ABERDEEN BUSINESS JOURNAL 2011
Issue 6 ABERDEEN BUSINESS JOURNAL 2011 • Page 1
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ABERDEEN BUSINESS 2011 &•Print Page 2 Robert Gordon University, a Scottish charity registered under charity number SCO13781 • Designed by TheJOURNAL Gatehouse: Design Consultancy at Robert Gordon University • 0411/31901/JE
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Professor Rita Marcella
Dean, Aberdeen Business School
In another year of economic uncertainty and challenges across the public sector, it is good to report that both the regional economy and the Business School are in good health.
While the oil and gas industry continues to face unexpected challenges, such as the Gulf of Mexico disaster and the continuing downtrend, it remains relatively buoyant with greater CAPEX and OPEX investment in new exploration and production projects and something of a skills gap emerging. Ultimately there are better employment prospects for our graduates than in many parts of the country. The recent introduction of a windfall tax on the industry may, however, dampen that growth in investment
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and may sadly also reduce the extent to which companies are willing to invest in development for their staff. Despite such fluctuations, applications and recruitment to Aberdeen Business School have continued to grow. This is particularly apparent amongst applicants for undergraduate courses and overseas applicants to the Masters programmes. Courses that focus on the energy industry – such as the MBA Oil and Gas Management, MSc/LLM in Oil and Gas Law and MSc in Project Management – have done particularly well and as a result we are introducing the MSc in Energy Management for September 2011. Our range of corporate bespoke programmes has also grown to include international companies across the globe. This is the sixth issue of the annual Aberdeen Business Journal and it is good to see that the range of subjects and industries represented continues to grow. In a period of recession and economic challenge it is apt that academic papers from Bing Xu and Elizabeth Gammie focus on investment in the context of oil price fluctuations and business taxation, an area of great interest to SMEs and business start-ups. Other academic contributions include Pauline Wilson’s consideration of the impact of technology on recruitment, both in terms of how people seek opportunities and how technology enhances internal recruitment processes. From a practitioner perspective we have again gathered together input from a variety of companies and individuals, giving us the perspective of those leading companies such
as Charles Ritchie of Score and Steve Fogg of Poyry Energy, as well as contributions from two local business networking groups, the Aberdeen and Grampian Chamber of Commerce and the Aberdeen Junior Chamber of Commerce, which illustrate their differing support and focus in supporting the business community in the North East. The journal also includes a profile of Dr Alix Thom, an alumni of the Business School, who has not only a wealth of experience in HR in the oil and gas industry, but who has also become an entrepreneur, setting up her own HR consultancy business, Amber Tiger Solutions. Her story is an inspiration for current students and graduates. Finally Susan Lawrie presents the parttime BA (Hons) Business Management, which has a long and excellent record of delivery to students working in industry who wish to gain academic qualifications. The course has been radically revised to offer a blended approach, which now combines the flexibility of distance learning with a series of opportunities for face-to-face workshops where students can enjoy the positive support of tutors and peers. The evolving format of the course illustrates the ways in which the Business School seeks continually to extend its reach beyond the classroom. In addition to this programme, we are about to launch two unique courses in BA Accounting (with Advanced CIMA) and a fully online version of the LLB. Both are the first of their kind in the United Kingdom.
ABERDEEN BUSINESS JOURNAL 2011 • Page 5
Professor von Prondzynski
Robert Gordon University, Aberdeen, has appointed Professor Ferdinand von Prondzynski as its new Principal and Vice-Chancellor. Professor von Prondzynski succeeds Professor Mike Pittilo MBE, who passed away in February 2010. In June 2010, Professor von Prondzynski completed a 10-year term as President of Dublin City University (DCU). Professor von Prondzynski graduated from Trinity College, Dublin, with a BA and an LLB in 1978, and attained a PhD in Law at the University of Cambridge in 1983. Professor Von Prondzynski was born on 30 June 1954 in Germany. In 1961, his family moved to Ireland, returning to West Germany in 1969. He was educated at Headfort School, Kells, County Meath and Thomas-Morus Gymnasium in Oelde, Germany. Having worked briefly for Dresdner Bank AG in Germany from 1972 to 1974, he returned to Ireland, and became an Irish citizen in 1976. He is married to Dr. Heather Ingman, a Lecturer in English Literature at Trinity College, Dublin and novelist, and an occasional writer in the Irish Times; they have two sons. He began his academic career in 1980 as a Lecturer in the School of Business Studies at Trinity College, Dublin, becoming a Fellow in 1987. A move to the University of Hull in 1991 saw Professor von Prondzynski take up posts as Professor of Law, Dean of the Law School, the Jean Monnet Professor of European Social Law and Dean of the Faculty of Social Sciences. He left Hull in 2000 to take up the Presidency of DCU. ABERDEEN BUSINESS JOURNAL 2011 â€˘ Page 6
During his time at DCU, Professor von Prondzynski led a number of strategic developments including a significant growth of research income (from about £3 million in 2000 to nearly £40 million in 2009), major campus investment and development, and positioning DCU as a major contributor to Ireland’s global knowledge economy and society. He initiated a number of major partnership projects with industry, and also the establishment of the DCU Ryan Academy for Entrepreneurship (funded by the late Ryanair founder, Dr Tony Ryan). As a result, DCU rose 21 places in the Times Higher Education World Rankings in two years (from 300 in 2007, to 279 in 2009). In 2006 Professor von Prondzynski was elected a Member of the Royal Irish Academy, the highest academic honour in Ireland. He was a member of the Irish National Competitiveness Council, the National Executive Council of the Irish Business and Employers’ Confederation, the Irish National Chamber Choir and the US-Ireland R&D Partnership. He is a non-executive Director of the world’s largest e-learning company, Skillsoft Ltd., and a member of the Irish Universities Quality Board. He is an international authority on employment and commercial law, an active commentator on academic and social issues through the media and his blog (universitydiary.wordpress.com) is now Ireland’s most widely read. Professor von Prondzynski has published widely in the field of industrial relations and employment law, co-authoring the first academic textbook on Irish employment law. Commenting on his appointment, Professor von Prondzynski said, “I am delighted to be taking up this exciting appointment. Robert Gordon University has been one of higher education’s major success stories and is widely recognised for the excellence of its programmes and for its capacity to respond to the needs of students and of the wider society. “It is an ambitious university with a desire to make a significant contribution to regional and national needs. We intend to lead the way during the current period of change in higher education.” The Chairman of Robert Gordon University, Dr Melfort Campbell said, “The Board of the University is delighted to have appointed a new Principal and Vice-Chancellor with an outstanding reputation and record for strategic leadership and success. Professor von Prondzynski’s leadership, combined with the accolade of Sunday Times ‘Best Scottish University 2010’ we have recently received, will enable us to strengthen our position further as one of the best Universities in the UK - ‘the Professional University’ - building on our continuing reputation for teaching and learning excellence, graduate-type employability, applied research and business engagement.”
Robert Gordon University has retained the title of top modern University in the UK in The Times Good University Guide league tables for the last three years running. The University was named the Scottish University of the Year by The Sunday Times University Guide. The Guide commends the University’s excellent academic provision, consistently strong graduate employability levels and a bold strategic master-plan.
ABERDEEN BUSINESS JOURNAL 2011 • Page 7
BUSINESS PERSONALITY A Profile of
Charles Ritchie Founder and Chief Executive Officer of Score Group plc
Score Group plc provides engineering solutions for the aerospace, defence, gas, oil and power generation industries. The company was founded by Charles Ritchie in 1982 in Peterhead and remains to this day privately owned. It has grown to a company with over1400 employees and operates worldwide. Charles Ritchie was born into a fishing family in a village called St. Combs in the North East of Scotland. Whilst serving his apprenticeship, Charles studied for, and achieved, an ONC in Mechanical Engineering at Banff and Buchan District College and an HNC in Mechanical Engineering at Robert Gordon University. After completing his apprenticeship he left to study at Strathclyde University, where he gained a BSc Honours degree in Mechanical Engineering. Charles feels that his academic studies enabled him to build on the technical expertise he had gained from his apprenticeship, helping him to speak the language of lawyers, accountants and bankers in all of his business dealings. After completing his degree, Charles rose to the position of company director of a local engineering firm within 5 years. Ultimately Charles sought the freedom to run his own company and with some assistance from both business development and financial institutions, he embarked on the venture of setting up Score UK in 1982. He commenced trading from a modest 3,000 square foot unit located in Dales Industrial Estate on the
outskirts of Peterhead, running the company virtually single handed for the first 9 months. Within two and a half years the business was thriving and it began to grow, acquiring both personnel and developing new services. Through time, the service developed into a complex valve management business model which addressed safety, reliability and life time cost of ownership issues for valve asset owners. Charles has, throughout his career, been passionate about the importance of training and development and, although this commitment permeates support for all staff, it is perhaps with regard to new recruits and the provision of apprenticeships for young people that this passion is most clearly seen. Staff development was to be a key investment which allowed the company to grow organically, with employees being developed and promoted from within. Score currently employs 360 apprentices and is an exemplar of commitment to youth development, while many other employers have ceased to offer significant apprentice schemes, largely as a result of their cost and a lack of Government support. Charles is certain that his investment in the apprentice scheme has been one of the keys to his success and feels very strongly that the government should support such initiatives, as they will ultimately result in the regeneration of the economy through healthy growth in production and service delivery. He recruits young people from the local area and many of these have been promoted and are now running parts of the company overseas. Score UK grew steadily in the UK through a series of acquisitions and the opening of new premises and Charles started to look overseas for new opportunities. The overseas development of the
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organisation started with the servicing of the Norwegian oil and gas sector from the Dusavik base in Stavanger, Norway followed by Denmark, and the company was renamed Score Europe Limited. Subsequently it responded to new market demands by opening new companies in the Middle East, North and South America, Canada, Australia and Asia, eventually establishing its first North American operation in Houston, Texas in 2001. Despite the vast growth of the company and its diversification, Charles has continued his commitment to training and development, establishing Score Training and Multimedia Productions (S.T.A.M.P,) in 2006 as a Specialised Training Company. It was Charles’ desire to capture the combined intelligence of the Score Group and to make all this information and intelligence accessible to all company employees worldwide and always on demand. Score designed its own learning content management system in order to achieve this. In 2008, Charles’ vision was recognised with Score Europe Limited being awarded the “Large Employer of the Year” Award at the annual Scottish Modern Apprenticeships Awards. Another passion, evident in all that Charles says and does, is his conviction that every employee, at whatever level in the organisation, has a truly valuable contribution to make. He works hard to ensure that the people who work with him in Score operations around the world have a strong sense of community. He genuinely seeks to ensure that employees feel like ‘one of the family’ and during his interview he took the author to participate in one of a series of Christmas celebrations he holds for all staff based at Peterhead.
When asked about role models, Charles cites an eclectic mix of people, including Isambard Kingdom Brunel, Napoleon and Mao Tse Tung. There is a theme here too in that each was a mould breaker who put their followers on an equal footing with themselves. Napoleon ate only after his troops had been fed. Charles too, at his staff lunch, only ate after all of his guests had been served. Mao Tse Tung set out on the longest march walking every step of the 6000 mile journey alongside his confrères. Charles’ career has been built on a solid base in Peterhead and that is where his headquarters remain despite Score’s global operations. He travels widely and for extended periods but draws sustenance from home soil. There are, however, aspects of life in the United Kingdom which he regrets and where he feels that we might learn from others. In particular the bureaucracy of planning and the extent to which business can be raided by the Treasury with little notice, most recently via a 33% increase in nondomestic rates, are causes for concern. He would also welcome increased investment in Peterhead Harbour to enable it to compete more equitably with Aberdeen Harbour Board. Ultimately he would like to see the North East become more economically buoyant and more akin to the way it was in his youth, with a variety of vibrant industries and a population that has good opportunities for employment and improved health services.
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Figure 1. Monthly Brent Crude Oil Prices from January 1988 – December 2010
Figure 1 reveals a recent extraordinary behaviour of the price of Brent crude oil. The price of oil was around $35 per barrel in 2002, followed by a steady upward trend over the next six years to the middle of 2007. The price of oil has increased sharply since late 2007, reaching $136.71 per barrel in July 2008 and then followed by an immediate spectacular price collapse. The potential causes of this remarkable behaviour of oil prices may be due to a number of reasons as follows:
Figure 2. Total Production of Crude Oil (Million Barrels Per Day)
The issue here is the cause of stagnant global production. OPEC uses a quota system whereby each country is allocated a specific level of oil production to limit total OPEC oil supply and thereby influence oil prices in the international market.(www.opec.org).
1) Oil Supply Oil supplies are mainly divided into OPEC (Organization of Petroleum Exporting Countries) and non-OPEC sources. According to EIA, OPEC (i.e., Algeria, Angola, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela and the Neutral Zone) have produced over 44% of the world oil production in 2008 – see Figure 2. During the period of 2005 to 2007, the world production stagnated and this might have contributed to the dramatic high prices over the period.
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Figure 3. Norway, UK, US and Mexico Production of Crude Oil (Million Barrels Per Day)
On the other hand, only a few nations have the ability to supply the crude oil equivalent to the OPEC members. Most oil fields in non-OPEC countries are experiencing a declining trend in their production cycle - see Figure 3. For example, North Sea production from Norway and the UK declined significantly and US production shows a steady declining trend since early 90s. Mexico’s Cantarell field peaked in 2004 at 2.14 million barrels per day and has declined steeply since 2006. 2) Oil Demand The demand for oil is highly dependent on global macroeconomic conditions. The recent global economy boom has created a boost in oil demand, in particularly, the unexpected economic expansion of emerging countries such as China, India and Brazil). China became the world’s second-largest consumer just behind the US since 2006. China consumed just under 5 million barrels/day in 2001 and this has increased dramatically to over 8 million barrels/day in 2009 (EIA) – see Figure 4. While the global production stagnated during 2005 to 2007, China increased its consumption which indicates that other countries such as the US, UK and Japan lowered their consumption. Other countries reduced their consumptions despite increased levels of income because the price of oil rose sharply to a higher equilibrium level.
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Figure 4. Total Petroleum Consumptions in Brazil, India and China (Million Barrels Per Day) The recent financial crisis was triggered by a liquidity shortfall in the US banking system and many countries experienced recession in the latter half of 2008. The global-scale recession adversely affects the demand for all industrial commodities including oil. The price is identical to the price of all other commodities. When production capacity exceeds demand, the price dropS sharply to a lower equilibrium level and this may explain the collapse in late 2008. 3) Other factors Apart from the direct impact from demand and supply, there are many indirect factors which may contribute to the recent oil price variations. First, political tension and instability in both OPEC regions (e.g., Iraq, Saudi Arabia, Nigeria, and Venezuela) and non-OPEC regions (e.g., Bolivia, Turkey, and Russia) not only reduced their production levels but also raised concerns about the future availability of oil supplies, leading to an increased precautionary oil demand. Second, the price of oil is generally denominated in US dollars and the weakening of the US dollar from 2002 to 2008 can be associated with the increase in the price of oil. In addition, more concerns are raised from environmental issues recently as adverse weather conditions and natural disasters tend to influence oil consumption and/or production. 3. Oil Price Shocks Effects on UK Equity Returns Oil price shocks tend to influence stock returns through current and future changes in real cash flows and/or changes in future expected returns. For example, oil price increases can negatively affect current and future company earnings by making production more expensive and/or lowering the product demand. In this article, I will study how oil price shocks affect equity returns in oil-intensive industries in the UK.
1) Data and Methodology For the purpose of this article, I use a conventional multifactor model relating equity share returns to variability in Brent crude oil prices. This two-factor model is presented as follows: Ri,t = α + β1RBrent,t + β2RFTSEALLSHARE, t + εt (1) where Ri,t is the excess return2 of industry i on month t ,α is the intercept, RBrent,t is the monthly return on oil prices in month t; RFTSEALLSHARE, t is the monthly market excess return in month t. The parameter β1 is the firm beta which represents the influence of Brent crude on the UK industrylevel returns and β2 is the market beta which represents the influence of market returns on the UK industry-level returns. 2) Differences in UK Equity Return Responses across Industries This section examines the differences in the responses of equity returns across industries. The analysis is based on the monthly industry-level data from DataStream and the sample period starts from January 1988 to December 2010. Three industries are selected and the motives are summarised as follows: * Automotive & Parts The automotive & parts industry is considered because it is widely believed that a higher price of oil raises uncertainty about the fuel situation and weakens the demand for energy-dependent durable goods, in particular cars and vehicles. Therefore, I hypothesis that higher oil prices will have adverse effects on the returns of the automotive & parts’ industry. The null (H0) and alternative (H1) hypotheses can be stated as follows:
Excess return is measured by return of UK sector index i on month t minus the risk-free rate of interest such as interest arising from UK 3 month Treasury Bill.
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H0 : β1 = 0 No relationship between oil prices and automotive & parts industry equity price index. H1 : β1 < 0 A negative relationship between oil prices and automotive & parts industry equity price index. * Travel & Leisure I include the travel and leisure industry because of a common perception that higher oil prices harm this sector. In this view increasing oil prices lead to lower sales of leisure activities and holidays as consumers will have less income to spend on other goods and services because of the higher costs of energy. The hypotheses can be stated as follows: H1 : β1 = 0 No relationship between oil prices and the travel & leisure industry equity price index. H1 : β1 < 0 A negative relationship between oil prices and the travel & leisure industry equity price index. * Oil & Gas Oil and gas industry is a highly oligopolistic market and the demand is inelastic in terms of price changes. Therefore, I expect that the variability on the returns of oil & gas sector’s share prices should move with the price of oil. The hypotheses can be stated as follows: H0 : β1 = 0 No relationship between oil prices and oil & gas industry equity price index. H1 : β1 < 0 A positive relationship between oil prices and oil & gas industry equity price index. 3) Empirical Results Table 1 reports the results of testing for the predictability for returns of the automotive and parts, travel and leisure, oil and gas industries. All these tests for predictability are summarised by the p-value associated with the hypothesis test – if a p-value is below 1% (or 5%, 10%), we would reject the null hypothesis at the 1% (or 5%, 10%) level and conclude that the current returns of Brent crude oil prices and/or equity market returns could help explain the change in the industry equity price index. Table 1. Regression Results UK Sector Returns
Brent Crude Return
Automotive 0.0290 & Parts
Leisure & Travel
Oil & Gas
0.1460*** 0.8525*** 0.5729
**Significant at 5% level; ***Significant at 1% level Row 2 reports the results corresponding to the automotive and parts industry and the null hypothesis of no
relationship between oil price shocks and automotive and parts equity price index is rejected at 5% level. The oil price coefficient is positive which is in contrast with the expectation and it indicates that a 1% increase in the price of oil will lead to a 0.0831% increase in the automotive and parts equity price index. The possible reason for this inconsistence may be because the majority of companies in the automotive & parts sector are parts companies rather than automobile manufactories. The results corresponding to the travel and leisure industry are reported in row 3. Although the oil price beta coefficient is negative as expected, it is not statistically significant and so we can reject the null hypothesis. In row 4, the oil price beta coefficient is positive as expected and it is statistically significant at 1% level. This indicates that a 1% increase in the price of oil will lead to a 0.146% increase in the oil and gas industry equity price index. In summary, oil price shocks affect industries differently depending on their nature. In oil intensive industries such, the predominate effects of oil shocks are on the supply side. Although oil price shocks increase the costs of their production, most often these companies are able to pass these on to their customers and therefore a higher oil price does not tend to harm their returns. On the other hand, in most other industries such as leisure and travel oil price shocks tend to hurt their current and future earnings through lower demand,. 4. Forecasting UK Equity Returns Forecasts play a crucial role in organizations, driving decisions and shaping future plans. In this section, I perform a recursive out-of-sample forecast with a rolling origin and a fixed window of 200 observations for all three industries. Thus, the test period ranges from October 2006 to December 2010. I evaluate the forecasting models based on two commonly used criteria, goodness-of-fit and correct sign prediction. First, goodness-of-fit refers to how close the forecasts Ri,t are from the actual values Ri,t. One may measure it by using the mean absolute errors (MAE) and mean squared errors (MSE):
1 T T ∑ t=1
ei,t (2) (ei,t)2 (3)
where T denotes the number of forecast observations, ei,t = Ri,t - Ri,t . The smaller are the errors, the more effective are the forecasts .
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Second, the correct sign refers to the ability of a model to forecast it – this criterion is particularly important for investors. One might measure the ability of a model to forecast the correct sign using the proportion of correct sign predictions computed as: Correct Sign =
1 T T ∑ Zt *100% t=1
where Zt is a binary variable that takes on a value 1 if both actual and predicted variations of the industry returns have the same signs, 0 otherwise. The higher percentage of correct sign indicates a more effective forecast. Table 2. Out-of-sample Forecasting Results Performance Measures Industry Returns
Correct Sign Prediction
Automotive & Parts
Travel & Leisure
Oil & Gas
Reference BBC News. Katrina set to raise oil prices. 28th August 2005. http://news. bbc.co.uk/1/hi/business/4192528.stm BBC News. What is driving oil Price so high? 2nd January 2008; http:// news.bbc.co.uk/go/pr/fr//1/hi/business/7048600.stm BBC News. What is keeping oil Prices so high? 23rd June 2008; http:// news.bbc.co.uk/1/hi/business/7469124.stm Energy Information Administration (EIA). US and International Historical Petroleum Data. http://www.eia.gov/oil_gas/petroleum/info_glance/ petroleum.html Energy Information Administration (EIA). EIA Oil market chronology; 2010; http://www.eia.doe.gov/emeu/cabs/AOMC/Overview.html. Jones DW, Leiby PN, Paik IK. Oil price shocks and the macroeconomy: what has been learned since 1996. The Energy Journal 2004, 25, 1-32. Hamilton JD. Understanding crude oil prices. The Energy Journal 2009, 30, 179-206. Kilian L. Oil price volatility: origins and effects. World Trade Report on ‘Trade in Natural Resources: Challenges in Global Governance’ 2010. List of oil fields. Wikipedia. http://en.wikipedia.org/wiki/List_of_oil_ fields Organization of the Petroleum Exporting Countries (OPEC). Functions. http://www.opec.org/aboutus/functions/functions.htm 1 In this context, an oil price shock refers to an increase in the price of oil. 2 Excess return is measured by return of UK sector index i on month t minus the risk-free rate of interest such as interest arising from UK 3 month Treasury Bill.
Indicates the best forecasting model according to that measure.
Table 2 reports the out-of-sample forecasting results for three industries. All three measures suggest that oil prices movements contain more information in explaining the movements in the oil and gas industry rather than the automotive and parts and travel and leisure industries. It has a smaller MAE (2.9723) and MSE (18.0100) and 93.33% of times the forecasted returns in the oil and gas industry are consistent with the actual returns. 5. Conclusion The aim of this article is to provide an analysis of the nature and extent of the relationship between oil prices and equity values across different industries in the UK. I find a positive relationship between oil price shocks and oil-intensive industries such as oil and gas, where the shocks are o mainly on the supply side. For many other industries, the main effects of oil price shocks are on the demand side. In addition, as expected, changes in the price of oil contain more information on forecasting the returnmovements in the oil and gas industry.
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Employment Taxation: Status Issues Derek Allen, Director of Taxation, Institute of Chartered Accountants of Scotland, and Professor Elizabeth Gammie, Head of Accounting and Finance, Aberdeen Business School.
Most people want certainty in taxation and to manage the cost of taxation, viewing it as another expense item to be managed. Her Majesty’s Revenue and Customs [HMRC] state that their target is to collect the right tax at the right time and that avoidance of tax will be challenged. One particular area of contention is the status of the tax-payer. Self-employed individuals enjoy a greater range of expenses that can be deducted in order to arrive at their taxable income, they pay their tax and National Insurance (NI) in instalments and the NI liability (classes 2 and 4) is significantly less than that remitted for an employee on the same income (class 1 employee and employer contributions). Whilst the employment status of an individual is often very clear, the term ‘employment’ is not exhaustively defined in the legislation, thus leaving scope for ambiguity.
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If there is any doubt over the employment status of a tax payer then it is in the interests of both the tax payer and the ‘engager’ to have the person treated as self employed where tax minimisation is a goal. Thus, a concern of recent Governments has been in relation to those individuals who ‘falsely’ claim to be self-employed when in fact the terms of their engagement would suggest that the status of an employee is more appropriate. Indeed, in 2007/08, the UK Government intimated that the use of false self employment classification in the construction industry sector alone resulted in an estimated loss of tax and NIC of £350m per annum. Taxpayer status is an area where the Government is likely to target in order to raise additional tax revenues. As the risk of error lies with the alleged employer who has failed to operate Pay As You Earn[ PAYE] it is important that the ‘engager’ is fully aware of pertinent issues in respect of an individual’s status in terms of taxation. The penalty regime, introduced in Schedule 24, Finance Act 2007 (FA 2007), which took effect from 1 April 2009 gives HMRC power to charge a penalty of up to 30% when there has been an alleged failure of a taxpayer to take reasonable care. Thus, if HMRC are of the view that employers have failed to take reasonable care or even worse have deliberately made errors, then penalties will be levied for inaccuracies along the following scale. The following diagram highlights the structure of the stepped approach.
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Self employment status is currently a matter of contract law. The key test to be applied when trying to establish a taxpayer’s status is concerned with the nature of the contract between the taxpayer and the individual who has engaged the person to undertake the work. Where a contract of service exists then the taxpayer is regarded as an employee who is in service to the employer. Where a contract for service exists then the taxpayer is regarded as a self-employed individual who is rendering their services to a client. The following indicators are commonly used for status resolution.
Substance of relationship
Form of relationship
Control by another in the manner in which the work the work is performed.
No control by another over the manner in which the work is done.
The person performing the work is restricted from delegating his work to others.
The person performing the work is free to delegate his duties to others on terms of his own choice and he pays them out of his own pocket.
The person performing the work does not bear the losses nor keep the profits.
The person performing the work bears the losses and keeps the profits.
The person performing the work does not correct unsatisfactory work in his own time and at his a own expense.
The person performing the work corrects unsatisfactory work in his own time and at his own expense.
The person performing the work is located in premises owned by the person for whom he performs the work
The person who performs the work decides where it will be performed.
Tax and National Insurance contributions are withheld by the person for whom the work is done.
No tax or National Insurance contributions are withheld from payments.
The parties agree to employment status
The parties agree to self-employment status
The person for whom work is done provides the tools and the major items of equipment.
The person performing the work provides his own tools.
The person for whom the work is done lays down regular and defined hours of work.
The person performing the work is free to decide when he wishes to work.
The person for whom the work is done cannot withhold payment.
The person for whom the work is done is free to withhold payment until the work is performed as agreed.
The person for whom the work is done can dismiss.
The person for whom the work is done cannot dismiss the worker once the work is agreed, without compensation.
The person performing the work does not risk his own money in it.
The person performing the work risks his own money in the business.
Individually, the above 12 points do not prove the existence or otherwise of a contract of employment. They are, however, points which influence the courts in deciding whether such a contract exists. The list is not exhaustive and any fact which appears relevant in the particular case will be taken into account and considered. If the application of the criteria to an individualâ€™s status rendered him or her as an employee, one method of trying to circumvent this classification was for an individual to form a limited company and then to hire out their services in the name of the company.
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Substance of relationship
Form of relationship
Personal Service Company
Not only did this ‘intermediary’ company break the direct relationship between the individual and the ‘engager’ but the corporate status conferred its own tax advantages. The extraction of profit by way of a dividend (top rate of tax of 42.5%) as opposed to a salary (top rate of tax of 50% plus associated NIC costs) combined with taking advantage of the differential between capital (28%) and revenue (50%) makes this an attractive proposition. Even where a business is earning a profit of below the thresh-hold for a higher rate income tax liability, it is easy to see the tax benefits of either being treated as a sole trader or setting up a company and extracting the profits by way of a dividend. In the following table the taxable profits of the business were £30,000. Sole Trader – all profits are taxed whether they are extracted or not Employer NIC (12.8%)
Company Salary – extracting all the profits out by way of salary
Dividend – extracting all the profits out by way of dividend
Class NIC (£2.40 per week)
Class 4 NIC (8%)
CT paid (21%)
Employee NIC (11%)
Income tax (20%)
Total tax and NIC
Net cash available
However, the Government, in an attempt to clamp down on this practice, issued anti-avoidance legislation commonly referred to as IR35 which was aimed at ‘Personal Service Companies’ (PSCs). The IR35 legislation applies to ‘relevant engagements’ where a worker provides services to a client through an ‘intermediary’ ,the absence of which would render the engagement as income from employment. This legislation only applies if the ‘worker’ receives income from the intermediary in a form other than a salary taxed under PAYE or has a right to capital from the intermediary. Under the terms of the legislation, if the intermediary income less allowable expenses from ‘relevant engagements’ is greater
than the ‘worker’s’ employment income, then the excess is deemed to be a salary payment which is subject to tax and NIC under the PAYE system. When IR35 was originally introduced, it was supposed to yield an extra £200 million in additional tax each year. However a recent Parliamentary question and answer disclosed that its primary measure in this sector has only delivered £9.2 million in revenue in the six years between 2002-08, well short of the original target of £200 million a year in annual savings. Thus it is fairly clear that the legislation is failing to achieve its purpose yet it adds a huge cost to many small businesses. It is our contention that this complex and burdensome piece of legislation requires to be repealed.
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We posit that how work is conducted should have a degree of horizontal equity and, therefore, irrespective of the status of the engagement the tax rates should be similar. It should not matter whether the worker uses a company, is self employed or is an employee because people earning the same amount should be taxed in roughly equivalent degrees. However, HMRC and Government do not appear to support our contention, choosing instead to tinker with the system. For example, the FA 2007 introduced fresh legislation that was aimed directly at Managed Service Companies (MSCs). These MSCs are similar to PSCs in that they act as intermediaries though which the service of a worker is provided. The worker would extract profits from the company by way of dividend, saving substantial NIC. The difference between a PSC and an MSC is that a number of workers would become shareholders of the MSC. However, HMRC were of the view that the role of these companies was invariably to disguise employment between the individual and the engager. Hence, subsequent to the FA 2007, income received by individuals who provide their services through the vehicle of an MSC will be taxed as an employee and the MSC will be obliged to collect income tax and NIC under a PAYE system. This MSC legislation was followed by a declaration in the 2009 budget that the Government intended to tackle further false self -employment in the Construction Industry sector. A 45 page consultation document was duly issued in July 2009 which set out three tests, one of which would need to be satisfied in order for a construction worker to avoid being treated as an employee of the ‘engager’ whose main business involved the carrying out or commissioning of ‘construction operations’ and who uses the services of the worker to carry out such operations. The three tests are:
1. Provision of plant and equipment – that a person provides the plant and equipment required for the job they have been engaged to carry out. This will exclude the tools of the trade which it is normal and traditional in the industry for individuals to provide for themselves to do their job. 2. Provision of all materials – that a person provides all materials required to complete a job 3. Provision of other workers – that a person provides other workers to carry out operations under the contract and is responsible for paying them. The commerciality of these tests is questionable as it would be absurd if various subcontractors supplied all their own equipment or their own materials and the extent of substitution has not been defined. Thus we can only hope that they will be discarded as we are of the opinion that they would not solve the problem. The problem in the eyes of the Government, however, still exists and, where the ‘lost’ NIC on false self employment is currently estimated to run to £2 billion pa, we can rest assured that this will be an area that the Government continues to target. When faced with a situation where there is not a clear employment status, ‘engagers’ should seek appropriate taxation advice as inadvertently or deliberately treating a worker inappropriately as self employed could be costly in time and expense as well as incurring penalties for incorrect treatment. The view expressed as those of the authors and not necessarily representative of either ICAS or RGU.
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Aberdeen & Grampian Chamber of Commerce A History in the Making Kate Yuill, Policy & Communications Manager, Aberdeen & Grampian Chamber of Commerce
Early Beginnings The Lemon Tree Tavern in Huxter Row was a much-loved favourite of the traders and businessmen of mid-19th century Aberdeen as a howff where the excellence of the food was matched only by the hospitality of the hostess, Mrs Ronald. It is little wonder then that the movers and shakers of the 1853 business community would choose to meet up in their favourite rendezvous for a discussion to consider “the best mode of accomplishing the objects of a proposed Society for the Protection of Trade”. Under the leadership of their first chairman – Baillie John Forbes, a highly respected warehouseman with a reputation for achievement - the purpose, we can imagine, would have been fairly straightforward. The intention was to form a group of individuals who would work together to promote common business interests and support. While they might
have hoped that the group would have some longevity, it is doubtful if they would have expected that the group would still be in existence almost 160 years later as the modernday Aberdeen & Grampian Chamber of Commerce. The aims then were much the same as those of the current Chamber and, it seems, the problems and issues facing business in 1853 were not dissimilar to those in 2011. Even then, there were early indications that this was an organisation which was prepared to adapt in order to operate in the most efficient manner. Within a year the fledgling group – known at that time as the Aberdeen and North of Scotland Trade Protection Society, was setting its standards for the future by demonstrating a level of forward thinking and political awareness that still distinguishes the organisation today.
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Initial Leadership When they convened back in the Lemon Tree in 1854 for the first Annual General Meeting [AGM], Baillie Forbes stood down in favour of George Thomson Junior MP, whose presence in the corridors of power of Westminster, London was clearly seen as an advantage for the group. Described as a gentleman who “bore himself with a stateliness of carriage that may be described as commanding”, he would lead the Society for the next five years as its President and was already well on the way to establishing himself as one of Aberdeen’s most eminent citizens. Dean of Guild in 1840 and Lord Provost from 1847 to 1850, his greatest legacy was the formation of the Aberdeen White Star Shipping Line which traded around the world with a fleet which included the locally built Thermopylae. This was the fastest sailing ship in the world at the time and until recently was a feature on the emblem of Aberdeen Chamber of Commerce Under his guidance and, no doubt with the benefit of his political acumen, the organisation continued to grow. As now, it took an active role in representing the views of its members at Westminster. In 1859 it strongly opposed a government bill which gave parties resident in England the power to institute court proceedings in Westminster against Scottish residents with whom they traded, leading to comment in later years that the organisation might have harboured some early supporters of Home Rule among its ranks. Around that time, the society promoted issues on behalf of its members regarding mail delivery, rail transport and shipping which still require its attention today.
In 1871, in words which will still ring true with many of today’s business leaders, the Chamber’s annual report drew attention to the dangers of inflation, including the dire warning that “our power of competing successfully with foreign countries maybe be very sorely crippled”. Relocation in Aberdeen While “the more things change, the more things stay the same” ethos may have applied to some of the issues facing local business, that did not apply to the organisation itself and over the course of the following years, the Chamber itself was on the move – literally. The gathering of gentlemen bade farewell to the Lemon Tree Tavern and to the memory of “such creamy Finnan haddocks, such magnificent partan claws as Mrs Ronald was wont to place upon the table” to reconvene at a new meeting place at the Royal Hotel. The Lemon Tree alas had a less rosy future ahead. It, along with some other local taverns, were demolished when work began on the construction of the Town House in 1867 and an irreplaceable serving of local history was lost to progress and development. In the years since then the Chamber has moved home several times to various offices in Union Street and Union Terrace until, thanks to the generosity of James Glegg, President from 1916-1918, it finally found a home of its own at 15 Union Terrace in 1918. The building site is still there today marked by an engraved granite lintel above the doorway. It was to remain there for almost 70 years before the prestigious property was sold and the Chamber moved briefly to Hadden Street, then to Albyn Place and later to George Street before moving to its present location in Bridge of Don in 2005.
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Constitutional Change With changes of address came changes of name and in 1870 the Society became the Aberdeen Chamber of Commerce and North of Scotland Trade Protection Society. For many years it was known simply as the Aberdeen Chamber of Commerce until 2002 when it became the current Aberdeen & Grampian Chamber of Commerce, to more effectively reflect its role in representing businesses across the wider region. In 1877, the Chamber underwent the biggest change to its constitution when it submitted its Memorandum and Articles of Association to the Board of Trade and became an Incorporated body. Its objectives, as submitted to the Board for approval were: I. “The promotion and improvement of the Home, Colonial and Foreign Trade and the Manufacturers of the United Kingdom; II. The consideration of all questions connected with such Trade and Manufacturers III. The promoting or opposing Legislation and other measures affecting such Trade and Manufacturers IV. The collection and circulation of statistics and other information relating to such Trade and Manufacturers V. The undertaking and arbitration and the settlement of disputes arising out of the Trade VI. The doing of all such other lawful things as are incidental or conducive to the attainment of the above objects” More than 130 years later, the ideals behind those objectives remain largely unchanged, with the Directors Report of 2010 listing the Chamber’s five key objectives as being: 1. “To deliver ‘the ultimate business network’ benefits to members via Membership Services and Events 2. To provide added value through the provision of first class paid-for services a) Training and skills b) Export support 3. To be the voice of business – lobbying for a better operating environment 4. To work with partners to secure effective economic development 5. To continuously improve the performance of AGCC to give exceptional value for money to members and partners.” Campaigns At the time of its Incorporation, the Chamber had also joined the Association of Chambers of Commerce of the United Kingdom, the forerunner of today’s British Chambers of Commerce. Joining the national Chamber network did not stop the Aberdeen organisation from abiding by its main goal set out at the first meeting in the Lemon Tree in 1853, namely, continuing to represent the views of its local members. Then as now, the Chamber in the 19th century was not slow in taking its case directly to Westminster and in 1874 there was a vote at the Aberdeen AGM which unanimously resolved to call on Government to abolish income tax on the basis that, not only was the country’s public finance in an enviably prosperous condition, but because that particular mode of taxation was “most objectionable, vexatiously inquisitorial in its nature and incapable of equitable realisation.”At the same time, the Aberdeen Chamber also became the first in the country to ask that an allowance be made for deprecation of plant and machinery when fixing the assessable amount of annual income for tax purposes.
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It was a campaign which found success, with the Chancellor of the Exchequer of the day agreeing to the proposal although it would be another 40 years before a similar allowance was give for the depreciation of buildings. Other campaigns and activities followed and in the late 1880s, the Chamber was involved in mediating over issues resulting from the growth in the trawling industry which was changing the city’s economy. This was similar to many of the issues which arose when the North Sea oil industry first started to make its mark almost a hundred years later and, in the closing years of the 19th century, it raised awareness about the impact of foreign trawlers in local waters. Throughout its early history, the Aberdeen Chamber continued to pioneer its role as a proponent of forward thinking proposals. It was the first in the network to petition parliament for Imperial Penny Postage throughout the empire; in 1895 it urged parliament to make the metric system of weights and measures obligatory and in 1899 it called for the nationalisation of telephones. There is an irony and sense of déjà vue to some of the Chamber’s local campaigns at the turn of the century. For example 1890 saw the start of a 25-year campaign for an improved joint rail station in Aberdeen, a mantle taken up again by the present day Chamber a century later. In 1969 the Chamber urged the Secretary of State for Scotland to reject the Gaskin Report as a blueprint for the future of the North-east but to designate the Peterhead-Fraserburgh area as a growth area in the region. This is not dissimilar to the Chamber’s current support for the Energetica Corridor concept. ABERDEEN BUSINESS JOURNAL 2011 • Page 24
Membership and Finance As awareness of the Chamber’s success as a campaigning organisation grew, so did its membership. In 1872, when John Miller Esq, a manufacturing chemist in the city and President at the time, convened the AGM at 12 noon on Tuesday, February 13, he was pleased to record on behalf of the directors “the continued prosperity and usefulness of the association” with 24 new members being admitted during the year to bring the total on the roll to 168. The balance sheet, he was happy to announce, also noted a surplus of income over expenditure of £20 3s which valued the balance at the Society’s Stock Account at £85.5s 3d.
Included in the annual subscription of 21s was a copy, without extra charge, of the weekly publication “The Mercantile Test”, an advantage, it was noted, absent in other similar Societies. By 1900, the membership had risen to 258, many of whom sat on committees within the Chamber to take the lead regarding different issues of relevance to members. This was a forerunner of the
Chamber’s current Policy Council structure which has 27 members that represent all sectors of the current membership of just over 1200 businesses. Service Provision to Members The services which the Chamber provides to members and the wider business community have also developed and grown far beyond the imagination of the founding fathers. During World War I the Chamber introduced “quite a distinctive line for a Chamber of Commerce” in the form of a series of regular lunches to be addressed by national figures. Today, when most business people find it less convenient to take time out from their schedule mid day, the lunches have become breakfasts and the Chamber’s Business Breakfast series is now a stalwart of the organisation’s networking and information activities, regularly bringing in more than 100 people to the monthly events which attract key figures in business and industry as speakers. In addition, today’s Chamber now runs more than 60 events each year ranging from the Lunch n’ Learn sessions, networking lunches, workshops on international trade and specialised seminars and conferences covering all sectors of business. In more recent years it has introduced its now flagship event of the Northern Star Business Awards at which up to 1000 guests gather to celebrate the successes and achievements of the North-east business community. National and International Links When the Society first sat down to discuss the formation of an association in 1853, the members were signing up to become aligned to an organisation which had its roots in continental Europe where the first chambers of commerce were founded in 1599 in Marseille in France and Bruges in Belgium. The goal of these chambers has always been the creation of a network to further the interests of business and the message has since spread across the world. New York City Chamber, established in 1763, claims the record as the world’s oldest English-speaking Chamber, while Glasgow (1783) lays claim to being the oldest known existing Chamber in the Englishspeaking world with continuous records although both the Leeds and Belfast chambers were established in Britain before that. Aberdeen is now part of a network of 55 accredited Chambers in the UK with many more local “town” chambers and thousands of others in more than 130 countries around the world. Adorning the walls of the Chamber offices today are pictures of the Presidents who have served over the years, gathered together in a set of ornate frames. The wording may have changed over the years but the chamber’s mission as currently set out would no doubt meet their approval, namely, “Our members at the heart of the chamber. Our chamber at the heart of a strong and sustainable economy in the city and shire. Our region at the heart of a prosperous country.”
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Still the Ultimate Business Network Home to around 13,500 firms, Aberdeen and the Northeast of Scotland is one of the most vibrant business regions in the UK. With some 30% of Scotland’s top 100 companies being located in the region and the area being home to a major portion of the UK’s oil and gas industry which in its own right contributes around 28% of the country’s total corporate tax, its significance to Britain’s economy cannot, and should not, be underestimated. While it is an area which is identified across the globe as an energy capital, its roots go far beyond that and the region’s true wealth has always been based on a foundation built on businesses of every size and sector. When the local merchants of Aberdeen met in 1853 to form a trade association, its purpose was to support all aspects of trade and business. More than 150 years later, that association - now the Aberdeen & Grampian Chamber of Commerce – continues that work as a representative body for businesses of every size and sector. The core aim of the organisation remains the same. It recognises that, while businesses are naturally in competition with one another, taking a joint approach to issues that are of common concern or interest can be mutually beneficial to all.
It firmly believes that creating the right conditions for growth are vital if we are to secure and to continue to develop the region’s economic future. Much of its focus is on working with partners to encourage government to support growth by investing in the region’s infrastructure to attract more inward capital investment to the region. The organisation, which started with a handful of members, now has more than 1220 based right across Aberdeen City and Shire. Between them they employ around 90,000 staff in the private sector making the Chamber Northeast Scotland’s leading private sector, member based organisation. Contrary to popular belief it is not just a representative body of big business. The majority of its members are small and medium sized enterprises [ SMEs ], many of which are sole traders with around 84% having fewer than 50 employees and 95% employing less than 100 people. Services As the membership has grown, so have the services which the Chamber offers to those members, with new elements added over the years to meet the changing demands and requirements of a changing economy. Today its extensive portfolio of services to members includes international development, training courses and workshops, business mentoring and support, networking opportunities and of course lobbying and business representation.
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Organisation Representing the views of members to Government was one of the founding principles of the organisation and it remains one of the most important services which it provides today and one which distinguishes it from many other member organisations. The main policy generating body for the Chamber is its Council, a group of 27 members, elected by others to “collect, represent and promote the interests, views and opinions of the members and of the business community generally, interpreting to the best of its ability the true interests of the Chamber and its members”. In order to carry out that remit, the Council, along with the Chamber’s President, Chief Executive and Policy and Communications Manager, meets five times a year to discuss and debate key issues and to formulate the Chamber’s view. From 2011, the Chamber’s Board of Directors will become more involved in the policy process through the introduction of new joint meetings between the two groups to bring a wider range of expertise into the decision making. Lobbying Campaigns The Chamber’s profile as a lobbying organisation can be judged by its record in raising awareness at all levels of government. In 2010, it ran high profile campaigns on two subjects which are particular thorns in the flesh of members – business rates and transport. The rates campaign has seen the Chamber tackle the Scottish Government head on over the unfair removal of the transitional relief that would have helped soften the blow of crippling increases in rates. This was undoubtedly high profile. On June 24, in a debate in the Scottish Parliament on tourism, politicians harrying the Minister for Enterprise, Energy & Tourism on the Government’s business rates policy and its impact on the tourist industry quoted extensively from figures provided to them by Aberdeen & Grampian Chamber of Commerce. The information, gathered by the Chamber in a survey of its membership, provided real evidence of the crippling effect on hotels and other businesses
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dependent on the hospitality and tourism industry - and on businesses across all sectors - of the Government’s decision to remove transitional relief. As the rumblings of discontent with the changes spread across the country, the campaign took on national proportions with the Scottish Chambers of Commerce and other Chambers within the network also taking the Government to task over the issue. The work carried out by the Chamber also received widespread support from politicians and from the business community and was covered widely by the media and in further parliamentary debates. The Chamber generated high profile support and media coverage for its transport campaign, which included securing the then Transport Minister Stewart Stevenson as the keynote speaker at one of its business breakfasts and holding subsequent meetings directly with the Minister to raise awareness of local and national issues.
A number of issues it has supported and campaigned on which are now heading for successful outcomes, eg, the extension of the runway at Aberdeen Airport and the introduction of new routes, a commitment to the dualling of the A90 between Balmedie and Tipperty, the beginning of preparatory work for improvements at the Haudagain Roundabout in Aberdeen. Local and National Links One of the strengths of Chamber is its own participation in national Chamber networks, headed up by the British Chambers of Commerce (BCC) and Scottish Chambers of Commerce (SCC). As the national lobbying wing of the organisation the BCC has direct access to Downing Street and to the Government’s ministers and senior civil servants who consult with the organisation on a range of business issues and who use the data gathered through such processes as the nationwide Quarterly Business Surveys to provide information on trends and concerns of business. Similarly the SCC has excellent links with both the Scottish Parliament and Government and sits on many of Scotland’s advisory bodies. Nationally, the Chamber team provides direct input to BCC and SCC consultations across a range of issues, and in particular those relating to the energy sector where it is rightly considered to be the network’s national expert. In recent years, the Chamber has increased its involvement and interaction with the region’s MPs and MSPs and briefing sessions take place throughout the year in Aberdeen and Edinburgh. This gives the opportunity to share business intelligence, to lobby for support and to give the political world a direct line into the North-east business community. The Chamber also liaises with UK and Scottish Government ministers to arrange briefing sessions which put local issues directly onto the national agendas. It works closely too with other key business and economic development bodies and actively promotes and encourages partnership working with other business agencies in the firm belief that a united voice from the North-east of Scotland has a better chance of achieving results. The organisation has particular links with Aberdeen City and Shire Economic Future (ACSEF), the public-private sector economic development forum for the North-east and has taken the lead in one of ACSEF’s key priorities, achieving improvement in the efficiency of the planning process. It is increasingly
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developing its engagement with the public sector by building strong working relationships with The Robert Gordon and Aberdeen Universities, with Aberdeen College and with the two local authorities. It is also an active member of a wide range of other regional bodies giving policy advice and business opinion on partnerships including, as examples: • the North East of Scotland Transport Partnership (NESTRANS) a consultative forum specifically aimed at the development of Regional Transport Strategies • the Aberdeen Airport Business Development Forum, supporting the development of the Airport and related problems of access • the BID (Business Improvement District) Steering Group and the City Gardens Project Steering Group, both of which are considering city centre regeneration projects • The North East Scotland Climate Change Partnership working with public sector partners to achieve climate change targets • The Aberdeen City Alliance (TACA), a public-private sector city partnership • Green Business Partnership, promoting green initiatives for business
Media Channels The Chamber’s proactive approach and involvement with the extended business community of the North of Scotland means that it is widely recognised as the Voice of Business, particularly within the print and broadcast media in the region and beyond. Its comments are regularly sought on business issues, with its Chief Executive and others quoted regularly in the pages of the local newspapers and on radio and television and its campaigns frequently making headline news. As the voice of business it also promotes members’ news through its wellrespected in house magazine, the Business Bulletin. Published 10 times per annum, this glossy quality publication not only provides a platform for its members but it raises awareness of key issues through in depth features and profiles articles and informs readers of the work and initiatives being carried out by the Chamber. Its ability to do this is further supported by a regular eNews which is circulated to a distribution list of 4500 recipients and through its website which captures a huge wealth of information about the Chamber, its members, the local business community and national policy issues and which is read by the business community around the world.
Training Support In terms of business support for its members, the Chamber has an extremely busy training section which supports its commitment to develop skills and learning opportunities in the North-east. Last year it delivered 134 public training courses to some 840 delegates. This year it has already set 157 course dates offering around 65 core subjects covering some of the issues which are most relevant to business including People Management, HR & Employment Law, Finance, Administration, Business Development and International Business and Commerce. Over and above this, the Chamber has a dedicated Vocational Training Team who last year supported 114 candidates through the year on a range of Vocational Qualifications which help meet the skills needs identified by North-east business. The team also works closely with the region’s education authorities to provide advice and support at school careers events and to raise awareness of opportunities in business for young people, many of whom are eligible for fully funded VQs. Tailored support for growing businesses is also available through the Chamber’s Business Mentoring programme. Run in association with the Scottish Chambers of Commerce, the programme now uses the voluntary involvement of 125 experienced business leaders who have provided one-to-one tailored support to around 400 small businesses in the North-east of Scotland since the programme’s inception in 2005.
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Networking Events Many businesses, including some micro and small businesses who work independently or in relative isolation, particularly value the networking opportunities which open up through their involvement with the Chamber. Itself a member of “The Ultimate Business Network”, it is firmly established as a point of contact for the wider business community by providing a series of networking events and opportunities for member companies to engage and do business with each other and giving them the opportunity to raise their profile through event sponsorship and product placement. A primary focus of the Chamber is to encourage business to business dialogue and networking and it does this via a wide variety of events. In 2010, the Chamber organised over 70 business to business events attended by more than 2000 delegates. These included the wellestablished Business Breakfast series, Lunch ‘n’ Learns and Networking Lunches, Shire Connections as well as workshops and seminars. The flagship event in the calendar is the Northern Star Business Awards Dinner, which brought together 800 guests in 2010 to celebrate the brightest and best of the North-east business community who, against a backdrop of global recession and challenging trade conditions, had succeeded in growing and developing their companies.
International Links A significant factor in 2010/2011 was the increasing number of companies which are expanding and developing through increasing their international reach and export capabilities.
Although there is a balance of interest towards the oil and gas sector, the North and North-east of Scotland export a huge and varied range of goods around the world with the support of the Chamber.
The Chamber has been at the forefront of providing the support which companies need to do that and its ability to help business development now extends far beyond the North-east of Scotland through the provision of international business support both at home and abroad.
Recognised as one of the leading Chambers in the UK for Export Documentation, AGCC last year processed around 12,800 export documents and expects that figure to grow substantially throughout 2011.
It has earned a reputation for its expertise in providing guidance and information on countries that present market entry challenges, in particular in the lucrative SubSaharan Africa region. The Africa Business Centre (ABC), an industry-led organisation run under the auspices of the Aberdeen & Grampian Chamber, was first established 15 years ago as the UK West Africa Action Group. In 2010 it was rebranded as ABC to broaden UK WAAG’s original West Africa brief to include all of SubSaharan Africa. Throughout the year it will lead trade missions to Uganda, Ghana, Nigeria and Angola, helping UK businesses gain awareness of opportunities in Africa’s growing energy sector. Now the UK’s largest organisation of its kind, ABC is widely regarded as the leading support mechanism for companies entering African energy markets. It acts as the clearing house for a stream of company referrals from agencies both in the private and public sectors and its reach and network extends far beyond its member base. It also provides its members with the support, information and intelligence necessary to prospect and make informed market entry decisions.
That has seen advisory documents prepared on everything from kilts to Kuwait, tatties to Thailand and Christmas cakes to China passing through the Chamber office. Fish from all over the North-east and from Shetland continues to be one of the region’s biggest exports with hundreds of tonnes of mackerel in particular going regularly to the Ukraine and Russia. The Future for AGCC. The Chamber is seeking to grow its membership significantly in the coming years by adapting a sectorbased approach which will better support its members and the wider business community by carrying out research on behalf of different business sectors and providing services which are tailored towards these. Much of the information which will be gathered to support this will come thanks to a new partnership between the Chamber and The Robert Gordon University. This will see the Chamber support a KTP Associate (Knowledge Transfer Partnership Associate) for the next two years, who will carry
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out sector specific research to produce valuable associated market intelligence and insight. This will continue on from research which the Chamber has carried out in association with the Fraser of Allander Institute to produce its wellrespected Oil and Gas Survey series. The series, which has just published its 14th report, looks at the influences and trends in the industry and considers its impact across the wider business community in the region. The results have proved invaluable over the years as an indicator of the local economy and there is real merit in replicating that work to produce similar data for other industry sectors. Work is well advanced on this with the targeted sectors for first stage investment being provisionally identified as Energy, Tourism, Food & Drink, Business Services, Transport and Third Sector. In addition to supporting its own members, the research will generate market and business intelligence on a sector by sector basis for other organisations, and will share that information to help build up a more complete picture of economic performance in the region.
The Chamber will continue to adapt to meet changing business demands over the coming years. As an SME in its own right, currently employing 27 people, it is well placed to recognise and understand the needs of business and the challenges they are likely to face in what is expected to be continuing economic uncertainty over the next 12 months. In 2010, it reviewed where it wanted to be as a business and as a membership organisation and its focus and aim was very clear, namely, “Our members at the heart of the chamber. Our chamber at the heart of a strong and sustainable economy in the city and shire. Our region at the heart of a prosperous country”. Its purpose will be to continue to ensure that. It sees the route to that success through the adoption of, and delivery of, five key objectives:
• To deliver the ultimate business network benefits to members • To provide added value through the provision of first class paid-for services • To be the voice of business – lobbying for a better business environment • To work with partners to secure effective economic development • To continuously improve the performance of AGCC to give exceptional value for money to members and partners “We want the Chamber to be at the heart of decisionmaking in the region, we want to create value for our members, we want to be recognised as operating as a trusted partner with a wide range of organisations, we want to be able to demonstrate the value and impact of a combined voice and we want to continue to punch above our weight in Scotland and the UK,” said Robert Collier, the organisation’s current Chief Executive.
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o k in f in lc variety n of ma ement captains o t him determ e a successfu f binatio inspired by a manag v r le m a o o f h d c n n o e a t a e th h g sio Steve go on lled. H Throug ities and bein overed a pas for himself in ges and ve exce tudied for c n e r n t e is e u ll S t d e a r r h e h o a c opp , Stev ut a c in whic re he s e years carve o the field Sheffield whe chnology and s a over th roceeded to w g l Te s erin y of sp Engine the Universit ering and Fue afety and Los and ha s sector. , near n o S e lt d s o in e s a B g d e g d atten ical En in Proc oil and family in kgroun in Chem attain a MSc g class e’s family bac ture c S in k B r a o to fu aw tev ities ent on come a g up in al tle in S pportun later w n. o r e Growin ter, there is lit t he would be yed in manu e r a tio plo es he ha ve the c ring, he Preven Manch uld suggest t ther were em h hopes that im red Ste cess enginee e f f o atar. In y o o r h ig r o t r w t indus on to Q try, t in p u d s which is father and b mother had h od illness lef a o n g o g L d in an ’s H ho be from d. Start y indus The oil leader. d, while Steve bouts of child l. e aspire around the glo b of the energ ngineer. h h ic o n r, h o a o to w trades come a doct roject E s at sch , the hu cations ar erdeen nior role as a P st taste for rly year ed in lo m be b a k r e A m o ld a o is r u w t h o G d e g w e fir s n he mov yed in a more ired his sary skills to ng durin at Bolto he school 9 u li y 8 q g d c 9 g a u 1 u t r e s t T v s . to plo ces te ent on emerge en, Mark was em his time that S he had the ne w o d t n e n a v a e t g t t ll S be d tha uring MacKe ot until ften tential It was d ent and realise lead a team. It was n at his true po cluding Sir Ian and pupils o m d tle th as in manage challenges an Ralf Lit teve w School igious alumni S d . n s a e ie n it m st ave overco univers has pre Sir Phillip Cr bridge , m a e f f C li r c Rad ford o n to Ox went o ABERDEEN BUSINESS JOURNAL 2011 • Page 32
out of his engineering comfort zone. His first experience in leading his own team was challenging and almost halted his management career in energy before it had begun. It was the start of a leadership career that would see Steve become an Operations Manager, a Managing Director and eventually a company President. For the past 10 years he has combined his passion for engineering with his ability to lead. He remains hands-on in some aspects of Pöyry’s business while managing the overall European oil and gas division. Becoming a Leader When Steve gave a presentation to MBA students at Robert Gordon University last year, he shared with the audience examples of the many leaders and influencers from a vast cross section of society who he admires. Throughout his professional life he has looked to these people of eminence for guidance in his own career and recognises that his abilities to create and respond effectively to opportunities and to take calculated risks have enabled him to drive both projects and teams forward. Ranging from typically authoritarian styles of leadership to a more charismatic or conventional approach, Steve was inspired by a number of people when he stepped into the management roles. From football managers such as Alex Ferguson and Bill Shankly, with their strong and focused personas, coupled with their desire to nurture and develop the team, to musicians such as Bob Geldof with a dynamic approach and vision for change and mountaineers including Joe Simpson with their less risk-averse approach to a challenge. Recognising that not one particular tactic is suitable in all situations, Steve had to find his own management style quickly after being thrust into this side of the business and
Steve moved to Aberdeen more than 20 years ago as a Process Engineer and worked with an engineering contractor. He was then selected to be the Project Manager on a contract with a major oil and gas operator. With little previous experience of leading projects, Steve was thrown in at the deep end and he had to sink or swim. The project had a unique set of challenges – it involved the management of the engineering aspects of a multitude of modifications related to safety upgrades, debottlenecking, wellhead flowline designs and minor modifications for four ageing installations. The work required prioritisation and significant logistical planning particularly related to surveying at a time post Piper Alpha when there was a significant amount of difficulty in gaining access offshore. The planning of such work was much more difficult than for a major Greenfield project, involving many small projects and a huge number of design workfaces. In addition he was tasked with significantly expanding the size of a team from a small core base but with access to constrained resources. The project was not meeting client expectations. Steve was under pressure and he almost gave up. It was not until he took a stand, found his own management approach and gained confidence in his capability as the boss that things began to fall into place. His first experience of management gave him the impetus to seek out new challenges and progress through the ranks. That opportunity would present itself through the merger of Aberdeen-based engineering consultancy IGL with the global company Pöyry.
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Dealing with Change Steve joined the engineering consultancy IGL in 1996 as a Consultant. He became the Operations Manager in 2000 and subsequently Operations Director in 2003. He also worked as an expert witness, drawing on his engineering and project expertise to advise on legal cases in the oil and gas industry. IGL was a niche process engineering company which adopted a people-centred approach and expanded the business by establishing and building client relationships. The company did not as such have a vision but more of an ethos for conducting business. In 2006 IGL was acquired by Pöyry - a global expert in consulting and engineering with 7,500 experts in 49 countries and more than 100,000 project references. Pöyry’s oil and gas clients include major multi national operators, national oil companies and smaller independent producers. The combined business grew to employ more than 500 multi-disciplined oil and gas consultants worldwide. The division specialises in providing expert support to clients throughout the lifecycle of upstream oil and gas projects. Despite this global prowess, Steve and his colleagues faced a major balancing act in the two years of transition following the takeover. Among clients and potential clients they needed to retain faith that the team’s experience and ability to deliver would not be changed while building trust in the Pöyry name. This was virtually unknown in Aberdeen. A dilemma was the extent to which the company should retain the IGL brand on the one hand, while removing all trace of it and fully embracing the Pöyry brand on the other hand. A significant issue was the pronunciation of the company’s name and whether that would have a negative impact on future prospects. Making the transition from being part of a company which had been established for 17 years to a new division of a Finnish company was a huge step for Steve and his employees, though the company had huge potential for the development of Aberdeen’s personnel. Steve knew that he had to retain his staff, with their skills and expert knowledge, to make the new business work. His strategy was to regularly communicate with his staff, to highlight where he wanted to take the company and create a secure foundation on which to build the new venture. The main difference between the two companies was that Pöyry was significantly larger with a wider portfolio of expertise. This had been achieved through organic growth and acquisition, resulting in five business groups encompassing Energy, Industry, Urban & Mobility, Water & Environment and Management Consulting. One of Steve’s on-going challenges is to expand the business in Aberdeen by tapping into the resources and skills available elsewhere in the company.
Steve became Managing Director of Pöyry in Aberdeen at the end of 2007 and his key focus was the development of the company in Aberdeen. He was promoted to President of Oil and Gas for Europe last year. As well as being responsible for the continued growth of the Aberdeen operation he also oversees activity in Norway and Spain since they are primarily focused on oil and gas. Steve’s role involves the corporate management, growth and commercial success of the company’s European oil and gas services. The next step in his drive to expand the company is to have a fully collaborating, integrated oil and gas team across these centres with links to other business units which do not currently deliver oil and gas services but provide related engineering expertise. Steve understands the importance of having a clear vision for the future and ensuring his team buys into and supports that drive. In this way he and his colleagues are fast establishing Pöyry as a leader within the various engineering and consultancy fields in which it is active. It has also enabled him to attract and retain some of the best talent in the industry. His game plan is to ensure that Pöyry is top of its class. He is not particularly concerned with being the largest player on the field. Two years after the acquisition, Pöyry was achieving steady financial growth and Steve was on track to significantly expand the Aberdeen office. He was faced with the choice of achieving this organically or through a more aggressive approach of merger and acquisition activity. Although tempted to go full steam ahead into M&A, Steve realised that the team had just settled into the new set up following the change from IGL. To acquire a further company so soon afterwards was likely to have a negative impact on team morale and quality of work. As a result he decided to follow a more organic approach through attracting new talent to the ranks and developing clear business streams. To make the business more efficient, three lines were created, namely, Consultancy, Development Engineering Services and Production Operations Support. These allowed Pöyry to focus on its specialities, while also allowing room for growth. This strategy has enabled specialist teams to be developed in the company while retaining the overall structure. One of these areas has been in the field of low carbon and renewable energy. Pöyry launched its dedicated renewable energy team in Aberdeen this year. This provides a gateway to the global expertise of 250 renewable energy specialists across 15 European offices. Pöyry has been involved in numerous groundbreaking renewable energy projects including being the owner’s engineer for the 50MW Andasol III CSP plant in Spain and performing the Carbon Footprint and Offsetting Feasibility Study for the FIFA 2010 World Cup in South Africa.
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Steve was committed to attracting talent to the team but found it increasingly difficult to find suitable people, which was hugely detrimental to the company’s growth plans. He decided to draw on expert Human Resource advice and a new HR strategy was developed. Network mapping and online networking provided a more efficient way to build a candidate database. The result was that HR costs were almost halved and it was possible to take 22 new recruits on board. As part of its commitment to fostering talent, Pöyry launched a scholarship scheme with five major Scottish colleges and universities including Robert Gordon University, the University of Aberdeen and Banff and Buchan College. This improved understanding of Pöyry and even attracted the attention of First Minister Alex Salmond. Investment was also made in raising brand awareness of Pöyry. An advertising and public relations campaign aimed to create distance between the old IGL brand name and the new Pöyry approach. The communications approach was not the way which either Steve or Pöyry had traditionally promoted the companies but, following his instincts and learning from examples of other companies, he knew that a fresh approach was needed to capture the Aberdeen market. Fighting the Recession Unfortunately the period of stability was short lived. The global economic downturn blew Steve’s strategy off course. Clients began cutting costs and axing some projects so there was greater competition for potential contracts, meaning reduced profit margins. The downturn was a difficult time for the company but Steve found it to be an opportunity to create a strengthened vision for the future direction of Pöyry and develop a clear path to drive the business forward. He continued the company’s commitment to investing in staff and recruitment which meant that Pöyry was in a position to take more market share once the economy began to recover. The company even achieved some growth in 2009 despite the recession. Facing challenges head on and finding solutions that are not always the most obvious options is a key strand of leadership. The obstacles which Steve has overcome has shaped his business outlook and leadership style. Leaders are judged by their achievements and Steve has always been a very vision-driven man. One of his favourite pastimes is hill walking. He enjoys setting a goal and making a plan of how to reach a chosen summit. Yet it is
the actual walking and implementing the plan into action that defines the experience. It is usually hard work and the environment can change unexpectedly along the way. He enjoys the view when he gets to the top but there is always another summit. Much of the same can be applied to his business methods. He was very much an accidental leader by his own admission. Steve did not set out to be a leader but he is ambitious, can communicate his vision to his teams and is not afraid to make decisions or to change them. This has led him to build the Aberdeen division of Pöyry to 60 employees with a turnover of £7 million and to lead the oil and gas activities across Europe. Vision for the Future Being part of a global network has made it possible for Steve to develop his team beyond the capabilities of the previous company and learn valuable business lessons. Drawing on expertise from international colleagues has brought new and dynamic services to the North Sea oil and gas market and enhanced the processes by which Steve manages day to day business. Going from inauspicious beginnings to developing and managing a company on a pan-European basis is not the easiest of breaking grounds for a business leader, but it has proved a crucial journey for Steve to become an effective leader in the oil and gas sector. He is also committed to inspiring leaders of the future and the successful Pöyry scholarship scheme, launched in 2009, has already seen 15 students benefit from financial support. Steve has been hugely impressed with the wealth of talent in the north east and throughout Scotland and is certain that the answers to resolving the oil and gas sector’s on-going skills shortage lie close to home. Nurturing talent in his company and the industry is something Steve sees as being crucial for the sector to thrive going forward and maximise its potential in both traditional and new energy production. Being a leader may not have been in Steve’s blood but it is something that has developed throughout his career through opportunity and hard work. He seeks to provide an environment of support and opportunity for his employees and to encourage them to take control of their career development. Just as Steve has expanded Pöyry organically, so too has his career been a natural progression. It has been achieved by trusting his instincts, taking opportunities, and being willing to learn from those around him, regardless of their background. These qualities and skills have enabled him to become a dynamic and effective leader.
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back row left to right: Fiona Bowman, Sharon Williams, Karen Bywalec front row left to right: Angus Easton, Tom Rennie, Craig Wilson.
THE PRACTICE OF ENTREPRENEURSHIP THE SOLICITOR AS A COMMERCIAL ENTERPRISE Craig Wilson, Solicitor, Corporate & Commercial Department, Peterkins Solicitors.
Unless a firm has a monopoly of a particular area of work, finding new business can be challenging. Peterkins Solicitors firmly believe that the combination of quality service at an affordable price is the most effective way of retaining existing clients and attracting new business.
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Corporate & Commercial Department The success of any type of business is primarily a function of the skills of its personnel, in particular the senior personnel. Peterkins Corporate & Commercial Unit consists of one Partner, Tom Rennie, and his team of a Solicitor, a Chartered Secretary, a Trainee Solicitor and additional paralegal support staff. Tom has many years’ experience, with the vast majority of it being in corporate and commercial work. As Partner and head of the Corporate & Commercial team, Tom Rennie oversees all work which is conducted within the department. Range of Services Provided The department deals with a wide range of corporate and commercial work including, mergers and acquisitions, management buyouts and buy-ins, corporate finance, intellectual property, company formation and secretarial services, partnership formation including those with limited liability (LLPs), employment matters, fisheries and maritime law, and energy related business in both the oil and gas and in the renewable sectors. Accordingly, team members are encouraged to develop multiple skills. Recent transactions in which the firm has acted include the management buyouts of suppliers to the North Sea oil and gas industry, the restructuring of a training & development firm with UK and US operations, a fundraising for a global e-Learning company, and the arrangement of guarantees by the UK subsidiaries of a Norwegian entity in connection with their parent’s obligations to a Scandinavian bank.
High Quality Service Quality of service is essential. By completing work to a high standard the Unit has ensured that the majority of its work comes from existing clients and their referrals. “If clients are not happy with the quality of service we provide then they will not come back, so it is essential that we are always working to the highest of standards to ensure our clients are happy with our services”. Client Care It is important to acquire in-depth knowledge of the client and the individual business.
“The more we know about our client’s business the more valuable our advice can be”. Tom Rennie regularly travels to spend time at the business premises of clients both in the UK and abroad in order to advise them on particular matters or to acquire a greater understanding of their operations. Although this degree of familiarity is not necessary for every client it is something Peterkins are prepared to undertake as required in order to provide their clients with the highest quality of service.
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Experience Peterkins’ Corporate & Commercial Unit has been involved with many businesses, including private limited companies, partnerships and sole traders. Within the last few years Peterkins have been involved in transactions ranging from under £100,000 rising to those worth many millions of pounds. Value for Money Providing sound value for money is of critical importance. This is especially true when providing a service to smaller organisations and growing businesses, the resources of which are frequently limited and therefore must be prioritised. It is appreciated that in such circumstances costly legal fees are the last commitment that such entities wish to incur! Peterkins understands that clients very often wish to receive an assessment of legal risk to allow a commercial view to be taken in relation to specific matters and their ability to provide such analysis to inform clients’ decision-making is well-honed. It goes without saying that Peterkins expects work of the highest quality standard from its personnel and its aim is to provide the client with a quality professional service at a reasonable price. This combination is clearly essential for the delivery of legal services, whatever their value and source.
Quality Client Service Costs When a business is sold the legal costs involved can be very high. In particular, if a small or medium sized business is sold the legal costs can appear to be very high if they are looked at as a percentage of the total transaction. For example, a £50,000 fee for a £5 million transaction is 1% of the transaction value. Yet a £10,000 fee for £100,000 transaction is 10% of the transaction value. Not surprisingly this is a factor that concerns many business owners who are considering the sale of their business and Peterkins will try to address such issues associated with smaller transactions. For example, in the case of high-tech incubator type companies, Peterkins may be prepared to undertake legal work on a speculative basis to enable the client to find its feet.
Having been involved in such a wide variety of business and transactions for many years the unit recognises that the requirements can differ across the range of such deals; clearly, it would not be in the client’s best interests to treat the sale or purchase of a business worth £100,000 in the same way as a transaction worth £10 million. Peterkins’ Corporate & Commercial Unit therefore sets out to manage work in such a way as to ensure that costs are kept to a minimum without prejudicing the core elements of the matter in hand. Commitment It may be necessary to work to demanding time scales when a deal must be completed before the end of a company’s financial year or before a government budget is announced where there is a possibility of tax changes. Information Technology Peterkins have invested heavily in information technology to make their services more efficient and cost effective. Having an efficient IT system saves time and improves the quality of service. Where possible case managed solutions are utilised. Personal Touch A major selling point is the strength of the relationship between the individuals on the client side and the staff of the advising solicitor that a small close knit team can develop. This is not necessarily the case in larger organisations where delegation may occur over several tiers. Strong personal relationships are vital for effective business management. Lower Cost From the clients’ point of view one of the greatest advantages of using a firm like Peterkins for Corporate & Commercial work is that the fees may not be as expensive as those charged by larger firms. Smaller scale may be more cost effective.
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Common Company Services Amongst Peterkins most popular services are the following: Company Formation and Maintenance Peterkins carry out the formation of new Private Companies limited by Share Capital or by Guarantee and of new Limited Liability Partnerships at competitive rates. Peterkins are also prepared to act as Company Secretary for companies on the basis of a small annual retainer. Company Legal Compliance After companies have been set up, often the legal documents are not reviewed on a regular basis and difficulties can arise when these become dated. Periodic review of core corporate documentation may be necessary. To address this, the unit can carry out a cost effective review of the essential company documents. Typically, these could include Articles of Association, contracts of employment, service agreements for senior personnel, staff handbooks, general terms and conditions, health and safety policy, risk assessments and shareholders agreements. The nature of the client’s business will determine the documents which need to be reviewed.
Financial Services Peterkins have a dedicated Financial Services Department. The Manager can advise companies, partnerships and individuals in connection with their insurance, pensions and other related matters. The ability to advise clients on all areas of their business is very important.
Conclusion Peterkins Corporate & Commercial Unit’s aim is to provide a more cost effective alternative to competitors in Aberdeen. The primary targets are businesses that are looking for a high quality service at competitive rates, which offer attractive value.
Corporate Finance In recent years Peterkins’ Corporate & Commercial Unit has been involved in numerous corporate fund raising activities. For qualifying companies with the right dynamics private equity raised from high net worth individuals using the tax breaks afforded by the Government’s Enterprise Investment Scheme may be a preferable solution compared with traditional sources of capital. The firm can access funds and high net worth individuals who may be interested in investing in companies with compelling and well presented business plans that can withstand critical challenge. Energy For many years Peterkins have provided legal support for service companies supporting the offshore oil and gas industry. These ranged from organisations providing catering and base supplies to companies providing sophisticated subsea solutions and software. Increasingly members of the team have been involved in renewable projects whether wind related or tidal. The firm was recently in involved in the purchase of a mobile drilling unit, which involved the co-ordination of activities across four continents!
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MULTINATIONAL MIRROR JCI ABERDEEN - A LOCAL ORGANISATION WITH INTERNATIONAL SCOPE Arlene Hutchinson, Past President, JCI Aberdeen, 2010
Introduction I joined JCI Aberdeen in 2004 because it was a professional local voluntary organisation that allowed its members to progress through personal development activities and networking. It is also part of a global, non profit making organisation of 200,000 young people aged 18-40 in more than 100 countries around the world. JCI started in 1944 and exists to develop young leaders and entrepreneurs by focusing on self development, networking, community awarenesss and international issues. After having held several local board positions I was given the opportunity in 2009 to become President in 2010. As I write this my year in office is over but it has been one of the most satisfying ventures of which I have had the fortune to be part. I will continue to be involved in JCI Aberdeen for many more years to come. ABERDEEN BUSINESS JOURNAL 2011 â€˘ Page 40
JCI – The Local Organisation JCI Aberdeen is made up of some 50 members and is one of 4 branches in Scotland. It celebrated its 60th anniversary in 2008 and has many past members who are prominent participants in the local business community in Aberdeen. Each year the local board put together a programme of events for the members covering four areas of which are Business, Community, Personal and Professional Development and International. We encourage members to become involved in project management or to acquire new skills such as public speaking and debating. We pride ourselves on ‘learning by doing’ and our global slogan is ‘be better’. We have a large international element whereby members have the opportunity to attend many international conferences. JCI – A Global Player JCI is divided into 4 geographical areas of Africa and the Middle East, Asia and the Pacific, The Americas and Europe. Every year, JCI members unite in their regions for JCI Area Conferences to exchange ideas, learn how to maximize their local impact and collaborate with other National Organizations. The four annual Area Conferences give members a chance to take advantage of JCI’s international network while enhancing their national organizations. In addition to the area conferences members from across the globe come together for the peak celebration of the year at the JCI World Congress every November. At this global forum, delegates elect next year’s officers, meet JCI members from more than 100 countries, find new ways to create positive change and magnify the positive impact of the JCI movement. It was not until 2007 that I attended my first World Congress in Antalya, Turkey, and this is when I truly saw the magnitude of the organisation of which I was part. There are many activities organised during the international conferences and the following gives a brief overview of the events which members can expect at a JCI International Conference:
Training Courses and Seminars These help members acquire knowledge and develop skills. Providing development opportunities that empower young people is an essential part of the JCI Mission. JCI Training provides opportunities for members to extend their capabilities and use those skills to improve the world around them by making them more effective leaders and citizens to enrich society. General Assembly This is the supreme authority of the JCI organization. During its session, chief delegates may formally express their views and discuss matters relevant to their national organizations. Highlights include the elections, the inauguration, keynote speeches, and the conclusion of some JCI Programmes such as the World Public Speaking Championship, Best Business Plan Competition, and Creative Young Entrepreneur Award. World Public Speaking Championship This offers members a unique opportunity to exercise and showcase their abilities and to share ideas on issues of particular importance to fellow members. The competition is intended to give the finest speakers an opportunity to compete for greater recognition and challenge. Public speaking is a critical skill for leaders to motivate others toward positive change. At the Championship, members face the challenge of expressing creative ideas in a clear and captivating manner. National public speaking contest winners compete at the JCI Area Conferences and then the winners go on to represent their geographical area at the JCI World Congress World Debating Championship: This provides individuals with an opportunity for personal development and supplies participants with the skills they need to work well as a team. Debating skills equip members to resolve conflicts, respect differences and overcome obstacles. In discussing topics that range from the profound to the comical, contestants argue their
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truth, relevance and accuracy. Capacity-building events like this create a foundation of teamwork, critical thinking and problem solving that members use to address issues in their local communities. This competition remains sponsored by Eric Stevenson, the 1963 Scottish World President. Twinning Program This develops voluntary and reciprocal agreements signed by two or more national or local organizations in different countries, regions or cities. The objective is to exchange personal visits, ideas, projects and culture through twinning relationships. This is the official start of such twinning, with the JCI President or other assigned officers acting as witnesses. The Program formally links two or more JCI local organizations from different countries which are interested in collaborating. Twinning partners learn, exchange ideas, forge diverse connections and gain a unique perspective on the world as they participate in joint cross-cultural projects. Twinning leverages the JCI global network to gain a deeper understanding of international cooperation. JCI Aberdeen are currently twinned with JCI Barnsley in Yorkshire, JCI Lier in Belgium, JCI Nokia in Finland and JCI Taipei in Taiwan. TOYP & CYEA Programs Every year, JCI selects 10 outstanding young people under 40 (TOYP program) who represent the JCI Mission in extraordinary ways. Highlighting the accomplishments of these young active citizens in a variety of fields inspire members to improve and realize their full potential as active citizens. Last year three of these ten extraordinary people were from the UK and Ireland. The Creative Young Entrepreneur Award (CYEA program) is geared towards business people who use imagination and creativity in their business enterprise.This could be any number of things, including using creativity in product development, service development, or even in the way they approach the market. The key is how they have tackled something in a fresh way, using their talent, imagination and ingenuity to drive their business. Each year JCI selects 1 person as the 2011 JCI Top Creative Young Entrepreneur in the world.
Awards Ceremony At this event, JCI recognizes and honours the outstanding achievement of its national and local organizations and individual members. Entries for this Awards program are submitted online prior to the opening of the Conference. Winners are selected by judges as the best in each category. Gala Dinner This guarantees an exciting finish to the World Congress. I can remember sitting down for dinner on the last night in Osaka, Japan with 6,000 other delegates. Social Networking As well as the day long programmes there are always plenty of opportunities to network socially at the national nights. JCI members continue to network in a more relaxed and informal way and become acquainted with the hosting country’s music, dance, drinks and food. 2010 JCI World Congress, Osaka, Japan Only a month ago a small Scottish delegation returned from Japan. Being one of 10,000 delegates was a truly unique experience of being exposed to so many different cultures, all with one common goal, namely, to create a positive change in the world in which we live. The JCI programmes, offered locally, nationally and internationally, provide members with opportunities to learn, achieve and inspire active citizenship while engaging with their communities in new and innovative ways. Partner Initiatives JCI works with global organizations with mutual values and goals to maximize the impact of the daily local work of JCI members. United Nations and the UN Millennium Development Goals JCI has officially been partnered with the United Nations Organisation since 1954. In 2003, JCI committed itself to advancing the UN Millennium Development Goals as a set of time-bound targets to help reduce poverty, hunger, disease, illiteracy, environmental degradation and discrimination against women. JCI members organize thousands of projects every year and are committed to advancing the goals and using the UN MDGs as a framework. International Chamber of Commerce-World Chambers Federation (ICC-WCF) and Global Economic Progress The ICC is the voice of world business championing the global economy as a force for economic growth. Through JCI’s partnership with the ICC-WCF, JCI local organizations work with local chambers of commerce on projects to advance global economic progress and encourage entrepreneurship, including the JCI Best Business Plan Competition (JCI BBP). Through this event young entrepreneurs are awarded for integrating the principles of social responsibility into their business plans.
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Pan American Health Organization and Child Health JCI has worked with the Pan American Health Organization (PAHO) since 1994 to implement cooperation agreements focusing on children in Latin American national organizations. Enjoying international recognition as part of the United Nations system, PAHO serves as the regional office for the Americas of the World Health Organization. PAHO supports JCI national organizations in Latin America to implement projects related to MDG 4,ie, reduction in child mortality. European Leadership Academy JCI European Academy is an annual training programme which is separate from the International Conferences that are on offer to members. This is aimed at preparing individuals to become President of their local chapters. Over the course of the four days, participants take part in a number of leadership and team building tasks in a variety of different environments. The training is built around coaching , building trust, team building and appreciating cultural differences within the delegation. Last year JCI Aberdeen’s Vice President Steven Wilson attended the 5 day training in Gothenburg, Sweden.
Making a Difference When I became President of JCI Aberdeen in 2010 my motto was ‘To make a difference’. This can be reflected in a member’s own personal development, in an employer or the local community and also in the world by becoming involved in global projects. The opportunities offered by JCI will foster the spirit of voluntary work within the members and will help to mould the leaders of the future. I feel very fortunate to have been given the opportunity to be President of such an amazing organisation. Further information about JCI can be accessed online at www.jci.cc or www.jciaberdeen.org.uk. You can e-mail JCI Aberdeen at firstname.lastname@example.org
Steven, who is an accountant in Aberdeen with Aberdeen Asset Management won the best delegate out of 72 participants across 22 countries. Winning this award gave Steven the opportunity to acquire ‘Chief Delegate’ status at World Congress in Osaka. Accordingly he was able to attend the General Assembly, a first for a non Country President, and was invited to a host of VIP receptions. “Beds to Ghana” Project The international project that JCI Aberdeen worked on last year was the “Beds to Ghana” project whereby a number of hospital beds no longer required by NHS Grampian were shipped to a children’s hospital in Accra, the capital city of Ghana. The project team worked hard to liaise with the Ghanian authorities and shipping agents to ensure that the hospital beds could be shipped with minimal problems. The beds were finally shipped to Ghana on 12 November 2010. We made contact with the JCI National President of Ghana whilst attending the World Congress in Japan and Steven Wilson, the current 2011 JCI Aberdeen President, is looking to travel to Ghana in May 2011 to see the hospital beds in use and set up meetings to discuss other projects.
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competitive and challenging financial climate. Technology advances have lead to a significant increase in the use of online recruitment tools but their effectiveness has to be evaluated. This article will consider not only the advantages and benefits of e-recruitment but will also highlight some of the drawbacks and potential pitfalls facing employers along the way. Advertising Job Vacancies Online According to the Chartered Institute of Personnel and Development (CIPD), e-recruitment (or online recruitment) is defined as; ‘the use of technology to attract and recruit candidates’ (CIPD 2010a) This definition highlights the importance of technology in creating the right impression to potential employees before they consider applying for vacancies within the organisation. Technology can therefore be used as a tool in both the marketing and branding strategies of organisations in order to project the right corporate image to the outside world. From its 2010 Resourcing and Talent Planning Survey, the CIPD has found that the respondents cited their own corporate websites as the most effective methods for attracting applicants, particularly within the public sector. However this is closely followed by a reliance on the use of recruitment agencies and local newspaper advertisements, implying that technology has not yet replaced or overtaken the more traditional methods of recruitment. The staggering global phenomenon of social networking sites such as Facebook, Twitter and Linkedin – with more than half a billion people worldwide using such sites to post and access information (Science Daily 2009) – has opened up a whole new world of access to potential employees. However, in practice, only 3% of UK employers rate the use of such social networking sites as an effective method of finding new employees (CIPD 2010b). Going back to the CIPD definition, however, it is clear that online recruitment is not simply restricted to the advertising of new posts on websites but it can also incorporate the use of online applications and online testing of candidates’ suitability and subsequent applicant sifting. This implies that there are several ways in which organisations can make use of technology in their recruitment strategies and processes (Beardwell & Claydon 2010). The most obvious and popular is the use of technology to advertise current vacancies, whether that be on their own corporate website or on generic or specialist job boards. This is an extremely cost effective method of advertising. According to Frankland (cited in Taylor 2008 p. 226), the cost of setting up a company website from scratch will equate to roughly the same as a prominent advertisement in a national newspaper.
Administration of Applications Online This approach can be taken one step further to incorporate the administration of applicants through a bespoke online talent management system which can respond to and track the progress of large numbers of online applications. Such systems have been successfully implemented by large organisations such Superdrug and Nike to manage high volumes of applications (Pollitt 2005a, 2005b). The implementation costs of such IT systems can potentially be balanced by cost savings; in the case of Superdrug, this equated to a saving of 87% of their average annual recruitment costs (Pollitt 2005b). Employer Branding by Recruitment Online In today’s technology focussed society, it is not simply enough to have an online presence however and online recruitment can also be used as a tool for enhancing employer branding – a key factor in gaining competitive advantage, talent development and staff retention (Younger, Smallwood & Ulrich 2007) and in creating an ongoing dialogue and relationship with the potential talent pool. This latter point has been demonstrated by T-Mobile which has successfully set up an invitation only Facebook site to provide potential graduate recruits with up to date information, details of selection techniques and timetables and the opportunity to network with each other prior to joining the company (CIPD, cited in Beardwell and Claydon 2010). Successful branding means that organisations are more likely to ‘attract, hire and retain individuals who have the skills and attributes which they require or wish to develop’ (Younger, Smallwood & Ulrich, 2007). It also means that, by developing this ongoing relationship with the existing talent pool and investing in the developing workforce, they can meet their current and future talent needs at a much lower overall cost. Not only are recruitment strategies at the forefront of finding these candidates, they are also in many cases, the first exposure of an individual to that organisation. Corporate branding and image create a positive first impression and start the process of building robust and enduring psychological contracts which will elicit commitment and mutual trust over the future employment relationship. Cost Savings of Online Recruitment One of the key considerations must be the reduced cost of advertising and recruiting via the internet. Savings can be made not only in advertising costs but also in terms of time spent designing, printing, distributing and ultimately administering the entire process. These administrative savings can be crucial when one considers the wider audience potentially reached by the internet. It is clear that a wider geographical net means a much wider pool of potential applicants or access to groups of niche candidates with specific skill sets and experience however with this can come many unsuitable candidates. Simple
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and widely available technology such as CV matching and key word searching can dramatically reduce the number of candidates for consideration whilst simultaneously generating correspondence to those individuals unsuccessful in their applications. Drawbacks of Online Recruitment It is not all positive, however, and despite the many advantages and cost benefits of technology, there are some drawbacks which must be borne in mind when designing a talent management strategy. Going back to the question posed at the beginning of this article, recruiters must bear in mind that for many job seekers, the internet is not the first choice in accessing employment. Contrary to popular belief, not all households have access to the internet and many individuals still prefer the traditional method of responding to an advertisement appearing in the printed media. While 60% of UK adults access the internet every day, there are still estimated to be 9.2 million UK adults who have never accessed the internet and furthermore, 27% of UK households in the UK did not have internet access in 2010 (Office for National Statistics, 2010). Considering also that internet use is linked to various socio-economic and demographic indicators, such as age, location, marital status and education, the net result is that employers may be actually limiting their chances of finding candidates by only relying on technology to recruit. If skills shortages are evident, employers cannot afford to exclude such large segments of the workforce in their recruitment solutions. The use of the internet and technology in recruitment can further exclude those applicants with some disabilities. Consider, for example, internet users who are blind or sight impaired, keyboard only or voice users with no ability to use a mouse or epileptic users who may all experience difficulties when applying technology. While access issues can be relatively easily resolved, it does mean that organisations have to actively take such factors into account when designing their recruitment strategies. Revisiting the issue of increased efficiency, it must be remembered that job advertisements must be carefully
constructed in the virtual world if recruiters are to avoid being inundated with large amounts of unsuitable CVs. While there is no doubt of the advantages of reaching a wider audience, employers continue to report the problems of receiving too many applications which bear little or no resemblance to the job description (Parry and Tyson, 2008), meaning more time and cost incurred in sifting the candidates, thus potentially negating any efficiency savings. Organisations must also bear in mind that they must be prepared to keep up to date technically with their competitors. Badly designed, difficult to navigate or out of date information on the website will be instantly off-putting to candidates, projecting a negative image of the organisation to the virtual world. Plus, there can be drawbacks in terms of the impersonality of uploading a CV onto a website; there is no named person who will personally be receiving and acknowledging the application, nor will there be anyone that the candidates can contact for an update on the vacancy progress. For those companies priding themselves on a personal and family working environment, this approach may be at odds with their organisational culture. Perhaps T-Mobileâ€™s Facebook approach may mitigate this somehow by creating online communities where people can chat in real time; however this can only work where there are large volumes of candidates to take part in such an exercise and may not be appropriate for the small or medium sized enterprise. Legal Issues of Online Recruitment There are some additional legal implications which employers should consider when recruiting electronically. Falling foul of the Equality Act 2010 is just one example. Simply having an awareness or prior knowledge of a candidateâ€™s personal situation, whether that be in terms of their disability, marital status, age, sexual orientation, could potentially leave the employer open to legal action. Remember that protection from discrimination applies from the moment an individual applies for a post and so caution should be exercised when requesting candidate information. Details held on record will also be subject to
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the conditions of the Data Protection Act 1998, therefore access must be strictly controlled and the information held in a responsible manner. Use of Social Networking Sites Developing this discussion further, how should employers deal with information about future employees freely available on the internet? Is it ethical or moral to run a quick Google search on the candidate to whom you are considering offering a position? Their social networking page may reveal less than flattering pictures accompanied by boasts about drinking prowess or other behaviour upon a potential employer would frown. In fact, in a recent article in “People Management”, it was reported that a surprisingly high 4 out of 10 UK HR managers had chosen not to hire a particular candidate after having carried out an online search of their personal details (Brockett 2010). In Germany, there is such concern over this practice that draft legislation is being considered preventing recruitment agencies and employers from checking on candidates in this manner (People Management 2010). This may seem extreme but when considering the possibility of employers accessing personal information such as a same sex relationship or drawing implications from an individual with responsibilities for a disabled dependent, the rationale for the legislation becomes obvious. The answer may be to give prior warning to candidates that online searches will form part of the vetting process, thus giving them the opportunity to remove or restrict access to personal information freely available. This, however, does not remove the potential for risk from the employer. There is a wider debate around this in that social networking sites are by their very nature within the public domain. It must remain a responsibility of the candidate to monitor personal online information. Employers, however, have to consider whether it is ethical for them to check on candidates’ private lives and to make a decision – consciously or subconsciously – in the light of this information. Conclusions All these considerations make the subject difficult, particularly as evaluation of online recruitment is in its infancy and is ongoing. Nevertheless, it is immediately apparent that online recruitment can be undoubtedly more cost and time efficient and provide employers with access to a much wider range of potential employees. However, organisations must not be drawn into thinking that it is the only option available in modern society. For many companies and roles, the internet may not be the most suitable option and perhaps it should be used in conjunction with the more traditional methods of recruitment. Employers should carefully analyse the recruitment strategy to decide the principle aim and challenges along the way in conjunction with the marketing and branding strategy of the organisation in order to make a fully informed decision on the appropriate methods to employ. Research in this area is currently relatively
limited. As the numbers of internet users increase then so strategies must be revisited as we gain more knowledge of the effectiveness and relative benefits of using e-recruitment alone. References
BEARDWELL, J and CLAYDON, T., 2010. Human Resource Management. A Contemporary Approach. 6th ed. Harlow: Prentice Hall. BROCKETT, J., 2010. Majority of HR managers run web checks on candidates. [online]. London: CIPD. Available from: http:// www.peoplemanagement.co.uk/pm/articles/2010/01/majorityof-hr-managers-run-web-checks-on-candidates.htm. [Accessed 15 September 2010]. CIPD 2010a. Factsheet; E-recruitment. [online]. London: CIPD. Available from: http://www.cipd.co.uk/subjects/recruitmen/ onlnrcruit?NRMODE=Published.htm. [Accessed 15 September 2010]. CIPD 2010b. Resourcing and Talent Planning Survey. [online]. London: CIPD. Available from: http://www.cipd.co.uk/subjects/ recruitmen/general/_recruitment_summary.htm. [Accessed 30 November 2010]. OFFICE FOR NATIONAL STATISTICS, 2010. Internet Access. [online]. Newport: Office for National Statistics. Available from: http://www.statistics.gov.uk/cci/nugget.asp?id=8. [Accessed 30 November 2010]. PARRY, E. and TYSON, S., 2008. An analysis of the use and success of online recruitment methods in the UK. Human Resource Management Journal. 18(3), pp. 257-274. PARRY, E. and WILSON, H., 2007. Factors influencing the adoption of online recruitment. Personnel Review. 38(6), pp. 665-673. PEOPLE MANAGEMENT, 2010. Germany to vote on banning employers use of Facebook. [online]. London: CIPD. Available from: http://www.peoplemanagement.co.uk/pm/ articles/2010/08/germany-to-vote-on-banning-employers-useof-facebook.htm. [Accessed 15 September 2010]. POLLITT, D., 2005a. E-Recruitment gets the Nike tick of approval. Human Resource Management International Digest. 13(12), pp. 33-35. POLLITT, D., 2005b. Superdrug prescribes e-recruitment to improve talent management. Human Resource Management International Digest. 15(12), pp. 26-28. SCIENCE DAILY, 2009. Many Online Social Networks Leak Personal Information To Tracking Sites, New Study Shows. [online]. ScienceDaily. Available from: http://www.sciencedaily. com/releases/2009/08/090824151307.htm. [Accessed 30 November 2010]. TAYLOR, S., 2008. People Resourcing. 4th ed. London: CIPD YOUNGER, J., SMALLWOOD, N. and ULRICH, D., 2007. Developing your organization’s brand as a talent developer. People and Strategy Journal. 30(2), pp. 21-29.
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R E STATISTICAL CORN GROWTH PROFILES OF FAILED COMPANIES IN ABERDEEN Peter L. Jones, Lecturer in Accounting and Finance, Aberdeen Business School.
Introduction The focus of this edition of Statistical Corner is the nature of the growth management strategies of failing Aberdeen-based companies. In this respect the underlying concept relates to the fact that for each company there is a rate of sales growth that is affordable, i.e., the sustainable growth rate. This figure represents a key benchmark against which to gauge the effectiveness of the growth strategies of companies with significant and prolonged deviations from this rate potentially having a considerable impact on cash flow. Although there are a number of different models that can be used to estimate a companyâ€™s sustainable growth rate, the formulation developed by Higgins (1977) is employed here. Under this approach, the sustainable growth rate (SUSG) is calculated as: (ATPM)(1-PR)(1+TLEQ) TAS - (ATPM)(1-PR)(1+TLEQ)
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where: ATPM is the after-tax profit margin; PR is the dividend payout ratio; TLEQ is the ratio of total liabilities to equity; and TAS is total assets divided by sales. One of the key features of this model is that it is ‘forwardlooking’ in that the rate estimated for a particular financial year-end is the rate of growth that can be afforded over the subsequent year. The formal definition of this sustainable growth rate is that it is the rate of growth in sales that a company can afford without recourse to issuing new share capital If a company consistently grows at or about this rate, then the growth of the company will not exert any particular strain on the cash flows. However, problems can arise when there are persistent disequilibria. Specifically, sales growth above the sustainable level, i.e., overtrading will, ceteris paribus, put pressure on after-tax cash flows and can ultimately lead to the failure of the company. The alternative position in which a company grows consistently below the sustainable level will tend to result in a build-up of cash which generally produces lower returns than would be desireable. This would represent sub-optimal decisionmaking by management and could result in the company becoming an attractive take-over target. Sample Companies For the purposes of this analysis, a failed local company is defined as one that has a registered address within the city of Aberdeen and was placed into liquidation, receivership or administration between 2005 and 2010 and subsequently wound-up. The requisite data were obtained from the FAME financial database and the application of the above selection criteria produced a final sample of 50 companies. Preliminary investigation of the data illustrates the diverse nature of the sample with, for example, reported sales turnover figures ranging from £10,000 to £113m in the final year prior to failure. The average age of the companies was 13.3 years with a minimum of 2 years and a maximum of 68 years. In terms of industry diversity, the sample covered the primary, secondary and tertiary sectors although the majority of companies (32 or 64 per cent) were classified as operating in services sector activities. In addition, only 8 (16 per cent) of the sample companies reported after-tax losses in the last year of trading. Analysis In order to analyse the growth profiles of the companies during the descent into failure, three measures are employed, namely, the sustainable growth rate; the sales growth rate (SALESG); and the difference between the actual and sustainable rates (GDIFF). The results for the whole sample are detailed in Figures 1 to 3.
Figure 1: Sustainable Growth Rates for the Failed Companies
Figure 2: Sales Growth Rates for the Failed Companies In each case the median, lower quartile and upper quartile figures for each of the five years preceding failure are reported in order to examine the degree of divergence in the various profiles.
Figure 3: Growth Differential Figures for the Failed Companies The results for the sustainable growth rate profile indicates that for most of the pre-failure period the average figures are relatively stable ranging between 5.2 and 10.3 per cent. However, in the year prior to failure the average rate increases to 25.6 per cent, suggesting an improvement in financial health. As far as the sales growth figures are concerned, the median rates tend to fall over the period although they remain in positive territory and the growth rate increases to 5 per cent in the final year. The median growth differential rates are relatively stable and the overall profile indicates that there is a tendency for the average company to under-trade in the run-up to failure. In all cases, the significant differences between the lower and upper quartile rates indicate the extremely diverse nature of the growth profiles of the sample companies.
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This observation clearly illustrates the problems inherent in treating and analysing company failure as an homogenous event. Consequently, it would appear to be apposite to examine the growth profiles of distinct sub-groups of the sample companies in order to obtain a clearer view of the failure processes involved. In this respect, the following analysis considers the profiles of over-trading and undertrading companies as well as small and large companies. Over-trading versus Under-trading Companies Within the context of this analysis, an over-trading company is defined as one with a growth differential in the year prior to failure of greater than 10 per cent. Similarly, an under-trader is a company whose actual growth rate is more than 10 per cent below the sustainable level in the final year. The results for the median growth rates for the two groupings are provided in Figures 4 and 5.
negative differentials being observed in four of the five years prior to failure. A more detailed evaluation of the scale of the respective growth imbalances can be obtained by analysing the median cumulative growth differentials over the five year period. The over-trading companies have a cumulative rate of 216.6 per cent compared to -54 per cent for the undertraders. These results confirm the significant difference in the growth profiles of the two groupings during the descent into failure. Small versus Large Companies In order to assess whether or not there is a size effect in the growth profiles during the failure process, the sample was partitioned on the basis of sales turnover in the final year. In this respect, small companies are defined as those in the lower quartile (turnover < £205,000) and large companies are those located in the upper quartile (turnover > £4.1m). The results of this analysis are illustrated in Figures 6 and 7.
Figure 4: Median Growth Profiles for the Over-trading Companies
Figure 6: Median Growth Profiles for the Small Companies
Figure 5: Median Growth Profiles for the Under-trading Companies The profile of the over-trading companies indicates that positive sales growth is achieved in each of the years although the sustainable growth rate is rather more variable with a minimum of -17.2 per cent in the penultimate year and a maximum of 23.1 per cent in the final year. However, the most striking observation is the significant increase in the median growth differential to 87.5 per cent in the year preceding failure. In terms of the under-trading sub-group, the sales growth rate exhibits a far less volatile profile than that of the overtrading companies. In addition, the average sustainable growth rate of 22.7 per cent is three times that of the overtraders. The median growth differential profile indicates that these companies persistently under-trade with
Figure 7: Median Growth Profiles for the Large Companies In both cases the median sustainable growth rates are positive throughout the five-year period. However, there is a significant difference in the magnitude of the rates with the small companies exhibiting an average annual rate of 3.9 per cent compared to 15.2 per cent for the large sub-group. The implication of this is that the latter companies generally have a healthier financial profile in the years leading up to failure. The Sales growth profiles are broadly similar with the small companies achieving an average annual growth rate of 9.6 per cent compared to 9.8 per cent for the large sub-group. As far as the median growth differentials are concerned, the main distinguishing
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feature can be seen in the final year. Specifically, the small companies continue the trend of under-trading whilst the large group move from a position of under-trading to overtrading with a growth differential of 11.6 per cent in the year prior to failure. Conclusions The effective management of growth is an intrinsic aspect of the successful management of any company. It is within this context that the primary focus of this article was to analyse the growth profiles of Aberdeen-based companies that failed in order to examine the nature of the growth trajectories during the descent into failure. Using a diverse sample of 50 local companies that were deemed to have failed between 2005 and 2010, the main conclusions can be summarised as follows: • There are significant variations in the growth profiles of the companies, suggesting that partitioning the sample would produce greater insights into the failure process. • The over-trading companies exhibit a significant increase in the growth differential in the year prior to failure which ceteris paribus will exert significant pressure on after-tax cash flow. • The median cumulative growth differential over the five year period is significantly larger for the over-traders compared to the under-traders. • The average under-trading company has significantly higher annual sustainable growth rates than the overtraders, implying a more healthy financial condition. • Large companies, on average, also have far larger sustainable growth rates and move from a position of under-trading to over-trading in the year prior to failure. Reference Higgins, R. C. (1977), ‘How Much Growth Can a Firm Afford?’, Financial Management, Fall, pp. 7-16.
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Dr Alix Thom, Director and Founder, Amber Tiger Solutions Ltd, Aberdeen
Dr Alix Thom is a PhD graduate of the Aberdeen Business School, having gained the award in 1989. After a working career of about 20 years spent mostly in the north east oil industry where she held senior positions in the field of human resource management with multinational oil exploration and service companies, she decided to branch out on her own and set up her own HR consultancy business. In 2008 she founded Amber Tiger Solutions Ltd and became its Director. Academic Background When I was approached to submit an article for the Aberdeen Business Schoolâ€™s Business Journal by the editor I was delighted to accept because it was the chance to do something for an organisation which has done so very much for me. I joined the research unit at the Business School of the Robert Gordon Institute of Technology (as it was then) in late 1984, eventually graduating with a PhD in 1989. A doctorate had never been part of my master plan or even an aspiration but when this once in a lifetime opportunity presented itself I seized it immediately. . I had recently gained the award of the postgraduate Diploma in Personnel Management at the Business School during which time I had spent 6 weeks on placement with the Transport and General Workers Union That experience was one of the most rewarding of my life, exposing me to a period of enlightenment and stimulating a life long interest in industrial relations as a specialist aspect of human
resource management. With hindsight, I guess it was a natural fit with my first undergraduate degree in political studies from Aberdeen University. Without doubt I owe a huge amount to my supervisor, Dr Douglas Gourlay, who is still working at the Aberdeen Business School and thanks to him my other supervisor was Professor Willie Brown of the IRRU at Warwick. He is now Professor of Industrial Relations at Cambridge University and a leading light in the field. It is quite possible that I did not fully appreciate the absolute privilege that I was enjoying during the time I was in the research unit and, as I see the debate about higher education raging all around, that benefit is all the clearer. My subject was industrial relations in the offshore industry, a sector which we take for granted in Aberdeen but which, in the early 1980s, had not been the focus of academic study, certainly in industrial relations. The area of study was fascinating in itself and one which stood me in
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excellent stead for my later career. The whole experience developed a number of transferable skills which have also been invaluable. Firstly I was amazed that I had the self discipline to see the research project through to the end, particularly once I was working full time and writing up at weekends. Second, the experience of gathering and interpreting data honed my reasoning skills, taught me the importance of asking the right questions and persuaded me to trust my judgement. Third, writing a thesis, every word of which is scrutinised, does marvels for sharpening writing skills. Finally, interviewing senior managers in the industry and trade union officers, together with the opportunity to attend meetings between companies and unions, improved my business knowledge tremendously, as well as allowing me to build a network of contacts on which I have drawn throughout my career. Though undoubtedly hard work, especially combined with an illustrious career as a barmaid and teaching at evening classes, it was also great fun and a time of establishing lifelong friendships. Initial Career Pathway I must now explain the beginning of my early employment career and how I progressed to setting up and managing my own HR consultancy , working for clients as diverse as technology based companies to the National Trust for Scotland. My first role in 1989 was as an industrial relations officer with the Convention of Scottish Local Authorities (COSLA) in Edinburgh. I had wanted to work outside the oil industry to broaden my experience but I was not alone in thinking that landing such a role was a long shot given that this would be my first role and that I had no experience of the public sector. Thankfully fortune was on my side and I was offered the job and so began an amazing experience during which I was involved in collective bargaining at national level and had daily contact with national union officers. The experience gained at the TGWU during my diploma course and the union relationships which I had built up during my research gave me credibility beyond my work experience. I gained a much greater understanding of how local government AND local politics work as the decision makers are ultimately elected councillors, a number of whom were key figures in the Labour Party in Scotland, for example Jack McConnell.
A Career in the Oil Industry My next role was a return to the oil industry in Aberdeen, when I joined Wood Group Engineering as a Senior Personnel Officer (as they were still called then). This was a completely different role and I had taken it to acquire some generalist HR experience because, as a result of a decline in trade union influence, industrial relations as a specialism had fallen out of favour. I certainly gained the appropriate experience but I had not expected to receive a master class in leadership. My first manager at Wood Group was Peter Cooper, who had been a Lieutenant Commander in the navy and was indeed an officer and a gentleman. He gave his team space to grow and to learn from their mistakes. I never forget him saying when I first started that I would slip through the ice a few times but he would be there to pull me out – and he was true to his word. Always quick to promote his team and never taking credit for himself, Peter had a gentle and constructive way of raising self awareness and helping individuals become aware of how their behaviour and style impacted on others. I found myself with big shoes to fill when Peter died suddenly but I have carried his advice with me always. As well as this gift of learning, I learned a huge amount about the importance of understanding your business model and how an organisation makes profit. The company’s key projects generated returns in different ways and these had an impact on the decisions making process. Having looked at the oil operator and contractor interface as a key part of my PhD research, it was great to be able to apply what I had learned. Eight years and two children later it was time for a fresh challenge and I was heading south again to Edinburgh to become Group HR Manager for Cairn Energy. Once again it was time for something completely different and to experience another steep learning curve as Cairn had activities in Australia, China, India, Bangladesh and the Middle East at the time and I had virtually no international HR experience. Within 12 weeks I was on a flight to Sydney, Australia to close the office down and persuade the technical staff to relocate to Edinburgh. The two and a half years with Cairn were incredibly intense; we experienced two rounds of redundancies in the Edinburgh office, closed the Sydney office, ended drilling in China, transferred operatorship of our biggest asset, the Sangu gas field in Bangladesh, to Shell, and developed expatriate policies while establishing the group HR function. The culture in such an entrepreneurial organisation was new to me; given the size of Cairn at the time, and its history, the Chief Executive Officer, Sir Bill Gammell, knew everyone personally and individual negotiations had been common so establishing a standardised format was new.
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Moving back to Aberdeen had not been on the radar so when a head-hunter approached me about a job in BP I declined three times! However, when I eventually identified the nature of the job, I was hooked. The role was Employee Relations Manager and I remembered meeting the incumbent, John Baillie, when I was at Wood Group. I thought that his was a fantastic job at which he excelled and that I would probably never have a job as rewarding. The job at BP lived up to expectations and more. I eventually became the Head of Employee Relations for the whole of the UK, and not just the North Sea. The next eight years involved diverse activities from training HR and line managers in dealing with difficult cases, outsourcing, divestment and restructuring to lobbying in Brussels and No 10 Downing Street. It was wonderful to be in a role which related to my PhD studies and the experience of working for a major contractor in the industry also proved to be invaluable. A significant part of the job was to represent the industry in discussions with the trades unions regarding the implementation of Working Time legislation offshore. I also supported the consultation machinery in
the UK and at European level, which was a new experience and gave me an insight into employee relations in other countries. During my time at BP, I became the HR representative to the Compliance and Ethics function. This involved rolling out and embedding the new Code of Conduct in the UK HR community and giving guidance on dealing with alleged breaches of the Code. As a senior investigator in the company, I even found myself in Baku, Azerbaijan to carry out an investigation. With the introduction of bribery and corruption legislation in 2011, I believe companies will have to look again at their values and their conduct if they do not want to fall foul of the legislation and so this will be a growth area. I also had responsibility for Business Continuity Planning in the HR function in the UK which was another opportunity for development. Working in BP really was a dream job so it was a huge decision to leave. The constant travelling meant I was away from home every week and it became too much of an intrusion into the rest of my life. Not wanting to relocate to London, I either had to accept the travel or make some changes.
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Setting up a Consultancy Business My role in BP had, for much of the time, been like an internal consultant and I had really enjoyed that aspect so I took this opportunity in 2008 to set up my own business, Amber Tiger Solutions, an HR consultancy specialising in employee relations. With the benefit of hindsight, I can say that I probably underestimated the challenges of business development and marketing but ,if I had known of the pressures then, perhaps I would not have taken the plunge. I certainly underestimated the help and kindness of people too many to mention who have given freely of their time and advice. I love the flexibility of running my own business , the variety of projects and clients and the absence of organisation politics. One of my first jobs was for Oil and Gas UK when I carried out research and drafted the industry guidelines covering the removal of contractor personnel from offshore installations. These received national news coverage and it was great to say to my children “your mum did that”. In 2009, I found myself back in Edinburgh for two months working for the National Trust for Scotland; I had become attached to the Trust for a week to help with their redundancy programme which had just been implemented and I ended up substituting for the HR Director in collective consultation with national union officials. The new Chief Executive had been in post for only three weeks so it was a very intense time! However, with an input of many hours, and thanks to a tremendous HR team who responded so positively when a complete stranger turned up, we managed to deliver the consultation process on time. At the time of writing, my most recent assignment has been working on the setting up of a new oil and gas company, EnQuest, which floated on the stock exchange in April and is listed as a FTSE 250 company. After signing up for six months but spending almost a year there working with some talented staff, it was a wrench to leave. This is the downside of consultancy for me as I tend to invest a huge amount of emotional energy in an organisation and find it difficult to sever ties on the termination of a contract. However, consultancy gives a sense of freedom and allows me to work in different sectors and organisations .
Career Reflections to date Writing this article which requires me to reflect on my career to date reminds me of those individuals who have had such a positive influence on me and to whom I owe so much. Common threads have emerged from this experience. Firstly, a huge proportion of my career has been involved in managing change in organisations effectively and in a way which engages the workforce. The second is that I realise that I could never have ticked all of the boxes for qualities needed for the jobs that I have held. Yet managers of organisations have taken a chance and appointed me . I hope that my experiences and lessons learned will be an encouragement to those starting out in their careers for I do remember the difficulty in securing that first ‘real’ job. It is important to be open to opportunities as they present themselves as you never know where they will lead. After all, what is the worst that can happen?
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A FLEXIBLE APPROACH TO ACHIEVING A DEGREE AWARD AT ABERDEEN BUSINESS SCHOOL
Susan Lawrie, Senior Lecturer and Course Leader for BA (Honours) Business Management (Part time Blended Delivery Mode), Department of Accounting and Finance, Aberdeen Business School Business organisations have an ever increasing requirement for a professional, skilled workforce capable of demonstrating versatility and commercial awareness to face the challenges of the current and future business environment. Organisations are ‘tightening their belts’ and are relying on the emergence of highly skilled staff in their workforce to devise innovative solutions that can drive the business forward, sometimes into the unknown. Unfortunately, such staff may not have had adequate education in the pitfalls prevalent in business. Consequently, there is a growing need to employ staff with an informed awareness of business risk and yet appropriately qualified undergraduates are having to cope with increasing pressures when seeking to complete their studies at university.
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“I had to withdraw from my course when I was younger as my father became ill and I was required to help with the family business”. (Student Testimony 2010)
right balance between the increasing demands of work and family life and the pursuit of their own educational development.
For many this seems a rather disheartening prospect as career progression appears limited due to their lack of qualifications. For a variety of reasons or even just circumstances, there are many who did not undertake university study after school but opted to gain work experience, often starting at the ground floor of a business organisation. Some have had to withdraw from their studies due to personal circumstances while others have progressed only part of the way by gaining Higher National Certificate or Diploma awards without fulfilling their degree aspiration.
The traditional evening class method of study is now reaching the end of its shelf life as it only allowed a small minority of students outwith the Aberdeen area to enrol. It was often the case that students were unable to attend due to work commitments, illness or family issues. This caused problems for individual achievement as valuable learning time was missed and group work became extremely difficult to complete.
Part Time Degree Study Options Aberdeen Business School recognises the needs of such individuals who are often unaware of the valuable and practical skills which they possess. To this end, it established a part-time degree in Business Management over a decade ago. This course was extremely successful
and allowed hundreds of mature students across a variety of environments to graduate. This life changing experience allowed some to progress in their career with the same employer and others to change their career path completely. Studying on this type of course required immense commitment as the students would have to travel to the Business School two evenings a week for over 3 years. This is not an easy way to study after working all day and often starting very early in the morning to allow them to leave in time for class. During my years of teaching on this course I was constantly impressed by individuals’ dedication to their studies as many would have to travel in all weather conditions for over 3 hours to reach the Aberdeen campus of the Business School and then have to drive home late at night to be able to attend their work the next morning. Part time study is challenging and by no means an easy option; students have to achieve the
So what is the alternative? Importance of “Face-to-Face” Contact Distance Learning is available from most universities and the Business School has a wide portfolio of courses on offer in this mode of delivery. However, this is perhaps more suitable for post-graduate study as these students have already experienced university life and are knowledgeable of university structures and requirements. Distance Learning does allow for world-wide access to courses but students never meet their classmates or the staff until graduation, if indeed they attend. An important part of successful study at undergraduate level is the peer support and socialisation. Every year we see men and women, experienced in their own field, walk through our door at the Business School. They become “first day at school“individuals who are filled with self – doubt and question their own ability. The reassurance of working with staff and others in the class allows these students to develop the confidence and self-belief to reach their full potential. At this stage of their studies this interaction is vital and is reinforced with a range of support mechanisms from the university staff. Robert Gordon University realises the importance of providing pastoral care and support for students, particularly those who require additional assistance to overcome learning challenges. With all of this in mind and the university’s strategic priority to “Increase the diversification of our student population”, we decided to develop a far more flexible approach to parttime study to give the students more control and choice, thus enhancing their overall educational experience without sacrificing important years in their working life. Technological innovations are transforming the way in which people learn and, at a time when higher education is facing unprecedented challenges, are stimulating positive developments for students, staff, the university and the wider business community. “I am as far as I can be within my company without a degree – the time is right but I cannot commit to classes every week as I have to go offshore on a regular basis. I am delighted that you developed this course”. (Student Testimony 2010) After much deliberation and market research, staff at the Business School developed a BA [ Honours ] degree in Business Management offered in a blended delivery mode.
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It was launched in September 2009 as a foundation year and will be fully implemented across all four years of study in September 2011. What is Blended Delivery ? Blended Delivery is a fusion of face-to-face learning in a class environment that consolidates a variety of on-line distance learning activities utilising the university’s virtual learning platform in the form of its Campus Moodle system. The course commences in September annually with a full weekend of activities allowing the students to meet their classmates and staff, receive system training and be introduced to the subjects which they are to study. This is a compulsory element in the acceptance of a student on to the course as without this the he or she could struggle. In September 2010 we welcomed 60 students to the first stage of the course and had an extremely rewarding weekend of hard work and networking coupled with engaging and often amusing social interaction. Study has to be enjoyable; it must not be an experience to dread or to be imposed but an activity to be embraced and eagerly anticipated. The current students come from all over the UK as far south as Lancaster and from the Highlands in the north; this year a student has enrolled from Athens, Greece. This could not have happened with the traditional part time delivery method and we are immensely proud to be able to offer this innovative and unique opportunity to so many people. At the time of writing Robert Gordon University is the only UK institution to offer this type of delivery of an undergraduate part-time honours degree in Business Management. “The course is demanding in its subject range, plus I have to manage my own study time, preparing for exams and meeting coursework deadlines but it means I’ve been able to study while continuing with my employer”. Student Testimony, 2010 An increasing range of technologies have been incorporated into the course material developed by staff in their field of expertise and range from vodcasts, podcasts, interactive tools, business simulation games, online reading/texts as well as presentations and videos. This gives the learner more choice concerning their method and timing of study. The time and location of an oral presentation or a seminar discussion is no longer dictated to students by a rigid timetable but allows students complete control over their time management. Although this is regarded as a positive step forward, it is also the greatest challenge to the student. In this context on-line discussion forums and regular contact with the staff is paramount as students require encouragement and support to engage. To this end students are therefore placed in study groups with their class peers to develop support for, and encourage friendship between, the class members who are often many miles distant from each
other. Group work can still occur using the technology available. Consequently this form of study is not seen as so isolated as other options and still offers the benefits that the previous generation of part time students received. “Although getting through the work is down to me, the excellent support from tutors, who are very approachable, is only a ‘click’ away – even sometimes late at night! The discussion forums, and actively participating in my study group, has helped me understand topics – and reassured me I’m not alone!”. Student Testimony, 2010. After the initial weekend induction programme, the students go their separate ways and work through the activities set by each of the tutors. They then return a month later to consolidate their learning at Saturday workshops. The students are expected to have completed the tasks in advance so that they are able to contribute to the discussions and further class activities. Over the course of a year students will attend 10 Saturday workshops. We encourage the students to become independent learners from day one but we recognise that it may have been a number of years since they have been in a learning environment and so we have included a module dedicated to support the development of the students within the academic requirements of a degree course. From the outset of the course students focus on developing skills and knowledge with wide commercial application and relevance to reflect their practical business knowledge but combined with academic theory. The assessment is as varied as the teaching and learning methods with a range of individual, integrative and group electronic submissions as well as written examinations. “This has been a great opportunity to further develop my knowledge, and has benefitted my work, where I am able to transfer theory directly into practice”. (Student Testimony, 2010)
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BA (Hons) Business Management Content and Awards Stage 1 SCQF Level 7 Entry Point for those with no HND
• • • • • •
Certificate of Higher Education in Management
Business Management Environment Financial Accounting for Managers Accounting for Management Decisions Human Resource Management for Managers Introduction to Marketing Academic and Professional Skills
Stage 2 SCQF Level 8
• Personal and Business Finance • Operations Management • Organisational Behaviour • Business Law • Finance for Business Decisions • Consumer Behaviour • Public Relations • Business Information Systems APEL exemption can be applied for at this stage to allow direct progress to Stage 4
Diploma of Higher Education in Management
Stage 3 SCQF Level 9
• • • • • • •
Business and People Skills Research Methods Literature Review Management Environment Information Technology Managing Finance New Business Project
BA Degree in Business Management
• • • • • • •
Business Strategy Quality Management Corporate Governance Marketing Communications Human Resource Management Research Methods Proposal Dissertation
BA (Hons) Degree in Business Management
Entry Point for those with HND
Stage 4 SCQF 10
Choice of Qualification for All The Business School welcomes individuals from all backgrounds and offers a choice of routes to suit specific aspirations depending on personal experience and qualifications There is also the opportunity for those with limited work experience to join the course but they will undertake four and half years of study to achieve an honours degree as opposed to more mature and experienced students who will be able to apply for Accreditation for Prior Experience/Learning and reduce their study time by a year.
The Next Stage As financial pressures grow on both organisations and individuals there is an emerging market for more part time study for those in employment. This course gives a further option for personal development and will continuously seek to fulfil the education requirements of future management. This type of programme offers flexibility, not only in modes of study, but also for future career options. As such the course content will be continually updated by the Business School to reflect the changing requirements of the workplace.
At the end of each year of study there is an opportunity to exit the programme with a qualification award. Each individual can decide on the extent of their studies ranging from the award of a Certificate of Higher Education in Management in year 1 to a Diploma of Higher Education in Management in year 2 , a BA Degree in Business Management in year 3 and a BA Honours Degree classification in year 4 in Business Management. (Refer to Table of Course Content)
It is never too late to study! If any individual or employee is interested in more information about this mode of studying for the BA (Hons) Degree in Business Management please visit our website at www.rgu.ac.uk/managementflexible or contact Susan at email@example.com 01224 263861.
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