers in their region.” Once the local company has paid back the initial investment costs, it can use its profits as it chooses.

The combination of rapid international growth and a continued focus on innovation stands the company in good stead. Although Jean Mane warns that economic uncertainty makes it difficult to set targets — “we may be on the eve of a double-dip recession, and we don’t know how bad it will be” — he is optimistic that the company will be able to increase sales from the current €479m (US$622m) to €770m (US$1b) by 2016.

While growth is important, Jean Mane has no intention of sacrificing the company’s independence in favor of size. “Big is not beautiful,” he maintains. “I’d rather be the number one in our clients’ hearts than in their core list of suppliers. That’s what makes this company the pride of the family.”


Profile: Virgin Group

“To be CEO is to live in a state of constant imperfection, and it can sometimes be frustrating and lonely. That’s why you must have a good team of people”

53

Going thedistance

With a portfolio that encompasses everything from travel to telecommunications, Virgin Group has come a long way from its origins as a mail-order record company. Outgoing CEO Stephen Murphy explains why he believes the brand is built to last

words Molly Bennett_ photography Mark Harrison

Stephen Murphy’s six-year tenure as CEO of Virgin Group took in a volcanic ash cloud, skyrocketing oil prices and the worst recession the world has seen for the best part of a century. But ask him if he

would change anything about it, and the answer is no.“I don’t think I would have done anything fundamentally

differently,” he says, “although I do wish I had foreseen the events of late 2008.”

In that, at least, he is not alone — but Virgin Group is not in the crystal-ball business. Not yet, anyway. The group, which posted revenues of £11.5b (US$18b) in 2009, is present in a huge range of sectors, including telecommunications, wine, health care and even space travel. It plans to expand into the retail banking and renewable fuel sectors, and is looking at the emerging economies as strategic expansion targets.

Clearly, it has changed considerably since Richard Branson founded it in 1970 as a mail-order record company. For one thing, it now calls itself a “branded venture capital organization,” focusing much of its attention on nurturing

54

new ventures. But Murphy, who stepped down from the CEO role at the end of 2011, says that the company’s bedrock values — fun, innovation, value and customer service — have remained constant throughout its 40-year history.

“The Virgin brand is very well understood by consumers,” he says. “Over the years, we have learned that we have to look at the inner proposition of what we do and ask whether it conforms to what people expect from us. If it doesn’t, we’re swimming against the tide.”

The company knows this from experience; in the 1990s, its Virgin Cola brand failed to win over consumers. But Murphy, who joined Virgin in 1994 as Finance Director, is sanguine: “It wasn’t a success because there was very little innovation or customer service we could inject into the market. It was an interesting experiment, though.”

Successes, however, outweigh failures in Virgin’s ever-expanding portfolio of companies. There are currently about 200, although Murphy notes that only 30 or so are “big trading businesses.” Among them is the health club chain Virgin Active, which has outlets in six countries, and Virgin Money, which offers credit cards and pensions in the UK, South Africa and Australia. In November 2011, it bought Northern Rock, the publicly owned British bank, for £747m

Starts selling records by mail order

Opens first record shop on Oxford Street

Launches Virgin Megastores

Launches Virgin Atlantic

and Virgin Cargo

Launches a record label,

Virgin RecordsLaunches

Virgin Games

Virgin Group now includes record labels, retail outlets, exported music publishing,

broadcasting, satellite television and film and

video distribution.Launches Virgin Holidays

1970 1971 1973 1980 1981 1984 1985


Virgin’s culture of fun and innovation manifests itself in

the vibrant décor of its London offices

Virgin through the years


(US$1.15b). The goal is to bring Virgin’s friendly customer service approach to the UK’s retail banking sector.

Media and telecommunications is another key area. With broadband provider Virgin Media well established in the UK, the company is now looking further afield: in June 2011, in partnership with Tribe Mobile, it launched Virgin Mobile in Latin America — the group’s first foray into the region.

Then there are its airline brands, which include Virgin Atlantic and Virgin America. Wholly owned by Virgin from 1984 until 2000, when Singapore Airlines bought a 49% share, Virgin Atlantic is arguably the company’s strongest international brand, trading on its flirty, glamorous image. Like other airlines, however, it has struggled in recent years. Murphy puts this down to two factors: first, that it relies heavily on the beleaguered financial services industry

Sets up Music Box as an independent producer of music programs

Launches Virgin Hotels

Launches Virgin Publishing

Launches Virgin Brides and

Virgin Trains

Launches Virgin Megastores

Japan

Launches Virgin Vodka and

Virgin Cola

Launches Virgin Active in

South Africa,and the UK

1987 1988 1990 1991 1994 1996 1999

to fill “the front of the plane,” as he puts it, and, second, that continued oil speculation has pushed up prices, putting pressure on the bottom line and, in turn, passenger prices.

Murphy admits that the airline industry is in for “a few tough years,” but says that the structure of Virgin Group should lessen the impact. “Our model makes us very responsive,” he says. “If you’re a mega-corporation, every decision goes back up to HQ, so it’s like turning round a supertanker. With our distributed model, the day-to-day executive control of the businesses is vested in the management teams, which can move quickly when needed.”

This model was put to the test during the recession of 2008–09. Having embarked on a program of expansion in the US, Virgin faced unexpected challenges when the subprime crisis hit. “We had to close down our new ventures in the US because they were cash-negative and we didn’t know where the bottom

was going to be,” says Murphy. “We felt it was time to conserve capital.” He points to the group’s reaction to the crisis as one of his proudest moments as CEO. “Everybody had a unified spirit and we moved incredibly quickly to a stabilized phase.”

Growth through reinventionLooking at the many and varied directions the company has taken over the years, you could be forgiven for thinking that its expansion has been slightly random. Murphy disagrees. “I’ve worked in large organizations where they write internal plans and forget that the world is changing around them; that approach can be fatal,” he says. “We’ve always been much more directional in our strategy. We look at geographies and industries and then seize our

56

Launches Australian airline Virgin Blue

Launches Virgin Cars

Launches Virgin Fuel, which aims to produce

clean fuel

Launches Virgin Healthcare

Launches Virgin Galactic

Launches Virgin Media

Launches Virgin Racing, a Formula

One team

2000 2001 2004 2006 2007 2008 2010


opportunity when we’ve found the right entry strategy, the right part of the market or the right part of the world.”

Much of this expansion has been led by Branson, one of the world’s true showmen-entrepreneurs. He relinquished executive control when Murphy took over as CEO in 2005, but remains inextricably linked with the brand. “I used to joke that Virgin was Richard Branson and 40,000 of his close personal friends,” says Murphy.

Working with such a dominant personality could be challenging, but, by all accounts, the pair were a dream team. “He wasn’t at all what I expected when I came here for an interview,” Murphy says. “I was expecting somebody who was more authoritative and less consultative, and I got the opposite. Richard listens to people on the shop floor because he thinks they have an insight into the day-to-day things that you lose when you’re in a management role.”

This egalitarian approach is present throughout the organization, which has a flat management structure, aiming for no more than four tiers. “Our executives must have the right values: integrity, hard work, a lack of arrogance and a sense of humor,” he says. “We don’t want the hired guns who go from job to job. We want people who are doing it not for the money, but because they enjoy it.”

The strategy is working: Virgin has lured some of the business world’s sharpest minds from higher-paying jobs. It was also a forerunner in innovative employee benefits, from pool tables to progressive maternity and paternity policies. With many organizations having copied Virgin’s idiosyncratic

“We don’t want the hired guns who go from job to job. We want people who are doing it not for the money, but because they enjoy it”

Source: virgin.com


Viewpoint

Innovation is the driving force behind the shifting landscape of corporate life. As economic conditions change, companies have to develop more creative approaches to growth.

The major indexes of companies worldwide show significant transfers of power. The Global Forbes 2000 has seen a 60% shift in the past five years. The Russell 3000, which represents approximately 98% of the investable US equity market, has turned over 50% in the same period. This means the market leaders of today may not be the market leaders of tomorrow. In their place, there will be entrepreneurs who employ new techniques and offer pioneering services.

So how do you fan the flames of innovation and thereby ensure sustained market leadership? While there is a danger that establishing formal structures can inhibit creative freedom, there are opportunities for companies to institutionalize innovation so that it becomes a key part of their growth strategy.

“Intrapreneurship” initiatives, which aim to foster entrepreneurship within an organization, can help companies to rise to, or maintain, market-leading positions. Such initiatives enable individuals or groups to explore high-risk, high-reward ideas, while benefiting from the support and protection of larger, well-established corporate employers. Employee success depends on two things: first, genuine endorsement from senior management, and second, the understanding that failure will not result in punishment or redundancy.

Without such assurances, there is a risk that intrapreneurs will leave, taking their most lucrative ideas to another company.

Intrapreneurship can bring about positive change in a company, including the possibility of improving its financial position. To make the most of this potential, companies should take the following measures: • Set up a formal structure for

intrapreneurship. Give people enough time away from their day jobs to work on creative projects, but provide a formal process for new product development.

• Ask employees for ideas. They have their fingers on the pulse of the marketplace. Encourage them to contribute to the innovation dialogue.

• Assemble and unleash a diverse workforce — diverse groups come up with more innovative ideas.

• Design a career path for your intrapreneurs. Without career prospects, they will look elsewhere and take their ideas with them, possibly to your competitors.

• Explore government incentives for innovation. Governments around the world are offering new tax breaks and other incentives for research and development.

• Prepare for the pitfalls of intrapreneurship. Not all ideas will produce successful new products.Entrepreneurial thinking is not

optional. Those who stand still fall behind, and market leadership changes regularly. This is why it’s important for all companies — even large, established ones — to cultivate innovation through intrapreneurship.

Fostering intrapreneurshipMaria Pinelli, Global Vice Chair, Strategic Growth Markets, Ernst & Young

More informationFor more insight into innovation, please visit ey.com/innovation or to obtain a copy of Innovating for the next three billion, email Kam Sahota: [email protected]

approach, Murphy says its key benefit now is a culture of empowerment. “We give people more license and more opportunity earlier in their careers, and I’ve never been disappointed,” he says. “Young people learn by being stretched.”

This isn’t just lip service: David Baxby and Josh Bayliss, both of whom are just 38, have taken over from Murphy as co-CEOs. “Virgin is a hybrid between a corporation and a PE fund, so we’re quite suited to this structure,” says Murphy. Baxby and Bayliss have been with the company for about seven years, so they are familiar with its culture. Their job will be to execute the group’s ambitious five-year plan, increasing its presence in Latin America, the US and, potentially, China.

So what is next for Virgin’s former CEO? Along with his other commitments, he will continue in an advisory role at the group, nurturing start-ups from the “three guys in a garage” stage to going public. He is working with the £2.5b (US$3.9b) Business Growth Fund, which will use financial backing from five UK banks to give equity investment to the previously under-served SME sector.

Having come from a finance background, Murphy faced a steep learning curve when he was named CEO. “To be CEO is to live in a state of constant imperfection, and it can sometimes be frustrating and lonely,” he says. “That’s why you must have a good team of people. The biggest difference, I found, is that it is much less doing it yourself and much more letting people achieve what they can achieve.”

The immediacy of social media, coupled with people’s reluctance to complain directly, is a challenge for all companies. Virgin Group knows this and has a team monitoring Twitter, Facebook and other social media. “We embrace social media as real-time customer feedback,” says Murphy. “It’s almost free market research, but it means being prepared at any time.”

Murphy gives the example of a passenger on Virgin America who ordered a drink and then tweeted his displeasure at how long it was taking to arrive. A Virgin team member picked up the tweet and notified the crew, who delivered his drink immediately. For Virgin, it was a way of addressing a complaint while generating good PR.

Customer service in the new-media age


Profile: DuPont

The science of

success

or a business leader, it’s the proverbial good news, bad news scenario, only in this case played out mercilessly on the world stage. We want to make you the CEO

of our US$30b company — but you’ll have to lead it through the worst recession of our lifetime.

That was the reality facing Ellen Kullman when DuPont’s board of directors named her CEO in late

2008. She would be only the 19th CEO in the 209-year history of the Wilmington, Delaware-based company. After having worked at the science-based products and services

company for 22 years in a variety of roles, on the first day of her stewardship, Kullman was faced with a seemingly impossible task: steering the company through a time when sales and revenues were crashing as customers retreated into the safety of cash.

But Kullman was prepared. The moment she knew the top job was within her reach, she started strategizing. “I had the beginnings of a plan knocking around in my head and on paper,” she recalls. On 1 January 2009, she took over the reins; she is now also Board Chair.

“I pulled out the paper and started thinking about it again, and then the world financial markets collapsed,” she says. “Demand collapsed in every country, in every business outside of agriculture, in a three-month period, and it was totally unprecedented. We’ve seen what we thought were some bad recessions, but none of us had ever seen anything like that before. We literally had to get everybody to stop what they were doing. We’d review a business, determine what was going on, and a week later, it would be different.”

In her first few months in the top job, Kullman eliminated about 4,500 jobs and narrowed DuPont’s focus to 13 business lines. And that was just the start. “We set out to further streamline and simplify the company, and we took out a layer of leadership and got really clear on what success looks like coming out of the recession,” says Kullman.

That clear view of the business began immediately after she became CEO. “We started within days,” she says. “If we used to run a monthly review process, it became a weekly process, and if a business was running a weekly

process, some months it was a daily process. And you had to have complete transparency because, believe me, the sooner we found out the real situation, the sooner we could make an appropriate decision.”

The results were nothing short of stunning. Once considered a staid corporation, DuPont emerged more streamlined, productive, agile and intimately connected with its customers. Driving 2010 revenues of US$34b, Kullman has led DuPont to meet and exceed Wall Street’s expectations for the past 11 consecutive quarters. Earnings increased by 23% in the third quarter of 2011, beating estimates by US$500m. “We’re a large company with 60,000 employees operating in 90 countries,” she says. “You build US$34b in revenue one customer at a time, one country at a time, one business at a time.”

Focus on R&DKullman attributes DuPont’s success to its focus on science and calls it a “market-driven science company.” “We believe the future is in science, so if you continue to innovate, then your ability to be relevant to your customers — and your ability to succeed in the marketplace — is a lot higher than it would be,” she says. “As we came through the global financial crisis, we chose not to reduce research and development.”

Kullman has fostered an entrepreneurial spirit throughout her tenure at DuPont. When she was head of the successful US$2b titanium dioxide business, she took on the challenge of starting an entirely new venture for DuPont — something that both her DuPont mentor and her husband advised her not to do. Despite staggering odds against it, that safety-consulting business is now a profitable line for the company.

“I think our employees see me as transparent and accountable,” says Kullman. “I took a risk in my career

“You build US$34b in revenue one customer at a time, one country at a time, one business at a time”

The science of

success

Ellen kullman has not only led DuPont through the global

economic collapse, she has also met and exceeded Wall

Street’s expectations. She tells us why innovation has been the key to her success

words Lester Picker_ photography Jonathan Hanson

59

“I think our employees see me as transparent and accountable”

and started the safety business. I took on bio-materials when it was in its infancy.” She wants her executives to know she understands risk-taking and that many of those risks have paid off. She sees her CEO role as creating a safe environment for such entrepreneurial behavior to flourish.

Staying close to the market is critical. “I love what I do and that’s why I can make it work,” she says. “Somewhere along the line, I became phenomenally market driven. That’s what excites me; that’s what gives me energy. If you’re out there, you’ll find out not only what you’re doing well, but also what you should be doing better. You need to be engaged and open and willing to listen.

“For my whole career, that has been what gets me up every morning. I’m much happier on days when I’m going off to see customers.”

That approach paid off immediately when Kullman took over at DuPont. Encouraging her executives to call on customers, she hammered home a favorite question: “What is your right to win?”

“I want to know what is their right to beat their competition in that marketplace,” she says. “What makes them different from their competition? Do we have superior science or a superior cost position? Do we have a strong brand that will help them in their marketplace? Do we provide services that are differentiated?”

In Kullman’s view, it all boils down to science. She cites a new, lower-cost technology for television screens that allows customers to achieve the same level of brightness and display quality as other, more costly manufacturing processes. “That’s their right to win,” she says with pride.

Rolling with the tidesIf there is one thing that characterizes global business today, it is constant, unrelenting change. At DuPont, that plays out in unexpected ways. Just five years ago, agriculture, nutrition and health made up 20% of revenues; today, that number is 33%. Agriculture alone is up 41% year on year.

To enable DuPont to respond to those challenges, Kullman has championed what she calls “the Global Collaboratory.” This is, in essence, a laboratory without walls or boundaries.

“Pace, time to market, and relevance are important, so how do you get that?” she asks rhetorically. “You get it by collaborating, so we’ll collaborate with our customers because they have science that makes them operate better, and how our materials play into that science is really important. If our scientists work together, they get it done faster than if we each work alone.”

Right: Kullman has instilled a collaborative ethos among DuPont’s

scientists. Left: The ballroom of the Hotel

du Pont, opened by company president

Pierre S. du Pont in 1913

Profile: DuPont


Viewpoint

At a time when entire economies and industries are still recovering from tough financial times, businesses are looking to balance survival strategies with finding new sources of growth. The challenge is particularly acute for large companies, which often turn inward in a recession, cutting costs and sticking rigidly to strategic plans.

Experience shows they should be doing just the opposite. The top companies maintain their commitments to innovation when the economy is underperforming.

At all stages of development, there is a clear connection between entrepreneurship, innovation and economic growth. By developing new products and services, revamping organizational processes and adopting fresh approaches to partnerships and customer relationships, corporations can flourish as much in a recession as in a healthy market, if not more.

Larger corporations can build and sustain an entrepreneurial culture in four ways. First, accept uncertainty. Traditional, data-driven planning and forecasting do not function reliably in an unpredictable economy. Companies may prefer to discard their process of creating annual strategic plans and make decisions in real time, focusing on market intelligence as it comes in. The biotechnology industry, for example, has always operated with a high degree of uncertainty, so its business model involves taking multiple avenues to potential success.

Second, use innovation to reshape business practices. While Silicon Valley entrepreneurs often become

superstars who draw our attention, larger companies in mainstream industries tend not to get the credit they deserve for their creative operations or supply chain solutions. Reconsidering preconceived ideas about how to do things in these areas can lead to dramatic results.

Third, deploy human capital strategically. In tough economic times, as weaker competitors abandon unprofitable ventures, stronger companies can leap ahead by encouraging their employees to innovate. Giving them the freedom to try new things — and even make mistakes — can result in new products or services generating lucrative revenue streams in the long run.

Finally, adopt an inclusive, collaborative, multinational approach with partners, customers and your workforce to tap into collective ingenuity. Taking advantage of diverse backgrounds, skills and ways of seeing the world creates the kind of invigorating conversations that favor innovation. An Ernst & Young report, Groundbreakers: using the strength of women to rebuild the world economy, showed that diversity constitutes a strategic advantage for companies that want to design a new product or enter a new market. Multinationals benefit from tapping into global talent and multiple perspectives.

Businesses that nurture and stimulate collaborative and creative thinking in their ecosystems will build more innovative organizations and strengthen their competitiveness while fueling the economic recovery.

Collaborative innovationMark Wennell, Partner, Advisory Services, Ernst & Young US LLP

More informationTo find out more about how to drive growth through innovation in your organization, please contact Andrea Vogel at [email protected]. You can also download a copy of Ernst & Young’s report, Igniting innovation: how hot companies fuel growth from within, at ey.com/innovation

To Ellen Kullman, the current and looming scarcity of qualified engineers is a real problem for American industry. “If you look at young kids today, they don’t know what engineering is. I go into middle schools, and they don’t know. Their parents don’t know.”

Kullman, an engineer herself, has become a major player in reviving interest in the career. “It’s a great way to make a living. There are engineering jobs going wanting in this country today because we can’t find the skill sets. People like me have an opportunity and a platform to help.”

She has increased internship opportunities for engineering students at DuPont, and has teamed up with colleges, the National Academy of Engineering and other professional societies to enhance engineering’s brand. “Engineering is about problem solving,” Kullman points out, “and it is actually one of the broadest undergraduate degrees you can have, because you can do almost anything with it.”

Engineering a comeback

Whenever DuPont scientists see examples of successful collaboration, they talk about them. More importantly, their customers talk about how significant that collaboration was to the process, says Kullman.

And the future? “One of the biggest things that’s going to change in DuPont’s future is biology and biotechnology,” Kullman predicts. “It has an impact not only in areas like pharmaceuticals or agriculture, but also on materials, on fuels, on so many future products. I’m living with the success we’re having now based on decisions that my predecessors made about where to put research and development dollars, because a lot of this is [on a] long cycle.

“Now, we’re going through a great renewal of our business,” she adds. “The majority of the company is [made up of] baby boomers. We’re going to have a lot of turnover in the next five years. So we have a greater chance to create a different culture than we’ve ever had in our history.”

62

Regular: Doing business in …

CThe world’s second-largest economy offers a rich seam of business opportunities. But if companies are to succeed, they must understand China’s business, cultural and political systems – and be prepared to invest time and energy

GDP growth

10.4%(2010)

Doingbusiness in

hinA

Population

1.37b

GDP

US$6.27t(2010)

words Frank Nelson


Jeffrey Joerres has been doing business in China since the mid-1990s. Fifteen years ago, says Manpower’s President, Chairman and CEO, people just wanted

a job. “Now they all want to be Bill Gates.”China’s ballooning economic power may

have caught the imagination of businesses from throughout the developed world, but some illusions must be shattered before entering this market. Companies that think they’re going to a communist country where everyone is equal are in for a big surprise. “They want money as badly as you want money,” says Joerres. “They just want it in a different way.”

For anxious executives edging toward this vast new marketplace one cautious step at a time, there is both good and not-so-good news, says Dr. Robert Lawrence Kuhn, an international investment banker, corporate strategist and advisor to China’s senior leadership in government and business.

The good news, he says, is that the Chinese, who are now driving the world’s second-largest economy after the US, want to do business with the West. In many ways, they want that more than the West does.

Kuhn says that, regardless of major domestic issues, such as social and economic divides, pollution and sustainable development, economic development will continue to be China’s overall priority.

The not-so-good news from the West’s point of view, however, is that the Chinese insist on playing by their rules. And navigating the intersection of business, culture and China’s multi-layered political system can seem a daunting challenge.

“Yes, it’s complicated; yes, it’s hard; yes, it doesn’t always play out the way you drew it on the charts. But you have to be there,” says John Rice, Vice Chairman of General Electric (GE).

Rice, head of the company’s international business, with special emphasis on China and other potential high-growth regions, says that GE currently has about two dozen joint ventures in China. “I think running a joint venture in China teaches you what it’s like to be a partner,” he says.

“You’d better be prepared to create a win/win, or that thing is not going to work.”

Robert Nardelli, former Chairman and CEO of Chrysler and Home Depot, and CEO of Cerberus Operations & Advisory Company, has been dealing with China for about 30 years. He believes that doing business there is all about personal commitment and having people on the ground.

“If you want to be in China, a customer call has to be a car ride, not an airplane across the ocean,” he says. “You really have to make a commitment. This is a long-term game and they look for your presence to show your level of commitment. My experience is that you cannot launch and leave.”

Nardelli also advises adjusting the Western corporate mind-set. It’s a society of instant gratification, used to quick decisions, but in China, many business delegations don’t have the authority to say “yes.” “You need to be patient, persistent and unwavering if that’s the direction you want to go in,” he says.

Joerres, who heads a global recruitment and staffing company with offices in more than 80 countries — 27 of them in China — agrees. He says the Chinese want to trust and understand the people with whom they’re doing business, so it’s important to invest time in the relationship. “It’s not a handshake, it’s a courtship,” he says. “You go through these ebbs and flows of the relationship.” He adds that China is more than just a country. “We look at it as a major client,” he says.

Facing the competitionKuhn discounts any Western wariness of China. He says Chinese businesses are sharply focused on one another and will

probably try to play outside companies against their competitors. “That’s the new China,” he says. “They are so competitive with one another.”

Joerres says that companies hoping to enter the market must bear in mind the considerable social and economic divide between the richest and poorest in China. It imports Ferraris and fine French wines for fabulously

wealthy individuals, while millions of farm laborers live at the other end of the scale. “If you’re going into China, you can’t play in the middle to make good money,” he says. “You’ve got to decide which market you’re going after.”

Capital and opportunityAgainst a background of mass urbanization that’s likely to continue for many years — and the need to service that migration from the countryside to new cities — Rice sees opportunities in industries such as energy, water, transportation and health care.

Kuhn says that investment money is available, adding that the capital markets in Hong Kong are “perhaps the strongest in the world,” buoyed by the sense that China and Asia are so robust.

So, how do you start doing business in China? It’s definitely not by arriving at the Shanghai airport and trying to find your own way around. “You can do that for a vacation,” says Joerres, but for business “you need some good, trusted contacts.”

Kuhn says that one effective way of doing business, especially for large or medium-sized companies, is at the provincial level. A single Chinese province can have 50 million to 100 million people, the size of many countries.

China is ranked at number 78 on Transparency International’s 2010 Corruption Perceptions Index of countries. “That’s part of the risk of doing business in many of the developing and emerging countries,” says Kuhn. “It’s definitely a consideration.”

He adds that it can be harder for small companies that are dealing with this issue. However, there are some legitimate alternatives, such as retirement benefits and stock options, that may help cement a deal.

On a more positive note, Rice says that security of intellectual property may not be the stumbling block many businesses imagine. “Our experience is that you can protect what you need to protect,” he says. “It’s a risk, but it’s a risk everywhere.”

“If you want to be in China, a customer call has to be a car ride, not an airplane across the ocean”

More informationTo learn how Ernst & Young can support your business expansion to or within China, email Albert Ng at [email protected] or speak to your local Ernst & Young contact.


Regular: Beyond profit

S ue Riddlestone has always been ahead of the game. When she co-founded the UK-based BioRegional in 1992, along with Pooran Desai, consumers were only just beginning

to recognize that the planet was not indestructible. But she and Desai had already realized that overconsumption of resources was a driving force for environmental degradation.

Together, they set out to address what would become one of the biggest concerns of the 21st century. “People were gaining a greater understanding of what was happening to our planet, but we already had an idea of what was needed,” says Riddlestone. Their goal was to set up enterprises and initiatives to show how everyone can live sustainably.

Registered as a charity in 1994, BioRegional provides practical solutions for sustainability. At the heart of the enterprise is its “One Planet Living” vision of a sustainable world in which people live within the natural limits of the planet’s resources. This vision underpins all the projects that BioRegional runs on behalf of companies and policy-makers.

Through fund-raising and the support of former employees, BioRegional has established offices worldwide. It has built partnerships with global organizations that share its vision, as well as establishing subsidiary companies — in sectors such as property development and new technology — to communicate it more widely. The partnerships help to broaden the organization’s influence, while the businesses that share the BioRegional name retain a relationship with the parent organization through a profit-sharing agreement.

Grassroots change

BioRegional’s work shows that sustainable living does not have to be time-consuming or expensive. “We are using 50% more resources than the planet can replenish annually, as is evident in climate change and the rapid disappearance of the rainforests,” says Riddlestone. “Yet by using resources more efficiently, we can build sustainable communities and businesses within the normal range of costs.”

So far, this approach is working. Companies in more than 50 countries have downloaded the One Planet Living toolkit. BioRegional has contracts to run projects in 12 of these, from a community resort in Portugal to initiatives in parts of China that are experiencing rapid urbanization. BioRegional sends representatives to oversee the progress of every project.

It is formalizing its training and education model so that other organizations can use its methods cost-effectively.

There have, of course, been challenges along the way. When the construction

sector in the UK and the US ground to a halt during the recession, BioRegional struggled to maintain its community-building efforts. But Riddlestone believes that even difficult circumstances create new opportunities.

“They say ‘When one door closes, another opens,’” she says. “We are instead working with the UK Government’s Green Deal scheme to make homes more energy efficient, offsetting the costs against the energy savings.”

Riddlestone is working hard to raise BioRegional’s profile. This year, she will speak at the Earth Summit in Rio de Janeiro and BioRegional will host a visitor center in the Athletes’ Village at London 2012 to promote sustainability.

The more Riddlestone can broadcast BioRegional’s message, the closer she is to bringing to life her vision of a healthier and more sustainable planet.

“We are using 50% more resources than the planet can replenish annually”

Sue Riddlestone, co-founder of BioRegional, believes that a little effort

goes a long way when it comes to building a greener future

words Helen Brown_ photography Courtesy of BioRegional

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