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QUARTER TWO 2016
WHAT BUSINESS LE ADERS THOUG HT OF THE L A S T ISSUE:
KEN FORD, NON-EXECUTIVE CHAIRMAN, NAKAMA GROUP PLC
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CO N T E N T S
Includes insights from:
THOUGHT LEADERSHIP FROM WINMARK – AN HR FOCUS
Bank of England
CU LT U R E A ND THE C-SU ITE
PA N O R A MI C C-SU ITE V IE W, THE C-SU ITE CHE AT S HE E T
Capgemini Investor Forum Investor Relations Society Lloyds Banking Group
THE CHAIRMAN’S VIEWPOINT
THE SUITE REPORTS NON-EXECUTIVE DIRECTORS (NEDs) & THE BOARD
CHIEF EXECUTIVE OFFICER (CEO) & DIVISIONAL CEOS • Capgemini, Change & Profitable Growth
• Business Seduction
and other leading organisations
• Company Failure, Distress & Governance Failures
Manchester Business School Telegraph Media Group
5 6 –7
CHIEF FINANCIAL OFFICER (CFO) & TA X DIREC TOR
• Tax Strategy & Stakeholder Management CHIEF LEGAL OFFICER (CLO) & CHIEF RISK & COMPLIANCE OFFICER
• Legal Media Relations CHIEF M ARKETING OFFICER (CMO) & SALES DIREC TOR
• Lloyds Digital Transformation & The Customer Experience CHIEF INFORM ATION OFFICER (CIO) & CHIEF DIGITAL & DATA OFFICER
• Change Makers & Disruptors • Effective Business Sponsorship CHIEF HUM AN RESOURCES OFFICER (CHRO) & LEARNING DIRECTOR
2 0 –2 1
• War for Talent • Mental Capital & Wellbeing • Managing in Difficult Times CHIEF OPER ATING OFFICER (COO) & S U P P LY & P R O C U R E M E N T D I R E C T O R • A CxO’s Role in Developing Productive Supplier Relationships
W I N M A R K C-S U I T E
2 2–2 3
W I N M A R K C - S U I T E R E P O R T is a unique report in the field of business leadership. It is designed for time-poor, senior business leaders (C-Suite) of large organisations. Its focus changes in every issue and reflects the current challenges being addressed by over 2,000 C-Level executives today. Its aim is to address these key challenges through sharing key learnings, methods and ideas from the most prestigious and innovative organisations in the world. As a result, every issue should cause the reader to reflect, rethink and change.
OBJECTIVES: • To give board directors, the chief executive and senior business leaders a panoramic view of business, enabling them to ensure their own organisation stays ahead. • To enable key C-Suite leaders to add greater value to their organisations, through understanding how their area interacts and adds value to others. • To create a common understanding and vocabulary within the C-Suite, to reduce conflict and wastage, and increase performance and shareholder value.
PA R T N E R S
With special thanks to the following organisations who partner Winmark Networks, Research & Academies:
30% CLUB BAKER & MCKENZIE BLENHEIM CHALCOT GROUP CAPSTICKS CHARTERED INSTITUTE OF TA X ATION CIO CONNECT CMS CAMERON MCKENNA EVERSHEDS GAZING
GOWLING WLG INVESTEC LEWIS SILKIN M ACFARL ANES MERCER MHA MACINT YRE HUDSON OMOBONO PA CONSULTING G ROUP PROCUREMENT LEADERS PUNTER SOUTHALL ROTH E S AY L I FE
RSM RUSSELL INVESTMENTS SACKERS SAUNDERSON HOUSE SOVEREIGN TA X AUTOM ATION
COPYRIGHT © 2016 WINMARK LIMITED All rights reserved. The information in this Report is confidential to Winmark Members, Clients and Partners. It is intended solely for them or the addressee. The views expressed in this Report are summaries of meeting notes from network meetings, and are therefore out of their original context. It is strongly recommended that before taking action on any of the enclosed you consult the Winmark network lead. Any opinions or advice contained in this Report are subject to the terms and conditions expressed in Winmark Terms & Conditions. Access to this Report by anyone else is unauthorised. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without written permission.
W I N M A R K C-S U I T E
THOUGHT LE ADERSHIP FROM WINM ARK – AN HR FOCUS
EVERSHEDS: N AV IG ATIN G THE FUTURE – HR 2020
OMOBONO: WHAT WORKS WHERE 2016
LEWIS SILKIN: EMPLOYMENT LEGAL SERVICES
EVERSHEDS KEY FINDINGS • Although 84% of HR directors believe that responsibility for pensions lies either wholly or partly with HR, 68% either do not know how their organisations are responding to the recent changes affecting pensions and retirement or have no changes planned. • Most HR directors surveyed for this study are not ready for the recent Modern Slavery Act – only 45% of respondents formally monitor freedom from slavery and forced labour across their supply chains. • In the eyes of non-executive directors, HR does not always keep up with available technological capabilities, and this can lead to board-level frustration. • At board level, there is a preference for HR to take a more proactive approach towards long-term, macro-economic issues.
OMOBONO KEY FINDINGS • Growing importance of digital to HR and a need for integrated branding. Challenges to integration are: • departments have different objectives and priorities; • lack of ‘ownership’; and • the value/importance of digital data is not understood by everyone. • Businesses could do more to leverage digital data, but there are data availability and skills issues. • To build a collaborative culture, businesses should: • encourage and engage in open, proactive dialogue; • clarify responsibility and accountability for all communications; and • establish strategic support and direction from the C-Suite.
LEWIS SILKIN KEY FINDINGS Employer priorities for employment legal services over the next five years are: • gender pay reporting 59% • flexible working 54% • workplace employee data protection 51% • cybersecurity of employment systems 49% • social media 46% • equal pay 43% • retirement/age discrimination 31% • anti-bribery measures 28% • disability discrimination 26% • family leave 25% • apprenticeship programmes 23% • the living wage 21% • modern slavery 16%
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In July 2016, the FRC published its report on “Corporate Culture and the Role of Boards : Report of Observations”. The report made seven observations that are listed below and further details can be found at www.frc.org.uk : 1. Recognise the value of culture. A healthy corporate culture is a valuable asset, a source of competitive advantage and vital to the creation and protection of long-term value. It is the board’s role to determine the purpose of the company and ensure that the company’s values, strategy and business model are aligned to it. Directors should not wait for a crisis before they focus on company culture. 2. Demonstrate leadership. Leaders, in particular the chief executive, must embody the desired culture, embedding this at all levels and in every aspect of the business. Boards have a responsibility to act where leaders do not deliver. 3. Be open and accountable. Openness and accountability matter at every level. Good governance means a focus on how this takes place throughout the company and those who act on its behalf. It should be demonstrated in the way the company conducts business and engages with and reports to stakeholders. This involves respecting a wide range of stakeholder interests. 4. Embed and integrate. The values of the company need to inform the behaviours that are expected of all employees and suppliers. Human resources, internal audit, ethics, compliance and risk functions should be empowered and resourced to embed values and assess culture effectively. Their voice in the boardroom should be strengthened. 5. Assess, measure and engage. Indicators and measures used should be aligned to desired outcomes and material to the business. The board has a responsibility to understand behaviour throughout the company and to challenge where they find misalignment with values or need better information. Boards should devote sufficient resources to evaluating culture and consider how they report on it. 6. Align values and incentives. The performance management and reward system should support and encourage behaviours consistent with the company’s purpose, values, strategy and business model. The board is responsible for explaining this alignment clearly to shareholders, employees and other stakeholders. 7. Exercise stewardship. Effective stewardship should include engagement about culture and encourage better reporting. Investors should challenge themselves about the behaviours they are encouraging in companies and to reflect on their own culture.
A healthy culture both protects and generates value. It is therefore important to have a continuous focus on culture, rather than wait for a crisis.
SIR WINFRIED BISCHOFF C H A I R M A N, F I N A N C I A L R E P O R T I N G CO U N C I L (FR C)
NETFLIX – HOW NETFLIX REINVENTED HR
COCA-COL A – MILLENNIAL VOICES
One of the most important documents ever to come out of Silicon Valley, read by five million people and reported in Harvard Business Review.
Ceree Eberly, Chief People Officer, The Simon Sinek has a powerful model for Coca-Cola Company: “Millennials account inspirational leadership – starting with a for 35% of employees and in 2020 will be the golden circle and the question “Why?” largest generation of Coca-Cola employees.”
TED – HOW GRE AT LE ADERS INSPIRE ACTION
W I N M A R K C-S U I T E
THE CHAIRM AN’S VIEWPOINT Collaboration across the C-Suite is more important than ever before. • At a macro level, the C-Suite is touched by geopolitics, such as Brexit, as well as by digitalisation, speed of movement, the war for talent, globalisation and disruptive innovation. • We need to redesign our organisations and our management practices for this new world. • We must also connect all the dots to ensure that the customer experience and its fulfilment become seamless and more valuable than that offered by our competitors. As chairman, it is vital to create an environment in which the above can be openly discussed, debated and actioned as appropriate to the needs of the business. MOVING FORWARD The chairman needs to assess the competences around the table – among both executive and non-executive members of the board – and have sufficient insight to recognise where there are barriers to effective collaboration. Such barriers in the C-Suite can significantly reduce the effectiveness of the board, the degree to which open discussion can be generated and the ability to address core issues confronting the business, leading to sub-optimal performance and weakened competitiveness.
JOHN DEMBITZ NON-EXECUTIVE C H A I R M A N, L E E B A R O N G R O U P, I TA D (2 015), FR O M H E R E O N, A N D N O N E X E C U T I V E D I R E C TO R O F P E L I C A N R O U G E, P E N S I O N S A N D L I FE T I M E S AV I N G S A S S O C I AT I O N, AND WINMARK
COLL ABOR ATION: THE DELIVER ABLES C-Suite collaboration brings enormous benefits for the business as a whole, as well as for each board member. • Openness. A willingness by all to be as constructively critical as possible, to share concerns, ideas, analysis and insights. • Speed of action. C-Suite members will be ready and willing to address issues and move forward rather than dragging their feet through fear of the unknown. Instead of trying to conceal difficult issues, C-Suite members will be prepared to surface them, knowing that their colleagues are there to be supportive and to act as critical friends, rather than oppositional point-scorers. • Tighter cost control. Better control of overheads; a faster change process; increased competitiveness; greater willingness to embrace ‘disruptive’ technology; and greater recognition of talent as a whole. EFFECTIVE NEDs A genuinely collaborative C-Suite has significant implications for nonexecutive directors (NEDs). In an environment of true collaboration, they can no longer act as ‘absent landlords’ who turn up for board meetings, ask a few questions and attend certain subcommittees. Instead, they should become integral members of the C-Suite, with specific contributions around their areas of expertise and competence. NEDs should: • bring genuine value added; • not be afraid to be more proactive in their dealings with their executive board colleagues; and • have a real and valuable role as independent board members and should be consulted by the CEO and other executive directors as appropriate.
COLL ABOR ATION BY DESIGN Collaboration can be built into your C-Suite team in several ways. • Multi-function CxOs . Multiple functions or tasks can be put under a single lead. For example, Vodafone and Informa have merged their risk and compliance functions. At Nuffield and the University of Northampton, HR and marketing have been put together. • Responsibility shifting . A responsibility usually found under one role can be transferred temporarily or permanently to another. For example, at Dyson they consider information security mainly a ‘people’ issue, so they appointed their HR director as their Chief Information Security Officer (CISO). At PA Consulting, the employee brand is the responsibility of the Chief Marketing Officer (CMO). • Value creation. Each member of the C-Suite must have a deep understanding of how the organisation creates value. MBAs have a natural advantage here, owing to their broad business knowledge, but this can be further enhanced through: • CxOs working in other functions; • CxOs shadowing each other; • CxOs being appointed as cover for each other; and • CxOs presenting each other’s work (especially to the board). • Initiative and agile teams . These can be set up to address necessary areas of collaboration, such as the employee brand or customer online experience. They should always start from the perspective of what is best for the customer (and ensure that their lives are limited to resolving specific issues). • KPIs and reporting . Key Performance Indicators should be set to bridge functions, such as risk and operations, or technology and finance. CxOs can be asked to report and can have objectives set on bridging areas.
It is very much the chairman’s role to create the environment in which collaborative C-Suite behaviour can take place between executive and non-executive directors.
W I N M A R K C-S U I T E
PA N O R A M I C C-S U I T E V I E W
The C-Suite Cheat Sheet
TSFS – TOO SENIOR FOR SECURITY Hackers look for and target corporate weak points. They use a quotation: “Too Senior for Security.” S O U R C E : B A N K O F E N G L A N D
IN V E S TO R S A ND FA IR VA LU E Cultivating your investors’ trust is not a ‘cost’ but a value driver. There are ‘five Cs’ that companies should bear in mind if they want to maintain a profitable relationship with shareholders. 1. Clarity. 2. Consistency. 3. Credibility. 4. Continuity. 5. Conduit.
“Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000.” PIERRE NANTERME, CEO, ACCENTURE
“I have generally found in life that nothing is quite as good or as bad as you expect.”
“Better managers are the key to wellbeing, productivity, performance and wealth creation.” S A R A H B R A DBURY, CO O, WINM A RK
SIR MICHAEL RAKE, CHAIRMAN, BT GROUP PLC
TA X STAKEHOLDERS INTERNAL EXTERNAL • Customers. • The board and • Suppliers. board-level FINANCE • Industry committees. associations. • Executive • Parliament. committees. • Tax authorities. • Divisional • Analysts. management. • NGOs and tax • Project teams. campaigners. • Employees. • Media.
LEGAL & RISK COMMERCIAL
“First editions are usually distributed at 9pm. After that, no lawyer or injunction can stop it.”
“Customer expectations are shifting dramatically. They are not necessarily being shaped by peer-competitor banks. They are being shaped by Apple. They are being shaped by Google.”
JAMES QUINN, GROUP BUSINESS EDITOR, TELEGRAPH MEDIA GROUP
JIM SMITH, EXECUTIVE VICE-PRESIDENT, VIRTUAL CHANNEL S , WELL S FARGO
W I N M A R K C-S U I T E
“We like our leavers to walk out of the front door with their heads held high.” CRAIG DONALDSON, CHIEF EXECUTIVE, METRO BANK
“In any ten-page company strategy, eight pages should be about growth, two about costs.” CHRISTINE HODGSON, UK CHAIRMAN, CAPGEMINI
“Investors want the boards of listed companies to show the same passion, probity and concern for stakeholders as the boards of not-for-profit organisations.” ANDY GRIFFITHS, EXECUTIVE DIRECTOR, INVESTOR FORUM
“Zero customers banking via mobile in 2011. Five years later, over six million active mobile banking customers, of which two million are mobile-only users.”
TERRY CORDEIRO, HEAD OF PROJECT M ANAGEMENT – TR ANSFORM ATION, LLOYDS BANKING GROUP
GENER ATION Z Generation Z want to create their own job and expect a ‘life of jobs’ rather than a ‘job for life’.
“Money worries can affect people’s mental health – digital can help alleviate financial stress and improve wellbeing.”
BOB GANN, NHS ENGLAND. SOURCE: LLOYDS DIGITAL CONSUMER INDEX
“You should not believe everything you read on the Internet.” ABRAHAM LINCOLN, 16TH PRESIDENT OF THE UNITED STATES , 1866 7
W I N M A R K C-S U I T E
N O N - E X E C U T I V E D I R E C TO R S (N E D s) & T H E B OA R D
With special thanks to a number of NEDs who have asked to remain anonymous owing to the nature of this subject. Also thanks to Duncan Parkes, Director, Institute for Turnaround; and Senthil Alagar, Managing Director, Restructuring, Alvarez & Marsal, for their input. THIS ISSUE
• Company Failure, Distress & Governance
• Board Reviews
• Investment & Investor Relations
MAKING THE RIGHT CALL Most companies operate in complex environments, and so no one rule fits all. However, the guidance set out below is a useful benchmark. • If a company has three bad hits over a period of three to six months, this probably constitutes a trend. • If the accounts rely on significant judgments about revenue recognition, there is a risk of a sudden crisis and profit or cash black holes. • A public profits warning is usually a bad sign, as the executive is likely to have pulled nearly all its levers to avoid this.
Experienced NEDs stress the importance of intuition as well as analysis. Many deploy their own methods and logarithms. These vary from five-year tracking spreadsheets to internal thinking based on years of experience. This can be learnt, but often a baptism of fire is the best way. THE DEMISE CURVE Chief Restructuring Officers (CROs) and the Turnaround Institute refer to this downward trend as the ‘demise curve’. One of the roles of an NED is to help the executive and the board recognise linkages that may not be immediately obvious. For example, if returns increase, customer feedback shows a downward trend and cash is getting stickier, there is likely to be an underlying business issue. The board must join the dots between the market data, analysts and company numbers.
WO R KIN G ACR O S S TH E BUS IN E S S LIFE CYCLE ON CE P E R F O R M A NC E H A S P E A KE D, A B U S INE S S C A N CON TI N U E TO D EC LINE O R IT C A N B E T U R NE D A R O U ND TO P ERH A PS E V E N GR E AT E R S U CC E S S ( T R A NS F O R M AT IO N). TH E KEY IS TO ID E NT IF Y T H E E A R LY WA R NING S IGNS A ND TA KE PR O M P T AC T IO N IN O R D E R TO “B E ND T H E LINE ” S TA R T U P
MATU RI T Y
TU RN ARO U N D & TRAN SFO RMATI O N
I N N OVATI O N
E NTREPR ENEUR I AL AND PRO FE SSIONAL MANAG EMENT
• First, NEDs must recognise that a demise curve exists. • The board must have the collective desire to fix the problem. • They should agree a strategy and a timeframe. • Early communication with key stakeholders is required, to avoid creating a scare. • If the timeframe starts to slip, the executive team must be made to address this. • The board should regularly review the executive and its capacity to deal with the situation. EX TERNAL INDIC ATORS Company and market analysts, sector surveys and the media can all play a role in flagging up problems. Their role can be particularly significant if the executive is in denial or believing its own propaganda. External actors can be more incisive in the case of large PLCs, which tend to be covered by good analysts; the scope and depth of analysis for mid-market companies is less impressive. W I N M A R K C-S U I T E
FU TU RE G ROWTH
FAI LU RE
PER F OR MANCE I MPR OVEMENT TUR NAR OUND MANAG EMENT
Different sectors have different demise curves, and NEDs have an important role in addressing the associated problems.
A bank saying ‘no’ to support is a significant red flag as, if the company was not already in significant distress, it is likely to become so very soon. In this situation, the chairman or CRO should immediately convene a board meeting. An approaching crisis often triggers a significant change in board policy, notably the adoption of a high-risk strategy.
TH E DE MIS E CU RVE T H E D E M IS E C U R V E P LOTS THE S TAGE S O F D IS T R E S S IN T HE BU SIN E SS LIF E C YC LE F R O M INITA L STR E SS TO E V E NT UA L CO R P O R AT E FA ILU R E T H R O U GH A N INS O LV E N C Y VA LUE
COMPANIES IN DIS TRESS The board and individual NEDs need to identify whether bad news is just a ‘blip’ or part of a longer-term trend. The board has to understand whether the company is under temporary stress or experiencing distress – and what the difference is. It must recognise whether it needs merely to ‘lean in’ or whether to initiate a fundamental shift in behaviour.
STRESS DI STRESS
INSOLV ENCY T IME
RAISING THE ALARM This is a difficult issue, as you need to create a serious focus without scaring staff, stakeholders or the market. A dynamic board is needed. If the chairman has cultivated an environment of open discussion, ‘raising the alarm’ should not usually be necessary as the issue should already have been highlighted, monitored and addressed. However, this is all too often not the case. NEDs recommend talking directly to the executive and notifying the CEO that they intend to do so. If a CEO is hostile to this, you should accelerate your investigation, as the level of hostility may reflect the depth of the problem. The process is as follows. • Identify the concern. • Raise it ‘offline’. • If it is not dealt with, raise it with the board.
An NED tip: it is useful to chair committees, as much of your board power can come from this. An issue noted by a committee cannot be ignored or overlooked by the board. TURNAROUND ACTIONS Companies tend to fail for two reasons: they are not selling enough and/or their costs are too high. Although the reasons for this can vary considerably, the actions that a board will need to take often follow a similar pattern. They include the following steps. • Identify the underlying cause of the problem. • Assess the available liquidity. • Engage with stakeholders to ensure continued support or regain their confidence. • Assess strategic options and make the appropriate decisions. • Pipeline – rigorously examine this and impose tight management. • Focus – keep a tight control over costs, quickly dropping or disposing of unprofitable or non-core business lines. • Cash – initiate a review and impose close management of cash and creditors. • Executive – put in place the right people.
GROWTH DISTRESS Companies growing quickly can also go into distress, and the solutions tend to be very similar. Lloyds typically have as many companies in distress in good times as in bad times. Having a conversation early with the bank can be very important. Banks also have good insights into the problems and can give advice on ‘working-capital optimisation’. THE EXECUTIVE TEAM NEDs generally agree that changes in the executive team usually occur in a bid to reverse a demise curve. The longer the board has been in place, the deeper the relationships and so the harder it is to make changes. However, an executive team that can grow a company in good times may well not be the best people to see it through bad times. Growing decision-making behaviours are different from those needed in a more adverse climate.
The big challenge is who to replace and when. Who goes first, the chairman, the CEO or the Chief Financial Officer (CFO)? As the most junior of the three, the CFO tends to be first out. A good CFO test is to ask them to explain the relationship between the company levers and their impact on numbers, particularly profit and cash. The CEO should also be able to explain this but usually with less detail. Some CEOs will by nature say: ‘back me or fire me’. A key may be to show the reality gap between finance and what management is saying.
Should NEDs stay or go? ... This comes down to the integrity of the NED.
In distress and crisis, you are short of cash and stakeholder confidence. This gives the board little time to act. NEDs are in a very good position to give guidance to the executive. The key is to act quickly: as the company slides down the demise curve, its resources dwindle and therefore your potential options reduce.
All CEOs have a shelf life and some say you need a different one for each phase of the company life cycle. COMMUNIC ATIONS A company in distress may need time and privacy to make decisions and changes. If you are in negotiations, this privacy can be very important, so what should you communicate? The old saying ‘no-one likes surprises’ is true. One NED recounted an instance where a company’s board had written to all key stakeholders, explaining that they had identified the issue, they were focused on it and would keep them in the loop. It is important to maintain stakeholder confidence. Importantly, the board did not specify what actions they would take or give timings, as the situation was fluid and so they did not want to be held to an outdated timeframe. In a listed situation, the board should be mindful of disclosure requirements and careful consideration is needed for those disclosures. N E D S – S TAY O R G O? This ’comes down to the integrity of the NED’. The general view among the NEDs we consulted was as follows. • You are paid the same amount in a crisis/ turnaround situation, but the role comes with more pressure and can be more fun. • If you do what is right, you should not sustain collateral damage, but it is important to note what you are doing and why. • Involvement in such a company can enhance an NED’s CV, but it can also prove a distraction as not all turnarounds will be successful. For unsuccessful turnarounds, you move from working for the company to working for the creditors. • When applying for new roles, highlight these turnaround NED roles early on, explaining what happened and why.
It was noted that the US was probably more advanced in this area, as having a company failure on your CV can be seen as a plus point. In the UK, however, the view can be more cautious.
W I N M A R K C-S U I T E
C H I E F E X E C U T I V E O F F I C E R (C E O) & D I V I S I O N A L C E O s
With special thanks to Christine Hodgson, UK Chairman and Pierre Danon, former Group Chief Operating Officer, Capgemini; and Dr Raj Persaud, author and leading UK psychiatrist, for their contributions and support. THIS ISSUE
• Capgemini, Change & Profitable Growth
• Personal Social Media Strategy
• Business Seduction
• Data Fraud & Cybercrime
Chief Executive Officer
CAPGEMINI: DRIVING GROWTH THROUGH CHANGE Capgemini is one of the world’s largest technology and IT outsourcing groups; it employs 180,000 people in more than 40 countries. Capgemini UK was plagued by insufficient growth and overdependence on public-sector clients; Capgemini USA, which had more than 8,000 employees, was losing US$150m a year.
CHRISTINE HODGSON, UK C H A I R M A N, C A P G E M I N I
GOING FOR GROWTH MEANS FINDING YOUR NICHE The best way to improve your balance sheet is via goal-driven growth. In any ten-page company strategy, eight pages should be about growth and just two about costs. However, it should not be growth at any place or price. It has to be targeted, controlled, profitable growth, cultivated only in areas where reward is certain. In Capgemini’s Similar growth and profitability issues, but different approaches: case, Indian competition had bought market share and rendered the IT services sector increasingly hard to leverage. CAPGEMINI UK CAPGEMINI USA Capgemini had to identify and monopolise a growth stream that no rival could as easily Leader British, promoted to CEO from French, COO, who was flown access. To do this, it had to: CFO. into the US to address the issue. • play to its strengths; • choose clients only it could track and catch; Situation Mostly done while in CFO role. Started review before taking up and Analysis “The key is linking individual COO role. • as funds were limited, be right first time. staff costs to the revenue they Found they had a great client generate.” base and good service. There are simply no excuses for: • taking relationships for granted (you must Timeframe Part of a three-year plan, frontThree months of analysis and commit your best teams even to old clients); ended with the cost-reduction then a fast three-month cost• not being able to leverage growth from an phase. reduction programme. existing client; • not seizing ‘Bluebird’opportunities – those Objectives • Increase percentage of • Halt morale-damaging outside your commercial ‘comfort zone’; or private-sector work. incremental cost reduction. • ‘winging it’ if an opportunity arises in an • Return to double-digit • Put the company back into unfamiliar area. If you don’t have the skills, margin. profit. don’t go after the business. • Cost reduction through • Cost reduction through people, not infrastructure. people and offices. Firms are often excellent at getting the clients • Profitable and niche growth. to sign the contract, but less impressive at keeping them happy thereafter. The ‘A team’ moves out, the commercial manager moves because it forgot to keep on treating the in, and the courtship is over. The relationship one-off ‘prize’ as a long-term asset. sours and the company loses the account 10
W I N M A R K C-S U I T E
• People costs – those with the lowest returns go. Watch out for salary creep and be ruthless. Could the jobs be done: • by younger, cheaper recruits? • offshore? • through digitalisation? • by adding their duties to others? • Develop a cost culture. • Senior executives who are not client-facing should go, regardless of how good they are at protecting themselves.
• Make every vice-president who is not client-facing (one in three) redundant. • Exit unnecessary property leases. Cut the number of offices from 43 to 13. • Reduce all supplier costs, including consultancy fees. • Reduce payments to the owners and other shareholders. • Look out for and eliminate overlapping overheads.
• You can never cut your way to • Do it fast (three months) or improving the top line. you will lose your best people • Infrastructure degradation – they are the ones who can can drive out revenue easily find jobs elsewhere. earners, so be careful. It can • Tell leaders what you want also impact negatively on them to achieve but not how clients. to do it. • Account managers who really understand the sector, product and clients are gold dust and critical to the growth process.
Shared and celebrated the details and degree of the success across Capgemini, particularly in areas where there had been resistance.
DR RAJ PERSAUD
THE BUSINESS OF SEDUCTION To exploit commercial opportunities to the maximum, we all need to ‘seduce’ potential and existing business partners. Specific skill sets are required to do this successfully. Relationships can be divided into three key phases.
A Attention I Interest M Maintenance When first meeting a client, you may need to work hard in getting their attention and leave the ‘Maintenance’ skill demonstration for further down the line. The skill sets required for the first two steps, ‘Attention’ and ‘Interest’, are different to that required for the ‘Maintenance’ phase. For example, a newspaper will use a dramatic headline to grab someone’s attention and the article itself will generate interest, but the newspaper will need to provide something more, different or better in order to get the reader to buy it regularly. Cycling through the AIM process regularly is where most people fall short. Long-standing relationships still require seduction. Part of the ‘Attention’ phase is doing something unexpected every once in a while. The psychology of the selling process can be influenced by: • doing something unexpected; and • appearing to make an effort not to sell, through highlighting flaws in the product or service.
After three months, all Capgemini USA employees were brought into a baseball stadium and told: “It’s over, time to grow again.” The company went back into profit six months after the cost-reduction campaign started.
To exploit commercial opportunities to the maximum, we all need to ‘seduce’ potential and existing business partners. EFFECTIVE INFLUENCING In order to influence effectively, focus on: • what’s going on in your mind; • what the other person is thinking; and • what the other person is thinking about you.
In a typical sales transaction, the customer’s natural scepticism will automatically lead them to ‘discount’ everything the salesperson says. To counteract this, the salesperson may choose to highlight a negative issue to build trust and credibility. This reverses the buyer’s mindset, leading them to regard the salesperson as credible and trustworthy. This is achieved through behaving outside the norm by appearing not to want to sell.
The last of these is the most challenging to establish and act upon, but it is also the most important in delivering the end result.
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C H I E F F I N A N C I A L O F F I C E R (C F O) & TA X D I R E C TO R
With special thanks to Grace Stevens, Chief Tax Officer, Legal & General; and Tim Law, Engaged Consulting (former Tax Manager, Anglo American), for their contributions and support. THIS ISSUE
• Tax Strategy & Stakeholder
• Base Erosion & Profit Shifting (BEPS)
Chief Financial Officer
THE TA X COMMUNIC ATIONS LANDSCAPE • Stakeholder scrutiny. Tax authorities; boards and audit committees; auditors; shareholders; the media; politicians; policymakers; international organisations; suppliers; customers. • Fairness . Is the company paying a ‘fair’ amount of tax? What is a ‘fair’ amount? Where is the company paying tax? Is that in line with its business activities? What about tax havens? • Tax governance . How much tax risk is there in the company? Who is making the decisions? Does the company have all the right policies in place? Is it doing what it says it’s doing? How do we know? • New mandatory transparency. Countryby-country reporting (CBCR): almost certainly public; UK tax strategy: Finance Bill 2016; subsidiaries list: annual report.
• Voluntary transparency. Taxes paid reports; total tax contribution; economic contribution; infographics. • Tax messaging . Explaining the approach to tax and being prepared to answer questions.
It is vital to ensure a consistent tax message across the organisation. TA X STAKEHOLDER MANAGEMENT The tightening of the regulatory environment and the increased prominence of tax on the public agenda mean that companies are
increasingly adopting a broader ‘stakeholder value’ approach, as outlined below, based on their relative importance in terms of risk management. • Internal communications . It is vital to ensure a consistent tax message across the organisation. Everyone has a responsibility to implement the tax strategy. HMRC in particular wants to see that strategies are embedded across organisations, so engaging with internal stakeholders is important and a challenge for many tax functions. • External communications . Tax teams are learning from investor relations (IR) on messaging and how to tell the story. For their part, IR teams are having to learn more about tax.
EX TERNAL STAKEHOLDERS
Board & Board Committees (Audit, Risk). Regardless of a firm’s tax strategy, heads of tax will aim to ensure that boards make informed decisions based on full knowledge of risks and up-to-date information. Executive Committees. Particularly the CFO/CEO who, alongside the chairman, are likely to be the public face of tax communications. By highlighting the effective tax rate (ETR), heads of tax can demonstrate the importance of Corporation Tax to managers who might otherwise be focused on profits before tax. Divisional Management . Prioritising the largest business units that present the most risks. Project Teams. Group functions and shared services, including all support and investor functions. Increasingly, these colleagues want to engage and understand tax. For example, IR teams are receiving more enquiries from journalists and analysts. Employees. Staff are not isolated from the broader public agenda on tax. For many employees, it is important to work for what they perceive to be an ethical organisation. This can be important in attracting and retaining talent.
Customers. Particularly important for consumer brands or for businesses tendering for public-sector contracts. A good tax strategy could be a source of competitive advantage. Suppliers. Apart from tax operations, such as VAT, companies may be under the spotlight over the tax behaviour of suppliers, just as they are in other areas of corporate social responsibility (CSR). Industry Associations. For lobbying, networking, learning and development, including regulators, in relevant industries. Parliament . Typically filtered through the Public Accounts Committee (PAC). Heads of tax can use fear of being called in front of the PAC as a good motivator to secure the attention of the CFO, the CEO and the board. Tax Authorities. In the UK, HMRC is proposing a new Framework for Co-operative Compliance. In some cases, HMRC is attaching governance specialists to investigate particular taxpayer affairs. In others, HMRC is asking for evidence of things companies have not done to illustrate their commitment to a tax strategy. Analysts. More traditional considerations of forecast ETR are increasingly joined by those with a CSR focus within institutional investors. NGOs & Tax Campaigners. Their focus is on ‘fairness’. Developed relationships with NGOs, such as Responsible 100 and ActionAid, can lead to a greater willingness of the NGO to consult before going to the media. Media. Often ill-informed media coverage drives much of the public debate around tax.
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The tightening of the regulatory environment and the increased prominence of tax on the public agenda mean that companies are increasingly adopting a broader ‘stakeholder value’ approach.
TA X COMMUNIC ATIONS VERSUS TA X REPORTING Heads of tax are increasingly responsible for driving communications with stakeholders. This includes communicating on tax issues internally, as well as mandatory and voluntary tax reporting and disclosures.
TA X REPORTING
TA X COMMUNIC ATIONS
VOLUNTARY TR ANSPARENC Y
The way you use what you disclose to tell your story.
The additional data you choose to publish.
Trend for more mandatory tax disclosures, such as base erosion and profit shifting (BEPS), country-by-country reporting (CBCR) or published tax strategies in the UK.
A trend for more tax communications.
Five Approaches to Tax Disclosures Examples of voluntary disclosures include the following. • Public disclosure of taxes paid by jurisdiction . There is a APPROACH APPROPRIATENESS trend towards communicating tax disclosures in a dedicated document, as well as embedding parts of the information Keep your head • Less likely to work in the current elsewhere, such as in the annual report. Companies publishing down environment. a ‘taxes paid’-type report include Unilever, Anglo American, • CBCR is coming. SABMiller, Rio Tinto, BHP Billiton, Vodafone, Shell and Barclays. • Only really appropriate for ‘squeaky • Total tax contribution/total economic contribution . Some clean’ – in which case, this approach is a companies take the opportunity to go further and discuss ‘total missed opportunity. tax contribution’ or ‘total economic contribution’. However, companies may be criticised if they include payroll taxes in total Reactive defence • Being prepared for the question. tax contributions. strategy • A well-prepared ‘back pocket’. • Discussions of tax risks in other public disclosure documents • Knowing the issues and how to respond. such as annual reports or CSR reports. These are targeted, relatively short-form tax disclosures. Proactive • A tax strategy and policies. • Publication of tax principles such as those suggested by the governance and • Voluntary tax disclosures. CBI. This is likely to be overtaken by the requirement to publish transparency • Tax narrative and messaging. a tax strategy that consists of more than simply overarching principles. Accreditation (Fair • Externally set criteria. • Infographics . Diagrams can be a useful way of illustrating the tax Tax Mark) • Commitments around transparency. treatment that happens along a supply chain or in the lifespan of a • Commitments around tax planning (such project to non-specialist audiences. as tax havens). • Positive reputational opportunities. TA X GOVERNANCE FR A MEWORK • Tax strategy. The overarching approach to tax, aligned to the Proactive • Direct engagement with stakeholders group strategy. This should be largely capable of being made engagement (such as NGOs). public. It may include a statement of principles and should be • High-risk, unless completely ‘clean’. signed off by the board. • Unlikely to be the first step. • Tax policies . A more detailed, internal document setting out how the business approaches specific decisions and tax risk areas. It should cover what the business is and is not prepared to do in terms of tax structures. Having explicit ‘red lines’ can be useful. • Tax protocols. Internal governance documents setting out the roles and responsibilities of the tax, finance and other functions. • Tax training . Ensuring that the strategy, policy and protocols are understood by all those who can impact on tax risk throughout the business. This should take into account the sector, the culture of the business and perhaps also the individual leaders. 13
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C H I E F L E G A L O F F I C E R (C LO) & C H I E F R I S K & CO M P L I A N C E O F F I C E R
With special thanks to James Quinn, Group Business Editor and Adam Cannon, Editorial Legal Director, Telegraph Media Group, for their contributions and support. THIS ISSUE
• Legal Media Relations
• Cybersecurity • Information Commission
Chief Legal Officer
Chief Risk & Compliance Officer
News cycles ... are 24/7 and need feeding, particularly in the case of newspapers’ online versions, so there is no longer a ‘best time’ to approach the media.
Legal and Business Media Relations MEDIA TIMINGS • News cycles . These are 24/7 and need feeding, particularly in the case of newspapers’ online versions, so there is no longer a ‘best time’ to approach the media, although you may want to take into account known media ‘noise’ (such as budget announcements). • First editions . These are usually distributed at 9pm; injunctions that arrive after this are too late. Immediate releases are recommended by the media. • Editor notice period . Sometimes short deadlines become necessary to pre-empt a story’s imminent appearance in another paper. Editors regard it as good practice to give businesses 48 hours’ notice of publication. They may extend this by 24 hours for clarification, but this depends on how big the company is. Editors are reluctant to grant extensions if they think the firm is going to use the extra time to entrust the story to a rival that will publish it in a form more favourable to the company. SOURCES AND SCRUTINY As all scrutiny must be fair, merited and in the public interest – as set out in the Editors’ Code of Practice drawn up by the Independent Press Standards Organisation (IPSO) – it is likely that business leaders will be approached by a senior editor. • Private matters . The media and political response to the ‘Panama Papers’ leak shows that the type of story that was regarded as unexceptionable and a private matter unworthy of attention ten years ago can be headline news today. • Sources . Before it is published, a story now has to be corroborated by several different sources. Its claims, and the sources, have to be independently verified by investigators. • Off the record . There is no such thing as an ‘off the record’ conversation with a journalist unless you implicitly trust them or know that it is in their interest to keep it private. Otherwise, assume that anything you say can and will be published. Declaring something ‘off the record’ is not enforceable in law.
WHAT IS DISCLOSABLE? • Electronic communications. No electronic communication is finite or private. It must be assumed that every single email and mobile-phone conversation will remain in the public domain forever. • Encryption and legal privilege. Electronic communications are in the public domain as soon as they are issued because all can be traced and stolen – irrespective of whether they are encrypted, deleted or ‘protected’ by legal privilege – by anyone with sufficient technical proficiency. • Secrecy. If you want to give ‘confidential’ information to a journalist (or anyone else), you should arrange to meet them in a private place and convey the details verbally and/or on paper.
Resorting to legal advice or action in the face of hostile press attention should be a final, ‘nuclear’ option. If a firm opts to use ‘go-betweens’ to deal with the media, it is much better to deploy a communications professional than a lawyer.
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HOW CEOS & CLOS SHOULD ENGAGE WITH THE MEDIA • CEO engagement . Some CEOs get on the phone to respond personally to press interest they construe as negative. This often has a surprisingly positive effect. One-to-one exchanges, especially with an organisation’s head, can yield better media solutions than those provided by a company’s communication experts. CEOs who ‘negotiate’ directly with journalists can reduce complications – although much depends on the skill of the CEO. • Cultivate journalists . Business leaders should cultivate journalists in as many relevant media outlets as possible. Should difficulties arise, they will then have ‘envoys’ they can use to get their message across. Furthermore, such contacts can also be used at any time to place positive stories in the media. • Barriers to communications . Internal and external legal and PR teams may lead to too many ‘stakeholders’ and excessive consultation periods. This can give the impression of hiding something, ‘future hostility’ or the intention of providing another media outlet with an ‘exclusive’. • Legal to legal . Journalists and editors can be wary of lawyers and therefore it is best if the CLO goes direct to their media counterpart. These relationships need developing in advance and all CLOs should have a general and sector media list, which should include contacts at all national newspapers, online news providers and broadcasters. 2016
CLO NETWORK M E D I A TO U R O F T H E T E L E G R A P H
ROGUE INVESTIG ATORS AND EMPLOYEES Investigative journalists may look back into a company’s history to find a story to make a name for themselves. In addition, employees may seek to take revenge for unfair treatment. In either case, they are likely to use social media fully, probe relentlessly and shine the spotlight on little-known aspects of a company’s operations. Protecting the corporate reputation in these circumstances can be expensive and the media advice is as follows.
• A response of “no comment” looks as if you have something to hide. The temptation can often be to respond in an attempt to portray your company in a good light. Although this can be a productive strategy, there are risks in engaging unnecessarily. You may unwittingly help to create press attention, particularly if the case is weak. The media and your PR team may push you for a response, but fine judgment is needed. Sometimes ignoring a story can disarm the journalist or former employee and be the best approach. • If there appears to be a stronger case against a company, editors are usually happy to engage directly, over the heads of their own journalists, with the business leadership. It may be worth taking advantage of this. • Avoid giving a journalist full control. If you cannot control the story, it may be worth providing the media outlet with an ‘exclusive’, shining a positive light on your company. This will give you some power over both the journalist and the ‘narrative’. In the short term, you might stop the story – or at least its more damaging aspects – from spreading. LEGAL IS THE NUCLEAR OPTION Resorting to legal advice or action in the face of hostile press attention should be a final, ‘nuclear’ option. If a firm opts to use ‘go-betweens’ to deal with the media, it is much better to deploy a communications professional than a lawyer. It will be cheaper, and the PR expert will personally know the relevant journalists and will be more likely to be able to resolve the problem before publication becomes likely.
The 55,193 Independent
SO URCE: AUDIT BURE AU OF CIRCUL ATIO N S
• If you resort to lawyers, choose a legal firm that knows how the media works. Well-known, expensive practices may not understand ‘Fleet Street’ and so can leave you more exposed. For instance, they may send newspapers threatening letters that unwittingly reveal incriminating facts. 15
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C H I E F M A R K E T I N G O F F I C E R (C M O) & S A L E S D I R E C TO R
With special thanks to Terry Cordeiro, Head of Project Management - Transformation, Lloyds Banking Group, for his contribution and support. THIS ISSUE
• Lloyds Digital Transformation & The
• Strategic Partnerships
• War on Talent & Effective On-Boarding
Chief Marketing Officer
Lloyds announced in early 2015 that it would spend £1bn on digitally transforming ‘endto-end’ the ‘journey’ its customers make in areas such as: • account opening; • mortgages; and • on-boarding commercial clients (which had been taking up to nine months).
Companies such as Lloyds now regard Google, Apple and, above all, Amazon as their most significant rivals, rather than their fellow banks. The way these firms have been able to deploy new technology to master markets shows how unrivalled they are at customer service, an area where banks have fallen behind.
Also, digitalisation in wider society – always being ‘connected’ – has created a new type of customer, with new expectations. It is therefore a question of ‘digitalise or die’. O U R D IGITA L DAY
WA KING U P
T HE S M A RTP HO NE IS B ROW SED FO R SNIPPETS OF IN F OR M ATIO N TO G E T A QUICK IN S I G H T I NTO N OT I F I C ATIO NS A N D T H E MA IN E V E N T S D U R ING T HE N I G H T
B RE AKFA ST
US ING THE TABLET TO BROWSE THR OUGH NEWS, R EA D E MAI LS AND CHECK SOCI AL MED IA
Companies such as Lloyds now regard Google, Apple and, above all, Amazon as their most significant rivals, rather than their fellow banks.
CO M M U TING
USI NG THE SMARTPHONE TO BROWSE THROUGH THE EVE NTS OF THE DAY TO COME
USI N G T H E OFFI C E COM PUT ER TO KEEP T R AC K OF N EW S AN D EVEN T S ON T H E SI D E, M AY B E AFT ER H AVI N G B EEN CON TAC T ED PR I VAT ELY VI A T H E SM AR T PH ON E
USI N G T H E SM AR T PH ON E TO PASS T H E T I M E AN D PL AY A G AM E. M AY B E FOL LOW UP ON SOM E L AST EM AI L S AN D/OR EVEN T S
UX IS PART OF THE CX Digitalisation can usher in banking’s new customer frontier because it enables customers to ‘experience’ a bank without visiting a branch. There is an important difference between customer experience (CX) and user experience (UX) – they are not the same thing. For example, you might have a good UX because of the British Airways app on your smartphone but your CX of the company may still be poor if you have to wait too long for your bags. The UX is just one component of the CX. An uncorrupted CX drives loyalty, and loyalty drives revenue. Banks know that if they can give new clients a good CX, they are likely to remain loyal to its brand.
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AF TER DI NNER
I N PAR AL L EL TO D I SC USSI ON S AN D/OR T EL EVI SI ON, T H E TAB L ET I S USED FOR FUR T H ER R EAD I N G AN D KEEPI N G I N CON TAC T WI T H FR I EN D S AN D FAM I LY
G OI N G TO S L E E P B EF O R E GO IN G TO S L E E P, T H E SM A R T P H O NE I S U S E D TO CH ECK I F A N Y T H IN G I N T E R E S T IN G IS ON GO ING T H AT IS WOR T H S TAYING UP F O R
THE MO B ILE WAV E The ‘digital reflex’, also known as ‘the mobile wave’, refers to the fact that, today, an individual’s first impulse when they want to find something out is to access the internet, usually via a hand-held device. Google statistics show that mobile searches of websites rose by 20% in 2014–15, but the time that users spent looking at such sites fell, from browsing sessions of between ten and 30 minutes to very brief ‘snacks’ or ‘micro moments’. In 2011 it was impossible to access Lloyds banking services via a mobile. Now, in 2016, Lloyds can boast over six million active mobile users, of whom two million use nothing but mobiles. The nine million users of Lloyds’ parallel online banking service are
increasingly abandoning it for the new app. Those who access it via the app have greater product holdings and display higher levels of engagement, and therefore constitute a more desirable client base. IMPROVING THE MORTGAGE JOURNEY Before digitalisation, customers found Lloyds’ end-to-end mortgage journey problematic. They would find it difficult to secure an appointment at their local branch (the only method of access), which led them to look for other providers. Even if they could arrange an interview, many failed to turn up, because appointments were only available during normal working hours. Since September 2015 Lloyds has made the end-to-end mortgage journey available online. The benefits of this include: • appointments can be made over the web, and so are easier and quicker to arrange; • travel costs for mortgage advisers are no longer incurred; • the same number of advisers can deal with more people as no time is lost in travel; • applicants can upload their documents in advance of the ‘meeting’, saving time; and • if the checks prove satisfactory, the advisers can offer the applicant a mortgage before the interview.
Lloyds has conducted more than 1,000 mortgage interviews in this way since September 2015. Significantly, 40% of customers say that, if Lloyds had not made this change, they would have gone elsewhere. The new mortgage journey has been so successful that Lloyds is now rolling it out for its private banking and wealth adviser customers as well. The relevant specialists have been taken ‘off the beat’ and put in the ‘hub’ with the mortgage advisers to interact with their own clientele in the same way.
Recent years have seen the rise of financial ‘disruptor’ startups, which use digital and other ways of working to cut overheads and reduce costs.
Bob Gann, Programme Director for Widening Digital Participation, NHS England, has said that financial stress is a major cause of mental illness in the UK. If digitalisation can help banks to ensure that this stress is overcome, this would result in major social gains as well as a financial boost for the banks. LEARNING FROM THE DISRUPTORS Recent years have seen the rise of financial ‘disruptor’ start-ups, which use digital and other ways of working to cut overheads and reduce costs. To prevent this, Lloyds has, since late 2014, been emulating the practices (including digital) of the disruptors. It wants to ‘disrupt itself’ from within. This self-induced disruption takes three main forms. 1. Creation of ‘Digitally Disrupted’ Teams
• Jeff Bezos, the founder and CEO of Amazon, once said that if a team can’t be fed by two pizzas, it’s probably too big. Smaller teams collaborate better, are more innovative and reach decisions much more quickly. • Lloyds has cut the teams that create its initiatives to between ten and 20 people. Each team member is sourced from a different Lloyds site, so that the widest range of perspectives is captured. These physically separated individuals interact by means of digital collaborative tools such as video conferencing, Confluence and Gira. 2. Imposition of ‘Design Thinking’
• To cut a typical product lead time of three to four years, Lloyds has asked its teams to adopt the ‘design thinking’ that dominates the ‘disruptor firms’. • ‘Design thinking’ applies the problem-solving methods used by the designers who create items for the built environment: chairs, artefacts, utensils etc. • Because they deal with a human being’s encounter with an object, designers have to use a form of solution or customerfocused thinking. They start with a goal (a better future situation for a human being), rather than a specific problem. • ‘Design thinking’ tends not only to reach solutions much faster, but to produce products that are better for the business and have faster returns on investment. • The regulator is generally positive towards better futures for customers if consulted early in the process. 3. Journey Maps
RETROSPECTIVE REPORTING TO PROACTIVE FINANCIAL COACHING A Microsoft survey for Lloyds yielded the following findings: • more than half of Lloyds’ customers want the bank to offer them analysis of their ‘real-time’ and future spending, rather than the retrospective data provided by monthly statements; • customers want the bank to provide them with advice on what might financially befall them in the future, and coaching on how they might deal with it; and • a large proportion of British bank users, from ‘millennials’ to retirees, are financially and digitally illiterate.
• Products created by ‘design thinking’, even though they integrate the customer’s likely responses, still need to be tested on real people. Lloyds uses ‘journey maps’ to record the customer response to each of the ‘touch points’. In this way, these products can be further improved. • It is particularly important to: • identify which components of new products provoke negative reactions, as people experience these far more intensely than positive stimuli; and • ensure that the last CX is a positive one, as the most recent encounter is the one that determines whether a customer will maintain or deepen their relationship with the bank.
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C H I E F I N F O R M AT I O N O F F I C E R (C I O) & C H I E F D I G I TA L & DATA O F F I C E R
With special thanks to Myron Hrycyk, former Group CIO, Severn Trent plc; Trevor Didcock, former Group CIO of easyJet plc; and Craig Donaldson, CEO, Metro Bank, for their contributions and support. We would also like to thank CIO Connect for their help and partnership. THIS ISSUE
• Change Makers & Disruptors
• Tullow Oil and IT Investment Decision-Making
• Effective Business Sponsorship
Chief Information Officer
THE CIO AS VISIONARY The CIO has never been in a more powerful place. They have become key architects of the business model as they have a unique insight into how the business works and how it joins up at both a strategic and a micro data level. In an ideal world, without legacy systems: • customers can access the data they want through the means they want, when they want; • there is one data source, with straightthrough data processing; and • the systems architecture is as simple as possible to do the job required.
Some of the legacy challenges that the CIO faces include: • the average term of a CEO is about the same as the time it takes to replace a legacy system, and so the CEO will not benefit from the investment; and • few know how to programme legacy systems and software (no-one’s current programmer wants to learn the old code).
“Have you ever left a bar or restaurant and left your credit card behind the counter? Well, I have. We thought it would be a good idea to have on our banking app a ‘Freeze’ and ‘Unfreeze’ button. So when you remembered your card on the way home you can just freeze it and unfreeze it when you pick it up the following day. Cost £5,000 to develop, saves the bank money and any customer who uses it immediately scores the bank three points higher on the Net Promoter Score (NPS).”
To drive any form of change, it is important to have CEO and board-level buy-in. A key to achieving this is to be able to sell them a vision. Talking about different types of technology often fails. What they want to hear about is the improved ‘customer journey’. So the story sold CRAIG DONALDSON, must be from an ‘outside-in’ perspective, not CEO OF METRO BANK from an ‘inside-out’ one.
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Chief Digital & Data Officer
THE CIO AND EFFECTIVE BUSINESS SPONSORSHIP The sponsors must believe that technology is fundamental to the business and is a critical part of the organisation’s strategy. Otherwise, their involvement will not work. In ensuring effective business sponsorship, the understanding outlined below can be pivotal. • Complexity management. The IT department has unique complex project and programme management skills that can enable the business sponsor to accelerate changes necessary to remain competitive, through improving internal processes and the customer experience. • Demanding communications. Effective business sponsorship depends on a high degree of interpersonal skills. The most effective sponsors are those people who are successful both by being direct in their approach and by demanding high performance in a way that people respect. Each side should be demanding and be able to share failures and changes without fear. • Sponsor selection. The selection of sponsors is a key issue. Care is needed to match key attributes with the scope of the programme. The business function or process owner may not be the best sponsor as they are often too willing to allow the scope of the programme to widen. • Sponsor influence. The key role of the sponsor is to be an advocate for the programme who can smooth the way for the programme or project manager to resolve issues in detail, saving time and cost. Communications skills are therefore vital, as is the ability to collaborate and bring people on side.
• Technical sponsors. Sponsors need the technical ability to understand the toplevel complexities of the initiative, and IT needs to be able to communicate in business language. This may involve some technology literacy training for sponsors.
• Programme capitalisation. The programme should consist of projects with short duration, delivering early recognisable results. The costs of such development should be expensed within the financial year and not capitalised, as this encourages a culture of seeking value for money and early return on investment.
• Critical success factor (CSF). The CIO and their team should be good at working with business sponsors. This is a CSF for the long-term success of CIOs. IT teams should be empowered to call out a sponsor if things are not working or more support is needed. • The CIO as brand ambassador. The CIO must continually promote their function and its successes with support from internally respected business sponsors.
Where to Start
Customer journey must be identified and measured. ‘Never lose sight of the customer’ or the company strategy. Ensure this thinking is embedded in your team.
Because it works today does not mean it does not need changing, but convincing the executive of this may prove challenging. Keep up to date on economic, consumer behavioural and technology changes, and be able to categorise how a disruption learns from these.
Source of Innovation
Focusing on customer needs presents opportunities for positive change.
Maintain a disruptive outlook by regularly changing roles within the organisation. Reinvent your role every three years, so you do not become stale.
Understand the impact on different parts of the business of developing technologies and how your competing organisations may utilise them.
CIOs should dedicate only 20% of their time to managing IT, with 20% spent on networking internally and 60% outside the organisation. Maintain a radar of opportunities driven by the key capabilities that the organisation needs to develop. Set out which technological innovation is coming next and when, and identify how it will impact on the organisation.
People are more important than process and technology. Do not always allow customisation. Instead, explain the context and benefits.
Delivery in the traditional IS and IT services is paramount. Attempting disruptive change without that foundation is almost impossible. Ensure that disruption always delivers business value and is not done for its own sake.
Digital transformation is about changing products, markets and business models, enabled by technology. Do not underestimate the value of ‘stayers’ who develop a deep understanding of the customers and the supply chain over time.
Establishment of a group of strategic customer CIOs (advisory panel). These key customer relationships can help confirm which disruptions will be successful and build leverage in your business. Regional CIOs in global organisations can think small-scale. But under-the-radar disruptions can later be expanded globally, rather than trying to change the world all at once.
Ensure you have a trusted track record, so you start with confidence once you have agreement. CIOs must be prepared to experiment and take risks.
In getting the right senior team in place, CIOs may need to display tough love. Make clear at the earliest possible time that those you choose are chosen for the benefit of the business.
Make the business case, note your compromises and be explicit that you have done so. Choose a team you are confident can deliver on the desired business outcomes (not outputs). Take the whole team with you through sharing the fundamental strengths and rationales of the outcomes.
Relationships with the right stakeholders, not just the CEO, need to be nurtured and maintained. When you start a new role with a disruptive focus, the IT leadership team may need to significantly change their mindset. This can be vital in achieving disruptive aims.
Pace of Change
Slow down in planning to develop a deep understanding of the customer journey, then pick up the pace.
The pace is critical. Spend time assessing the readiness for change, but make changes quickly.
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C H I E F H U M A N R E S O U R C E S O F F I C E R (C H R O) & L E A R N I N G D I R E C TO R
With special thanks to Professor Sir Cary Cooper CBE, Manchester Business School; Peter Cheese, CEO of the CIPD; and David MacLeod, Co-Founder, Engage for Success, for their contributions and support. THIS ISSUE
• War for Talent
• Barclays on the Apprenticeship Levy
• Mental Capital & Wellbeing • Managing in Difficult Times
Chief HR Officer
THE WAR FOR TALENT The ‘war for talent’ prevalent in the UK today means not simply a struggle for ‘super-high potentials’, but for any assortment of staff who display, in aggregate, the entire skills set that a company needs. The key aspects of the present situation are set out below.
• War for specialist talent. There is a grave lack of specialised staff of any sort, especially in the tax, construction, cyber and digital sectors. In the last four years, the number of job vacancies in the UK has risen by more than 130%. • The ‘gig economy’ and disruptors. Technology has liberated workers to offer their time and talent in new ways, to which traditional employers find hard to adapt. In the ‘gig economy’, temporary positions are the norm. Generation Z want to create their own jobs and expect a ‘life of jobs’, rather than a ‘job for life’. The ‘gig economy’ has become attractive as 60% of those employed in traditional UK workplaces believe that their jobs will never lead to personal progression. • Fresh skills in unimagined jobs. In 2015 a survey by Deloitte revealed that 47% of today’s jobs could be done by robots or artificial intelligence. The top ten jobs today could not have been foreseen in the very recent past. Today, one in six UK jobs are in retail. The British Retail Consortium expects this proportion to rise to one in three, owing to profit pressure, productivity gains, pension obligations, the living wage and the apprenticeship levy. MENTAL C APITAL & WELLBEING Businesses in the UK used to last about a century. Today, that figure has been cut to about 50 years for industrial concerns, 30 years for pharmaceutical firms and 20 years for tech start-ups. This global and digital disruption – largely from abroad – can only intensify. An Ipsos MORI survey in 2010 revealed that FTSE 100 companies with robust arrangements for identifying and supporting staff with poor mental and other health outperform other FTSE 100 firms by 10%. The annual cost to the UK economy of ‘sickness presenteeism’ (working when ill) and absence due to mental ill health has been put at £23.5bn. Recent indicators in this sphere do not make encouraging reading. • The UK ranks tenth among the 13 most advanced nations for wellbeing. • It is third from last for the proportion of staff who feel estranged from their employers. • There has been a 42% rise in mental health problems among staff. • The UK is near the bottom of the G20 for efficiency, agility and productivity.
Stress and other forms of mental illness are the biggest cause of sick leave in the UK, accounting for twice the amount of absence from work as all other illness. THE ENEMIES OF WORKPL ACE WELLBEING Among factors causing stress and other mental illnesses at work are: • too much work; • too little work (leading to lack of fulfilment and fear of dismissal); • a lack of career development; • a lack of job security; • the nature of the employee’s role; • a poor relationship between employee and line manager; and • a sub-optimal structure and environment within the organisation. THREE ME THODS OF ADDRESSING MENTAL ILL HE ALTH AT WORK 1. Employment Assistance Programmes (EAPs). These generally involve assessment, short-term counselling and referral services for employees and their families. Data show that EAPs are very successful at reducing the prevalence of mental health problems and the employee sick leave to which it gives rise. However, they rarely manage to resolve the cause of the employee’s difficulties and have only a limited uptake (around 10%). 2. Resilience training. This aims to rectify problems that derive from a genuine shortcoming in the employee. Bespoke advice and therapies can counteract ‘negative core beliefs’ about the self (which are often irrational) or susceptibility to stress in the face of what are objectively manageable situations. However, these approaches cannot eliminate stress and other types of illness arising from objectively negative stimuli such as overwork or bullying. These can cause anyone, however healthy, to fall ill. 3. Recruit better managers. Almost every employee ‘from shop floor to top floor’ has a line manager. Data show that their failings are the main cause of mental ill health in the workplace. Recruiting managers with the right social skills and replacing those without them can enhance ‘mental capital and wellbeing at work’ exponentially.
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HOW TO M ANAG E IN DIFFICULT TIMES • Alex Edmans, Professor of Finance at the London Business School, has pointed out that between 1984 and 2009 the ‘100 Best Companies to Work For in America’ earned their shareholders on average a 3.5% higher return than those that did not engage properly with their staff. • It naturally follows that, if the rest of British business can replicate the methods of ‘best practice’ firms such as Babcock and GKN, their staff will obtain the power and respect they want and executives will see profits increase, however ‘difficult’ the times. Three features set ‘best practice’ firms apart from the others: • good managers; • common commitment to a common goal; and • an employee voice. GOOD MANAGERS • If a manager treats an employee as an employee, that person will behave like one and the manager will secure only the lowest degree of engagement and output. If the manager treats the employee as a human being and an equal, that worker is likely to invest something of their humanity, creativity, ingenuity and stamina into the job. Their output, like their engagement, is likely to rise quite rapidly. • At Toyota, executives found one team with 70% engagement and another with only 20%. When the executives switched the manager who had elicited the 70% engagement with the one who had secured 20%, the levels of engagement that each individual had produced in their first team were reproduced in the second. The ‘scores’ followed the man. What needed to be explained was: • why the job was being done; • what the outcomes should be; and • what the benefits would be (including the benefits to the staff). • When staff do something well, managers should give them some sincere and heartfelt verbal praise. Culturally, this is rather difficult for British people, but it has a highly beneficial effect on morale and will stimulate employees into even better performance. Emotional commitment has been shown to be four times better than intellectual engagement at increasing productivity. SECURING COMMON COMMITMENT TO A COMMON GOAL • If you give staff real power over the jobs they do, they will feel committed to the company and its success, as it will be their own. If the company faces a problem, why not ask the staff to suggest a solution? Those who work at the ‘coal face’ often gain insights denied to managers. • Certain companies, for instance, have made huge financial savings by getting their employees to redesign work methods via the ‘Lean’ process, making these more efficient. When Amcor was about to build a new UK factory, it commissioned its workforce to dictate the design as it realised that they would know how to make the production areas more efficient in cost terms. The workers not only suggested what turned out to be a very cost-efficient layout, but they arranged for large windows to be placed in the roof so that the factory was a cheerful place to work.
PROFESSOR SIR CARY COOPER CBE
PETER CHEESE, CEO OF THE CIPD
EMPLOYEE VOICE • Prior to the disintegration of the Challenger space shuttle above Cape Canaveral in 1986, NASA staff had repeatedly told their superiors that it was too cold to sanction a lift-off. They were ignored. • Staff working on BP’s Deepwater Horizon rig before it detonated in 2010 had repeatedly informed their managers that reckless economy-driven work practices would almost certainly lead to an explosion. Their concerns too were dismissed. • Giving employees and their ‘voice’ a statutory influence on corporate strategy can not only help a firm find the best business solutions, but it can also dissuade it from the least prudent behaviours. Giving employees a say on policy is akin to installing a very sophisticated ‘smoke alarm’.
An Ipsos MORI survey in 2010 revealed that FTSE 100 companies with robust arrangements for identifying and supporting staff with poor mental and other health outperform other FTSE 100 firms by 10%.
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C H I E F O P E R AT I N G O F F I C E R (CO O) & S U P P LY & P R O C U R E M E N T D I R E C TO R
With special thanks to Tom Seal, Research Director, Procurement Leaders, and his research team for their contributions and support.
• A CxO’s Role in Developing Productive
• Supply Chain Management
Chief Operating Officer
Supply & Procurement Director
THE CXO-SUPPLIER DYNA MIC IS CRUCIAL Senior business leaders have learnt to listen to their customers, but now they must turn their attention to opening lines of communication with those who supply them. A ruthless focus on core value-adding activities has meant greater reliance on suppliers, so the need for productive relationships is greater than ever. Procurement teams have put in place processes to enhance the flow of information between buyers and key suppliers, but there are additional benefits to be had from opening up communication channels between CxOs and suppliers. In fact, research by Procurement Leaders, a membership network for senior procurement executives, has shown that the level of senior management sponsorship is one of the most critical factors in driving new innovations out of the supply base. Whatever your business needs from a supplier, a visit from you and an explanation of your business goals will have an instant and positive impact on those relationships.
WHICH SUPPLIERS TO ENGAGE WITH Although many corporations have thousands of suppliers, an executive team is only really able to support relationships with about ten. Typically, the level of spending and perceived strategic importance are used to determine whether a supplier is considered a key partner and treated accordingly. Of the most important suppliers, it is those where commercial leverage is low, cost transparency is poor or where business models are shifting where a CxO will be able to contribute most.
STR ATEGI C/CRI TIC AL IMPO R TA NC E
PA RTN ER
COL L A BOR ATI V E
T RANSAC TI ON A L
NU ISANC E LOW
H IGH VA LUE OF SP EN D
THREE PRIMARY BENEFITS • Innovation. You can assist your suppliers in the development of new products and services and ensure that you have early or even exclusive access to these developments. Furthermore, you can treat suppliers with whom you have collaborative relationships or partnerships as an extension of your enterprise and work together for mutual benefit. This is something that goes well beyond a business transaction. One firm that has broken down barriers with its suppliers is consumer healthcare firm Johnson & Johnson, which estimates that it has access to 20,000 R&D staff and 3,000 patent applications each year. • Reduced risk. Suppliers tend to avoid sharing information about the risks they face because of a fear of losing business. Visiting supplier operations, seeing the processes they apply and questioning the staff running them can be the fastest way of improving your visibility of the supply chain and the risks within it. The benefits go beyond awareness: the presence of a customer CxO at a supplier’s premises sends a strong message and an early indication that problems can be solved together. In 2000 a fire at a Phillips factory in the US halted production of critical semiconductors for mobile phones. Nokia was working more closely than its competitor Ericsson with Phillips, and this was a factor in a subsequent improvement in Nokia’s market share. • Lower costs. Joint cost-reduction programmes are a common output of supplier summits. Many would consider this the minimum level of co-operation to be expected when you treat a supplier more as a partner than an opposing party.
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THREE MESSAGES TO DELIVER • Customer of choice. Suppliers don’t treat their customers equally, especially not in adverse circumstances. Your most important suppliers should know that by prioritising you as a customer, they will be rewarded in a similar manner when the tables are turned. • A message from the consumer. As a CxO of a customer, you have a view further up the value chain, maybe all the way to the end consumer. This insight might be the most valuable contribution you can make to your supplier’s success. • Choice and influence. Those managing day-to-day supplier relationships have a focus on finding efficient ways of working together, but will not necessarily have the inclination or the power to initiate change. Although it would be counterproductive to use a CxO visit to boost leverage, the supplier should feel challenged. The supplier must know that you are prepared to build closer ties with them, while having the resolve to overcome any dependence on their supply.
A ruthless focus on core value-adding activities has meant greater reliance on suppliers, so the need for productive relationships is greater than ever.
THE AGENDA Viewing a supplier’s operations should be a priority and should provide context for what could be a day of discussion. • Site tour. From raw material to finished products, with a focus on differentiating assets, skills and know-how. • Business performance review. The sharing of each organisation’s business performance. • Business strategy presentations. A look at each firm’s plans. • Synergies and barriers. An assessment of shared interests and potential areas of conflict. • Addressing systemic issues. Plans to resolve any recurring difficulties between the businesses. • Select areas of future collaboration. The prioritisation of mutually beneficial projects. • Team formation. For each area of collaboration, the nomination of managers and executive sponsors from each business. • Intellectual property. Agreement on who owns inventions resulting from future collaboration. Beware – unless you agree otherwise, your supplier may own the inventions and force you to buy exclusively from them.
Who. Those responsible for supplier
relationships should brief you, but you want as much openness as possible from your supplier. Visiting with a small team is the best way to achieve this. The supplier CEO should be supported by senior technical staff, with minimal sales involvement. Where. Meeting the people and seeing the operations that actually support your business will be enlightening. Whenever possible, meet your supplier at the premises they supply you from, rather than at a corporate headquarters. In some industries, not having visited each area of the supply chain is a risk in itself. Several CEOs have had to admit in interviews that they have never seen the factories in which the products they sell are made. The consumer doesn’t care whether the factory is yours or a supplier’s, and journalists now know how to ask uncomfortable questions. When. Although CxOs can bring value to discussions prior to a new contract or renewal, they are best used to reinvigorate long-standing business relationships, where communication has broken down or perhaps never existed.
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TO B R E XI T O R N OT TO B R E XI T: THE IMPAC T O N B US INE S S
With special thanks to: SIR MICHAEL RAKE, CHAIRMAN, BT GROUP PLC (REMAIN); ANNA EDWARDS, BLOOMBERG T V (EVENT CHAIR); JOE TW YMAN, HEAD OF POLITICAL RESEARCH EMEA, YOUGOV (POLLSTER); JOHN MILLS, CHAIRMAN, JML (LE AV E).
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Editor John Jeffcock, Chief Executive, Winmark on + 44 (0) 20 7605 8000 firstname.lastname@example.org Winmark Global 7 Berghem Mews Blythe Road London W14 0HN United Kingdom