h a lc r ow z e i tg e i s t m aga z i n e ISS UE THREE
Is this rational exuberance?
the spirit of the time
India’s economic boom is expected to gather a head of steam this year as GDP heads into a new orbit of 10 per cent growth. We interview some of its business leaders.
CEO of Sun Microsystems Jonathan Schwartz discusses what he considers to be the five founding principles that drive innovation.
Professor Sir David King, the UK’s chief scientist, is the man in the hot seat in the UK’s efforts to combat climate change. His mission is to steer the UK into becoming a zero-carbon economy. His team’s work on flooding has drawn the attention of China and the US Army Corps of Engineers.
Web 2.0 has spawned a new business in social networking and promises change for business generally. But despite Google's commitment to share revenue with content producers, Paul Taylor from the Financial Times is not convinced that social networking is here to stay.
We interview a clutch of companies who claim to help businesses achieve efficiencies by making their employees more innovative. In some cases, this ‘innovation’ activity is eating into budgets normally reserved for advertising.
In our new section, called Muse, we explore some illustrations of George Bernard Shaw’s assertion that “all great truths begin as blasphemies” in the work of astronomer Nicolaus Copernicus and others.
Supermarket chain Tesco has attracted considerable criticism for its aggressive pricing policies but on the eve of its launch into the US, Sunday Times writer Matthew Goodman, assesses the success of its keen focus on innovation.
Corporate and social responsibility has become something of a cause célèbre for companies around the world. But Dana Brown from the Said Business School at Oxford University has some strong views on what it really means.
Innovation and imagination at work zeitgeist is published by Halcrow, Vineyard House 44 Brook Green, London W6 7BY, United Kingdom tel: +44 (0) 207 602 7282 fax: +44 (0) 207 603 0095 email email@example.com halcrow.com Cover photograph: Dewald Aukema Photography: Dewald Aukema William Howkins Samantha Hart Luke Tchalenko Nigel Dennis Ernie Janes Illustrations: Vault 49 Christiane Engel Piotr Lezniak Editorial and production: Editor: Dawn Hayes Graphics: Tracy Newman, Emilie Dadswell Design: Frank Sully & Partners Contributors: Paul Taylor, Financial Times Matt Goodman, Sunday Times Clare Dowdy, Wallpaper ©2006 Halcrow Group Ltd. Copyright in the style, structure and content of the magazine belongs to Halcrow and/or its affiliated undertakings. No part of this magazine may be reproduced, stored in a retrieval system or transmitted in any form without permission of the publishers. The magazine is for general information purposes only and Halcrow gives no warranty or assurances about its contents and is not liable for any editorial, typographical or other errors or omissions. Halcrow disclaims any liability for loss arising from reliance on information herein. This magazine, its supply to you and the disclaimer stated above are governed by the laws of England and any dispute is subject to the exclusive jurisdiction of the English courts. If you no longer wish to receive this publication, email: firstname.lastname@example.org.
India’s economic boom has confounded even the most optimistic observers. As one analyst puts it - if everyone in India went to sleep, its economy would still grow at 6.5 per cent. Yet what is clear is that the benefits of the boom have touched only a tiny proportion of its 1.1 billion population. While India’s middle class powers growth and reaps the rewards, the mass of Indian people still live without basic services such as water. On pages 10 and 11 of our special report on India, we examine one scheme for financing the modernisation of urban infrastructure, something that has been neglected so far in favour of roads, airports and other projects that offer guaranteed returns. The company, Infrastructure Leasing and Finance Corporation, expects to make a profit in the long term. Meanwhile, Sun Microsystems’s invention of computer programming language Java is, at least in part, responsible for today’s world wide web. Its CEO and president Jonathan Schwartz gives his views on what it takes to drive innovation in Soap Box. At the heart of it, he believes, is communication between different departments within companies. Related to that, we examine three examples of companies, which use techniques such as comedy and theatre improvisation to inject innovation into companies as diverse as easyJet and the BBC. Paul Taylor from the Financial Times explores the longevity of the social networking phenomenon that the interactive web has brought with it. Finally, we have a new section, called Muse, where we invite you to think about how in business some of the original thinking that appears improbable becomes a "great truth".
Dawn Hayes, editor
India emerging Is this rational exuberance?
It feels like dotcom euphoria all over again at Subhash Group in Bangalore. Chairman Anil Sehti manoeuvres a stream of calls to his mobile phone while simultaneously holding a meeting. It’s as if there is not a minute to lose nor a stone to leave unturned as India’s economic boom gathers a head of steam. Family businesses like Sehti’s are credited with driving GDP growth, which has averaged close to 8 per cent over the last four years.
DEWALD A UKEMA
In 2006, the £388 billion economy headed into a new orbit of 9.1 per cent and the ruling Congress-led government is pushing for that figure to top 10 per cent this year. In almost any other country in the world this would be viewed as pie in the sky. But this is no ordinary market. It is among the top three fastest-growing economies, poised to equal Europe’s in size by 2020, according to PricewaterhouseCoopers. India’s stock market has risen 200 per cent over the last five years. And with an average age of 25, this country is set to have the biggest working population in the world by 2030. “I have not seen this amount of business activity in the last 30 years, nor has it been there for the past 300 years,” said Harkirat Singh Bedi, head of IDEB, a diversified property business across town from Subhash Group in Bangalore. Deregulation in 1991 has propelled both companies from property developer and pipe manufacturing business, respectively, into areas as diverse as bio-diesel plantations, software services, road building and power distribution. IDEB also claims to be the second-biggest diamond trader in the world after De Beers. Diversification is all the rage in India. It yields higher stock market
valuations and protection in the event of a crash. compared with the same period a year Alan Greenspan, head of the US Federal Reserve previously on sales up 217 per cent. until 2006, famously predicted the global dotcom The country of 1.1 billion people now crash when he characterised the period boasts the most expensive land in the running up to it as “irrational exuberance”. world. But the lack of prestige modern In India, however, there is no sign of such infrastructure evident in the other an eventuality. The exuberance here is emerging superpower – China – betrays palpable. Sehti sums it up when he proudly the fact that India’s growth is being describes the role his family business powered by private companies and in spite is playing as part of India’s of the government. There has been majority Hindu population: little by way of a coherent fiscal “We are rebuilding India,” he strategy here to date. said with a broad smile. This is the country’s Bedi plans to take the Wild-West period, where company that his father the urgent need for started as a property business joined-up infrastructure in Lahore in Pakistan to and services is the Mumbai stock market generating enormous in 2008. Now growing at wealth for the middle between 50 per cent and 60 class. The government per cent per year, it will add needs people like Bedi and Anil Sehti port and airport construction and Sehti in order to deliver on potentially other sectors to its roster before then. its promises – like ensuring that electricity “I can’t tell you what we’ll be doing in six months’ is distributed to every village by 2012. Three time,” he said. “My business plan will have changed quarters of the population live in rural India at least twice by then,” he said, without flinching. bereft of basic services such as water, power India’s wealthy are cruising. and infrastructure. (See The ultimate test: By 2010, its affluent urban renewal on pages 10 and 11). population will expand GDP growth of 10 per cent is achievable by as much as 80 per cent simply by rehabilitating the country’s patchy to 17 million households, infrastructure, financial experts say. But according to the country’s this is no mean task. The amount of money National Council for earmarked by the government to mend Applied Economic the country’s pot-holed roads, unblock its Research. Firstcongested ports and fix the intermittent half pre-tax power supply will hardly touch the problem. profit at That is why the government has encouraged Subhash private companies to take up the slack by jumped 372 waving them through to build infrastructure per cent businesses. The private sector is expected to Harkirat Singh Bedi
spend around £161.2 billion on infrastructure over the next five years, a priority for India. “The market for airports, roads and telecoms has grown so far under the purview of central government, but the deficit is now so high there
is no way the public sector can solve India’s infrastructure problem,” said Sachin Johri, executive vice president of project equity at Infrastructure Development Finance Company Ltd, the biggest lender to India’s infrastructure sector. “Five years ago it was unheard of for the government to invite the private sector to carry out work of this kind. Now, the transport minister has declared public private partnerships a success, which has added momentum to the programme for the next five years at least,” he said. Return on equity in the infrastructure market is upwards of 15 per cent, compared with the sub-10 per cent returns traditionally earned by the sector in other parts of the world. But government bureaucracy combined with poor education and lack of a skilled labour force remain significant barriers to India’s economic potential.
The question of how long the exuberance can last without significant reform taking place at government level is casting a shadow over the boom. Without action, the country’s inequalities, which are creating an ever-widening gulf between people, are bound to have consequences, observers say. For the moment, it is India’s wealthy who are complaining. Vishal Kalantri, director of Dighi Port Ltd. in Mumbai has had his plans to build a greenfield commercial container port and connected special economic zone on hold for the last decade. If it wasn’t for his father’s connections, the company would not now be issuing contracts to road, rail and land development authorities to drive the scheme forward, Kalantri said. The main headache in India is getting government
clearances. “When we entered the ports business, no-one believed we would do it,” he said. Kalantri is vocal in his criticism, citing the government’s stated goal of doubling India’s share of world trade in the
next five years as evidence of the urgent need for reform. Without unblocking the country’s ports, where turnaround times can be lengthy compared with a country like China, that goal is nowhere
near achievable. “What other country in the world would sit on a US$3 billion asset,” he said, clearly frustrated. Another major problem is the lack of skilled labour. IDEB’s Bedi has brought in engineers
from China and the Middle East. “They don’t speak English but I need them,” he said. “Money is not an issue today. The biggest thing that is missing in India is the skill sets in human resources.”
The prospect of a hike in interest rates raises the spectre of a potentially painful change of economic atmosphere somewhere down the line, however. “There are a considerable number of infrastructure projects that were financed at 7.5 per cent, which are riding a huge interest rate risk,” said IDFC’s Johri. “The rate is set every three years and there is another re-set coming up, which could see the rate rise to 10 per cent. It’s going to be very painful for some, particularly on the longer-term projects like the Mumbai Metro, which is a 35-year concession. At that point you will start to see more of a focus being placed on the domestic debt markets.” Signs of government reform are not evident, which does not bode well for he future. On the one hand, the federal government has gone a long way in the areas it has addressed. But it missed the chance it had for sweeping reform in the last couple of years. As India embarks on a coalition era of federalism, the state governments have become more powerful and vested interests will make it increasingly hard to push through change. “India’s economy could do a lot better,” said Akhil Mohan, an analyst at IMA Research. “If everyone went to sleep, the economy would still grow by 6.5 per cent. The big factor is the political environment. We haven’t reached the maturity to marry local and state-level objectives with national ones and the quality of regional government is considerably lower than it is in central government.” For all the warnings, there is no sign of investment slowing down any time soon. But whether the benefits of India’s boom ever reach the mass population is an open question (see overleaf). For the moment, India’s exuberance is unstoppable.
The ultimate t
India’s boom has had little by way of trickle-down effect to the majority of its 1.1 billion-strong population. Although middle-class wealth continues to spiral upwards, the country is still home to the largest population in the world of people living below the poverty line, defined there as less than 50 pence per day. That is more than the equivalent numbers of poor in all of Africa. Despite government claims that 30 million people are climbing above the poverty line every year, deprivation is as visible as ever on the streets of India. Power outages remain the norm and queues for water at street standpipes can stretch for miles at a time. State governments and municipalities are reported to be corrupt and inefficient. Certainly, they have no credit rating. The urgent need for improved urban infrastructure has been neglected in favour of big-ticket projects like roads and airports that offer guaranteed returns. Still, the first signs that the boom could reach the wider population may be emerging. The country’s urban population, now 28 per cent of the total, is expected to rise to 50 per cent by 2010 as people migrate there for work. So the federal government has set up a £6.3 billion fund to address the lack of public services. Called the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), it is available in the form of grants to 60 cities across India to modernise infrastructure. Municipal authorities must make a case for funding and inject their own. The country’s biggest lender to the sector, Infrastructure Leasing and Finance Corporation (IL&FS), also an infrastructure developer, believes it can piggyback on the JNNURM for profit in
the longer term. In fact, it views urban infrastructure as potentially the most lucrative opportunity. “No area in India has been more neglected than the urban space,” said Pradeep Puri, who is spearheading IL&FS’s move into urban services. “The opportunity is huge.” IL&FS has set up a £378 million fund to help municipalities win JNNURM funding. Its first port of call is the municipality in Nanded, a town north of Delhi, which is overhauling its infrastructure and services ahead of an international Sikh festival in 2008. IL&FS will assess its infrastructure needs and, crucially, the value of its existing assets. This will determine how much debt it can raise. IL&FS believes that eliminating wastage and poor management of assets in Nanded will be enough to generate sufficient incremental revenue to sustain fresh investment. “The per capita availability of water is higher in Nanded than it is in Paris and that’s true of any urban centre in this country,” said Puri. But most of it leaks out of the 60 to 70 year-old water pipes that have never been maintained or updated. Similarly, areas of ground that are now valued as prime real estate since the boom are still used as rubbish dumps. IL&FS will carry out an electronic geographical survey, which will more accurately determine tax revenues. Puri believes that leveraging assets like these is enough for the municipalities to raise debt for the 10 per cent of the investment that will not be covered by the JNNURM grant and revenues to service it. And while IL&FS expects to make little to no return in the short to medium term this is by no means philanthropy. “We won’t lend money if there is a modicum of debt that can’t be serviced,” said Puri. “This is an entry-level strategy that takes a holistic view of what the municipality needs, ringfence the project and identify a revenue stream. The fact is 13-year to 20-year debt just isn’t available in India – we’re offering financing, hand holding and scoping out the opportunity.” In return, IL&FS hopes to establish itself as the defacto supplier of finance and private sector expertise to the municipal sector. It expects the Nanded case study to be replicable across India’s other cities. This will be an important test case in deciding India’s chances of urban renewal.
ANDREW M cRAE
e test: urban renewal
Business cycles are increasingly difficult to predict, which means that harnessing innovation and managing genius has become an art form The success of Sun Microsystems in California is built on developing ground-breaking software, including Java, the computer programming language that spawned much of the worldwide web. Here, the company’s chief executive officer and president Jonathan Schwartz describes the five founding principles, which he believes drive innovation
Innovation is the key to survival in this ultracompetitive and remarkably flat global economy. It drives profit and improves the human experience when done correctly. But true innovation is precious and elusive. Anyone can throw money around, and many companies do, but how do you get a pay off? The answer: a commitment to innovation that goes beyond the research and development (R&D) budget to include every person, practice and policy in the organisation. True innovation – the kind that lasts and delivers tangible results – comes from channelling inspiration and creativity effectively as often as it does from any R&D laboratory. A recent analysis of the top 1,000 global R&D spenders by business consultant Booz Allen Hamilton found that, with few exceptions, there is no statistically significant advantage to exorbitant R&D spending. The conclusion? It is the process of managing the investment, not the expenditure alone, that matters. Getting there, however, requires significant corporate soul searching. You might have the most gifted technical minds on the planet. But successful management of that talent is what determines whether your innovation investments flow to the bottom line or go down the drain. It takes discipline and character to put your organisation under an internal microscope, and courage and conviction to make changes to your business model and technology roadmap. With business cycles that are increasingly difficult to predict, harnessing innovation and managing genius has become nothing short of an art form. The global economy places greater value on economies of speed, scope and skill rather than simply economies of scale. This means innovation must be achieved by different business units within the same organisation working in parallel, rather than in isolation as they often do in large corporations. It also means looking outside your organisation to partners, suppliers and customers for new and innovative ideas. Breakthroughs most often occur when a variety of people with disparate backgrounds focus on a shared problem or process. At Sun Microsystems we made a conscious decision to sustain our R&D focus – to the chagrin of many observers – while many of our competitors made cuts. We knew that the cornerstone of our recovery would be our ability to innovate. We
also recognised this would require not just a financial commitment but also the discipline to manage, cultivate and make tough decisions to terminate projects. Perhaps more importantly, we channelled investment in line with our corporate DNA. Here are some principles on which we built our innovation strategy: first, hire the best and let them lead you; build and encourage a culture of leadership regardless of title or department; and ensure that leaders of different departments interact fully. Second, share. Create communities with partners, customers and business groups that allow collaboration and open innovation. This is the participation age. Third, create small groups and give them autonomy. Steering committees donâ€™t work. Create task forces with the ability to identify and create projects that matter. Bring in different voices in the brainstorming phase. If the same people are consistently â€œBreakthroughs most often occur when a variety of people with bringing new ideas to the table, disparate backgrounds focus on a shared problem or process.â€? you are not as innovative as you could be if you used more people. innovative. In times of adversity, there is always a Fourth, allow public debate. Transparency of moment when good leaders step up and modernise ideas and debate is always healthy, but you have products or processes while at the same time to know when the debate should end. Then move holding firm to the core principles that made the quickly to focus resources on achieving the goals. company relevant and successful in the first place. Finally, have the courage to make hard decisions. Great companies and leaders pursue projects At Sun, this was to invest when others were cutting with dramatic potential, in the knowledge that and to increase focus on our engineering operations. some will thrive and some will fall short of the It also meant querying what we were accepting as mark. Innovation is a messy business. But a few fact. What did we, as a company, believe implicitly? dramatic successes can change the world. These are the tough questions every CEO and executive team should raise and answer if they This article was first published in the Financial expect the organisation they run to become truly Times newspaper in September 2006.
Professor sir david king
Innovation does not always mean coming up with something new. Sometimes it can mean going back to our predecessors’ achievements. Take the Parthenon in ancient Greece. Its tympanum and pillars were built separately from the building inside as a casing to keep it cool in hot weather and preserve heat in cold conditions. The roof shades the walls when the sun is high but allows the heat from its rays to filter underneath when low. It’s the perfect design for an era where climate change has taken centre stage, according to Sir David King, the UK government’s head of science and innovation. He is the person in the hot seat in the UK’s efforts to combat climate change. His mission is to create a zero-carbon economy in the future, starting with a commitment to reduce the UK’s carbon emissions by 60 per cent by 2050. Given forecasts drawn up in the latest report from the United Nations’ Intergovernmental Panel on Climate Change, it is crucial that other countries follow suit fast. The report said annual fossil fuel carbon dioxide emissions increased from an average of 6.4 billion tonnes of carbon in the 1990s to 7.2 billion tonnes between 2000 and 2005. It projects that the earth’s temperature will increase to between 1.8°C and 4°C by the end of the century and sea levels will rise by as much as 43cm. For companies, climate change, like globalisation, technology and population ageing, is likely to be another inexorable force
Scientific progress in the 20th century was about developing medicine and systems to make life safer. The 21st century belongs to scientists and engineers in the fight against climate change, says Sir David King, the UK government’s chief scientist
shaping the economic environment in future, according to a report published in February from investment bank Lehman Brothers. “The challenges of the 20th century were about medicine and ensuring we had sanitation and so on, which is how the world’s population grew from 1bn to 6bn people,” he said, speaking from his office in London’s Victoria Street. “This century, it is expected to grow to 9bn and the challenge will fall to science, technology and engineering to manage and reduce the impact that will have on the environment.” There are still die-hards who question whether climate change is really happening, but Sir David has no doubts. “The weather has already changed,” he said. “Flash floods have come into our parlance and that means we have to adapt to deal with the impacts of climate change in order to mitigate them,” he said. “Our drainage systems were designed to cope with what we used to call rain and is now considered drizzle. They were not designed for the torrential downpours we now see in the UK. The Victorians designed our drainage systems so that they connect into the sewerage systems, which is why these downpours have such dire consequences. We will have to rebuild our infrastructure this century.” This is part of what is driving the UK government’s Foresight Programme, which is researching the impact of rising carbon emissions. The latest is studying sustainable energy and the built environment, hence Sir David’s reference to the Parthenon. This is a priority in combatting climate change, since buildings produce half of all emissions. Sir David wants to see UK homes and offices generate their own energy by drilling down for geothermal energy, using roofing materials like photovoltaics – where sunlight is captured and converted into energy – and by using wind energy technology, for example. But, he said, it is important that technologies of this kind are designed to be attractive, or at least inoffensive, to consumers. That means going beyond engineering and into design, something few engineers have considered so far. At that point it will be possible to start regulating for planners and developers to use ‘green’ technologies and to provide incentives for them to create carbon-neutral buildings. “You need fiscal incentives – economics that favour new ways of doing things in order to make this vision materialise,” said Sir David. “What you also need is a proper regulatory process underpinning it all.”
Science, engineering and technology can provide most of the answers to the zero carbon economy now
With this in mind, the UK government plans to apply a ‘green star’ rating to new homes built in England in 2007. Buyers will also be exempted from stamp duty, the tax people pay when they buy property. Houses will qualify for six stars if they produce sufficient energy from ‘green’ technology like wind turbines to produce the power they need. “Science, engineering and technology can provide most of the answers to the zero-carbon economy right now,” he said. “We can go a long way with the technologies we have already developed.” The UK has begun to draw up a strategy for dealing with climate change. It will increase the amount of money committed to managing flood defences alone from £200 million per year to £500 million after concluding an earlier Foresight Programme to assess the risk of flooding to the UK from rising sea levels, in which Halcrow played a leading role. In the UK, £200 billion of assets and two million people could be at risk from rising sea levels, according to the UK Treasury. The work on flood prevention carried out to date under this initiative has also attracted the interest of the Chinese government and US Army Corps of Engineers. Using proprietary modelling techniques, China is using it to manage increased flood risk as rapid construction continues. Dealing with the impact of climate change is only one part of the equation, however. Changing the way we produce, use and transport energy is the other, said Sir David. UK investment into research and development on energy has fallen over the last two decades. According to the International Energy Agency, spending dropped from £656 million in 1981 to a low of £32 million in 2001 and £68 million in 2005. With a view to galvanising efforts across industry and academia, the government will launch a new body called the UK Energy Technologies Institute in the second half of 2007. This will pool the resources of the private sector and the research and academic communities into energy. Its mission is to harness some of the best ideas which can often emerge within small companies such as university spin-offs, in order to fast track them to development. Among those that have committed to buy into the Institute are energy producers BP and Shell, utilities EDF and E.ON and big energy users, like Rolls Royce. Other companies are also expected to follow, including industrial plant manufacturer Caterpillar, a car manufacturer plus an airline, Sir David said. The government has committed to spend up to £500 million over the next decade, as long as the private sector is prepared to match that investment.
dealing with the impact of climate change is only one part of the equation
Emerging on the emerald coastline near Lisbon in Portugal is a cluster of residential and holiday homes that have been declared a project of national importance. Called the Mata de Sesimbra, it is considered so important that Portugal’s prime minister took responsibility for approving it. The £700 million development is built out of sustainable materials and will be powered entirely by solar energy. Cars are banned in favour of bikes. The aim is to reduce domestic carbon emissions by at least 30 per cent. Low-flow taps will be used, for example, to cut water consumption by half. The development is one of several zerocarbon, zero-waste communities in plan in Australia, China, South Africa and the US. They demonstrate that it is possible to reduce our ecological footprint and still maintain a high quality of life. “The debate over climate change has moved on from whether it is happening to what the extent of it will be,” said Sumeet Manchanda, programme director for One Planet Living (OPL), a joint venture between charity WWF and BioRegional Development, which drives these communities’ development. OPL says the average North American lifestyle requires the equivalent of five planets and Europe needs to cut its consumption of fossil fuels and virgin materials by two thirds to achieve a globally-equitable level - i.e. one planet instead of three. The European Commission says Europe’s £67 billion tourist industry could take a hit if action is not taken now. Its research shows that Europe will see a 2.2°C rise in temperature by 2071 even if mitigating action is taken now. Without it, the level will rise to 3°C, creating water shortages and other problems in the Mediterranean. “The UK Treasury’s Stern report showed that the way people live in their homes is a big factor,” said Manchanda. “We are trying to find ways to build these developments so that they cost no more than comparable mainstream developments.” Finding innovative ways to structure development finance is no mean feat. But in one case the developer working with OPL invested in the energy services company supplying one development, which covered the cost of the build fabric. The Mata de Sesimbra will comprise 8,000 homes, on sale for between £60,000 and £600,000, with shops and other facilities on site. The developer, Pelicano, is also restoring the cork forest surrounding the complex as part of the 5,200 ha site. The Portuguese complex is building on lessons learned in the first scheme of its kind, an eco-village called bedZed in Beddington in the UK. The bedZedders generate their own renewable energy on site and monitor their carbon emissions, as well as using sustainable transport systems and local food. The key lesson learned is that bigger developments produce bigger benefits and must cover everyday needs, including transport, clothing, leisure and education, to make a difference.
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the lifestyle of the average american requires the equivalent of five planets
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When US-based CIO magazine suggested in November 2006 that podcasting might be a fad, Ron Bloom, chief executive of PodShow, a leading podcasting service, shot back: “We believe in fart’s law: the likelihood of an innovation succeeding increases exponentially with the number of old farts who refuse to endorse it.”
within five years more than 50 per cent of all media consumed will be created by consumers While admitting that he’s not exactly an early adopter himself, Bloom claims that big-brand advertisers are spending “millions of dollars” with PodShow, a company founded on the so-called ‘5/50’ premise.’ This holds that within five years more than 50 per cent of all media consumed will be created by consumers themselves. Bloom, who co-founded PodShow with Adam Curry of MTV video-jockey fame, has a vested interest in maintaining that podcasting is more than a passing craze. But he shares his view with some illustrious counterparts, many of whom have already cashed in on their success. Among them are the founders of MySpace, the increasingly popular social networking site sold to Rupert Murdoch’s News Corporation for £292 million in July 2005, and YouTube, the usergenerated video content site bought by search engine Google for £831 million in October 2006. These and many similar sites have emerged out of Web 2.0, a term coined to refer to secondgeneration web-based services, which instead of delivering static information or ‘pages’ are
interactive and dynamic. They are built on a range of evolving digital technologies combined with broadband connections, which make it more practical to view data-heavy services like video. This has wide ranging implications for the way businesses communicate with their clients and for the way they use technology. Web 2.0 makes it easier to download business application software, for example, rather than buying licenses for employees. Many bankers, industry analysts and mainstream media executives initially greeted The Myspace and YouTube acquisitions with shock. They could not imagine why hundreds of millions of dollars were paid for what one newspaper commentator described as “an ever-expanding heap of personal ads, random photos, private blathering, demo recordings and camcorder clips”.
web 2.0 services are dynamic and interactive Many, especially those who remember the dotcom boom and crash earlier this decade, not only questioned the valuations put on these startup businesses but, like CIO magazine, they expressed doubts about whether their popularity would endure in the medium to long term. So what is the evidence so far for social networking sites? As Debra Aho Williamson, a senior analyst with eMarketer.com, notes, “Can 51 million people (the number of people using MySpace in mid-2006) be a fad?” Executives at News Corp hope not. YouTube is betting on keeping the momentum going by offering to share advertising revenue with anyone who creates content.
According to figures produced by comScore Media Matrix, a research company, MySpace recorded 38.7 billion US page views in November 2006, overtaking Yahoo’s 38.1 billion for the first time. MySpace, which had a relatively modest 12.5 billion page views a year earlier, “is beginning
young people - the biggest users of social networking sites - are notoriously fickle to position itself as the premier social networking site.’’ But not everyone is convinced the trend will endure. Ben Bajarin, a market analyst for Creative Strategies, notes that young people – the biggest users of social networking sites – are notoriously fickle. “Young audiences are constantly looking for new ways to communicate and share content they find or create. Because of that group mentality, friends shift from service to service in blocs,” he said. Before MySpace, he pointed out, the place to be was Xanga, and before that, it was Friendster, MiGente and Black Planet. For the moment, however, the numbers look good. Underpinned by a lucrative advertising deal with Google that guarantees MySpace about £453 billion over the course of the next four years, estimates for MySpace’s value have soared. Murdoch himself told investors in late 2006 that MySpace could be worth £3 billion and that the total number of registered MySpace users would rise from 130 million to 200 million by the middle of 2007 as its reach expands across new territories internationally. Meanwhile, the wisdom of
Google’s purchase of YouTube is still hotly debated. Nevertheless, what is beyond doubt is that video content is an increasingly important component of the interactive web and Google’s commitment to share advertising revenues is a significant media precedent. According to comScore, a third of all Americans now ‘stream’ or watch video on the web. YouTube itself claims more than 100 million regular users and says that 35,000 new video clips are uploaded by consumers every day. Most analysts see no reason why amateur online videos will not continue to be a burgeoning new web phenomenon, unless copyright challenges stunt its growth. “People like to show off. Everybody has an author inside them,” said Josh Bernoff, an analyst with Forrester Research, who believes the current video posting craze is far from being merely a fad. “All these sites are giving them the outlet to exploit their creative impulse,” he added. Most forecasters predict that user-generated content will produce more revenue over the years to come.
EVERYBODY HAS AN AUthor INSIDE THEM Another factor fuelling the rise of sites like YouTube is the growing penetration of broadband internet connections, making it more practical to upload and view user-generated video. “By 2010, the volume of downloads on these sites will surpass £32.7 billion and revenues tied to user-generated video are expected to exceed £428 million,” said USbased market research company In-Stat in a recent report. “Democratisation of media affords users the opportunity to express their opinions, rate content and vote for their favourite videos,” said Michael Inouye, In-Stat analyst. What may currently seem like ‘the Wild West’, he said, is actually an industry that has started to see idiosyncratic ‘judiciary bodies’ and ‘rules of law’ imposed by each player within a market that is still only in gestation.
NIGEL DENNIS w ildlife photography
The Namibian fog-basking beetle
The Namibian fog-basking beetle uses its shell as a condensing surface for moisture, which allows it to survive in the desert. The creature emerges from the sand on foggy nights and climbs to the crest of the dunes, where water condensation is greatest. Head lowered and hind legs raised, it faces into the fog-bearing wind to let moisture condense on its back, creating droplets that trickle down to its mouth. The beetle, known locally as a toktokky for the sound it makes to attract a mate, has inspired a number of manmade schemes, including desalination plants and commercial greenhouses that imitate this process to create water in countries that suffer water shortages. Architects Grimshaw have used it to create a desalination plant in the Canary Islands, which uses a system of evaporators and condensers to produce fresh water for the city of Las Palmas in Gran Canaria.
Turning s into s Companies are looking for an elusive ingredient called innovation to help achieve greater efficiencies from within. To help them in their task is a growing band of organisations using various techniques to inject innovation into corporate culture. We evaluated some of them to find out how effective they are
People get trapped IN operationally-complex systems
g supertankers o speedboats
L uke T c h ale n k o
Examples of innovation in business don’t come much better than the story of easyJet. Low-cost air travel, a business it is credited with reinventing, is among the highest-profile sectors of the last decade. But this was just the beginning. EasyJet’s non-ticket sales, which include a string of internet cafes and financial services, now exceed its air travel business. But even innovators cannot afford to rest on their laurels. As deregulation of Europe’s airline industry progressed, competitors were quick to follow easyJet. Consolidation took hold in the sector and the company moved quickly to diversify by raising money through a public share flotation on the London stock market in 1992. With three months to go, it set out to woo potential investors by demonstrating efficiencies within the business. It decided to halve the time its planes spent on the ground between flights from an average of 50 minutes to 25 minutes. This would improve aircraft utilisation, cut costs and increase its profit margin. It called on the services of an ‘innovation’ company called ?What If! to tighten what was already considered a success story. Co-founder of ?What If! Matt Kingdon explains why. “People get trapped in operationally complex systems and are rewarded for that if the company is doing well,” he said. “Unfortunately success breeds an inability to innovate.” Kingdon is part of a double act that set up the innovation company in 1992.
and are rewarded for that if the company is doing well The company allocated a team to work with easyJet on the ground at Luton Airport in the UK to analyse where there was room for improvement. Together they interviewed everyone involved in the aircraft turnarounds from baggage and catering companies, cleaning agencies and re-fuelling companies to the front-line easyJet and airport staff. They visited other airports to witness what happened both on and off easyJet’s planes and asked for input from staff by running a communication programme, which was updated and disseminated each week. This quickly revealed that there was little awareness between the different suppliers of what each was doing so there was no motivation to work as a team. The solution lay not just in eliminating bottlenecks but in getting everyone in the supply chain to work in tandem.
?What If! is one of a growing band of organisations that help companies inject innovation into their ranks by working with them to resolve problems and unleash creative potential. Kingdon calls it “turning corporate supertankers into speedboats”. Before setting up ?What If!, he and co-founder Dave Allen were part of the marketing team at global consumer goods giant Unilever, which, together
kingdon believes innovation spending is eating into companies’ with Procter and Gamble, control the consumer products market worldwide. If the busienss they set up is akin to marketing, Kingdon believes it is eating into companies’ traditional advertising budgets. “Innovation is a new management science but it’s quite teenage at the moment,” said Kingdon. “Advertising is an old age pension.” He says the days when companies threw money at marketing and advertising campaigns to ensure the success of a product are over. Business, he believes, is a lot more complicated now. “Innovation cannot be dependent on any one method,” he said. “It’s about how people work together, how they stretch, inspire and criticise each other. That means giving people the freedom to direct
their own work – they don’t want a boss. But freedom is a gilded cage. Leaders must articulate what the boundaries of a company are. If they can communicate that, they can reduce management and give people more responsibility and freedom.” ?What If! ran training sessions for 1,500 easyJet staff every day for six weeks to improve understanding of each role in the turnaround of the company’s planes. It also streamlined the process – like giving the technical operator headphones to get information from the pilot from outside the plane rather than waiting for passengers to disembark.
EasyJet managed to whittle its planes’ turnaround time down to 33 minutes, improving aircraft utilisation by 15 per cent. This made a big contribution to its margin improvement, and when the airline issued shares in 2000, they were oversubscribed by a factor of ten. Even after September 11 2001 its profit continued to rise along with passenger loads. “As companies get bigger, there is less room for mavericks and independent thinkers and they become more distant from customers,” Kingdon continued. “It becomes harder to identify whether green shoots are weeds or plants.” This was the problem facing Bass Brewers, a stalwart of the British beer brewing industry, when North American drinks giant Coors Molson sized it up for acquisition in 1997. Bass brewed Carling, the number one lager in the UK, along with several other successful brands. But people’s taste for beer had become much more diverse and the company realised it needed to respond quickly to increased competition if it was to maintain a viable position in the global brewing business. The Bass leadership team acknowledged that the business lacked innovation. Its approach to anything new was overly critical and collaboration between different functions was poor, which meant that ideas tended to be killed early on. With 200 years of history and an entrenched UK position, it needed to change a hierarchical and almost entirely male culture. “The problem with this kind of structure is that it generates binary decision-making – yes or no – and the more senior you are, the harder it gets to take risk,” said Kingdon. “It doesn’t
allow room to let ideas germinate. It’s all barriers.” ?What If! worked with the company to help build individual and collective innovation with a focus on new product development. The result is that Coors went ahead and bought the company, impressed with the £500,000 in annual efficiency gains that it had made purely by reducing its reliance on external suppliers, by finding additional savings on distribution and by launching a range of new products. “There’s an instinctive openness, a creativity (in the UK operation) that we haven’t yet managed to introduce into [Coors],” said Dave Thomas, at Coors in Golden, Colorado in the US. ?What If! is one of a number of organisations that have been established to focus on transforming companies’ fortunes by using innovation. We explore two more examples overleaf.
Improvising f Presenting to clients can be a very stressful experience. But it’s a walk in the park compared with improvising in front of a roomful of Friday-night hecklers at a comedy venue. That’s the philosophy behind the Spontaneity Shop’s innovation training techniques. It works on the premise that companies are creative if their employees’ are confident. The company was conceived by a group of actors and comedians who teach presentation skills at London’s Royal Academy of Dramatic Art. They decided their techniques for taking the fear out of presenting ideas were as applicable to business as they are to the comedy circuit.
to be fully equipped to do their jobs, they need to “If you’ve got an hour-long show to fill, an audience to entertain and four actors with their own particular skills, you’ve got a framework within which you have to work,” said Deborah Frances-White, cofounder of the Spontaneity Shop. “Similarly, every business is constrained by time, budget and resources. But if the people you work with feel they have permission to think, they’ll come up with ideas that will make your business a more profitable, enjoyable place to work.”
At the moment, the company is working with ten of KPMG’s senior accountants who have first-class technical skills but minimal experience of working with clients. The Spontaneity Shop led participants in a number of exercises to challenge their perceptions of creativity – and their lack of it. “To be fully equipped to do their jobs, they need think-on-their-feet charisma,” said Deborah. “We’ve devised a year-long improvisation programme for them which will give them the opportunity to train with one of our team in improvisation
g for profit to
techniques. After three months or so, they will be performing stand-up comdy shows. “People come to the Spontaneity Shop’s training sessions terrified that they are going to have to stand up in front of everyone and make complete fools of themselves,” she said. “But it’s all about being receptive. Asking a classroom of children to volunteer for some new task will generate a forest of hands. A similar request to a room full of adults will elicit nervous giggles, shuffles and downcast, don’t-look-at-me eyes. “Kids will ask how many goes someone else has had as their way of measuring success. For adults, it’s all about whether you achieved the expected outcome, which means that, until you’ve figured out exactly what that is and how likely you are to succeed in your task, you’ll sit watching from the sidelines. While watching isn’t a bad way to learn – children start by imitating after all – nothing beats personal experience.” The Spontaneity Shop asks workshop participants to present ideas to each other and greet them negatively, indifferently or with great enthusiasm. Saying no to an idea isn’t necessarily negative, says Fances-White. “It’s not about telling people all their ideas are great, it’s about giving them the confidence to generate more ideas. One of the best ways of doing that is to let people present their ideas to you and then give them honest feedback in an enthusiastic way. Does it work? Thiry Raj, head of the BBC’s creativity and audiences team, claims
have think-on-their-feet charisma
the Spontaneity Shop was instrumental in bringing about significant change within the organisation. It helped BBC Nottingham come up with five new ideas for TV programmes as well as a campaign to launch the one that made it to production. Since then, the company has been asked to facilitate the same workshop for seven other BBC departments. “The idea that business people are not creative has never been true, but it’s taken the business community a while to figure out that creative people are that way largely because of the way they think and behave,” said Frances-White. “Whether you’re in comedy, engineering or finance, the ability to find new and better ways to do things is always going to be valuable.”
Laughing all the w “Innovation isn’t some off-the-shelf product, it resides in everyone,” said Guy Browning, founder of a consultancy called Smokehouse. “If you give people permission to think for themselves, they’ll stop trying to be safe and start to become genuinely creative.” Browning’s company has a similar take on innovation as The Spontaneity Shop: “If an idea isn’t greeted with laughter there’s probably no hope for it,” he said. For this entrepreneur, who also writes a newspaper column and does stand up comedy, laughter and profit are not mutually exclusive. He believes they go hand in hand.
They all laughed when Christopher Columbus told them Sometimes two seemingly incongruous ideas will collide in mid-air – and Browning does not try to disentangle them. “People often laugh when this happens,” he said. “I call it the titter factor and I always jump on it. It’s the fear of the unknown. As the song goes ‘They all laughed when Christopher Columbus told them the world was round. They all laughed when Edison invented sound’.” So how do you get people to behave in creative ways when they believe their job is to come in, sit at their desk and complete a set of
tasks that have been decided for them by someone else? “The biggest difference between the people in the accounts department and those in the creative department is that the latter have been given permission, time and space to be creative,” he said. “The first thing I do is to relax everyone by setting them a task that seems completely removed from what they’re expecting.” Browning starts by challenging some of people’s underlying
e way to the bank
assumptions about their roles at work. He uses the element of surprise to get people to relax and enable them to discover their innate ability to be creative. “One of the first things I do with my clients is to ask them to write a mission statement for their company using the most exaggerated and clichéd language they can think of. They have great fun writing these horrific, jargon-laden and meaningless statements. And by the end of it they’re usually laughing till the tears run down their faces.” He then asks them to write a real mission statement using simple language that means something to them. Browning believes this technique works because businesses can become very po-faced and stifling in many cases. “There’s a very politically-correct culture within the business world and, unfortunately, this can lead to a debilitating selfcensorship among employees,” he said. “Often they will shoot their own ideas down for fear of being offensive or inappropriate in some way.” By getting participants to laugh together, Browning sets out to release these fears and tensions, which means that they can then reconnect to their own, de-corporatised thoughts. “A lot of the time companies are asking for someone to come in and listen to them,” continued Browning. “This gives them the time and permission to be creative. I act as a facilitator. My role is to help turn raw ideas – creativity – into reality. When I facilitate a meeting for a company, there will be lots of ideas floating around. My job is to land them safely.” This air traffic controller image is an apt one: new ideas can be seen as a waste of valuable
the world was round
time at best and, at worst, as dangerous – especially if they are allowed to ‘float around’ unchecked. But exercises like these are not just about giving people permission to think for themselves. “It’s no coincidence that the British are renowned for both their humour and inventiveness – humour is vital to inventiveness,” explained Browning. Most of the time humour is simply recombination; by that I mean that people laugh because a new connection is made in the brain. If your brain is refusing to make that connection, then it is very likely that there is a valuable connection in there somewhere to lead you to a new idea or thought.”
Few heeded former US Federal Reserve Board chairman Alan Greenspan’s warning that the global stock market boom of the late 1990s was a bubble waiting to burst. Greenspan called the rise “irrational exuberance” in 1996 in a speech at the American Enterprise Institute. Stock markets slumped immediately after his speech but quickly rallied until the dotcom era came to a shuddering halt in 2000.
Astronomer Nicolaus Copernicus was branded a heretic in 1504 for asserting that the earth revolves around the sun once a year rather than the other way round and that it turns on it axis.
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Supermarket chain Tesco won an award as the most admired company in the UK for the third time in four years and its chief executive Sir Terry Leahy was voted the most admired business leader for the fourth year in a row by business magazine Management Today. Aside from claims from suppliers that it uses highly aggressive pricing tactics, it is the companyâ€™s ability to innovate that is its trump card, says Matthew Goodman, a business writer for The Sunday Times
“Successful companies usually don’t want to change. They want to conserve what made them successful. We try to avoid that with a simple maxim – follow the customer.” So speaks Sir Terry Leahy, chief executive of Tesco, the British supermarket company that is poised to take on the US market in 2007, arguably its biggest challenge yet. Unlike bigger US retail rival Wal-Mart, Tesco has not enjoyed the economies of scale of a huge domestic market. Still, today it controls a third of the UK grocery market after overtaking J Sainsbury as the industry’s kingpin a decade ago. It has since expanded into 12 other countries, with a fifth of its business done internationally from Poland to Thailand and from Turkey to Korea.
Tesco: the final
It is not chance that has seen the UK supermarket sector grow by 26 per cent since 2000. Many suppliers report that Tesco has used highly aggressive tactics to squeeze the last drop of profit out of them. But the company has also managed to outwit its rivals by drawing heavily on innovation, according to Richard Hyman, chairman of consultancy Verdict Research. Analysts question whether these strategies will be enough, however, as the supermarket chain sets out to conquer the final frontier of international retailing – the United States. Tesco started from a simple market stall in London’s East End back in 1919. Its founder, the late Jack Cohen, made his first profit of £1 on sales worth £4 and the company’s rise since then has been meteoric. The first store opened in north-west London in 1929 and by 1961 Tesco had entered the Guinness Book of Records for owning the largest supermarket in Europe. The company’s first US stores, which are poised to open in southern California and Phoenix, Arizona, will
be based on the company’s Tesco Express convenience store format, which focuses on selling fresh food. Americans are more familiar with the drinks and pre-packaged snacks available in 7/11 stores. Tesco believes its strategy will set a precedent but observers warn that the retail graveyard is littered with the corpses of foreign stores that failed to work their magic in the US. Tesco’s confidence and forward thinking is built on an innovation offensive, which began with the ‘no wobbly wheels on trolleys’ policy. Its ‘Travelator’ trolley, introduced in 1992, was designed to eradicate the common customer complaint that trolleys were unstable. This was accompanied by a commitment to cut long queues. The company has continually sought new ways to improve customers’ experience of shopping in its stores. At a recent financial results presentation, the company devoted a few words to the way it displays bread in its stores to make it easier for shoppers to find what they want, an odd thing to mention to an audience of financial analysts but indicative of the company’s obsession with the minutiae of retailing. As Leahy put it in a speech to the British Chambers of Commerce last year: “We devote a huge amount of effort to finding out what customers are thinking, how their lifestyles are changing and how we can make their lives simpler.” Perhaps the most visible sign of Tesco’s efforts in this respect is the development of a variety of store formats to suit different locations. Its Tesco Metro stores in central urban areas “are what differentiates them from Wal-Mart [which owns Tesco rival Asda in the UK],” says Professor ManMohan Sodhi, an expert in operations management at Cass Business School. “Wal-Mart has not been able to get away from its large store format, so it has only opened
stores in suburban areas. By contrast, you only have to walk around London’s streets to see the variety of stores Tesco has been able to run.” Underpinning its success, says Professor Sodhi, is Tesco’s ability to adapt its supply chain to cope with the demands of different types of outlet. The advantage this affords Tesco to innovate on merchandising should not be underestimated. “Tesco has to answer questions about what products it will carry in a store that is a few hundred square feet in size, as well as in a store that is built over several thousand square feet. It’s not just about carrying whatever is cheapest or most profitable,” he said. But chief among its innovations is its Clubcard loyalty scheme, the first introduced by any UK retailer. Tesco’s stockbroker describes it as “Tesco’s most potent weapon. This 8cm by 5cm innovation allowed it to overtake its UK arch rival J Sainsbury, which famously dismissed the card as a gimmick when Tesco first introduced it to the market in 1995.
We devote a huge amount of effort to finding out what customers are thinking, how their life-styles are changing and the ways in which we can make their lives simpler The Clubcard has allowed Tesco to bring its relentless focus to what customers want by gathering data on their buying habits in exchange for special offers and loyalty points. Key to its success is the partnership that Tesco formed with consultancy firm Dunnhumby, which analyses data collected by the Clubcard and feeds it back to Tesco. This has allowed the grocer to tailor its business more accurately to demand. As with most things the supermarket does, the Clubcard continues to evolve. Tesco has introduced key fobs with bar codes, which customers can wave at checkouts rather than digging out a piece of plastic from their wallets while trying to pack groceries. As well as new store formats, Tesco has been a pioneer of grocery selling online. It launched Tesco.com, the website now familiar to many home shoppers, in 1998. Five years ago it was loss making, with sales of £237 million. Now sales have ballooned to £1 billion, accounting for 3 per cent of group sales, with profit of £56.2 million. Leahy claims the potential in online sales caught Tesco’s attention before the dotcom frenzy began. In a speech, he said: “Most retailers concluded it couldn’t work. We asked ourselves a question – would customers want it? The answer was yes – so it was our job to make it work.” The company is accused of copying several ideas from its rival online retailers, but it remains a hugely feared competitor. One rival says: “Where they have done particularly well is in selling things online that don’t take up a lot of space in store, such as CDs.” Tesco has set an impressive pace for retailers around the world. Its relentless focus on innovation has yielded tangible benefits and, it hopes, will stand it in good stead as it sets out to penetrate the North American market. Not every innovation that the company attempts to pull off is going to work, but as Leahy is fond of saying, Tesco needs to continue taking risks.
Corking it Portugal’s designers are working to protect the country’s biggest export. Clare Dowdy, architecture news editor for design magazine Wallpaper, explores a business that is having to adapt to change in order to survive. A Portuguese cork farm can be a tranquil and picturesque place. Rolling hills of forest with happy pigs scratching beneath the oak trees dotted around (later to be transformed into acorn-flavoured Pata Negra ham). Workers will be casually but efficiently stripping bark off the ‘ripe’ trunks populating the landscape. Not so long ago, these idyllic scenes in southern Portugal fed the booming industry that turned raw cork into stoppers for wine bottles. High-tech factories had perfected this transformation to the point where the origin of a single cork stopper could be traced back to the precise farm that produced it. But for all its efforts, the Portuguese cork industry – which controls around 70 per cent of world production – was powerless to stop winemakers converting to plastic stoppers and screw tops. Bottle stoppers still represent more than 80 per cent of the market for cork and the material is still the country’s biggest export. But there is general agreement in Portugal that it needs to innovate – and quickly – to protect its long-standing heritage. This is where Portugal’s young design community steps in. Although it is a fledgling industry of one-man bands and small outfits, they share a common love of Portugal’s indigenous manufacturing processes. Together, they are sparking confidence in the potential for cork to continue playing a significant role in Portugal’s exports. Because it is a versatile material it is being used for everything from washbasins and light fittings to handbags. Long gone are the days when all the material was good for was
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Portugal controls 70 per ce
er cent of world cork production
these trees will die unless they ar
place mats and bathroom tiles. This generation of designers is determined to reinvent this national treasure and benefit the industry at large at the same time. Many have revisited the country’s traditional ceramics, creating contemporary pieces by joining forces with local artisans. The design duo Pedrita has come up with a simple but stylish take on the part-glazed, part-unglazed pottery of the town of San Pedro do Corval. “The great thing about cork is that it is affordable, accessible and sustainable. Portuguese designers would be mad not to exploit it beyond its usual applications,” said curator and design
consultant Max Fraser. He organised the Portuguese Design Point of Sale promotion in London, which took place last November, in order to showcase the best in new Portuguese design. Beatriz Vidal of the Centro Português de Design, backs up Fraser’s comments: “Cork is natural, recyclable, resistant and environmentally friendly.” This particularly appeals to young designers who understand how important the ecological issues are becoming to international consumers, even if it hasn’t quite caught on at home yet. Ana Mestre, whose studio SUS Design focuses entirely on sustainability, explained. “You can
ey are stripped of their bark every nine years extract cork without Amorim, a company that controls the lion’s share of damaging the tree” all cork production in the world. she said. In fact these Still, it’s not all plain sailing. Celina Capela at trees will die unless Simpleform believes cork is difficult to work with. they are stripped of “To be effective, you have to make new tools and their bark every nine that’s expensive,” she said. But designer Miguel years or so. Duarte at Zaum has got around that problem. While Cork is also it is illegal to fell healthy cork trees in Portugal, a great insulator any that are diseased must be cut down. This is – hence where Duarte steps in. He uses the whole tree,” all the he says, to create his Tree Dimensional construction Shelf – a trunk with transparent materials sheets of shelving wedged within. Daniel M ichalik to improve The concept was well received at the acoustics and London’s 100% Design exhibition in 2006. insulation of walls, SUS feels so strongly about cork’s untapped floors and ceilings. potential that, with the help of the Association SUS Design’s of Cork Industries, it is bringing together cork output includes manufacturers, product designers and cork a beanbag-style researchers to develop a range of new products. seat called Puf-Fup, The project, called Design Cork for Future, and Corkit, a Innovation and Sustainability, is sponsored by the screen comprising Arts Institute of the Portuguese Cultural Ministry, old cork stoppers and will result in an exhibition in June 2007. stuck together, These endeavours are small-scale so far. But the which are then long-term potential is there for the design community Simple forms design sanded down and to make a significant difference to the fortunes of loosely attached to form flexible rows. Corkit what is still Portugal’s biggest industry. can also work in other guises – as a piece of seating, a magazine rack or as a lamp shade. Meanwhile, the designers at Simpleform have mixed cork with rubber for their bathroom range, which includes a deep washbasin and related products. This is the first time cork has been used for bathroom products beyond tiling. Bleach Design produced its Cocoon lamp, a part-ceramic, part-cork vase, and a stool shaped like a vast cork stopper, reminiscent of Jasper Morrison’s 2002 Corks table and stool for design company Moooi. Simpleform collaborates with SUS design
Pushing the envelope
Corporate and social responsibility (CSR) is now an integral part of the business zeitgeist. Any company without a CSR strategy is behind the times. Some might say they are missing a trick. Many have taken a paper tiger approach to CSR in order to position themselves as good corporate citizens. Others with genuine intentions have failed to think through the wider implications of one-off acts of charity without follow through or ongoing commitment. â€˜Joined upâ€™ CSR goes beyond throwing money at a problem. Itâ€™s about getting engaged with a project. Dana Brown, a lecturer in international business at the Said Business School at Oxford University, is coordinating a joint venture with Achilles Corporation to apply academic principles to CSR to help it deliver tangible benefits. Q. What is CSR? A. CSR is a plan to do business in a more responsible
Q. Is CSR ever anything more than just PR? A. Much of the criticism levelled at CSR has arisen
and socially conscious way. It is not about forgoing the profit motive. This means different things to different companies but generally it involves putting in place a plan for improving ethical, labour and environmental practices. That might include codes of conduct applied to its supply chain or a form of community investment, collaboration with a non-governmental organization (NGO) or local government, or joining an industry-wide agreement.
from businesses putting programmes in place purely in order to manage their reputation or impress investors. Some have failed to see their CSR plans through to implementation. It is true that for many CSR consists of adding a few new personnel and producing glossy brochures. But in a world where information travels fast, it is increasingly difficult for businesses to tie their names and reputations to social responsibility without following through.
Q.More and more companies are now adopting CSR. Why are they choosing to do that now? A. The future of society and the planet are
Q. When do firms have the most trouble implementing a CSR initiative? A. The most challenging aspect of CSR is
largely going to be determined by the actions of corporations. It is interesting to note that CSR is most prevalent among large multinational corporations based in the developed world. They usually have strategic motives for addressing the issue and this often comes down to managing their reputation or mitigating bad publicity (think of action taken by Shell and Nike, for example). They may also see future gain from investing, for example, in the education or health of a community where they are based. Companies are also increasingly being called on by consumers, NGOs and other international organisations to behave more responsibly, especially when they take their operations into the developing world.
managing it in a complex global supply chain. It is one thing for a global firm to ask its suppliers to adhere to some kind of code of conduct that includes standards on labour, human rights or the environment. It is another to guarantee that these standards are actually upheld. Some companies have thousands of suppliers in remote corners of the world, which makes gathering information about these operations a real challenge. Furthermore, the values that are incorporated into a Western company’s code of conduct may be at odds with the realities of life in the developing world. The classic example is child labour: global companies have been quick to agree to ban child labour from their factories, for example, but we often find out that doing this as a standalone action can result in a much worse situation for children and their families who were dependent on that income.
Q. Are these CSR initiatives ever effective? A. This is where more research is needed. While
there is evidence to suggest that a CSR strategy can be good for a firm’s reputation and for its stock price, it is not yet clear how it should be defined to achieve tangible success. Even more uncertain is whether CSR really changes company practice or the environment or whether workers in the world are benefiting from it. What is certain, however, is that opting out of CSR is probably not a good strategy. Q. What components do you think make a CSR programme work effectively? A. Too often CSR is seen as an added ‘extra’ that a
company does on top of its regular operations. The danger with this is that you can end up with one part of the company building an image of responsibility and another part engaging in practices that are anything but responsible. One problem is that implementing CSR often has costs associated with it, which makes it difficult to reconcile with cost-cutting measures. I think CSR is most effective when it is integrated into a company’s overall strategy and is communicated properly as such.
Q. Given the complexities of following through with CSR, could it turn out to be just a passing fad? A. Expectations of CSR are often unrealistic.
Corporations have neither the motivation nor the capability on their own to resolve the deep social and environmental problems that face our world today. Governments in developed and developing countries need to engage and be part of the solution. That is not to say that corporations don’t also play a critical role. It would be a great loss if CSR fell off the corporate agenda. We all need to learn more about how to shape it to accomplish more both for companies and for society at large. Good CSR can yield obvious benefits, enhancing a company’s reputation among consumers and mitigating risk for investors. And the strategic benefits of investing in a labour force, guaranteeing a supply of local workers, bolstering working conditions and, with it, productivity are clear. Evidence so far shows gains in the communities in which such companies work can be significant.
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