RGU Aberdeen Business Journal 2014

AberdeenBusinessschool

AberdeenBusinessjournal

Spotlight AberdeenBusinessschool

2014 Issue 07

Sir Ian Wood Stewart Milne Melfort Campbell Colin Welsh Hugh Little Charles Ritchie

Robert Gordon University Garthdee Campus Garthdee Road Aberdeen AB10 7QE United KIngdom www.rgu.ac.uk Robert Gordon University, a Scottish charity registered under charity number SC013781 • Produced by The Gatehouse: Design & Print Consultancy at Robert Gordon University • 0714/37681/JM

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97% postgraduate employment HESA DESTINATION OF UK LEAVERS SURVEY 2012/2013

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Our location in the European energy capital has enabled us to partner with industry experts and engage at the highest level with service companies and International and National Oil companies.

Our long-standing and strong industry relationships inform and shape the courses we deliver, providing you with well-structured, specialised courses.

Our teaching staff have an outstanding reputation for quality and academic research and our track record in graduate employment is the best in Scotland.

Aberdeen Business School is a top provider of professional postgraduate study. Our courses are nationally accredited and recognised so you can be confident about gaining a qualification which will truly enhance your career.

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MBA Oil & Gas Management Accredited by the Association of MBAs (AMBA) and Energy Institute (EI) MSC Energy Management Accredited by the Energy Institute (EI) MSC Business Management Recognised by the Chartered Management Institute (CMI) MSC Health, Safety & Risk Management Accredited by the Institution of Occupational Safety and Health (IOSH) MSC Human Resource Management Accredited by the Chartered Institute of Personnel and Development (CIPD) MSC Information Management Validated by the Chartered Institute of Library and Information Professionals (CILIP) MSC Oil & Gas Accounting Accredited by the Association of International Accountants (AIA), the Energy Institute (EI) and the Chartered Quality Institute (CQI) MSC Oil & Gas Law Accredited by the Energy Institute (EI) MSC Project Management Accredited by the Association for Project Management (APM), the Project Management Institute (PMI) and the Global Accreditation Centre for Project Management Education Programs (GAC), MSC Purchasing & Supply Chain Management Accredited by the Chartered Institute of Purchasing and Supply (CIPS) MSC Quality Management Accepted by the Chartered Quality Institute (CQI)

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*Accredited by the Chartered Institute of Library and Information Professionals (CILIP)

www.rgu.ac.uk/INFORMATIONMANAGEMENT T: 01224 262203 E: BETTER@rgu.ac.uk

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Editorial/ The Dean’s View Professor Rita Marcella, Dean, Aberdeen Business School

Business Personality Profile Bill Budge, Non – Executive Chairman, The Stewart Group

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Management Theory and Practice Formation Of The Offshore Renewables Institute Professor David Gray, Director, Research Institute for Management, Governance and Society, Aberdeen Business School

Spotlight

Sir Ian Wood (pp 14-19) Stewart Milne (pp 20-25) Melfort Campbell (pp 26-31) Colin Welsh (pp 32-37) Hugh Little (pp 38-47) Charles Ritchie (pp 48-51)

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The Entrepreneur’s Skill Country Of Origin Identity In Premium/ Luxury Brands Dr Morag Hamilton, Senior Lecturer, Department of Communication, Marketing and Media, Aberdeen Business School

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The Practice Of Entrepreneurship Making It Real Stacey Horne, Communications Officer, Aberdeen Business School

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Multinational Mirror Leadership Voices Imagining The Future Of The G lobal Oil And Gas Industry Professor Rita Marcella, Dean of the Faculty of the Aberdeen Business School, and Hayley Rowlands, Research Assistant, Aberdeen Business School

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E-Business Distance And Blended Learning: An Introduction Alan Hunt, Senior Lecturer, Department of Information Management, Aberdeen Business School

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Aberdeen Business School Platform Aberdeen Business School And Engagement With Corporate Clients Professor Ken Russell, Associate Dean for MBA and Corporate Programmes, Aberdeen Business School

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Aberdeen Business Journal 2014

T

he regional economy in the North East of Scotland remains very buoyant, with record levels of investment in production in the United Kingdom Continental Shelf by the oil and gas industry and a consequent positive influence of these high levels of activity on the wider economy in the region as well as on employment.

Indeed there continues to be very real skills gaps in the industry and what is sometimes described as a war for talent in a wide variety of disciplines. It is within this context that Issue 7 of Aberdeen Business Journal is published.

In each issue of the Journal we present a business personality profile and this year I am particularly delighted to include a profile of Bill Budge as a model of the quality of local business leadership. Bill has had an inspirational career both in terms of his personal achievements but also as a role model alumnus for Aberdeen Business School students. Bill has now retired from his role as Non-Executive Chairman of the Stewart Group but remains very active and committed to charitable work.

Bill and his wife Lorraine established the Budge Trust in 2010 which has funded many charitable causes both in the North East of Scotland and in Uganda.

A paper by Professor David Gray describes work being undertaken into Offshore Renewables as part of a collaborative initiative involving three Scottish universities – the University of Dundee, the University of Aberdeen and RGU – addressing the needs of the wider energy sector through the creation of the Offshore Renewables Institute.

Aberdeen Business School is very grateful for the support provided by so many organisations and business leaders and we are in particular working to extend our academic industry partnerships to include smaller companies and organisations. Hence in this the seventh issue of the Aberdeen Business Journal we have brought together some of our earlier contributions in a special “SPOTLIGHT” section with reprints of articles contributed to previous issues by six well known executives and entrepreneurs from the Aberdeen business community.

In the first issue of the Journal in 2005, Sir Ian Wood as founder, director and chief executive officer of the Wood Group, and before his recent retirement, gave his views on the role of a CEO of a leading international oil service company.

From small beginnings in the early 1970s Sir Ian oversaw and led the company on a programme of expansion to become the world renowned business that it is today.

Editorial

Professor Rita Marcella Dean, Aberdeen Business School

Stewart Milne was also interviewed in 2006 and he describes the process of setting up a local construction firm, having started his working life as an apprentice electrician.

The Stewart Milne group is now a major national player in the UK construction industry.

In 2006, Melfort Campbell, as founder and developer of the Imes Group, which started trading in 1985, described the advantages and challenges of operating a global business serving the oil industry from an Aberdeen base in the North East of Scotland. Melfort is a former Chair of the RGU Board of Governors and currently presides over the RGU Foundation, the fundraising arm of the university. Melfort has continued to make a contribution to the oil and gas industry though his recent work chairing the Scottish Government’s Independent

Expert Commission on Oil and Gas which has recently published its findings.

Issues 3 and 4 of the Journal saw a change of emphasis with articles contributed by 2 leading executives in the financial services sector, notably in banking and fund management.

In 2007, Colin Welsh cast light on the often private world of the investment bank by explaining the role of a US financial institution based in Aberdeen and providing risk capital for the funding of management buyouts [ MBOs ] and management buyins [ MBIs ] in the oil and gas industry operating in the UK offshore environment.

In Issue 4 Hugh Little described his role as Director of Acquisitions at Aberdeen Asset Management. The business started from very humble beginnings in the early 1980s and has grown into an internationally recognised manager of investment funds on behalf of its clients and operating on a global scale.

Charles Ritchie is profiled in Issue 6 of the Journal in 2011 as the founder and chief executive officer of the Score Group.

The article describes how Charles started his business in 1982 and developed the firm into a major North East company providing engineering solutions for the aerospace, defence, oil, gas and power industries. It also demonstrates Charles’s commitment to offering real opportunities and training to young people through Score’s extensive apprenticeship scheme.

In the last year much effort has gone into the university’s submission to the Research Excellence Framework in December 2013. This UK wide exercise seeks to assess the quality of research being undertaken by universities and Aberdeen Business School has submitted four units of assessment in (i) Business and Management (ii) Law (iii) Politics and International Relations and Communication and (iv) Cultural and Media Studies, Library and Information Management. The results of the exercise will be announced in December 2014.

Research at Aberdeen Business School underpins our course delivery in a wide range of subjects and disciplines and a paper by Dr Morag Hamilton on premium luxury brands and country of origin identity is illustrative of the work being undertaken which adds to our understanding of management theory and practice relevant to the creative industries.

Amongst other factors the buoyancy of local industry supports RGU’s continued success in ensuring our graduates are able to enter graduate level jobs and maintain the university’s position as the best university in the UK for graduate employment in 2014. However, the university is not complacent about graduate employability and it is a strategic priority to continue to enhance this through career support and additional opportunities to embed fieldwork placement, real life industry projects and case studies and master classes by industry leaders. A paper by Stacey Horne on embedding industry experience in the MBA programme of the Aberdeen Business School illustrates the way in which theory is made real for students.

Research conducted in 2013 into the opportunities and challenges faced by the oil and gas industry and supported

by Dana Petroleum is presented in a recent report titled Leadership Voices: Imagining The Future of The Global Oil and Gas Industry, with interesting implications for the future of leadership in the oil and gas industry.

Applications and recruitment to Aberdeen Business School courses continue to grow both on campus and in flexible and distant modes of study. There is today a vibrant and diverse student body and a real sense of community evolving with all of our students now collocated on the impressive Garthdee campus. Many of our students, of course, do not physically study on campus, with increasing recognition of lifelong learning and continuing professional development. Over the last 10 years the Aberdeen Business School has introduced variant study modes for much of our undergraduate and postgraduate provision through distance and blended approaches and Alan Hunt discusses the technological developments that have improved the opportunities for students to access these varying models of course delivery.

Currently work is also underway at Aberdeen Business School to extend professional body accreditations and external benchmarks of quality. We have already obtained an impressive array of such awards and this year have gone through the reaccreditation of a number of programmes such as AMBA for the MBA and the Energy Institute accreditation for the LLM in Oil and Gas Law. We are also actively pursuing further badges of quality and the MSc in Financial Management, for example, has recently been included in the Chartered Financial Analyst’s (CFA) University Recognition List (Chartered Financial Analyst, USA). Such forms of recognition of course also enhance the student learning experience and their job prospects. Professor Ken Russell, Associate Dean for MBA and Corporate Programmes, offers insight into the Business School’s wider engagement with corporate clients and future directions to bolster developments in this area.

It has been a privilege for the Aberdeen Business School to act as a vehicle through this Journal in conveying the philosophy and experience of such successful business executives to a wider audience. Each shares an experience of starting up a business that has subsequently thrived in the local region and of developing that business worldwide. Hopefully their contributions will remind readers of the far ranging achievements of the Aberdeen business community and its contribution to the health and wellbeing of our community.

These individuals have also made a real contribution to RGU and the Aberdeen Business School and that is much appreciated.

I would like to express my thanks to all of those who have contributed to the 2014 issue of the Aberdeen Business Journal. We plan a bumper edition for 2015 to celebrate the 50th anniversary of the establishment of the Aberdeen Business School in 1965, with a number of retrospective articles on the School, the region and the dominant oil and gas industry on our doorstep.

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Bill Budge

Non – Executive Chairman, The Stewart Group

Career Background

A

fter graduating in 1975 I immediately started with Marks & Spencer as a graduate trainee.

I quickly realised it wasn’t the career for me and only stayed for a year. I often joke that I tendered my resignation about five minutes before they fired me!

Afterwards I worked for BODL, the company established after the Labour Government of the time nationalised Burmah Oil and the forerunner of The British National Oil Corporation.

It would later become Britoil before ultimately being taken over by BP. I worked there for almost five years, the final three being within the contracts department.

I then moved on to The Stewart Group where I became a shipbroker. I knew nothing about shipbroking but I got the job because I understood contracts which was an essential part of the role. That was just over 30 years ago.

I worked my way up to become the office manager before becoming a director. After a major restructuring in the early 1990s, I bought out all but one of the remaining directors and assumed the role of managing director. In June 2011 I became chairman of the company and we appointed a new managing director who was a graduate of the Robert Gordon Business School and had began his career as a placement student with me in 1994. I am now non-executive chairman.

For me, the most important part of student life is that it teaches you to deal with huge quantities of information and decide what is important and what is not. I studied economics, accountancy and law. I took a great deal from my studies of both law and economics but I believe accountancy was the most important area for me. A key tool in any businessman’s arsenal is the ability to understand profit and loss accounts and a balance sheet. Too many people fail to understand these crucial documents. No matter the business, to focus on increasing turnover without having overheads under control and robust credit control systems in place is a selfdefeating exercise.

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Identify the important personal qualities and skills that have been significant in your executive roles in industry over recent years.

I often say that delegation is the strongest skill for an executive to possess but I also often quip that delegation does not mean abdication. You must allow people to get on with their jobs and develop their careers without micromanaging them or being on their backs all the time. Any effective manager must be approachable and support his staff.

It is equally important to believe in staff and to have a caring disposition. Those are qualities that have been fundamental to my success in developing strong teams over the years. As a manager you may be the head of a team but if you do not believe in your staff and look after them both personally and professionally you will achieve nothing. To use a football analogy - you can assemble 11 very talented football players who are all very good individually but the real skill is pulling them together into a cohesive group and ensuring they perform as a single unit.

How would you describe your management style?

I would summarise it as very direct and assertive.

The people who work for me certainly know who leads the team.

At the same time, I have often said I have two families, namely, my wife and two sons at home and my staff at work that I also care about. It is hugely important to me that my staff feel that I am approachable and that they can come to me with any problems they might have.

Do you have an inspirational figure?

In terms of your own career, has there been a t ipping point?

That is a very difficult question to answer. During my career I have met some very fine people but I cannot say I have met anyone that I could say was truly inspirational.

About 15 years ago, our company lacked direction.

It was a family company with far too many directors, most of whom produced little more than overheads.

It was a situation that had to be addressed. So we restructured and reduced the director numbers to a manageable number of two.

It was the most challenging time of my career but I knew that without change the company in all likelihood would cease to exist. Over a three-year period we were successful in securing some very large international contracts and that changed everything.

Success does gather success and the company has moved from strength to strength ever since.

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To what extent did you make your own opportunities and to what extent were you lucky?

It is often said that there are skilled businessmen and lucky businessmen. If both of these characteristics just happen to combine, exceptional developments can occur. This, however, is seldom the case.

In business I do believe there is such a thing as luck and, whether you like it or not, that just happens to be the reality of being in the right place at the right time.

However, real and sustainable success will never occur unless you have built a very strong business model against which you can further develop your company.

How do you think skills are best acquired at different stages in a person’s career?

The skills gap is the biggest weakness in UK plc.

In other parts of the world – Europe, for example – training is viewed as a very positive attribute. In the UK, however, there is a perception that people who require training are somehow inadequate in the first place. That is just rubbish. In the developing world, education is recognised as all important and the way to move forward. In the UK we do not train our people sufficiently well or attach enough value to it and thus fail to properly address all training needs.

On a personal level, where do you see your own future and how would you like to spend your retirement?

I decided to semi retire in May 2012 after 30 years, although I’m continuing as a non-executive chairman of The Stewart Group. I have adopted a more corporate role, supporting our various offices in Ghana, South Africa and Houston.

I also have more time to devote to a charitable trust which has been set up by my wife and I; central to its work at the moment is the development and construction of a school in Uganda. Additionally, we are extensively involved in many other projects in the UK. At the same time, I would like the opportunity to work with young people in the UK, helping them in business. So often a very simple piece of advice will make the difference. It need not involve large sums of money – if you have people who have ambition, you are off to a great start. If I can offer a little guidance to point them in the right direction, I feel it is little more than putting something back into the community.

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Do you still have any other aspirations relating to industry?

In the business sense, I am very fortunate that I have realised most of my ambitions. Business is about more than just making money – it is about people and caring about the society in which you are working and putting something back.

It does not mean that you require to have your face in the local or national newspaper; it is more about taking a socially responsible attitude. I think we have to accept today that the governments of the world are strapped for cash and, if UK plc can be more benevolent and help others, that is a very positive way forward.

How important is it to relax and escape from pressure and how do you cope with periods of stress?

Stress is something that has never bothered me. If you are a driven person, as I am, you do not suffer from it. Relaxing, however, can be a problem. I can survive quite comfortably on about five hours’ sleep a night, and there is so much I want to achieve in life. Where I do actually relax is at my cottage in a small fishing village on the Moray coast. When I am there, my shoulders drop and I unwind.

Where are you on the calm and volatile spectrum?

It takes a lot to get me really annoyed. Once you are annoyed you’re not thinking logically and so therefore it is better to keep calm. Be cross inside, perhaps, but on the outside remain calm. I also remember a professor at Glasgow University saying ‘lose the heid, lose the argument’. Good advice indeed.

What is the most important lesson you have learned in your career?

What advice would you give to someone entering the oil and gas industry today?

It is vitally important to be a good listener and to understand and respect the opinions of others.

The ability to defuse certain situations by injecting some light humour can also be useful.

No matter how menial the task, always do it – and do it well. Always volunteer and not be the one volunteered.

I have always advised people that, if you want something enough, you will get it.

Any successful businessman needs a solid and stable domestic background, which I am very lucky to have.

Family is very important; whatever success you achieve is for them and not for yourself.

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Management Theory and Practice Formation Of The Offshore Renewables Institute Professor David Gray, Director Research Institute for Management, Governance and Society Aberdeen Business School

Researchers from Aberdeen Business School are involved in an exciting new collaboration with colleagues from the Universities of Dundee and Aberdeen. The Offshore Renewables Institute (ORI) will carry out research which will assist the private sector and Government in confronting the challenges faced in delivering and managing the offshore wind industry. ORI was established following a series of discussions with industry, workshops and a focus group meeting during which the expertise within the three universities was mapped against perceived gaps in knowledge that the offshore renewables industry was facing.

At first glance, it might seem surprising that the Business School is engaged in research in an area that is more synonymous with pioneering heavy engineering. The offshore wind industry, however, is heavily supported through European, UK and Scottish Government funding and the medium to long term commercial outlook is fraught with uncertainly. In other words, the energy might be sustainable but the business cases – currently - are not. Consequently, if the offshore renewable wind industry is to become commercially viable, it needs ‘soft’ expertise to compliment the ‘hard’ technology and it requires a knowledge base to support the scaling up of offshore arrays from piloting and demonstration to a full scale cornerstone of the UK’s energy supply.

The vision for the ORI is to become the recognised global authority on the delivery and implementation of offshore renewable energy. Research is organised into 4 thematic areas: framing (which includes regulation, law and economics); consenting (environmental impact and operating consents); deploying (design, fabrication and installation); and managing (asset management, including health and safety).

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Thematic Areas

Framing

consenting

deploying

Environment & Consents Regulation, Law & Economics • • • •

Policy Regulation Finance Support Mechanisms • Legal

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• • • •

Environmental impact Long term monitoring Mitigation strategies Consents • Legal

managing

Asset Management

Design, Fabrication & Installation • • • •

Foundation & Structures Geotechnics Access Alliancing strategies • Legal

• • • • •

Operation Safety & Reliability Access Health & Safety Workforce Management • Legal

Aberdeen Business School expects to make a strong contribution in the area of Managing, Framing and Consenting. In the former, ABS has know-how in asset management, health and safety, workforce management and skills analysis and forecasting. Under Framing, Business School researchers also have a track record in energy policy and regulation, while in Consenting there is expertise in environmental law, monitoring & survey and in the practical side of the consenting. Indeed, Aberdeen Business School has already led on a major £1.3 million Horizon 2020 bid to the European Commission in the area of consenting on behalf of ORI. If funded, RiCORE will explore the potential to implement a risk based approach to environmental consenting across the EU. Offshore wind developers currently invest a great deal of time and capital collecting environmental data as part of the consenting process. The industry believes that the process takes too long, is costly and represents a significant barrier to the deployment of offshore wind farms. A risk based approach that has the potential to benchmark the risk associated with different types of array (e.g. fixed vs. floating installations) in varying kinds of offshore environments could potentially reduce the amount of environmental data that needs to be collected for relatively low risk developments. The project involves partners from Spain, France and Ireland as well as Marine Scotland, who have pioneered a risk based approach for wave and tide sourced energy in Scotland. There is no doubt that RGU would not have been in a position to submit this bid without the support, expertise and industry contacts provided by and through ORI. It is expected that RiCORE will be the first of several large research proposals facilitated

by ORI that will benefit RGU and work is already ongoing on a larger £5-10 million companion proposal involving ABS researchers that will be submitted in 2015.

ORI has also been active in a range of project proposals and other activities in areas such as up scaling offshore wind; supply chain integration across planning, design, operations and maintenance; supply chain evolution and optimisation; the interfaces between offshore oil and gas and renewables; modelling the energy economy; and dynamic modelling of the implications of the energy market reform (EMR).

The fact that ORI facilitated and supported the RiCORE bid (rather than lead it) illustrates the unique collaborative model underpinning the Institute. Rather than carrying out research and consultancy, the ORI core team provide a hub to coordinate and integrate R & D in offshore renewables across the three universities. To this end, the core team liaises with industry, development agencies and government to identify potential funding opportunities and then identifies and coordinates relevant experts from within the partner Universities to exploit them. Researchers from one, two or even all three Universities can potentially collaborate on research proposals sourced and supported by the ORI core team.

Through this collaborative model, the three Universities are also committed to providing education and training in offshore renewables. RGU is well placed to make a strong contribution to these programmes and will look to adapt its successful MBA and MSc Oil and Gas and Energy programmes for the offshore renewable industry.

With strong support from a range of private and public sector stakeholders, The Offshore Renewables Institute was launched in November 2013 and its establishment is being supported by an ERDF grant which will finance up to £164,000 of the start up costs for the period to March 2015.

The ORI core team is based in Dundee and comprise the Director, Professor Paul Mitchell, who has been seconded from Aberdeen University as lead ORI; Ilona Sultana as the ORI’s Project Development Manager; and Lesley Hewitt as the Institute’s Office Administrator.

The Institute is governed by a Management Board which includes senior management from all three Universities. RGU’s representatives on the Board are Professor R ita Marcella, Dean of Aberdeen Business School, and Helen Mill, RGU’s Director of Commercial Innovation.

An advisory board has also been set up which includes over 20 experts from industry, government, the enterprise agencies and other advisory and stakeholder bodies. The advisory board is chaired by Professor David Sigsworth, who is Chairman of the Scottish Environmental Protection Agency.

RGU’s involvement in ORI is being led by myself, as acting Director of the Business School’s IMaGeS Research Institute and an active promoter of the Business School’s Energy Society’s research cluster.

Four other Business School researchers are closely involved in ORI as theme leaders. Professor Peter Strachan is a high profile expert in the field of energy policy. Dr Ian Broadbent has practical knowledge of developing and consenting offshore wind farms. Dr Mohammed Kishk is an expert in asset management, while Caroline Nixon is a law lecturer with expertise in environmental impact assessment.

The ABS team are confident that ORI will be instrumental in helping to further its knowledge and research profiles and those of their colleagues in the Business School - in the business of offshore renewables.

David Gray Director Research Institute for Management, Governance and Society Aberdeen Business School T: +44 (0)1224 263146 E: david.gray@rgu.ac.uk

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BUSINESS PERSONALITY INTERVIEW RITA MARCELLA | DEAN OF FACULTY, ABERDEEN BUSINESS SCHOOL This interview first appeared in the inaugural Aberdeen Business Journal, published in 2005.

SlR lAN WOOD MANAGlNG DlRECTOR WOOD GROUP

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1. What qualities and skills are required for the role of Managing Director/ Chief Executive Officer of an international oil service company?

Commitment, enterprise and high integrity are important qualities.

Strong people skills are essential. Business is about motivating people - people are motivated by such things as being involved and appreciated, by being given a sense of authority and achievement.

A strong customer orientation is important; find out what the customer wants as opposed to what you have to sell. Wood Group is committed to developing long term relationships with customers and working in partnership with them to provide the most appropriate solutions.

Finally, keep expanding your horizons, be entrepreneurial but with a healthy dose of caution and good sense.

2. How are these qualities and skills best acquired - for example through business experience, university level education and career choice, continuing practical training, innate talent etc?

3. Can business skills in general and entrepreneurship in particular be taught in an academic institution and how might universities better contribute to such education?

lt is a mix of all the above. People skills and work commitment are inherent in your personality and environment, they can’t be taught. But you can teach basic business principles. ln my case, I never had any formal management training but in the early days I learnt a lot from advisers and peers.

You can give people knowledge and case studies can act as a substitute for experience. However, risk taking and entrepreneurship depends on personality and style. Mixing experience and teaching can provide people with basic business skills. What graduates lack most are people skills, and a longer course with more work experience to give students a better understanding of what business requires would enhance the learning from their studies.

4. How much weighting would you attach to opportunity and timing as key/necessary ingredients for the pursuit of a successful career in business for an individual?

5. Can you give an indication of a typical “day in the life” of Ian W ood as Managing Director/Chief Executive Officer of the Wood G roup?

Timing and some luck always play a part, but talent, commitment and sheer effort will win out. You can have setbacks which can act positively or negatively but generally it is about what you have inside and applying it consistently.

There is no such thing as a typical day. Normally one week in four is spent overseas visiting Wood Group facilities, talking with management and employees, and meeting customers.

Day to day working life is very varied and involves dealing with my own senior colleagues, industry and government bodies. I spend a lot of time talking to people, visiting Wood Group companies and ·understanding their key issues. We discuss openly all aspects of their business - decisions tend to be made there and then - not removed to remote headquarters.

As joint Chairman of the Oil Industry Leadership Team and a member of PILOT, I am involved in a number of initiatives concerning the long-term future of the Industry in the UK. 15 Aberdeen Business Journal 2014

6. What was the catalyst in the realisation that sustainable and profitable growth as an international oil service company was possible?

There was no catalyst or single eureka moment - it was more a case of the horizon gradually unfolding, and still unfolding. A trip to Houston in 1972 was probably the biggest single insight, but there was also a mindset change in globalisation in the mid-90s.

However, it’s generally been a slow gradual understanding of international markets and how to realise their potential.

7. What was the rationale for converting the Wood Group to a public limited company and has PLC status achieved the desired results?

To establish a basis for long term access to public funds to finance strong growth and our investment programme.

Yes it has achieved the desired results, although we haven’t taken full advantage yet.

8. Have you ever at any stage considered leaving, or winding down your involvement in, the Wood Group and if so for what reason?

9. What contribution can local universities make to the well-being of the business community in general and the Wood Group in particular?

10.How might that contribution be improved?

No.

There are three key interactions. Firstly, the contribution to the quality and suitability of the graduate for the requirements of business and industry.

Secondly, the contribution to ongoing research, but more particularly, development of business knowledge and technology. Thirdly, specific training programmes to widen the perspective, particularly of smaller companies, to help them better understand the changing business challenges of the global IT world, for example, the international challenges and the different kind of culture and environment in some of the main new trading regions throughout the world.

Firstly, more interaction between business and the universities, e.g. businesses providing key personnel to lecture, host workshops etc., and university personnel being seconded for periods into business.

Secondly, possibly more flexible course structure - some people are more suited to working than studying, so there is a market for flexible programmes where students can combine employment with part-time studying. I am pleased to see that the Aberdeen Business School has part-time courses both at undergraduate and in particular postgraduate levels, where students can participate over a longer period either through attending in the evening or at a distance in a way which allows them to continue in full time employment.

Thirdly, more specific training, particularly related to evolving demands of a globalised IT world.

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11. What attributes does the Aberdeen environment and character bring to the development of indigenous business?

We have one of the most enterprising communities in the UK with a significantly international orientation and a lot of keen, young entrepreneurs. Since the discovery of the North Sea oil in the early 1970s, there has been a clear change in our culture, mindset and environment, we are much more cosmopolitan and more internationally orientated.

The challenges presented by the oil industry have made us innovative and we have become a city of real enterprise and initiative with businesses from the area winning an increasing share of the oil & gas industry worldwide.

In addition, our primary industries of fishing and farming still give us the natural base for a world class national and international food industry.

12. What lies ahead in the next 10 years for the Wood Group and I an Wood?

This is a very exciting development time for offshore oil & gas worldwide and for this region in particular. Over the next 20 years there will be huge developments taking place in West Africa, the Caspian, Russia and a number of the Middle East countries and Aberdeen can and must play a leading role.

13. What is the potential of the business school in internationalising the region?

The more international people we attract the more international the region becomes.

Wood Group will develop more as a global business with more international locations and we will continue our strong growth. The North Sea remains a key market and in 10 years time it will still be an important part of our business (15-20%).

We have some internationally recognised academic institutes which provide real differentiation and a strong education resource.

We need to build on this to achieve internationally recognised centres of excellence in areas such as engineering, oilfield services, medicare, agriculture and food.

Overseas students are one of our biggest international knowledge sources and we should use this group more as a shared knowledge base. It would benefit the wider community if international students could spend time visiting schools and communities, talking about their home countries and the different environments and culture.

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THE Interviewee SIR IAN WOOD CBE, BSc, LLD, DBA, DTech, CBlM, FScotvec, FClB Chairman and CE, John Wood Group PLC

Born and educated in Aberdeen, Ian Wood graduated from Aberdeen University in 1964 with a First Class Honours Degree in Psychology. He joined the family business, John  Wood & Son, and became Managing Director in 1967.

The Company has since then evolved into two independent Scottish business groups.

John Wood Group PLC is the UK’s largest energy services company, employing more than 14,000 personnel in 36 countries worldwide, and with a revenue of $2.2 billion in 2004.

J W Holdings, one of the largest fishing companies in Scotland, employs over 200 people with a 2004 revenue of £20m.

As well as commitment to the Group, Sir Ian holds many appointments within the UK including joint Chairman of the Oil and Gas Industry Leadership Team and member of PILOT (joint Government/Oil & Gas Industry initiative). In December 2000 he retired as Chairman of Scottish Enterprise and as Chairman of the British Trade International Oil and Gas Export Board (previously OSO).

He received the award for Young Scottish Businessman of the Year in 1979, was awarded the CBE (Commander of the Order of the British Empire) in 1982 in the New Year’s Honours List, was awarded an Honorary Degree of LLD from Aberdeen University in 1984 and was awarded a Knighthood in the 1994 New Year’s Honours List. In 1998 he was awarded an Honorary Degree of DBA from The Robert Gordon University in Aberdeen and became its Chancellor in December 2004.

He was a joint winner of Scottish Business Achievement Award Trust in 1992; winner of the Service category award in the 1992 Corporate Elite Leadership Awards; received a Scotvec Fellowship Award in 1994 and a Scottish Qualifications Authority Fellowship in 1997; and was awarded The Alick Buchanan-Smith Memorial Award for Personal Achievement in 1995. Sir Ian also received the Corporate Elite “World Player” Award from the Business Insider in 1996.

In 1998 he was made a Fellow of the Chartered Institute of Bankers; in March 2000 he was elected a fellow of the Royal Society of Edinburgh; and, in the year 2001, he received the Business Ambassador for Scotland Award from the Scottish Business Insider. In 2002 he was awarded the degree of Doctor of technology from Glasgow Caledonian University; he also received two awards from The Insider, namely, the Business Achievement Award: Businessman, and the Insider Corporate Elite Leader of the Year Award. In 2003 he won the Chief Executive of the Year Award from the Business lnsider/PricewaterhouseCoopers and the Glenfiddich Spirit of Scotland Award for Business.

Business Personality Interview

STEWART MiLNE MANAGiNG DiRECTOR STEWART MiLNE GROUP This interview first appeared in Issue 2 of Aberdeen Business Journal, published in 2006.

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What qualities and skills are required for the role of Managing Director/ Chief Executive Officer of a major construction c ompany?

The qualities and skills required would be the same irrespective of the industry sector.

First and foremost would be ‘vision’. If the MD/CEO has the vision, he or she can easily sell it to people within the organisation. ‘Leadership skills’ are vital.

The MD/CEO must state clearly where they want to take the organisation and understand their market. Often it is quite natural yet a step into the unknown. It is vital the benefits to the organisation and to the individual are identified and any fears or worries of staff about change and uncertainty in the future are overcome.

Leadership skills can mean different things. A leader needs to offer clear direction, support the staff, cater for the organisation and identify, and allow delegation to, capable managers.

The ‘People skills’ of the MD/CEO must help individual managers to develop and evolve their roles not just for tomorrow but for 3-5 years in to the future.

Vision is the most difficult skill to learn and develop. Some people have a natural talent in that area and there is undoubtedly a role for universities to play in developing these skills How are these skills best acquired, for example, through business experience, university level education and career choice, continuing practical training, innate talent etc?

l think the starting off point would be somebody who can rise to the top of the corporation, has real drive and energy, is hungry for real success and possesses an open mind or a combination of these attributes. If an individual has an open mind and a hunger for real success, they will gather knowledge and experience and can move along. The MD/CEO relies on the knowledge and experience of those around to provide answers. This in turn helps develop the skills of the MD/CEO. This is undoubtedly a huge role and has become even greater in terms of the ongoing need to develop people. We have seen the benefits of this over the last 3 years where 300 of the senior management have gone through a development process, starting right at the top with senior management. Undoubtedly there is a platform here for universities and various other providers. Vision is the most difficult skill to learn and develop. Some people have a natural talent in that area and there is certainly a role for universities to play in developing these skills. Most of the other skills can be enhanced through both internal development and externally.

Certain skills can be developed such as entrepreneurship but drive and ambition come from inside.

In terms of your own career and success, what would you describe as the tipping points? At what point did external or internal events happen to change the whole environment of the company?

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I suppose over the years there have been a few. Initially when I started off in business, I was working on my own in the evenings and weekends. When I finished my time at 21, I handed in my notice and told my boss that I was starting my own business. I was told that I had no prospect of surviving as I had no business experience. Within a few months I discovered that was true but l did have the instinct and commitment to have my own business and make a success of it.

Although lacking in business knowledge and experience, l realised that l had drive and determination. lt would have been easy to give up at that point. The first lesson I learned was that I possessed the basic fundamental factors needed to survive.

Most people are pushed through a learning curve and that was a major one on my part. I started off in business with a friend as part of a partnership but we had different aspirations in life.

Although lacking in business knowledge and experience, I realised that I had drive and determination

I was prepared to devote all hours of the day to making the business a success.

Facing up to reality that the partnership was something which was never going to work was a major milestone.

The next key factor was undertaking small plumbing and electrical work for bathroom conversions within the city. I could not believe how the established firms operated. A whole kitchen bathroom conversion took 3-4 months and I was convinced that there must be another alternative. Through a totally different approach, we were able to complete a house conversion within a 10 day period.

It was achieved by a team who pulled together, was prepared to cross boundaries and aim for a specific goal of finishing a conversion. I learnt some fundamental lessons, namely, the importance of organisation, the need to reward the team effectively and providing a service that was valued by the client for making their life easier. The organisation of the planning and the opportunity to take on every aspect and seeing it right through provided the means to obtain a premium. Our cash flow was ·eased by grants paid over directly to us by the city council. Those fundamental learning experiences became key principles over the years.

Innovation, teamwork, the importance of the customer and the project are paramount.

Have opportunity and time been significant?

No, in the early 70s, the first step on the ladder for us was the tenement conversions and on the back of that the demand for houses started to build up. We then started to look at the next logical step for us in the wider housing/property market by applying the fundamental principles learned from the bathroom conversions in the wider context of housing. Being willing to take a systematic approach, we became involved in the production of timber frame houses using suppliers in England and Scandinavia. Having developed an understanding of the business we set up our own factories here in the North East and in England employing 11-12,000.

What is your perspective on the vibrancy of Aberdeen economically?

To be honest l don’t think we have capitalised as much as we could have over the land law investment in the region over the last 30-40 years when we should have been the foremost economic region here and in Europe. l feel we have failed miserably on that front and l see that as being absolutely vital. In the next 10- 20 years we are going to see a real change in the development of the North East.

There needs to be a clear plan for that transition period with a clear infrastructure.

There are some encouraging signs such as the Western Peripheral Route, the airport extension etc. We must recognise that there are more individuals with greater leisure time on their hands and increased spending power. We need to present this area as a substantial part of that and seek to become a serious player in the holiday market as well as a major energy centre in Europe.

We have been given a second chance.

Obviously, you are Aberdeen born and bred and are still based here. Will this still continue and are you committed to having a presence in the region?

l am sticking with the region and am committed to maintaining a presence here. l think that this is fundamental. The company has grown up over the last 20-30 years.

When we started off, 100% of the business was in the North East and over time that has changed. 40% remains in the North East with 60% outside and within the next 5 years that will be 20% within the North East and 80% outside. lf the region is not well led in the next 5-7 years, corporate headquarters may move. The area needs to be seen as a very progressive region with plans for the future. There are many attractive features in Grampian, notably, the environment, transport and the people but there is considerable room for improvement.

When we started off, lOO% of the business was in the North East and over time that has changed. 40% remains in the North East with 60 % outside and within the next 5 y ears that will be 20% within the North East and 80% o utside 23 Aberdeen Business Journal 2014

What about the North East character in business where we are seen as somewhat reticent and tending to look at negatives rather than positives?

l think there are many strengths in the North East character although individuals maybe do not see the picture as bright as it can be. lt is natural in many people to play things down but that in no way curtails their ambitions. ln the way lw as brought up, the fundamental requirement for success is hard work. lf it is delivered, it becomes visible. Perhaps success is played down too often in the North East when it should be celebrated. People derive a real buzz from achieving success as it provides them with opportunities to develop and to set their sights higher. The business has grown differently over the years. The initial targets have been achieved and now more ambitious goals are in place. The North East is not particularly comfortable at celebrating success and to this end the company has recognised the importance of sharing success so that self-confidence and selfbelief c an grow.

On a personal level, you have Led your own company very successfully and I wonder where you see your own future and your own personal ambition?

We have been fortunate as a company and have achieved reasonable success over the last 20-30 years during which time people have grown up. There is an immense amount of pride in the younger generation coming through. There is now a need to look at the next generation and be ready to develop the youth. l see so much talent coming through and there is the challenge to shape the next generation who will bring the business on to a higher level. l and some of the older people in the business will gradually play a lesser role and we need to plan for this.

Succession Planning was not a major issue in the business 10 years ago but now we need to undertake that over the next 10 years when some of the senior management will perform a less important role in the background.

Is recruitment a challenge or is it relatively easy?

lt is a challenge holding on to those people who we have developed as they become targets for other companies. There is never a shortage of people but those with the right attitude and approach are very difficult to harness. Sometimes people are over blessed with skills and yet lacking in hunger and desire for success. Ability and skills can be shaped and developed.

How has your involvement in Football contributed to your development?

I became involved with Aberdeen Footbal Club because supporting football will always play a major part in my life. At school I had no real interest in education, only in sport. When I took on the role initially I did not appreciate what it would involve.

Within the first 5-6 years it was quite tortuous because of the high expectations of supporters and you become a public target. You learn to develop a real thick skin to cope with abuse etc. Over the years other people have suffered from this stress which goes with the job of a football club chairman. Objectively I think it has helped shaped my character and has helped me accelerate the growth in business. It was almost like having two full time jobs and this forced me to become more effective and more ruthless and determined. I took on a role and I was committed to seeing it through and creating success for the club. It has also helped to equip me for dealing with the public relations aspect more effectively than I would have done within the Stewart Milne Group. This is a positive factor in my life which has emerged at the end of the day. It brings a balance in my life between Business, Family and Football.

I am not always capable of achieving the right mix as I become driven by the pressure of events.

lf you are hungry to achieve success then difficulties go to the wall.

People s hould never underestimate their capabilities to achieve. lf they have a big enough drive then they can achieve their goals 24 Aberdeen Business Journal 2014

Can you comment on your long term plans over the next 10 years?

If you were reviewing your career, how would you summarise it ?

The long term plans for 2010 are to double the size of the organisation by then with a turnover of £500 million with 8 divisions operating within the group. The aim is to become the main player in the UK as a manufacturer of timber house kits and a European player in the housing market. This might involve further investment in England and, internationally, in the Falkland Islands and in Romania as a builder of foster homes. Regarding corporate social responsibility, a charity is identified each year.

I suppose there will always be things with hindsight that I would have done differently but I suppose I thoroughly believe in being clear in what I am setting out to do and in taking time to think. Most people cannot generate an original thought or idea because they do not spend the time developing a clear picture. When potential developments fail to take off in business then you start to focus on all the difficulties.

However, these problems can be seen as drivers to focus on. When looked at within this context, then difficulties can be seen in a different light and potential goals and benefits emerge. If you are hungry to achieve success then difficulties go to the wall.

People should never underestimate their capabilities to achieve. If they have a big enough drive then they can achieve their goals.

STEWART MILNE is Chairman and Chief Executive of the Stewart Milne Group which was established just over thirty years ago in Aberdeen.

Education was a key player in the formation of Milne’s career, although his initial encounters with school did not go particularly well but he did make up for lost time in fairly dramatic fashion.

Milne attended Tough Primary School from 1955-1962 and subsequently Alford Secondary School from 1962-1965.

On leaving school Milne spent a year in engineering to fill in the time until he was old enough to start serving his apprenticeship as an electrician. Milne’s apprenticeship involved day release classes and he suddenly found that he was doing something which he really enjoyed. For the first time in his life he started to take a real interest in learning and surprised himself by far exceeding his own aspirations in respect of his academic capabilities.

The next few years brought home to him that life is an ongoing process of learning and development and that a strong education base through school is of vital importance.

Along the way Stewart Milne has picked up numerous awards. 1979 saw him become “Grampian Industrialist of the Year”; in 1993 he collected “Scottish Business Achievement” award; in 2000 he was awarded a Doctorate of Business Administration at Robert Gordon University and in 2005 he became Scotland’s Entrepreneur of the Year.

Sport, and in particular football, has always played a major part in his life. In 1994 he became a director of Aberdeen Football Club and, ultimately, Chairman of the Club in June 1998.

He commitment to education and lifelong learning is underpinned not only by his sponsorship at Robert Gordon University but by similar support which the Group provides at Edinburgh and Strathclyde Universities.

The Stewart Milne Group is set to develop on a UK wide basis. It already has a major timber frame operation in England and has recently acquired a new house building operation in Manchester as part of that strategy for geographic expansion.

By 2010 the Group expects to employ 2500 people throughout the UK.

Originally Grampian based, the Group operates on a national basis. As well as being a major house builder across the north east of Scotland, Stewart Milne Homes have successfully expanded their operations across the whole of Scotland with over 60% of their business now being outside the North East.

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Advantages and challenges of operating globally from an aberdeen base Melfort Campbell Managing Director Imes Group This article first appeared in Issue 2 of Aberdeen Business Journal, published in 2006.

S

tarting a business in Aberdeen in the mid 1980’s seemed quite easy then. It may be that time has dulled the memory but the author successfully negotiated the purchase of business assets and founded a company in November 1984 which started trading on 1 February 1985.

The key factor in starting a new business is the opportunity to sell products and services and extract cash in return. Market opportunity is vital.

The challenges of developing the hydro-carbon reserves under the North Sea have created a strong stimulus to commercial operations both locally and internationally

lmes Group Ltd is an example of an organization that not only typifies the entrepreneurial nature of Aberdeen but also reflects the trials and tribulations of operating globally.

The company originally came into being as a clear response to a definitive market (oil & gas) driven opportunity.

The challenges of the UK Continental Shelf [UKCS] have stimulated years of innovative development by a wide variety of companies as well as academic institutions and this has subsequently been exported worldwide. ln the early 1980’s the opportunity for the creation of the Water Weights™ load test bag· manifested itself as a consequence of the huge expense of shipping steel test weights to and from offshore installations (approximately £1000 per tonne), the incidence of accidents which in one case cost the operator some £200 million in shut down, repair and lost production expenses and logistical problems typified by one American drilling contractor with 70 tonne cranes that had never been tested in the Gulf of Mexico. ln relocating drilling assets to the UKCS, regulations required them to be tested but there was no facility to set down 70 tonnes of solid weights on rigs. The testing and revalidation of the cranes in line with UK requirements could not be undertaken.

With this obvious demand it was not particularly entrepreneurial to set up a business to meet this need.

Opportunity was identified and Water Weights Ltd was founded to offer a solution by load testing cranes with bags filled with water.

Moving in to new markets, particularly overseas, is more about potential and uncovering new opportunities. Although driven by an opportunity that was presented, lmes has identified locations with activities which could generate additional opportunity. The initial business took Water Weights to over 40 countries and it now has permanent operations with local partners in 17 countries.

27 Aberdeen Business Journal 2014

The product is also used widely outside the oil & gas industry.

The growth and expansion of Water Weights typifies many of the hurdles of the internationalisation process.

It is however worth pausing and exploring the Water Weights case in a little more depth. An obvious issue is the probability of such development (and many others) without the stimulus of the North Sea oil and gas industry. Certainly there is a strong argument that the pace of development would have been slower given the clear market need driven by a particular environment at a specific time. Another interesting avenue to explore is the highly respected regulatory environment of the UKCS. Not only does that encourage development but it often fosters superior achievement and provides an interesting base of opportunity. This then leads to the consideration that the market led needs of this specific industrial environment, by their nature, suggests that the development may be ahead of other markets creating an inherent advantage over competitors both within and without oil & gas markets elsewhere around the world. lmes has certainly experienced this both in the oil & gas arena and its other main stream, defence.

The key factor in starting a new business is the opportunity to sell products and services and extract cash in return. Market opportunity is vital

Drivers of Growth and Diversification Opportunities for further growth and geographic diversification for Water Weights became more limited once a level of saturation was reached. A key advantage was that locations around the world had been installed from which other activities could develop. There were three drivers of lmes’ next phase of development. First, more engineering work was undertaken, inspired by a conversation with a prospective client in the US who ran a Nuclear Power Station and was happy to consider testing his cranes with Water Weights. The company wanted to use a load test to learn more about its assets to start determining future capability.

Industrial and Marine Engineering Services, now lmes, was founded in 1993 and invested in engineering capability for monitoring technology. This bought lmes into contact with the universities, initially Robert Gordon University, and gave it a clear purpose to start research and development activity.

Second, the market in Aberdeen became more competitive with operators introducing leaner supply by employing prime contractors and layering the supply chain. Through this loss of access to end user customer need, opportunities diminished and other customers who would share their challenges had to be found. lmes needed direct access to provide channels of information on unmet, new or evolving needs to allow it to continuously innovate new ways to solve engineering problems.

The third driver was work undertaken for the Royal Navy at Clyde Naval base. This provided the opportunity to bid for, and then subsequently win, support contracts over a period of three years for the Trident Weapons System with an order book in excess of £30m.

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Rarely does a product or capability remain immune from competition.

The global marketplace is being shrunk by the power of modern communication systems and this inevitably leads to the commoditisation and therefore the erosion of leadership positions

The first and third were both opportunity based drivers.

By applying its experience of the offshore industry, lmes was able to access a new range of customers.

The second was a major setback. As an ideas business, lmes relied on challenges and stimuli and needed direct access to its customers to understand their needs. ln the evolving UKCS arena lmes found it extraordinary that operators were unaware of, or discounted, their role in stimulating and challenging the smaller businesses to innovate and to invest in their unmet, evolving and future needs. For the most part, this was a role that they did not have to delegate to their top layer contractors. Where they did recognise such a role the contractors largely discounted the ability of any third party organisation to provide more innovative solutions.

Being in the second or third layer of the supply chain removed lmes’ ability to invest in, or innovate into, the UK offshore industry as it had since its foundation.

As a smaller business this loss of access to opportunity in the UK offshore oilfield market would definitely offer a challenge in sustaining much more than a small branch office serving the Aberdeen based market. Subsequent diversification, leading to growth and therefore greater scale, has put lmes back into a position to potentially contract direct with the operators or indeed the contractors which genuinely are open to working with specialist, niche technical capability. This has allowed lmes to maintain access to opportunity in the North Sea market.

Linked Market Opportunities Rarely does a product or capability remain immune from competition. The global marketplace is being shrunk by the power of modern communication systems and this inevitably leads to the commoditisation and therefore the erosion of leadership positions. This phenomenon is common to most, if not all, industries. That said, the extent of a lack of cross flow of ideas between industries and countries remains surprising.

For lmes this represents opportunity. Six Sigma is wellestablished and proven practice in industry. General Electric, under the legendary Jack Welch, adopted and perfected its use in the early 1990s. Only relatively recently has the US military adopted the idea behind Six Sigma. A very significant proportion of the awe inspiring ·US Defence Budget which is forecast for 2007 at some $517 billion is devoted to maintenance. Historically the military has been inefficient compared to commercial enterprise. The recent adoption of Six Sigma at one US maintenance facility has driven the cost and turnaround time of Humvees returning from war theatres from $89,000 to $48,000 per vehicle and the output has risen from three vehicles per week (in 2004) to thirty two vehicles per day in 2006. This is not the forum to discuss why adoption by the US military took so long but it does serve to illustrate the opportunities available in different markets, with speed of take up of new innovations and ideas not necessarily in line with the rapidity of modern communication.

lmes has taken a number of lessons from this experience.

The first is that exposure to one geographical and/or industrial market can lead, if handled appropriately, to opportunity in other markets. The trick is to carefully choose and then exploit those markets. lmes is constantly looking for new markets that create demand led needs. At the same time there is opportunity in using capability that has been led by the North Sea oil & gas industry but never taken up in new industrial markets. lmes has had success particularly in the Defence industry with capability that has been developed as a result of demand pull in the North Sea. lt is now going full circle with current opportunities to apply learning from other industries to oil and gas.

Perhaps the greatest challenge for smaller, Aberdeen centric companies is breaking into new markets both geographical and industrial. With the dominating presence of the oil & gas industry in and around Aberdeen, it is natural that many of the businesses have developed as a direct result of the demand led need described above. High oil prices may provide a demand led stimulus for the foreseeable future reducing the need for diversification. lmes has always stressed fun and enjoyment as part of our ‘wheel of profit’. The enjoyment and stimulation of forging into new markets in new countries helps lmes remain commercially ‘fit’. It is neither easy nor cheap to venture away from historical markets. lt is however sometimes necessary (given the historical cyclicality and changing nature of the North Sea) and it is almost invariably fun and challenging. lmes maintains business development staff in the UK as well as both the USA and Australia. Starting an overseas operation represents a real challenge, requiring the management of work acquisition and the building of country infrastructure to service it. Starting in the USA without that operational capability was indeed more challenging. All too often the business development activity resulted in an immediate demand from a customer. The ongoing hurdle is the challenge of growing operational and technical capability in line with customer demand. Recognition of international capability will allow delivery from overseas only as long as the product or services are unique or special. In time the demand will shift towards locally provided services not least to remain cost competitive. Most countries have an inbuilt desire to see local faces in the delivery process fairly quickly. The people with the experience needed to manage this internationalisation process are available in Aberdeen.

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lmes has found a real interest and enthusiasm from its customers in developing best practice and cross flow of ideas from other industries, in particular the oil & gas industry.

This is clearly a key advantage of operating from Aberdeen.

Aberdeen as an international Business Location. lmes has found a real interest and enthusiasm from its customers in developing best practice and cross flow of ideas from other industries, in particular the oil & gas industry.

This is clearly a key advantage of operating from Aberdeen. lmes’ marketing approach is not industry or sector based.

Specific companies or customers are targeted, headquartered in Aberdeen or located worldwide. lmes has contracts servicing highly specialist nuclear sites in the US, Europe and the UK. The military, power generators, marine and process industry organisations are all targeted.

Such customers have a lack of co-location in common.

Operating from eight locations in the UK, six locations in the US and from Rotterdam and Perth, Western Australia, and regularly in Southern Africa, South America, Europe, the Near, Middle and Far East suggests that there is no obvious place from which to base and run a business such as lmes.

Business needs support infrastructure and this is an area where Aberdeen has some weaknesses amongst many strengths. The lmes experience is that general services required are high quality with a very strong and sound base of professional skill and expertise. However, as the Group has developed real strength in other industries some of the support services (banking and insurance spring to mind) can be somewhat narrow in outlook and experience. It is not surprising that there is a lack of insurers in Aberdeen which understand the risks associated with working on nuclear submarines. Less than 50 % of lmes’ business is oilfield related but this need not be a challenge to support organisations.

Much of the work in other facilities is largely similar to offshore activity. It can be frustrating when support services and indeed sometimes potential customers fail to understand this.

There is some inevitability in such a narrow focus with the lack of scale and breadth of the Aberdeen industrial base.

Thus lmes occasionally finds the need to source support services from further south.

There is a strong business community and business oriented culture in Aberdeen. There are benefits in Aberdeen of a small but sufficient scale which provides not only the ability to meet and mix with the movers and shakers in the oil & gas arena but also the ability to move around the industry worldwide and readily identify common interests. Aberdeen’s reputation in the international oil & gas community instils confidence and a business based and successful in Aberdeen holds credibility.

This reputation is largely based on the attitude, application and ability of the local people who form the base of every company operating in and around Aberdeen.

Rarely is lmes questioned as to why a business focused on engineering excellence should be headquartered in Aberdeen. These issues of reputation, people and culture form a very important part of doing business from Aberdeen.

Starting and sustaining a business is about opportunity.

The key advantage that a location such as Aberdeen must offer to retain businesses which have diversified geographically to this part of North East Scotland is opportunity.

There are other factors. One that counts highly is desire of talented people to live and work in Aberdeen. The greater are the advantages of operating from Aberdeen, then the more people will want to live and work in the city. Aberdeen is a stimulating environment in which to work, thus allowing companies to feed off the collective commercial and academic knowledge pool.

The reason lmes is based in Aberdeen is still the opportunity that the local market offers. Any business looking to expand and diversify, geographically or commercially, can only do so from a strong and firm home base. lf this home market does not provide the sound base from which to develop, the only hook that is keeping a business in such a location is owner and management sentiment or convenience. ln summary, while there are clear advantages and disadvantages of operating from a more remote location such as Aberdeen, on balance the advantages outweigh the disadvantages. The key is to identify and capitalise on the former from an overall perspective and to minimise the disadvantages by focusing on specific issues for application in a strategic and tactical manner to key target markets.

Rarely is lmes questioned as to why a business focused on engineering excellence should be headquartered in Aberdeen.

These i ssues of reputation, people and culture forms a very important part of doing business from Aberdeen.

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Taking the mystique out of buy outs and b uy ins Colin Welsh

Managing Director Simmons and Company International Limited

introduction Over the last twenty years Management Buy Outs and Buy Ins (MBOs/MBIs) have become a global phenomenon especially prevalent in the US and UK but growing through the rest of the world.

By way of background, the buyout business in the UK first came to prominence in the 1980s as a response to the recession related restructurings and refocussings of distressed conglomerates. Buyouts represented an attractive way of disposing of unloved, non core subsidiaries and were an easy solution where a low profile and speedy process was preferred. Since then, MBOs/MBIs have evolved significantly.

There are basically three kinds of buyouts where management play a key role; for Management Buy Outs (MBOs), key  management of a business or company come together with private equity and debt providers,usually specialist banks or venture capitalists, to acquire the business they manage but do not own. Management Buy Ins (MBIs) involve experienced, entrepreneurial outside managers who are matched with underperforming businesses where poor internal performance made a management buy out infeasible and where problems emerged selling to corporate acquirers.

Sometimes a management team will pair up with an individual who they believe has the ability to make a significant positive difference to the business post acquisition and this is referred to as a ‘BIMBO’ (Buy-In Management Buy-out).

This article first appeared in Issue 3 of Aberdeen Business Journal, published in 2007.

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Examples of Buy Outs and Buy Ins in Aberdeen The author’s first introduction to MBOs/MBIs was in 1987 not long after he qualified as a chartered accountant and started an accountancy practice in Aberdeen in tandem with some friends who had also started up a business in Edinburgh.

It was called Rutherford, Manson and Dowds [RMD] and like any fledging business it was a painful process to find new clients but particularly so in the staid world of chartered accountancy where it was seen as a young “upstart”. As t he saying goes, “necessity is the mother of invention” and the founders discovered that there was a more effective way of building the business which was more in their hands.

This involved ‘’re-directing’’ the clients of other accountancy firms to RMD by initiating buyouts. It became adept at identifying businesses with sound management teams which were owned by shareholders who were remote from the dayto- day running of the business. These were both family and corporate owners. RMD would engage with management and hatch a plan to buy the business from the owners, most of whom welcomed the opportunity to liquidate their investment at a superior price and through an easy process.

The management teams saw this as a answer to their dreams as most senior managers believe that their business would perform more effectively if they were in charge as owners.

At the time there were not many sources of such capital.

3i, the venture capitalist owned by the major UK commercial banks, was a fairly staid operation involved in a relatively small number of low value transactions every year but they were open to new ideas. The banks were conservative in their lending criteria but were keen to participate, in particular the Bank of Scotland. Together RMD, 3i and the Bank of Scotland undertook a large number of MBO/MBI transactions around the Aberdeen area and dominated the local corporate finance market. Before long RMD were seen as advisers who could drive events and management teams were approaching it for guidance and ideas with a view to initiating a deal. From the perspective of RMD as a professional services provider, this was a great recipe as a successful MBO or MBI not only generated a healthy fee but it also guaranteed a client for its audit and tax departments and provided opportunities for its corporate finance team to work on value added acquisitions and ultimate disposals.

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Its first large transaction was the MBI of ASCO, a company which provides logistics to the offshore oil and gas industry in the North Sea. This is a sound case study on buy-outs generally. In this transaction the Sidlaw Group, the owners of ASCO, were interested in divesting the company so that they could focus on their mainstream packaging business.

The existing management team at ASCO were uninspiring so after some research an experienced, forward thinking and entrepreneurial manager named Colin Manderson was discovered, who had successfully run ASCO several years before. He relished the prospect of running the business again, particularly as a part owner. The deal was completed in six weeks from start to finish. This period was traumatic as RMD struggled to convince 3i and (in this case) the Clydesdale Bank to finance the deal but ultimately succeeded. The company then went on to consolidate the Wood Group logistics business and acquire a further two transport/distribution businesses in Texas, USA. The value of the original deal was £60 million and the fee was £1 million for originating and executing the deal. This was an unprecedented fee at the time and caused quite a stir in the Scottish business community.

In 1999 the author engineered a deal with RMD whereby, along with his closest colleagues in Aberdeen, he could join Simmons and Company International. In a sense that was a personal MBO in as much as the executives effectively bought themselves out of the RMD partnership. With Simmons’ pedigree as the world’s leading energy investment banking firm, the move was akin to leaving a Scottish Premier Division football team to sign for Manchester United! In the eight years since buy outs have continued to be a big part of Simmons’ business. It led the MBI of Vetco from ABB for approximately $1 billion dollars and the MBO of KBR Production Services which is now PSN in 2006 for around $300 m illion from Halliburton. However for every big deal there are ten or more smaller examples, all of which are challenging in their own way.

Rationale of Buy Outs and Buy Ins

MBO SCENARIO

The reason why buyouts are typically so successful is that, as shareholders, management are motivated to expand the business to generate incremental levels of profitability and ultimately realise a significant uplift in the value of their stake in business. They can do this in a number of different ways.

The first method is usually to strip out the excess costs which tend to creep into businesses each year. Next on the list is surplus staff, equipment, factories or offices and outdated business practices. New marketing methods, investment in technology or processes and new business models allow the organisation to run more efficiently and generate higher profit margins. More effective management is introduced not only at an operational level but also at a board level, including the necessity for a competent finance director as well as experienced non - executive directors who are capable of challenging and supporting the executive management.

Beyond that, the company will usually look at growing the business by acquisition. “Buy and build strategies” whereby management teams use the initial buyout target as a platform for further complimentary acquisitions have proven a very effective way of increasing the scale and value of the original investment.

Company A is to be acquired by its Management Team and a Private Equity Fund with a Bank providing some Acquisition Debt lent to the former to part finance the price.

EBITDA

£10m

EBITDA Multiple

5.0x

1

Bank Debt Element

£30m

Bank Debt Multiple

3.0x

Equity Element

£20m

This is borrowed by Newco, the new buyout company, to part finance the £50 million purchase price.

1

SPLIT OF EQUITY ELEMENT Ordinary Shares

A smart management team will know the weak spots to scale down valuation on acquisition and will be able to decrease the influence of negative factors that could affect value received when the buyers eventually decide to sell .

For the purists, an illustration shows Company A being bought by a management team and buyout fund for £50 million and sold 5 years later for £124m. Here the private equity fund recovers circa 5 times its original investment whilst the management stake increases 40 fold.

£50M

FUNDING STRUCTURE

Valuations are typically driven by multiples of annual EBITDA (Earnings before interest, tax, depreciation and amortisation).

The more superior are the growth record and prospects , the bigger is the multiple and there is usually a premium for scale. Historically, transactions in the oil service sector have been concluded at multiples of between 4 and 6 times EBITDA but because of the growth in the sector today those multiple have often risen to between 6 and 9 times.

Usually management teams do not have much in the way of personal capital to invest in businesses when it is first bought, so typically they are given a “sweetheart deal” by the private equity firm that provides almost all of the equity in the deal.

This enables management to receive a disproportionately large share of the equity in the company which effectively supercharges their investment and incentivises them to deliver the growth in earnings and capital value that can ultimately transform their own net worth. Private equity firms are happy to apply this approach because they recognise that it is their job to be effective investors of capital rather than managers of businesses and so they are reliant on the management teams to actually deliver the results. For example, whilst private equity firms may be delighted to receive a 3 times multiple return on their investment, the managers may earn 20 or 30 times the value of their original investment.

HEADLINE PRICE

Management

20%

£0.5m

PE Fund

80%

£2.0m

Total

£2.5m

Shareholder Loans2 PE Fund

£17.5m

Total Equity

£20.0m

The private Equity Shareholder loans enable the Private Equity Fund to top up their £2.0 million ordinary investment to the £19.5 million level needed to complete the financing. This leveraged structure allows the management team to access 20% of the upside valued over £47.5 million. The shares are normally owned by the Private Equity Fund with the requirement that the new directors buy back these shares from the Private Equity Fund within a given time period and at a given multiple of the current share value.

2

IMPLIED CAPITALISATION £0.5/20% = £2.5m Management £19. 5/8O% = £24.375m Management/PE “Envy Ratio”= 9.75 :1

Exit Returns

FORWARD PROJECTIONS

YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5

EBITDA (Approx 20% P.A Growth)

12.0

14.4

17.3

20.7

24.9

Multiple

5.0

5.0

5.0

5.0

5.0

Implied Enterprise Value

60.0

72.0

86.4

103.7

124.4

Less Debt (Repaid £5m per annum)

25.0

20.0

15.0

10.0

5.0

Equity Value

35.0

52.0

71.4

93.7

119.4

PE Fund Shareholder Loans

17.5

17.5

17.5

17.5

17.5

Available to Ordinary Shareholders

17.5

34.5

53.9

76.2

101.9

PE Fund 80%

14.0

27.6

43.1

60.9

81.5

Management 20%

3.5

6.9

10.8

15.2

20.4

PE on £19.5m

31.5

45.1

60.6

78.4

99.0

Managment on £0.5m

3.5

6.9

10.8

15.2

20.4

GBP £ Amounts in Millions

SPLIT

TOTAL RETURNS

NB. Ebitda grows by an assumed 20% p.a. From a base of £10 million. £5 million is repaid every year of the initial £30 million borrowed from the bank. PE fund share loan notes of £17.5 million are owned by the PE fund. Of the net equity left each year the management team own 20% and the PE fund own 80%. The PE fund yearly returns comprise the £17.5 million of share loan notes plus the 80% of the funds available to shareholders,eg,for year 1, 17.5 million + 14.0 million [or 80% of 17.5 million] is £31.5 million.

Diagram 1

36 Aberdeen Business Journal 2014

Size and Developmemt Over the years, the success of the buyout phenomena has driven up the numbers of private equity firms seeking business. At the same time, the buyout industry has become more segmented, specialist and sophisticated.

The segmentation has arisen with respect to the size of deals, geography and industry specialisation. At one end of the spectrum there are very large private equity firms with many billions of dollars under management which are looking to do mega deals such as the recently publicised acquisition of Alliance Boots by KKR for £11.1 billion whilst at the other end groups of high net worth individuals are coming together informally via specialist private equity partnerships or companies to finance small local transactions.

As far as industry specialisation is concerned, in the energy sector there are now a range of specialist funds that finance buyouts or other transactions depending on the scale and the nature of the opportunity. First Reserve Corporation are the leviathans of the industry. They manage a $7 billion fund which with leverage would probably allow it to fund twenty investments of $2 million each. In the mid market ($25–$100 million deal size) there are quite a number of specialist firms such as SCF Partners, Lime Rock Partners and 3i plus a number of generalist funds which see the energy industry as a growth sector. All of these firms are unique in personality, attitude and approach. At the smaller end of the market (sub $25 million), there are a number of generalist and specialist energy funds which will quite often work together to spread the risk on smaller transactions, for example where there may be technology risk.

As industry specialists, Simmons are keen to operate across the entire spectrum of energy and the full range in terms of the size of deals. Because an investment is small, the ultimate return is not necessarily small too. Take for example the buyout of a very small company called MTEM from Edinburgh University in 2004. In this example, Norwegian and UK private equity investors were brought together to provide £8 million of funding to enable it to develop independently and to commercialise its technology to provide electric magnetic surveys to the energy industry. This basically provided higher quality images of the sub surface to give oil companies an improved chance of drilling in the right place.

Three years after the initial transaction was undertaken the business was sold for £142 million to PGS, a large public oil service business.

The private equity market is a very lucrative business.

Typically funds are structured as offshore limited partnerships which allow the profits to benefit from favourable tax treatment (typically 10%) for the investors in a fund.

The managers are usually compensated by a mix of management fee usually calculated as a percentage of the total funds under management and often 2% and a “carry” which typically amounts to 20% of the profits of the fund over an annual hurdle rate (usually 8%). With returns of this nature, it is little wonder that the trend over the last few years has been for private equity firms to increase the size of their funds

under management. Whilst this makes perfect economic sense for the fund managers, it makes for a more competitive landscape in the mid and big deal markets and inevitably means that smaller and more complex deals can be difficult to place. Simmons are planning to address this by raising a fund of its own which will seek to co-invest alongside managers and other private equity firms at the smaller end of the spectrum.

With luck it will be launched by the end of this year.

Profit Realisation The next factor to discuss is the different ways that funds look to realise the profits from their buyout investments.

This is important because typically buyout funds tend to have a seven to ten year life. All the capital raised needs to have been profitably invested and returned to the fund investors in this timeframe. Historically, most buyouts became attractive acquisition opportunities for trade investors in the same sector once they had been revitalised. In exceptional cases some were floated as a company through an Initial Public Offering [IPO] on a recognised Stock Exchange such as the Alternative Investment Market [AIM] or the Main Market of the London Stock Exchange. Recently secondary buyouts have become a popular exit where one private equity firm sells to another.

Historically, private equity firms were reluctant to do this because of the risk that the business would subsequently fail and they would look foolish in the eyes of their investors.

Yet, with the segmentation and specialisation that has taken place,this has become a very logical outcome. For example, where a fund has invested in a company for a number of years and has made a generous return, it will be keen to return the profit to its investors but the management team may see further potential to expand the business and are therefore unwilling sellers. In the energy sector for example, First Reserve would be delighted to acquire a stake in a high quality growth business from another private equity firm and indeed this was illustrated recently when they replaced Lime Rock Partners as investors in Acteon. This kind of deal only works well where the management team is prepared to ‘roll over’ a significant part of their gain in order to show the incoming investors their continued commitment to the business.

Conclusion In conclusion, there is no more exciting or satisfying transaction to undertake than a buy-out, not just because it is financially rewarding for all, but because a strong bond develops between the managers and the advisors which has a habit of enduring beyond the lifetime of the investment.

37 Aberdeen Business Journal 2014

THE DEVELOPMENT AND GROWTH

OF ABERDEEN ASSET MANAGEMENT PLC

HUGH LITTLE

HEAD OF ACQUISITIONS ABERDEEN ASSET MANAGEMENT PLC

“Two events which happened in 1983 have had a profound effect on my life. The first, on May 11, was of course Aberdeen Football Club’s famous victory over Real Madrid in Gothenburg to win the European Cup Winners Cup, an achievement which Sir Alex Ferguson himself recently described as a ‘miracle’ for a club of Aberdeen’s size.”

This article first appeared in Issue 4 of Aberdeen Business Journal, published in 2008.

39 Aberdeen Business Journal 2014

The History Given the massive financial chasm which has developed between the big clubs and the provincial clubs like Aberdeen in the 25 years since, success has been much harder to achieve, but the club which I have loved with a passion all my life made history that night and gave its many thousands of fans a lifetime of happy memories.

The second event was far less newsworthy at the time.

On June 1, Ronnie Scott Brown, George Robb and Martin Gilbert opened the doors of their new start-up business in Queens Terrace, Aberdeen with one client on the books and a fairly uncertain future. Today, as it celebrates its 25th a nniversary, Aberdeen Asset Management PLC (“AAM”) is one of the largest independent investment managers in the world, managing over £113 billion of funds and with over 1600 staff operating out of 30 offices in 21 countries. (It has been my privilege to have been an employee for 22 of those 25 years). Like all businesses, the company has experienced peaks and troughs, many of them well documented. However, most independent observers would probably comment that AAM has been a significant success story.

The Company Our business involves the active management of financial assets, principally equities, fixed income products and property on behalf of third parties, who pay fees in return for the services provided. The company packages and sells investment expertise in the form of segregated and pooled products, across borders and all over the world. Our key clients include leading national and corporate pension funds, central banks and other investment institutions. We believe in locating our fund management and client service teams in or near to the markets in which they invest and hence the growth in the overseas offices. We champion local decision-making, close-knit teams and interdependence among the offices worldwide.

With regard to equities, the aim is to make satisfactory longterm returns for our clients by identifying high quality stocks and shares, defined chiefly in terms of management and business model, which are attractively priced. Our equity managers always visit companies before investing, making thousands of trips annually to existing and prospective holdings, with every visit thoroughly documented. Portfolio decisions are made collectively and we avoid the cultivation of “star” fund managers. Short-term returns for mainstream strategies are rarely pursued although, for certain specialist portfolios, trading activity may be more dynamic.

The core elements of investment in fixed income securities are a focus on proprietary research, optimising the risk/ reward characteristics of each investment in line with client requirements and close risk monitoring at all stages of decision making. Our global client base invests in a range of local, global, specialist currency and fixed income securities.

40 Aberdeen Business Journal 2014

Finally, we offer clients access to both direct and indirect property investments through collective funds, including fund-of-funds. Our management style of property investment combines active management with a rigorous investment process, supported by top-class research, carried out locally.

Our recent acquisitions of DEGI in Germany and Goodman’s in the UK, when added to the existing market leading position in Scandinavia, have made AAM one of the ten largest property investors in the world, with over £25 billion of property assets under management.

The Staff One can usually identify many reasons behind the successful growth of a business but the first and by far the most important is normally the quality of the senior management.

AAM has been blessed with both inspired and inspiring leadership from the outset. Martin Gilbert remains at the helm as Chief Executive, a position he has held since 1991, making him one of the longest –serving CEO’s of a FT-SE 250 company and certainly the longest serving in the investment management industry. He created the entrepreneurial spirit of the company which is perhaps best reflected in the 37 acquisitions completed over the 25 years, as well as the flat operating structure which enables quick and decisive decision making and short and direct lines of authority and communication. He has always set out to surround himself with top quality people and several colleagues, including Andrew Laing, the Deputy CEO, and Bill Rattrap, the Finance Director, have been with Martin in key positions more or less from the outset. One of the attractions of our many acquisitions has been the opportunity to identify the most effective people in each of those businesses and to give them the chance to develop their careers with AAM. Many have taken advantage of that opportunity and still hold senior positions in the company today.

Attracting able people can be difficult enough but holding on to them can be even harder. AAM has an enviable record of staff loyalty, which says much about the people themselves and their long-term commitment to the business. It also speaks volumes for the company and the way it looks after its most valuable asset. There is a strong work ethic throughout the business and high standards of professionalism are expected but that has to be balanced with the provision of excellent working conditions, where social interaction is encouraged both within and outwith the office by making sure that financial rewards and incentives are sufficiently attractive to entice top quality people at all levels.

Of the 1600 employees, over 220 are based in our offices in Aberdeen. We will shortly be relocating from three separate offices in the West End of the city to one location at the splendid new Union Plaza building in Union Row, from where the 360 degree views of Aberdeen from our 4th and 5th floor premises are absolutely magnificent. Although our business is now truly global, several of the senior management team are Aberdonians. AAM has managed to resist the occasional pressures to relocate the Head Office to one of the world’s

more recognised financial centres. Whilst many of the staff are seasoned travellers as a result, this decision has allowed their children to be educated in Aberdeen and has also enabled their families to enjoy the fantastic quality of life in the North-east of Scotland, something which is all too often take for granted.

That said, recruiting skilled people in Aberdeen is challenging, given both the competition from the oil and gas sector and also the perceived distance of Aberdeen from anywhere more “central”. The latter in particular is a strange phenomenon and it is a problem shared not only by business. As a director of Aberdeen Football Club, I am only too aware of the difficulty in attracting players and their families from as nearby as Central Scotland, many of whom seem to think that moving to Aberdeen is akin to some kind of Arctic expedition. I suspect that, if the vast majority of those who have braved it this far North were asked, they would no doubt state how much they and their families have enjoyed the location and that the grass is not necessarily greener further South.

Talking of education, AAM has over the years employed many graduates from Aberdeen’s two universities, particularly accountancy graduates from Aberdeen University and, increasingly, business, finance and also marketing graduates from Robert Gordon University. We have also developed a formal Graduate Recruitment Programme, which each year takes in 10 students. We allow them to spend a few months working in different departments and locations around the world for two years before making a mutual decision as to whether or not they and our management wish them to develop their careers with AAM in a specific capacity.

To encourage graduates to consider a career with us, we have also developed, alongside both universities, the “Stock Market Challenge”, now an annual event, where we invite teams of students to take part in a simulation of a day in the life of the Stock Market. They buy and sell shares in companies over the course of a few hours, reacting to news announcements, rumours and share price movements. The winning team is the one which creates the biggest return on the capital sum allocated to them at the start of the game. Several of our staff are on hand to help and encourage and the feedback we have had from everyone involved is that it is a most enjoyable event and an excellent introduction to the workings of the Stock Market.

Beyond Aberdeen, we have over the years established significant offices in London (305 staff), Philadelphia (201), Stockholm (135), Singapore (137), Frankfurt (101), Edinburgh (81) and Sydney (56), with smaller offices in such far-flung locations as Luxemburg, Hong Kong, Jersey, Tokyo, Taiwan and Bangkok. It is a truly global operation, therefore, and one with a travel and accommodation overhead running into many, many millions of pounds.

The Role of Acquisitions Although the business has enjoyed substantial organic growth in recent years, with for example £8.7 billion of net new business gains in 2007, AAM has throughout its 25 year history been a consistent acquirer of complementary businesses and has gained a reputation for successfully identifying, completing and integrating acquisitions of many different types, size and complexity. Indeed, we have completed 37 acquisitions in 25 years, which by any measure makes us a prolific acquirer.

Acquisitions are sourced in several ways. Some are identified and targeted by ourselves through our awareness of the industry. We would then use our intelligence to discover whether or not they may become available for sale. That may ultimately lead to a purchase or, even in the event that outright purchase does not occur for whatever reason, we may then speak to key individuals or teams within a target business and this may in turn lead to them joining us at a later stage.

Given our reputation as being acquisitive, it is not surprising that just about every corporate finance house and investment bank in the City will offer us opportunities for acquisition from time to time, knowing that there may be an introductory or advisory fee for them should the deal be completed. Many of these introductions have led to successful acquisitions over the years and at any one time we may have between 5 and 10 such propositions to consider. Some may be dismissed almost immediately as being inappropriate for AAM, some may merit a certain amount of desktop diligence before being rejected, whilst a few reach the stage of more detailed diligence and fewer still are actually completed. We do not tend to become involved in auctions for businesses, where considerable time and money can ultimately be spent in vain but prefer to work our way into exclusive negotiations with the seller.

When considering acquisition opportunities to progress, we take into account many factors, of which the following are the more fundamental: • Does target fit into the overall strategy?

• Will it be earnings enhancing and, if so, when?

• What are the management/staff issues and implications?

• What are the operating/IT/logistical issues?

• What are the funding issues?

We would not claim that all 37 acquisitions have been 100 % successful but on reflection we can say that a few have been transformational, the vast majority have produced more positives than negatives and only a few have failed to live up to expectations. We can also claim that each was given the level of strategic thought and practical due diligence appropriate to its size and relative significance. We have learned from experience that due diligence is a vital part of every deal and not an area to be treated lightly.

42 Aberdeen Business Journal 2014

“A key tenet of our investment process is that an investment in a company is not undertaken without first visiting the business and meeting its management.”

We will continue to consider acquisitions as a fundamental element of our strategy to expand the company. These may take the form of “bolt-on” additions to existing business or they may be of the “transformational” variety but they will all go through the same rigorous process from start to finish.

Internationalisation One of the most significant early decisions taken by AAM was to locate our fund managers in the territories in which they would be investing. A key tenet of our investment process is that an investment in a company is not undertaken without first visiting the business and meeting its management.

Clearly this would only be logistically possible if our fund managers were based locally.

The first overseas office to be opened was Singapore in 1992, with 2 fund managers, Hugh Young and Peter Hames, relocating from London to set up the operation. Today, 16 years on, our Singapore office has over 140 staff, manages in excess of £20 billion of clients’ funds and has been a massive contributor to the Group’s success. Hugh Young joined us in 1988 when we acquired Sentinel Asset Managers and Martin Gilbert quickly assessed that Hugh had the potential to become an outstanding fund manager. Over the years, the performance of Hugh’s funds has been consistently of very high quality and he is universally regarded as the most effective manager of Asian equities of his generation, as evidenced both by the huge inflows of capital into his funds, as well as countless awards from both the financial press and his peers.

Building on the success of the Singapore model, we have gradually over the years opened offices all over the world, either from start-up, as in Taiwan, Tokyo and Malaysia, or else by way of acquisition, such as in Philadelphia, Sydney and Edinburgh. In addition to placing our fund managers in the same locations as the investments which they are undertaking, it is also a vital part of service to our clients that we are located in the same place as them to more easily develop and build long-term relationship by being on hand at all times to deal with their requirements. In each of our major investment centres in the 3 main time zones of London, Singapore and Philadelphia, we have fund managers, distribution teams and client servicing managers, as well as a significant presence of operational and other back-office staff to support the investment operations.

We organise our sales around a top tier of institutions globally, such as pension funds and central banks, consultant intermediaries and financial institutions (for example private banks) that use third party managers. Relationship managers are situated locally and are not organised along product lines. This arrangement ensures client focus, promotes more targeted cross-selling and avoids the potential of different product owners approaching clients separately.

However, the third party industry faces unusual levels of consolidation. Some clients are aiming to build scale through mergers or takeovers; others such as consultants have ambitions to manage funds themselves; and still more are re-evaluating their use of third parties, perhaps as a result of changes to their underlying asset allocation, for example, by moving to index mainstream allocations and deploying outside specialists for the balance.

This environment poses several challenges to revenue flows, with pressure to build relationships at a global or regional level to ensure scale economies are achieved and thus offset the constant downward pressure on fees. At the same time, it makes sense where capacity is scarce to direct sales to higher margin markets or segments. Last, in the face of mounting regulatory and reporting requirements, it is imperative to align our resources with the most attractive prospects.

Given that the majority of our client base is made up of financial institutions, such as pension funds, insurance companies and sovereign wealth funds, a vital part of business development involves building relationships with the Investment Consultants who advise these bodies. It is important for us that the consultant community is aware of AAM’s expertise and performance track record and that over time they build up ratings of our entire product range.

It is an integral part of the consultant’s role to evaluate and recommend which investment managers are most suited for their clients’ requirements and then, post-selection, to monitor and report on performance. Typically, when consultants are looking to appoint investment managers for their clients, they will send out to us a “Request for Proposal” (RFP), which basically asks us a whole series of questions to justify why we should be appointed to a specific mandate. We have teams in both London and Philadelphia, whose responsibility it is to respond to RFP’s and similar consultant questionnaires, which requires them to liaise with our Group Information and Performance teams in order to submit high quality, accurate and timely information.

Distribution and Marketing Having top quality fund management expertise around the world is clearly vital to the success of our business but no less important is our ability to market, sell and distribute that expertise. We have built up over the years a sizeable distribution operation, comprising business development, marketing and client service teams. Distribution also encompasses e-marketing and funds marketing, communications and press relations.

43 Aberdeen Business Journal 2014

Our global marketing team is primarily based in London but again with satellite teams around the world. They provide support to the business development teams for all of the business units and product channels and are also responsible for the global development of the Aberdeen brand. This can take many forms but perhaps the most visible involves sports sponsorship, an area in which we have been heavily involved throughout the entire 25 years of the company’s history.

Our long-term involvement with Aberdeen Football Club is obviously well-known locally but nationally and internationally we are perhaps better known for our five year sponsorship of the Oxford v Cambridge Boat Race around the turn of the century. Our recent three year sponsorship of the British Seniors Open golf championship, including the memorable win for Tom Watson at Royal Aberdeen in 2005, and our current sponsorship of Colin Montgomery, 8 times winner of the European Tour Order of Merit and outstanding Ryder Cup performer over the last 10 years, has attracted much coverage. We also sponsor a number of other golfers such as Paul Lawrie, Sandy Lyle, Mark McNulty and Mhairi McKay to name but a few. This year, we begin a two year shirt sponsorship deal with Edinburgh Rugby, which will be our first real involvement with that sport.

“Bouncebackability” As I stated at the outset, like all businesses, we have had our peaks and troughs along the way. It is well documented that our darkest period was from 2001 – 2003 when Stock Markets around the world suffered a major downturn as the Dotcom bubble well and truly burst. The FT-SE 100 Index fell by more than 40% in less than two years. This in itself would normally produce challenging times for fund managers but in this case it brought additional problems for our business. We had been market leaders in distributing a product known as a split capital investment trust, which in simple terms had 2 different classes of share, one of which provided its holders with all of the income generated by the fund and the other had first rights to a pre-determined capital return. In the bull markets of the late 1990’s, these products were hugely popular and in many cases made substantial returns for investors. In the bear market which followed however, with the share prices of their underlying investments falling substantially, the split capital products came under severe pressure due to their geared structure [reliance on borrowing] and many people lost large parts of the value of their holdings.

The adverse publicity which followed was extremely damaging to our company and effectively forced us to re-focus our strategy, whereby we sold our retail unit trust business and began to concentrate from that point on building our institutional business. Two major acquisitions in 2004 and 2005 signalled our intent. The first, Edinburgh Fund Managers, was a long-standing, institutionally focussed fund management house in Edinburgh and the second, the UK and US asset management businesses of Deutsche Bank (formerly Morgan Grenfell), was truly transformational, adding some £45 billion funds under management to our existing 44 Aberdeen Business Journal 2014

£25 billion and providing us with a substantial presence in the US market for the first time with its base in the financial centre of Philadelphia. Both of these acquisitions have been well integrated into the business and have added significantly to our expertise, our investment performance and our ability to win new business.

Thus, we have shown an ability to bounce back from adversity.

In light of the events of the early part of the century, we will never be complacent but we are extremely pleased to have recovered. Again enormous credit has to go to Martin, the rest of the management team and indeed all of the staff, both for all that has been achieved since then and also for the loyalty and commitment demonstrated by everyone involved.

”I had a cheque for £50,000 which would have been paid to AFC after the game as part of the deal in the event of the team winning the league championship title.“ The Future We live in challenging times and commentators the world over are predicting recessions in most Western economies.

This, c ombined with the lack of liquidity in the banking sector and the inevitable consumer downturn following years of plentiful, cheap credit, has impacted negatively on global stock markets, with the FT-SE 100 down over 20% since the start of 2008.

We expect these conditions to continue for some time and, like most well-run businesses, we will look to reduce some of the overheads which tend to build up during the prosperous years. That said, we will continue to look to expand the business, both organically and by selective acquisition.

One positive outcome of a downturn is that new and often unexpected acquisition opportunities will appear and probably at more appealing prices than are generally available during bull markets.

On Reflection Having begun this article with a mention of Aberdeen Football Club, it seems fitting to round it off with a few words about our long-standing involvement with the Dons, which goes back to the very early history of AAM. Having raised some new capital in 1987, we set off on the acquisition trail for the first time and by the summer of 1989 we had completed six deals, all in London. Our name at that time was “Abtrust” which we wanted to develop and promote as the brand. One of my colleagues at the time, Bev Hendry, came up with the idea of becoming the shirt sponsors of AFC and this quickly gained support.

Shirt sponsorship was still in its relative infancy but we could see that the media coverage would be significant and a three year deal was struck. Although we were able to change the name to Aberdeen Asset Management some years later, the shirt sponsorship was very successful. Ultimately, however, it was tinged with disappointment when, on the last day of the 1991 season, the Dons lost at Ibrox when even a draw would have made them champions. I had a cheque for £50,000 which would have been paid to AFC after the game as part of the deal in the event of the team winning the league championship title.

Our relationship with the football club was only just beginning however. In addition to a significant annual expenditure on corporate hospitality, we decided, along with the Stewart Milne Group, to invest equity capital in 1995 as part of the Club’s listing on the Stock Market. Martin Gilbert joined the Board at that time and I became a director in 2000. For a big fan such as myself, it has been both an honour and a pleasure to have held such a position despite the challenges of trying to compete as a Scottish club without the vast TV funding that has benefited the game in England. Further subsequent investments have taken our total commitment to AFC to several millions of pounds and, whilst it would stretch the imagination to consider the investment as having generated significant financial returns, we regard our overall commitment to AFC over the last 19 years as a significant demonstration of our support for the City and its football team, a commitment hopefully that will continue long into the future.

Aberdeen Asset Management PLC is 25 years old this year and still going strong despite a few bumps and bruises along the way. We are now an established and respected global investment manager with our roots very much in the heart of Aberdeen.

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“We will shortly be relocating ... to one location at the splendid new Union Plaza building in Union Row, from where the 360 degree views of Aberdeen from our 4th and 5th floor premises are absolutely m agnificent’’

A Profile of Charles Ritchie Founder and Chief Executive Officer of Score Group plc This article first appeared in Issue 6 of Aberdeen Business Journal, published in 2011.

S

core Group plc provides engineering solutions for the aerospace, defence, gas, oil and power generation industries. The company was founded

by Charles Ritchie in 1982 in Peterhead and remains to this day privately owned. It has grown to a company with over 1400 employees and operates worldwide.

Charles Ritchie was born into a fishing family in a village called St. Combs in the North East of Scotland. Whilst serving his apprenticeship, Charles studied for, and achieved, an ONC in Mechanical Engineering at Banff and Buchan District College and an HNC in Mechanical Engineering at Robert Gordon University. After completing his apprenticeship he left to study at Strathclyde University, where he gained a BSc Honours degree in Mechanical Engineering. Charles feels that his academic studies enabled him to build on the technical expertise he had gained from his apprenticeship, helping him to speak the language of lawyers, accountants and bankers in all of his business dealings.

After completing his degree, Charles rose to the position of company director of a local engineering firm within 5 years. Ultimately Charles sought the freedom to run his own company and, with some assistance from both business development and financial institutions, he embarked on the venture of setting up Score UK in 1982.

He commenced trading from a modest 3,000 square foot unit located in Dales Industrial Estate on the outskirts of Peterhead, running the company virtually single handed for the first 9 months. Within two and a half years the business was thriving and it began to grow, acquiring both personnel and developing new services. Through time, the service developed into a complex valve management business model which addressed safety, reliability and life time cost of ownership issues for valve asset owners.

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Charles has, throughout his career, been passionate about the importance of training and development and, although this commitment permeates support for all staff, it is perhaps with regard to new recruits and the provision of apprenticeships for young people that this passion is most clearly seen.

Staff development was to be a key investment which allowed the company to grow organically, with employees being developed and promoted from within. Score currently employs 360 apprentices and is an exemplar of commitment to youth development, while many other employers have ceased to offer significant apprentice schemes, largely as a result of their cost and a lack of Government support.

Charles is certain that his investment in the apprentice scheme has been one of the keys to his success and feels very strongly that the government should support such initiatives, as they will ultimately result in the regeneration of the economy through healthy growth in production and service delivery. He recruits young people from the local area and many of these have been promoted and are now running parts of the company overseas.

Score UK grew steadily in the UK through a series of acquisitions and the opening of new premises and Charles started to look overseas for new opportunities. The overseas development of the organisation started with the servicing of the Norwegian oil and gas sector from the Dusavik base in Stavanger, Norway followed by Denmark, and the company was renamed Score Europe Limited. Subsequently it responded to new market demands by opening new companies in the Middle East, North and South America, Canada, Australia and Asia, eventually establishing its first North American operation in Houston, Texas in 2001.

Despite the vast growth of the company and its diversification, Charles has continued his commitment to training and development, establishing Score Training and Multimedia Productions (S.T.A.M.P,) in 2006 as a Specialised Training Company. It was Charles’ desire to capture the combined intelligence of the Score Group and to make all this information and intelligence accessible to all company employees worldwide and always on demand. Score designed its own learning content management system in order to achieve this. In 2008, Charles’ vision was recognised with Score Europe Limited being awarded the “Large Employer of the Year” Award at the annual Scottish Modern Apprenticeships Awards.

Another passion, evident in all that Charles says and does, is his conviction that every employee, at whatever level in the organisation, has a truly valuable contribution to make.

He works hard to ensure that the people who work with him in Score operations around the world have a strong sense of community. He genuinely seeks to ensure that employees feel like ‘one of the family’ and during his interview he took the author to participate in one of a series of Christmas celebrations he holds for all staff based at Peterhead.

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When asked about role models, Charles cites an eclectic mix of people, including Isambard Kingdom Brunel, Napoleon and Mao Tse Tung. There is a theme here too in that each was a mould breaker who put their followers on an equal footing with themselves. Napoleon ate only after his troops had been fed. Charles too, at his staff lunch, only ate after all of his guests had been served. Mao Tse Tung set out on the longest march walking every step of the 6000 mile journey alongside his confrères.

Charles’ career has been built on a solid base in Peterhead and that is where his headquarters remain despite Score’s global operations. He travels widely and for extended periods but draws sustenance from home soil. There are, however, aspects of life in the United Kingdom which he regrets and where he feels that we might learn from others. In particular the bureaucracy of planning and the extent to which business can be raided by the Treasury with little notice, most recently via a 33 % increase in non-domestic rates, are causes for concern. He would also welcome increased investment in Peterhead Harbour to enable it to compete more equitably with Aberdeen Harbour Board. Ultimately he would like to see the North East become more economically buoyant and more akin to the way it was in his youth, with a variety of vibrant industries and a population that has good opportunities for employment and improved health services.

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The entrepreneur’s skill

Country of Origin Identityin Premium/ Luxury Brands Dr Morag Hamilton, Senior Lecturer Department of Communication, Marketing and M Â edia, Aberdeen Business School

Introduction Brands play an important and continually evolving role in contemporary society. Brands can no longer be regarded simply as names or logos which identify or differentiate products or services. They are increasingly recognised as strategic tools that generate and support value creation and key mechanisms for building positive relationships with stakeholder groups.

Underpinning the study of brand management are the two concepts of brand identity and brand image. These reflect the direction of communication between the brand producer and the brand consumer. Brand identity comes from the brand producer. The foundations of brand identity are the brand values which include culture and heritage, personality and organisational associations that together determine the brand’s uniqueness, its positioning and its communication both internally and externally. In contrast, brand image is constructed in consumers’ minds based on associations formed from impressions received from many sources, including those communicated by the brand producer.

Part of a brand’s identity is its country of origin (COO) which connects the brand with a national culture rich in associations. Country of origin image is a well developed concept, demonstrated in numerous studies as having an impact on consumer decision making. In contrast, studies which have taken a business perspective to the use of a country of origin identity are very scarce.

The COO effect has been shown to be more convincing for high involvement, high status products which come from countries with a rich source of positive associations.

Scotland has a high level of global recognition and is recognised as ‘punching above its weight’ in overseas markets. Scotland’s image/identity is rich and complex providing a wide variety of opportunities for brand producers to exploit. The results reported here come from a wider study which was conducted to examine the business decisions of Scottish premium/luxury companies relating to the role and value of COO in brand identity. The two research issues addressed in this study are: 1.The motivating factors of use of a COO 2.The strategic advantages of using a COO identity.

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Method This study was conducted with decision makers in top management positions in Scottish companies producing premium/luxury consumer brands. A database comprising one hundred companies from six product categories (whisky; t extiles/cashmere; food and beverage; jewellery; homeware and toiletries) was compiled. The majority of companies in the database were independent, autonomous Scottish owned small and medium enterprises, often with heritage and/or family associations and with international markets of varying size and scope.

In the first stage, a postal questionnaire was issued to all companies in the database (Table 1). A 78% response rate was achieved. In the second stage, personal semi-structured interviews with senior executives from twenty one companies, representing as wide a cross section of companies as possible, were conducted.

Results and Discussion Importance of COO in Brand Identities The role of `Scottishness’ in brand identities was examined at the macro level in the first research stage. Analysis of the postal survey data firmly established that COO is an important component of brand identity, with respondents revealing that Scottish identity is either very important (67%) or a relevant part (30%) of brand positioning, being most important in the whisky sector, then in textiles/cashmere followed by food and beverage and the combined jewellery/ homeware/ toiletries sectors. The reasons given for the importance of COO were either that COO is a key part of brand identity or is a vehicle for reflecting brand values, both of which are seen as clear differentiation factors. The following quotation effectively captures the intensity of feeling towards using a Scottish identity:

“Hugely important.

Country of origin, why try and hide it ‘we are what we are. We’re proud of it’. A priceless asset to cherish. Buying into a brand — a dream.

Small production — nice individual products.

Fiercely proud of our independence and ‘Made i n Scotland’ marque”

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Motivations for Adoption of a COO Identity The interview results provided further insights into why companies use a COO identity approach. From content analysis of interview data from business elites the key themes regarding the motivations for using COO associations in premium/luxury brand identities were revealed (Figure 1).

Differentiation from competitors is the pre-eminent motivation which is valued by customers and other stakeholders. Other brand dimensions such as product quality can be replicated but COO makes the brand distinctive, provides a degree of protection and makes copying more difficult. “Yes what I always say is that we‘re not selling a pack of x, we ‘re selling a piece of Scotland’s heritage. And have to treat it as that”.

Manufacturing in the COO also justifies a price premium.

The term brand signature can be applied to some of the iconic symbols which are associated with Scotland, particularly in the Scottish textiles and knitwear sectors. Evidence from both research stages confirms the use of selected Scottish symbols which have become closely associated with the visual identities of specific Scottish premium/luxury brands, e.g., t he red and black Stewart tartan and Flora MacDonald/ Bonnie Prince Charlie portrait used by Walkers, the stag’s head of Dalmore and the thistle and tartan used by Highland Spring. These are examples where particular fragments of the nation’s imagery (Figure 2) which are most relevant for the company history and heritage, the type of product and the target customer have become brand signatures.

These d istinctive brand identifiers are used in product design, packaging and advertising to maintain consistency and coherence across the brand, while simultaneously connecting the brand with COO associations. By choosing to leverage on COO in visual identities, companies are

signalling their importance as the anchors which embody the culture, values and distinctiveness of the company. By these means, the brand signature also provides a form of protection from competitors.

Finally the COO association works as a shorthand device which stimulates symbolic, emotional and psychological responses through associations with relevant aspects of national identity including culture and heritage, images and symbolism. These factors all combine towards achieving a competitive advantage in the luxury sector.

Evidence from the study however militates against adopting a one size fits all approach to COO identity. Data from a wide variety of company types and structures reveals a range of motivations for using a COO approach as well as a number of factors which drive whether or not a COO identity is adopted.

The drivers which were identified include: the resources available to a company; the level of brand awareness; the product category; the place of manufacture; and the main geographic markets.

Of these findings, product category is the most important factor, linking first with the concepts of positive product country matches and also with positive consumer country image which triggers a beneficial response. One reason for not choosing a distinctively COO identity is that the Scottish connection for the brand is inappropriate. Sensitive choice of COO associations which are appropriate for the product sector or individual brand is important. The association that works in one sector is not necessarily appropriate in another; “you could argue does whisky need a tartan box, it doesn’t.

The whiskies with any tartan on them are few and far between because the word whisky, Scotch whisky, says exactly what it is, so they don’t need to link that in any way.”

Another driver is the resource available within a particular industry sector/ individual company to communicate the sector’s/company’s reputational credentials. This is evident in the whisky sector where, because of the different ownership structure and considerable inward investment, marketing resources are generally higher than in either food and drink or textiles/cashmere. The premium/luxury Scotch whisky sector targets marketing resources in sponsoring high profile art and sport events, developing sophisticated web sites and exploiting the experience potential of distilleries as visitor attractions. Scotch whisky and individual whisky brands have global recognition and high reputation and have themselves become an important component of Scottish image.

The whisky sector has been very successful in achieving high levels of brand awareness globally.

It is inevitable that the target market, whether domestic, tourist, international or trade, influences how COO is used.

Brands designed primarily for domestic consumption use COO in a different way compared with international markets.

Although there is a strong association between Scotland and quality knitwear and textiles, the textiles/cashmere sector has been less successful in developing strong brands, citing low promotion expenditure and limited brand awareness in key markets as one of the main challenges faced by the sector. In the food and beverage sector, it is the brands with the highest penetration in international markets which exploit COO associations the most. This is particularly apparent in the shortbread sector where brand signatures use COO imagery and symbols extensively.

Whether the product is targeted at mass or niche markets also influences whether or not a strong COO identity is used.

Luxury products are complex and targeted at consumers who are interested in the ‘stories’ which develop around them.

COO is often an important part of this story as seen from many interview extracts as in the example: “We’re trying to say something about the place we live in. We’re reflecting on the history, the colours round about us, the people...”

It is clear from the evidence that for most companies their credibility as Scottish brands is dependent on the location of manufacturing in Scotland. Companies who continue to manufacture in Scotland are more likely to promote COO as part of their identity and use this as a key point of difference compared with those who outsource their manufacturing to a lower cost country. Reputation is built on cognitive associations with sound production practice. For example, high standards of animal welfare, skilled and knowledgeable workforce and environmental sustainability are all reputation drivers and important means of differentiation at the premium/ luxury level where integrity and authenticity are important brand values. Local manufacturing is often an expectation and one which for many justifies the price premium.

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Strategic Advantages of a COO Identity The overall advantages of adopting a COO identity are summed up in the diagram in Figure 3 where COO identity is represented by the anchor metaphor. An anchor is a device which locates and secures an object in a safe position. Not a ll places are suitable anchorages as is the case with luxury brands. A positive product country match, high reputational capital and appropriate country image are required before a COO identity can be successful. Identification with the anchor metaphor gives COO a central and overall causal role in the brand identity. The COO anchor makes a strong connection between the brand and its place of origin, evoking emotions of familiarity and well being. The COO identity anchor locates the brand in a specific place and in so doing differentiation is achieved by linking the company/ brand to an extensive network of COO associations.

These  associations act as triggers for emotional, symbolic and hedonic responses resulting in an enhanced reputation based on favourable perceptions of exclusivity, prestige and authenticity by stakeholder groups. Associations also stimulate functional perceptions where the COO anchors the brand in an environment and culture where images of quality and craftsmanship dominate. As a result of these combined associations the anchor provides the brand with protection and security in addition to enhanced reputation. The benefits of these effects are that a price premium is justified and the brand gains a competitive edge in attracting investment and accessing appropriate markets.

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Conclusion The implications of these results for Scottish premium/luxury companies must be reinforced. Our national identity is a priceless and often underused resource for differentiating Scottish brands in the global market. The associations with heritage, craftsmanship and imagery which are critical for luxury brand identities are well established but not sufficiently exploited. The benefits to be gained from promoting Scottishness’ through brand identities deserves much more attention and support than is currently given.

Table 1: Product categories in the database with numbers and percentages of questionnaire responses from each category.

Morag Hamilton T: +44 (0)1224 263027 E: m.hamilton@rgu.ac.uk

Product Category

Number in Total Population

Number of Responses

% Responses

Whisky

20

13

35

Textiles / Cashmere

31

25

81

Food & Beverage

34

28

82

Jewellery

4

4

100

Homeware

6

5

83

Toiletries

5

3

60

Total = 100

Total = 78

Figure 1: Motivations for using a COO identity for premium/luxury brands

Differentiation Brand Signature

Shorthand Device Motivation for a COO Identity

Brand Protection

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Price Premium

Figure 2: Dimensions of Scottish Image and Key Image Components

Culture and activity Pipers Music

People

Products Modern craftmanship traditional high quality

Reliable Skilled

Scottish image association

Landscape/scenery hills & glens flora colours dramatic

Natural Environment

History & heritage independent Romantic

• Quality • Prestige • Authenticity

Unspoilt beautiful

• • • • • • •

History Heritage Natural Environement Culture People Craftsmanship Quality

Figure 3: Strategic Advantages of Anchoring a Premium/Luxury Brand in a COO Identity

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the practice of entrepreneurship

Stacey Horne, Communications Officer, Aberdeen Business school

Introduction Making academic study ‘real’ is a prime objective of the MBA course at Robert Gordon University (RGU).

All of the MBA modules are closely integrated with commercial companies on a long-term basis to support the main theme of the programme of innovation and commercialisation.

In other words, according to MBA director Allan Scott, companies must convert ideas into sales and profits “We need to engage with industry through consultancy projects as much as possible. This gives companies the confidence that our MBA graduates have the right qualifications for the workplace and provides students with potential job opportunities.”

Building and maintaining these relationships is crucial to give students a ‘real’ experience of the working environment which is why Mr Scott initiated a new collaboration with the diversified technology company 3M. 3M Workshop Full-time MBA and part-time MBA oil and gas students plus alumni were given a practical insight into the operation of the firm. Held at the Aberdeen Business School over the course of a December weekend, the workshop challenged the students to decide the one example of the four 3M products used in the oil and gas market worldwide that should be applied in the UK. The global company currently produces 55,000 products, of which more than 5,000 are currently used by the oil and gas industry. One of the key business drivers for 3M is technology transfer where one particular product is applied across different markets. The company is also famous for its 15 percent rule whereby any employee with a fully technical job can use 15 percent of their time to pursue activities of their own choosing.

On the first day of the workshop, the students were shown a variety of 3M products by company representatives including Dawn Ricketts, Business Development Manager for 3M’s Oil and Gas division. She explained to students that 3M Glass Bubbles are a classic example of a product that has many uses in a variety of different industries.

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She said: “Originally these glass spheres were used in a number of reflective applications including road and pavement markings before going on in the 1960s to be developed for use in drywall seam sealers, furniture and even bowling balls.

It was during one employee’s 15 percent time when they were experimenting with glass beads used in reflective road signs that the Glass Bubble was born.”

Over the past 25 years, these lightweight, low density Glass Bubbles have found many uses in the aerospace industry, most recently as void fillers, as well as a variety of other applications from explosives to bait for carp. In the oil and gas industry, Ms Ricketts explained that Glass Bubbles have played an important part in transforming subsea processes.

“These tiny spheres can improve productivity and drilling performance if added to drilling and completion fluids, saving both time and money for operators. Because of their innovative composition they’re effective in overcoming many of the difficulties faced when drilling mature North Sea formations as well as fields in deeper waters.”

Indeed Glass Bubbles come into their own in deepwater because of their robust strength to weight ratio which means they can withstand high pressure even in water depths of 1,000 metres. They can be used for insulation coating on underwater pipes or to provide buoyancy to hold subsea assets in position above the sea floor. For example, the weight of a few thousand tonnes of pipeline going from the wellhead to the seabed can be offset by attaching buoyancy units to the pipe.

Another popular 3M product shown to the students was Novec 1230 Fire Protection Fluid which is increasingly being used in offshore control rooms instead of Halon gas.

Based on a unique chemistry development from 3M, Novec 1230 Fire Protection Fluid offers a number of important advantages over conventional clean agents such as HFCs and CO2. Its low acute toxicity, combined with high extinguishing efficiency, gives Novec 1230 Fire Protection Fluid the widest margin of safety of any other halocarbon agent, CO2 or inert gas mixture, even at relatively high extinguishing concentrations.

This makes Novec 1230 Fire Protection ideal for normally and occasionally occupied spaces, where personnel may be exposed to the agent upon system discharge.

Novec 1230 Fire Protection Fluid is non-corrosive, non conductive and evaporates rapidly vaporising more than fifty times faster than water and so not damaging high value assets. Unlike competitive foams and powders, it does not leave messy residues to clean up, allowing systems to remain operational.

To the delight of students the 3M team also demonstrated another more unusual use for Novec 1230 Fire Protection Fluid. Those brave enough to immerse their mobile telephones in the liquid found that they not only remained fully functional but emerged much cleaner.

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The students were also given a demonstration of VHB tape from 3M. It is currently used to join any two materials together even if they are made of different substrates, for example, wood to metal, plastic to metal and, in the case of one of the world’s most famous seven star hotels, glass to metal.

However, Ms Ricketts observed that the oil and gas industry had been quite slow to make use of VHB Tape, preferring to stick to the traditional methods of welding or riveting metal to metal.

Following another presentation on the various tools used by 3M for brainstorming, prioritising and planning new products along with a session on intellectual property issues, technical specifications, manufacturing constraints and case studies, the students were divided into teams to decide which product offered the greatest opportunity for 3M in the UK. At this stage their presentations had to include a description of the opportunity, the potential market size and the resource and investment required.

On the Sunday the teams continued to develop their ideas in conjunction with technical and commercial support from 3M as well as giving insights into a variety of tools which the company uses. The students then had to deliver snappy three minute pitches to the panel which comprised of Ms Ricketts and her 3M colleague Stuart Brown as Laboratory Manager, along with Mr Scott and Dr John Park as Innovation Consultant and Senior Lecturer for the MBA course. The top three ideas were chosen and the teams were reconfigured and given time to each prepare a 15 minute presentation which covered market entry, finance, return on investment, the supply chain, customer base and the fundamental value of the application of the product in the UK. Dr Park commented that if one of the ideas does ‘have legs’ then there are people involved with sector experience who can support the students to create a company. “There is a strong focus on commercialisation through every element of this project. Students will be creating a real business case for the technology that they will pitch to a real investment panel. Most universities that run commercialisation projects or courses on entrepreneurship come up with an idea and a business plan that breaks even within two years, which tends not to happen in the real world. We make no bones about it, the brief to the investors and everyone else involved is to pull no punches, we want students to be able to learn from a real life experience.”

A key part of this experience, which Dr Park has not seen built into any other course before, is the challenge of finding the right people to address. “This is a major part of the innovation game; getting through doors to the right people, who are not always easy to find or pin down. But knowing who to contact for tactical advice is extremely important.”

However, Dr Park readily admits that even with access to the best advice available, the reality is that in nine out of 10 cases the outcome varies from the original concept. Ideas can change radically, which is part of the development process, and he wants students to be prepared for uncertainty.

“Even as far as 80 per cent down the track in a project there can be a fundamental piece of learning that renders everything that has gone before obsolete. This is part of the dynamic of developing a new idea and it teaches people to think on their feet. One of the great things about Aberdeen is that there is a spectrum of experience in the city with very diverse companies all working in the same sector that is very hard to replicate. This makes a great place to shape ideas; indeed you couldn’t run this module anywhere but Aberdeen.”

About 3M

Once the students have completed the detailed commercialisation aspects of the two projects, the final presentations will be pitched, Dragons Den style, to the consortium in May.

With $30 billion in sales, 3M employs 84,000 people worldwide and has operations in more than 65 countries.

The UK and Ireland is home to one of the largest 3M subsidiaries outside the USA, employing 3,200 people across 19 locations, including 10 manufacturing sites.

3M, Novec and VHB are trademarks of 3M Company.

3M captures the spark of new ideas and transforms them into thousands of ingenious products.

Its culture of creative collaboration inspires a never-ending stream of powerful technologies, creating innovative products that help make the world healthier, safer and more productive.

Well known 3M brands include Scotch, Post-it, Scotchguard, Thinsulate and Scotch-Brite.

Products manufactured in the UK include coated abrasives, occupational health and environmental safety equipment, adhesive tapes, industrial microbiology products, drug delivery systems, high-performance coatings, secure documents and passport scanners.

Stacey Horne T: +44 (0) 1224 262036 E: s.horne3@rgu.ac.uk For more information, visit www.3M.co.uk or follow @3M-UK on Twitter.

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multinational mirror

Leadership Voices Imagining the Future of the Global Oil and Gas Industry Professor Rita Marcella, Dean of the Faculty of the Aberdeen Business School, and Hayley Rowlands, Research Assistant, Aberdeen Business School

Foreword: This project, commissioned by Dana Petroleum and launched with the support of PwC, provided a valuable opportunity to update a previous research study conducted in 2009 into oil and gas industry leaders’ views on the opportunities and challenges they face. The research deliberately sought to take a global approach entirely consonant with an industry which operates across all frontiers and the boundaries of innovation. While the results painted a picture of a diverse set of opportunities and challenges, I, as Dean of a Business School with a focus on the oil and gas industry, found the results relating to future workforce needs, skills gaps and the leadership succession challenge particularly interesting.

The results indicated that the challenges and opportunities facing the oil and gas industry are global but that solutions will have to be tailored to a wide variety of cultural, environmental and local conditions. A looming skills shortage at all levels will also be one of a series of complex problems facing industry leaders as they enter new geographical areas or develop their international reach. Finding visionary, experienced new leaders will be problematical in all regions.

The results of our study show that current industry leaders share a willingness to reflect on the future of the industry and the kind of leadership needed to take the industry forward in a world of unparalleled technical and political change. While recognising the need for a new mix of technical expertise and a widening of the recruitment net to obtain new skills, current leaders show concern that the industry has not yet identified or recruited enough of the right kind of future leaders.

It was with great pleasure that I was involved in this research into understanding how the oil and gas industry leadership voices have changed over the past four years. The research team greatly appreciates the willingness of those industry leaders we interviewed to engage in the research and to openly share their views with us, as we hope they will continue to do in the  future.

This report was first published in June 2013.

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Introduction

Technology and new discoveries have raised confidence in the industry’s future

The oil and gas sector has emerged swiftly from the recent global economic downturn and is back on an upward curve.

The robustness of the industry has surprised even some industry leaders and brought regained confidence to the sector. According to Barclays’ 2012 Global E&P Capital Spending Update, global exploration and production spending is forecast to reach a record $678 billion in 2013, a 10% increase over 2012 at $614 billion and up from $556 billion in 2011, during the fourth consecutive year of double-digit worldwide investment growth since the downturn.

However, if the storm of the recession forced the industry into seeking a clear trajectory, the current climate of opportunity, with its varying possible paths, appears to be much more difficult for industry leaders to navigate. Riding the rapids: a research study into surviving the recession is a survey of the views of industry leaders conducted by Robert Gordon University’s Aberdeen Business School in 2009 and found an industry working its way with confidence through difficult times. The present study, built on the same model and methodology, sought to gain a global industry perspective as to how industry leaders are planning for future opportunities and challenges internationally.

Forty in-depth, qualitative interviews were conducted with industry leaders between February and April 2013. They were conducted with a wide range of companies in both size and function, including operators, contractors, integrated oil and gas companies, service companies, financial service providers, exploration and production companies, consultancy firms, IT and technology companies, industry representative bodies, training providers and recruitment specialists. Industry leaders interviewed are based in a variety of locations throughout the world.

“We can now see longevity in the market place.

That gives us the opportunity to plan and invest taking a much longer view.”

The current upsurge in industry optimism is fuelled by a growing realisation that the oil and gas sector is actually achieving the sort of technological breakthroughs once hoped for from renewables and other non-carbon alternatives.

Far f rom being a declining, sunset industry, new expectations of abundance, especially of gas, from hydraulic fracturing, horizontal drilling, enhanced oil recovery and other technologies have bolstered confidence among leaders.

As energy demand remains strong, against a background of relatively high and stable oil prices, the industry shows renewed confidence that it is, and will remain, the most efficient and economic source of energy for the foreseeable future.

Leaders feel there is increasing acceptance that oil and gas will provide reliable sources of energy for another generation and, at the very least, bridge the time gap needed to develop a low-carbon future.

This renewed optimism coincides with growing recognition in the wider domain that alternative energy sources will not replace hydrocarbons as quickly or as thoroughly as previously suggested.

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The shape of the industry is fundamentally changing

collaborations and partnerships, with fewer fixed positions in the supply chain hierarchy.

The rise of NOCs offers opportunities for new forms of collaboration between NOCs and IOCs, with joint ventures created to share expertise, knowledge and investment. Some respondents, however, forecast more direct collaboration between NOCs and service companies or contractors rather than with IOCs. This could lead to increased competition between service companies, contractors and IOCs.

“National oil companies are becoming more competent and “Smaller service they now have companies options. They no are creators longer need of technical super-majors to innovation and deliver projects.” find solutions to difficult problems. They help the industry stay nimble.”

Leaders see dramatic changes in the structure of relationships within the industry, particularly in the balance of power between international oil companies (IOCs), national oil companies (NOCs) and service companies. Smaller players, more flexible, agile and entrepreneurial in approach, are seen as playing an ever increasing role. Collaboration and partnerships are increasingly attractive while companies are also becoming more specialised in order to respond to more demanding needs for technical expertise.

NOCs control 86 per cent of global oil and 53 per cent of gas reserves. Predictions suggest their control of future reserves will only increase. Leaders therefore recognise that super majors face challenging times as they struggle to replace their reserves and therefore must redefine their roles as they seek inventive ways of working together with NOCs, which increasingly operate on an international scale themselves. The IOCs offer a combination of global reach, wide experience, technical competence and deep financial resources which continues to make them attractive partners, especially on more technically challenging and larger scale projects. Maintaining that edge will be a key task for them.

Interviewees revealed mixed views on the future of IOCs. Some expect a trend of disaggregation as IOCs re-focus on upstream or downstream. Others conversely contended that IOCs would opt for more mergers and acquisitions to compete on an equal footing with NOCs. The underlying belief is that IOCs are changing their business models as they work more closely with NOCs and some may reshape themselves as contractors. The rules of the game may still be in flux but the trend is clearly towards a more mixed and fluid set of

A majority of leaders saw a growing, pivotal role for innovative and flexible service companies which drive the development of new technology and approaches to delivery across the whole spectrum of skills and to all kinds of clients.

Some expect service companies to move into operator roles, take equity interest in reserves and secure production-related contracts. The trend is towards closer co-operation between service companies and operators, especially to optimise supply chain capabilities. Stringent local content rules demanded by NOCs can however be a barrier to collaboration.

The rise of global service companies offering complex technology and a growing willingness to share project risk gives NOCs access to capabilities formerly the preserve of IOCs. Cash rich NOCs are also buying into small and medium-sized oil and gas companies for access to new skills and experience.

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Overcoming enormous challenges requires visionary leadership

A large majority identified recruitment as a main challenge for the sector. Particularly problematic will be recruiting the next wave of professionals for the industry to fill the gap left by baby boomers retiring and to ensure companies can draw on people with the right mix of technical skills, experience and proven capability.

Wage inflation is raising the costs of tapping into a limited pool of flexible skills which are needed for increasingly demanding projects and resourcing remote operations.

“We need visionaries at the top. Inspirational leadership, that’s what’s missing.”

“There’s a lot of we Gaps in the supply chain include physical resources, technical do what we’ve done expertise and infrastructure. Leaders are concerned about the industry’s before in the industry, unpreparedness to cope with ever more exploration and production. and therefore we demanding Respondents voiced concern over state of ageing infrastructure and always get what we the the need for infrastructure and supply modernisation. At the same already have.” chain time the industry requires massive Responding to the structural changes within the industry and seizing the opportunities poses enormous leadership, recruitment and supply chain challenges. Some expressed scepticism that a male-dominated, engineering focused and often conservative industry could summon up the drive and imagination to inspire the next generation of oil and gas professionals. It must do this to attract the dynamic new leaders and skilled workers required to transform both the substance and the image of the industry.

There is a widespread conviction amongst those questioned that the industry needs a new generation of visionary leaders in order to regain focus and carry out planned and future projects. With operations becoming increasingly remote and technically challenging the need for qualified, experienced, culturally diverse people is arguably greater than ever before.

In addition, an industry in flux needs leaders who can bring a clear vision and help their companies navigate in promising but uncertain waters.

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investment to open up ever deeper, more remote and high risk fields in new geographic l ocations.

The industry must improve its reputation and profile

To attract the right kind of people and fulfil its potential the industry must do more to change its negative reputation.

Until now it has failed to communicate effectively its dynamism and fundamental economic importance, either to governments or the public at large, although there are indicators of changing political views.

“The industry is tarnished because Leaders still crave a more positive public image of a caring, and essential industry. They want the industry to be of Macondo. It needs dynamic more visible publicly about its achievements and ambitious goals. Achieving such a reputational change is seen to do a lot to restore asfuture removing one of the main barriers to the recruitment of new generation of industry leaders and the best its i mage.” anwayinspiring of attracting and retaining the talent needed to turn the industry’s great potential into reality.

“The industry needs The reasons for the lack of understanding and appreciation from broader public are seen as manifold but most agree a complete paradigm that thetheresponsibility lies primarily with the industry itself, in particular with oil majors.

A culture of secrecy and the fallout shift in the way it from recent high-profile environmental disasters, such as the Macondo well blowout and oil spill in the Gulf of Mexico, are thinks about what an partly to blame. exemplary manager The need for improved communications is all the more pressing at a time when the sector faces enormous is. What you have at challenges in attracting and retaining talent. The industry has to persuade its own workforce of the value it creates the moment is ‘big and attract young people to join it. Forging closer links with the education system is seen as key in achieving this, not boots, big buckle, only at university but at every level from primary schools upwards. This engagement should no longer be the big voice, big belly’. traditional responsibility of mature, experienced personnel but be given to young and enthusiastic members of the oil That,I’m afraid, is still and gas community presenting a more vibrant picture for future generations. the perception.”

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Oil prices will fluctuate but gas will get cheaper

“The curvature is up and it’s going to stay in the $100 bracket.”

“We’ve seen a period of relatively stable price and that gives companies confidence to invest. That has benefits throughout the value chain.”

The way the industry survived the 2009 price roller coaster has created confidence in handling future price shocks. Looking forward, leaders interviewed identified a wide band ranging from $70-$130 per barrel of crude as the optimum price to sustain capital expenditure, with the majority indicating a price between $80-$100 per barrel as a price range at which the whole industry could operate effectively.

Whilst noting the historic fallibility in predicting oil prices, interviewees pointed to price stability rather than an optimal price per barrel as critical to future operations. However oil is a finite resource and, as extraction becomes increasingly challenging and demand continues to increase, it is inevitable that oil prices will also continue to rise.

Interviewees noted a growing disparity between oil and gas prices as shale transforms the availability of gas. Lower gas prices will accelerate a shift away from coal in power generation and from oil to LNG and CNG in many forms of transport from cars to ships.

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Governments should focus on tax

Financial markets must adapt to meet industry’s

and legislative stability

diverse new demands

“An environment of no surprises is what investors are looking for now.”

“The process that we use to prioritise o ur spending and to determine which investments are g oing to give us the best return is more rigorous than ever. And that’s a consequence of there being more opportunities out there.”

“The front-end investment is something that’s difficult to get the funding for.

And sometimes opportunities may be left in the ground for a lot longer.”

Leaders expressed few concerns about future oil and gas prices. As projects become larger, more complex and expensive, the industry is far more concerned about host governments’ ability or willingness to provide long term, stable and predictable taxation and legislative frameworks.

Convincing governments of the crucial importance of tax and legislative stability is one of the priority tasks of industry leaders. The prospect of stability encourages the long term investment decisions needed to satisfy rising demand from Asia and the energy needs of a fast growing and wealthier global population. North America, Australia, Asia – specifically Malaysia and Singapore –were singled out for their stable tax environments with greater uncertainty in Africa, although Angola was seen as “stable” while Mozambique was described as “promising”.

While stability is important for all investors, some respondents argued that fiscal policy should also discriminate in favour of smaller, often financially strapped but entrepreneurial companies to encourage them to open up new areas.

Pioneers often bear extra infrastructure burdens to open up new fields which can then bring benefit to later arrivals that did not incur the up-front costs involved. Tax regimes, which recognised both the extra costs incurred by first-comers and entrepreneurs and the wider benefits that they bestow, could do much to stimulate exploration.

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Many respondents cited the relative stability of the oil price through the recent downturn as one of the main factors behind increasing confidence in the industry and its future, underpinning higher capital spending and more emphasis on long term investments.

While some noted that banks were lending again, others thought that little had changed and acknowledge an industry acceptance that new ways must be found of accessing capital.

Capital markets are still not sufficiently stable and are less willing to lend to small-cap companies. The hardest task for smaller companies is securing access to funding for front-end activities before reserves are proven.

In the UK, the biggest change identified was the positive response of the industry to changes in the tax structure made since the highly criticised 2011 budget which imposed higher taxes.

New tax allowances since then reflected what many described as “a change in attitude” towards the industry from the UK Treasury and government.

With both the North Sea and fields around the globe gearing up for large new projects and related infrastructure investment, many respondents reported “hyperinflation of service materials” and rising wage inflation as companies bid for scarce skilled labour. Such cost inflation increases the difficulty of financing projects.

There was also recognition that mature basins such as the North Sea need a change in model as production curves decline, challenges in maintaining infrastructure arise and the dynamics of the global industry change.

More attractive fiscal regimes were called for in mature basins in order to increase the quality and rate of exploration needed to bring reserves on stream and to improve efficiency of production in mature assets.

Mergers and acquisitions will provide access to new

Attitudes to risk assessment are becoming

skills, locations and technology

more robust

“As people find it harder to acquire reserves, a lot will come through acquisition, especially as they go into new t erritories.”

In a world of skill shortages, rapid technological change and the opening up of vast new shale or deep offshore fields, M&A activity is seen as an increasingly attractive way of gaining access to both.

According to PwC’s Oil and Gas Global Deals (April 2013), 2012 saw the highest number of global oil and gas deals since 2008 and the highest in value terms since 2010. Looking forward into 2013 it is anticipated that the recent trend of top tier upstream deals will continue, with signals that conditions are ripe for a further round of tie ups between the oil majors.

Another driver of M&A activity in the service sector is the growing demand from both IOCs and NOCs for the provision of services on a global scale. Supply chains in particular are increasingly global. M&A activity may form a way for the ‘monolithic super service company’ to evolve, bringing the capacity to provide services in diverse regions, with varied skills, in physically challenging territories.

“Macondo brought very clearly home to people the economic consequences of not paying sufficient attention to operational risk management. As a result, planning processes are more rigorous and the challenge processes are better.”

Compliance with legislative and regulatory requirements must be set against the business need to be prepared to seize opportunities and indeed take risks to embrace these opportunities. The industry is constantly reminded of the repercussions of high risk, catastrophic events. A majority of leaders feel that risk assessment has become more important organisationally. More attention is being paid to human factors, with greater awareness of the risks surrounding equipment and service delivery. There is also growing recognition of the need for a clearer definition of responsibilities and accountabilities.

The Macondo incident is, in this respect, considered a watershed moment. Interviewees see it as the reason behind the increased scrutiny of strategic and operational risk.

It means closer investigation of the financial stability and emergency response capabilities of partnering companies before embarking on a project.

The trend towards increasing collaboration may be discouraged by this greater focus on the ability of companies to manage risk. We may also see a reformulation of contracts, responsibilities and accountabilities across the globe.

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Shale could be the great game changer

“Shale technology is making future supply bigger than anyone thought possible some years ago.”

The greatest change to oil and gas supply and demand is the rapidity of shale developments in North America, impacting on global gas markets. This rise in unconventional hydrocarbon sources has triggered an LNG boom, with major capital commitments being made to LNG projects. President Obama’s recent decision to allow the export of gas is expected to accelerate the conversion of originally conceived LNG import facilities into export outlets, underlining the dramatic decline in US energy imports and the prospect of rising exports made possible by the shale revolution.

Until now the main impact of hydraulic fracturing and horizontal drilling has been seen in the US where the rapid rise in gas production has created a large gap between oil and gas prices. The disparity is stimulating a large scale substitution of gas for oil in transport and power generation.

For the US, cheap, abundant gas increases energy security and international competitiveness. Globally it offers at least a stop-gap solution to slow the increase in greenhouse gases and the process of climate change.

Doubts remain about the ability to replicate the US experience in its entirety elsewhere. The huge shale gas deposits recently discovered in the UK and the practically boundless shale deposits identified in Russia, China, Australia and indeed around the globe point to a future of hitherto undreamed of hydrocarbon abundance and unprecedented opportunities and challenges for the global oil and gas industry.

The PwC report Shale Oil: the next energy revolution (February 2013), indicates that global shale oil production has the potential to reach up to 14 million barrels of oil per day by 2035 (almost 12% of the world’s total oil supply). The move towards unconventional hydrocarbon reserves was identified as the most significant opportunity for the industry. Both deep water and shale were cited as opportunities and the increase in the development of unconventional reserves both onshore and offshore requires a greater transfer of knowledge and understanding from one region to another. This is especially important as new technologies are developed to meet the challenges of working in deep water, under high pressure and in remote locations such as Alaska.

“Gas is the answer, or at least the short term answer, to the global warming challenge.”

The discovery of large, new reserves to meet global energy demands was cited as both an opportunity and a challenge for the industry. A change in the industry was recognised with the discovery of significant reserves in previously underexplored areas (for example, East Africa), as well as the stability and continuing growth of emerging economies.

This results in new markets opening up to a global industry, bringing opportunities to those who are brave and intelligent enough to tap into such markets, testing new technology and exporting knowledge and expertise to new regions.

Conclusion For the global oil and gas industry, 2009 to 2013 has been a period of recovery and one of steadily increasing optimism.

The industry is now in a positive, opportunity rich place with confidence about its future role in global energy supply.

Technological developments and new discoveries have raised confidence, along with the growing realisation that renewable and low-carbon alternatives will not replace hydrocarbon use as quickly or as thoroughly as previously suggested.

This research has reaffirmed that the global oil and gas industry is far from being a sunset industry.

The report reveals an industry whose leaders feel it is in a positive place but are far from complacent faced with a myriad of opportunities and yet some significant barriers. The urgent need to update the infrastructure of mature fields and at the same time invest heavily in technically challenging deep offshore fields and developing cost effective oil and gas deposits around the globe underlines the unprecedented scale of the challenges, as well as the opportunities facing the oil and gas industry.

Although it is undeniable that oil and gas will continue to contribute to energy security for the foreseeable future, there is little consensus amongst leaders as to how the industry might best be configured to achieve this goal.

The shape of the global oil and gas industry is changing; in particular the interrelationships between NOCs, IOCs and service companies are becoming more complex and roles less distinct. Collaboration and partnerships are most certainly on the agenda to enable delivery in a rapidly changing and unpredictable environment. New forms of collaboration will emerge as global service companies are entering the space once dominated by IOCs. Investments are being made with greater caution as corporate entities adopt new ways of growing.

Industry leaders did however identify undercurrents of uncertainty around the future direction of the industry largely as a result of the diversity of opportunities which they face, political instability and structural change. Lower risk appetite may also halt productive new ways of working. Interviewees are concerned about the industry’s failure to nurture the visionary, dynamic leaders of the future. There was recognition that these future leaders will need a different mix of skills which focus not just on technical ability but also on effective communication, emotional intelligence and commercial acumen together with experience and proven capability. These future leaders will have to operate with an understanding of geopolitics, respect for all cultures and be open to collaboration and creativity. There was a call for a more diverse future leadership to challenge the current image.

There are challenging gaps in resources, not solely in people and skills but also around assets, materials and supply chain capabilities. In depth analysis of the optimal supply chain matrix would help governments and regions build capacity, whether as a resource basin or as a global source of expertise, technology and services.

The industry’s poor public image continues to be a real barrier.

Leaders recognise that the oil and gas industry needs to be seen as part of the energy solution and not only as a contributor to the problem.

This research demonstrates that many of the features of that public image are invalid or likely to change fundamentally in the future. The industry’s historic focus on containment rather than openness has cloaked its true value proposition. Industry leaders recognise this failure to communicate and engage in a way that is accessible and understood by society.

This is, therefore, a critical moment for the global oil and gas industry, particularly its leaders, to imagine its future and overcome these challenges.

Rita Marcella

Hayley Rowlands

T: +44 (0)1224 263904

T: +44 (0)1224 263438

E: r.c.marcella@rgu.ac.uk

E: h.rowlands1@rgu.ac.uk

76 Aberdeen Business Journal 2014

e-business

Distance and Blended Learning:

An Introduction Alan Hunt Senior Lecturer Department of Information Management Aberdeen Business School

Introduction Academic study can normally be thought of as involving a series of full-time, face-to face interactions, for example, lectures. This is certainly true for many courses but alternative modes of study which do not involve full-time or part-time attendance are proving popular (Lentell 2010). Two alternative modes of study to the traditional ‘attendance’ model are distance learning and blended learning. This a rticle discusses these modes of study and looks at recent technological developments in the field of education for distance and blended learning.

Modes of Study Many of us associate distance learning with the traditional “correspondence courses”, involving delivery through the postal service. Distance learning courses of this nature began in earnest as a result of the industrial revolution and were established by the end of the 19th century (Sumner 2000).

Sumner (2000 p.273) refers to correspondence study as the “First Generation” of distance learning, with the second generation involving multimedia such as recordings and broadcast technology. Sumner (2000 p.277) describes a third generation of distance learning which is “Computermediated”. The advent of the Internet and mobile technology provides the opportunity for a much ‘richer’ interaction compared to early correspondence courses, with a reduction or elimination of feelings of isolation which would have been prevalent in students.

A more recent phenomenon in education is ‘blended learning’. This involves “the thoughtful integration of classroom face-to-face learning experiences with online learning experiences” (Garrison and Kanuka 2004 p.96).

Blended learning looks to combine the ‘best’ elements of faceto-face and distance education with the flexibility of a distance approach. This c an involve students studying online and attending course workshops periodically, which consolidate their learning and facilitate further interactions with tutors and fellow students.

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Whether distance or blended learning, today’s courses utilise a range of technologies and communications media to engage the students and allow them to feel part of a community. Key to the successful delivery and experience of today’s distance or blended courses are ‘Virtual Learning Environments’ (VLEs) defined as “electronic information systems (IS) for the full administrative and didactical support of learning processes” (Mueller and Strohmeier 2011 p.2505). Systems such as Blackboard, Dokeos and Moodle provide the facility for delivery of course material online in a variety of formats and allow students to interact with tutors and each other using online communications tools.

Web-based systems like RGU’s CampusMoodle deliver content using a variety of media. Many students like to receive their materials in printable format and this can be provided as PDFs, Word documents or as PowerPoint slides. These are formats which we associate also with traditional (face-to-face) learning and there are now other delivery and communication media for learning which can emulate the kind of experience gained in the classroom.

Robert Gordon University uses Moodle as its VLE platform Audio and Video Tutors can supply audio and video material for publishing through VLEs like CampusMoodle. These enrich the learning experience and provide contributions to learning from guest speakers such as industry experts. Audio and video content can be made available in downloadable (podcast) format to allow it to be accessed offline. This is helpful when studying whilst travelling, for example. Some tutors at RGU are using audio to provide students with feedback on their work.

This allows a more personal form of feedback to be provided and it can be used to supplement or completely replace traditional written feedback.

Online Lectures and Quizzes PowerPoint presentations can be provided with an audio track, providing a complete lecture online. Robert Gordon University uses software such as Articulate to produce this content and, in addition to providing PowerPoint slides with audio and notes pages, video clips, quizzes and interactive content can also be supplied, all within one presentation.

Quizzes can also be created separately using a facility in CampusMoodle and can be used as part of a ‘formative’ assessment process to provide feedback as study progresses or can form part or all of a ‘summative’ (graded) assessment.

This is particularly beneficial when students are studying at a distance.

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Accessible Content Documents which would traditionally be accessed online in Word format or as PDFs can be delivered in hyperlinked format using Wimba Create. This allows the reader to more easily navigate through a document in order to access material for reference purposes, for example.

‘Live Classroom’ Sessions A number of courses at RGU use Blackboard Collaborate Classroom software to broadcast classes and hold online tutorials. This software is particularly value-adding as it allows a tutor to deliver presentations using audio, video and graphics and interact with a group of students in realtime. Students can interact with the tutor and each other using text, voice and video links, emulating the experience found in a classroom. Blackboard Collaborate sessions can be saved for later access, meaning that students who were unable to participate in the live event can catch up afterwards.

The screen capture shows the Blackboard Collaborate interface and an archived tutorial. Navigation links are supplied to allow students to jump to specific points during the Live Classroom.

Live Classroom sessions can be supplemented with contact through technologies such as Skype, allowing students access to tutors without incurring the cost of an international call.

Online ‘Chat’ and Discussion Forums Blackboard Collaborate Classroom requires a fairly robust Internet connection. However, RGU’s CampusMoodle provides two additional communications tools which are less bandwidth-dependent and therefore accessible to students located in regions of the world where Internet access is limited. The CampusMoodle ‘Chat’ facility allows students and their tutors to interact in real time (synchronous mode) by posting text-based messages via a web-based interface.

This can provide a useful support mechanism for distance learning study, where tutorials can be held to discuss points arising from the current topic of study or to take questions regarding an assessment. Chats can be saved so students who are unable to participate can keep up to date on recent points covered in these sessions.

If it is desired that a ‘conversation’ around a particular topic should take place over a period of time, e.g., a number of days or longer, CampusMoodle ‘Discussion Forums’ are available.

These operate in a similar way to Internet messaging boards in that they are asynchronous and allow students and tutors to post messages into discussion ‘threads’ and build up a series of responses. Discussion forums are particularly useful for responding to ‘frequently asked questions’ and for facilitating group work.

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Course Flexibility One of the great benefits of today’s distance and blended learning technologies is the flexibility they offer in terms of when and where to study. Distance and blended learning students can be offered equivalent learning experiences to the classroom, without being constrained by the need to attend.

Assessment can also be undertaken without the requirement to attend university and studies can be integrated with work and family commitments.

Professional Development at RGU For people in employment or running their own business, ongoing professional development is essential. With t ime being at a premium, it can be difficult to commit to a programme of studies such as a postgraduate diploma or MSc. Professional Development at RGU uses a range of learning technologies to provide flexible access to modules of study which are credit bearing. One or more modules can be studied to serve a particular development need or as a taster with a view to embarking on a full programme. Credit accumulated from Professional Development at RGU can be transferred to a postgraduate programme, allowing the student to build towards a full award. Many of the modules are accredited by professional bodies Aberdeen Business School offers a range of modules of study through Professional Development at RGU including: Energy and Sustainability • Sustainable Development Management and Business • Commercial Business Dynamics • Contractual Approaches to Procurement • Core Business Skills for the Energy Sector • Economics of Business • Managing People • Project Management Fundamentals • Project Planning & Control • Records Management • Supply Chain Management Information Management • Document Control Foundation • Information Architecture • Information Technology In Business • Local Studies Collection Management • Records Management

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Future Developments Future discussion around learning technologies tends to be on the subject of mobile learning. With smartphones and tablet devices growing in popularity, greater use can be made of them in delivering and supporting learning. JISC (n.d.) highlight the benefits of mobile learning, in particular that “Mobile and wireless technologies can provide flexible and timely access to learning resources, instantaneous communication, portability, active learning experiences and the empowerment and engagement of learners, particularly those in dispersed communities”.

Distance and blended learning have come a long way since the early days of correspondence courses. Today’s generation of learners can benefit from a rich range of media and global connectivity, allowing learning and professional development to be more accessible than ever before.

References GARRISON, D.R., and KANUKA, H. 2000. Blended learning: Uncovering its transformative potential in higher education. The Internet and Higher Education. 7(2), pp. 95-105.

JISC. n.d. Mobile learning. [online]. London: JISC. Available from: http:// www.jisc.ac.uk/whatwedo/topics/mobilelearning.aspx [accessed 21 March 2014].

LENTELL, H. 2010. We must go the distance. Times Higher Education [online]. 21 January 2010. Available from: http://www.timeshighereducation. co.uk/story.asp?storycode=410072%20 [accessed 21 March 2014].

MUELLER, D. and STROHMEIER, S. 2011. Design characteristics of virtual learning environments: state of research. Computers & Education. 57(4), pp.

2505-2516.

SUMNER, J. 2000. Serving the system: a critical history of distance education. Open Learning: The Journal of Open, Distance and E-Learning. 15(3), pp. 267-285.

Further information be obtained from the RGU website at www.rgu.ac.uk/future-students/postgraduate-study/ professional-development/professional-developmentat-rgu T: +44(0)1224 262180 E: PGOffice@rgu.ac.uk 83 Aberdeen Business Journal 2014

Aberdeen business school platform

Aberdeen Business School

Engagement with Corporate Clients

and

Professor Ken Russell

Associate Dean for MBA and Corporate Programmes, Aberdeen Business School

R Introduction

obert Gordon University has a long tradition of engagement with business, organisations and professional bodies. This is manifested in a number of ways but has two very important outcomes, namely, a strong and consistent track record of graduate employability and endorsement of much of our degree provision through recognition and accreditation

by Professional, Regulatory and Statutory Bodies.

Graduate employability has also been supported by our success in sourcing and managing student placements that help to prepare our students for their careers. The importance of placements has been recognised over the last few years through a prize, at the Northern Star Awards, for the employer providing the best all round placement experience for our students. This heritage has paved the way for increasing levels of interest coming from corporate clients for the provision of management development, contract research and advisory services.

Aberdeen Business School has engaged fully in this agenda and this short article is an attempt to take stock and identify pathways for further growth. The value to the Business School of corporate client engagement should not be considered only in monetary terms but also as part of our knowledge exchange where there is a win-win situation that adds value to both the capacity building in the corporate client and also in our open programmes.

As we move forward, so-called “third stream income” will become increasingly important for the following reasons: • Income substitution is vital due to a need to have declining dependence on government (Scottish Funding Council) sources; • A counter is needed to offset tightening immigration and potential decline in full economic cost income streams from FT postgraduate students; • There is an on-going need to inform and demonstrate the relevance of our offerings to the world of work; • School-wide accreditation (e.g. the Association to Advance Collegiate Schools of Business - AACSB) will necessitate the provision of a strong evidence base for business/professional body interaction and how this informs our teaching and also resonates with the Quality Assurance Agency (QAA) Enhancement themes of Research into Teaching, Developing and Supporting the Curriculum, Graduate Attributes for the 21st century etc).

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Emerging Themes in Management Development Aberdeen Business School has delivered a wide variety of management development offerings ranging from supporting a graduate development scheme at the local offices of an international service provider, assisting Grampian Police with the delivery of a Security Co-ordinator Course, offering a strategic seminar for a senior management group in Dubai and delivering an MBA for a national oil company in North Africa.

A recent review has identified the following key themes and drivers where we can add genuine value: • In general, employers are increasingly finding it difficult to attract, develop and retain their talent pool.

One approach to this problem is to become recognised as an employer of choice (EOC) which provides a superior pipeline of prospective employees as the company is regarded as an attractive place to work. We can make a difference in working with employers to assist them in this process.

• It is increasingly common to find price-based competition in highly regulated sectors such as oil and gas. There is therefore a need to try to reverse commoditisation and find new ways to differentiate, especially in the provision of services as part of the “product bundle”. There is scope here to provide support to clients that involves creativity, innovation, business-to-business marketing and cost accounting expertise.

• The oil and gas industry is predicted to require 15,000 new employees in the North East of Scotland over the next 5 years. This requirement together with the demographics of the aging incumbent population in the industry means that many new recruits will have to be developed and extensive expertise will leave the industry due to retirement. Our role will be to help companies develop their new recruits and also to facilitate the transfer of learning through coaching and mentoring schemes that will retain and recycle knowledge within the business.

• The term “T-shaped Manager” was coined by Hansen and Oetinger in the Harvard Business Review in 2001.

In essence, they propose that organisations must do more to promote knowledge sharing across operating units (the horizontal part of the T) as well as thrive within their operating unit (the vertical part of the T).

Aberdeen Business School with expertise in knowledge management is well placed to assist companies develop programmes that will enhance the development of this capability and attendant behavioural changes.

• Another facet of behavioural change required relates to Health and Safety. Contract research conducted

by Professor Rita Marcella as Dean and other staff in Aberdeen Business School has demonstrated that not only is there a reliance on the transmission of health and safety knowledge but there is a lack of concerted attempts to generate behavioural change. Our existing MSc Health, Safety and Risk Management course was 86 Aberdeen Business Journal 2014

deliberately designed a few years back to place a focus on leadership, culture and behavioural dimensions and this provides a valuable experience base to develop appropriate offerings to support our clients.

• In many aspects of management it is possible to observe cycles in tactics. One reversal of a trend towards contracting out roles and services has been drawn to our attention recently with the “on-boarding” of contractors leading to the need for company-led acculturation and the potential for ABS to deliver first-line supervisory training to assist in this process.

• Exploration and production in overseas locations is increasingly requiring local labour and material content and this is presenting compliance challenges. The right to operate and hence the role of contracting and procurement is changing dramatically. Using our overseas delivery experience we have the capability of working alongside companies to develop the local workforce.

Although there is a strong oil and gas emphasis in the examples quoted above, there is a wider opportunity to develop offerings in other industries. In the short to medium term, we will focus our resources in meeting the needs of the industry on our doorstep both locally and in overseas locations.

Overview of Practical Application

Capacity Building to Enhance Reputation

The following is a list of the ways in which we have tackled a number of business opportunities and many of these examples have led to repeat business with either the same client or utilising the same broad approach but customised to new clients needs. The range of approaches either currently being used or at advanced stages in proposals to clients include:

and Third Stream Income

• Middle to lower senior management training based on the use of a business simulation designed to develop strategic thinking and decision-making, raise awareness of the financial consequences of decisions as well as leadership and team-working behaviour; • The delivery of online training using CampusMoodie to support awareness raising and supervisory skills training in a range of areas, including mentoring, logistics, procurement, supply chain management; • The use of work based-learning and application to support capacity building that can either be credit or non - credit bearing leading to an award of the University via Corporate Academy activities and may cover continuous improvement projects based on action learning; • Support for companies in areas of skill-shortage such as project management and increasingly supply chain and logistics; • Training to capitalise on harmonised policies and systems to support staff mobility and common practices; • Support for engineering graduate development schemes in collaboration with colleagues In the university’s Design and Technology Faculty to support young engineers not only with progress towards achieving chartered status but also to assist with the development of business acumen.

Led by the Dean of Faculty and working with the Commercialisation Process in RGU a number of initiatives have been undertaken within ABS. These have included a range of staff development activities that have widened the pool of staff contributing to business interaction; the appointment of an Associate Dean with specific responsibility for Corporate Delivery; the creation of a Corporate Development Consultant role to support Corporate Programme design and delivery; enhanced research based consultancy skills training provided across the University; events to disseminate superior practices; investment in processes to credit-rate work-based learning in corporate settings etc. There is an increasing recognition that we are in a world of co-creating value for corporate clients and that both parties bring something unique to the table. Universities can accredit learning and bring specialist expertise to bear in the design and assessment of learning whilst drawing on an extensive range of electronic educational resources. Many organisations excel in training their staff and part of our role is to take this to a higher level of rigour and relevance through extending the “know-how” into the “know-why” so that employees are more equipped to deal with volatility, uncertainty, complexity and ambiguity (VUCA).

Most recently responses to client requests for assistance have been a joint process involving a lead academic and a business development manager. This joint approach has led to efficiency and enhanced effectiveness in the development of proposals that effectively meet client needs and create genuine business impact. A recent example of this approach was the development of a winning proposal to deliver a middle management training programme that was tied into the client’s competence framework.

For further information please contact: Prof Ken Russell Associate Dean (MBA and Corporate) Aberdeen Business School T: +44(0)1224 263552 E: k.russell@rgu.ac.uk 87 Aberdeen Business Journal 2014

97% postgraduate employment HESA DESTINATION OF UK LEAVERS SURVEY 2012/2013

BETTER PROSPECTS. BETTER EMPLOYABILITY. BETTER APPLY TO RGU.

Aberdeen Business School is a leading provider of professional postgraduate study. Our specialist energy focused masters courses are accredited and recognised so you can be confident about gaining a qualification which will enhance your career.

Our location in the European energy capital has enabled us to partner with industry experts and engage at the highest level with service companies and International and National Oil companies.

Our long-standing and strong industry relationships inform and shape the courses we deliver, providing you with well-structured, specialised courses.

Our teaching staff have an outstanding reputation for quality and academic research and our track record in graduate employment is the best in Scotland.

Aberdeen Business School is a top provider of professional postgraduate study. Our courses are nationally accredited and recognised so you can be confident about gaining a qualification which will truly enhance your career.

POSTGRADUATE STUDY IS AVAILABLE FULL TIME, PART TIME OR ONLINE

STUDY FULL TIME OR ONLINE • START IN JANUARY AND SEPTEMBER

Start September or January

NEW MSc Digital Curation* Graduate Certificate Information Studies MSc Information and Library Studies* MSc Information Management* MSc Organisational Learning MBA Information Management (Accredited by the Association of MBAs)

T: 01224 262132 E: better@rgu.ac.uk www.rgu.ac.uk/betterenergy

MBA Oil & Gas Management Accredited by the Association of MBAs (AMBA) and Energy Institute (EI) MSC Energy Management Accredited by the Energy Institute (EI) MSC Business Management Recognised by the Chartered Management Institute (CMI) MSC Health, Safety & Risk Management Accredited by the Institution of Occupational Safety and Health (IOSH) MSC Human Resource Management Accredited by the Chartered Institute of Personnel and Development (CIPD) MSC Information Management Validated by the Chartered Institute of Library and Information Professionals (CILIP) MSC Oil & Gas Accounting Accredited by the Association of International Accountants (AIA), the Energy Institute (EI) and the Chartered Quality Institute (CQI) MSC Oil & Gas Law Accredited by the Energy Institute (EI) MSC Project Management Accredited by the Association for Project Management (APM), the Project Management Institute (PMI) and the Global Accreditation Centre for Project Management Education Programs (GAC), MSC Purchasing & Supply Chain Management Accredited by the Chartered Institute of Purchasing and Supply (CIPS) MSC Quality Management Accepted by the Chartered Quality Institute (CQI)

97% POSTGRADUATE employment HESA DESTINATION OF UK LEAVERS’ SURVEY 2012/13

*Accredited by the Chartered Institute of Library and Information Professionals (CILIP)

www.rgu.ac.uk/INFORMATIONMANAGEMENT T: 01224 262203 E: BETTER@rgu.ac.uk

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AberdeenBusinessschool

AberdeenBusinessjournal

Spotlight AberdeenBusinessschool

2014 Issue 07

Sir Ian Wood Stewart Milne Melfort Campbell Colin Welsh Hugh Little Charles Ritchie

Robert Gordon University Garthdee Campus Garthdee Road Aberdeen AB10 7QE United KIngdom www.rgu.ac.uk Robert Gordon University, a Scottish charity registered under charity number SC013781 • Produced by The Gatehouse: Design & Print Consultancy at Robert Gordon University • 0714/37681/JM

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