Business Voice - November/December 2013

BUSINES S VOICE | THE CBI MAGAZINE

Nothing to fear Sainsbury’s Justin King on why businesses should be honest with their customers

November/ December 2013

B U S I N E S S VO I C E | T H E C B I M AG A Z I N E

November/December 2013

14.INTERVIEW:

Justin King The chief executive of Sainsbury’s explains why shared values are more important than rock-bottom prices.

8.INFOGRAPHIC:

A GLOBAL ROLE A new CBI report shows the clear and continuing benefits of EU trade to businesses and the UK economy as a whole.

REGULARS 04 CRIDLAND’S NOTEBOOK: Ahead of the chancellor’s autumn statement, the CBI calls for action on energy costs and business rates to support the economy – and urges

20.SKILLS GAP How five companies are tackling the talent crisis in their sectors through apprenticeship schemes, tailored training programmes – and even an online hacking challenge.

28.BUILDING BRITAIN:

GREAT WESTERN MAIN LINE An electrification project is set to improve speed, capacity and reliability on the 175-yearold railway line to the West of England and Wales.

politicians to be more pro-enterprise.

26 INTERNATIONAL: Hopes for business-friendly reforms in the US have not been realised, as political posturing has led to stalemate.

32 MEMBER NEWS: Charting business growth across the UK. In this issue: Harland and Wolff, Daisy Group, Monitise, Workplace Systems, Bray Leino and Potter Logistics.

38 MEMBER CLINIC: Following the Twitter IPO, David

10.EVENT FOCUS:

34.MEMBER PROFILE:

ANNUAL CONFERENCE

THORNTONS After a tumultuous few years

Europe, the crisis of trust, exports,

on the high street, chocolatier

leadership and skills were just

Thorntons has seen a return to

some of the themes raised by a

profit and a successful expansion

range of high-profile speakers at

into supermarket sales.

the CBI’s Annual Conference.

Cushman, strategy partner at WPP agency The Social Partners, explains how businesses can make the most of what the platform has to offer.

40 CBI DIARY: Events and photo gallery. In this issue: winners of the Growing Business Awards and the East Midlands Annual Dinner.

6.GUEST COLUMNIST:

SIR CLIVE WOODWARD In both sport and business, how we capture and share knowledge is essential to success.

“In the autumn statement, we’ll be looking to the chancellor for action on energy and housing and to support private infrastructure investment to help drive economic growth”

4

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

CRIDLAND’S NOTEBOOK: Recovery position

Recovery position The year is ending in a much healthier economic state than it started in and the upcoming autumn statement from the chancellor looks set to be more optimistic than previous years. But we need to keep perspective – and the government needs to back business to sustain the recovery.

Economic progress The broad-based expansion in the

government getting behind business.

economy has continued over the

event, the autumn statement on 5

last few months. And I believe we’re

December, we’ll be looking to the

now set fair for a gradual recovery.

chancellor for action on energy

It’s obvious from my meetings with

and housing and to support private

member companies across the

infrastructure investment to help

country that business confidence

drive economic growth. At the heart

is growing.

of what we want is a short-term two

The CBI’s latest service sector

“Our Global Future is the biggest piece of work I can remember the CBI undertaking in the past 30 years”

So at the country’s next fiscal

per cent cap on annual business rates

survey shows a second successive

increases, and the introduction of

David Cameron, the shadow

quarter of solid growth in activity

incentives for businesses to move

chancellor, Ed Balls, and the mayor of

across the piece and a six-year high

into vacant property to boost local

London, Boris Johnson, among many

in rising employment figures. Our

high streets. This should set in motion

other distinguished guests from

recent industrial trends survey also

a longer-term overhaul of our very

the worlds of business, media and

shows that, in the UK’s manufacturing

complex business rates system,

sport, who participated with great

sector, order books relative to normal

which is much needed.

enthusiasm and made the conference

levels have been at their strongest

a huge success.

since March 1995, and export orders

Understanding our aspirations

have been very firmly above average.

At the start of November, the CBI

was listening to Sir Clive Woodward

held its annual conference in London

leading an inspirational session on

keep a certain perspective. Yes, the

where we launched Our Global Future

achieving global sporting success.

recovery is getting much more solid

report - the biggest piece of work I

A line from his presentation has

and well-rooted, but it won’t be

can remember the CBI undertaking in

since stuck with me. Its sentiment,

spectacular. I believe we could have

the past 30 years. It drills down into

I believe, encapsulates the work we

GDP growth of about 2.5 per cent in

the narrative that Britain needs to be

do here at the CBI on behalf of our

2014, and the same again in 2015; it’s

in a reformed Europe to underpin our

members: “If you’re going to be

going to be a fragile recovery which

global aspirations.

better at something,” he said, “you

It’s good news, but we have to

will need to be sustained by the

We welcomed the prime minister,

One particular highlight of the day

have to understand why.”

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

5

Sustainable success In both sport and business, capturing and sharing knowledge is essential to personal and organisational success. And ensuring that this expertise is passed on as key personnel change is the vital ingredient for continued achievement.

Words: Sir Clive Woodward, Rugby World Cup-winning head coach and Team GB director of sport, London 2012

Looking back over British sporting achievements in recent years, I’m left in no doubt that this has been a special era. We have truly made our mark on the global platform, with no better example being the London 2012 Olympic Games, where Team GB won more medals across more sports than ever before.

When asked why I think we have achieved this success, there is one element that stands out, and that is knowledge. I believe it is those athletes and coaches who truly understand the importance of capturing and sharing knowledge that have really excelled.

This is based on my understanding that the first step in developing talent relies on that individual’s ability to learn. On top of all the physical ability and technical skill, I look for what I, in my coaching vernacular, call “teachability”. I consider athletes as either “rocks” or “sponges” and, to put it simply, you want athletes with a sponge between their ears. It is those athletes

6

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

who have the ability to absorb knowledge, and who I believe can go beyond being merely talented.

Without realising it at the time, within the World Cup-winning England rugby team we were very effective at capturing and sharing knowledge. My coaching team consisted of eight worldclass coaches covering every aspect of the game. All of us were qualified teachers and together we formulated a process by which we were able to collate our knowledge and share it with the players.

We also made it the players’ responsibility to do the same.

I’ve seen it done in a number of different ways in the years since, but as England coach I broke the game of rugby down into seven key areas and collated my knowledge within each of them. I would then identify what I thought were my “winning moves” and shared everything with my coaching team and players, and they did likewise.

When I work with athletes and coaches today I encourage them to

do the same thing, except now I ask them to imagine they are writing a book, breaking their sport down into chapters and capturing as much knowledge as possible under each heading.

More recently, technology has taken this process of capturing knowledge, organising it and sharing it to a whole new level. I have begun using an app, created specifically for this purpose, through which athletes and their coaches can collect videos, diagrams and articles online to capture any form of knowledge anywhere and share it.

Formalising the process I have been lucky enough to work across all 26 Olympic sports with coaches from around the world. What I have found without exception is that the best coaches, athletes and teams dedicate time and resources to formalising a process to capture and share their knowledge. It is by no means an easy thing to do but, when you crack it, your understanding of a given

GUEST COLUMN: Sir Clive Woodward

“If you don’t know how to replicate success, and your brightest and best talent leaves, the business will be poorer for it”

subject collectively goes through the roof. Crucially, the athlete begins to understand why they are doing things, as opposed to simply being told what to do, as traditional coaching would dictate. If you consider that an athlete may spend as much as 95 per cent of their time practising without their coach present, you can begin to understand the importance of this.

It is athletes’ and coaches’ expertise in this area that has brought about recent success – and I’m sure those in business are aware of the parallels that can be applied to the talent within their own companies.

However, one challenge remains – how can we sustain success?

The reality in both business and sport is that people move on, retire or change jobs. But do we retain their knowledge? What if Sir Dave Brailsford left British Cycling tomorrow, or Andy Flower left England Cricket? Have we captured their knowledge and expertise to support future success? Just over a year since the London Olympics, the

likes of Charles Van Commenee, Sir Chris Hoy and Rebecca Adlington among others have left Team GB – have we really done enough to capture their knowledge?

A lot of focus has been on the legacy of London 2012, with the use of stadiums and athlete funding dominating the conversation. For me though, it is what we do with the knowledge of those 992 athletes and coaches from Team GB that will define how fruitful a legacy we leave for future British sportsmen and women. In business, you can go out and win new clients in new markets as the economy improves; you can build bigger offices as your company expands. But if you don’t know how to replicate success, and your brightest and best talent leaves, your business will be poorer for it.

I continue to learn a great deal from business, and am inspired by the work of many British companies.

I’m confident that if we can learn to capture and share our knowledge more effectively, UK plc can only benefit.

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

7

EUROPE:

UK PO

63M

a route to the world

GDP

$2.

8/10 CBI members and 77% of SMEs would vote to stay in the EU if a referendum was held tomorrow. In its Our Global Future report, the CBI argues that the benefits of the UK’s current relationship with the EU outweigh the costs. Nowhere is this more clear than when it comes to trade.

The benefits of the EU

71%

76%

63%

52%

of member firms say that belonging to EU has a positive overall effect on business.

say that the creation of the common market has had a healthy impact.

say that the free movement of labour has been beneficial to their business.

say that they have directly benefitted from the introduction of common standards.

BUT 52% believe that the regulatory burden on their business would fall if the UK left the EU.

Impact on trade

$24trn Size of the market that UK can access through 30 free trade agreements the EU has with 50 partners. That could nearly double to $47trn with the recent Canadian agreement, and if negotiations with Japan and the US are successful.

8 BUSINES S VOICE | NOVEMBER/DECEMBER 2013

The CBI’s Our Glob openness to our int best served by rem EU, rooted in the p

INFOGRAPHIC: EU membership

OPULATION

M

.4TRN

50%

of UK exports go to the EU & EFTA, worth £245.2bn in 2012.

57.5% of UK imports come from the EU & EFTA, worth £302bn in 2012.

7.1%

Increase in UK GDP after 10 years if the Single Market is completed (including digital and services).

Already 44 per cent of exports in the technology, media and telecoms sector go to the EU.

30%

Expected boost to UK exports to Canada following EU-Canada FTA.

£10bn

Potential annual boost if the EU signs the Transatlantic Trade & Investment Partnership with the US.

EU POPULATION

447M GDP

$15.4TRN

bal Future report offers a detailed assessment of the UK’s place in the changing global economy, the importance of ternational position and the impact of EU membership on UK business. It concludes that the UK’s global interests are maining inside the EU but argues strongly for reform, making the case for a more outward-looking and competitive BUSINES S VOICE | NOVEMBER/DECEMBER 2013 9 priorities of member states.

Words: Pip Brooking | Illustrations: Matthew Lawrence | Photos: Steve Burden Photography

On track for global success Several high-profile speakers at the CBI’s Annual Conference – including the prime minister and the shadow chancellor – hailed the improving economy, and more than 1,000 delegates were there to discuss the next steps for growth. But there is still hard work ahead for British businesses, which will play a crucial role in rebuilding prosperity across the country.

10

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

EVENT FOCUS: CBI Annual Conference 2013

THEME 1: A EUROPEAN AGENDA The UK’s relationship with the EU was an important theme of the day.

It was underpinned by the launch of the CBI’s Our Global Future report, which argued that UK businesses were best served by remaining in a reformed EU. “The world around us continues to change rapidly; Britain must keep up,” said CBI president Sir Mike Rake. With 65 per cent of the UK’s GDP already accounted for by trade, he emphasised that Britain remained a major global player with plenty to gain from globalisation.

But he said: “Our exports to new markets are growing rapidly, but from a very low base. It’s not therefore an either/or choice between Europe and the rest of the world – we need to trade more with both.

And the EU remains the catalyst for those interactions.”

Prime minister David Cameron endorsed the report – although his own speech focused more on the domestic economy and making the case for HS2. But challenged in the Q&A on why he was pursuing the referendum against business interests, he said that public support for staying in the EU was “wafer thin”. But, by pushing for reform and with the backing of business organisations, he said he was convinced that the argument for continued membership of the EU could be won.

Shadow chancellor Ed Balls was more vocal on the topic, saying he shared the CBI’s vision. “Britain is better placed to shape Europe’s future if we are fully engaged rather than having one foot out of the door,” he said. “Europe needs

reform, but to walk away from our EU membership would be reckless, foolish and deeply damaging.”

And speaking between the two UK politicians, Poland’s finance minister and deputy prime minister Jacek Rostowski raised his concerns about the UK’s potential departure. “The EU has done a lot for business,” he said, highlighting the progress the Polish economy had made in its decade of membership.

He added that the EU was a good thing but that it “would be nowhere near as good a thing without Britain”.

THEME 2: A CRISIS IN TRUST The issue of restoring trust in business dominated discussions throughout the day. “Some of the rhetoric we’ve heard recently suggests that business is somehow the enemy – we are not,” said Rake.

“Business is undoubtedly suffering a crisis in public confidence – as we have seen in banking, and now in the current debate around energy.

We have to do more to understand consumer sentiment.”

Balls picked up the baton, saying: “Business is key to the solution [for the economy], not the problem.”

He continued: “When politicians and business leaders often seem to compete with each other for bad headlines, none of us can afford to bury our heads in the sand and ignore the legitimate and mainstream concerns of people across our country that our economy is not working for them and their families.”

He repeated Rake’s call for businesses and government to work closely together to tackle the issue and to be “partners in building prosperity”.

The big debate But it was left to a panel of business heavy-weights – representing the industries most challenged by public perception (finance, energy, defence and the supermarkets), as well as the BBC – to discuss the issue of trust in greater depth.

In his introductory keynote, RBS chairman Sir Philip Hampton said that banking was “in a class of its own” when it came to the issue, giving a frank commentary on what had gone wrong. But he didn’t think all businesses were under the same threat from public opinion, referring to Apple as a brand that had managed to attract a big fan base. But Sainsbury’s CEO Justin King said that all businesses were facing a “crisis of trust”. King said that too many businesses were too quick to say “lessons had been learnt” and that mistakes were in the past, arguing: “Only the public can decide when it’s time to move on”.

Discussing how to win back trust, BBC director-general Lord Hall said it was possible by “getting back to why you matter”. Referring to the quality and popularity of BBC programmes, he said: “We’re all baking and dancing.”

Centrica CEO Sam Laidlaw continued: “The starting point has to be transparency.” But he added that “transparency is not enough if people can’t afford their bills”, saying that consumers would benefit from lower bills immediately if the government rolled back its green levies.

He also announced that he would be waiving his bonus this year as a result of the furore around energy prices. But on this topic, Hampton warned that the media attention around giving up his bonus made RBS’s now ex-CEO Stephen Hester

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

11

unhappy and did some damage to the bank.

Sir Richard Olver, chairman of BAE Systems, gave his advice as a “ten-year veteran” of battling poor public perception. He said the issue was made more complex by the international dimension of many businesses, but that it was important to have the right culture to shape decisions and behaviour. “It’s a journey that has no end. It’s not a task or a project, but a way of life.”

THEME 3: INTERNATIONAL INTENTIONS The importance of exports to the UK’s economy re-emerged in the afternoon panel discussion, in which the speakers reflected growing optimism about the UK’s potential.

EY’s global vice-chair of transaction advisory services Pip McCrostie said that international M&A was making a comeback alongside returning confidence, while London Stock Exchange CEO Xavier Rolet argued there was still more demand for British expertise than many people realised.

The CBI’s director-general John Cridland was also keen to point out that the UK was not as bad at exporting as headlines have suggested, arguing that exports had risen by nearly a third since 2008. He added that Germany had won the export race over the past decade because of its strength in heavy industry, but now that the emerging middle classes in developing economies were increasingly interested in advanced manufacturing goods and professional services “the next decade could be our decade”.

Of course, the route to new markets isn’t easy, as Ian Robertson,

member of BMW’s management board, explained. He spoke of the challenges facing the car maker – from mega cities where car permits are hard to come by, calling a business model based on car ownership into question; to the tension between an ageing population that supported the premium end of the business and the younger customers that are prevalent in emerging economies.

Car makers are increasingly expected to localise their manufacturing and supply chains, as well as to tailor the product to local market tastes, he said. As a result, BMW has taken a more international approach to recruitment to develop the necessary local market understanding, he said.

Cameron: the key points Although David Cameron highlighted improvements in the economy, he outlined five actions that would make “a really big difference in terms of getting that rebalanced, stronger economy that delivers a recovery for all”.

These were: • continuing Plan A and ensuring we have a “state we can afford”; • a focus on education and skills; • welfare reform; • investment in infrastructure; • getting more businesses in schools to inspire young people to bring about a “real culture change in favour of enterprise”.

Steady progress But localisation should not come at the cost of a common DNA running throughout an organisation, warned Hays’ CEO Alistair Cox, who added that 90 per cent of what companies – including his – do is common around the world.

“But if you’re in Russia or Brazil, you will only really understand the local psyche if you are staffed and led by people from that nation,” he said.

The panellists recognised that it took time and a clear strategy to get to that point – and Susanne Given, COO at retailer Supergroup (a company that is relatively new to overseas expansion), said that it had learnt to evolve with the opportunities, upgrading the partners it has worked with when it had the chance.

“We’ve developed an incredibly flexible business model, we have an openness and willingness to do things differently and most importantly a curiosity about how far we can take our brand,” she said.

“We are turning this economy around, we are turning this country around, but it is a longterm plan for success, and a long-term plan for success which needs the support and help of the CBI and all its members” David Cameron, prime minister

12

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

EVENT FOCUS: CBI Annual Conference 2013

She added that data was a strong starting point – Supergroup’s e-commerce platform has given the firm insight into its international consumers, and, combined with UKTI market insight, helped it prioritise expansion plans.

But confidence needs to be backed up with capital, said Rolet.

“Unleashing export potential starts with raising the right type of capital, at the right cost,” he said, citing the Alternative Investment Market (AIM) as a good option for SMEs. He added that 60 per cent of AIM-listed companies derive at least 50 per cent of their revenues from exports – whereas only 20 per cent of the total SME population export at all.

And Cridland emphasised that exporting success depends on careful planning. “If a business gets an export order, its future can depend on its ability to deliver, which often means scaling up and finding the finance and skills for growth quickly,” he said.

THEME 4: SKILLS & LEADERSHIP Cutting across all the speeches of the day – from tackling mistrust to supporting growth at home and abroad – was the clear sense that skills are now an urgent priority.

Cameron’s five-point plan for a strong economy included urging businesses to do more to inspire school children, as he gave his backing to Robert Peston’s “Speakers for Schools” programme.

Balls, on the other hand, warned: “We can’t succeed in the global race with a race to the bottom on wages and standards”.

“It’s not an either/or choice between Europe and the rest of the world – we need to trade more with both. And the EU remains the catalyst for those interactions”

Boris’s dream To end the conference, Boris Johnson, mayor of London, passionately argued his case for an airport in the Thames Estuary.

Criticising the government’s indecision, he said business leaders were deluded if they thought a single

Sir Mike Rake, CBI president

plane would take off from a new third runway at Heathrow within the next 15 years. “It is completely, politically undeliverable,” he said.

Sticking with the international picture, Rostowski was asked by the boss of a technology company why the only good coders he hired were from eastern Europe. He replied: “Mathematics, mathematics, mathematics.”

This point was echoed later on by the BBC’s Lord Hall who said that the three languages that “really matter” are “English, Chinese and coding”.

But the issue of skills is only half of the picture – strong leadership is just as important. Sainsbury’s King, for example, equated the lack of trust with a lack of business leadership.

And a presentation from Sir Clive Woodwood aimed to inspire the business leaders in the room to learn from the world of sport to improve it.

Reliving England’s Rugby World Cup success and with live golf demonstrations from emerging Scottish sports star Noni Stephens, he emphasised the importance of gathering knowledge and giving feedback. “Talent alone is not enough,” he said. “If you are going to get better at something, you have to understand why.”

In contrast, he pointed to Hong Kong’s achievement of getting its new island airport up and running to show that a more radical solution was possible.

“I say end the dither, cut the cackle. Give London a hub airport that is adequate for and commensurable with the greatest city on earth” Boris Johnson, mayor of London

Thank you to our sponsors The CBI Annual Conference would not be possible without the generous support of our strategic partners EY and Hays. We would also like to thank our corporate partners Barclays, BAE Systems, CGI and Jones Lang LaSalle, and our networking partner, the Open University.

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

13

BIG INTERVIEW: Justin King

Kingpin of retail Words: Pip Brooking Photography: Peter Searle

Sainsbury’s is growing its market share in a fiercely competitive environment – and according to the supermarket’s chief executive Justin King, it all comes down to trust.

14

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

15

Businesses are in “complete denial” that they are broadly seen as a force for bad, says Justin King, chief executive of retail giant J Sainsbury. And as head of a company that has a vision of becoming “the most trusted retailer”, King has taken it on himself to speak out for his industry and the wider business community in an attempt to improve its reputation.

Talking to Business Voice, King is critical of businesses’ inability to communicate positive stories and their reluctance to speak out against poor practice. “It’s hardly surprising that the population at large broadly thinks that business is all in this together and, when issues come along, we all get tarred by the same brush,” he says.

16

The banking crisis, tax avoidance, the horsemeat scandal and rising energy prices have all been catalysts for damning debate, he says. But he believes that the roots of it are far deeper than most people care to admit. “We didn’t have that well of trust, which we clearly believed we deserved, to draw on when things went wrong.”

He points to tax as a longterm issue – and he argues that consumers are more powerful than governments in changing the attitude of organisations towards paying tax as a moral responsibility, rather than just a legal one.

“I’m a great believer in the power of consumers and their wallets,” he says. “If you believe what you do would stand the test of your

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

“Customers are really looking for value for their values – they’re not prepared to compromise their values in the pursuit of price”

INTERVIEW: Justin King

Standing up to scrutiny But when it comes to the supermarkets’ bread and butter, the issue that has really put their

{

Tax duty

King is adamant that businesses have a moral responsibility when it comes to the corporation tax they pay, but he thinks it’s less than fair that the current tax system burdens domestic, bricksand-mortar retailers disproportionately.

His name is often cited against calling for an online sales tax, similar to that being proposed in the US. But he says his argument is more nuanced than that.

“Business rates are a legacy tax that is completely disconnected from the way retail is developing in the UK,” he says.

“Tax as dictated by the state should not be part of competitive advantage. No amount of argument from any business saying they pay other taxes ‘so it’s okay’ cuts any mustard, because we all pay those taxes.”

Without mentioning the words “internet” or “online”, he says that he is calling for a fundamental review of how business activity is taxed and it can’t be purely space-related. Aside from anything else, there will be fewer businesses to pay rates in the future, he explains.

He also points out that the services business rates pay for, including waste collection, contribution to schools, emergency services and local road repairs, are used by all corporations.

“Retail generally over-contributes,” he adds.

{

consumers, be open and public about it because you should have nothing to fear from them.”

And he draws parallels between the 20 per cent personal tax rate, and the 20 per cent level that corporation tax is heading to by 2015, to suggest that it’s only fair for businesses to pay what is essentially an “elective tax” for any international firm.

It’s not all King has to say on tax as he feels that domestic bricks-andmortar retailers are unfairly burdened by business rates (see box). But in other areas where trust has reached crisis levels – in banking and energy – King believes that Sainsbury’s can benefit because of the type of relationship it has with its customers.

Sainsbury’s Energy saw customer numbers increase by 83 per cent in

the year to March, while active bank customer accounts grew by eight per cent. He explains that the cost of acquiring new customers for these services is less for Sainsbury’s than for companies with a single business focus, which means it can pass on lower costs.

And, by knowing their shopping habits, King says that Sainsbury’s can also reward and incentivise consumers in different ways – with coupons for cat food when they take out pet insurance, for example.

Asked if he thinks the supermarket can be seen as more trustworthy than the big players in these areas, he says: “We do, but we have to be worthy of that trust. If you’re handling people’s money that’s in a very different space from handling their baked beans and bananas.”

Although Sainsbury’s is now taking full ownership of the bank (it was a 50:50 joint venture with Lloyds), King says it will continue to focus on insurance, credit cards and loans, rather than current accounts and mortgages – as in these areas “it has the ability to deliver value for customers in a way that some of our competitors in banking will struggle to do”.

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

17

credibility in the spotlight has been the horsemeat scandal, which reared its head in January. Although Sainsbury’s was not directly affected, King was vocal in defence of the industry against any regulatory backlash – after nearly ten years at the company, he’s seen as the elder statesman of the grocery industry.

“Nobody, however much care they were taking, could be 100 per cent sure they were not going to have horsemeat because a crime had allegedly been committed,” he says. But Sainsbury’s has been DNA testing for more than ten years, isotope testing for the past three and it audits all of its factories, King explains. “We were confident we were doing the right things.”

The same goes for the Rana Plaza factory collapse in Bangladesh in April – Sainsbury’s could be sure its business was not affected because it has the names and addresses of all the facilities it uses, has visited them, and has never approved a non-exclusive, multi-storey facility in order to be sure that the building as a whole meets fire safety standards.

“Companies that have suffered most on these trust-type issues are those that aren’t able to demonstrate that they were addressing the issue before it became an issue,” King says. And rather than being directly critical of others, he’d prefer to “tell our own positive story and

18

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

encourage customers to ask others whether they can tell the same positive story”.

Of course, King has a great story to tell, with 35 consecutive quarters of like-for-like sales growth which has helped the supermarket gain market share at the expense of its rivals. The grocer’s expansion plans will see the number of convenience stores outnumber supermarkets in this financial year as consumers do more top-up shops to cut waste and save cash.

Online Sainsbury’s has found itself in the number two spot behind Tesco, growing 15 per cent in the second quarter of 2013 to surpass the £1bn mark – a milestone it has also reached for non-food sales as it expands its range.

But that’s not the story that will impress customers, even if they are driving this growth. Like many businesses, Sainsbury’s has set out its corporate responsibility agenda in its 20x20 commitments. And within this, King says the company’s 157,000 “colleagues”, rather than the supply chain, are his first priority.

“As corporations we say time and time again that we’re a force for good, that we create jobs. We employ people, that’s what creates wealth and that’s what creates taxes.

But how many businesses can point towards stretching targets that they’re setting themselves about

“Too many businesses seek to define themselves by the people that they’re competing [against], rather than who they’re competing for”

INTERVIEW: Justin King

The price is right Nevertheless, Sainsbury’s battle with Tesco highlights that provenance and other supply chain issues are of great importance. The two have come to blows over their price comparison schemes. Sainsbury’s Brand Match compares the price of branded products, and gives customers a coupon if they could have bought the goods cheaper elsewhere.

It excludes own-label products, because Sainsbury’s doesn’t think it’s fair to compare its fair trade tea or British pork with other supermarkets’ regular tea or pork sourced elsewhere in the EU – which Tesco does in its Price Promise. And research by Sainsbury’s has found that 80 per cent of consumers agree.

“You can’t have a half-commitment to values,” says King.

Currently, the Advertising Standards Authority is siding with Tesco – leading King to take the battle to the High Court. The ASA also recently upheld two complaints against Sainsbury’s “end of shopping

around” claim – because Price Match compares the total cost of a branded basket, and customers could get their shopping cheaper still if they bought some offers in Asda, some in Tesco and some in Sainsbury’s.

“The ASA finding is narrow and I think it would bemuse most customers,” says an obviously frustrated King. “But the issue for us is more a wider one about price: there is a complete misunderstanding that the hard-pressed customer becomes single-mindedly obsessed with price,” he continues. “Customers are really looking for value for their values – they’re not prepared to compromise their values in the pursuit of price.”

This is where King sees Sainsbury’s as having the upper hand, and its own-label sales have grown at double the rate of branded goods thanks to additional investment.

“The fact that Sainsbury’s is the fastest growing of the big four grocers, and has been for a while, is a reasonable measure that we’re getting more right than we’re getting wrong,” he says.

But he doesn’t like being asked about competing with his retail rivals.

“What matters is how good a job we’re doing for the customers we’ve already got,” he says. “Too many businesses seek to define themselves by the people that they’re competing [against], rather than who they’re competing for.”

{

CV

2004–present: CEO, J Sainsbury

2000–04: Director of food, Marks & Spencer

1993–2000: Various positions at Asda, where he became retail managing director of its hypermarket division

Early career: Roles at companies including Mars and Häagen-Dazs

Other roles:

{

improving the quality of the working environment?”

Sainsbury’s created 5,000 jobs in the year to March, and aims to create a total of 50,000 between 2011 and 2020. But with 23 million customers each week, “how we treat our colleagues impacts on the experience they get in our shops”, he says.

King is non-executive director of Staples; member of the CBI’s President’s Committee and visiting fellow of Oxford University’s Centre for Corporate Reputation.

He was a member of the board for the London Organising Committee of the Olympic Games and Paralympic Games (2009-13) and the Prime Minister’s Business Advisory Group (2010-12).

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

19

Getrag Ford

PwC

Siemens

Vision Express

“HELP YOUNG PEOPLE GET THE SKILLS THEY NEED TO GET THE JOBS” Words: Nick Martindale

20

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

EMPLOYMENT: Fostering Talent

Barclays

9/10

55%

Source: Hays

48%

‘Talent Mismatch’ score for the UK, owing in part to high longterm unemployment. Out of 30 markets measured, only the US, Spain, Portugal, Ireland and Japan suffer more.

of businesses believe school leavers lack necessary workplace attributes.

of businesses have to offer remedial training in English and maths.

Source: CBI/Pearson

The UK economy may be taking tentative steps towards recovery, but there are serious concerns about how well equipped organisations are to take advantage of this.

When it comes to talent, the UK is facing a gaping hole: the UK Commission for Employment and Skills predicts almost half of all employment will be in skilled roles by 2020, yet Professor John Perkins’ Review of Engineering Skills for the Department for Business, Innovation and Skills has found that one in five posts in sectors such as oil and gas extraction, aerospace manufacturing and computer, electronic and optical engineering are already being filled by migrants. And in its recent Global Skills Index, recruitment firm Hays warned that senior posts are in danger of going unfilled unless the government relaxes its approach around skilled immigration.

And as Alistair Cox, chief executive of Hays, says: “If you don’t fill the

jobs at the higher level, you won’t create the lower-level jobs.”

And at this lower level, more than half of businesses in this year’s CBI/Pearson education and skills survey believed that school leavers lacked the right attributes for the world of work, and nearly as many had to put on remedial training for employees in basic areas such as literacy and numeracy.

At least the government is aware of the problem – a traineeship programme offering those not in education, employment or training a crash course in maths and English and the chance to gain work experience started in September.

Speaking to Business Voice, Matthew Hancock, minister for skills and enterprise, says: “The big reforms to our education system are all about driving up standards but that’s the work of a generation.

In the short term we need to ensure that the system focuses on the needs of employers and that we help young people get the skills

they need to get the jobs, which are growing in number.”

Alongside this, there is a drive to encourage more pupils – especially girls – to study science and maths at A-level and university, he says, while the government also announced plans to overhaul apprenticeships, encouraging employers in certain sectors to shape programmes to deliver the specific skills they require.

Hancock also says that he understands why enterprises feel they have to look overseas, but urges businesses to do more to create links with the UK education system themselves.

“By offering work experience, traineeships and apprenticeships, employers can get a highly motivated workforce which is often very strongly attached to that company,” he says.

There are already examples of organisations doing just that, and rethinking traditional approaches to developing their own talent pipelines, as Business Voice discovered.

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

21

SIEMENS: SUPPLY CHAIN REACTION “It’s really hard to attract candidates of the right level and we’re a big brand name, so if we struggle then our supply chain struggles even more”

22

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

Engineering and electronics business Siemens took the decision to develop its own apprenticeship scheme in 2008, after coming to the conclusion that generic providers were unable to deliver the quality and detail of training it required.

“It was partly down to the way payments flow; training providers could claim an outcome after a certain amount of training hours, but the level of knowledge that was disseminated during those hours didn’t satisfy our requirements,” says Martin Hotass, manager of skills and business learning.

Siemens’ own apprenticeship scheme now offers an average of 1,300 hours of training, compared with the minimum requirement of 279 that makes up most basic engineering schemes, he says.

When the government launched its Employer Ownership of Skills (EOoS) pilot in 2012, Siemens jumped at the opportunity to get involved, attracted by the concept of allowing employers to develop their own schemes and, particularly, the potential to train people from other businesses in its supply chain.

“It’s really hard to attract candidates of the right level and we’re a big brand name, so if we struggle then our supply

chain struggles even more,” says Hotass. “Under the current grant funding regulations I can only train my own apprentices, but under EOoS training others is encouraged.” Siemens eventually trained apprentices from ten of its suppliers, he says.

As part of the EOoS programme, Siemens partnered with BMW in the Oxfordshire region, tailoring apprenticeships to provide the skills required by both organisations. It has also joined forces with other employers through the Energy and Efficiency Industrial Partnership in the second stage of EOoS. It is also taking part in the new government apprenticeship scheme announced in October, as part of the automotive sector; one of eight so-called trailblazers which the government hopes will eventually provide a template for all apprenticeships.

Siemens currently takes on around 130 apprentices each year, and the intention is that each one will receive a permanent job on completion.

“We do it to secure the future of our business, especially against the backdrop of knowing that we will need to replace about 30 per cent of our engineering workforce over the next ten years,” says Hotass.

EMPLOYMENT: Fostering Talent

BARCLAYS: BRIDGING THE GAP FROM SCHOOL TO WORK In March this year Barclays announced plans to help prepare over a million young people for the world of work through its LifeSkills programme.

The scheme provides training in three core areas – people, work and money – which can be delivered in schools by either teachers or Barclays volunteers to help prepare 11-19-year-olds for the workplace.

“The people side is around communication, confidence and understanding how to act at work,” says Kirstie Mackey, head of LifeSkills. “The work skills side is around employability – CV writing, interview techniques and networking; and the money aspect is about helping people budget and understand their first payslip.”

Students initially have to undertake six hours’ classroom-

based training, after which those aged between 14 and 17 can apply for a work experience placement with either Barclays or one of its partner employers, which include Waitrose, Centrica, ISS and McDonald’s. The intention is to provide 50,000 such placements by 2017, with Barclays itself committing to offering 6,000, across its retail banking network as well as in its head office and call centres.

As well as helping to develop basic skills in the workforce of the future, Barclays also hopes the initiative will encourage pupils to consider a career with the organisation further down the line. “We hope we’ll have individuals who spend a week or couple of weeks at Barclays and then apply for our apprenticeship programme when they leave school,” says Mackey.

“We hope we’ll have individuals who spend a week or couple of weeks at Barclays and then apply for our apprenticeship programme when they leave school”

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

23

VISION EXPRESS: SETTING ITS SIGHTS ONYOUNG RECRUITS Attracting more young people

graduate programme. The companies

into the world of retail is a priority

will report on this on a yearly basis.

for Jonathan Lawson, chief executive

established graduate recruitment

one in ten people in the UK, but I’m

scheme but plans to launch its own

not sure whether young people are

apprenticeship programme in 2014,

really aware of it as an opportunity to

taking on around 75 people each year.

progress their long-term employment prospects,” he says.

In October, to help raise the profile of

For Lawson, there are obvious business benefits besides being a responsible employer. “Everything

the sector, Vision Express was the first

suggests that if we can get this issue

retailer to sign up to the 5% Club. This

of youth unemployment sorted out

is an initiative founded by QinetiQ,

we could find ourselves competing for

Renishaw, Atkins, EADS, MBDA and

a fairly scarce pool of talent when it

Babcock, under which organisations

comes to attitude and skills,” he says.

pledge to ensure that, within five

“We need to do everything we can to

years, five per cent of their workforce

get ourselves on the front foot for that.”

is on a formalised apprenticeship or

24

Vision Express already has an

of Vision Express. “Retail employs

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

EMPLOYMENT: Fostering Talent

GETRAG FORD: TAILORED TRAINING AT A LOCAL LEVEL Automotive supplier Getrag Ford, like many businesses, was frustrated by the inability to tailor traditional training to its own needs.

But it was attracted to the Skills for Growth Bank – an employerled mutual backed by the Liverpool City Region Local Enterprise Partnership – by the prospect of being able to choose its training provider and influence the content of the training programme.

The £32m scheme launched in October, aiming to help 6,000 local people into work and create as many as 4,000 apprenticeships. It offers to cover up to 60 per cent of the cost of training an individual or introducing a workplace-wide programme, up to £1m.

Getrag Ford is the first to put the funding into practice, sending two apprentices on schemes that better reflected the skills they need – rather than the options they had in place before. It hopes to use the funding more broadly in the future. “We have 700 people at Getrag and we’re putting together a package to help us with some ongoing training in the next budget year,” says HR manager Alan Seeley.

The scheme is focused on developing people from the local area to meet local needs. “In the north west we have a core circle of engineering employers, but finding people with the required competence is difficult,” he says. “Any initiative that allows employers to improve the skills of the overall workforce has got to be a good thing.”

PWC: SEEKING CYBER-SLEUTHS There has always been a skills shortage in the cybersecurity space, says Mark Hanvey, director of cyber security at PwC, and the problem is getting worse.

“The challenge is how we bring people through and train them, not just in the technical areas but with well-rounded skills,” he says.

“To make security work in an organisation you have to be able to consult, engage, inform, negotiate and influence.”

The business is currently training people in areas ranging from ethical hacking and penetration testing to forensics and broader strategy, both internally and through external programmes such as the MSc

in information security at Royal Holloway.

But it’s still a challenge to get people into the industry in the first place. To this end, the firm has backed the Cyber Security Challenge, a not-for-profit initiative that aims to attract people with an interest in the topic to take part in competitions and open their eyes to potential careers in the sector.

“It has been a good way to identify new young talent,” says Hanvey. A couple of years ago PwC recruited someone who did well on the course, after deciding to make a career change. “He said that if he hadn’t done the challenge he probably wouldn’t have gone for the interview.”

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

25

Words: Jason Aul

POLITICS OVER REFORM THE HOPES BUSINESSES IN THE US HAD FOR OBAMA’S NEW TERM HAVE SO FAR BEEN DASHED BY POLITICAL POSTURING. AND WITH MID-TERM ELECTIONS NEXT YEAR, PROGRESS ON BUDGETS AND REFORMS WILL REMAIN DIFFICULT. 26

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

INTERNATIONAL: US update

Last February, President Obama’s

On tax reform Representative

State of the Union address set

Dave Camp, the Republican chair

the stage for policy reforms that

of the House Committee on Ways

triggered positive feedback from

and Means, has been tasked with

business – most notably reforms to

drafting and promoting a reform

the immigration and tax systems.

plan. The problem for Camp is

Both are areas that Democrats and

that the Republicans are deeply

Republicans are eager to work on. But

divided following the government

reform efforts have been hindered by

shutdown. As a result he is unlikely

a string of political fiascos.

to find a consensus for substantive

“FROM THE (NSA) DATA GATHERING SCANDAL TO IMPLEMENTATION PROBLEMS DOGGING THE PRESIDENT’S HEALTHCARE PLAN, WASHINGTON HAS FOCUSED MORE ON POLITICAL POSTURING THAN REFORM”

reform in his party, let alone with

battle in January. Republicans may

(NSA) data gathering scandal to

enough Democrats to make reform a

see an opportunity to use the budget

implementation problems dogging

real possibility.

debate to denounce Obamacare and

From the National Security Agency’s

the president’s healthcare plan,

demand defunding, which could

While we expect Congress to

Washington has focused more on

attempt tax reform in the New Year,

lead to another budget showdown in

political posturing than reform. Just

the 2014 midterm elections could

the New Year and mirror October’s

weeks after the most significant

force Congress to play it safe. And

debacle.

political debacle of the year – the

although both parties agree with

government shutdown in October

businesses’ call for a reduction in

important, most Congressional eyes

– and as we approach the end of

the headline corporate tax rate (the

are focused on the midterm elections

the year, Congress has little time,

US currently has one of the highest

next year because control of both

momentum and support for any of the

in the world), how and when remain

chambers could be up for grabs. With

reforms endorsed earlier this year.

significant questions.

the voting public still furious over the

On immigration reform, business wants to liberalise the visa process, but Speaker of the House John Boehner has refused to negotiate on a Democratic reform bill passed through the Senate in July. This has all but tabled the debate until next year when Republicans are likely to reintroduce reform efforts to gain support from émigrés wary of the party’s stance on the issue.

While budgets and reform are

government shutdown, Democrats AN UNHEALTHY DEBATE

think they have an advantage over

One of the most important issues

the Republicans to regain control of

currently is the public outrage against

the House. That said, Republicans

Obamacare. The launch of the digital

believe the compelling drama of

health insurance marketplace has

the NSA spying scandal and the

been plagued by technical difficulties

disastrous Obamacare rollout

and low public enrolment, igniting

have damaged the brand of any

criticism from Republicans and

Democrat strongly associated with

Democrats alike. The failures of the

the president, which could allow the

rollout could lead to a repeat budget

Senate majority to fall in their laps.

Jason Aul is the CBI’s government affairs assistant in Washington. jason.aul@cbi.org.uk BUSINES S VOICE | NOVEMBER/DECEMBER 2013

27

Great Western Main Line HS2 is just part of the government’s “largest programme of investment in rail since the Victorian era”. The 175-year-old Great Western Main Line is one of the oldest and busiest in the country – and a programme to electrify the track beyond the Crossrail terminus at Maidenhead, as far west as Swansea, is set to improve speed, capacity and reliability, as well as reduce cost.

BUILDING BRITAIN: Great Western Main Line

The Project 20,000

1.6 km

support structures needed.

costing £35m and operated by Amey, is capable of

The number of overhead line

1,000 km

A 23-vehicle high output plant system “factory train”, installing 1.6km of the necessary infrastructure per night, while allowing adjacent tracks to remain open.

Using this system has reduced the total expected costs

Length of railway being electrified

of, and time for, the project. A total of 200 people will be

between London & Cardiff.

trained and employed on the train.

£1bn

The value of the electrification project, part of a £10bn UK-wide electrification programme. It is also part of a £5bn 10-year upgrade programme along the whole Great Western line. This includes 13 projects, with station works at Paddington, Reading and Newport; new trains; signalling work; and track improvements to cater for increased freight traffic.

The Benefits

20-35%

20 mins

200

Increase in the number of seats on the new Hitachi intercity express trains set to run on the route from 2017.

The reduction in carbon emissions compared with diesel trains.

Electric trains are also cheaper to run, quieter and require less maintenance.

Number of jobs expected to be created by Hitachi’s new electric train service depot at Stoke Gifford, near Bristol. Two others are planned for Swansea and west London.

The reduction in journey time between Bristol and London.

20%

ÂŁ120m

Estimated annual boost to SW regional economy from electrification of the route.

30

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

BUILDING BRITAIN: Great Western Main Line

Timeline November 2010

Plans to electrify the line to Oxford, Didcot and Newbury given the go-ahead.

March 2011

Plans extended to cover the section between Didcot Parkway to Bristol Temple Meads and Cardiff Central.

March 2012 July 2012

Government announces final portion of the line from Cardiff to Swansea to be electrified; signs deal with Agility Trains (Hitachi Rail Europe and John Laing Investments) for delivery of Super Express trains – creating 730 manufacturing jobs in the north east.

June 2013

2012/13

Bridge improvement works to allow room for electric cabling

Amey awarded five-year installation contract.

Atkins and Parsons Brinckerhoff chosen to lead the overall project.

2016

Line to Bristol to be fully electrified.

2017

Line to Cardiff to be fully electrified.

2018

Line to Swansea expected to be complete.

The Route 4.5m

40%

Wales served by the line.

line over the past ten years.

The population in the south west and

ÂŁ92bn

Economic output of the railway corridor.

11 million

Increase in demand across the whole

The number of passengers that travel in and out of Bristol annually, up 90 per cent in the ten years to 2007. This figure is expected to have grown by a

100 million

further 41 per cent by 2020.

The number of passengers predicted to be travelling on the whole line by 2019.

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

31

Charting business growth & investment around the UK Daisy Group has acquired Indecs for £18m.

The acquisition will expand Lancashire-based Daisy Group’s

Workplace Systems

Potter Logistics

business communications

has secured further investment

has announced its fifth

offering in technical

from Lloyds Development Capital

consecutive year of improved

maintenance and support

to support its growth plans. The

profits. The Yorkshire-based

services for IT server and cloud

supplier of cloud-based workforce

logistics, property and waste

storage facilities. Indecs supplies

management solutions has also

management group reported a 52

a range of clients, from blue-chip

appointed angel investor David

per cent rise in turnover in the year

companies to public authorities

Farquhar as executive chairman.

to April, taking it to £23m, growing

and SMEs. Daisy Group CEO

Farquhar recently sold one of

across all areas of the business.

Matthew Riley said: “Indecs

his own portfolio companies,

Pre-tax profits, which were up

represents a strong strategic fit

software firm SeeByte, to Bluefin

8.5 per cent, were also boosted by

and clear growth opportunity for

Robotics – a US-based provider

the acquisition of House of James

the group. Its services expand

of autonomous underwater

Transport in May 2012. In January,

Daisy’s IT services offering and

vehicles. He also sits on the board

the company launched a new

give the group the ability to

of two other enterprise software

corporate identity and livery and

support businesses on legacy

companies. Workplace’s former

spent £1.3m on new vehicles. Over

IT systems, as well as those

chief executive, Barney Quinn,

the course of this year it has also

investing in cloud solutions and

will move into the role of non-

announced new contracts with

cloud-based data storage.”

executive director.

SITA UK and Mersey Waste.

32

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

CBI MEMBERS: News in brief

Castrol Industrial campaign: Change From the Inside Out

Harland and Wolff has recruited 600 contractors to work on one of the biggest oil rigs it has refurbished.

Bray Leino

The Belfast shipyard clinched

has been appointed to

the deal to refit the 360ft

the Government Procurement

Blackford Dolphin offshore

Service’s roster for marketing

Monitise

drill platform in August, a year

strategy. The creative

has acquired full ownership

after successfully completing

communications agency, which

of its Asia Pacific joint venture

the refit of the SeaRose four

has offices in Devon, Bristol and

from First Eastern Mobile

days early and under budget.

London, has worked for clients

Investments. The London-

After the work, which will be

including Castrol (above), the

based mobile payments firm

carried out over the next two

National Census, the Royal Mint

paid 20 million ordinary shares

months, the Blackford Dolphin

and Virgin Media. Strategy work

to First Eastern, valuing the

will be recommissioned in

will include audience research

investment company’s stake

the North Sea by Aberdeen-

and trend forecasting, content

at £11.25m. Monitise’s group

based Dolphin Drilling. H&W

planning and insight generation.

chief commercial officer Lee

hopes this project will open the

Bray Leino chief strategy

Cameron said: “First Eastern,

door to other, more lucrative

officer Lisa Killbourn said: “Our

under the guidance of Victor

contracts next year. David

selection for this new GPS roster

Chu, has been a formative

McVeigh, H&W’s head of sales

is not only a huge opportunity,

partner for us, playing an

and marketing, told the BBC:

but a further affirmation of

extremely valuable role

“Apart from being able to

Bray Leino’s pedigree as a

in the development of our

exceed stringent health and

communications agency.”

relationships and capabilities

safety element requirements

Other agencies making the

in the Asia Pacific region

for such contracts, H&W is

roster include Mediacom, MEC

over the past three years.

also capable of great flexibility,

and RKCR/Y&R. Bray Leino

At Monitise, we have a track

which means we can put 600

was also appointed to the

record for taking control of

contractors from electrical,

direct marketing and digital

joint venture relationships to

welding, engineering and

advertising rosters in May.

help streamline and simplify

painting disciplines in place in a

the international structure of

short time.”

our global business.”

Let us know your news at edit@businessvoice.co.uk

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

33

34

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

MEMBER PROFILE: Thorntons

The taste of things to come After a tumultuous few years on the high street, chocolatier Thorntons has seen a return to profit and a successful expansion into supermarket sales. And with the launch of a new – albeit cautious – international strategy, the company has much to celebrate this festive season.

Thorntons has been through the mill. The chocolate chain issued five profit warnings between 2009 and 2011, blaming the weather as much as the wider malaise affecting the high street. And even last year, critics weren’t convinced of the three-year recovery plan set out in summer 2011 by the then new chief executive Jonathan Hart.

But what a difference a year makes. In September the chocolatier announced a return to profit, suggesting that the slated closure of almost 200 of its 360 high-street stores and the shift to supermarket sales is finally paying off.

“It’s taken quite a while to prove to people that it’s the right strategy,” says Hart. “People couldn’t quite understand why we would make more money by selling our products at wholesale prices through the supermarkets than we would do selling them at full manufactured margin in our own stores.”

The business itself steered clear of third party sales until 2006 because of the fear that it would damage sales. Hart believes the board’s decision to follow its customers into supermarkets has been the most important one Thorntons has ever taken. Last year, the retail business

contributed less than three per cent to its margin, compared with 20 per cent from commercial sales.

“The retail business comes with a huge cost base and the commercial business has a relatively low cost for sale, albeit at lower gross margins,” says Hart. To him, rebalancing the two “creates a very strong dynamic in terms of restoring profitability”.

But he is quick to point out that taking time to do this has been just as important to the overall health of the business. “We have very few loss-making stores. But what we do have are a lot that make very little contribution or are seeing their contribution decline. There was no urgent prerogative to shut wholesale large numbers of stores,” he says.

He adds that the company was “blessed” as half of its estate had their leases up for renewal within three years of the recovery strategy being announced – and 120 stores that were identified as having no long-term future could be closed on lease expiry.

This strategy has also given the business a chance to steadily grow sales through other channels – so it could maintain, and ultimately grow, the manufacturing operation without distorting overheads.

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

35

MEMBER PROFILE: Thorntons

“”

Thorntons has always been relatively true to its roots of being worth a bit extra Jonathan Hart, chief executive, Thorntons

Chocolate for all seasons The same steady approach means it will also take time for Thorntons to iron out the seasonality of its sales – with spikes at Christmas and Easter in particular. Hart wants the brand to become synonymous with personal gifting year-round. That would expand the retailer’s playing field from the boxed chocolate market, where it already has more than a 40 per cent share of something worth close to £1bn, to the overall gifting market, valued at £39bn.

He uses the analogy of florists to explain what this means for Thorntons’ remaining stores, which will benefit from increased investment. He wants to focus on products that come out of the box, allowing people to create bespoke and personalised gifts. “It creates a purpose for our own stores – they will be a place where the gifting brand of Thorntons is brought to life and we add value to our products that we can’t do in the supermarket.”

But Thorntons has only really gone after seasonal promotions within supermarkets in the past

36

couple of years. “Success, at least in the medium term, will see us becoming more seasonal because we’ll sell more products through the supermarkets at those seasons faster than we will fill in the gaps through any of our channels,” Hart says.

And although he pins the responsibility of the business’s decline on management that “had been very slow to react to changing circumstances” – in which he includes online shopping – it seems he is also being careful not to overcompensate in this area.

Rather than putting all his eggs in the online basket, Hart is focused on thinking about “one customer across all of our channels”, rather than running each channel independently as it had been. That transition hasn’t been easy – Hart admits that the 12 months after introducing a new website were “fairly torrid”.

But here too the new approach is starting to bear fruit. Online sales grew 14 per cent in the last quarter.

However, although Hart believes online sales could grow from £6m today, to £10m or more, he is

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

confident the rest of the business will grow faster, keeping it as a small overall proportion of sales. “It’s not going to be the thing that will transform our business,” he says.

Taking a step back Hart has a similar attitude towards international sales – at least for the time being. “I don’t want to get too distracted by it because we have a job to do in creating a strong UK business. Without that, we don’t have an international opportunity.”

When he joined Thorntons from Caffè Nero, he took a step back from the emphasis the retailer was applying to exports – he only outlined his international strategy in September. Even now he refuses to follow the rush into fast-growing markets such as Russia, China and India, opting instead for what he calls an “invest-as-you-go” approach to reflect Thorntons’ “very low experience and capability in international markets”.

The company is first focusing on reaching expat audiences and English-speaking markets, including

MEMBER PROFILE: Thorntons

“”

We have a job to do in creating a strong UK business. Without that, we don’t have an international opportunity

Australia, South Africa and the United Arab Emirates. Then, he says, there is nothing wrong with learning from, and following, its competitors, including Lindt and Ferrero. “I’m determined to make sure that we do it right because growing internationally will never be smooth. We’ll hit setbacks and we’ll learn things as we go. Therefore it’s important – I think – that we persist market by market to prove it.”

That said, he remains excited by the potential. “If we have something approaching 50 pence of every pound spent in the UK [on boxed chocolates], how much would I accept of any other market? A reasonably small share of some of these markets would add up to a fairly significant amount of business over the longer term.”

Hart clearly wants Thorntons to steer its own path through the retail challenges and exploit the opportunities in a way that better suits the business. In that context, he doesn’t like comparisons with Hotel Chocolat – or the idea that Thorntons missed the premiumisation trend.

“Thorntons has always been relatively true to its roots of being worth a bit extra,” he says. “The heritage of Thorntons is in selling toffee to the steelworkers of Sheffield. It’s never been an exclusive upmarket product.”

He is keen to preserve the brand’s heritage – but he says that this has also been to blame for some of its problems. “When I arrived I think it was fair to say it had somewhat lost its way. People didn’t quite know where we were going,” he says.

Hart is adamant that Thorntons remains “committed to the high street”, but wrapped up in talk of the brand being a “purveyor of emotion and sentiment” is a more hardedged analysis. If the momentum behind the current strategy continues to build, Thorntons will shift from being a retailer to a consumer goods brand and manufacturer. The high street has changed and this brand is following suit.

Founded:

1911 288 4,000 Stores:

Staff:

Revenues (2013):

£221.1m Pre-tax profit (2013):

£5.6m

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

37

The Twitter connection The recent Twitter IPO indicates that the social media platform is here to stay. Yet many businesses are still unsure how to use it effectively, and those that do will have to watch closely how the platform evolves as the company bids to make money for investors.

Business Voice asks David Cushman, strategy partner at WPP agency The Social Partners, for his advice.

Q. With the IPO, Twitter

can no longer argue it’s a preprofit start-up, and many of the jobs it is currently advertising are sales related. How will a greater emphasis on sales affect businesses’ approach to the platform?

A. Smaller businesses tend to think

they can set up an account and start pumping deals out, but it’s a waste of time and effort to treat Twitter as a broadcast medium. That’s not to say it can’t be used as a sales medium.

For instance, with social media monitoring, firms can discover people who are expressing their real-time

38

intent for their product or service; so if someone says “I need X and I am in Y”, they can join the conversation.

But the bigger value comes when they use what they’re learning from that connection with their customers. In the short term, they can use it to influence their content generation. The bigger goal for larger organisations is to use Twitter to get insight and drive better business decisions.

Q.

Do you think that the ability to automatically deliver ads against relevant conversations will attract more businesses to Twitter?

A.

There’s a lot of work going on at the moment looking at how effective that is. It’s probably not as effective as having a human being engaging with people, but it costs less, so there may be a balance to be had.

It’s hard for businesses that are not used to the environment to leap in and spend money on this.

If you’ve got a marketing budget, how much you should focus on Twitter is going to depend on your business model. If you’re looking for people to sell to directly, it would need a high-ticket item to make the personal approach worthwhile.

But any organisation of any scale needs to at least monitor how they are being talked about on Twitter.

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

Doing that will drive their next steps.

Rather than leaping straight to opening a Twitter account, it’s more interesting to understand why you would do it and what people would expect from you if you were doing it – then look at how you might put a value on that in the longer term.

Q. If your company is already

on the platform and you want to change your approach, can you do that overnight?

A. Consistency is important when

you have followers with certain expectations, but there are no rules about what you can and can’t do on Twitter. Providing you’re delivering something better each time, you shouldn’t have a problem.

Twitter is being used increasingly for customer service. It feels more human than sending emails and people feel they are getting more attention. And for a rail service, for example, where people only comment when it goes wrong, there’s a real benefit in getting information out quickly. But the barriers have gone up quite fast – influential users of social media have got high expectations of how quickly a brand should respond to them. You need to be prepared to offer an exceptional level of service.

Twitter is also really good at bringing together people who are

MEMBER CLINIC: The Twitter connection

interested in the same thing at any one particular time. TV companies, for example, have worked this out, particularly with their use of hashtags – they can facilitate conversations around a programme in a simple way, rather than directing them elsewhere.

Q. What do you think is the

most interesting trend among businesses on Twitter?

A.

The town hall idea, where a CEO or a senior member of the team will do a Q&A session, has crept over here

from the US. It works well if you’ve got a brand that people care about and want to help shape. That in itself can then attract other people who might be interested.

Even where a brand has been subject to a lot of criticism, I think it’s always a good thing to be open. Corporate PR people might hate it, and traditional media might jump on it, but the CEO will have learnt a great deal about their business, which will prove invaluable for making the business better. O2 talks about using Twitter to “walk the floor” and I think it is a great way for a senior team to get much closer to the customers and even to their staff.

VODAFONE: BRAND TACTICS UK brands frequently perform better than the global average for responding to queries and complaints via Twitter, and Vodafone has been recognised as one of the best.

That has taken commitment to the platform – Samuel Hall, the company’s head of social media, explains that it has a clear strategy, strict KPIs and invests heavily in it, with a team listening and responding to customers 12 hours a day, 365 days a year.

But he adds that it’s impossible to respond to everything consumers say. “And nor should we,” he adds. “There’s a lot of stuff that doesn’t necessarily warrant a response or where people don’t want a response.

We need to make sure we’re monitoring that and aware of it, but a brand needs to earn the right to jump into somebody’s conversation.”

Vodafone does, however, have pretty stringent targets for responding to direct queries – even if it means simply acknowledging them and getting back to customers later when it has the answer.

Hall emphasises the importance of living up to expectations on the platform, and also evolving with

Q. What is the biggest mistake

a company can make with Twitter?

A. Leaving it to the lowest-paid

member of staff. Twitter accounts are often thought of as experimental in some way, as something you can just let one of the kids play with.

But the CEO is not likely to want the most open vehicle to his business to be in the hands of the lowest-paid employee. He wouldn’t do that to the corporate comms function – yet the net impact of social media can be greater, faster and harder. Give control to someone who knows what they’re doing.

the technology and consumer trends. “We need to keep learning,” he says. “But it’s important to balance testing and learning with having a sustained approach. We don’t want to become all things to all people and then not be able to support a sustained conversation.”

A strong proposition Hall says Twitter “has exploded in its use as a legitimate communications model” and he believes the lines are blurring between corporate communications and customer service on the channel. This is also influencing Vodafone’s approach.

“If all you’re going to do is customer service you’re missing a huge opportunity to talk to people,” he says. “Twitter is like word of mouth on steroids. There’s an awful lot of conversation out there, and plenty of topics and trends that aren’t about customer service. We can learn from them as a business. If we only looked at it from a customer service point of view, we wouldn’t get a true return on investment.”

He talks of three pillars to social media – brand engagement, customer service engagement and corporate communications. “When you get those three aligned and working together, it’s a really strong proposition to have.”

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

39

NEWS & EVENTS FROM THE CBI

Growth champions GROWING BUSINESS AWARDS | 23 OCTOBER 2013 LONDON MARRIOTT HOTEL, GROSVENOR SQUARE

Zoopla Property Group, commercial insurance firm Acturis and energy efficiency company Anesco were named company of the year (in the large, mid-sized and “young company” categories respectively) at the Growing Business Awards, held in October.

Anesco’s founder Adrian Pike was also named Entrepreneur of the Year; Steve Barlett, founder of student forum Wallpark Online, was named Young Entrepreneur of the Year; and Tony Banks, chairman of Balhousie Care Group, was named Local Hero.

Augmented-reality firm Blippar and advanced manufacturer Versarien were both honoured for their disruptive business models. And fierce competition saw two winners in both the Export Champion category (Oliver Valves and consumer goods exporter Sun Mark) and the Made in Britain category (Chase Distillery and Offshore Group Newcastle).

The awards, hosted by Real Business in association with Lloyds Banking Group, have been supported by the CBI since they were established 15 years ago. Speaking at the event, chief secretary to the Treasury Danny Alexander hailed the “hard work, vision and risktaking” of British business, but said it needed to invest the reserves it had built up before the economy could “get into top gear”.

East Midlands Annual Dinner More than 300 business people attended the CBI East Midlands Annual Dinner at the Athena in Leicester on 31 October. A speech from Sir Mike Rake covered the CBI president’s concerns about energy investment, skills and the public perception of business. He was joined on stage by CBI East Midlands chairman David Frankish and BBC journalist Justin Webb.

UPCOMING EVENTS

A sustainable energy future

An HR perspective on pensions

With a UK general election looming and negotiations intensifying in Europe and internationally, this “Question Time” style debate will consider the smartest approach to tackling our energy and climate challenges. The panel will include CBI director-general John Cridland; secretary of state for energy and climate change Ed Davey; shadow secretary of state for energy and climate change Caroline Flint; and president & CEO, GE UK & Ireland, Mark Elborne. The event takes place on Monday 9 December at the offices of Addleshaw Goddard, on Chiswell Street in London.

Auto-enrolment and state pension reform is changing the pensions landscape. The CBI Pensions Conference 2014, to be held at the Royal Society on Thursday 23 January, will provide practical insights from political figures and leading businesses into how companies can get value for money in choosing their scheme and avoid the pitfalls of the new pensions world. Speakers will include minister of state for pensions Steve Webb and shadow minister Gregg McClymont; Katja Hall, CBI chief policy director; Toby Strauss, group director for insurance, Lloyds Banking Group and CEO, Scottish Widows; and Morten Nilsson, CEO, NOW: Pensions.

www.cbi.org.uk/events/ a-sustainable-energy-future/

40

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

CBI DIARY: November/December 2013

Regional events

WALES:

EAST MIDLANDS:

NORTHERN IRELAND:

International trade lunch with Kevin Oakes, CEO, Steelite International, and Simon Moore, CBI international director Date: Thursday 5 December Venue: Royal Crown Derby, Derby Email: sarah.wood@cbi.org.uk

CBI/CPD Public Procurement Conference with keynote address from Simon Hamilton, minister for finance and personnel Date: Thursday 5 December Venue: Radisson Hotel, Belfast Contact: anthea.savage@cbi.org.uk

EAST OF ENGLAND:

NORTH WEST:

Midwinter lunch with Spencer Dale, chief economist, Bank of England Date: Friday 13 December Venue: Tattersalls, Newmarket, Suffolk Email: nikki.campin@cbi.org.uk

Cumbria dinner with Ian McCubbin, SVP, GlaxoSmithKline Date: Thursday 6 February 2014 Venue: Low Wood Bay Resort Hotel & Marina, Windermere.

Email: angie.gault@cbi.org.uk

Annual dinner with Keith Williams, CEO of British Airways and journalist Robert Peston Date: Thursday 5 December Venue: City Hall, Cardiff Email: emma.georgiades@cbi.org.uk

WEST MIDLANDS: International trade lunch with Kevin Oakes, CEO, Steelite International, and Simon Moore, CBI international director Date: Thursday 5 December Venue: Royal Crown Derby, Derby Email: julia.fox@cbi.org.uk

SCOTLAND: Westminster reception Date: Wednesday 4 December Venue: Scotland Office, Whitehall, London Email: colette.cunningham@cbi.org.uk

CBI MEMBERS’ CHRISTMAS RECEPTION

CBI ANNUAL DINNER

Date: Tuesday 10 December 2013 Venue: One Great George Street, London Contact: karen.scott@cbi.org.uk

Date: Wednesday 21 May 2014 Venue: Grosvenor House Hotel, London Contact: carley.warner@cbi.org.uk BUSINES S VOICE | NOVEMBER/DECEMBER 2013

41

BV Published by Caspian Media for the CBI www.caspianmedia.com

Editorial and production 020 7045 7585 edit@businessvoice.co.uk

Editor Pip Brooking

Digital designer Amy Willoughby

Creative director Nick Dixon

Publishing director Ian Gerrard

Contact the CBI 020 7379 7400 www.cbi.org.uk

Tell us what you think businessvoice@cbi.org.uk Opinions expressed do not necessarily reflect the policies of the CBI. Caspian Media Ltd and the CBI accept no responsibility for the views expressed by contributors.

42

BUSINES S VOICE | NOVEMBER/DECEMBER 2013

Championing medium-sized businesses A club exclusively for owners and managers of mid-sized organisations, M-Clubs provide opportunities to network, receive expert advice, and share experiences with like-minded businesses.

if you are leading a business with a turnover between ÂŁ10m-ÂŁ500m, you can join a regional m-Club and attend our free events by visiting www.cbi.org.uk/midsizeevents BUSINES S VOICE | NOVEMBER/DECEMBER 2013

43