Exchange Magazine issue 3 by the marketing cafe

ISSUE 03

T H E S C OT T- M O N C R I E F F BU S I N E S S J O U R N A L

SOCIAL ENTERPRISE INSIGHTS FOR SOCIAL ENTREPRENEURS FROM KAREN McGREGOR OF FIRSTPORT

P 12

EXCHANGE I N S I D E S COT T - M O N C R I E F Fâ&#x20AC;&#x2122;S C L E V E R LY C R E AT I V E C L I E N T S 02

O W N E R M A N AG E D B U S I N E S S E S : S O F T E R A P P R OAC H 08

B U I L D I N G T R U S T I N C I V I C S COT L A N D 03

W H E N S O C I A L A M B I T I O N D R I V E S G R O W T H 12

C H A R I T I E S : W O R K I N G S M A R T E R N OT H A R D E R 06

P R OT E C T I N G YO U R P O C K E T: G A M E C H A N G E R S 15

P R O F E S S I O N A L S E R V I C E S : T E C H N O LO G Y A D VA N C E S 10

L I B R A RY O F M I S TA K E S 18

Tayburn has been innovating in design for a range of blue-chip clients since the late 70s, but their approach has never been fresher. This year, it’s creative and digital work has been nominated for three Marketing Society Star awards, including a transformational design and branding project with Black Wolf Brewery.

Architect Reiach and Hall Limited is leading the pack after creating the state-of-the-art ‘Oriam’, Scotland’s Sport Performance Centre at Heriot-Watt University in Edinburgh.

INSIDE SCOTT- MONCRIEFF’S

Reiach

and Ha

ll Limite

CLEVERLY

Tayb

CREATIVE

olf Brewery urn: Black W

CLIENTS

d: Oriam

DID YO U K N OW ? OV E R 9 5 % O F O U R C L I E N T S S TA T E D THAT THEY WOULD RECOMMEND US TO OT H E R S

This year, in line with Scotland’s Year of Innovation, Architecture and Design, we celebrate our clients leading the way in invention and creativity.

Dukosi an

d Par Equit

Page \ Park Architects: Theatre Royal, Glasgow © Andrew Lee Photographer

Par Equity is an active investor in innovative businesses of all shapes and sizes. Par, along with Scotland’s other angel syndicates, has provided much needed equity funding to back Scotland’s most innovative pioneers. One such investment is Dukosi, who is at the cutting edge of disruptive battery management technology, revolutionising electric vehicles and energy storage.

Page \ Park Architects designed the transformational foyer extension for Scottish Opera at the Theatre Royal, Glasgow, Scotland’s longest running theatre. EXCHANGE | 2

CHARITY

BUILDING WHEN

WORKING SMARTER, DIVIDENDS FOR CHARITIES NOT HARDER PAYS nfortunately, it looks like this pressure won’t be releasing anytime soon. So, it’s down to charities to shine the spotlight inwards, and see, if by increasing efficiency and identifying innovative ways of making savings, they can continue to function and grow. In many cases, there is much that can be achieved by simply unlocking the hidden resource within.

internal ways of working – all with an eye on the bottom line. After all, the more charities can save, the more resources can be used for front line service delivery.

the candidates’ first day on campus. This review allowed the institute to understand what potential students were ultimately looking for and how they could meet these needs. For example, the institute was investing money sending staff around the world to interview potential candidates and to sell the institute to them. However, it turned out that they were failing to send the correct staff. Students stated that they chose the institution based on who they would work with and the reputation of its lecturers, yet the institute was sending support staff to meet students – not those who students wanted to meet and work with. Following our review and recommendations, the institute now sends out more high profile staff who are more likely to attract students.

CHARITIES: WORKING SMARTER NOT HARDER

which was far more efficient, appropriately staffed and run, and, ultimately, better placed to deliver its services.

IN CIVIC SCOTL AND INNOVATION Organisations in the third sector have always been open to new ideas, and now it’s no different. Many are ‘working smarter, not harder’ – and as a result are enjoying a whole new lease of life. These are the organisations that have implemented good practice to make themselves more efficient, and have consequently maximised the resources available for their charitable purposes. Innovation comes in many guises, and can revolutionise operations, service offerings or

INNOVATION COMES IN MANY GUISES, AND CAN REVOLUTIONISE OPERATIONS, SERVICE OFFERINGS OR INTERNAL WAYS OF WORKING – ALL WITH AN EYE ON THE BOTTOM LINE.

PROCESS REVIEW However, it’s not all about cutting back – there are many ways to improve the efficiency of organisations, and many have successfully saved money as a result. There are some key questions charities should ask themselves: How do we do things? What steps are involved? Can we remove some of these steps but still achieve the same outcome? By taking this approach, some charities have been able to recruit more staff, yet save money. For example: A childcare charity we worked with was looking to implement a new finance system, however, before doing so, they wanted to ensure they were making the most effective use of their current resources. Our review identified unnecessary activities that were being carried out by staff, such as producing spreadsheets in addition to the existing finance system. This meant that data was entered twice; not a very effective use of staff time – nor the charity’s resources!

TECHNOLOGY ADVANCES A Scottish higher education institution reviewed its entire student recruitment process, from the first look at its website to

Another charity developed its procurement functions so that its arrangements were aligned to best practice across every area. However, on closer inspection, it turned out that by constantly striving for best practice more akin to a far larger organisation, it was actually detracting attention away from its service delivery. Gold standard isn’t necessarily appropriate in every case – especially for a five person function. A review resulted in new staff being taken on to replace a reliance on temps, tightening of spending controls and a move away from costly wastage. The end result was a charity

Our review resulted in new staff being taken on to replace a reliance on temps, tightening of spending controls and a move away from costly wastage. As a result, the charity’s procurement function is far more efficient, appropriately staffed and run, and better placed to deliver its services.

STEPPING BACK Some would say it’s only a brave organisation that instigates a comprehensive review of their functions. However, this is not true – it is also one that is committed to making sure their organisation is run in the most efficient and effective manner, and in delivering the best possible outcomes. Taking a large step back can benefit a charity enormously, even in the simplest of areas, and progress really can be made.

Gillian Donald, Partner and head of Scott-Moncrieff’s charities division

PROGRESS ISN’T MADE BY EARLY RISERS. IT’S MADE BY MEN TRYING TO FIND EASIER WAYS TO DO SOMETHING. Robert A. Heinlein

EXCHANGE | 6

EXCHANGE | 7

HOW SHOULD PROFESSIONAL SERVICES FIRMS RESPOND?

Professional services firms tend to design their strategies to respond to market changes, sector fluctuations or competitor moves, but disruptive technologies offer up a completely different proposition, and firms must be prepared to respond to some pretty significant changes. Scott-Moncrieff asked Chris Yapp, a consultant specialising in Futures Thinking and Innovation, to explain what the future may hold, and how professional services firms should meet it head on.

ver the last few years, there have been many articles, books and conference speeches suggesting that professional services firms will be impacted by technological developments in robotics, artificial intelligence (AI) and “big data”, just as much as those in the technology and manufacturing industries. A recent study, “The Future of Professions”, argues that professional work will be impacted in a manner and scale as has happened to factory and office work since the 70s, with a separate study from Oxford University suggesting that 47% of today’s jobs are likely to be automated within 20 years. TAKING ACTION The late Roy Amara, past President of the Institute for the Future, is most remembered for his observation: “The history of technology can be characterised as the overestimation of what can be achieved

change is underway. Much cannot be anticipated.

AUTOMATION Let me illustrate this challenge with reference to professional services. Developments in AI in law, for example, offer the potential to automate many tasks that today’s solicitors undertake during their training. In the short term this may mean fewer junior lawyers are required, but a decade DID down the road, will this YO U K N O W ? immediately and the automation have affected WE ARE THE OLDEST underestimation the wisdom and insight of A C C O U N TA N C Y of the long-term the next round F I R M I N S C OT L A N D consequences”. of partners and business WITH A CLIENT leaders? STILL WITH US F R O M 17 9 2 I have some practical Perhaps even more advice for turning that frightening, observation into actions. where will the next round of partners and business leaders come from if there are no junior lawyers First, if the advocates of technologyworking their way up to this level? driven change suggest that this will happen in X years, treble the time. So, if you’re told your firm will be disrupted in Technology may be an enabler of this five years, assume 15 years as a starting kind of disruption, but it is not the point. However, the transition will take only factor in effecting improvement you 15 years from when you start, and change. It is the combination of so waiting five years and hoping the technology with new business models, direction will be clearer is highly risky. governance structures and new skills and competences that ultimately drives forward organisations, sectors and supply Second, if the suggested impact is Y, chains. The need to combine these multiply by five. What the advocates important factors is often the ultimate often miss is that the biggest impacts cause of significant time lags. are indirect and only apparent after the

PROFESSIONAL SERVICES: TECHNOLOGY ADVANCES

WHEN SOCIAL AMBITION N DRIVES GROWTH When ambition is channelled well, great things can happen. That’s certainly true for Karen McGregor, Chief Executive of Firstport, whose fierce ambition for social enterprise is driving the sector forward. o-one can doubt the growth of the social enterprise phenomenon, changing the world through business. There are now around 5,200 social enterprises in Scotland, with 42% of those formed in the last 10 years alone as social enterprises use business as a response to current economic issues, by generating jobs, propping up community resources, and creating a focal point for good.

SCALING UP However, it is inevitable that for the sector to thrive, some social enterprises will need scale to become big businesses, and with this scale comes a payoff – a significant boost to social impact. This is where Firstport comes in: “We’re not just about helping social enterprises to start up – if they are going to make their mark, we must help them scale up. This is the way to make social enterprise more impactful, by finding and supporting those that have the potential for growth and helping them realise their ambitions.” says Karen.

EXCHANGE | 10

WE’RE NOT JUST ABOUT HELPING SOCIAL ENTERPRISES TO START UP – IF THEY ARE GOING TO MAKE THEIR MARK, WE MUST HELP THEM SCALE UP .

EXCHANGE | 11

But how do you tackle the difficulties associated with scaling up? The answer is LaunchMe, an accelerator programme being delivered by FirstPort for Big Lottery Scotland, and it’s all about stimulating growth.

WHEN SOCIAL AMBITION DRIVES GROWTH EXCHANGE | 12

with all of those things. We work hard to find potential for the businesses on our programme, and then support them all the way.”

14 social enterprises are already going through LaunchMe, having completed a selection process to join the programme. From here, every stage of the upscale process is designed to offer businesses a boost – whether they eventually go for funding, or not. ADVICE AND PLANNING First of all, the leaders of social enterprises work with a range of advisers, like ScottMoncrieff, to sharpen up their plans. What can be achieved? What scaling is appropriate? How much funding is required? What could the end result be? How sustainable are the plans? Is outside assistance required?

Then the advisers and Firstport work together to deliver the more intangible assistance required by a business to become investor ready. Confidence is a huge issue for social entrepreneurs, as Karen acknowledges: “Simply having assistance to pull together a business plan and discuss ideas and plans helps to build confidence. Social entrepreneurs have a huge amount on their shoulders – most business leaders are driven by commercial needs, but imagine having the added pressure of delivering social impact too. There are so many people relying on social enterprises and focusing on that responsibility can sometimes distract from the opportunity. A good business plan can help a social entrepreneur see the wood for the trees, and start to build confidence in both their proposition and potential.”

PROTECTING YOUR POCKET : GAMECHANGERS Karen continues: “Social enterprises face significant challenges – mainly to do with recognising the potential of their business, building the confidence to move it forward, and then having the skills and contacts to access funds for growth – we can help

SOCIAL INVESTMENT The next leap is the funding – because no matter how good a business plan is it nearly always needs funding. Having made the most of the expertise available to them and

EXCHANGE | 13

Trust is a deeply personal affair. It is grounded in personal experience and knowledge, but in today’s modern age, it can often be formed through hearsay or by evaluating others’ experiences. Sometimes, through the power of social media, this can result in being Designed by The Marketing Cafe Ltd. influenced by the opinions of people we don’t even know. PROTECTING All correspondence to: Exchange Magazine,

YOUR Scott-Moncrieff, POCKET Exchange Place 3, Semple

It’s little wonder that trust is becoming increasingly important to public facing organisations, such as those who deliver the services many of us interact with regularly. Public sector partner at Scott-Moncrieff,

Street, Edinburgh EH3 8BL, T: 0131 473 3500.

THE GAMECHANGERS Gary Devlin, says: “Developing a culture © 2016 Scott-Moncrieff. All rights reserved. If 2015 was dominated by pension reform, this year brings with it a raft of of trust should be a critical aim for all new rules that may have a bigger on your it may seem Noeffect part offinances thisthan publication may be reproduced at first. Jeff Salway, a personal finance journalist, spoke to Scott-Moncrieff organisations, however this is particularly partner Morag Watson, a specialist in personal tax planning and wealth the written permission by any means without management, to pick out some of the most significant. true for public sector bodies who are of the copyright owners. Although every effort has been made to ensure the accuracy of this accountable to taxpayers. EXCHANGE | 14

EXCHANGE | 15

Continued overleaf

EXCHANGE | 3

SOCIAL ENTERPRISE

EXCHANGE HIGHLIGHTS

DID YO U K N OW ? WE L AUNCHED A NEW STRATEGY IN 2015, WHICH AIMS TO INCREASE INCOME BY 5 0 % TO £ 18 M OVER THE NEXT FIVE YEARS

PERSONAL FINANCE

Charities have gone through a hard time of late, with the recession biting at both ends – firstly in terms of falling or unpredictable donation levels, and secondly, due to the continuing public sector funding cuts. The net result is a sector under real pressure to maintain the crucial services and support it offers to an often vulnerable or remote client base, whilst at the same time keeping its costs to a minimum.

publication, the publishers cannot accept responsibility for any errors or omissions.

cott-Moncrieff has completed comprehensive research aimed at measuring the trust we place in our organisations. The table below details the professions we most and least trust to be truthful in their communication and interaction with us, ranked from highest to lowest. It shows that we tend to trust health professionals and the NHS most and government ministers, politicians in general and big companies least. Why does this matter? What can we learn from the results, and where does this leave Scotland’s public organisations?

Professions we trust to tell the truth

Institutions we trust to tell the truth

Doctors

The NHS

Teachers

Public services as a whole

Judges

Charitable or voluntary organisations

Police

Police Scotland

Ordinary man or woman in the street

The Scottish Parliament

Clergymen and Priests

The Scottish Government

Civil servants

The Civil Service

The NHS

Your local council

Bankers

Broadcast media

Government Ministers

Big companies

Politicians generally

Political parties

DID YO U K N OW ? OUR CLIENTS RATE U S O N AV E R A G E 8 . 7 O U T O F 10 F O R OV E R A L L S A T I S FA C T I O N

EXCHANGE | 4

“In understanding trust, it is important to recognise that it is an outcome.” continues Gary. “Trust emerges from a range of cultures, behaviours and actions of individuals, teams, and organisations. It can come down to quite a simple belief that individuals or organisations will be completely honest in their dealings with you and do exactly what they say. CONSISTENCY Trust is reinforced every time we remain consistent in what we say, how we behave and in what we deliver or do and, similarly, it gets eroded every time our actions are inconsistent. This is true for us as individuals and how we behave in teams or with customers and clients, as much as it is for institutions. If there is a disconnect between what an institution or individual states publicly as a value and their actions, then our trust will be eroded. Once lost, it can be very difficult to win back and can have a damaging impact on your reputation and business. For businesses, this means lost customers or employees who will switch to a more trustworthy rival and, for the public sector, it erodes confidence in our institutions, in civic life and the society of which we are all a part. PUBLIC SECTOR It perhaps comes as no surprise that the research found the public tend not to trust politicians, bankers and journalists. Some feedback suggests the public believe this group are trained to lie, which does give an insight into how deeply they distrust some opinion formers and business leaders in our society. People also make a distinction between professions with high levels of trust (police officers, doctors and nurses) and administrators who manage those functions (NHS managers and civil servants).

TRUST IN ORGANISATIONS IS VITAL TO LONG TERM SUCCESS, AND GOOD LEADERS FOCUS ON DEVELOPING AND NURTURING TRUST – BOTH WITHIN THEIR ORGANISATION, AND EXTERNALLY, WITH THEIR CUSTOMERS AND STAKEHOLDERS. And, as one would expect, organisations which exist to provide a public service are seen to be more trustworthy than those that exist to make money. Perhaps less predictable was the distinct age differential uncovered, with younger people more likely to trust organisations, particularly public bodies, than the older generation. POWER TO CHANGE Knowing how much or how little the public trust our organisations and institutions is important, particularly if this knowledge can contribute to the improvement and development of civic Scotland. When the research delved deeper, it discovered that the key determinants of trust are all things that organisations have the power to change – transparency, how staff are treated, ethical behaviour and good leadership. Gary concludes: “Trust is an outcome from our cultures, behaviours and actions. It is integral to the success of any organisation and should be given more priority and focus to connect better with stakeholders and service users, especially in the public sector. It should then be used to shape services to meet these needs much more obviously.” This focus on trust will help the public sector connect better with the people it is there to serve and, by doing so, will benefit wider society.

A 12-STEP MODEL FOR INCREASING TRUST

FOCUS AND STRATEGY: Have a strong focus and strategy that is authentic and consistent with your core values.

AUTHENTICITY AND INTEGRITY: Saying what you will do and doing what you say is the essence of integrity.

EMPATHISE: Individuals, teams and larger organisations need to listen intently to what the recipients of their service are saying about the impact it has on them.

DELIVER ON COMMITMENTS: Develop a reputation for delivering to requirements and focus on implementing ideas.

CRITICAL EVALUATION: Trust is based on developing new ways to seek agreement about how people, teams and organisations will behave towards each other. Growth in these areas only comes about through a critical examination of one’s strengths and limitations.

BEHAVIOUR CHANGE: Organisations need to evaluate their current culture and put plans in place to change this where necessary in order to develop greater trust at all levels. Someone must make the first leap of faith, which in turn, bestows and earns trust.

REAL RATHER THAN COSMETIC CHANGE: Service users can soon judge how genuine we are in our intent, so reject image building and go for actions that reflect substance.

DEAL WITH DIFFICULT ISSUES: The real test of whether you operate in a culture of trust is when key trust issues that need resolved are confronted and dealt with face to face.

BE AN ACHIEVER: What gets the personal, team and organisational culture to the next level requires energy and effort. Set new goals and make them happen.

SHOW AND TELL: To build trust in the longer term, demonstrate the behaviours you want others to emulate, adopt and apply.

RESPECT CONFIDENCES: Trust is built on people displaying degrees of honesty which are not always easy to share. People need to express themselves in a safe environment, so build personal, team and organisational relationships to respect those confidences.

DOCUMENT PROGRESS: A genuinely authentic approach will build a strong foundation in which customers and team members can have confidence and believe it to be solid, reliable and tangible. However, in order to do this, it needs measures of both trust and commitment.

EXCHANGE | 5

WHEN

WORKING SMARTER, PAYS DIVIDENDS NOT HARDER FOR CHARITIES Charities have gone through a hard time of late, with the recession biting at both ends – firstly in terms of falling or unpredictable donation levels, and secondly, due to the continuing public sector funding cuts. The net result is a sector under real pressure to maintain the crucial services and support it offers to an often vulnerable or remote client base, whilst at the same time keeping its costs to a minimum.

nfortunately, it looks like this pressure won’t be releasing anytime soon. So, it’s down to charities to shine the spotlight inwards, and see, if by increasing efficiency and identifying innovative ways of making savings, they can continue to function and grow. In many cases, there is much that can be achieved by simply unlocking the hidden resource within. INNOVATION Organisations in the third sector have always been open to new ideas, and now it’s no different. Many are ‘working smarter, not harder’ – and as a result are enjoying a whole new lease of life. These are the organisations that have implemented good practice to make themselves more efficient, and have consequently maximised the resources available for their charitable purposes. Innovation comes in many guises, and can revolutionise operations, service offerings or

INNOVATION COMES IN MANY GUISES, AND CAN REVOLUTIONISE OPERATIONS, SERVICE OFFERINGS OR INTERNAL WAYS OF WORKING – ALL WITH AN EYE ON THE BOTTOM LINE.

internal ways of working – all with an eye on the bottom line. After all, the more charities can save, the more resources can be used for front line service delivery. PROCESS REVIEW However, it’s not all about cutting back – there are many ways to improve the efficiency of organisations, and many have successfully saved money as a result. There are some key questions charities should ask themselves: How do we do things? What steps are involved? Can we remove some of these steps but still achieve the same outcome? By taking this approach, some charities have been able to recruit more staff, yet save money. We provide some case studies as an example: 1. A childcare charity we worked with was looking to implement a new finance system, however, before doing so, they wanted to ensure they were making the most effective use of their current resources. Our review identified unnecessary activities that were being carried out by staff, such as producing spreadsheets in addition to the existing finance system. This meant that data was entered twice; not a very effective use of staff time – nor the charity’s resources! 2. A Scottish higher education institution reviewed its entire student recruitment EXCHANGE | 6

DID YO U K N O W ? WE ARE PR OUD TO SAY THAT ONE OF OUR MANAGERS WAS MENTIONED WITHIN THE CHARIT Y FINANCE MAGA ZINE AS ONE OF THE ‘25 RISING STARS UNDER THE AGE OF 35’

process, from the first look at its website to the candidates’ first day on campus. This review allowed the institute to understand what potential students were ultimately looking for and how they could meet these needs. For example, the institute was investing money sending staff around the world to interview potential candidates and to sell the institute to them. However, it turned out that they were failing to send the correct staff. Students stated that they chose the institution based on who they would work with and the reputation of its lecturers, yet the institute was sending support staff to meet students – not those who students ultimately wanted to meet and work with. Following our review and recommendations, the institute now sends out more high profile staff who are more likely to attract students. 3. Another charity developed its procurement functions so that its arrangements were aligned to best practice across every area. However, on closer inspection, it turned out that by constantly striving for best practice more akin to a far larger organisation, it was actually detracting attention away from its service delivery. Gold standard isn’t

necessarily appropriate in every case – especially for a five person function. Our review resulted in new staff being taken on to replace a reliance on temps, tightening of spending controls and a move away from costly wastage. As a result, the charity’s procurement function is far more efficient, appropriately staffed and run, and better placed to deliver its services. STEPPING BACK Some would say it’s only a brave organisation that instigates a comprehensive review of its functions. However, this is not true – it is also one that is committed to making sure the organisation is run in the most efficient and effective manner, and is delivering the best possible outcomes. Taking a large step back can benefit a charity enormously, even in the simplest of areas, and progress really can be made.

Gillian Donald Partner and head of Scott-Moncrieff’s charities group

PROGRESS ISN’T MADE BY EARLY RISERS. IT’S MADE BY MEN TRYING TO FIND EASIER WAYS TO DO SOMETHING. Robert A. Heinlein

EXCHANGE | 7

F O R OW N E R S W H O M E A N BU S I N E S S Owner managed businesses are the backbone of the UK business sector, and as such, their success is paramount to the health of the entire UK economy. So, when we undertook a survey of ‘OMBs’ across the UK, the results gave us a valuable insight into the future.

ur survey uncovered OMBs’ expectations for strategic change and growth, their willingness to invest and the issues they see as creating the biggest risks to their businesses. Encouraging from the start was the growth in optimism – with 85% of OMBs in the UK expecting to have a better year than last, hitting revenue and profit targets. Expectation and optimism aside, growth has always been a key issue for OMBs, particularly how to achieve it and sustain it. Over the recent ‘dark’ years, businesses viewed success as managing to stand still, but growth is once again at the top of the agenda, albeit with a new slant. Growth is far less likely to be connected to acquisition, aggressive business development or squeezing margins. With 85% of Scottish businesses in our survey reporting that staff training is their highest priority within the growth context, the shift from hard to soft growth strategies is clear.

key driver of business growth. Most business objectives used to be hard targets like turnover and gross profit, but softer targets like people development are now just as important. There is a growing recognition that by recruiting the right people and training them properly, you can win their loyalty and engagement. Add to that good leadership, and your business will grow. Focus on the people, and the turnover and profit will come. In terms of growing the customer base, our survey shows that it’s no longer the case that any new business will do. Business owners are telling us that they are being more discerning, and are thinking strategically about which clients they target so that they can focus their efforts on building relationships with customers who may go on to be a future acquirer, investor or strategic partner. Innovation and investment also feature as key drivers of growth, with investment in new technologies allowing businesses to free up resource, or development of

This demonstrates that a strong internal culture is now recognised as a

new products or processes allowing businesses to diversify. Over half of OMBs surveyed expect to introduce new production techniques or undertake some other form of innovation in their business operations, such as investing in new client relationship management systems to deliver more sophisticated analysis of their customer base. Whichever approach owners are pinning their future strategies on, it’s clear that growth is once more a realistic target, which is an encouraging sign. Our full survey results, including our helpful ‘15 ways to build a successful business in 2016’, can be viewed at www.scott-moncrieff.com, under the ‘Publications’ section. Gareth Magee Partner and Head of Business Development

OWNER MANAGED BUSINESS SURVEY HIGHLIGHTS (BELOW):

38%

of OMBs said their business performed better than expected in 2015

73%

are confident about meeting revenue targets this year, with a slightly lower 68% confident of achieving profit targets

85%

are likely or certain to invest in staff training

EXCHANGE | 8

81%

are likely or certain to try to expand their UK customer base, with 27% intending to open new offices or sites

67%

are likely or certain to invest in new technology or IT systems

85% 81%

67% 66%

SCOTT-MONCRIEFF OWNER MANAGED BUSINESS SURVEY:

STRATEGIES FOR INVESTING I N BU S I N E S S

49%

DID YO U K N OW ? WE L AUNCHED A NEW STRATEGY IN 2015, WHICH AIMS TO INCREASE INCOME BY 5 0 % OVER THE NEXT FIVE YEARS

40% 34% 27%

17%

16% 11%

Merger and acquisitions

Opening new sites/offices/expanding into new territories in UK

28%

Consolidation

Supply chain restructuring

Expanding overseas

Change in business strategy

Succession planning

New production techniques/innovation

Cost reduction

Launching new products or services/diversification

Investment in new technology/IT systems

Expanding UK customer base

Staff training

30%

Downsizing

55%

Sale of business

57%

55% expect to

introduce new production techniques

66% intend to

launch new products

57% are likely

or certain to seek out cost reductions

EXCHANGE | 9

34% intend to expand overseas

Competition, the strength of the UK economy and skills shortages are the three biggest concerns

TECHNOLOGY ADVANCES

HOW SHOULD PROFESSIONAL SERVICES FIRMS RESPOND?

change is underway. Much cannot be anticipated.

AUTOMATION Let me illustrate this challenge with reference to professional services. Developments in AI in law, for example, offer the potential to automate many tasks that today’s solicitors undertake during their training. In the short term this may mean fewer junior lawyers are required, but a decade DID down the road, will this YO U K N OW ? automation have affected immediately and the WE ARE THE OLDEST the wisdom and insight of underestimation A C C O U N TA N C Y the next round of the long-term F I R M I N S C OT L A N D of partners and business consequences”. WITH A CLIENT leaders? STILL WITH US F R O M 17 9 2 Perhaps even more I have some practical frightening, advice for turning that where will the next round observation into actions. of partners and business leaders come from if there are no junior lawyers First, if the advocates of technologydriven change suggest that this will working their way up to this level? happen in X years, treble the time. So, if you’re told your firm will be disrupted in Technology may be an enabler of this five years, assume 15 years as a starting kind of disruption, but it is not the point. However, the transition will take only factor in effecting improvement you 15 years from when you start, and change. It is the combination of so waiting five years and hoping the technology with new business models, direction will be clearer is highly risky. governance structures and new skills and competences that ultimately drives Second, if the suggested impact is Y, forward organisations, sectors and supply multiply by five. What the advocates chains. The need to combine these important factors is often the ultimate often miss is that the biggest impacts cause of significant time lags. are indirect and only apparent after the

EXCHANGE | 10

DEVELOPMENTS IN AI IN LAW, FOR EXAMPLE, OFFER THE POTENTIAL TO AUTOMATE MANY TASKS THAT TODAY’S SOLICITORS UNDERTAKE DURING THEIR TRAINING.

QUESTIONS TO ASK Based on my experience, I have compiled some questions that every business determined to survive and thrive in an era of disruption should ask itself:

In stable times, internally competitive cultures are often externally competitive. But in turbulent times, more collegiate and collaborative cultures are more resilient. For instance, how would an army fare if it went into battle with a capable enemy, where every soldier was only looking after himself? How collaborative is your team or your firm? It is a mistake to believe that everything changes. Some corporate values remain constant. Trust, discretion and independence for instance are still central to professional relationships and business value. How core are these values to your business?

Many professional firms, despite having long standing business relationships with client firms, actually have a transactional relationship based on individual assignments rather than mutual understanding. Do you really know your clients and how well do they know you?

If your sector is likely to be disrupted in say ten years, how many of your clients will also face similar challenges? I have asked people to estimate what percentage of their clients will be out of business in ten years. If I then ask what the rate of new client acquisition is, I nearly always find a gap between the firms’ business plan and these estimates. How are you addressing this gap?

A common mistake is to focus too closely on client strengths rather than their sectors. When disruption hits, the impact on your business may be greater than you expect because of your clients’ supply chain disruptions. How well do you really understand your clients’ sectors, their relationships and pressures? Finally, put yourself in the shoes of a graduate entering your profession in the next few years. Does what you are offering fit the aspirations of millennials? Are you recruiting and developing people in the image of the business today, or preparing for radical change? You will have noticed that I haven’t mentioned technology yet! That’s for an important reason. If you can answer these six questions, now is the time to invest in the all-important technology and learn how you can make the most of it for your benefit and that of your clients. While the professional services sector will continue to grow, it will grow in a very different way from the last century’s practices. Festina lente.

Chris Yapp has been over 30 years in the IT industry. He is a Director of Koru Services and a Clan member of the International Futures Forum.

EXCHANGE | 11

Karen McGregor of Firstport with the owner of Breadshare

WHEN SOCIAL AMBITION DRIVES GROWTH EXCHANGE | 12

When ambition is channelled well, great things can happen. That’s certainly true for Karen McGregor, Chief Executive of Firstport, whose fierce ambition for social enterprise is driving the sector forward.

o-one can doubt the growth of the social enterprise phenomenon, changing the world through business. There are now around 5,200 social enterprises in Scotland, with 42% of those formed in the last 10 years alone. Social enterprises are responding to current economic issues, by generating jobs, propping up community resources, and creating a focal point for good. SCALING UP However, it is inevitable that for the sector to thrive, some social enterprises will need scale to become big businesses, and with this scale comes a payoff – a significant boost to social impact. This is where Firstport comes in: “We’re not just about helping social enterprises to start up – if they are going to make their mark, we must help them scale up. This is the way to make social enterprise more impactful, by finding and supporting those that have the potential for growth and helping them realise their ambitions.” says Karen.

and then having the skills and contacts to access funds for growth – we can help with all of those things. We work hard to find potential for the businesses on our programme, and then support them all the way.” 14 social enterprises are already going through LaunchMe, having completed a selection process to join the programme. From here, every stage of the upscale process is designed to offer businesses a boost – whether they eventually go for funding, or not. ADVICE AND PLANNING First of all, the leaders of social enterprises work with a range of advisers, like ScottMoncrieff, to sharpen up their plans. What can be achieved? What scaling is appropriate? How much funding is required? What could the end result be? How sustainable are the plans? Is outside assistance required?

But how do you tackle the difficulties associated with scaling up? The answer is LaunchMe, an accelerator programme being delivered by Firstport for Big Lottery Fund Scotland, and it’s all about stimulating growth.

Karen continues: “Social enterprises face significant challenges – mainly to do with recognising the potential of their business, building the confidence to move it forward,

SOCIAL INVESTMENT The next leap is the funding – because no matter how good a business plan is it nearly always needs funding. Having made the

WE’RE NOT JUST ABOUT HELPING SOCIAL ENTERPRISES TO START UP – IF T HEY ARE GOING TO MAKE THEIR MARK, WE MUST HELP T HEM SCALE UP ..

EXCHANGE | 13

DID YO U K N O W ? I N TH E L AST 12 M O N T H S WE MERGED WITH CA L L A N D E R C O L GA N IN INVERNESS A N D O G I LV I E & C O I N E D I N BU R G H

IT’S NOT ALL ABOUT T HE BREAD Edinburgh based Breadshare is one of the social enterprises working with Firstport on the LaunchMe programme. Formerly a seven-person social enterprise in the Scottish Borders, they saw the opportunity to expand their business through LaunchMe, and take their artisan bread, as well as their social impact, further. After working with the team to plan their business, owners Debra and Geoff have expanded into new premises in Edinburgh, opened a new café and extended their product range. They now employ 17 people. And it doesn’t stop there. Debra is already looking at further opportunities now she has arrived in the capital, and has ambitious plans to grow the Breadshare brand further, creating more community bakeries and jobs or training for people who face barriers to employment, through a mix of expansion and franchising.

AS CONSUMER DECISION MAKING BECOMES EVEN MORE ETHICALLY DRIVEN,IT IS INEVITABLE T HAT MANY OF T HESE BUSINESSES WILL RISE T O T HE T OP. most of the expertise available to them and prepared their business plan, the LaunchMe participants then have access to a panel of influential investors. The funding issue isn’t an easy nut to crack, even for more traditional businesses. To combat this, Firstport gathered together a new investor pool from the angel community, many of whom are interested in philanthropic investment and social enterprise. The social entrepreneurs pitch to these individuals for initial seed funding to see them through to the next level - which is to bid for investment to take their plans and to put them into action. It’s here we get a win-win. The investors get the opportunity to invest in, and become involved with, a social enterprise that’s EXCHANGE | 14

going places and can genuinely benefit from their experience and knowledge; the social entrepreneurs get to scale their business, and the social impact they can make – which is further boosted by Big Lottery Fund Scotland match funding up to £100,000. Karen concludes: “Everybody wins with social enterprise – the entrepreneurs, investors, suppliers, employees, communities and even the wider society. As consumer decision making becomes even more ethically driven, it is inevitable that many of these businesses will rise to the top. Because, not only are social enterprises doing good work, they are also leading the way on fair pay and diversity – creating better businesses, and ultimately, a better Scotland.”

PROTECTING YOUR POCKET THE GAMECHANGERS If 2015 was dominated by pension reform, this year brings with it a raft of new rules that may have a bigger effect on your finances than it may seem at first. Jeff Salway, a personal finance journalist, spoke to Scott-Moncrieff partner Morag Watson, a specialist in personal tax planning and wealth management, to pick out some of the most significant.

EXCHANGE | 15

EARNINGS

SAVINGS

The abolishment in April of the notional 10% tax credit on dividends will ultimately result in many business owners and directors paying more tax. But this is an overhaul with a few complexities buried within.

The new personal savings allowance, which also took effect from 6 April, will mean the vast majority of people will no longer have to pay tax on their savings income. Again, however, there are some drawbacks and pitfalls to avoid.

Up until 5 April there was no income tax on dividend income for basic rate tax payers (although there was a 25% charge for higher rate taxpayers and 30.6% for those on the additional rate).

The change will allow basic rate taxpayers to take £1,000 in savings interest tax-free, with higher rate taxpayers getting a £500 allowance (but no allowance for additional rate taxpayers).

The new system is quite different. There will be a new £5,000 tax-free dividend allowance, above which dividends will be charged at 7.5%, 32.5% and 38.1% (for basic, higher and additional rate taxpayers respectively).

This will entail a different approach to the taxation of savings interest. Savings interest is currently taxed at source by providers, so the interest is paid net of tax. This will no longer be the case under the new system. So if you go over the allowance, the tax on interest will be taken through PAYE or self-assessment.

So if you’re a basic rate taxpayer and you’re paid dividends of more than £5,001 in the tax year, you’ll need to enter the self-assessment system to deal with the charge that arises. “The dividend tax changes will be quite a shift for a lot of people. The £5,000 allowance will be helpful for some, but many of our clients exceed that several times over,” says Morag. “I’m not sure people will appreciate the impact or extent of the change until they get their first tax bill after 5 April 2017, especially if they’re not used to having to pay tax.” Thankfully owner-managers can still benefit from paying themselves through dividends, as the new rates are still below the levels at which income tax and national insurance is charged on salaries.

“A few people are struggling with how it works and not appreciating that banks will no longer deduct the tax at source,” says Morag. “Take the example of someone who receives £1,100 of savings interest. The tax liability on the extra £100 of income effectively pushes them into the self-assessment system, meaning completion of a tax return.” Morag outlines some options for those who might be affected: “In families with a husband and wife arrangement, there could be a transfer into the spouse’s name or into joint named accounts in order to get back under the £1,000 and avoid self-assessment.” Turning to retirement savings, last year saw the biggest shake-up to the pensions

“The key will be the mix of salary and dividends.” Morag explains. “Advice in structuring this to maximise tax will be really important, particularly given the new regime.”

EXCHANGE | 16

system in years, in the form of the pension freedoms. There are even more changes on the way, however. The April reduction from £1.25m to £1m in the lifetime allowance (LTA) - the maximum amount that can be saved tax-free into a pension - could take some savers by surprise, says Morag. “At £1.8m it caught a few, but at £1m, from April, the likes of doctors, because of the way it’s calculated, will suddenly find themselves close to the LTA.” The same goes for the annual allowance, which from April will now be tapered from £40,000 to £10,000 for those with income above £150,000. “The change to the annual allowance will affect lots of middle earners. Those earning over £150,000 and expecting to be caught should be putting aside as much as they can now,” says Morag. The new single tier pension also arrived in April, while the future of tax relief on pension contributions, which was not altered in the March Budget, seems likely to remain under discussion. “The Government can’t afford to sustain tax relief at the current level. On one hand we’re being told to save, but those who can afford to save substantial amounts won’t get the relief they once had,” explains Morag.

LIVING AND PROPERT Y If you’re planning to buy a second home or a buy-to-let property, you’ll need to factor in the new 3% supplement on land and buildings transaction tax (LBTT). The measure, which came into effect on 1 April, mirrors the charge being introduced at the same time south of the Border. The key to mitigating this lies in the name in which the

property is held, according to Morag. “For instance, if it’s bought for a child and it’s their principal residence, you won’t be caught by the extra charge. Parents may need to be the guarantor on the mortgage, but there’s no reason not to put it in the child’s name.” This again, needs careful planning.

THE GOVERNMENT CAN’T AFFORD TO SUSTAIN T AX RELIEF AT T HE CURRENT LEVEL. ON ONE HAND WE’RE BEING TOLD TO SAVE, BUT T HOSE WHO CAN AFFORD T O SAVE SUBSTANTIAL AMOUNTS WON’T GET THE RELIEF T HEY ONCE HAD.

GIVING Charitable giving has always been a mainstay of personal tax affairs, with successive governments introducing various schemes to make giving more attractive. But Social Investment Tax Relief (SITR), introduced in 2014, has been a gamechanger. “It’s perfect for individual investors who see themselves as business angels”, says Morag. “SITR allows you to invest in a regulated charity or social enterprise, but crucially, the investor has much more control over where the money goes. It’s not an all-encompassing scheme, but an informed choice, and allows for a more personal connection with the chosen organisations. This, and the ability to offset 30% of the investment you make against your tax liability, makes it very attractive for some.”

Individual investors can invest up to £1m in multiple charities and social enterprises per year, with the maximum investment into an individual organisation set at approximately £270,000 over three years. “While this is somewhat limiting for now, this level of investment can still make a massive difference to a small charity.” Morag added. The Government does intend to extend these limitations, with an increase to £5m per year and £15m in total per organisation, subject to EU state aid clearance, but we are yet to hear the outcome. In the meantime, some charities and social enterprises have already started to benefit from SITR, and as investors find out more, the interest grows.

EXCHANGE | 17

DID YO U K N OW ? WE HAVE SAVED CLIENTS OVER £ 2 M THR OUGH R&D TA X RELIEF, WITH THE AVERAGE CL AIM NETTING £25,000

WE ALL MAKE MISTAKES, BUT NOT EVERYONE COLLECTS T HEM DID YO U K N OW ?

In a city dominated by financial services, it’s comforting to know that someone has our back. And Edinburgh’s ‘Library of Mistakes’ is fulfilling that role in its own quiet (well, it is a library), quirky way.

EXCHANGE | 18

IN 2015, WE SPONSORED TWO EVENTS AT THE EDINBURGH INTERNATIONAL BOOK FESTIVAL

fter talking to Russell Napier, a board member of one of Scott-Moncrieff’s investment trust clients, partner Gareth Magee discovered this hidden gem and joined up. Housed in an unassuming mews building a stone’s throw from the investment houses currently filling up Charlotte Square, the Library of Mistakes is blazing a trail by looking back. All the way back. Russell, its founder, is an affable aficionado of financial history. He’s been banging his drum for many years, but funnily enough, everyone really started to listen around 2008, when the boom went bust. NOT A PRECISE SCIENCE He tells Gareth: “The financial crisis showed that human weakness has a place in economics, and that it can’t be divorced from the numbers.” This fact, he firmly believes, is at the root of many, if not all, financial disasters, all of which are documented in the library. Finance is not a precise science, no matter how much the academicians would like it to be.” The information in the library, which was set up in 2014 as a charity and is open to anyone who wants to become a member, can take you back as far as 1690, when the financial sector, still in its infancy, had its first collapse. Skip forward a couple of hundred years to 1890, and Edinburgh is already a thriving financial centre, with the emergence of an abundance of banks and investment houses. Of course, as the financial sector grows, so does the frequency, and scale, of its failures, which is where the library comes in. Entire collections have been donated by ICAS, the Bank of England, and Professor Stewart Hamilton; the charismatic accountant who passed away just a week after the library officially opened. With over 100 books just on the most recent financial crisis, there’s a lot to learn. ENDURING APPEAL However hushed and rarefied the library seems, it’s a warm, welcoming place and a great work space. Members are mainly involved in the financial sector, from the bottom to the top, and you are just as likely to

EXCHANGE | 19

find an accountancy student reading up on financial collapse, as you are a distinguished fund manager researching historical economic performance. One thing they have in common – they are ‘wise enough to know that they don’t know everything’ – and as long as this is true, the library will endure. With financial history becoming unfashionable and disappearing from academic teaching, Russell felt very strongly that an alternative was required, and thus his venture emerged, established in a derelict building that hadn’t been touched since the 1920s. It still retains that old world feel, and indeed some of the space hasn’t been renovated as yet, but the good news is that expansion is on the cards for this year.

THE FINANCIAL CRISIS SHOWED THAT HUMAN WEAKNESS HAS A PL ACE IN ECONOMICS, AND THAT IT CAN’T BE DIVORCED FROM THE NUMBERS. Fortunately, now, financial history is back on the syllabus, with the course at the Edinburgh Business School now partially supporting the library – which isn’t just a library. Taking a leaf out of the wide range of books within, the ‘Library of Mistakes’ tops up its funds by providing additional services – a magical space for private dinners and drinks receptions, plus a regular venue for thought-provoking member lectures and unbeatable networking. SECURING THE FUTURE So now you know it’s there, why not pay a visit to the Library of Mistakes? Even better, join and become a fellow ‘errorist’. Give a stern nod to the Library’s poster child – Charles Ponzi, whose portrait takes pride of place above the fireplace. If plans work out, you might even be able to visit a Library of Mistakes in London, Pune or Lausanne sometime soon. For the moment though, do seek out the Edinburgh mews and step back in time for a bit, learning lessons from the past to help secure the future.

Gareth Magee Partner and Head of Business Development

EXCHANGE PLACE 3 SEMPLE STREET EDINBURGH EH3 8BL T: +44 (0)131 473 3500

25 BOTHWELL STREE T GLASGOW G2 6NL T: +44 (0)141 567 4500 W W W. S C O T T - M O N C R I E F F. C O M

10 ARDROSS STREET INVERNESS IV3 5NS T: +44 (0)1463 701940