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ExceptionalEntrepreneurship + Innovation = Growth

July-December 2013

Bris Rocher on sustaining beauty

brand Yves Rocher

Denise Morrison, CEO of Campbell, has

a hunger for growth

Brunello Cucinelli has grand designs

Arabian flights

HH Sheikh Ahmed bin Saeed Al Maktoum on pioneering Dubai’s aviation industry

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MENA

YOU MIGHT STRIVE TO BE THE BEST, BUT YOU’RE NOT ALONE.

EY works with some of the world’s most outstanding businesses. Find out how we can help you move to the front of the field. Visit:

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WHEN THINKING ABOUT THE FUTURE, SET YOUR SIGHTS HIGH.

EY can help you see the bigger picture, as well as the smaller details. Visit:

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LOOK AT THE WORLD DIFFERENTLY.

See business opportunities through the eyes of the world’s best performing companies. Visit:

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Forecasting the future can be risky, but businesses that are poised to embrace opportunities at a time of uncertainty, while anticipating the pitfalls, can thrive. In this issue of Exceptional MENA, many of the entrepreneurs interviewed highlight the opportunities for growth presented by emerging markets, innovation and a diverse portfolio.

For aviation pioneer HH Sheikh Ahmed bin Saeed Al Maktoum, a critical success factor for the future growth of Emirates Group is Dubai’s unique ability to interconnect

emerging markets. Meanwhile, in the recruitment industry, PageGroup’s Steve Ingham sees expansion into new countries as an antidote to more squeezed profits in overcrowded and sluggish, mature markets.

Investing in new products and agile processes remains an important ingredient for growth. Denise Morrison explains how developing innovation teams, bringing new products to market and engaging with younger consumers helped her reinvent the 144-year-old iconic food brand Campbell Soup Company.

And while the pace of technology innovation shows no sign of abating, adapting to it fast can be a game changer for businesses, as discussed in our “head to head” interview between EY Global Technology Industry Leader Pat Hyek and Softonic’s Tomás Diago. They believe that operational agility and a deep understanding of the customer are today’s critical factors for success in this industry.

Many of our entrepreneurs’ experiences chime with the findings of our Business Pulse survey, which looks at the top 10 risks and opportunities for businesses in 2013 and beyond. Find out more about how the world’s fast-growth companies are now thriving and surviving in our “How to grow beyond” guide on page 12. The “Doing business in Europe” feature (page 46) also explores how prospects for growth can return in the region.

And last but not least, as he takes the helm of EY, meet our new Chairman and CEO, Mark Weinberger, who is this issue’s guest columnist. He discusses the challenges facing entrepreneurs today and why he is putting the mission of “building a better working world” at the heart of EY.

I hope you enjoy reading this latest issue of Exceptional MENA magazine. Don’t forget that you can read it on the go and even see extra content on the EY_Exceptional app, available to download from the iTunes store now.

Enjoy!

Abdulaziz Al-Sowailim Chairman, EY MENA

Exceptional July–December 2013 1

For EYStrategic Growth Markets Leader, MENA Ashraf Abu-SharkhMarketing Director, MENA Walid AssalAssistant Marketing Director, MENA Amal AlWaidh Marketing Manager, SGM, EMEIA Victoria Nice Marketing Director, SGM, EMEIA Victoria Gravett

For further information on Exceptional MENA, contact Walid Assal at [email protected] or +971 4 701 0505.

For WardourEditor James Cash Art Director David Donaghy Account Director Emma KingExceptional is published on behalf of EY by Wardour, 5th Floor, Drury House, 34–43 Russell Street, London WC2B 5HA, United Kingdom. Tel. +44 (0)20 7010 0999

Exceptional

“Investing in new products and processes remains an important ingredient for growth”

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Contents

40

“I decided to make something that you would

want to keep forever”“I have concentrated on making and keeping the

strategy of Emirates very focused”

Brunello Cucinelli, Chairman and CEO of Brunello Cucinelli

14 26

37

06 Flights of fancy HH Sheikh Ahmed bin Saeed Al Maktoum on the continuing ascent of the Emirates Group

14 Beauty and the brand How French cosmetics producer Yves Rocher has blended profitability with sustainability

20 Turning a new page As PageGroup continues to enter new markets, Steve Ingham ensures its brand and values stay consistent

26 The reinvention of an icon Campbell’s Denise Morrison explains how she’s created the perfect recipe for success

30 Tech talks Softonic’s Tomás Diago and EY’s Pat Hyek consider trends and opportunities in software

32 A stitch in time Philosophical fashion designer Brunello Cucinelli strives to remain exclusive while expanding operations

40 Viking spirit Odd Reitan promotes positivity and strong decision-making to all his Reitangruppen employees

44 The generation game Entrepreneur and family business expert Philip Aminoff discusses innovation and acquisitions

Profiles

04 Guest columnist Mark Weinberger, the new Chairman and CEO of EY

18 The big picture Tuning into Mindy Grossman’s innovative vision for shopping channel network IAC Retailing

37 30 seconds with ... Frank Stührenberg, Executive Vice President of German electronics company Phoenix Contact

38 Intelligence Events, programs and research from EY

46 Doing business in … Signs of recovery are offering hope to entrepreneurs in Europe

48 Beyond profit Michael Carey is helping improve the fortunes of people in Haiti

Regulars

Analysis12 Recognizing risks and

reaping rewards Optimizing your business model to thrive in the current climate

24 IPO market in numbers An EY survey reveals that appetite for investment in IPOs has increased over the past year

Steve Ingham, CEO of PageGroup (page 20)

“Today, half of our fee earners are in fast-developing countries”the number of software downloads

generated by Softonic every day, one million of which are mobile apps (page 30)

5.3 million

HH Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group

06

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EY | Assurance | Tax | Transactions | Advisory

About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

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© 2013 EYGM Limited. All Rights Reserved. EYG no CY0534. ED 12/13

In line with EY’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com

Mark Weinberger, new Chairman and CEO of EY, introduces his vision

Building a better working world

Nearly six years after the words “credit crunch” entered the vocabulary, many people and

businesses still struggle to find things to celebrate. While it’s true that, in some ways, the working world isn’t functioning as well as it should, the picture is not as bleak as some would paint it.

The increases in globalization we have seen over the past generation have meant painful changes for some, yet it has brought great opportunity and enterprise to many more. In China alone, nearly half a billion people have been lifted out of poverty.

We think of technological change as benefiting the rich, but the truth is more interesting, particularly for emerging entrepreneurs. Mobile phones, for example, allow migrant workers to send money to their families and enable fishermen to call different ports to see who will give them the best price for their catch.

Yet it’s still hard to escape the sense that things could be better. Today, trust in business and governance is low: millions of people are unemployed and gridlocked political systems seem unable to address long-term fiscal

issues. While there are no simple answers, the solution lies in working together – in people and organizations making changes in their areas of knowledge and expertise.

At EY, we understand the challenges, but we also see the opportunity to build a better working world.

We have long recognized the potential of entrepreneurs, who are the engines of job creation and are key to global economic health. They also have particularly important roles in emerging economies as the state reduces its role. Over the past 26 years, we have celebrated that special contribution through our Entrepreneur Of The Year® program, which now covers more than 50 countries and culminates in the announcement of a World Entrepreneur Of The Year. In June, Hamdi Ulukaya, the founder of Greek yogurt company Chobani, was announced this year’s award winner.

In recent months, we have been looking keenly at the world around EY and speaking with leading thinkers, both inside and outside the organization. We have taken the purpose of building a better working world and placed it at the heart of our plans for the future. We call these plans Vision 2020, because they look clearly at how we will fulfill our purpose over the next seven years and beyond.

As part of our vision, we are improving every aspect of EY. We are going to put changes in place so that we have the highest-performing teams, delivering exceptional client service, worldwide.

We’ll be capitalizing on the fact that we are the most globally integrated organization in our profession. And we will do all this while maintaining our unwavering commitment to quality, so that we deliver exceptional service to rapid-growth businesses.

“We have long recognized the

potential of entrepreneurs”

4

Guest columnist

Mark Weinberger at a glance• Weinberger joined Ernst & Young LLP’s tax department in the US in 1987, but

after several years with the firm accepted a position working in the US Senate. He was subsequently confirmed by the Senate under two presidents.

• He was appointed Chief of Staff to US President Bill Clinton’s Bipartisan Commission on Entitlement and Tax Reform in 1994. Under President Clinton, Weinberger also served on the US Social Security Advisory Board.

• In 1996, Weinberger co-founded Washington Counsel, PC, a law and legislative advisory firm that later merged into Ernst & Young LLP. Weinberger subsequently became head of Ernst & Young LLP’s National Tax Practice in the US.

• In 2001, Weinberger returned to public service when he was appointed by George W. Bush as Assistant Secretary (Tax Policy) of the US Treasury.

• He joined EY’s Global Executive in 2008.• In July 2013, Weinberger became the new Chairman and CEO of EY.

“By expanding into new markets, you keep your employees motivated. They see that the company is growing and their work is being appreciated in more countries.”Philip Aminoff, Electrosonic Group and Paulig (page 44)

Exceptional July–December 2013

Insight and opinion from this issue’s interviewees

“Quote unquote”

5

“As your brand grows, it becomes inflated and you risk losing your specialness.”Brunello Cucinelli, Brunello Cucinelli (page 32)

“A brand must evolve with its time, even if it is grounded in history.”Bris Rocher, Yves Rocher (page 14)

“I believe business has a positive social role to play

in how the world evolves.”Michael Carey, Soul of Haiti (page 48)

“I want to be known as the person who led the business through a period where PageGroup became the world leader in our industry.”Steve Ingham, Michael Page (page 20)

“The increasing power of internet communities means consumers can now share information on what is good and bad.”Tomás Diago, Softonic (page 30)

“There is no room for slackness in the airline business.”HH Sheikh Ahmed bin Saeed Al Maktoum, Emirates Group (page 6)

“My idea of leadership of this company is to unleash the potential of our people to do amazing things.”

Denise Morrison, President and CEO of Campbell Soup Company (page 26)

“You have to include other people in your dreams to see the vision and make it come true.”Odd Reitan, Reitangruppen (page 40)

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Profile: Emirates Airlines / flydubai

7

Flights of fancy His Highness (HH) Sheikh Ahmed bin Saeed Al Maktoum discusses how Dubai’s aviation

industry has really taken off

words Peter Shaw-Smith_ portrait Siddharth Siva

8


9Exceptional January–June 2013Exceptional July–December 2013 9

example within China and Africa or throughout China and Brazil, and exploiting east —west connectivity through Dubai. The strength of our business model and the healthy spread of risk at many levels have been the main factors that have helped us through the more difficult times,” HH Sheikh Ahmed says.

“From the beginning, I have concentrated on making and keeping the strategy of Emirates very focused: to grow organically, connect cities across the world via Dubai, offer unbeatable value for money and provide an unmatched level of service,” he adds. “By following this strategy, we have been profitable in all of our years of operation, apart from year two.”

Dubai-based low-cost carrier flydubai has also prospered under HH Sheikh Ahmed’s tutelage. It was launched by the Government of Dubai in March 2008, and began operations in June 2009 to Beirut, Lebanon. “The vision was to provide a low-cost alternative on

already popular routes from Dubai, while opening up destinations that were underserved by the UAE. The airline now flies to more than 60 destinations, no small achievement in just three years,” he says proudly.

line of dignitaries moves forward along the red carpet to the mobile

stairway, led by the then ruler of Dubai, HH Sheikh Maktoum bin Rashid Al Maktoum. As the

leased A310 climbs into the sky, the camera pans over

the beaming faces of the leadership of the Emirate

of Dubai on board, while officials await their arrival on the

tarmac at Karachi International. The year is 1985. The moment is the inaugural flight of what is destined to become the Middle East’s biggest airline: Emirates.

Right behind HH Sheikh Maktoum that day is HH Sheikh Ahmed bin Saeed Al Maktoum, the man who would lead a company to global pre-eminence. Under his guidance, Emirates has grown from a tiny airline, dwarfed by regional competitors in one of the world’s sleepiest locales, to a global powerhouse challenging the complacency of the world’s flag carriers. And, along the way, the Emirate of Dubai has been transformed from a desert backwater into perhaps the foremost hub for global trade, logistics and tourism.

As befits HH the Sheikh’s entrepreneurial nature, he serves in a plethora of positions too numerous to mention. Among the most prominent, he is Chairman and Chief Executive of Emirates Airline and Group, Chairman of flydubai, President of Dubai Civil Aviation Authority and Chairman of Dubai Airports.

A symbol of Dubai’s success, it’s a sight to see him climb purposefully into his distinctive Porsche Cayenne as he does the rounds every day in the Emirate to keep track of his many interests. “You must wonder how I find time to do all these jobs,” he quipped at an oil and gas event in Dubai last year.

The Emirates Group has kept a very close watch on how the world is evolving, and its growth has reflected the global patterns of trade. “We expand to wherever makes sense for the business,” HH Sheikh Ahmed says. “We have a long wish list of destinations, which we’re gradually rolling out as aircraft arrive.” Last year, Emirates opened 15 new routes — a record year for destination launches.

The power of Emirates continues to grow with each new destination, of which there are now 133 in 77 countries. “A particular strength for Emirates is the size of its network, enabling us to activate business between all sorts of city pairs, for

Emirates: the facts• In the financial year 2012—13, the Emirates

Group, which also includes ground handler dnata, saw profits of US$845m, up 34% from the previous year. Meanwhile, the airline carried 39.4 million passengers, which was an increase of 16%.

• As of 31 March 2013, Emirates operated 197 aircraft in its all-wide-body fleet, with a further 193 on order.

• Emirates’ partnership with Qantas now puts the largest fleet of Airbus A380s at the disposal of international travelers.

• The world’s first purpose-built A380 concourse at Dubai International, opened in January 2013, is the most prominent point in the world’s A380 network.

“Pricing and network remain critical to the success of flydubai”

To make travel more accessible for everyone, flydubai offers unbundled fares whereby the fare includes the cost of the seat, all taxes and hand baggage, with everything else offered as an optional extra, putting the passenger in control of their spend. With this strategy, in its first year of operations, traffic to Lebanon and Egypt grew at double digit rates, with Jordan growing as much as 40%. “I think pricing and network remain critical to the success of flydubai. I know the unbundled fare policy, combined with low fares, has been very attractive to customers, allowing more people to travel, more often. This customer service model has worked surprisingly well.”

Like any global entrepreneur, however, HH Sheikh Ahmed’s focus remains on leanness and efficiency. “One of the common challenges to any airline, low cost, full service or otherwise, is the cost of fuel. This continues to be a real thorn in the side of our operations. In the last financial year, Emirates’ fuel bill was up by 15% to

6 yearsEmirates’ average fleet age. This is in stark contrast to the International Air Transport Association’s global fleet average of 11 years

An Emirates A380 flies over one of Dubai’s most iconic buildings,

the Burj Al Arab hotel Above right: Australian cabin

crew in Emirates uniform following the partnership with

Qantas airlines Right: HH Sheikh Ahmed

launched flydubai in 2008; the budget airline now flies to more

than 60 destinations

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10 Exceptional July–December 2013 11


cites the collective wisdom of the founding management team and staff, who are committed to delivering daily, as one of the key reasons for Emirates’ success.

“The Emirates Group’s greatest asset is its staff. Every year, our employees accomplish remarkable feats that help to keep us moving forward. The cultural diversity of our staff really adds to the way we do business and it is crucial that any new employees fit into this very international environment.

“There is just no room for slackness in the airline business,” HH adds. “So Emirates seeks the very best on the market.” Fortunately for him, given the strength of the brand and the well-known success of his aviation enterprise, they have plenty of applicants keen to join the team of 68,000 people across the world.

With his quizzical gaze and softly spoken mien, HH Sheikh Ahmed’s demeanor exudes the calm of a man in control not only of his own destiny, but that of the tens of thousands who work for him. In 2011, a report by Oxford Economics found that aviation contributed US$22b to Dubai’s GDP, or 28% of the total, and supported 224,000, or 19%, of jobs in an Emirate that today has a population of only 1.5 million.

“Aviation and Dubai go hand in hand. Unlike the trend in other countries, the UAE places aviation at the center of its economy and the results of that approach over the past 25 years are clear,” HH says. “As a result, Emirates invests billions of dollars each year in its growth strategy, by way of new destinations, new aircraft

and innovative, customer-focused products.” This successful business strategy, coupled with

a continuing transformation of Dubai’s aviation infrastructure, suggests that Emirates and flydubai will soar to ever greater heights in the future with HH Sheikh Ahmed bin Saeed Al Maktoum firmly in the cockpit.

The ultra modern Emirates Airline Terminal 3 at Dubai International Airport reflects the airline’s spirit of innovation

Dubai and aviationAs point man in Dubai’s aviation sector, HH Sheikh Ahmed oversaw a restructuring that led to the separation of regulatory body Dubai Civil Aviation Authority (DCAA) from Dubai Airports, a local Dubai government entity created to own and operate Dubai’s two world-scale air transport hubs. With more than 57 million passengers transiting in 2012, well ahead of forecasts and making it the world’s second-busiest international airport (in terms of international passenger traffic), Dubai Airports officials expect Dubai International to overtake passenger throughput at London Heathrow in 2015.

HH Sheikh Ahmed says: “It is immensely rewarding to see the progress Dubai has made in aviation since 1959. At this time, Dubai International was established, following the construction of the first airfield on what was then an expanse of land on the edge of the city.”

Dubai International Airport hosted no fewer than 150 airlines, with only Frankfurt (107) and Paris Charles de Gaulle (104) crossing the 100-carrier mark. This has largely been due to Dubai’s “Open Skies” policy, initiated by HH Sheikh Mohammed bin Rashid Al Maktoum, the Prime Minister and Vice President of the UAE, Ruler of Dubai.

2013 Concourse A, the world’s first purpose-built A380 facility, opens at Dubai International Airport

2013 Emirates enters into partnership with Australia’s Qantas Airlines

SOURCE: EMIRATES, YOUTUBE.COM

HH Sheikh Ahmed’s legacy: a history of Emirates milestones

1985 Emirates’ inaugural flight, EK-600, departs Dubai International on 25 October for Karachi at 11:45 a.m.

1992 Emirates becomes the first airline to install

video systems in all seats and classes

throughout the fleet

1993 Emirates becomes the first operator to introduce telecommunications on an Airbus — in all three classes

2000 Skywards, the frequent flyer program, is launched by Emirates Airline

2003 Emirates’ aviation training center opens in

Dubai, offering full-flight simulators

2003 Emirates announces an unprecedented order for 71 aircraft, worth US$19b, at the Paris Air Show

2004 Emirates signs a US$154.8m sponsorship deal with English Premier League football team Arsenal

2007 Emirates Flight Catering begins operations at its new US$120m facility next to Dubai International2007 Emirates signs deals for 143 aircraft at an estimated cost of US$34.9b

2008 Emirates’ Airline Terminal 3 opens at Dubai International Airport

2008 In-flight mobile phone service launched by Emirates

US$7.6b.” But offsetting this cost challenge, there is a low average fleet age, which means the airline operates more fuel-efficient engines.

Overall, HH the Sheikh is optimistic about the future, but he is only too aware, given the intensely competitive environment and the global forces at play — such as the economy and oil prices — that the airline needs to remain smart and reactive and stay ahead of the game.

“I think any business that wishes to be successful cannot stand still when the world is moving and changing

so quickly,” HH Sheikh Ahmed says. Indeed, the brand has a formidable reputation for pioneering innovative new ideas in the aviation sector: in 1993, Emirates became the first airline to introduce telecommunications on an Airbus — in all three classes.

HH Sheikh Ahmed also points to the billions of dollars of investment spanning Emirates’ fleet, aircraft interiors, lounges, products and services to deliver an experience customers are eager to repeat and share. In commending the team around him, HH Sheikh Ahmed

“Any business that wishes to be successful can’t stand still”

HH Sheikh Ahmed was awarded the title of United Arab Emirates Entrepreneur Of The Year in 2012

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Analysis: How to grow beyond

More informationTo learn more about the risks and opportunities mentioned in the report, visit ey.com/growingbeyond or join us at the next Strategic Growth Forum ey.com/sgfevents.

as there ever been a more testing time to do business? Yet despite faltering economies and banking systems, some businesses are still achieving success,

and fast; and they are doing it by pushing boundaries and breaking new ground.

These beacons of ingenuity are excelling not simply by tackling the current economic woes, but by exploring the opportunities that the current state of flux presents. By developing new products and services, exploring emerging markets and nurturing new talent, these companies are optimizing their business models to succeed whatever the conditions.

The risks and opportunities that face today’s businesses will ultimately shape what happens next. They form the basis of a new global report that surveyed 641 companies operating in 21 countries in a variety of industry sectors. EY’s Business

Pulse provides guidance around the top risks and opportunities in 2013 and beyond, and it does so by scrutinizing four key areas.

Cost competitivenessThe first area addresses the top risk identified in the survey; pricing. Today, businesses are increasingly directing their efforts toward cutting costs and prices in order to survive in shrunken mature markets, while also competing in rapidly growing ones.

“Everyone has felt the rising pressure from cost cutting and related profit pressure. This risk has to be a constant concern — even when there is not a crisis — because you cannot truly solve the problem of cost cutting in one day,” says Christophe Babule, Head of Internal Audit at the L’Oréal Group. “A crisis can be an opportunity. It is a way to push the whole organization to act on these risks faster.”

The increasing significance on cost is understandable. Cutting costs by just 1% can

yield the same bottom-line results as a 10% boost in sales, which can be a massive pick-me-up in today’s ultra-competitive markets.

Stakeholder confidenceThe second area for consideration has fundamentally shifted since the global financial crisis first erupted in 2007, and now includes the influence of government interventions. The increasing role of governments as a key stakeholder is due largely to escalating regulation, most notably felt in the financial services sector. More regulatory reporting is needed to satisfy stakeholders and government alike.

It is also a factor in rapidly growing markets, where governments are playing a bigger role in more sectors, which can affect the competitive environment. Keeping on top of government policy and maintaining good relations with the state is one way to find opportunities, prepare for changes or mitigate risks.

Regulation and compliance is a growing risk factor facing companies today, and the forecast is that it will remain a concern for some time yet. Volker Barth, Head of Compliance at Daimler, warns that the level of regulation will only increase as regulators become more aggressive. “This will also be the case in rapid-growth markets,” he explains. “A big downside risk here is that authorities in rapid-growth markets are not as well prepared as those in developed markets.”

Thorough risk analysis and research and stringent planning in your growth strategy are now more critical than ever for successful management of this factor.

Customer reachMore positively, expanding your customer reach is seen as a mechanism for accessing opportunities through innovative products, services and operations that open up niche areas in existing markets and achieve success in growth markets. As a consequence, innovation has been identified as the greatest opportunity in 2013 and the foreseeable future.

The possibilities associated with innovation go hand in hand with the

Growing your business beyond boundaries requires knowledge, ingenuity and a healthy dose of courage

Recognizing risksand reaping

rewards

potential offered by emerging markets, which is also seen as a key growth area in the coming years. Not surprisingly, the International Monetary Fund expects major rapid-growth markets to expand by 5%—6% in 2013—14.

In accordance, it is likely that this expansion will be conveyed to the world

via new marketing channels. Social media outlets (as well as cloud computing and data insights) particularly, are seen by many organizations as an area that will be increasingly important to expanding the customer base.

Operational agilityThe ability to adapt and streamline operations is viewed as a valuable way of making tangible improvements that will steady the ship through volatile macro changes, or even make headway into new markets. Companies

are encouraged to consider investing in processes, tools, talent management and training to deliver greater productivity.

In a similar vein, finding more effective ways of executing strategy throughout the business is regarded as an area where gains can also be made. Here, an investment in IT has become the practical embodiment of this move to enhance analytical and administrative processes.

Each of these areas illustrates that change is afoot, with the shifting economic landscape providing both risks and rewards. With so much at stake, equal reserves of creativity and determination are needed for companies to survive and thrive. And, as the research shows, the stark difference between those companies that can successfully harness these key factors in their growth strategy is clear for all to see.

The top 10 opportunities

“A crisis can be an opportunity”

words Mark Alexander

The center of the radar represents the risks and opportunities that survey respondents felt were having the biggest impact on their organization

The top 10 risks

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Profile: Yves Rocher Group


Bris Rocher discusses the original sustainable business that women have been in love with for more than half a century

words Agnès Poirier

15

n the Yves Rocher offices, 36-year-old Bris Rocher, CEO of the company founded by his grandfather, keeps his visitors waiting in a small, sunny vestibule. On a low glass coffee table, a few books are carefully laid out: all reveal a facet

of the iconic French brand.Yves Rocher’s natural cosmetic products are part of

France’s national heritage. Many French families have enjoyed the thrill of receiving Yves Rocher’s famous little beauty parcels through the post at a time when mail order businesses were extremely rare. Using plants grown on the family estate of La Gacilly in Brittany to make his products, Yves Rocher was one of the first environmentally conscious entrepreneurs in Europe. A book of photographs shows acres of organic chamomile and medicinal plants in a hilly Breton landscape. Another book, written by Rocher’s uncle, bears witness to the Rochers’ taste for traveling and their commitment to sustainable development through a system of partnerships, along with aid to entrepreneurial women living in developing countries.

“We owe our success to nature, so the least we can do is to look after it,” Bris Rocher explains. Sustainable development has been a cornerstone of the brand since 1959, decades before it became a regular item on boardroom agendas. “It is what Yves Rocher is all about, quality natural products that have always been affordable to a very large public.”

Bris Rocher, who became the head of the multi-billion-dollar French cosmetic empire five years ago, remembers with fondness his summers when he helped with the harvests at La Gacilly. “I was barely 12, I started early!” After a stint in the accounting department of the company,

I

Yves Rocher discovered a passion for botanics in La Gacilly in Brittany, France, in the 1950s. The story goes that a local healer gave him a secret recipe for a cream made from lesser celandine, he made it by hand himself and sold it locally — it was so popular that he started to sell it by mail order.

Fascinated by plants and his grandfather’s collection of dried herbs, Yves taught himself everything he could about botanics and beauty products, using his family’s attic as a laboratory and distribution center.

A botanical entrepreneur blooms

he moved to Arthur Andersen (now Accenture). “I needed to try my hand at other things, even if I secretly knew that I’d go back home, eventually.” In 2003, back in France, Rocher was made Vice President of the Yves Rocher Group (eight brands active in the markets of cosmetics, clothing and homecare products) and, when his grandfather died in 2009, he took over the business, as the eldest of eight grandchildren.

One of the first decisions he made was to consolidate the business. In the 1970s, his grandfather had sold 60% of his company to French pharmaceutical giant Sanofi. “He was very ill at the time, and he wanted to make sure his young family would be financially safe in the event of

Beauty and

brand “We owe our

success to nature, so the least we

can do is to look after it”

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his death.” Having grown from a small family business to a national heavyweight, in 2001, Yves Rocher started the process of buying back Sanofi’s shares. It proved a long legal process, and it took 11 years before it severed ties with Sanofi. The transaction, based on Sanofi’s financial disclosures, valued the company in excess of US$1.8b.

“This is a beautiful story. Usually, a family progressively loses control of the business its ancestors created,” he says. Today, Rocher, his family and their employees own 96% of the Group, which also includes classic French-style clothing label Petit Bateau and various perfume and beauty brands. The company is headquartered in the southwest of Paris, a short walk from the Seine.

Sustainable developmentFor Rocher, it was essential that the family and employees regained total control of the Group’s destiny. “Yves Rocher is not your average business. Its success is based on true values: loyalty, family, respect for the environment and excellence. You only need to visit La Gacilly in Brittany, a village of 2,000 inhabitants, to understand what the company is about. We have 1,000 different species of plants there, botanical gardens that are open to the public, an organic restaurant, and an organic hotel and spa. We also sponsor an open-air festival of photography every summer. As for our factories, all located in and around the village, they employ 3,500 people. It’s not just a pretty picture in a magazine, it’s real, it’s made of flesh, and that is a beautiful thing.”

The Yves Rocher family is composed of a dozen members, all concerned with the preservation of the environment. Carrying on the ecological values upon which the business was built, the company has recently committed to plant 50 million trees around the world by 2015. “It is a huge task, but not an impossible one,” Rocher says, smiling.

In 2012, Yves Rocher’s sales topped US$3b, up from US$2.8b the previous year. Today, two-thirds of sales are within the Eurozone. According to Euromonitor data, the company’s French market share is second only to L’Oréal. And a company year-end report from 2011 counts one out of three French women as Yves Rocher customers.

17

“We have two strategic axes: the first is to develop our international activities, the second is to win the battle of mail order, online and digital distribution. I owe it to my grandfather, who was a mail order pioneer.” Bris Rocher says that the company’s e-commerce and e-retailing have not cannibalized classic mail order: “They live in harmony side by side and are even profitable.” However, he continues, the Group must become a truly digital company.

Rocher cites Amazon and Apple as brands to emulate. Both have managed to seize, and now personify, today’s digital zeitgeist. “Talent lies in the ability to follow society’s evolutions and help consumers as they change their ways of consuming.” Looking to the rest of the world, Rocher says, “Our DNA is strong. The Yves Rocher brand is meaningful, and it is grounded in history. We must export our ethos. We must also develop our activities outside the Eurozone, to consolidate the future. We have recently bought an Italian brand, Flormar, which is being run by a Turkish family and is the number one make-up brand in Turkey.”

In parallel, Bris Rocher is opening Yves Rocher beauty shops in countries like Russia. “We were the second company, after McDonald’s, to open shops in Russia just after the fall of the Berlin Wall. The thinking behind it was that, very soon, Russia would embrace capitalism and its middle classes would be hungry for products like ours. We now have 250 shops throughout Russia.” China is next on Rocher’s list of countries to conquer, alongside Latin America. “The population is young, and the middle classes are getting more affluent every month. China is, for us, an exciting new market.”

In 2006, Rocher commissioned an audit on Yves Rocher’s image. “You must always be at the top of your game and be aware of how others perceive you. A brand must evolve with its time, even if it is grounded in history. Traditional doesn’t mean stiff.” As a result, the logo and the shops got a makeover, but the quality of the service remained unchanged. Rocher often evokes his grandfather’s innate flair. “He had his feet firmly on the ground and his talent rested on two qualities: good common sense, and vision.”

We’re all global businesses now. Whether you’re a small family business or a global consumer products conglomerate, the explosive growth in online sales and the rise

of emerging markets make national boundaries less relevant. However, consumer goods companies are finding it increasingly

hard to get decent growth in mature markets such as Western Europe, as explained in a recent EY report Disrupt or be disrupted.

In mature markets, consumer goods companies have largely relied on increasing the price of their products to boost growth. But this tactic has obvious risks, with price increases prompting value conscious consumers to switch to cheaper products.

Rising commodity prices, such as oil and sugar, have increased costs for consumer product companies and put pressure on their profit margins. Emerging markets are therefore becoming increasingly important to all consumer companies, but breaking into the mainstream of these markets isn’t easy.

For a start, you need the right product for the right market, and the right go to market strategy. A best-selling product in Western markets may flop in Eastern ones, for example.

Tailoring a product can work well. One global consumer goods giant observed that rural consumers continue to wash clothes in rivers, so they adapted their washing powder to a handheld soap format.

Meanwhile, the rise of emerging markets coincides with the rise of digital, which is affecting the way companies communicate with consumers. In the US, consumers already spend more time using the internet than they do watching TV. Yet marketing budgets at consumer goods companies have not kept pace with this shift in habits. Traditional marketing channels may still be important, but they are losing their potency.

Consumers no longer want to be marketed to in a one-way communication. Instead, they want to have a “conversation” with a brand — whether it’s looking for information about a product online or telling you what they think of your product using social media. Companies can use engaged consumers as brand ambassadors and contributors to product development.

Some global consumer goods companies are centralizing control over social media. Under this approach, one team of experts can share skills and experience with marketers in different countries and subsidiaries. This way, social media campaigns can be tailored to different markets while maintaining a common message for brands.

New markets, new methodsMark Beischel, Global Sector Leader for Consumer Products and Andrew Cosgrove, Global Consumer Products Lead Analyst, EY

More informationTo view the report Disrupt or be disrupted, please visit ey.com/brandneworder

Viewpoint

Top: Despite its mail order and internet distribution model, Yves Rocher has almost 4,000 retail outlets in 88 countries Left: Each year, Yves Rocher holds an annual open-air festival of photography Bottom: As a child, Rocher often helped with the harvests at La Gacilly in Brittany


Profile: Yves Rocher Group

“We were the second company to open shops in Russia after 1989”

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Screen testWhen Mindy Grossman left Nike in 2006, she was intrigued to hear that shopping channel network IAC Retailing was on its eighth CEO in 10 years — and in need of a new one. She got the job and started work on refocusing IAC’s major shopping channel, HSN. She soon realized the direct-to-consumer business needed personality, editorial direction and to harness technology to drive increased

customer spending. HSN has since invested heavily in engaging with its 59 million customers via innovative social networking tools and, more recently, through HSN Arcade, which allows viewers to play games online while watching HSN live.

Following an IPO in 2008, HSN is now a stand-alone success. In 2009, its first full year as a public company, HSNi posted

US$2.75b in sales. Last year, that number was US$3.3b, up 6% over 2011.

Winner of the EY Entrepreneur Of The Year Award in 2011, Grossman continues to innovate. “We really want to be at that incredible cross-section of media, technology, entertainment and commerce,” she says. “We’ve laid the foundation, and now it’s time to accelerate beyond that.”

The big picture: Home Shopping Network

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Profile: PageGroup

21

teve Ingham admits that the story of his own career could be bad for business. Having worked for recruitment giant Michael Page for 26 years, the last seven as

Chief Executive, the 50-year-old has never once used the services of a recruitment consultant himself.

“The one thing I have to be careful about is not telling clients to grow their career in one company, like I have,” Ingham jokes. After a brief stint as a graduate trainee at precious metals group Johnson Matthey, Ingham took a friend’s advice and moved to recruitment, having decided that an industry with people at its core was a more attractive option than life in the lab.

“I realized that one of my better skills is communicating, rather than analyzing alloys,” he explains. “I learnt early on that you have to look at not just what you’re good at, but also the type of environment that you’re likely to flourish in.”

Clearly, this is wise advice, as Ingham’s career did flourish. When he joined, the eponymous founder Mike Page had been running the business for 11 years, and had grown it into a specialist UK financial recruiter of 200 people. Swift promotions followed Ingham’s initial hire as a recruitment consultant in 1987, from Operating Director to Managing Director

words Jenny Little and Barnaby Simons_ photography Mark Harrison

Turning a new page

s

Steve Ingham, CEO of PageGroup, has watched the business flourish from a specialist national recruiter to a global giant

of Marketing and Sales, to Head of the UK division, and then, finally, to CEO in 2006.

“I always had clear goals and targets in certain time frames — a 1, 5, 10, or 20-year career plan,” he says. “I like to think I have lots of drive, energy, enthusiasm, and passion, and I certainly work hard every day.” Respected for his commercial intelligence, Ingham’s vision and communications skills have been significant factors in his rise to the top. His strong competitive streak would appear to be a family trait; his wife, with whom he has three daughters, is a professional dressage rider; Ingham himself used to play rugby for Guildford and Godalming, and he still runs before work whenever possible.

When he took over as CEO, Ingham looked to create the same career experience he has had for the rest of the company. As a result, long-term commitment to the business is a trait held by managers across the company in an industry often noted for ruthless individualism and “job-hopping.”

Experienced senior managers are often relocated at some point in their career, taking their expertise and understanding to another region while, crucially, building their own credentials. Ingham explains: “It’s essential to have the right leadership in place — people who have grown up in the business with the right values and right experience.”


Profile: PageGroup

23

Another important move under his leadership occurred in 2012, when the business rebranded from Michael Page to PageGroup, signifying a departure from the pure recruitment business of its founder to new service areas spanning executive and clerical hires, temporary work, outsourcing, interim resources, and assessment and talent management.

But the culture that has retained Ingham for so long has fortunately remained strong. The recruitment business’s incentive structure differs markedly from those of its peers. Employees are rewarded on a profit-share basis, rather than using the more commonplace commission model, driving up team unity at the expense of individual gain. Ingham explains: “We give teams a fixed percentage of any profit that they generate quarterly and we give the manager that profit to be distributed within the team, based on each individual’s performance. It’s very meritocratic,

Uniting the various strategies of PageGroup’s regional centers has been Ingham’s greatest challenge and, he says, his greatest success. “As CEO, I inherited several regions operating to their own strategies, with different cultures and different levels of ambition. I’m proud to have turned that into a company with one clear, concise strategy and culture behind a management team that all believe in it.”

PageGroup is unusual in the world of recruitment in that it is unencumbered by the politics and organizational hangovers of multiple mergers and acquisitions; the business has simply got on with steady growth. “It has been organic. We want global consistency, so we haven’t made any acquisitions,” Ingham explains. “Because we haven’t acquired we don’t need cash to acquire, so we’re cash strong. We don’t go to places then close them. If it’s right to go somewhere, it’s right to stay there, even if there are issues in the short term.

“We’re fortunate our competitors don’t act in the same way. They chop and change. They acquire. They constantly change their CEO and with that comes changing strategies. I’d like to think that the next CEO here will be someone who is currently working for me and, if they’ve liked what I’m doing, they’re likely to do something similar.”

That cultural legacy is Ingham’s priority, behind today’s success. “I want to be known as the person who led the business through a period where PageGroup became the dominant world leader in our industry and, in doing that, created long, rewarding and outstanding careers for our best people,” he says. “They deserve them.”

When the time comes to appoint a successor, there should be plenty of candidates to choose from. Ingham’s senior management team is made up of long-term employees, who have worked their way through the ranks like he has, from recruitment consultants to directors, then managing directors before reaching the boardroom. He says the culture of promoting from within offers junior employees a long career and high aspirations.

Ingham concedes that the recruitment industry has not always had the best reputation in terms of customer service. But he maintains things have changed radically in recent years and, at PageGroup in particular, everything leads back to trust. He concludes: “This business is about long-term relationships, in terms of candidates, clients and colleagues alike. That has to involve trust. It’s a great quality to promote and helps us to stand out above the rest of the industry.”

Emerging markets are presenting huge opportunities for growth. Expanding demand for goods and services in these countries, coupled with improved infrastructure and

governance, is fertile ground for businesses seeking both new customers and investors. But identifying the next economic hot spot can be a complex task.

The first priority is to consider the demography of the intended target market. This isn’t simply a question of population size, but more an appraisal of potential, with emphasis placed on the vitality of the middle classes. While this approach isn’t applicable to all businesses, it satisfies the initial curiosity of many.

The fairness and openness of the business environment you are likely to encounter can also present a risk. In some countries, corruption is an accepted part of daily life, while in others, overly zealous government interventions can be common. Finding an untapped market that is both fair and accessible is the ideal.

Meanwhile, the dynamism of a market is worth considering, as this will indicate what could happen next. For instance, if there are signs of an improving business and political situation, this could be the first hint of future growth and stability.

Of equal importance is the motivation behind the venture. Is the objective to gain access to raw materials, human capital or new outlets? Usually, there isn’t a single answer, but by having a clear understanding of why you are investing in a market, you will be able to maintain your focus.

Then there is the small matter of actually entering the market — perhaps through a joint venture, a minority or majority stake or by organic growth. The entry mode depends on your business, the market and the presence of suitable partners, but there often isn’t a single solution.

Due diligence is a critical step. Consider the tax environment and the human capital, and be aware that, no matter how meticulous a report is, it can never address every possible risk.

It is also advisable to contact as many relevant stakeholders as possible, such as local, regional and national authorities, as well as local financial and workforce organizations. This network will help you understand the variables and could produce a better deal, helping to minimize those hidden risk factors.

Ultimately, this process demands careful planning and deliberation. If done correctly, the rewards for a business can be well worth the effort.

Nothing ventured, nothing gainedAlexis Karklins-Marchay, Co-Leader of the Emerging Markets Center, EY, and Alexei Kredisov, Co-Leader of the Emerging Markets Center, EY and Managing Partner, EY Ukraine

Viewpoint

“The business is changing to reflect the new geographies we work in and their needs”

More informationFor the latest research, insights, or emerging market leaders to connect with, please visit the content-rich Emerging Markets Center at emergingmarkets.ey.com

of recruitment experience

network of 34 countries

global offices

37 years

staff worldwide5,042

25 specialist businesses

gross profit in 2012£526.9m156

Key factsvery motivating, and creates a type of peer pressure that forces people to ask themselves: whom can I trust most to perform? And how can I perform better?”

Growing concerns Successfully underpinning the people, the infrastructure, and the service offering changes is Ingham’s growth strategy and his approach to globalization. “We don’t drive 90% of our profits out of two countries; we drive all of our profits out of all of our countries,” says Ingham of the global strategy. “Apart from the new high-investment countries where we’re running fast and investing heavily, we’re profitable everywhere.”

Volatile market conditions have seen many big companies suffer in recent years, none more so than recruitment businesses. But, despite the poor conditions, the PageGroup CEO says that emerging markets are providing “extraordinary” levels of growth for the recruitment firm.

“Today, half of our fee earners are in fast-developing markets. Businesses in rapidly expanding economies traditionally rely on internal HR or smaller, local recruitment suppliers, which don’t possess the scale or experience that a big name like ours has,” Ingham explains.

PageGroup employs more than 5,000 people, covering all professional disciplines in 34 countries around the globe, and that reach is helping the London-listed business steal a march on its competitors. “In the UK, we’re competing with around 30,000 other recruitment companies,” says Ingham. “But when we opened our first office in Brazil 13 years ago, we didn’t really have a competitor. It’s not much different today. We’re in Chile, Argentina, Colombia, and Mexico; we’ve got 600 people in Latin America, whereas our nearest competitor probably has 100.

“In Asia, there is some competition in Hong Kong, but in Shenzhen or Guangzhou there’s hardly any. One of our clients in Shenzhen has 300,000 employees. A lot of management is needed to run a business that size, and we’re sourcing it.”

Despite significant expansion into new regions around the world, PageGroup has maintained its domestic strength in the UK


Analysis: Institutional investor survey

A brighter corporate earnings outlook, stabilization in macroeconomic conditions and

equity markets, as well as an increased appetite for risk, were cited as the key

factors most likely to improve IPO market sentiment in 2013.

An EY survey of institutional investors found that the appetite for investment in IPOs has picked up over the past year.

While the number of IPOs was low in 2012 compared with other years, 82% of institutional investors surveyed invested in IPO and pre-IPO stock in the past 12 months. Right team, right story,

right price The survey results suggest that good-quality companies, priced at the right level, run by the right team and with a good story to tell, will always command

the attention of the market. Right price featured in 91% of investors’ top three critical success factors influencing

IPO performance across all geographic regions and investor

types. But investors are also looking for evidence that the business model has performed well in recent years, and that the business story shows there is a solid track record of growth and a future plan to sustain it.

Timing is also an important factor. The window for successful offerings is constantly opening and closing, sometimes very quickly. Those businesses that are well prepared to go public will be able to launch in time when the opportunity arises.

Geographical focusThe majority of investors are focused on domestic markets. This sentiment was particularly true of investors in North America, where 89% are focusing investment in domestic listings. European investors, on the other hand, are more inclined to support listings outside their home region, while very few Asian investors are actively looking at opportunities overseas. Only 9% of Central and South American investors look outside their home region.

However, investors generally perceived rapid-growth markets as both more risky and more expensive.

Sector appealFinancial services is the industry with the highest appeal in every region. Investors are attracted to the sector due to the high demand for financial services globally and the fact that there is a high level of innovation within the sector. Consumer industries are also strong in fast-growth markets where populations are young and expanding and where incomes are rising.

Confidence is rising

82%invested in pre-IPO or IPO stocks in the last 12 months

65%Right story

91%Right price

57% Right team

IPO critical success factors

Investors’ top five investment markets1. United States

2. Mainland China and Hong Kong

3. Brazil

4. Other Asia Pacific countries

5. United Kingdom1

3

2

4

5

35% of respondents view consumer retail as their preferred sector 39% of this category are from Central and South America

21% of investors rate technology as a top sector preference 43% of those invest from North America

51% see financial services as their sector of choice 36% of these investors are from Asia

More informationTo download a copy of this report and access other materials, visit ey.com/ipo or contact [email protected] for more information

IPO marketInstitutional investors are more confident about the initial public offering (IPO) market in 2013

in numbers

“Good-quality companies priced at the right level, run by the right team

and with a good story to tell, will always command the attention of the market”

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Profile: Campbell Soup Company

Exceptional January–June 2013 27

hat is the recipe for successful leadership of a company with a market cap of more than US$14b? In the case of Denise Morrison, President and Chief Executive

Officer of Campbell Soup Company, it is a huge stock of passion, roots in family values, the perfect blend of people, a dash of lofty goals and a large measure of delivering results.

Morrison, who is only the 12th Chief Executive in Campbell’s 144-year history and the first woman to lead the iconic company, took the helm in August 2011. She is one of only 20 women CEOs of a Fortune 500 company and was named the 81st most powerful woman in the world by Forbes in 2013. Yet, when Morrison took the post, after eight years with the company and successful stints at Kraft Foods, Procter & Gamble, Nabisco, Nestlé USA and Pepsi-Cola, the accolades had to wait.

“When I took the job, I realized that the world had shifted and we hadn’t shifted with it,” Morrison reflects. “There were a lot of good things in the company to build on, but there were also things that needed to change.”

A new generation of consumersMorrison and her leadership team confronted the hard facts facing Campbell. Due to changing consumer tastes and trends, core soup sales and profits were down. International growth had stalled. New products were failing to address key emerging demographics. And the stock price, sales and earnings per share were flat. It was only by making such a dispassionate assessment that Campbell could emerge with a new strategic

as the easy-to-prepare Campbell’s Go soup line. These days, new products are beginning to reflect the influence of global cuisines: not only Campbell’s Go soups, but also chef-inspired Campbell’s Skillet Sauces and new varieties of Campbell’s Chunky soups.

The leadership journeySince childhood, Morrison has been studying leaders and grooming herself for a top job. For her, it is a long-term process. “Leadership is a journey. It’s never something you complete,” she stresses. “I find that I am a continuous learner. I love to observe people in leadership positions and study the characteristics of good leadership.”

After reading Stephen Covey’s The 7 Habits of Highly Effective People, Morrison crafted a personal mission statement that has served her well. “I feel that if

w

US$14bCurrent market cap of Campbell Soup Company

When Denise Morrison took over Campbell, the 144-year-old business faced an uncertain future with changing customer tastes. But the company’s first female CEO found a way to make soup hot again

words Lester Picker_ photography Andrew Cutraro

IcoNThe reinvention of an

vision: the company would stabilize and profitably grow soup sales in North America, expand overseas and continue to drive sales in healthy beverages and baked snacks.

With 70% of the growth in the food industry predicted to come from global emerging markets, Morrison recognized that future opportunities came wrapped in a historical dilemma: how to invigorate a successful, iconic company so it could meet the realities of a global marketplace.

“Build on the past to create the future: we need to respect the past and be inspired by it, but not be stuck in it,” Morrison says. “Campbell has always put the consumer first, so that was baked into our DNA. Today, the key is getting our people to understand the importance of innovation to the future of our company.”

Working with IDEO, the Palo Alto innovation company, Morrison observed innovative firms and was impressed by

their nimble, team-based approach. Seizing the moment, she acted quickly, creating similar cross-functional teams, charged with bringing exciting food for the next generation of consumers to market. Each team acts like a start-up, with representatives from consumer insights, marketing, supply chain, sales, culinary and packaging.

The innovation teams immediately began reinventing the product development process, which fostered new ideas such

27Exceptional July–December 2013

28

you don’t have a good sense of who you are, it’s very hard to get people to follow you. My personal mission is to serve as a leader, lead a balanced life and apply ethical principles to make a significant difference.”

As a wife, daughter of aging parents, mother of two daughters and now a grandmother, Morrison is an adept juggler, as she walks the tightrope of career and family. Promoting the concept of work-life integration, Morrison says her challenge is to balance the academic, spiritual and physical elements of life. “I find that when I have those things in balance, it’s a positive source of self-esteem and I can lead better. In terms of applying ethical principles, integrity is everything. If you don’t have a good reputation, if you don’t do things honestly, people won’t trust you, and you can’t lead unless people trust you.”

For Morrison, what matters most as a corporate leader is her commitment to people, both within the company and with her consumers. “My idea of leadership of this company is to unleash the potential of our people to do amazing things,” she says. “I believe if you do that — and you maintain an unrelenting focus on the consumer — profits will follow.”

New Campbell, new era In the ever-changing, frenetic global marketplace, Morrison assigns great importance to being nimble. However, while Campbell has always been a solid company with good earnings, being nimble didn’t come naturally. With Morrison’s arrival, that changed.

The breakthrough teams are an example of agility. When Morrison came on board as CEO, it took two years to bring a new product to market. Now, it takes about half the time and welcomes more consumer input than ever before.

While Campbell has always had pockets of agility within the company, the immediate task was to bring that agility to soups and simple meals, another highly successful product line that was in need of refreshing.

To expand into faster-growing spaces, Morrison made the strategic decision to shift Campbell’s center of gravity. One such decision was the acquisition of Bolthouse Farms, an innovative producer of fresh carrots and super-premium fresh beverages.

29

In fact, the company brought more than 100 new products to market last year across all of its brands, including Pepperidge Farm and V8 beverages, and will launch over 200 new products this year. Bolthouse Farms has added fresh foods and more innovative beverages, which extends Campbell’s supermarket reach to the higher-margin retail perimeter and complements its competence in vegetable nutrition.

On one of their first global leadership meetings after Morrison took office, the executive team re-examined the company’s core values of character, competence and teamwork. What they realized was that, if they were to become the innovation engine that Morrison envisioned, they would need to add “courage” to the list. To the team, courage meant the need to take calculated risks with the highest integrity and the willingness to fail, learn and reapply those lessons to new innovations.

Morrison has been repeatedly recognized for her achievements in corporate America and for her extensive community service. But, in the end, she has her own view of what has made her so successful. “It’s passion, it’s ambition, it’s lofty goals and it’s delivering results.”

Internationally, Campbell will focus on Latin America and Asia, with growth coming from acquisitions as well as partnerships, such as the ones it recently created in Mexico with a beverage business and in China, to help distribute its product more efficiently.

Morrison also recognized how the influence of digital was changing consumer conversations, so she hired the company’s first chief marketing officer. One of Campbell’s first forays into digital was a contest to create mobile apps that help consumers with mealtime solutions. The company plans to bring the most exciting of these mealtime apps to market this fall to kick off soup season.

Morrison has been gratified by the internal response to all these initiatives. Innovation now reigns supreme.

Right and above: Chefs working in Campbell’s test kitchen.

Hundreds of new Campbell recipes are being brought to market at an accelerated pace. Top: New

products, including V8 beverages and Campbell’s Chunky soups


“We need to respect the past and be inspired by it, but not be stuck in it”

Profile: Campbell Soup Company

In attempting to keep pace with a number of ever-changing trends, companies in the food industry are realigning their business strategies and operating models to address opportunities in the brand new order. Most consumer products companies are continuing to expand in developing markets and have a renewed focus on the BRICS

(Brazil, Russia, India, China and South Africa). The Next 11 countries, which in the previous two years were on the agenda of many consumer products companies, have taken a back seat to getting the BRICS right.

Finding the right way to take brands from developed markets to the emerging market has been a challenge for some consumer products companies. Many have had a difficult time adjusting taste and packaging size to appeal to local consumers.

Consumer products companies have found that disposable spend by consumers has slightly declined in Brazil, China and India; as a result, companies are committed to streamlining operations and increasing growth opportunities in these geographies first, before expanding elsewhere.

This means excellence in executing strategy is more important than ever before. In a recent EY report Disrupt or be disrupted: creating value for brand new order, only 30% of the senior executives surveyed believed they were successfully aligning execution with strategy. But in the current economic climate, you can’t afford to make mistakes. The execution of a robust strategy is critical to creating value for consumers, capturing value for the company and delivering value for shareholders.

A dynamic workforce located in the right geographies is essential to execution. Some companies have moved brand management of high-growth categories to developing markets, to be closer to the customer and the consumer. However, less than 20% of companies we have spoken with say they feel they have the required talent to meet the future needs of the organization. Companies want their employees to have global experience, but the cost of moving people around the world is increasingly expensive. Companies are creating virtual teams to meet the workforce demands of the future.

Every company in the consumer sector has embraced digital and social media, but few feel they have mastered it yet. Due to the instant and viral nature of this media, manufacturers no longer own their brands. Through blogs, tweets and Facebook “likes”, many consumers are using their new media voice to rapidly impact a product – for better or worse. Companies are still establishing how to better engage with their increasingly influential consumers through social media, or risk being left behind.

Food trends for thoughtPatricia Novosel, Global Food Leader and Americas Consumer Products Leader, EY

More informationTo learn more about leading practices for the consumer products industry, visit tinyurl.com/EYconsumerproductparadigm

Viewpoint

30

Head to head: Softonic and EY

31Exceptional July–December 2013

surpass desktop imminently, because there are 1.5 billion desktop computers worldwide, compared with about 950 million smartphones at the moment.

Hyek: But, at the current growth rates of smartphones and tablets, there may be more mobile devices used to access the internet than traditional computers by 2014. This creates exciting growth opportunities, especially for interactive services delivered to mobile devices from an intelligence center in the cloud and for the increasing role of voice-based user interfaces.

How do companies keep pace in such a fast-evolving sector yet maintain their core qualities and values?Hyek: Tomás spoke before about the increasing power of consumers to share what they think is good or bad. Information is widely available and harder to control, and any customer can affect your brand. In order to keep pace with what your customers and competitors are saying about you, using advanced listening technology should be one of a company’s top priorities. Plus, companies’ organizational structures must facilitate accelerated adaptation to technology and rapid response to customers and the market. For these reasons, plus today’s technology-enabled transparency, it is critical that companies and their employees know what their values are and stick to them.

Diago: I agree, one of our core values and critical success factors is innovation. We strongly believe in it and, for that reason, we keep investing our profits into innovation. We operate on a long-term view, which is why values are an essential part of our organization, making short-term gain not relevant to the company. Our success is based on people. If the people who work at Softonic are happy, then the company is successful. We do not rely on machines; we rely on people, and they are our biggest asset and essential for our ongoing fast growth.

Softonic’s Tomás Diago and EY’s Pat Hyek discuss growth opportunities, trends and challenges in the technology industry

words Barnaby Simons_ photography Annie Tritt and Gunnar Knechtel

Pat Hyek is the Global Technology Industry Leader and Head of the Global Technology Center (GTC) at EY. In this role, Hyek connects teams of EY professionals and clients around the world to share knowledge, experience and points of view on how the technology industry is helping businesses grow, manage and protect their businesses.

Tomás Diago founded Softonic in Barcelona in 1997. The company, which is based on his final degree project, provides an online software and apps guide. Having successfully pursued an international expansion strategy, Diago has sought to adapt to the individual needs of customers from around the world.

What developments in the software industry are providing opportunities for growth?Hyek: Companies are focused on how to take advantage of an increasingly mobile world. But that means integrating five technology “megatrends”: smart mobility, cloud computing, social media, big data analytics and accelerated

independently, leading to a new class of entrepreneur. This further accelerates the pace of innovation.

What challenges will tech and non-tech companies face with regards to these developments?Hyek: One of the GTC’s current industry studies is looking at how technology innovation continues to affect the media and entertainment sectors. Of course, internet technology has already transformed those sectors, but we believe many more changes are still to come. The key challenge for companies is to adapt to this change at the speed of its customers. Agility and a deep understanding of the customer are today’s linchpins for success. Accelerated adaptation to new technology will transform businesses and allow them to connect closely with customers, deliver rapid product development and lead to more flexible business models.

Diago: On top of that, the increasing power of internet communities means consumers can now share information on what is good and bad. Companies used to be able to control consumer thinking with advertising, but now the consumer has much more knowledge and power. We have noticed this and have had to adapt to it.

Hyek: But with so much more digestible information available, concerns about the privacy of information and how governments deal with privacy remains a challenge. Another challenge with cloud, big data and smart mobility is the need for companies to look beyond their traditional rivals at potential competitors from the technology world. Companies from all industries should learn from how technology companies captured retail and advertising sales, for example, and think about how their industries might be similarly disrupted.

Will mobile app downloads outgrow desktop software downloads?Diago: Softonic generates 5.3 million downloads every day, 1 million of which are mobile apps. Mobile app downloads have grown much more then desktop, but desktop downloads are still on the increase in emerging countries. I don’t believe that mobile will

adaptation, which is the process of companies adapting to technology’s new and transformative possibilities. This is unlike anything that’s happened before because it’s one, big, concurrent wave, and so fast that it is hard to predict what the outcomes will be.

Diago: For example, PCs and tablets are converging and will lead to a brilliant new platform. Softonic is an online software-discovery portal, but we are transforming it into a software apps guide. One of our challenges at Softonic is to create customized, unique experiences for our users, which is where the big data concept excites me.

Hyek: Lower costs of computing, storage and transmission make technology more accessible and expand the market of new products and services. Additionally, the building blocks of technology have become easier to use. For example, mobile apps are proliferating and evolving at an incredibly fast rate. Today, individuals and small teams can build apps quickly and

Tech talks “Now the consumer has much more knowledge and power”

“The challenge is to adapt to change at the

speed of customers”

Pat Hyek, EY Tomás Diago, Softonic

More informationTo find out more about the latest trends and insights in this exciting sector, please visit EY’s Global Technology Center ey.com/technology


Profile: Brunello Cucinelli

Brunello Cucinelli’s cashmere brand is built on history, philosophy and an exclusive market for luxury clothing

words Lee Adendorff_ photography Alessandro Albert

n a light-filled room in a restored castle on an Umbrian hilltop, three women are discussing how to sew a cashmere overshirt made of a single finely knitted cord. The women have the strong, nimble fingers and short nails of the lifelong seamstress. One guides the other two, showing them how she sews the cord into the right shape, fixing it with

quick, sure stitches. The word bello (beautiful) peppers their conversation. One of the women goes to a rack in an adjoining room where samples for the new collection are being painstakingly prepared and retrieves a version of a finished garment in the same line. The garment is beautifully made, the material is of the finest quality, the stitching is flawless, the care that has gone into its making is evident. This is the essence of Made in Italy.

The location really is a castle, part of the medieval hilltop village of Solomeo, in the heart of the central Italian region of Umbria. The castle is both a workshop, where samples for upcoming collections are prepared and elaborated, and the heart of the luxury clothing enterprise of Brunello Cucinelli. 0ne of Italy’s most unique industrial figures, he has just been crowned ‘Man of the Year’ at the Grand Prix of Advertising.

I

A stitch in time


Today, the Cucinelli knitwear production relies on a network of expert artisans located within a 40km radius of Solomeo. Exacting quality control is undertaken in-house, while the newer lines of clothing and shoes are made by artisans in the Marche and Tuscany regions. The company, like many other successful Made in Italy luxury manufacturers, has been relatively untouched by the recession, and produced close to a million cashmere garments in 2012, posting a net annual turnover of US$363.3m [€279.3m], a 15.1% increase on the previous year.

Brunello Cucinelli is a brand so exclusive that most Italians have probably never set foot in a Cucinelli store. More than three-quarters of the brand’s products are sold abroad, where Cucinelli is present in over 50 countries, with more than 80 capital city mono-brand stores and a presence in about 1,000 multi-brand luxury department stores. Foreign sales are concentrated between the US, China and Europe, with growing markets in Japan and Korea. It occupies the upper echelon of the absolute luxury segment.

Exclusiveness has been a critical success factor for Cucinelli, but one he must delicately balance with growth. “One very wealthy Chinese client said to me recently that, if I opened any more stores in China, she would cease to be my client. As your brand grows, it becomes inflated and you

special, something luxurious. I decided to make something that others could not reproduce easily and something that you would want to keep forever,” he recalls. His idea revolutionized the world of cashmere, turning it into a luxury item with a rapidly expanding market.

Foreign distribution was key. After just a few years in business and with thriving European sales, Cucinelli was already looking abroad. He bought a stake in Rivamonti, a wool knitwear specialist, in the mid-1980s and established an American wholesale distribution subsidiary, Brunello Cucinelli USA, in 1986. In the early 1990s, Cucinelli bought Gunex, makers of women’s trousers and skirts, and used a multi- brand distribution channel to establish his American presence, eventually subsuming the Rivamonti and Gunex brands into the Brunello Cucinelli brand two years ago.

Left: Cucinelli’s highly skilled seamstresses produce cashmere clothing to a very high quality Below: Scenes from Solomeo, the medieval village in the Umbrian hills restored by Cucinelli and now headquarters for his business

Solomeo is his great work and he has invested millions in the restoration of the ancient village. This achieved two things of great importance to Cucinelli: working in a beautiful setting and restoring something old. Another reason is more prosaic, but equally revealing: in Italy, a bank can find restored buildings as a warranty on a loan preferable to lending money on an industrial area. For Cucinelli, good business sense and the beautiful often go hand in hand.

Indeed, Cucinelli is not an archetypal entrepreneur. A self-made and successful fashion leader, he has an unorthodox approach to industrial manufacturing. In 2012, he made headlines when he split US$6.5m of the company’s net profits with his employees. At nearly 60, he speaks in a quiet but firm voice of his philosophy of “humanist capitalism”. I will never make money from the misery of others, and I will never humiliate those who work. We must be contemporary, but we must insist on profits that are sustainable, that are right in all senses,” he says with a smile that is at once both self-effacing and absolutely sure.

Cucinelli, who describes himself as a global artisan, was born into a humble farming family not far from Solomeo, his wife’s hometown. He recounts an idyllic childhood in the country that ended when his father moved the family to Perugia for a job in a cement factory. The move wasn’t successful, and he recalls his father’s anguish at the anonymity of the factory worker’s life, the sense of frustration and alienation in the city after their peaceful country life. The experience left its mark on Cucinelli.

“I decided that I would work toward improving human dignity, and this has been my lifelong objective,” he says.

In his early 20s, many of his ideas about philosophy and business developed amid discussions about politics and religion during card games played late into the night.

Meanwhile, his childhood sweetheart and wife Federica had opened a small boutique and the young Cucinelli, innately attracted to beautiful things and their creation, became interested in fashion. The region was already an established knitwear-manufacturing area with a specialization in cashmere, making it a logical strategic base for his business. In 1978, Cucinelli had the idea of dyeing cashmere (which until then had only been available in muted colors) and marketing it to women. Cashmere had mostly been used for men’s sweaters, but he designed them with more flatteringly feminine shapes. He set up a workshop with a ITL500,000 loan(the equivalent of US$325) and made a small collection with five styles and 53 sweaters that sold out immediately. “I wanted to make something

“As your brand grows, it becomes inflated and you risk losing your specialness”

risk losing your specialness. We have to be more special, not less. I want to try and govern my exclusivity. We pay extreme attention to distribution,” he says. Distribution is controlled through a mix of mono-brand directly owned and franchised boutiques in capital city fashion districts and exclusive resorts, as well as positioning in luxury department stores. Philosophy and business Marrying humanist philosophy with high-end fashion might seem like a contradiction in terms, but Cucinelli has managed to incorporate abstract ideals about improving human dignity into an industrial context. Making money is an objective, but it is clearly not the only objective. Apart from the Solomeo renovation and distributing profits among his employees, he has funded study grants at the University of Perugia and hosts benefit concerts, plays and musical productions. He also reads extensively, dropping names such as Spinoza, Rousseau, and even Pope Francesco into the conversation, while citing the ideas of ancient philosophers as the basis of his business approach.

“I don’t think of myself as an owner,” he says, “but as a custodian. When you start to think of your business like that, it changes your whole perspective.”

Part of this perspective was widening the circle of “custodians” who could be a part of its increasingly global distribution, and the company took a major new direction by listing on the Milan Stock Exchange last April, a unique initial public offering in 2012. Twelve months on, Cucinelli has been delighted with the overwhelming interest shown by investors. His approach to the listing, like so much else in his company, was unconventional business sense.

Solomeo

In 1985, Cucinelli found that his business was growing fast and the company’s work space seemed increasingly cramped. Familiar with the crumbling 12th-century hamlet of Solomeo, he had the visionary idea of restoring the town and making it the heart of his enterprise. Cucinelli says: “Through my business, I wanted to return Solomeo to its former glory and restore the lifeblood that had allowed it to grow and prosper for centuries.”

As well as making it the headquarters for the business, Cucinelli has built a Forum for the Arts, including a 200-seat theater, an academy and library, and an amphitheater for staging outdoor productions.


36

Managing talent is a complicated business. Not only do you have to find it, nurture it and deploy it but, most importantly, you have to invest in it. Forward-thinking companies organize their talent so that it is in the right place at the right time. They also nurture this precious resource by adopting performance management

strategies that reward endeavor.But if managing talent is tough ordinarily, doing it in rapid-

growth markets is more challenging. The absence of suitably skilled and experienced workers can be a hurdle. Many companies look to source the solution internally, and while this is a logical approach, it relies on a good understanding of where the competencies of the business are and how to deploy them.

Most companies deploy some kind of talent management program, with the most basic designed simply to fill open positions with qualified individuals. At the other end of the scale, fully integrated schemes address all stages of the talent management life cycle from recruitment, development and engagement through to retention and transition.

Studies have shown that companies that had talent agendas aligned with their business strategies and integrated into their business operations performed better than those that did not. So a holistic approach could provide huge opportunities for companies generally, but more specifically for those involved in rapid-growth markets.

For instance, relocating people in order to fill new talent requirements can be an expensive business, not only in financial terms but also in gaining, or losing, competitive advantage. In both emerging and established markets, filling a gap with the right person could result in stealing a march on your competitors. Conversely, employing the wrong person could mean losing the upper hand and an opportunity.

Getting it right first time is critical but difficult. In many cases, the biggest obstacle is the inability of HR departments to communicate holistically, because they are yet to be fully integrated into the business.

Consider the benefits of assessing the appropriate skill set needed to realize the goals in your market. Couple that with the ability to source and deploy the most suitable talent, and the strategic advantages of an ongoing talent management program become clear.

Investing in human capitalDina Pyron, Global Director of Human Capital, EY

More informationFor more advice about talent management and human capital, please email Dina Pyron at [email protected]

Viewpoint

“We didn’t do it because of debts. We could have possibly been a little more solid financially, but we don’t have debts. Of course, we have capitalistic aspirations and plans for expansion, but that wasn’t only it. This company had been just mine for 34 years, but in 2010, I decided I wanted it to be even more international. I wanted to meet investors who could also be custodians of the company,” he says.

Yet investors who were looking for a meteoric profit were to be disappointed. “I want this company to last for 100 years and I am working on business plans now up to 2020. I can’t be interested in four-day profits and losses, and I was looking for investors who would understand that,” he says.

Expansion is tangible, and plans are under way to increase operations in other countries with emerging luxury markets, such as India. A bigger facility to cater for the company’s projected business over the next seven years is being

built across the road from the main sales offices in a small industrial estate at the foot of the Solomeo hill. There is certainly nothing medieval about the current elegant facility, where scores of young, immaculately dressed men and women (the average age in the 780-strong company is 36) staff an enormous open-plan sales office that hums with quiet, purposeful activity.

At the front of the office is a display of the brand’s latest casual-chic looks. Each beautiful garment is a testimony to the work of the artisans up on the hill or in the various workshops scattered over the local area. It is a Made in Italy luxury segment that Cucinelli insists must become “more special, more exclusive” to continue thriving in a world where humanist capitalism has ceased to be an oxymoron and has started to become a sustainably profitable industrial approach.


“I don’t think of myself as an owner of a business, but as a custodian”

A team discusses designs in Cucinelli’s open-plan sales office


Frank Stührenberg Executive Vice President Global Sales and Executive Board Member, Phoenix Contact

Phoenix Contact is a world leader in the field of electrical interfaces and automation technology. Although founded 90 years ago, Phoenix

Contact did not really grow internationally until the 1980s — since then, it has grown exponentially from a small family-owned business to a large multinational company with subsidiaries in 50 countries and more than 13,000 employees. However, it is still 100% independent and family owned.

What are the most significant innovations that you’ve experienced in the industry?It’s been fascinating to see how the markets which Phoenix Contact is most involved in have developed. Twelve or 15 years ago, during the dotcom bubble, answers to many of the most important questions of the world appeared to lie in IT and telecommunication. In those days, “old fashioned” automation technology seemed outdated, while today it seems to be central to how the world functions — for example, how to produce clean

energy or operate metropolitan infrastructure. As that recognition returned, Phoenix Contact wanted to make full use of this extraordinary chance to grow with megatrends such as renewable energy or e-mobility.

As a technology-driven company, every year we develop 20 or 30 products that are real innovations. One of our significant contributions to a technology skill in our industry was the first Field Bus System — a robust industrial network system that connects instruments in a manufacturing plant. It is now an industry standard and generates more than 15% of our turnover, and has helped to make us seven times larger than we were 20 years ago.

How have you turned globalization to your advantage?We were slow on the uptake setting up our first subsidiary outside of Germany in 1981. Immediately, we recognized that the world market had huge potential for our products. By 2000, we already had 25 companies

abroad; now we have 50. We try to build up close partnerships with our customers wherever we are, so that in the US and China, for instance, we don’t just have a sales company, but also manufacturing, a development center and a distribution center. Ensuring our local branches are independent of the German HQ means they can operate more efficiently by making decisions locally. This is the way to make globalization work — certainly at Phoenix Contact anyway.

How did you expand into all those markets so quickly and successfully?Once we’d realized the huge possibilities that were out there, we were very driven to tap into the world market as quickly as we could. At first, we took products that had been popular in Germany and then founded sales companies in every relevant industrial market — such as France, Switzerland or the US — and marketed the products from Germany.

About 10 years ago, this approach evolved into a veritable globalization strategy where we switched from a radial approach, the pulses for which came from Germany, to a much more interconnected one. Our decentralized approach helped to dissipate bottlenecks in decision-making that might have slowed us up.

Globalization offers greater chances than risks, but it requires a head-on approach, and it’s important to consider today the countries and markets that will be influential in 10 years’ time.

How were you able to develop your own entrepreneurial skills?As a manager at Phoenix Contact, you learn early on not to wait for something to happen, but to take the risk and implement new ideas in a new way to outperform the competitors. It’s about changing and adapting, innovating and growing.

That’s the joy of working in an environment that is encouraging an entrepreneurial spirit: you have so many opportunities.

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IntelligenceIn the know In the diary On the web

Europe Andrea Vogel + 31 088 407 [email protected]

Russia and the CISDmitry Neverko+ 7 495 755 [email protected]

Middle EastAshraf Abu-Sharkh + 971 4312 9135 [email protected]

IndiaFarokh Balsara+ 91 22 4035 [email protected]

AfricaCheryl-Jane Kujenga+ 27 11 772 3741 [email protected]

Financial ServicesGeoffrey Godding+ 44 20 7951 [email protected]

Contacts

Growing Beyond: Strategic Growth ForumsOur Strategic Growth Markets network is dedicated to serving the unique needs of fast-growth companies. Don’t miss your opportunity to hear inspirational speakers and create valuable connections at our exclusive events. ey.com/sgfevents Coming in 2013:

Mexico, Mexico City24—25 October

Palm Springs, US13—17 November

Considering Brazil?

Gather with Brazilian business leaders at the 2013 CEO Summit Brazil 28—29 October

Global Center for Entrepreneurship and InnovationShowcasing entrepreneurial programs, conferences and forums from around the world and providing access to an extensive global

network. ey.com/entrepreneurship

Global IPO Center of ExcellenceFor everything you need to know about navigating the risks and opportunities of going public. You can access all of our IPO thought leadership, knowledge and tools in one easy-to-use resource. ey.com/ipo

Family Business Center of ExcellenceEnsuring that family businesses can access a network of partners that understand their needs, the Center provides the latest developments and thought leadership relating to family businesses. ey.com/familybusiness

On the shelf

Global job creation: a survey of the world’s most dynamic entrepreneursOur annual survey of the EY Entrepreneur Of The Year® winners — 7,000 people from the world’s most dynamic community of high achievers — once again confirms their ability to seize the day, no matter what the local economic forecast. Entrepreneurs continue to be some of the greatest global sources of sustainable growth and job creation. For more information, visit ey.com/entrepreneurship

Startup Communities: Building an Entrepreneurial Ecosystem in Your Cityby Brad Feld (Wiley)“Startup communities” are popping up everywhere. These types of entrepreneurial ecosystems are driving innovation and small business energy. Startup Communities documents the buzz, strategy, long-term perspective and dynamics of building communities of entrepreneurs who can feed off each other’s talent, creativity and support. Engaging and informative, this practical guide not only shows you how startup communities work, but also how to make them work anywhere in the world.

PublicationsFor further expert insight and opinion, EY also produces T Magazine, Capital Insights and Reporting.

Eurozone: outlook for financial services For some time, we have been forecasting a “lost decade”

of growth for the Eurozone. Many other forecasters have now come to the same conclusion, and our expectations remain broadly the same. However, the risk of an imminent Eurozone breakup, which weighed heavily on business and consumer confidence for much of 2012, has been averted. For more information, visit ey.com/issues

Visit ey.com to find your local contact, or contact any of the EMEIA team members below.

Download the Exceptional app EY_Exceptional from iTunes or follow us on Twitter @EY_Press, @EY_Growth

Odd Reitan, CEO and Chairman of Reitangruppen (page 40)

“To avoid anarchy, we have to have a strong culture with common behaviors”

of business leaders are confident Europe will overcome its current dip (page 46)

75%

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Under pressureWhy remuneration committeesare being forced to changethe way they work

Valuable ideasHow companies assessand report on thevalue of patents

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Are you thinking what they’re thinking?

Ernst & Young’s DNA of the CFO series captures the aspirations and insights of nearly 1,000 CFOs

from around the world.Find out what your peers think about their role, their future and their people. Visit ey.com/cfo.See More | Insight

It’s more than the numbers issue five | march 2013

It’s easier to cross borders when you’re not carrying any baggage.

To make the most of your company’s growth into new markets, it’s sometimes important to let go of old habits. Find out how we can help you seize opportunities to grow at ey.com/sgfevents. See More | Growth

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How global companies are tackling the growing threat of water shortages

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Pfizer CFO Frank D’Amelio on new products,

strong partnerships and capital prudence

Fighting fit

Intellectual property: wise ideas

The distressed debt debate

The Nordics: northern star

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Check out the LinkedIn Entrepreneurship and Innovation subgroup of Business Network from EY, which offers networking and intellectual capital for business leaders

Business Pulse: rapid-growth markets perspectiveWith rapid-growth economies emergingas a top business

opportunity, investors in these markets have high hopes for substantial rewards. This report explores the dual perspectives on the top 10 risks and opportunities in 2013, showing that operating in emerging markets should be a priority for businesses. For more information, visit ey.com/services

Moving Europe forward: innovating for a prosperous future At a time when rising incomes and favorable

demographics are creating new opportunities, Europe must create an innovation policy that rests on a closer collaboration between government and business. This report surveys 680 business leaders to discover their perception of the EU’s current innovation policy. For more information, visit ey.com/growingbeyond

Turning the corner: global venture capital insights and trends 2013 According to EY’s 10th annual venture

capital insights and trends report, widespread global economic uncertainty weighed heavily on VC investment in 2012, which fell to its lowest level since 2009. Global VC investments and the number of VC investment rounds both declined significantly. For more information, visit ey.com/services

41Exceptional January–June 2013Exceptional July–December 2013 4140

Profile: Reitangruppen

Odd Reitan’s retail business, Reitangruppen, is the company that carves its values in stone

words Christine Demsteader_photography Helge Skodvin

he story of Odd Reitan’s journey from Norwegian shopkeeper to business magnate started with his list of company values scribbled on Post-it notes. They now stand carved in stone at the headquarters of Reitangruppen, the

fifth largest company in Norway, and remain central to the company’s success in franchising and partnership.

Reitan’s is no ordinary head office. One of Norway’s most charismatic business leaders, he presides over Lade farm manor in his home city of Trondheim as CEO and Chairman of the board. “Developing our company culture is hugely important,” Reitan says. “And doing that in a place which is full of history works for me.”

The former settlement dates back to the Viking Age and was a one-time seat of Norwegian rulers, whose lives were remembered with Nordic runestones. At the main entrance, Reitan’s alternative monument stands proud, inscribed with the eight values he laid down more than 40 years ago.

Given that Reitan began in the discount trade, the concept of value is what drives this business. Following in his father’s footsteps, Reitan opened his first shop in 1972 under the name Sjokkpris (Shock Price).

“It was very cheap,” he says. “We sold coffee for one crown per bag, so it really was quite a shock for people. It took around a year to build it up to something profitable.”

Reitan’s plan to turn his small venture into something bigger encouraged him to study the franchise system. After achieving success with his first outlet, Reitan created the REMA 1000 concept in 1979 — a no-frills franchise supermarket chain, which initially offered a selection of only 1,000 essential products at very low costs. The aim was

T

Viking spirit


early venture into Eastern Europe. “I want things to happen fast, so I need people to take decisions and to do it in a way that’s right for the business. To avoid anarchy, we have to have a strong culture with common behaviors.” And that’s where the company values come into play again, providing a constant rock that underpins the business throughout change and growth.

But Reitan’s own decision-making skills were put to full effect when the company merged and then demerged with Narvesen ASA — a Norwegian convenience store and news agency chain — in 2001 and listed on the Oslo Stock Exchange.

“Narvesen approached us and initiated the merger,” Reitan explains. “We wanted to get bigger, and so we found the offer from Narvesen attractive.” But, within a year, the company was back in his ownership.

“I was on holiday, thinking about the business, and how its value was lower than what I knew it could be worth,” he says. “If no one else could see it then something needed to change. Combined with the fact that we were used to taking decisions very quickly with the family and we were not able to do that any more, I knew we needed to buy back and I knew I was the right buyer.”

Within minutes, he was in touch via text message with his sons: Magnus, CEO of Reitan Convenience, and Ole Robert, CEO of REMA 1000, and, on returning from vacation, the deal was set to proceed. Reitangruppen was back in family control.

“The decisions being made now within Reitangruppen are the best, because they are being made by the business managers themselves,” Reitan reflects. “There are new stores opening every day. I don’t always know where and when, but I like it.”

Having built the business from scratch, he is now setting his sights on a bigger prize — increasing the company’s presence in Trondheim — with the Reitan Real Estate business. The entrepreneur is a big fan of his home city, which has been on his shopping list for the past 15 years, having already secured hotels, apartments and office space. According to Reitan, this business area boasts the clearest vision in the whole group. It is most certainly the boldest.

“It’s a dream of doing something that hasn’t been done before,” he enthuses. “For a company to own a city.”

Entrepreneurs are the engine of economic and job growth. For more than 30 years, EY has helped many of the world’s most dynamic and ambitious companies grow into market leaders. Our commitment to these companies, in both developed and emerging economies, ensures that we are working with tomorrow’s market

leaders, today.A question we’re asked a lot is whether diversification

is a good idea when times are tough. In the case of family businesses, founders often diversify the company to give their relatives control of different interests, which is a good strategy when successful. If one business unit isn’t doing well, there are others that can make the difference and keep things ticking over.

But getting the strategy right when branching out is a challenge, and entrepreneurs need to be knowledgeable about diversification.

Before entering new markets and opening new businesses, consider the risks, understand what you’re willing to take on, and have a clear idea about what you hope to achieve. Selling multiple products and working in different markets is complex, so a clear strategic agenda is required before going ahead.

As for which sectors to enter, there are no hard and fast rules. Some companies tend to play it safe by entering similar industries and sticking to markets that are closely aligned to their core business.

But others take bigger risks by diversifying into other areas to expand their interests. Neither approach guarantees success, although businesses that diversify are often more stable than ones that don’t.

One of the difficulties with diversification is that it can be challenging to maintain focus; building a governance structure around the different business models that relate to your products and the markets you operate in is critical. Getting the structure right and building it into the business is tough, and it’s something that some business owners struggle with.

Letting go is another issue that business owners come across when diversifying. You have to be willing to delegate responsibility to others, which some bosses aren’t capable of doing. But if you have the right structure in place, with governance and management teams to oversee all of your interests, you can and will succeed.

Diversifying is good in any climateAndrea Vogel, Strategic Growth Markets Leader EMEIA, EY

More informationTo talk through any fast-growth programs or insights, please go to the strategic growth markets services on ey.com or contact Andrea at [email protected]

Viewpoint

Being inclusive has also aided the company’s pace of growth — a point that Reitan regularly stresses when meeting today’s young entrepreneurs. “Individuals think too much for themselves,” he says. “You have to include other people in your dreams to see the vision and make it come true.”

Crucially for Reitan, he believes expansion has been achieved without compromising the company’s core values. In essence, it remains a discount retail and convenience business, albeit one that has successfully branched out into other areas such as real estate and fuel stations. Its interests include R-Kioski, a Finnish convenience chain, fuel stations in Norway and Denmark, 50 Lidl stores and the Swedish news agency Pressbyrån.

Lessons learnedDespite the company’s success, Reitan admits its journey from a small shop to one of Scandinavia’s leading retailers has not been plain sailing. Mistakes have been made and there have been a few setbacks along the way. In the 1990s, Reitangruppen signed license agreements for the REMA 1000 concept in Poland, Hungary, the Czech Republic and Slovakia. “We did it so fast and we were very dependent on good purchasing prices, but these countries were very new to market economics,” Reitan says. “[In hindsight] I would not have started in central European countries as early as I did. We sold them because they demanded too much focus and time to make them work back then.

“There are times when things go wrong, but not as wrong as not making any decisions at all,” he says, recalling his

Far left: One of Reitangruppen’s 500 7-Eleven storesLeft: Reitan in a REMA 1000 storeBelow: Reitan joined by members of the Group’s senior management team, including sons Ole (third from right) and Magnus (far right)

Profile: Reitangruppen

1. We will fulfill the company’s business idea.

2. We keep a high business moral.3. We shall be debt-free.4. We shall encourage

a winning culture.5. We shall think positively

and proactively.6. We talk with each other —

not about each other.7. The customer is our

ultimate boss.8. We will have fun and be profitable.

to reduce operating costs to a minimum by negotiating with the producers directly, bypassing agents and allowing the retailer to pass on those savings directly to the customer.

He believed that growth would come from bringing in people who shared his values and were as excited about the business as he was, enabling him to open new outlets and give franchisees a share of the spoils.

Offering cut-price goods to Scandinavians was a shrewd move: an instant hit with consumers that has been the main factor in the group’s long-term success. Today, 30 years later, the REMA 1000 brand has grown to more than 740 stores throughout Norway, Sweden and Denmark. It is the most successful of the four business areas that make up the Reitan Group, totaling around 55% of the US$12.2b (NOK72b) turnover in 2012.

The factsReitangruppen employs 32,000 people throughout Scandinavia and the Baltic region, and includes Norway’s largest grocery chain, Europe’s second largest chain of convenience stores, Norway’s fourth largest privately owned real estate company and a Nordic fuel and energy business.

On winning Ernst & Young Entrepreneur Of The Year 2012 (Norway region), Reitan said: “Accolades have never been particularly important to me but that was a big one for all of us. The company was as proud and excited as I was. Maybe even more.”

Retail valuesReitan identified what he saw as the business’s inner values, which would foster a winning formula of positive attitude, competence and “Reitangruppen decision-making” from his employees and partners.

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Profile: Philip Aminoff

45Exceptional July-December 2013

Philip Aminoff is Chairman of two family businesses based in his home country of Finland. Electrosonic Group provides

audio-visual solutions around the world, while Paulig, which is a coffee, spices and ethnic foods group, focuses its attention on the Nordics, Central Europe and Russia. Previously, Aminoff was a member of the Enterprise Policy Group of the European Commission and President of European Family Businesses.

How did you first get involved in business?My great-grandfather was an entrepreneur who built up a group of companies that included automotive group Veho, which has represented Mercedes-Benz in Finland since 1939.

During the summers of my youth, I worked at Veho. When I left school, I was made a non-voting board member of Helectron, which represented Sony in Finland. That was my first practical experience of senior management. You could say that I have seen everything a business offers from the bottom upwards and also from the top down.

What do you see as the inherent strengths of family businesses?A good family business seeks to drive long-term earnings at all times without the end goal of that strategy being a sale. They build a platform of growth, developing new businesses and ensuring that all the ecosystems of the group, such as the staff, customers, suppliers and its values, work together. This enhances your capabilities, gives the business strong credentials and builds trust with your employees, suppliers and customers.

That becomes even more important during a downturn, because you can withstand financial uncertainty if you have long-term relationships with your customers and suppliers based on trust. They will give you priority.

What challenges do family businesses typically face?

The main challenge is how the business is managed. The management, board and owners have to agree on how strategy and decisions are going to be made and how conflicts are going to be resolved. Some

Is innovation even more crucial when economic conditions are tough?The worry during a downturn is whether you have enough time to be creative as a business. It is harder to grow as money becomes tighter and you spend a lot of time taking the fat out by streamlining positions.

But, if you are a market leader, you have to continue innovating. For example, you have to keep trying new packages and service-delivery concepts. There is nothing inherently great in being a market leader in the past and today if you are not going to be a market leader in the future. How important have new markets been to Paulig and Electrosonic?By expanding into new markets, you keep your employees motivated. They see that the company is growing and their work is being

appreciated in more countries.Paulig’s coffee business had been

geographically constrained to Finland and the Baltics, so some years ago, we made the decision to invest in Russia. We have grown very quickly there.

But Paulig has also grown through investments into new markets, such as ethnic food concepts. The company has been very successful in building Mexican food in Northern Europe.

Expansion beyond Europe is not a current priority at Paulig. We focus on the strong growth opportunities that we see in several of our current markets.

Electrosonic, as a company that has installed complex audio-visual systems for demanding customers across the world, has a different growth strategy. The purpose is to build an organization that can support global

Philip Aminoff discusses family businesses and how some entrepreneurs are sustaining growth at

a time of global economic volatility

words David Craik_ photography Kaapo Kamu

family businesses prefer to have a “king” at the top, while others prefer to govern through a council. Some families give great weight to board representation for each branch of the family, whereas others focus on identifying the individuals within the family who show the greatest aptitude for the business.

There will always be issues arising within a family, so having an agreed structure will ensure that problems are dealt with before trouble starts.

What drives you as an entrepreneur?I am fascinated by the idea of creating new products and business concepts that have never existed before. By setting up a business with really good people around you, it is possible to create your own market. That is very exciting.

accounts locally. This must partly happen through acquisitions, which is why we have bought companies in Los Angeles, London and New York. We have also extended our reach into adjacent markets through acquisitions. An example of this is our recent acquisition of Global Immersiona, specialists in projection solutions and services to digital immersive theatres, such as planetariums and giant screen cinemas.

In contrast to Paulig, Electrosonic is not likely to seek growth in Europe. In the market for large and complex audio-visual systems, there are more interesting opportunities in Asia and the Middle East.

Regarding new acquisitions, how do you manage the organization across multiple countries? When you buy something, you do your due diligence and get to understand the financials, but you don’t always see the ecosystems of a business. That takes a lot of understanding.

Sometimes, you find businesses that have managements and boards similar to your own and are a good fit. Then you can easily agree a strategy and how it is going to be implemented, and there is no rigid thinking. The trick is to align your culture and customers with theirs, in order to ensure smooth relationships.

Other times, you look at a business that has a totally different culture and doesn’t entirely fit your strategy, but that does so many interesting things that it makes sense to buy.

What is your vision for both businesses?We must be relevant for future generations by growing and developing. The more I work with these companies, the more fascinated I am by how businesses can be rejuvenated. Electrosonic dates back to 1964 and Paulig to 1876. You have to create the mindset of constantly moving forward and perhaps, over my career, that is where I have contributed the most.

“I am fascinated by the idea of

creating new products” More information

To learn more about the strengths and the challenges of family businesses, download a copy of the report Built to last: family businesses lead the way to sustainable growth at ey.com/familybusiness

generationThe

game


Regular: Doing business in …

othing raises European ministers’ blood pressure more than a debate on the Eurozone. It has been a difficult time, but, more generally,

Europe has been battered from all sides by government-led austerity measures adding to widespread uncertainty and weakened consumer confidence. If ever there was a perfect economic storm, this is it.

Europe’s recession deepened in the final three months of 2012, with the economies of the 17 euro nations shrinking by 0.6% in the fourth quarter. These figures were worse than had been forecast, but not entirely surprising. After all, this was the third consecutive squeeze on Eurozone GDP and the fifth on the trot where no growth or a decline was recorded. Life in Europe had been challenging, and the figures proved it.

But are things really as bad as they seem or is Europe still one of the world’s prime locations for doing business? The result is resoundingly the latter, according to EY’s 2013 European attractiveness survey, which draws on the insights of 808 international decision-makers and market leaders from sectors such as industry, energy, consumer goods, pharmaceutical and telecommunications.

Conditions have been tough and investors have understandably sought markets where growth persists in spite of the global downturn. In 2012, this approach resulted in developing countries overtaking developed nations as the leading recipients of Foreign Direct Investment (FDI) — a factor that helps nations to achieve a sustainable high trajectory of economic growth, and so a good indicator of a country’s economic state and potential. It was a momentous shift. The 3% drop in FDI to developing economies was modest compared with the 32% fall in FDI projects in developed nations.

However, things are not as bad as they seem: during the same period, Europe has benefitted from the creation of 170,434 much-needed new jobs through FDI initiatives, representing an 8% jump in year-on-year figures. Despite the turmoil, Europe’s

Europe has gone through a testing time, but there are signs of improvement. Can the region regain its poise and attract foreign investment to aid its recovery?

economies were also still seen as relatively secure places to do business, where high-quality infrastructure combined freely with an educated workforce.

With this in mind, investors directed most of their interest toward Western Europe, plowing three quarters of all FDI projects into this established and predictable region. The UK held on to its leadership position, fighting off competition from Germany – but only just. While this emphasis will not surprise anyone, the fact that more than half of all resulting FDI jobs were created in central and eastern Europe might. As if to prove this point, Poland overtook Russia in 2012 to become the leading destination for FDI projects in Europe.

This new interest in Poland can be attributed to its large domestic market, EU membership and cheap, skilled domestic labor market, all of which have created a fast-growing, opportunity-rich country.

Further afield, the research also shows that foreign investors are optimistic about the future, with the majority predicting

Europe’s attractiveness will improve in the next three years. Fewer than a quarter believe it will decline. Most tellingly, however, investors yet to establish themselves in Europe show the greatest signs of confidence, with 60% of BRIC-based respondents and 45% of North American executives believing Europe will become more attractive in the coming years.

While there are certainly signs of improvement, Europe has some way to go to recover its composure. European ministers will play their part, but FDI will also be key to restoring confidence by encouraging employment opportunities, enhancing productivity and skills, improving competitiveness and delivering a critical boost to trade.

But where will this boost occur? And which sectors are best placed to attract the much-needed inward investment? Traditionally, Europe’s manufacturing function has been the continent’s driving force in this area.

In 2012, Europe’s automotive industry accounted for the lion’s share of jobs created through FDI and 84% of investors said they will continue to manufacture in Europe over the next 10 years, showing that confidence remains high in this sector. Outside this core, 31% of business leaders viewed information and communication technologies (ICT) as the most powerful driver of European growth, while 28% opted for energy and utilities, 23% for pharmaceutical and biotechnologies and 20% for cleantech.

Europe is a place where traditions die hard, and that goes for its manufacturing sector and its reputation for innovation and inherent stability. Not surprisingly, 75% of business leaders are confident Europe will overcome its current dip, encouraged, no doubt, by the ability of Europe’s politicians to navigate choppy waters last year.

Although there may be a consensus about Europe’s recovery, half of those quizzed in the survey believed the recuperation process would take at least three years to complete, while another

third thought it would be at least five years before things started to look up.

Easing this process is perhaps where Europe’s politicians can have the

greatest influence. According to the survey, they should focus efforts on maintaining economic stability, encouraging R&D and promoting competitiveness. There were also calls for economic integration, reduction in regulations and a renewed focus on innovation.

Without doubt, 2012 was a year in which Europe was shaken by a crisis that caused general unease around the world. However, as EY’s 2013 European attractiveness survey shows, there are a number of positive signs. Inward investment took a hit, but early indications show that confidence is returning and interest in Europe is on the increase. With confidence key to the recovery, it’s now up to Europe’s policy-makers to deliver the goods.

“Europe’s manufacturing function has been the continent’s driving force”

More informationTo download a copy of EY’s 2013 European attractiveness survey, visit ey.com/Issues/Business-environment

Doing business in

EuROPEwords Mark Alexander

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whom are disabled. We estimate that, through the wider community, this has had an impact on the lives of about 6,000 people.

A farm in the Christine Valley that employs 16 people and provides support and equipment to around 500 farming families has been set up by SoH’s Country Director Damien Meaney and Neil O’Leary, Chief Executive of ION Equity and food group Country Crest. Steven Grant of Grant Engineering leads a project in the fishing village of Abacou, where we have built an enterprise center with refrigeration units, and provided solar-powered lighting and a fresh water well for the 800 inhabitants.

We support a former gang leader who has set up a bakery in a slum area of Port-au-Prince, where unemployment is at 85% and 27,000 people are living in tents, providing him with new professional equipment and expert skills training. He now employs a small team from the area and is committed to helping other local small bakers.

We’ve been able to establish new trade and investment links; an Irish coffee company has bought US$1m of Haitian coffee to date, and we have facilitated a US$1.2m investment by Irish entrepreneurs in a shopping center and Haiti’s first Irish bar.

It’s not just about being nice. Corporate social responsibility can be a very valuable tool for entrepreneurial businesses and helps to bring our entrepreneur community closer together. There are also huge opportunities for commercially viable investments that will help this country to start a new era.

I believe business has a positive social role to play in how the world evolves and, if anybody gets an opportunity to do something like this, they should grab it with both hands. I get 100 times more out of SoH than I put in, and I think the same applies to all the Irish entrepreneurs.


Regular: Beyond profit

Haiti is the poorest country in the western hemisphere — its economy is underdeveloped and continues to suffer major problems with infrastructure and education. In 2010, this

impoverished country was hit by one of the most damaging earthquakes. It’s only an hour’s flight time from Miami, and to see a country in such desperate need so close to the wealth of the US just seems wrong. In 2007, 43 Irish entrepreneurs visited Haiti as part of the EY Entrepreneur Of The Year (EOY) program. A few of us were “bitten by the Haitian bug” and we felt that, by applying our skills and resources as business leaders, we could make a difference. Around 10 EOY finalists came together to create the Soul of Haiti Foundation (SoH). Following the devastating earthquake, we intensified our efforts. Some projects are purely humanitarian; others aim more directly at establishing livelihoods. All projects utilize the entrepreneurial skills and resources of the Irish EY entrepreneur community.

We visited a few locations with local business and community leaders, where the entrepreneurs identified specific projects that Haiti needed and that matched their expertise, resources and interests. Michael Cullen, Chief Executive of the Beacon Medical Group, leads a project at an orphanage in Île à Vache, home to 75 children, a third of

words Alex Elliott_ portrait Lorna Fitzsimons

Soul manMichael Carey, founder of Irish food investment business The Company of Food, chairs the board of the Soul of Haiti Foundation, aiming to foster change in Haiti through enterprise

Soul of Haiti’s model farm set up in the

Christine Valley. Right: Michael Carey

Exceptional - EY - US · Exceptional MENA, contact Walid Assal at [email protected] or +971 4...

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