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Reach How firms can learn from the BP oil spill crisis A fascinating study has highlighted how companies can learn from one of the worst environmental disasters in US history. — Dr Simon Parry, page 22

BEHAVIOURAL PROJECT SET TO INFLUENCE GLOBAL POLICY

SUGAR TAX COULD HELP IN FIGHT AGAINST OBESITY

BREXIT: AN OPPORTUNITY OR THREAT FOR INVESTORS?

THE POWER OF CONSUMER REVIEWS

HIGHER IMMIGRATION WON’T BE BAD FOR BRITAIN

R E S E A R C H M AT T E R S

ISSUE #5

2017

Breaking the boundaries of global business thinking Work with us to ﬁnd innovative ways to achieve your strategic business objectives: • Beneﬁt from innovative thinking through a student internship or consultancy project • Bring energy and enthusiasm to your business with a 12 month placement student • Select future talent from our pool of fresh graduates and global alumni • Innovate and grow your business through the Knowledge Transfer Partnership (KTP) scheme • Solve critical business problems with help from our academic faculty through research and consultancy. Find out more about how you can work with us at: www.ncl.ac.uk/business-school

CHALLENGE TODAY, CHANGE TOMORROW

REACH | Research Matters

CONTENTS IMPACTING SOCIETY 34

HIGHER IMMIGRATION WON’T BE BAD FOR BRITAIN

EDITOR’S LETTER

5 36

RESEARCH WITH IMPACT

RETAILERS MUST DO MORE TO ADDRESS SOCIAL ISOLATION

6 CONTRIBUTORS

IMPACTING POLICY

IMPACTING BUSINESS

UK CAN LEARN FROM HONG KONG’S APPROACH TO AGEING DEMOGRAPHIC

BREXIT: AN OPPORTUNITY OR THREAT FOR INVESTORS?

BEHAVIOURAL PROJECT SET TO INFLUENCE GLOBAL POLICY

SINGLE MARKET ACCESS CAN BOOST ECONOMIC HEALTH OF EU COUNTRIES

14 SUGAR TAX COULD HELP IN FIGHT AGAINST OBESITY

16 WHY AUSTERITY IS ABOUT MORE THAN BALANCING THE BOOKS

30 PARTNERSHIPS ARE KEY TO SOLVING COMPLEX PROBLEMS

32 CYBERSECURITY: IS IT WORTH THE INVESTMENT?

THE BENEFIT OF SOCIAL ENTERPRISES TO THE REHABILITATION OF PRISONERS

40 THE FRAGILITIES OF SOCIAL ENTERPRISE IN CHILE

42 GLOBAL PROJECT SET TO HELP BOOST EMPLOYABILITY IN THE NORTH EAST

22 HOW FIRMS CAN LEARN FROM THE BP OIL SPILL CRISIS

26 THE POWER OF CONSUMER REVIEWS

28 CAPTURED IS THE CATALYST FOR BUSINESS GROWTH 2017

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REACH | Research Matters

EDITOR’S LETTER Research is at the heart of everything we do at Newcastle University Business School and this magazine gives a snapshot of the research delivered by our academic faculty. It plays a vital role in how we engage with organisations and policymakers on a regional, national and international level. And by providing the foundations for teaching our research helps to ensure that the School’s students are exposed to knowledge and approaches that reflect the latest in business thinking. Our research is world-leading and the Business School is ranked 14th for Research Power in the UK, with 97% of outputs recognised worldwide. While being recognised on that international scale is a tremendous achievement, our vision and ambition will drive us further. We, at Newcastle University Business School, continue to expand fields of research and academic excellence. As part of Newcastle University, we are a member of the Russell Group, which is the association of the leading research-intensive UK universities. It is our vision for Newcastle to be a civic university with a global reputation for academic excellence. We continue to expand fields of research and academic excellence. We attract world-leading researchers from around the globe who are ready for change, eager for challenges and keen to take leadership in their research domains. This makes sure that we will continue to leave our mark on unchartered territory and will continue to shape the landscape for theory builders and practitioners.

Fred Lemke Director of Research Newcastle University Business School

2017

Our research is world-leading and the Business School is ranked 14th for Research Power in the UK, with 97% of outputs recognised worldwide.

REACH | Research Matters

RESEARCH WITH IMPACT At Newcastle University Business School research is fundamental to how we work with organisations and policymakers across the world. Our team of world-leading academic researchers challenge conventional business thinking and their approaches reﬂect cutting-edge thinking that is grounded in real-world practice. Our research impacts business, policy and society on a global scale.

IMPACTING POLICY

IMPACTING BUSINESS

IMPACTING SOCIETY

Research from Newcastle University Business School is turning conventional thinking on its head and our academic researchers’ work is helping to inﬂuence policy on a global scale.

Our academic faculty engages with organisations across the world, helping to ﬁnd innovative solutions to the latest business issues.

Our researchers are leading the way in how global communities and organisations can adapt and thrive in a rapidly changing world. Answering the big questions facing society today.

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Read more about how the UK can learn from Hong Kong’s approach to the ageing demographic.

Find out about our project with Monash University in Australia, developing a model which could help to inﬂuence future global policy.

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Find out how our research has highlighted the dangers of investing in companies with high exposure to European markets in the post-Brexit age.

Read more about our research into crisis communication and how businesses can learn from BP’s Deepwater Horizon disaster.

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See what effect immigration could really have on Britain.

Read more about our research on social isolation and how businesses and policymakers have a duty to help those who suffer from social exclusion.

ISSUE #5

REACH | Research Matters

CONTRIBUTORS Meet the academic faculty, whose research in Business, Policy and Society features in this edition of Reach. Professor Colin Wren Professor of Applied Microeconomics

Dr Jane Gibbon Senior Lecturer in Accounting

Dr Eleftherios Alamanos Lecturer in Marketing

My research interests are broadly within the area of social and environmental accounting developed through an active interest in, and engagement with, social reporting in third sector organisations.

My research focuses on interventions in consumer behaviour, including: retailing / e-commerce; consumer behaviour; marketing channels; adoption, acceptance & diffusion of technologies and food marketing.

Dr Nils Braakmann Senior Lecturer in Economics

Dr Jonathan Kimmitt Lecturer in Entrepreneurship

My research is in the area of empirical microeconomics, in particular in labour economics, health economics, economics of crime, international economics and urban economics.

My research focuses on entrepreneurship in developing countries and emerging markets, speciﬁcally by looking at the role of social entrepreneurship as a potential solution to social problems.

My research is in the area of microeconomics with applications to regional and industrial economics. It is concerned with examining the impacts and effects of government interventions on private-sector behaviour, mainly through ﬁrmbased initiatives, with implications for regional and national economic development.

Dr Michael Brookes Senior Lecturer My research interests lie broadly within the ﬁelds of labour markets, employment relations and international HRM.

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REACH | Research Matters

Dr Matt Flynn Senior Lecturer in Human Resource Management and Director of the Centre for Research into the Older Workforce As Director of the Centre for Research into the Older Workforce, my research interest focuses on the impact of ageing societies on the world of work.

Dr Simon Parry Lecturer in Accounting and Entrepreneurship My research focuses mainly on so called “lifestyle” small businesses and I am predominantly interested in the connections between microﬁrm management practices and ownermanagers’ lived business reality. I have a particular interest in entrepreneurship in the 50+ age group.

CONTRIBUTORS

Dr Karen Elliott Lecturer in Enterprise and Innovation

Dr Raffaele Filieri Senior Lecturer in Marketing

Dr Thanos Verousis Senior Lecturer in Accounting and Finance

My research interests involve innovation and complex social change across enterprises, from engaging with social enterprises, to larger SMEs in exploring adaptation to change through to the adoption of emergent technology for ﬁnancial payments (i.e. blockchain).

My research primarily focuses on digital media marketing; strategic marketing; knowledge management; technology adoption and continuance intention; and online consumer co-creation.

My main research interests are in the areas of empirical market microstructure and the microstructure of derivatives markets, especially the market for individual equity options.

Morgan Beeson PhD Student

Dr Fiona Whitehurst Senior Lecturer

Emmalinde Roelofse PhD Student

I am a current PhD Student at Newcastle University Business School, working in partnership with Monash University, Australia, on a project to measure the value of opinions on large-scale public issues.

My key areas of research are in the interactions between ﬁrms, and other entities, particularly in the marine technology industries. I also have a strong research interest in regional economic development policy and the way in which ﬁrms interact with universities.

I am a current PhD Student at Newcastle University Business School where my research is on strategic decision-making under uncertainty.

Professor Ileana Steccolini Professor of Accounting and Finance, Newcastle University London My research focuses on accountability, accounting and performance measurement in the public sector and international organisations, with a particular attention to their organisational and societal impacts.

Dr Melanie Parravano Baro Lecturer in Economics My research lies primarily within the scope of Behavioural and Experimental Economics. My primary focus is understanding how ﬁnancial incentives and cognitive abilities affect individual and strategic behaviour.

ISSUE #5

UK CAN LEARN FROM HONG KONG’S APPROACH TO AGEING DEMOGRAPHIC

2017

IMAGE CREDIT: SAIKO3P, SHUTTERSTOCK.COM

One of the greatest challenges faced by countries across the globe is how to look after an ageing population.

ISSUE #5

IMPACTING POLICY | Dr Matt Flynn

UK CAN LEARN FROM HONG KONG’S APPROACH TO AGEING DEMOGRAPHIC

IMAGE CREDIT: GETTY CULTURA EXCLUSIVE/SOFIE DELAUW

One of the greatest challenges faced by countries across the globe is how to look after an ageing population.

Academics at Newcastle University Business School are at the forefront of this debate and their research is helping to inﬂuence policymakers all over the world. Dr Matt Flynn, a senior lecturer at the Business School and director of the Centre for Research into the Older Workforce, has carried out extensive research on the impact of ageing societies on workforces in different cultures around the globe. In particular, he has looked at approaches that countries in the Far East take to demographic ageing, and how they could be applied in the Western world.

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Dr Flynn says: “There is currently a lot of interest in this topic in the UK because people are choosing to work longer, partly due to the rising age at which they can draw their state pension. Ministers are wanting to gain more knowledge of the experience of other countries to ﬁnd ways of ensuring that the UK has a productive workforce in future years. “Historically, researchers have tended to draw on the experiences of other European countries but there are striking differences in how workplaces are regulated, how people are managed and how employers are incentivised. It’s therefore worth looking further aﬁeld to explore countries that have a similar working culture to the UK.”

Dr Matt Flynn Director of the Centre for Research into the Older Workforce

REACH | Research Matters

Experience in the UK has shown that if you create a pathway for people to work in jobs which they value, they will be willing to consider working longer.

In his research, Dr Flynn looked at Tiger economies such as Hong Kong, Taiwan and Singapore, where relatively small populations have managed to foster strong economic growth. This rapid expansion has been attributed to the way in which these countries have managed to incentivise their citizens. The people who live in these productivist welfare states, as they are known, benefit from a state pension, unemployment insurance and a robust healthcare system – but these incentives are designed to make the workforce more productive rather than cater for people’s social needs. Dr Flynn says: “In the context of an ageing workforce, some of these countries are constructing new pathways for older workers to stay productive so that economic growth can be sustained. Some countries in the Western world could learn a lot from this approach. “Previously, many workers took early retirement because they could benefit from final salary pensions, but those days are fast becoming a thing of the past. Now countries are trying to find a model to cater for a workforce that will be in employment longer, retire later and live until a ripe old age. Employers are starting to realise that it’s necessary to boost their productivity by creating extra pathways for older workers.” In his research, Dr Flynn discovered striking similarities between employment models in the UK and Hong Kong. Both countries have a free market economy, a flexible labour market, skills shortages in certain industries and the problem of people not saving enough for retirement. To tackle this problem in Hong Kong, a pension scheme called a mandatory provident fund has been introduced where employers have to pay 5% of an employee’s salary into a savings scheme managed by the banks. However, with many employers closing their final salary pension schemes to staff, many people will still not have enough money to fund their retirement. Another problem is that, while people will need to work longer, there is currently no pathway which enables them to do this. In the UK and other Tiger economies, employers are starting to offer older workers the chance to stay in employment at retirement age, even if it’s on a part-time basis. Dr Flynn has submitted a report to the Equal Opportunities Commission in Hong Kong, calling for the introduction of age-related regulations that create opportunities for people to remain in work for longer.

UK CAN LEARN FROM HONG KONG’S APPROACH TO AGEING DEMOGRAPHIC

He says: “Our report states that bringing in agerelated regulations won’t have a negative impact on employers in Hong Kong. Experience in the UK has shown that if you create a pathway for people to work in jobs which they value, they will be willing to consider working longer. “In Hong Kong, they’ve tried to introduce age discrimination legislation, but employers have always said no because they want ﬂexibility and don’t want to be regulated. However, they still have to deal with the issue of people not having enough funds in retirement.” While Hong Kong could learn from the UK’s approach to dealing with an ageing workforce, the UK could also beneﬁt from a “job for life” model similar to the one adopted in Japan. University graduates who join a large organisation are often offered contracts that keep them in employment there for all of their working life. This policy gives employees security and allows employers to retain the services of staff who can develop and grow the business over a long period of time. Within this model, employees are given routine promotions and annual pay increases based on age rather than ability. Dr Flynn says: “Organisations tend to invest in an individual for all of their working life. While the retirement age has been raised to 65 in Japan, usually the employer would end the contract of the employee but then give him or her the right to have a new job. This might be a lowerpaid role with reduced working hours, but the employee can still top up his or her income with a pension called the working pensioners model. “This approach allows people to phase in their retirement. They retire from their main job but still have an income from another job for a few years until they want to stop working altogether. “Other countries could learn a lot from this approach. It would help employees who can’t retire early on a big pension and give them a chance to earn money that could fund their later years.”

ISSUE #5

IMPACTING POLICY | Morgan Beeson

BEHAVIOURAL PROJECT SET TO INFLUENCE GLOBAL POLICY How much do people value self-interest over the public good? It’s an important question that’s shaping national and international policies all over the globe and forming the basis of a vital research project carried out by Newcastle University Business School. PhD student Morgan Beeson is currently working with Monash University, near Melbourne, to measure the value of opinions on large-scale public issues such as health, safety and the environment. The idea is to gain a better understanding of whether these issues elicit responses that are fuelled by self-interest: ‘how will these changes affect me?’ or by the greater public good: ‘how will these changes affect society?’. Mr Beeson explains: “Current theory and methodology around this issue is set up in a way that asks individuals to take a self-centred perspective. However, existing data shows that people, consciously or subconsciously, tend to take others into consideration when making their judgements. This has made it difficult when trying to establish useful trends and patterns. “The idea of our research is to consider an alternate framework that allows individuals to account for others in their valuations without the pull of emotions or self-interest, a concept which Newcastle University Business School has been working on for quite some time.”

To establish this framework, Mr Beeson uses a thought experiment from moral philosophy called the veil of ignorance. Essentially, this is a controlling mechanism that hides the personal characteristics of the individual, who then has to decide how society should look without knowing his/her own place within that society. Mr Beeson then incorporates this veil into a survey about a large-scale social issue, so that individuals know how a new policy would affect everyone, but not how it would affect themselves or any other specific individual. That way, they cannot put a quantifiable value on any one person or group of people but their general preferences can still be determined. This form of response is called 'citizen perspective'. To provide an example of this approach, Mr Beeson has now created a laboratory-style experiment in which two groups of people are given a small sum of money. They can choose to keep this money, or to give up some or all of it to buy insurance against a financial loss for everyone in their group. In the first group, each person knows how much money they would have to pay out. However, people in the second group – those under the veil of ignorance – won’t have this knowledge until after they have made their decision, meaning they will find it more difficult to weigh up the financial value of helping themselves and others.”

If this model is found to be effective, it could increase the accuracy of data for decision-makers. Morgan Beeson PhD Student Newcastle University Business School

2017

REACH | Research Matters

The experiment, which takes place first in Newcastle and then in Melbourne, will enable researchers to compare responses within the two groups to see whether the veil of ignorance made a difference. The end goal is to use the results of this experiment to design future surveys to find out how much people value environmental and health public goods. Mr Beeson says: “The veil strips away the element of self-interest, i.e. I may want to pay a bit extra if I think it might improve the wellbeing of my friends and family. However, if I don’t know how much money I’d have to give away, would I risk it? In real life, people wouldn’t be able to give up all of their wealth even if they wanted to help out family and friends, so they would have to balance their emotional preferences against the financial practicalities. “In the second scenario, I’d be more inclined to base my decision on my citizen preferences – those that are not prejudiced by self-interest. That should help to provide a more accurate set of valuations.” If this model is found to be effective, it could increase the accuracy of data for decision-makers, who could then use the information to shape future policy. It could, for example, help government ministers decide how best to utilise taxpayers’ money – crucial in an era when public budgets have been slashed and ministers are being asked to do more with less. Mr Beeson says: “In the health arena, do people want to spend budgets on end-of-life care or on improving quality of life for people in their forties and fifties? Alternatively, should the money be spent on young people to ensure they’re set up for a healthy life? “Do people want to help the poorest in society, or those in the worst health, or everyone equally? “Politicians need to know what people think about these important questions. After all, the role of government is to look after the interests of the people it serves. It’s only right, therefore, that policy should reflect their views.”

BEHAVIOURAL PROJECT SET TO INFLUENCE GLOBAL POLICY

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IMPACTING POLICY | Dr Melanie Parravano

SUGAR TAX COULD HELP IN FIGHT AGAINST OBESITY For several years, successive UK governments have championed the drive to fight obesity by encouraging people to exercise and enjoy a healthier diet. Despite this campaigning, however, the problem still exists but new research from Newcastle University Business School has unearthed a potential solution that could benefit citizens in countries across the globe. A study carried out by experts from Newcastle, York and Anglia Ruskin universities examined the impact of a 20% and 40% tax on unhealthy cereals and soft drinks containing sugar. It also investigated whether or not telling people they were being taxed influenced their shopping habits. One thousand people in the UK took part in the study and were given a budget of £10 to spend on soft drinks and cereals. Some of the participants were made aware of the tax, others weren’t. They were asked to complete 10 shopping tasks on a supermarket website – five tasks to buy cereals and the other five to purchase sugar-sweetened drinks. The goods were split into two categories, “healthier” and “less healthy”, with the research team basing the criteria on a scoring system used by Ofcom to enforce restrictions of television advertising to children. The system looks at the nutritional content of 100g of a food or drink and includes data on energy density, saturated fat, total sugar, sodium and protein, along with an estimate of the volume of fruit, vegetable and nut contents. The novel experiment undertaken by the universities – and funded by the Department of Health and Policy Research – revealed some striking results. A 20% sugar tax discouraged shoppers from buying unhealthier breakfast cereals but not sugarsweetened beverages, while a 40% tax was effective at reducing purchases of both types of product. In addition, if shoppers knew they were being taxed by 20%, purchases of the less healthy goods fell by around one half. Effectively, this indicates that a levy on food and drink radically changes shoppers’ buying habits.

2017

Dr Melanie Parravano, at Newcastle University Business School, was heavily involved in the project and said it could help ministers shape future policy on food and drink taxation. She says: “I was really interested in the opportunity to carry out research that has an impact on such an important global issue. It’s a topic that’s extremely relevant, not just in the UK but also in other developed or developing countries. “In the UK, the government plans to introduce a sugar levy on ﬁzzy drinks in 2018, although our research shows that it could also be applied to other products. There’s also an argument for letting shoppers know how much they are being taxed. Our experiment showed that a signiﬁcant number of people who knew about the tax decided not to purchase the products. Effectively, making them aware of the tax had a marked effect on their shopping behaviour.”

Dr Melanie Parravano Lecturer in Economics Newcastle University Business School

The ﬁndings add to those in a report by Public Health England, published in 2015, which considered a tax or levy of 10–20% on highsugar products. They also follow on from a 10% tax on sugary drinks in Mexico, which led to a 6% annual fall in sales of this type of product.

If we can find ways of changing shoppers’ attitudes and buying habits, we might be able to start finding a solution to the weighty problem of obesity.

REACH | Research Matters

Dr Parravano says: “Our research shows that governments across the world need to educate shoppers more by making it clear which food and drink products are taxed. Signposting people in this way is easy to do and relatively inexpensive. “If we can find ways of changing shoppers’ attitudes and buying habits, we might be able to start finding a solution to the weighty problem of obesity. This will reduce the strain on public health services and enable people to lead healthier, more fulfilling lives.” Dr Parravano worked on the study with several academics including Professor Daniel Zizzo at Newcastle University Business School. Also involved were Professor Marc Suhrcke and Dr Ryota Nakamura at Hitotsubashi University, and Dr Suzanna Forwood at Anglia Ruskin University. Their research paper, “The Impact of Taxation and Signposting on Diet: An Online Field Study with Breakfast Cereals and Soft Drinks”, has been published by the University of York’s Centre for Health Economics. It has also been read by influential government officials in the UK Department of Health.

SUGAR TAX COULD HELP IN FIGHT AGAINST OBESITY

ISSUE #5

IMPACTING POLICY | Professor Ileana Steccolini

WHY AUSTERITY IS ABOUT MORE THAN BALANCING THE BOOKS In 2008, the world changed when the biggest ﬁnancial crash in decades sent global markets into a tailspin.

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Nine years on, governments around the world are still coming to terms with the fall-out from this seismic event and austerity is the new buzzword, as public expenditure is continuously cut. However, new studies from Ileana Steccolini, professor of accounting and ﬁnance at Newcastle University London, offer a different perspective on the roles of public accounting and governments’ capacities in the implementation of austerity policies. Along with fellow academics Iris Saliterer from Freiburg University and Martin Jones from Nottingham Trent University, Professor Steccolini is investigating the wider thinking that governments need to undertake when facing austerity. 16

2017

Professor Steccolini says “Following the global financial crisis, we’ve been experiencing a myriad of challenges for public services, with demands for major cuts in government spending, the delivery of balanced budgets and strategies for deficit reduction. “The financial crisis affected countries in different ways,” she says. “But even in the same country, some organisations coped better with it than others. It’s important to reflect more on what countries, as well as single organisations, did to get over the financial shock. Did they consider the social, environmental and human consequences as well as the financial impact? What roles did existing capacities play in shaping the responses?”

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REACH | Research Matters

Professor Steccolini’s study has highlighted the need for further debate on how public organisations should tackle austerity and how governments should look after public finances. “Ultimately, as an academic community, we need to develop a better understanding of public sector accounting research in relation to austerity and the application of this across different organisational levels and contexts.” To encourage such research, along with fellow academics Enrico Bracci from The University of Ferrara, Christopher Humphrey and Jodie Moll from Manchester Business School, Ileana has edited a special issue in the Accounting, Auditing and Accountability Journal, arguing that non-financial considerations are as important as the accounts themselves and that too many public sector organisations mistakenly equate austerity with balancing the books. In their editorial “Public sector accounting, accountability and austerity: more than balancing the books?”, Professor Steccolini and her colleagues highlight the scarcity of research on the impact of austerity policies on public services and society. She says: “It’s surprising and concerning to observe the relative lack of attention given by accounting researchers to austerity. If these researchers were contemplating the demise of public services under much more favourable contexts nearly a decade and a half ago, why has so little been said in the years following the financial crash? Has public sector accounting research allowed itself to become too insular, dominated with relatively narrow discussions over ongoing New Public Management reforms?

WHY AUSTERITY IS ABOUT MORE THAN BALANCING THE BOOKS

“Perhaps people are missing the bigger picture of austerity. It’s not just about expenditure cuts and, instead, accounting research needs to be more focused on issues surrounding the responsibilities and accountabilities of government, the provision of public services and notions of public interest. “To date, research has focused on how accounting technologies are used to manage austerity. But there has been little consideration of the wider implications, such as the impact of accounting policies on society and local communities. “For example, if a local authority is running at a deficit, the common action is to cut costs and therefore reduce resources to live within means. However, we need to think about what impact cost-cutting will have on the quality and quantity of services, the allocation of resources and the financial resilience of the organisation going forward. If you scale back on infrastructure maintenance costs, for instance, it might end up costing more to repair or replace roads, bridges and buildings in the long run.” Professor Steccolini believes that public sector organisations should put in place long-term strategies to ensure they are financially resilient enough to cope with future economic crises or other types of shocks. “The financials are important, but they don’t tell the whole story. Accounting isn’t just about presenting a set of numbers; it can also highlight, shape and influence reality. Realistically, focusing solely on financial issues such as the scale of public debt and expenditure has not appeared to foster national growth in many countries, nor has it helped to improve the quality of life for people in local communities. This suggests that austerity cutbacks are not necessarily the most appropriate solution for difficult financial times and that wider thinking is key.”

Professor Ileana Steccolini Professor of Accounting and Finance, Newcastle University London

Financials are important, but they don’t tell the whole story. Accounting isn’t just about presenting a set of numbers; it can also highlight, shape and influence reality.

ISSUE #5

IMPACTING BUSINESS | Dr Thanos Verousis

BREXIT: AN OPPORTUNITY OR THREAT FOR INVESTORS? New research has highlighted the dangers of investing in companies with high exposure to European markets in the post-Brexit age.

Until now nobody has been able to put a figure on the level of returns investors could get if they spent time considering their exposure to idiosyncratic risk.

Dr Thanos Verousis, a senior lecturer in accounting and finance at Newcastle University Business School, has carried out an in-depth study that analyses investors’ exposure to idiosyncratic risk – or risk which affects a particular company. The research has led to the production of a financial model which looks at various investment scenarios and patterns, taking into account idiosyncratic risk – i.e. risk which is endemic to a particular asset and not a whole investment portfolio. Through this exercise, Dr Verousis identified a formula that helps investors increase their returns. The key number is a 1.32% asset premium on exposure to idiosyncratic risk. Essentially, this shows investors how much more money they can make by increasing their exposure to companies with low idiosyncratic risk and selling assets that carry the highest risk. It also calls into question the long-held assumption that high-risk investments generate the best returns. Dr Verousis says: “Idiosyncratic risk is different to systematic risk, which takes into account factors that affect all companies in the market, such as an economic downturn or outcome of an election result. The traditional assumption is that investors are rewarded only for their exposure to systematic risk, but not for their exposure to idiosyncratic risk as they have an opportunity to diversify their investment portfolio.

2017

Dr Thanos Verousis Senior Lecturer in Accounting and Finance Newcastle University Business School

“However, to assume that all investors have a fully diversified portfolio is restrictive and doesn’t really describe the way in which many of them actually construct their portfolios. What about those investors who like to invest in only one or two companies? Until now nobody has been able to put a figure on the level of returns investors could get if they spent time considering their exposure to idiosyncratic risk. “My research shows that there’s an element of this type of risk that can be accounted for by a mathematical formula. Investors can exploit this by using this formula and, if they do that, they can achieve an additional average return of 1.32%, which is quite a good result in this economic climate.” Dr Verousis believes that investors should regularly assess and, if necessary, alter their portfolios to adapt to changes in market conditions and the fortunes of individual companies. While he makes a distinction between systematic and idiosyncratic risk, the two are not mutually exclusive. Take the decision by UK voters to leave the EU, for example. “While Brexit could be defined as a systematic event, it affects each company differently,” he says. “The idiosyncratic risk for companies with high exposure to the European market – including firms that export heavily to the EU, for example – has increased substantially. Generally, Brexit will increase uncertainty and market volatility, which means that EU markets have high idiosyncratic risk. That presents a danger to investors who are exposed to these markets.” However, that’s not to say that Brexit will necessarily be a burden on investors. There will be several opportunities to profit from the decision to leave the EU if they can capitalise on the rising idiosyncratic risk of companies that are exposed to these markets. Dr Verousis, who presented his findings at the Financial Management Association’s Annual Meeting in Las Vegas in October, says: “It’s not a case of whether Brexit is good or bad. Our model works in both scenarios, if the economy is performing strongly or poorly. “If EU markets are more volatile and companies have higher levels of idiosyncratic risk, investors can sell shares in these firms and invest in lowerrisk assets, such as pharmaceutical and food, which tend to do well in non-EU markets. That would be a good way of increasing returns which is, after all, why investors do what they do.”

IMPACTING BUSINESS | Professor Colin Wren

SINGLE MARKET ACCESS CAN BOOST ECONOMIC HEALTH OF EU COUNTRIES Foreign Direct Investment (FDI) is key driver of economic regeneration. It helps to create jobs, wealth and prosperity for local, regional and national communities across the globe and, as such, is a hot topic of debate among policymakers and economists. However, there has been relatively little discussion (or research) on the impact of border costs on the locations of FDI. Professor Colin Wren has attempted to remedy this by drawing on the experience of the ﬁfth enlargement of the European Union (EU) to investigate the effect of reduced border costs on FDI locations for entrants to the Single Market in 2004 and 2007. This enlargement created the world’s largest single market, adding more than 100 million citizens to this trade bloc from the 10 countries of Central and Eastern Europe (CEEC), while simultaneously removing the internal border checks for the new accession countries in the form of waiting time and administrative costs. In his research, Professor Wren analysed data on 35,105 cross-border investments in the 10 CEECs and 15 incumbent Member States (EU15) between 1997 and 2010. This enabled him to determine the impact of the investment share that was diverted from the EU15 to the CEECs, which in turn allowed him to quantify the net effect of the lower border costs on CEEC FDI.

Professor Wren says: “Since its establishment in January 1993, the Single Market has sought to dismantle internal trade barriers by removing tariffs, technical trade barriers, non-tariff barriers such as product standards, and border controls between the Member States. “The main benefit for trade between the CEECs and EU15 at membership, and hence for exportorientated FDI, was the reduction in border costs. Before accession to the EU the CEECs were saddled with substantial administration costs associated with internal border checks and for many industries this financial burden represented up to 20% of their total trade costs. “Removing this barrier effectively reduced trade costs between the CEECs and the EU15 member states by about 10% on average. It also led to increased levels of FDI across the board, particularly in the more liberalised CEECs. “In recent years FDI has become increasingly important as government grants have gradually been phased out. It’s a mobile form of investment that creates lots of jobs. The UK has benefited from more FDI than the whole of central Europe combined.”

The research found that the amount of FDI in the CEECs doubled as a result of lower border costs at the point of EU membership. However, one half of this amount was diverted from the EU15, suggesting that the net increase for the union as a whole was much smaller. Later CEEC entrants also drew FDI away from other, more established CEECs, which further reduced the net increase. There was also signiﬁcant variation in the FDI ﬁgures depending on the respective liberalisation of the CEECs. The research found that as a result of the lower border costs, the more liberalized CEECs attracted four times more FDI than their less liberalised counterparts.

Professor Colin Wren Professor of Applied Microeconomics Newcastle University Business School 20

2017

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In recent years FDI has become increasingly important as government grants have gradually been phased out. It’s a mobile form of investment that creates lots of jobs.

The UK’s future ability to attract FDI has come under the microscope following the Brexit vote, which looks likely to hasten the country’s departure from the Single Market. There are concerns that it will lead to reduced levels of FDI in this country. However, Professor Wren believes that this may not necessarily be the case. “The established view is that by pushing up border costs, Brexit will potentially lower FDI levels,” he says. “However, there’s also the possibility that companies will choose to locate here to serve the UK market, rather than trade from a distance. This would create jobs and wealth in this country.” While FDI has given an economic boost to regions in the north of the UK, in recent years much of this wealth has migrated south. Professor Wren says: “In the 1990s about 90% of inward FDI located in the northern regions of the UK. Now it’s more like 50%. London and the south east have always been a strong hub for service-based industries and as a result these areas have attracted a lot of FDI. In recent years, however, a lot of the manufacturing FDI which had previously been targeted at the north has now gone further south as foreign investors want to be closer geographically to the EU market. “Brexit might bring about a change, though. If it means that we come out of the Single Market, the north might beneﬁt again. With the higher border costs associated with entering the UK, overseas investors may decide to offset these costs by, for example, setting up a manufacturing plant in the north, where the costs of doing so are cheaper than in the south.” SINGLE MARKET ACCESS CAN BOOST ECONOMIC HEALTH OF EU COUNTRIES

ISSUE #5

HOW FIRMS CAN LEARN FROM THE BP OIL SPILL CRISIS

A fascinating study has highlighted how companies can learn from one of the worst environmental disasters in US history.

2017

ISSUE #5

IMPACTING BUSINESS | Dr Simon Parry

HOW FIRMS CAN LEARN FROM THE BP OIL SPILL CRISIS A fascinating study has highlighted how companies can learn from one of the worst environmental disasters in US history. Eleven people lost their lives and several more were injured when BP’s Deepwater Horizon drilling rig in the Gulf of Mexico exploded in April 2010, causing an oil spill that also killed marine life and destroyed beaches, wetlands and estuaries for miles around. It was also arguably the most high-profile corporate crisis in recent times, with numerous public investigations launched to establish the cause of the spill and politicians – including the then US President Barack Obama – wading into a media debate that lasted several years. Finally, in 2015, BP agreed to pay billions of pounds in fines to settle legal claims, but by then its corporate reputation had taken a significant knock. The disaster highlighted BP’s handling of the situation and thrust the issue of crisis communications firmly into the spotlight. It also paved the way for an in-depth study that could eventually have a big bearing on the way companies react to unexpected crises. Dr Simon Parry, a lecturer in accounting and entrepreneurship at Newcastle University Business School, looked at the main protagonists’ responses 24

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to the Deepwater Horizon crisis and analysed their strategies for dealing with it. He also looked at these strategies in line with existing academic theories on corporate crisis communications. His conclusion was that existing models are not sophisticated enough to help companies deal with crises as complex as the BP oil spill – suggesting further research into the issue is required. Dr Parry says: “Previous interpretations are overly simplistic. They assume that to deal with a crisis a company will adopt one particular strategy, such as denial, which is a useful way of diverting responsibility to another party. “However, if you look at BP’s response to the Deepwater Horizon crisis it’s much more complex than that. The company pursued a strategy dominated by compassion and ingratiation, intermixed with carefully used denial to share the blame. This form of blamesharing is a hybrid of denial and acceptance. “In effect, BP accepted a limited level of blame but made it clear that there were other parties involved. The company accepted some responsibility but argued that others were responsible too.”

Dr Simon Parry Lecturer in Accounting and Entrepreneurship Newcastle University Business School

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The other main parties involved in the crisis were deepwater drilling contractors, Transocean and Halliburton, two of the world’s largest providers of products and services to the energy industry. Dr Parry’s research showed that both companies adopted a strategy of distancing and counterattack to shift blame away from themselves – in stark contrast to the strategy adopted by BP. Along with Matthew Bamber, an academic from the University of Bristol, he analysed the tone and content of the press releases issued by the three companies in response to the crisis and found that the tone became signiﬁcantly more aggressive as the situation developed towards its legal conclusion. Their responses also highlighted how corporate communication can shift in emphasis depending on the situation at a given point in time. BP’s use of denial, for example, can only be understood in the context of the company’s strategy of blame shifting and blame sharing as time went on.

Deepwater Horizon highlights the need for companies of all sizes to have a crisis communication plan.

“It’s fair to say that BP started from the unenviable position of being forced to publicly concede organisational responsibility for an apparently preventable tragedy,” Dr Parry says. “From that moment forward, achieving absolution from guilt would have been impossible. Within the organisation, however, there would have been a strong social, political and economic desire to share some of the blame. It was in BP’s best interests to make certain that the names of the other potentially responsible parties were never far from the public (and legal) eye. Equally, the secondary actors in the drama, Transocean and Halliburton, must have been aware that any association with the tragedy could be extremely damaging.” Dr Parry’s study has provided a solid foundation for further research into corporate crisis communication strategies – particularly the way in which companies use denial as a primary response. “Deepwater Horizon highlights the complexity of the modern business world and the need for companies of all sizes to have a crisis communication plan in place,” he says. “A lot of small companies outsource to third parties because they haven’t got the capacity or expertise to carry out the work themselves. “A building ﬁrm, for example, may subcontract electrical work to another company, but if the house burns down due to an electrical fault, who is most to blame? While crises are rarely on the same scale as Deepwater Horizon, they can affect even the smallest of companies.” Dr Parry’s research highlighted the multiple reasons why crisis response is an area worthy of separate attention. Crises create a public thirst for

HOW FIRMS CAN LEARN FROM THE BP OIL SPILL CRISIS

information and a pressure on media outlets to satisfy it; therefore, coverage of crises has become progressively more sensationalist, partly due to increased availability of information in the digital age and partly because of the economic pressure brought about by increased competition in industry. “The public is increasingly aware of, and interested in, crisis events regardless of their origin, nature, or scope,” he said. “Therefore, the threat to an organisation’s reputational assets when found guilty of involvement – or even being associated with the crisis – has also intensified.” This scrutiny is difficult for companies to deal with, especially in a crisis as complex as Deepwater Horizon. As Dr Parry has demonstrated, previous response frameworks of “apology versus denial” are insufficient to explain the intricacies of crises which morph into complex beasts over a long period of time. “That’s not to say that existing frameworks are no use,” he said. “It’s just that the advice offered is pretty binary: admit culpability or blame others. There are various other factors that need to be considered. “Does the company in question have control over the situation? Are there environmental factors beyond anyone’s control? What level of damage has been caused and does this level increase or decrease over time? “The previous record of the company also has to be taken into account. If its reputation has already been damaged by previous crises, particularly if they have occurred in the recent past, people may be quicker to judge the company this time around even if no blame should be attached.” While blame shifting and denial are two key strategies to head off a crisis, they can also determine the sustainability of the company in question. If the company gets its strategy wrong, it could face litigation and associated financial costs that could put its entire business in jeopardy. “While BP had the financial muscle to settle its legal claims, smaller firms may not be so lucky,” says Dr Parry. “The ability to communicate effectively in a crisis can save a company from financial ruin and ensure that it’s a sustainable entity in the long run.” Sustainability is a key area of expertise at Newcastle University Business School, where academics explore a wide range of issues that help to provide practical solutions to real-world challenges, diverting a significant proportion of funds towards this type of research, with the aim of helping society make positive changes that improve the quality of life for communities across the world.

ISSUE #5

IMPACTING BUSINESS | Dr Raffaele Filieri

THE POWER OF CONSUMER REVIEWS

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When it comes to buying a best-selling novel, booking a holiday or eating for the ﬁrst time at a top-class restaurant, online customer reviews are carrying more weight than ever before. They’re becoming a major inﬂuence on consumer buying habits, which in turn are having a huge impact on the success (or otherwise) of the companies that advertise their products and services. Dr Raffaele Filieri, a senior lecturer in marketing at Newcastle University Business School, has conducted extensive research on the importance of website reviews in helping consumers to evaluate the quality of the product or service that they are about to purchase. The study, which appeared in the Annals of Tourism Research, shows that the success of TripAdvisor, Yelp and other sites that invite consumer feedback is determined by the amount of trust that people have in them.

Brands need to be aware that trust in their website content is absolutely key to consumer buy-in.

“There is more and more scepticism of articles that are overtly promotional and sales-led. And lengthy articles are only viewed as believable if they contain factual and relevant information. “There are also more instances of fake reviews. My model helps consumers to distinguish between ﬁctitious and real material by studying the reaction of other consumers to the text.” Dr Filieri’s research is intended to beneﬁt the consumers who use the reviews and the companies that advertise their products and services. “It’s vital for companies to understand consumer behaviour and attitudes so they can target their advertising campaigns more effectively,” he says. “If consumers stop using these sites because they believe they’re unreliable, that’s bad news for businesses.

THE POWER OF CONSUMER REVIEWS

Dr Filieri’s study also highlights the impact of ﬁctitious reviews on different types of products. The ﬁndings show that, in general, people will still buy a low-cost item regardless of what has been written about it. However, they are likely to “shop around” and browse several reviews of more expensive items. If some of this material is uncomplimentary about the product, it could deter people from making the purchase. His work also found that if consumers trust a website, they are more likely to read and adopt the reviewers’ recommendations. This highlights the need for TripAdvisor, Yelp and other organisations to be more vigilant to ensure that the material posted is genuine and trustworthy.

Trust, Dr Filieri argues, motivates people to express a positive opinion about a review website which, in turn, increases the site’s authority and inﬂuence in an industry. He says: “Previously people relied on popular sites such as TripAdvisor but others are coming online as more consumers want information on the quality of the product or service they’re buying. In the past, the longer the review the more trustworthy it was deemed to be, but that trend appears to be changing.

“My research also encourages organisations such as TripAdvisor to make their review sites more useful and accessible. Can these organisations develop a model for detecting fake material, for example, or a system where customers can vote on the trustworthiness of the articles posted? This would encourage greater trust in these sites and give companies a better understanding of the behavioural habits of their customers.”

Dr Raffaele Filieri Senior Lecturer in Marketing Newcastle University Business School

Amazon has already taken steps to prevent fictitious feedback by imposing a limit on the number of reviews that shoppers can leave on the site. Consumers can now write only five per week on items not bought via the online store. The retail giant hopes that this will prevent instances of sellers creating bogus accounts to post positive comments about their own products, or buying fake reviews from third parties in exchange for cash or discounted goods. Earlier this year, Amazon started suing sellers for buying fake reviews and imposed tougher restrictions on companies that offered free products in return for high customer ratings. Reviews on TripAdvisor and Yelp have also been at the centre of lawsuits. If nothing else, this highlights the power of the consumer’s words and the potential damage that fictitious material can cause to the reputation of a company. Dr Filieri says: “Keeping the quality of information high is a major challenge for these websites because publication of reviews by “fake” customers is on the rise. This might affect the overall quality of the information hosted by websites and, consequently, it also affects the credibility and influence of these sites.”

ISSUE #5

IMPACTING BUSINESS | Dr Fiona Whitehurst

CAPTURED IS THE CATALYST FOR BUSINESS GROWTH Micro-businesses are crucial to the economy. Government figures show that in 2016, 5.3 million (96%) of UK businesses were micro-businesses – employing 0-9 people. They accounted for 32% of employment and 19% of turnover. Typically, the owner-manager of a micro-business is responsible for the full range of managerial duties and finds it very difficult to take time to identify opportunities to develop their business and hone their leadership and management skills. The All Party Parliamentary Small Business Group and Federation of Small Businesses recognise that larger companies should be encouraged to provide advice, share expertise and offer other forms of support to smaller companies within their supply chain. However, there are few mechanisms to bring large organisations into contact with smaller businesses to develop leadership and management skills. Dr Fiona Whitehurst, senior lecturer, along with other academics at Newcastle University Business School, recognised that more needed to be done to help small business tap into the expertise from large firms, so they developed the Captured programme. Piloted in 2012 and subsequently funded by the UK Commission for Employment and Skills in 2015 – the project is a participatory research-based programme exploring how anchor institutions, including Business Schools and private sector organisations, can engage with micro-businesses to develop skills for growth.

Newcastle University Business School’s Captured programme connects micro-businesses in the North East of England with managers from larger corporates for business growth.

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Senior professionals from large organisations are matched with small company owners to help them develop leadership and management skills that can address productivity issues, transform workplace practices and foster a more entrepreneurial culture within their business. These professionals also get the chance to learn from the way in which a small firm operates. To date, small businesses have been able to work with some of the region’s largest organisations, such as: Sage, Siemens and GSK. Dr Fiona Whitehurst, who is leading the Captured project, says: “Captured is open to North East businesses with fewer than 20 employees and aims to address issues faced by small firms that tend to underinvest in leadership and management training. “If we can help business owners to develop their leadership and entrepreneurial skills, they will be able to devise innovative and more profitable ways of growing their business. They may also find new ways of widening their skills base, retaining top graduate talent, making their business more resilient and gaining a better understanding of the supply chain in which they operate.” The programme lasts around two months and is targeted towards micro-businesses. It consists of four half-day workshops, facilitated by Business School staff, with each series of workshops having a cohort of up to eight small firms. For the last three workshops the small firm owner is paired with a manager from a large regional firm. Early results have been positive as comments from participants indicate: “Having an external perspective has been really useful for me. It has taught me the value of stepping away from the business from time to time. I’m always in there fixing things whereas I need to step back at times and take a fresh look at the business.” Ian Straker, Transmit Start-Ups

IMAGE: IAN STRAKER, TRANSMIT START-UPS

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“The programme has given us the chance to get out of the daily routine and think and reﬂect, both on the efficacy of our business processes and on the skills and experience gained through working in a different environment.” Polly Lerner, GSK’s HR Business Lead. The Captured team worked with 41 small ﬁrms over six cohorts between January and June 2016 and is continuing into 2017 with funding from the Business School and the North East Local Enterprise Partnership.

CAPTURED IS THE CATALYST FOR BUSINESS GROWTH

Dr Whitehurst continued: “Captured shows that business schools can act as a catalyst to bring people together to reﬂect on and develop their management and leadership practices. We’re looking forward to continuing the programme and seeing the participants ﬂourish.”

If you think your business, large or small, could beneﬁt from Captured, contact Fiona Whitehurst on 0191 208 1603 or ﬁona.whitehurst@ncl.ac.uk or see go.ncl. ac.uk/nubs/captured for more information.

Dr Fiona Whitehurst Senior Lecturer Newcastle University Business School

ISSUE #5

IMPACTING BUSINESS | Emmalinde Roelofse

PARTNERSHIPS ARE KEY TO SOLVING COMPLEX PROBLEMS How do strategic decision-makers come together to tackle complex problems?

This question has caused much debate in academic circles and now Newcastle University Business School has embarked on a quest to unearth a satisfactory answer. PhD student, Emmalinde Roelofse has taken up the mantle of ﬁnding a structural model that can help to address large-scale, vital issues such as: how to invest government funding to reduce unemployment, how to streamline complex contractual arrangements and how to provide adequate health and safety training to staff. If a suitable framework or series of frameworks can be found, she believes it will generate radical innovation which could unearth solutions to complex problems that have existed for decades. She says: “I’m interested in ﬁnding out how strategic decision-makers collaborate to tackle problems that are too elaborate for one single individual, or even one single organisation or government, to solve them alone. My research introduces a new model for experts to progress highly complex projects when there are a lot of unknowns and unforeseen variables to contend with. “The difficulty is that there’s not just one way of doing this. Several strategies build on each other over time to create a shifting landscape so it can be hard to pinpoint a particular solution.”

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In her research, Ms Roelofse is applying her theoretical insights to a series of practical situations. In one case, legal experts are trying to determine standard principles that can streamline complex contracts; in another, project partners are coming together to develop a far-reaching system for addressing multi-generational unemployment. A separate focus is the creation of a workforce training solution for a speciﬁc subsection of construction and engineering companies – a difficult problem to solve when these organisations are found to fail industry standards a staggering 33% of the time. While much of her work is academic and theoretical in nature, it is helping to generate useful, practical solutions. In the employment project, a group of stakeholders is currently preparing the groundwork for a national accreditation for social entrepreneurship, which will make it easier for unemployed people to start and run their own ventures. A separate group is building a platform that will enable construction and engineering ﬁrms all over the world to share resources, such as health and safety training videos, and industry best practice. Ms Roelofse says: “These practical solutions will not solve these problems entirely, but will go some way towards doing so. They show a degree of bold innovation that can be achieved by working in partnership.

It’s important to explore the unknown and unknowable elements in social sciences.

REACH | Research Matters

“Sometimes organisations that work in isolation are not prepared to take a big enough risk to tackle the issue, perhaps because they’re worried about the reaction it will draw from stakeholders, for example. However, they might be more inclined to share the risk by teaming up with other partners.

from deeply challenging physical life challenges such as organ transplants, heart attacks and cancer. So far, the work has enabled professionals from more than 70 countries to connect with each other and share experiences, pass on advice and refer their peers to other sources of support.

“Sometimes you have to be open and responsive otherwise you can’t produce the innovation needed to bring about radical change. To achieve solutions to these complex problems there has to be more partnership-working and better utilisation of technology and recombination of assets and core competencies.

There is much more work to do, of course, but Ms Roelofse believes that taking these small steps will encourage others to tackle high-impact, complex problems.

“As strategic decision-makers partner with different experts from adjacent fields – financiers and granting agencies, for example – meaningful dialogues and sacrifices need to be considered so that emergent innovation doesn’t get stuck in a rut of small iterative progress. What we want to achieve is revolutionary innovation that can bridge gaps, build new platforms and effect widespread change for the better.” Ms Roelofse’s research also promises to have a huge social impact. One project aims to develop an international health and wellness support hub for individuals emerging, or starting to emerge,

PARTNERSHIPS ARE KEY TO SOLVING COMPLEX PROBLEMS

“It’s important to explore the unknown and unknowable elements in social sciences,” she says. “Massive forces are having an impact that even the brightest, most successful strategists are unaware of, but that doesn’t stop us from trying to further our knowledge by embarking on uncharted journeys of discovery and innovation.

Emmalinde Roelofse PhD Student Newcastle University Business School

“Think of the physicists who explore the impact of “dark matter” and “dark energy” which accounts for 95% of the universe, even though they know that existing tools are incapable of measuring it. It’s vital that people and organisations are brave enough to attempt to move forward highly complex projects. Only then will they be able to add to existing knowledge and develop more solutions for social good.”

ISSUE #5

IMPACTING BUSINESS | Dr Karen Elliott

CYBERSECURITY: IS IT WORTH THE INVESTMENT? Firms must consider a number of factors before investing in data security measures, including existing security provision, economics of security and hacker motives. In November 2016, Tesco suspended part of its online banking system after it detected attempts to steal cash from around 40,000 customer accounts in a situation described by the media as one of the biggest cases of online fraud at a UK bank. Data from more than one billion Yahoo accounts was compromised in December 2016, while nearly 157,000 TalkTalk customers had their data breached in a cyberattack on the telecoms giant in 2015. Cyberattacks have been widely described as one of the biggest corporate threats in existence. The general advice for companies is to make sure they protect their assets by purchasing the latest data security technology – but is it really worth the investment? That’s the question posed by Dr Karen Elliott, lecturer in innovation and enterprise at Newcastle University Business School, in a research paper entitled “Action, Inaction, Trust and Cybersecurity’s Common Property Problem”. Dr Elliott worked with Professor Julian Williams (Durham University) and Professor Fabio Massacci (Trento University, Italy) to assess the risk of corporate cyberattacks and how companies can best manage that risk, focusing primarily on additional factors that firms must consider before deciding to invest in data security measures – including the firm’s existing security provision, the economics of the security and hacking markets and even the motives behind a hacker’s attack. Dr Elliott says: “Investing large sums of money isn’t always the wisest decision. Our research shows that while the underground hacker market is a well-functioning economy, it is significantly smaller than the cybersecurity industry. Hackers tend to be lazy and persist in using malware that has caused damage in the past, rather than investing in new tools that can exploit new vulnerabilities in network systems. This means that the likelihood of an attack is significantly reduced.”

2017

Dr Elliott et al analysed transactions in a Russian online hacker market, which Google and the US Federal Bureau of Investigation indicate accounts for the majority of online deployed malware tools. The study found that transaction sizes were “quite low”, often in the hundreds of dollars and only rarely in the tens of thousands. They looked at insurance claims made by US ﬁrms for cyberattacks and found that the amounts claimed were similarly small; between 2011 and 2013, the median claim was just $750,000. The highest claim, $13.5 million, represented around 10% of the total claims made.

Firms must consider a number of factors before investing in data security measures, including existing security provision, economics of security and hacker motives.

This data suggests, perhaps, that the threat of cyberattacks is not as severe as portrayed in the media. Dr Elliott says: “The press is brilliant at scaremongering and blowing things out of proportion. If you look at the Tesco case, the amount of money stolen from most of the accounts was actually very small. Also, while hackers got hold of a lot of data from TalkTalk customers, they did nothing with the personal data, in reality there was very little damage caused to the consumer. Rather TalkTalk suffered some reputational damage which passed and they still retain a market share.”

Dr Karen Elliott Lecturer in Enterprise and Innovation Newcastle University Business School

REACH | Research Matters

“While some companies spend thousands of pounds on data security for peace of mind, this study considered different response positions such as taking a reactive stance and waiting until something happens, such as a cyberattack on a competitor. Standard economic models indicate that in many cases, the most appropriate course of action is to delay investment until the nature of the threat is clear. Some, however, would deem this to be a poor risk management strategy.” Either way, a manager who invests in cybersecurity must weigh up the cost of action versus the cost of inaction. The research will help companies properly assess the risk posed by perceived cyberthreats and devise a strategy for dealing with them. She believes that the risk of future attacks could be reduced by adopting emerging technologies such as blockchain, which is a digital distributive ledger of transactions, contracts or any other form of agreement that needs to be independently recorded and veriﬁed. This ledger can be distributed across hundreds or thousands of computers around the world and everyone in the network can access an up-to-date version of it via encryption. The technology keeps data secure and private because the cryptographic key is only known to those making the transaction.

able to charge fees on transactions, for example. Payments are transferred from person to person over the Internet so long as those people agree on the details – the amount of money to be transferred, for instance – there’s no need for a third party such as a bank. With these agreements in place we may see a reduction in the number of legal disputes, which might not be good news for lawyers!” There are limitations to blockchain, however, as current mobile phone technology means crypto payments are not sufficiently quick to meet market demand. “We still have a long way to go in terms of developing the technology,” says Dr Elliott. “It would need to fit around consumer needs, such as making purchases on the go from a mobile phone. There’s also the issue of trust. People perceive that making payments via an established bank system are secure and are wary of using new technology. The new technology will therefore need to be promoted in a way which removes negative misinterpretations of the advantages of this technology. However, given the pace of development, the mobile technology should be fit for purpose within five years and then we’ll start seeing major benefits of cryptocurrencies which has the potential to change the way we bank and purchase goods online.”

Dr Elliott suggests that blockchain technology could radically change the way in which ﬁnancial transactions are completed. She says: “Blockchain has the potential to revolutionise the ﬁnancial services industry. If banks no longer have entire control over the payment systems, they won’t be

IMPACTING SOCIETY | Dr Nils Braakmann

HIGHER IMMIGRATION WON’T BE BAD FOR BRITAIN

Much has been made of Brexit and its potential impact on cities, businesses and communities across the UK.

Although it’s far too early to assess the true effect of the UK’s decision to leave the EU, it hasn’t stopped people from talking about possible scenarios and outcomes, the timing of them and whether the consequences will be good or bad for Britain. A key area of debate has been Brexit’s influence on immigration levels in Britain. While this won’t truly be known until Article 50 is triggered, it has turned the spotlight on immigration and its impact on public services, public finances and job prospects in this country. This is a topic that Dr Nils Braakmann, a senior lecturer in economics at Newcastle University Business School, has been exploring long before voters flocked to the polling stations last June. In his research, he has analysed the effects of immigration on public services and housing in England and Wales. One area of his research focused on the link between immigration and property markets. Dr Braakmann carried out a comprehensive analysis of immigration patterns using large-scale data sets from established sources such as the UK Land Registry and the UK Census. The findings showed that a rise in immigration either decreases prices at the lower end of the housing market or leaves them unchanged but, importantly, has almost no effect on average or above-average property prices. This is at odds with the common perception that immigration will generally boost house prices on the basis that a population increase will lead to greater demand for more homes. Dr Braakmann said: “In the UK, the impact of immigration on housing markets – and more generally, the availability of properties and their prices – has received considerable attention in the public and the media. However, my research shows that immigration hasn’t had much of an impact on house prices. So, even if immigration changes after Brexit, it probably won’t lead to a severe increase or drop in the value of homes across the country. If anything, planning restrictions have more of an impact on property values.”

2017

Dr Braakmann’s ongoing research also explores the link between immigration and public services, speciﬁcally looking at the impact of immigration inﬂows on primary school resources.

Dr Nils Braakmann Senior Lecturer in Economics Newcastle University Business School

“Another perception is that immigration puts more strain on public services but when you look at the evidence, you realise that there just isn’t that much evidence. Take schools, for example – there seems to be this perception that immigration is putting a terrible strain on the whole school system, but when you actually look at the data, you get a much more complicated picture. Sure, class sizes seem to increase a little and schools hire more teachers, so you could say there is resource pressure, but at the same time pupil performance actually seems to improve.” Another key talking point in the Brexit debate is the effect that immigration will have on jobs in Britain. Some believe that an inﬂux of migrants will hurt their job prospects, drive down wages and damage their quality of life. However, Dr Braakmann believes that other factors will be more important in determining the future health of the labour market. “The available evidence suggests that the effect of immigration on wages in Britain has been pretty small, so I would be surprised if any potential immigration restrictions after Brexit will do a lot,” he said. “That being said, there might be a real risk if the UK ends up being perceived to be a more hostile place due to the Brexit vote. Britain currently has a lot of soft power in the world, not least because a lot of foreigners study here and hopefully leave with fond memories of their time in the UK. If this stops, the UK will likely occupy a smaller place in the mind and hearts of the world than it currently does.” Dr Braakmann’s work suggests that many common assumptions surrounding immigration do not align well with reality. He recently hosted a series of public lectures on Brexit, which took an evidence-based look at key topics including immigration, trade and the NHS as part of the Business School’s commitment to socially and ethically responsible practices.

REACH | Research Matters

I would be surprised if any potential immigration restrictions after Brexit will do a lot.

HIGHER IMMIGRATION WON’T BE BAD FOR BRITAIN

ISSUE #5

IMPACTING SOCIETY | Dr Eleftherios Alamanos

RETAILERS MUST DO MORE TO ADDRESS SOCIAL ISOLATION For decades, retailers and researchers have been aware that shopping is as much about the enjoyment of socialising as it is about completing day-to-day tasks or buying gifts and accessories. However, a new study has shown that retailers are missing a trick by not doing enough to cater for people who are socially excluded. Dr Eleftherios Alamanos, of Newcastle University Business School, is working on research that examines how social exclusion influences consumers’ use of different shopping channels – including traditional stores, computers and mobile devices – and how their choices affect their happiness and wellbeing. Together with fellow academics – Savvas Papagiannidis, from Newcastle University Business School; Charles Dennis, from Middlesex University; and Michael Bourlakis, from Cranfield University – he conducted a survey of more than 1,300 US citizens to discover their shopping habits, financial situation and levels of social exclusion. The aim was to find out if social exclusion – which can be caused by factors such as age, disability, immobility, financial distress and area of residence – had any effect on the choice of retail channel used. The findings confirmed the positive influence of shopping on consumer happiness and wellbeing, and showed that socially excluded individuals tend to spend more time buying their goods online, mainly via a mobile phone or tablet rather than a computer. While exclusion generally reduces happiness and wellbeing, the study found that shopping via a mobile device can overcome some of these negative feelings.

“This doesn’t mean that people who are socially isolated never go into a shop; it’s just that they may not go there as frequently as some other individuals. Mobile devices provide them with a way of escaping from their reality and reconnecting with society through regular activities like online shopping. “The results suggest that shopping via a mobile phone can perform a similar social role as physical shopping – it can help consumers overcome social exclusion challenges. However, it seems that shopping online via a computer doesn’t have the same effect. This highlights the pervasive role of mobile technologies. Smartphones and tablets have become part of everyday existence, whereas people use a computer and then switch it off for a few hours.” The ﬁndings will be of great interest to retailers, who are constantly searching for new and engaging ways of marketing their products to customers. Almost half of the people surveyed believed they had some form of reduced mobility, suggesting that retailers who had no strategy for targeting the socially excluded were potentially missing out on a huge segment of the market.

Dr Alamanos says: “Although socially excluded individuals are primarily multichannel shoppers, due to their living constraints they exploit every channel available to them. The mobile phone is a key interface for bringing them together and contributing to their happiness and wellbeing. “This tendency towards multichannel shopping is stronger for people with reduced mobility, which is one of the main drivers of exclusion. They may prefer to order goods from their smartphone or tablet at home or on the bus, rather than physically having to go into a store to buy the product. 36

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Dr Eleftherios Alamanos Lecturer in Marketing Newcastle University Business School

REACH | Research Matters

Companies, and especially policymakers, have a duty to help people who suffer from reduced mobility or from other forms of social exclusion.

“We were surprised by the number of people who considered themselves to be socially isolated or living with some form of reduced mobility,” says Dr Alamanos. “That’s potentially a significant segment of consumers who don’t visit the stores on a regular basis. “Retailers therefore need to do more to make it easier for these people to shop via a mobile device. They could develop a mobile-friendly website, for example, or create apps which consumers could download to their mobile devices. “In general, retailers could make the whole shopping experience better for people who are socially isolated. If buying goods on a mobile phone is made easier, consumers will spend more time browsing online and buying more products.” The benefits of Dr Alamanos’ research could be felt far beyond the retail sector. For instance, the results will be of interest to marketing managers working for any company that sells directly to the general public. Policymakers, too, could use the findings to justify the development of appropriate mobile-based communications campaigns that target socially isolated people. Dr Alamanos says: “Companies and policymakers may be aware of the increasing importance of multichannel but they also have to recognise the need to invest in appropriate infrastructure. There’s also the moral aspect to consider. Companies, and especially policymakers, have a duty to help people who suffer from reduced mobility or other forms of social exclusion. There’s a public decency in helping groups of vulnerable consumers.”

RETAILERS MUST DO MORE TO ADDRESS SOCIAL ISOLATION

ISSUE #5

IMPACTING SOCIETY | Dr Jane Gibbon

THE BENEFIT OF SOCIAL ENTERPRISES TO THE REHABILITATION OF PRISONERS

Offenders at Kirklevington Grange have substantial responsibility in running a number of businesses from a car wash, to a workshop and also a café.

2017

REACH | Research Matters

Social enterprises work across a range of sectors within the UK and are said to be thriving and outperforming SMEs in not only turnover and workforce growth, but also job creation, innovation, business optimism and start-up rates. In a time of public sector austerity, it’s thought that social enterprises can help provide valuable learning and feedback to social and environmental problems being faced within our communities. There’s a great deal of interest in the impact that social enterprises are having and Dr Jane Gibbon’s research into social and environmental accounting at Newcastle University Business School, specialises in social accounting; capturing and measuring the social and economic effect of an organisation’s impact on society at large. Dr Gibbon has recently been working in partnership with SERIF, the Social Enterprise for Research and Innovation Foundation, to help capture and measure the social value of social enterprise strategies within public sector prisons. Something which is thought offers multiple beneﬁts to offenders and local communities through skills development and education. The UK has the highest offender population in the Western world and with that comes a high social and economic cost. SERIF’s primary goal is to offer enterprising solutions which aim to minimise reoffending. In partnership with NOMS North East (the National Offender Management Service), SERIF had already supported NOMS North East to implement a social enterprise strategy within Kirklevington Grange Prison in Cleveland – and this is where Dr Gibbon’s research has been incorporated in the form of a framework to help SERIF and NOMS measure their success. Dr Gibbon said: “Kirklevington Prison is an open prison and is the lowest category of security. It was already being run as a social enterprise, with prisoners fully understanding that the work they were carrying out had a beneﬁt to society as well as to themselves. The prisoners at Kirklevington Grange have substantial responsibility in running a number of businesses from a car wash, to a workshop and also a café. All the partners involved in the research project had put the initiative in place with the hope of reducing reoffending and improving the prisoners’ skills and quality of life when released.

THE BENEFIT OF SOCIAL ENTERPRISES TO THE REHABILITATION OF PRISONERS

Dr Jane Gibbon Senior Lecturer in Accounting Newcastle University Business School

“The programme provided the opportunity of education and training for offenders who wanted to change their lives and develop new skills ‘beyond the gate’, i.e. when leaving an institution. Dr Gibbon’s role was to work in partnership with Philip Angier from SERIF, in order to develop the social accounts; taking evidence which had been pulled together from the existing programmes and placing it in a reporting framework to raise awareness of the activities and understand the outputs and outcomes. Dr Gibbon captured and measured various outputs, which included data such as sales figures in the café, revenue, gross profit made, services to the local community and feedback from staff, customers and prisoners. Whilst early results were encouraging, the study concluded that further work is needed using this framework systematically over a period of time to account for and help demonstrate how this activity is delivering NOMS’ broader aims for social impact. “We wanted to look at the best way which could measure and account for the fact that running a social enterprise within a prison made a difference. Knowing that our findings could help inform national policy, while demonstrating the local area as an innovative leader, provides an example which others are able to benefit from and follow.” While research is still ongoing, the collaboration between Dr Gibbon, SERIF and NOMS is already beginning to make waves; the social enterprises’ success so far has led to a farm shop being opened in the area, benefiting from the increased footfall cultivated by the enterprise in the area. “For prison staff and the service in general, it is expected that the social enterprises can help improve relationships between staff and prisoners, better manage prisons, business partnerships and creation of links with local employers, income generation to benefit the prison, intra-prison trade and cost savings. This project has a real feel of paying back to society in terms of its wider community benefits and the resettlement of offenders in terms of a trained and motivated workforce. This collaboration will demonstrate how intangible benefits such as social impact can be captured, measured and accounted for in new and meaningful ways.”

ISSUE #5

IMPACTING SOCIETY | Dr Jonathan Kimmitt

THE FRAGILITIES OF SOCIAL ENTERPRISE IN CHILE Academics at Newcastle University Business School are taking on the global challenge of helping emerging markets to build a sustainable future. Joint collaborations with international partners are having a positive impact on communities far and wide and, in one instance, are even helping to inform top-level policy in South America. Dr Jonathan Kimmitt, a Lecturer in Entrepreneurship at the Business School, has teamed up with fellow academic Dr Pablo Muñoz to explore the landscape and impact of social entrepreneurship in Chile. Together they have produced an indepth study that looks at the key processes and mechanisms through which social enterprises and start-ups create inclusion and innovation within local communities. Their work, which also explores the contexts and conditions in which these enterprises thrive, was motivated by the excitement and popularity surrounding social entrepreneurship in Chile. There have been growing calls for the creation of start-ups that put social values at the heart of their operation,

values that can deliver tangible beneﬁts to local communities and improve the quality of lives of the people who live there. Dr Kimmitt and Dr Muñoz produced a study – The Structure and Dynamics of Social Entrepreneurship in Chile – to examine the efficiency of current frameworks for social enterprises and their ability to create value and adapt to challenges. They analysed the practices, attitudes and aptitudes of 340 social entrepreneurs across Chile, and through the research discovered several key ﬁndings.

If social enterprises in Chile are to have a bigger impact, they need to secure more income. Working closely with the public sector may enable them to achieve this.

The study revealed that social enterprises in Chile are generally set up to solve more than one problem. This poses a challenge in that it demands understanding of the various social issues which shape the context these enterprises work in, which in turn makes it more difficult to balance the numerous demands that they face.

Dr Jonathan Kimmitt Lecturer in Entrepreneurship Newcastle University Business School 40

2017

IMAGE CREDIT: JEREMY RICHARDS, SHUTTERSTOCK.COM

REACH | Research Matters

Another relevant finding is that much of the work benefits clients in locations outside of Santiago. While some enterprises deploy staff to work in these locations, only 3.8% of those surveyed moved their main operating base outside of the capital. This indicates that social entrepreneurs tend to launch and develop their ventures in the same place, whereas the problems they’re trying to solve are often based hundreds of miles away and are inextricably linked to circumstances affecting that particular area. Dr Kimmitt says: “Santiago is the metropolitan capital and is different culturally, socially and economically to other areas of the country. Lots of social problems are located outside of the capital but the enterprises need to be based there because that’s where the resources are. “They might also be simultaneously trying to resolve a completely different set of problems in another area with a different demographic and culture. This shows that they can’t just replicate a certain way of working across numerous towns and cities; a one-size-fits-all policy won’t necessarily work. It’s not possible to make generalisations or universal rules that can be replicated in other contexts. This makes the challenges of being a social enterprise somewhat different to a commercial enterprise. “There’s a lot of hype surrounding social enterprises in Chile but limited information about what’s going on in the sector and what impact it has on society. That’s the issue we want to address.” The study also looked at the impact of social enterprises on job creation and job satisfaction. Three quarters of those surveyed had fewer than six staff, suggesting that their ability to generate mass employment was limited. While job satisfaction was high (64% of enterprises claimed to be “very satisfied” with the commitment of their staff), attracting and retaining labour was cited as a common problem. “Our research indicates that Chile needs a new business model for social enterprises, one that’s capable of generating greater financial and social value, and that also rewards employees based on higher involvement of employees and volunteers,” says Dr Kimmitt. “Working in the private sector is currently more appealing to staff despite many social enterprises offering good working conditions and benefits.”

THE FRAGILITIES OF SOCIAL ENTERPRISE IN CHILE

Another factor that appears to be holding back the development of Chile’s social enterprise sector is a lack of skills. Only 55% of survey respondents had been given formal training on social entrepreneurship and just 27% on environmental management.

The practices, attitudes and aptitudes of 340 social entrepreneurs across Chile were analysed to examine the efficiency of current frameworks

Nearly one half (47%) identiﬁed the for-proﬁt sector as competition, forcing many enterprises to lower prices which made them less attractive to traditional investors, while funding options post-start-up stage fell dramatically. The research revealed that only 18% received investment after two years in operation. “This highlights the need for a more sophisticated market structure that draws in a wider range of intermediaries and investment tools,” says Dr Kimmitt. “This structure could include a business model that attracts funding based on the social impact of the enterprise.

Only 27% of survey respondents had been given formal training on environmental management

“The problem is that many of these enterprises don’t have any mechanism to measure this impact. They’re not capturing key data, such as how many people have got a job or found a home as a result of their work. “Our research has highlighted a lack of understanding and clarity regarding which measurement tools are out there and how to use them. Even enterprises that are aware of existing tools may not have the expertise to properly evaluate their effectiveness or the resources to implement evaluations.”

64% of enterprises claimed to be “very satisﬁed” with the commitment of their staff

Dr Kimmitt believes that policymakers could use the research as a basis for gaining a better understanding of the market and the frameworks needed to help social enterprises in the future. “If anything, it may have opened their eyes to the fragility of the sector,” he says. “Greater partnership-working is certainly needed. In Chile, the public and private sectors tend to operate in silo. It’s different in the UK, where companies are often drafted in to deliver services for the NHS and other public organisations.

Funding options post-startup stage fell dramatically and only 18% received investment after two years in operation

“If social enterprises in Chile are to have a bigger impact, they need to secure more income. Working closely with the public sector may enable them to achieve this.” Dr Kimmitt specialises in the study of social entrepreneurship and its impact on international communities. Previously, he worked on a research project that looked at the role of microﬁnance in stimulating entrepreneurial activity in Ghana.

ISSUE #5

IMPACTING SOCIETY | Dr Michael Brookes

GLOBAL PROJECT SET TO HELP BOOST EMPLOYABILITY IN THE NORTH EAST

WE ARE WORKING – VITAL STATISTICS Around 70 centres are now operational in South Africa, with 3,500 people beneﬁting each month

A pioneering project that aims to reduce unemployment by connecting jobseekers with companies has made great strides this year – and the North East of England is set to benefit in the very near future. Dr Michael Brookes and Siya Sebenza, a not-forprofit skills development organisation in South Africa, are leading ‘Work 4 A Living’ to help people to acquire employability skills that enable them to find a job and work their way out of poverty.

providing similar schemes in the region so it makes sense that they deliver the training. Through Work 4 A Living, we can create an employability programme that will have a really positive impact in all areas, including the North East.”

Run on a tried-and-tested franchise model, the scheme was ﬁrst trialled in South Africa and now offers training to more than 3,500 people in the country each month. This includes a learning-centric approach which teaches practical, problem-solving skills and helps to changing mindsets, so that people are better prepared for the world of work.

The project further adds to Newcastle University Business School’s expert social renewal portfolio. By connecting employers with jobseekers in deprived areas, it helps to increase economic prosperity, boost the wellbeing of local people and improve their quality of life.

The initiative is now being rolled out in other countries including Kenya, New Zealand, Philippines, Uganda and the US, with the UK next in line to benefit with a training centre due to open in Cardiff in early 2017. Plans have also been made to bring the scheme to the North East via a new partnership with Gateshead charity Youth Focus: North East, which will deliver the training locally. The key principles of the programme will remain unchanged, regardless of location. In all cases, the needs of employers and the learner market will be identified so that companies can be connected to the people they require. Trainees who enrol on the programme will get the opportunity to acquire key employability and soft skills, such as the ability to present and communicate competently. They can also request training for specific career paths.

Dr Brookes says: “Consultancy support is widely available for local companies and other organisations provide training opportunities for unemployed people. Our programme deals with both issues. Most of the people who take part in our programme have a job at the end of it.”

2017

Other centres are up and running in Kenya, New Zealand, Philippines, Uganda and the US

Through Work 4 A Living, we can create an employability programme that will have a really positive impact in all areas, including the North East. In 2017 the ﬁrst UK centre will be opened in Cardiff and the scheme rolled out in the North East of England

Dr Brookes says: “Previously, when we’ve extended the programme to other areas we’ve identiﬁed a local partner but have provided all of the training and support ourselves. In the North East, for example, Youth Focus North East is already

Are you a business which could beneﬁt from Work 4 A Living? Contact Dr Michael Brookes for more information at michael.brookes@ncl.ac.uk

Around 80% enter employment or training or start a business at the end of the programme

Dr Michael Brookes Senior Lecturer Newcastle University Business School

Details are correct at the time of printing (March 2017) but should be checked on the University’s and School’s website.

CHALLENGE TODAY, CHANGE TOMORROW

Acknowledgements Edited by: Newcastle University Business School. Designed by: Digitronix. Printed by: Statex Colour Print. Photography by: Crest Photography. © Newcastle University, 2017. The University of Newcastle upon Tyne trading as Newcastle University.

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