Issue27 |May 2015

THE POINT

Intelligent investing in Europefrom Bridgepoint

bridgepoint.eu

Chinese lessonsTop tips for doing business in the East

Spoilt for choiceHow to see clearly in a world full of options

Swap shopThe sharing economy comes of age

Who’s got talent?Finding the best candidates for the job

ContentsINS & OUTS

Bridgepoint investments andexits across Europe

BUSINESS TRENDS

A question of choiceHow to navigate the choice minefield –and make the right decisions en route

TALKING POINT

Grow your ownWhy smart businesses are paying topdollar for inexperienced talent

IN MY OPINION

When in China...Leading Chinese entrepreneur HenryChow reveals how to do business on his turf

MARKET INSIGHT

Made for sharingAlready a $15 billion industry, the sharingeconomy is only just getting started

FACE TO FACE

Improving visionOliver Kastalio discusses ambition andstrategy at Rodenstock

MANAGEMENT FOCUS

Changing the rulesCustomer retention has long been theholy grail of sales growth. But is thatassumption right?

SECTOR ANALYSIS

In the fast laneUncovering the secrets behindsuccessful tech companies

LAST WORD

A waste of timeProductivity is all, but Sathnam Sangherawonders how much time is wasted in thetypical working day

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FOREWORD

t is often said that we can never have too much choice. But the proliferation of optionscan be bewildering – for both individuals and companies. Do we ever get to the stage

where too much choice is simply too much effort? Or should we instead view the rangeof products and services we have today as a positive?

That is the challenge we have set ourselves in “A question of choice” (page 4), whichlooks at not only what individuals should do, but also why companies should make a virtueof choice. The stakes are high, because those businesses and consumers that find a “reliablecompass” with which to navigate can reap considerable rewards.

Past issues of The Point have often discussed effective procurement, yet the onecommodity that many businesses fail to buy in a systematic way is probably the mostimportant of all: people – in particular, attracting talented individuals at an early stage intheir careers and converting them to a long-term future with their company. Money aloneis not enough to lure the brightest and the best; companies are now using a range of induce-ments. To see how the smart ones are responding, look at “Grow your own” (page 10).

The perennial question of growth is something that challenges all company CEOs. Somecompanies favour organic expansion, others prefer the acquisition route and some striveconstantly to recruit new customers. Clearly, every firm has to strike its own delicatebalance between repeat sales and new ones, but which way are the scales tipping? Readmore on this in “Changing the rules” (page 28).

The “sharing economy”, as it has come to be known, is said to generate revenues ofaround $15 billion a year. And the most prominent sharing-economy industries could beworth around $335 billion globally within the next decade. “Made for sharing” on page 18explores how this phenomenon will grow from its largely targeted consumer base to onethat could bring even bigger gains through business-to-business sharing.

Success on the ground for any foreign business in China can prove elusive. We aretherefore fortunate in having Henry Chow, former chairman of IBM in China and a memberof Bridgepoint’s Advisory Board, to explain how to maximise the opportunities and mitigatethe risks (“When in China…”, page 14).

Elsewhere, we speak to Rodenstock chief executive Oliver Kastalio, under whose leader-ship the German optical lenses and eyewear manufacturer is building a global presence(“Improving vision”, page 22).

Since our last edition, Bridgepoint has made new investments in the UK, France and theNordic region, with the acquisition of Azzurri restaurant brands Zizzi and Ask Italian, andeFront, the French financial software group (see “Ins & outs”, page 2). BDC, our small buyoutand growth capital fund, made minority investments in Trustly, the Swedish online paymentsservices provider, and MVF Global, one of the UK’s fastest-growing tech companies. Bridgepoint also successfully sold Infront Sports & Media, theinternational sports marketing company, to leading Chineseconglomerate Dalian Wanda Group for €1.05 billion, havingexpanded its geographical reach and built a growing sportscontract base. I hope you enjoy this issue as much as we haveenjoyed putting it together n

May 2015Issue 27

Published by Bladonmore (Europe) Ltd

EditorJoanne Hart

DesignBagshawe Associates UK LLP

Reproduction, copying or extracting by any means ofthe whole or part of this publication must not be undertaken without the written permission of the publishers.

The views expressed in The Point are not necessarilythose of Bridgepoint.

www.bridgepoint.eu

THE POINT

William Jacksonis managing partner of Bridgepoint

The right choice

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INS &OUTSBRIDGEPOINTnews across Europe

Azzurri, whose best-known brands are ASKItalian and Zizzi,specialises in casualdining with an Italian twist– a formula that has beenincreasingly popular withconsumers as economicconditions improve. Nowthe fastest-growingcategory of the UK’seating-out market, casualdining is worth more than£50 billion a year, withchains performingmarkedly better thanindependents.Bridgepoint’s acquisi-

tion comprises136 Zizzi restaur-ants and 109 ASKItalian eateries,and the deal isfocused onexpanding bothchains whilereinforcing their respec-tive brands. ASK Italian is

undergoing a majortransformationprogramme while Zizzi’srestaurants are alsocompleting an overhaul.As chief executive

Steve Holmes explains:

“With a newsupportiveinvestor, ourfocus is on thecontinuedevolution of ourbrands, invest-ment in our

estates and the develop-ment of our footprint in theUK casual-dining market.”Azzurri enjoyed a

strong 2014 and recordChristmas trading, withEBITDA up over 21 percent year on year to £17.6million in the 28 weeks to11 January n

Bridgepoint’s latest fund,Bridgepoint Europe V, hassecured commitments of€4 billion – ahead of theoriginal €3.5 billion target.In line with the firm’s long-term strategy, the fund willretain Bridgepoint’s‘sweet spot’ investmentfocus on midmarketEuropean acquisitions inthe €150 million to €600million enterprise valuerange but with an ability to exceed this for transactions valued up to €1 billion.Highlighting confidence

in Bridgepoint’s approach,existing investorsincreased their commit-ment to the firm by anaverage of more than 25per cent. William Jackson, Bridge-

point’s managing partner,says: “Strong demandfrom investors has meantthat we have exceeded ouroriginal target.”n

New €4 billion fund for Bridgepoint

Leading financial software group eFronthas been acquired by Bridgepoint in a€300 million transaction. Specialising inend-to-end solutions for the financialservices industry, eFront is the numberone provider of software for private equity firms. But it also works with majorcompanies in real estate investment,banking and insurance, amassing more than 700 customers and 100,000users worldwide. Founded in 1999 in France, eFront’s

solutions cover back-office, middle-officeand front-office functions, including fundadministration, portfolio monitoring anddeal-pipeline analysis. Bridgepoint partner Xavier Robert says:

“eFront is an exciting technology platformwith significant scope for future growth.We will work with management tostrengthen market share, target newcustomers, enlarge the product offeringand expand into new geographies andasset classes.”n

Atasteof ItalyBridgepoint has acquired Italian-themed restaurantsgroup Azzurri in a £250 million transaction.

Bridgepoint buys software frontrunner

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International sports marketingcompany Infront Sports & Mediahas been sold to leading Chineseconglomerate Dalian Wanda Groupfor €1.05 billion. The sale comes

four years afterBridgepoint acquired Switzerland-based Infront, which occupies aleading position in its sector,covering winter sports, football,summer sports, active lifestyle and endurance. The company has offices in 13

countries and enjoys partnershipswith 160 rights holders in 25 sports.Delivering 4,000 event days andgenerating revenues of more than€800 million, Infront is also theprincipal sports marketing organ-isation in China, where it hasfostered that country’s top sport,basketball, and launched a schemeto encourage amateur runners. During Bridgepoint’s ownership,

Infront has grown steadily,

increasing and diversifying itsrights and service portfolio. Bridgepoint partner Xavier Robert

says: “Infront hasdelivered a strongperformance on theback of geographicalexpansion and a

growing sports contract base tobecome a well-diversified, premiumsports marketing company.”n

Shimtechtakes off

Bridgepoint DevelopmentCapital (BDC) is taking a€23 million minority stakein Swedish onlinepayments servicesprovider Trustly. Processing €1.1 billion of

payments annually in thebusiness, consumer and

peer-to-peer markets,Trustly has been growingat more than100 per centper annumand isalreadyestablished in sevenEuropean countries.

With a focus on mobiledevices and cross-border

payments,the group’stechnologyplatform isparticularly

suited to international e-commerce.

The European onlinepayments market isexpected to grow from €37 billion today to around€65 billion by 2020, andBDC’s investment will beused to support Trustly’scontinued expansion inthis sector n

Bridgepoint DevelopmentCapital has taken a 40 percent stake in MVG Global, oneof the UK’s fastest-growing

technology companies.Founded just five years ago,MVF uses proprietarytechnology, analytics and in-house marketing expertise toprovide businesses with highvolumes of new customers. Itis particularly knowledgeablein the rapidly expandingmobile advertising sector andwon the Queen’s Award forEnterprise in 2014 n

Bridgepoint targets tech

Bridgepoint DevelopmentCapital (BDC) has soldaerospace componentspecialist Shimtech, after thecompany almost doubledearnings since being acquiredin 2011. During that time, Shimtech –

initially four standalonebusinesses – has beentransformed into an international aerospace groupwith materially enhancedmanufacturing capability andcustomer recognition. BDC invested in larger facil-

ities, new machines andtechnology. Staff numbers rosefrom 170 to 450, new manage-ment was appointed and thefour original businesses wereintegrated and rebranded n

Winning deal for Swiss sports firm

Bridgepoint buys into online payments boom

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Businesstrends

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Choice is widely perceived to be a force forgood: driving competition, encouraginginnovation and forcing down prices. Today,however, the sheer proliferation of optionscan be bewildering – for both individualsand companies.

A question of choice

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here is a staggering arrayof choices for almostanything on the marketthese days. Consumers areforced to weigh up options

on flights, phones, even breeds ofbeef for the Sunday roast. Butbusinesses are also bamboozledby possibilities, whether they bethe cheapest energy tariffs, themost efficient broadbandproviders or the best officesupplies. In each case, hours canbe spent analysing the rangeavailable; is this an efficient use of manpower or a waste ofvaluable time?

“There are two different thingsgoing on,” explains Tim Harford,author of The UndercoverEconomist Strikes Back. “The first isa choice of products. There aremore and more varieties of pastasauce, toothpaste or breakfastcereal, made possible thanks toglobalisation, modern manufac-turing and logistics. The second isa choice of tariffs for what isbroadly the same product – forexample, electricity or mobile-phone services.”

Harford describes this as“confusion pricing”. Computersmake it easy for a company tokeep track of countless variablesand produce an automated billthat is opaque to human beings.The trend has been indirectlyencouraged by market liberalisation, as many countrieshave privatised industriessupplying phone services,electricity and heating.

Two modelsJulian Birkinshaw, professor ofstrategic and internationalmanagement at London BusinessSchool, says: “It turns out thatthere are two very different sets ofcircumstances when we get a

proliferation of choice. One iswhen a new market or technologyis emerging, and lots of differentcompanies are experimenting withdifferent business models andofferings. You see this in themobiles world, in social media, invideo-on-demand, in renewableenergy, etc. Eventually, out of thisferment of competing offerings, adominant standard typicallyemerges – an established way ofworking – and then things calmdown.” Ultimately, he argues, themarket settles and the viable

business models kill off the non-viable ones.

The other situation arises whenan industry has become soestablished or mature thatcompanies seek out ways ofdeliberately confusing theircustomers through obfuscation –Tim Harford’s “confusion pricing”.

“Financial planning, for example,is full of a bewildering array ofproducts that are designed to getus to pay more for a service thanwe actually should,” says Birkin-

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Enough choicebut not toomuch seems tobe key.Depending onthe complexityof the situation,we can make aconsciousdecision tolimit ourchoices to acertainnumber”

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shaw. “Phone payment plans andenergy and electricity plans arethe same – the product is actuallya commodity, so companies seekto find confusing ways of selling us different plans in order to de-commoditise their offerings.”

Spoilt by choiceAt an individual level, suchdizzying possibilities can have anegative psychological effect.“Having so many or too manychoices can lead to what we calldecision fatigue,” says Dr Tara

Swart, neuroscientist and chiefexecutive of neuroscience consult-ancy The Unlimited Mind.

“This can affect our willpower,concentration and attention,” shesays. “It has the same effect onindividuals’ brains – whether froma consumer or business perspec-tive – and can lead to poordecision-making.”

The condition is all too familiar.Consumers researching optionsonline for a flight, a dishwasher ora pushchair may give up afterbeing presented with too much

choice. And businesses trying todecide on phone tariffs, laptops orfacilities managers can find theprocess simply exhausting.

As options proliferate, theremay come a point at which theenergy and time required to obtainthe right information to be able todistinguish between certainchoices outweighs the benefit ofthat extra choice. “At this point”,writes Barry Schwartz in TheParadox of Choice, “choice nolonger liberates, but debilitates. Itmight even be said to tyrannise.”

To cope with this often-overwhelming situation, Swartrecommends a few differentstrategies. “There are things wecan do to channel our brainpowerto what is most important. We cansimplify our life as much aspossible, delegate choice or evendo a digital detox, abstaining fromemail, social media or the web for a certain period,” she says.“There is also a question of degree.Enough choice but not too muchseems to be key. Depending on the

Having so many or too many choicescan lead to what we call decisionfatigue. This can affect our willpower,concentration and attention”‘‘

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complexity of the situation, we canmake a conscious decision to limitour choices to a certain number.”

Overall, however, despite thesometimes confusing and demotiv-ating effects of choice proliferation,the current environment doesoffer certain benefits.

Transparency and trust“One of the undeniable powers ofthe internet is that it enables

transparency, so there is readyaccess to information about

whatever product or service youare interested in,” says Birkinshaw.

“You still need ways ofinterpreting that information, andyou need a way of deciding who to trust,” he adds. “But, broadlyspeaking, people are much betteroff today than they were 20 years ago.”

Tim Harford agrees, saying thatthe choice of products we have atour fingertips should be viewed asmostly positive. “It is occasionallyconfusing, but typically we enjoyboth the variety and the ability toget exactly the kind of muesli orwashing powder that we wish,” hepoints out. “There’s an oft-citedexperiment where people wereoffered lots of samples of jam, andtoo much choice seemed todramatically demotivate them. Butseveral attempts to replicate thiseffect have found nothing. Also,many very popular companies,such as Amazon and Starbucks,offer lots of choice withoutseeming to suffer.”

The real problems come withconfusion pricing.

“Confusion pricing seems to bepretty successful in bluntingcompetition: if customers don’tknow which company is offering agood deal, then all companies canrelax about their pricing,” arguesHarford. “Confusion pricingdoesn’t really offer us more choice,just a lack of clarity about howexpensive the choices we makeare. Studies have shownconsumers manifestly failing toswitch to better deals even whenthat is their specific objective.”

Turning to advantagesFor companies willing and able toinvest time in research, however,the breadth of choice can bebeneficial. As Tamara Heber-Percy,co-founder of boutique travel

website Mr & Mrs Smith, explains:“Some products out there aregreat and make businesses’ liveseasier. Some of the newtechnology around reachingcustomers at the right time andplace is really astounding. It’sabout finding the right ones foryour business at the right time for you.”

Heber-Percy admits she gets“blasted” several times a day bytechnology suppliers telling herabout the latest piece oftechnology or software thatpromises to transform herbusiness, rejuvenate her websiteor give her insights she couldnever imagine possible. “It’s achallenge to stay true to what thebusiness needs and not getwowed,” she says. “That fear ofmissing out – or, rather, the ‘fear ofbeing left behind’ – is prevalent inall businesses, but especially thosethat rely on technology.”

One of the key problems aroundchoice is rather personal: whosejob is it to make the decisions?Assessing what is available takestime, but the legwork is vital: itcan have a serious impact on acompany’s bottom line.

“Evaluation is crucial and shouldbe the responsibility of the keyaccount holder: whoever will be incharge of how that product orservice performs,” says Heber-Percy. “But technology evolves soquickly that there is always a newoption around the corner. Andhow do you know that thecompany you are looking at doeswhat it promises? So research isimportant. First, I look for a site Itrust that curates the product I’mlooking for, just like Mr & MrsSmith does for hotels. We startedthe business partly because wefound that there was too muchchoice and misrepresentation in

Confusionpricing doesn’treally offer usmore choice,just a lack ofclarity abouthow expensivethe choices wemake are”

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our industry.”Once she has

done her research, Heber-Percy goes back to the

seemingly old-fashionedmethod of looking for testimo-

nials: which companies use thatservice or product already, andwhether she can speak to them.

“I try to go through my ownchannels rather than get areference from the company itself,and LinkedIn is good for this,” sheexplains. “I also talk to severalproviders and ask how they aredifferent from their competitors.”

A helping handIn many cases, increased choicecan be attributed to technologicaladvancement. As use of theinternet has become secondnature, it has become deceptivelysimple to check the range ofavailable offers on almost anyproduct or service. Increasingly,

however, both consumers andbusinesses are looking forguidance to help themnavigate this new universe of choice.

“There’s a demand forcuration, definitely, which iswhy we started Mr & MrsSmith,” says Heber-Percy.“People don’t have the timeto spend hours readingevery hotel review onTripAdvisor: they want

someone they trust to do thehard work for them. I think

there will be more companiesand services emerging that do

this well: the antidote to a world of excessive communication.”

Trusted curators can beextremely valuable, as evidencedby the success of Mr & Mrs Smith. But the proliferation ofchoice is also expected to prompt an increase in the quantity and quality of price-comparison websites.

“Expect them to become muchmore sophisticated,” says Harford.“Behavioural economist Richard Thaler has been pushing forcompanies to be legally obliged tosend your bill in a machine-readable format. That would meanyou could upload your mobile-phone usage into a price-comparison website and it wouldfind the tariff that is best for you,given your usage patterns. Expectan arms race between theobfuscating price-setters and theclarifying price-comparers.”

In the meantime, the range ofchoices is likely only to increase.Navigation may boil down to gooddiscipline, curation, deliberatereduction or old-fashionedtestimonial. But those businessesand consumers which find areliable compass could reapconsiderable rewards n

‘‘ Technology evolves so quickly that there isalways a new option around the corner. Andhow do you know that the company you arelooking at does what it promises?”

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Talkingpoint

Paying top dollar for inexperienced graduates may seem like a waste ofcorporate cash, but developing talent in-house may in fact prove cost-effective in the long run.

Grow yourown

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uccessful companies takeprocurement extremelyseriously, managing theirsupply chains meticu-

lously to prevent shortages ofcrucial materials. But businesseshave traditionally been far lessmethodical about ensuring anadequate supply of one of the mostvital commodities of all: talent.

“Skills are not always easy topick up at short notice,” saysMatthew Sigelman, chiefexecutive of Burning GlassTechnologies, which developssoftware to match people withjobs. “But one of the best ways toavoid a skills bottleneck is toensure that you attract high fliersearlier in their careers and work todevelop their abilities to fit thecompany’s needs.”

Some firms have recentlystarted to take this principle toheart. Aldi, the discountsupermarket chain, madeheadlines by offering newgraduate recruitsa starting salaryof £42,000,rivalling the payoffered by topinvestment banks.Since the firmaims to promotelargely fromwithin, it is keento attract the bestbrains on offerfrom the very start.

“At Aldi, we want our areamanagers to develop with thecompany,” says Ruth Doyle,regional managing director at Aldi.“And as we expand year on year,we need high-level candidateswho can support and deliver thisgrowth. So it’s crucial that werecruit dedicated candidates thatsee a future with us.”

False economyAldi’s decision stands out – particu-larly as discount grocers are nottraditionally associated with lavishpay. But there is compellingevidence that the Germany-basedchain is on to something: skimpingon graduate salaries can prove afalse economy.

A 2012 study of 5,300 employersby Matthew Bidwell, a professor atthe University of Pennsylvania’sWharton School, found thatoutside hires typically get paid 18to 20 per cent more than insidersto do the same job. Yet newcomersare also 61 per cent more likely tobe laid off and 21 per cent morelikely to resign.

“Companies have a tendency tounderestimate the expense ofbringing in outsiders and also howhard it is to integrate them,” saysProfessor Bidwell. “Workerspromoted into jobs show signifi-cantly better performance thanthose hired into similar jobs for at

least the first two years.” Add in the savings on pay, and it wouldappear that cultivating talent at an early stage can offersubstantial benefits.

Nonetheless, when it comes tohiring, many companies prefer thethrill of the new.

“They exhibit an irrationalpreference for novelty overcertainty,” says William Bliss,

president of Bliss & Associates,which advises companies on howto cultivate future leaders. “Therecan be this perverse attitude of‘better the devil you don’t know’. Itmay be that firms underestimatehomegrown talent because theyhave been able to witness anymistakes or shortcomings of theseemployees. The deficiencies ofoutsiders, by contrast, are harderto discern – until they actuallystart work.”

This can prove an expensivemanagement bias.

“An excessive preference forrecruiting external candidates canlead to disaffection amongexisting staff, sapping morale andleading to defections,” says Bliss.

Expensive businessStaff churn can also be a bigmoney loser. Bliss calculates thatthe cost of replacing a disaffectedmember of staff can amount to 150 per cent of that original

employee’s annual compensation.This includes lower overallproductivity while a positionremains vacant; the difficulty ofbringing a newcomer up to speedwith internal processes; manage-ment time lost during theinterview and recruitmentprocess; and the costs ofadvertising the role or appointingoutside recruiters.

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‘‘Aldi made headlines byoffering new graduate recruitsa starting salary of £42,000,rivalling the pay offered by topinvestment banks”

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The financial damage canquickly mount up. “Let’s assumethat the average salary of anemployee is £50,000, so the costof turnover is £75,000 peremployee who departs thecompany,” says Bliss. “For a mid-sized company with 1,000employees and an annual turnoverrate of 10 per cent, that cost comesto around £7.5 million a year.”

Clearly, if employees aremotivated to stay on board,recruitment costs can fall dramatic-ally. However, this strategy onlymakes sense if there is a sufficientpool of high-potential employeesfor a company to draw on. Andcompetition for such early-stagetalent is heating up. A survey ofgraduate hiring by High FliersResearch shows that the mediansalary of graduates starting in theUK in 2015 has topped £30,000 for the first time, up from £23,000in 2005.

“Being willing to pay top dollarfor the best talent at an early stage– as Aldi is clearly doing – may endup actually saving money over thelong run,” Bliss says. “Companiesare less likely to need to attractmore expensive experiencedmanagers later in their careers –who are less certain to work outanyway. And that’s aside fromhaving a good pipeline of managerswho know the company and havebeen trained in its culture.”

Perking upHowever, cash alone is not enoughto lure the brightest and the best.

“This is far from a purelyfinancial equation, and the prior-ities of young workers have evolvedover recent decades,”says Sigelman.

From the 1990s onwards,technology firms have been in thevanguard of developing perksdesigned to seduce young workersfrom top universities. Google, forexample, has tried to steal a marchon rivals by offering a campus-likeexperience to new recruits –including on-site doctors, freemeals, massages and car washes.SeatGeek, a search engine for thebest-value concert tickets,employs an official social plannerto organise staff bonding activities– including table-tennis tourna-ments, group outings and drinks.

While such gimmicks have theirrole, Sigelman believes that thelure of the technology sector goesbeyond cheap food and drink.

“Technology firms have enjoyeda reputational tailwind for manyyears,” he says. “But I don’t believe

that perks have contributed toomuch to their recruitmentsuccess. Instead, it is the fact thatthis sector is seen as sociallyprogressive and trendy, offeringhigh status, flexibility and theopportunity for career growth.”

Less fashionable industries mayfind it difficult to emulate thetechnology sector’s buzz, but theycan certainly offer flexibility andcareer growth.

“The employers that are mostappealing to graduates are able tooffer a clear path towards anexciting career, combined with anindication of how they will helpthem get there in terms oftraining,” says Sigelman.

The extra mileThis message is echoed by SarahAllen, executive director of humanresources at investment bank BNYMellon. “It has become increasinglyimportant over recent decades tooffer the opportunity for continuous learning and newexperiences,” she says. “That can be as powerful a motivation

The potential forglobal mobility issomething thatmany youngpeople value asmuch as a fat pay cheque”

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as pay and promotions for many millennials.”

This logic does not just apply touniversity graduates. Starbucksrecently announced that it wouldpay for its workers to gainadditional qualifications fromArizona State University’s onlinedegree programme. Under thedeal, employees who work at least20 hours a week will have half oftheir tuition paid for the first twoyears, while the final two years willbe paid in full.

“That kind of training perksends the message that a companyis interested in lifelong learning

and career development, whichcan be a very effective way ofbecoming a ‘sticky’ employer,” says Sigelman.

Offering international experience can be anotherpowerful draw for young workers.BP, the UK-based global oil giant,makes much of this in its efforts toappeal to potential high fliers.New graduates are given a globalassignment within two years ofjoining the firm.

“The oil industry has sufferedits share of reputational setbacksin recent years, and none more sothan BP after the 2009 oil spill,”says Tom Biracree, an analyst atconsultancy firm IHS. “But like thebanking sector, it can still benefitfrom its global scope in attractingthe top talent. The potential forglobal mobility is something thatmany young people value as muchas a fat pay cheque.”

Journalism, another professionin relative decline, also makesmuch of its international potential.Over recent decades, the FinancialTimes has made rotations inforeign bureaux a regular featureof its graduate scheme.

For industries with tarnishedreputations, a convincingprogramme of social responsibilitycan also be key.

“It is important that companiesare viewed as being goodcorporate citizens,” says Bliss. “Toptalent are more likely to beattracted to a firm when theyshare its social values.”

When trying to attractgraduates, Royal Bank of Scotland,which was forced to accept agovernment bailout after the 2008financial crisis, highlights itssuccess in bringing down carbonemissions by around six per centin 2013. Financial firms alsoincreasingly advertise theirinvolvement in providingassistance to poor nations andcommunity charities.

Senior mentorship programmescan also lure top talent – andthese do not cost a penny.

“They can have the powerfuleffect of integrating employeeswithin a company and showingthat a firm is looking after itsstaff’s long-term career develop-ment,” Bliss explains.

In 2014, the number ofgraduates hired by firms featuredin The Times’s Top 100 GraduateEmployers rose by 7.9 per cent onthe previous year. Economicrecovery plays a key part in thistrend, but companies may also beincreasingly keen to secure high-potential employees early.

With growing demand comesmounting competition to snap upthe best talent. And perhaps thatis not surprising. As so much is atstake, it makes sense for firms totake a more methodical approachto attracting the next generationof senior leaders. Making sure that skilled staff are there whenyou need them has become ascrucial as ensuring a smoothsupply chain n

%Outside hirestypically get paid 18to 20 per cent morethan insiders to dothe same job. Yetnewcomers are also61 per cent morelikely to be laid offand 21 per cent morelikely to resign”

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In myopinion

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When in China...

hina has changedenormously during mylifetime. In the past, the

government was responsible foreverything and everyone. State-owned enterprises (SOEs)were created to provide employment, profit was unimport-ant and the economy was run bycentral planning. Today, thesituation is very different.

I would suggest that modernChinese businesses can be dividedinto three categories: red, blue andin-between. The reds are theSOEs. They are state-owned butmany are now listed on the stockmarket and are expected to standon their own feet. They behavemuch like Western companies,with one key difference: they arestill run by government officials ata senior level. This means thatchief executives have the unenvi-able task of serving both thebusiness and the government.

The blues are the multinationalcorporations, which have becomeestablished in China and operatetheir Chinese subsidiaries like

Western companies. The bestamong these have spent time,money and effort training localpeople so that their businesses arerun by Chinese managers whohave acquired Western expertiseand professionalism.

In between are the privateenterprises. In the past, thesmartest people became govern-ment officials, the next rung downbecame farmers or industrialworkers and the least able guysbecame businessmen. Today, it’scompletely different.

A lot of the wealthiest people inChina are involved in privateenterprise. These businesses haveadopted similar corporatestructures, accounting systemsand compliance procedures tothose in the West. However, manyare still run by the first generationof entrepreneurs, who tend to actlike Chinese emperors. In otherwords, they make all the decisionsand find it hard to delegate.

Across all three categories,there is a strong desire to succeed,much as in the West. But there are

As the second-largest economy in the world – and the mostpopulous – China is widely regarded as a premier destination forbusiness. But success on the ground can prove elusive. Henry Chow, former chairman of IBM in China, explains how tomaximise the opportunities and mitigate the risks.

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‘‘Whether yourcompany is large orsmall, you need asolid Chinese teamand solid Chinese leadership”

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differences, principally becauseChinese businessmen and womenare a little bit different from theirWestern counterparts. The gapsare closing but some culturaldistinctions remain.

With that in mind, I would saythere are certain key points tobear in mind when doing businessin China.

Not a numbers gameIt is easy to be seduced bynumbers. China has more than abillion people, it is the second-largest economy in the world, hasenjoyed annual GDP growth ofaround 10 per cent for the past 20years and is likely to continuedelivering above-average annualgrowth. That all sounds veryattractive, so a lot of businessesmake the assumption that China

has a huge accessible market.But if you divide GDP by the

number of people in the countryto get the income per capita, thenumbers are distinctly average.Businesses cannot assume thateveryone will buy their productsso it is important to have realisticexpectations and targets aboutwhat your business canaccomplish in China, and how you will position yourself in the market.

My own experience shows howtricky this can be. I joined IBM inthe 1960s and became CEO of thecompany in China in 1995. At thetime, I was tasked with takingrevenues from $200 million to $1billion in three years and gaining a25 per cent share of the market.Clearly, this was very ambitious.

I got to $1 billion in four years,not three, but my market sharewas 10 per cent. I was reallypleased to achieve the revenuetarget, but I had to acknowledgethat the market share was lessthan half of my target. That justshows how challenging it can beto forecast the pace of growth inChina. But you need to learn fromsuch experiences, rather thanthink that the sky has fallen in.

I would also suggest thatcompanies readying themselvesfor China should use a rifle-shotapproach rather than scattergunapproach. They should thinkcarefully about their valueproposition, their approach and,crucially, their choice of partner.

Labour of loveEvery business knows that it hasto find a local partner, and, keen toget going, they rush into it. But it’simportant not to believe in love atfirst sight. Do not get engaged toyour first date! But in business, asin life, it is easy to get married but

much harder to getdivorced.

Those wantingto set up shop inChina shouldspend timelooking for theright match. Theyshould check outseveral candidates,seek advice and dotheir own informal andformal due diligence. Thisprocess can take up to a year, butit is worth it. Otherwise,companies can end up with jointventures that are run as twoseparate businesses with aChinese CEO and a Western CEO.This can be highly damaging.

It is imperative to have a localpresence. Flying people in from aWestern HQ will never work in thelong term. Once businesses havedecided that they want to operatein China, the most importantfactor is developing a local team.Chinese staff understand the waygovernment works, theyunderstand the culture, theyunderstand suppliers and theyunderstand clients. They will help to build trust between your business and the people that matter.

Whether your company is largeor small, you need a solid Chineseteam and solid Chinese leadership.And the only way to find the right people, develop them andkeep them is by investing time and resources.

That does not imply that youneed to mollycoddle your Chineseteam or that you should expectlower standards when dealing withChinese businesses. On thecontrary, I think that anyonedealing with Chinese enterprises(apart from certain SOEs) shouldexpect a similar level of

From the start,IBM realised that, if it wantedto develop astrong business inChina, there werecertain steps thatit had to take”

‘‘

17

professionalism as they do fromWestern companies.

I remember, for example, whenappraisal systems were firstintroduced to China 20 years ago.Some managers were reluctant todo them. Some felt that it wasunfair on their comrades; otherswere worried that their colleagueswould “come and get them” if theymade any negative comments.Now, even the governmentbelieves that appraisals work.

Of course, there can be differ-ences in approach – and this iswhere local knowledge can be soadvantageous. Some Chinesebusinessmen are very straight-forward but some are moreconservative so you need to be alittle more subtle than in the West.Nonetheless, you should demandthe same standards as in the West.

Trust and cooperationLooking back, IBM’s growth inChina highlights the way in whichWestern companies can be

successful there. From the start,IBM realised that, if it wanted todevelop a strong business inChina, there were certain stepsthat it had to take.

First, it had to keep Chineseofficials informed about industrydevelopments both locally andaround the world. And it had toshow that it was not justinterested in making money – italso wanted to help develop an ITindustry in China. We took timeinvesting in the business, co-operating with Chinese officialsand showing them that ourpresence was mutually beneficial.

This strategy worked. WesternIT companies were able toestablish themselves in China, andthey helped to create a localindustry. Ultimately, Lenovo, theChinese PC group, became thelargest in the country. And in2005, IBM sold its PCbusiness to Lenovo. Thatcompany is now thelargest PC manufacturerin the world.

It appears seamless, but at thebeginning, when IBM first movedinto China, it was all aboutbuilding trust and cooperation anddoing the necessary research. Andthat remains true today.

Same principles apply China is a vast country, which isoften divided into three markets.The coastal region is almost on apar with middle-income countriesin the West. The inner region isvery agricultural, and the Westernregion is still at an early stage inits development.

Companies wanting to dobusiness in China should be awareof these gradations – particularlycompanies that sell consumergoods and services. They need tothink about whether they will do

better in first- and second-tiercities, and they should almostalways start slowly.

It is finally worth rememberingthat, while some industries havesignificant private-sector involvement, others are stillultimately controlled by govern-ment. This means that businessand politics are intertwined.

Things are changing, but thisblurring can affect the ability offoreign companies to get ahead. Iam confident that China will reacha point where commercial successdoes not depend on whetherbusinesses are perceived to be onthe right side, politically. I amhopeful that there will be moretrust between China and theWest, and that there will sooncome a time where commerce is

not affected by issues such aswhether a prime minister or apresident has been in contact withthe Dalai Lama.

Of course, individual beliefs andcultures can be different. However,the gaps are narrowing. And, whenbusinessmen and women talk,they should always be able to finda common language n

It is imperative to have a localpresence. Flyingpeople in from aWestern HQ willnever work in thelong term”

‘‘

Companiesreadyingthemselves forChina should use arifle-shot ratherthan scattergunapproach”

‘‘

18

Marketinsight

Made for sharingExchanging goods and services to make endsmeet is a tradition dating back to ancient times.Now, however, the sharing economy hasbecome a multibillion-dollar global industry.

19

n a spell betweenjobs, entrepreneurRoddy Campbell wassitting at homewondering why hecould hear an aria

floating down the hall. It graduallydawned on him that his neighbourhad loaned their home to a singing teacher.

That was back in the 1980s.Filing a mental note that theremight be a business idea in this,Campbell went on to foundLondon’s first hedge fund, IFMAsset Management, and spent thenext 30 years in the City – untillast summer, when he took hisidea for a start-up business to hisold school pal William Sieghart,founder of Forward Publishing.

Campbell’s idea, which hedescribed as: “Make money fromyour home, while you work, with adaytime version of Airbnb”, was toprove a light-bulb moment. Vrumi,which enables people to rent out

rooms in their homes, by thehour, to people who need

an office, studio orquiet place to write orconsult, was born.

Within a fewshort months,

this nascentsharing-economybusiness hadattracted£150,000worth of seedfunding andthe backing ofbusinessveteran Rupert

Soames, agrandson of

Winston Churchill, andJulian Granville, chief executive of upmarket online clothing group Boden.

Good timingVrumi can now count more than80 rooms on its website, includinga penthouse in east London’sDalston and numerous drawingrooms and basement kitchens inNotting Hill. There are alreadyplans to expand beyond London toother cities in the UK and Europeso its timing is clearly spot-on:according to Timemagazine, 2015 will be the year of the sharing economy.

But it was in 2014 that Europesuddenly woke up to the possibili-ties of sharing underused assets.Ordinary people – families,business travellers – began usingAirbnb as an alternative to hotelrooms, and Spotify becamemainstream. The sharing economy– or as some people prefer, the“collaborative economy” –encompasses many businesses andbusiness models.

There are peer-to-peer market-places such as Etsy, which allowspeople to sell crafts to oneanother; time banks such as theEconomy of Hours, which allowspeople to trade their skills – anhour for an hour; andCity Car Club, wheredrivers can shareaccess to a carwithout having toown one themselves.And although theyare subject to someaspects of financialregulation, evencrowdfundingplatforms have beenlumped into thesharing economy.

A report fromconsultancy PwC into the sharingeconomy suggests that the sectoralready generates global revenuesof around $15 billion. Within thenext decade, however, PwC

estimates that the five mostprominent sharing-economyindustries – peer-to-peer finance,online staffing, accommodationsharing, transportation andmusic/video streaming – could beworth around $335 billion globally,and £9 billion in the UK alone.

Hard on the heels of the PwCreport, the UK governmentcommissioned an independentreview into the sector fromDebbie Wosskow, founder of LoveHome Swap – a three-year-oldhome-swapping company.

Wosskow made a series ofrecommendations about ways to foster this burgeoning sectorand promote a new breed of“micropreneurs”.

“After 2008, people looked moreclosely at their assets and skillsand they asked how they couldmake them work harder,” she says.“Technology and smartphoneshave given people access tostrangers, and the growth of thesharing economy – starting witheBay – has made it much morenormal to rely on peer-to-peerreviews. Rating someone has

become common currency.”Love Home Swap is now the

biggest home-swapping businessin the world and employs 60people in London’s Shoreditch.

O

‘‘Within the next decade, the fivemost prominent sharing-economyindustries – peer-to-peer finance,online staffing, accommodationsharing, transportation andmusic/video streaming – could beworth around $335 billion globally”

20

And a number of other sharingbusinesses have sprung up acrossEurope in recent years. Hassle.comis a globally renowned, UK- andFrance-based marketplace fordomestic cleaners and handymanservices, while Paris-basedBlaBlaCar has become the world’sbiggest car-sharing portal.

Nesta, the charity that works toincrease innovation in the UK, hasconducted research whichsuggests that 25 per cent of thepopulation are already sharing.

And a report by Compare andShare, a sharing-economy compari-son site, says that 70 per cent of the UK economy would share their assets if it were easy or convenient.

The economic imperativeWosskow’s report notes that20,000 property owners in the UK

are renting out their drivewaysfrom time to time through UKstart-up JustPark, and are makingan average of £465 a year – or£810 in London. A typical Airbnbhost in the UK capital, meanwhile,rents out a room for 33 nights ayear, making about £3,000.

Juliet Schor, professor ofsociology at Boston College,studies consumer culture, andsays that sharing platforms areproliferating throughout Europe.“Paris has an annual ‘sharing

festival’ calledOuiShare, which takesplace in May and hostsmore than 1,000people, includingentrepreneurs,activists, publicofficials and socialinnovators amongthem,” she says. And beyond Europe,cities including Bogotáand Seoul are seeingmany new sharinginnovations.

But the realpotential of thesharing economycould be unleashedwhen more conven-tional companiesrealise that sharing isnot just for start-ups.

“In some ways, thesharing economy is athrowback to the pre-industrial age, when

village communities had to shareresources to survive,” says JohnHawksworth, chief economist atPwC. “They built up trust throughrepeated interactions with peoplethey had known all their lives.Modern digital communicationsallow sharing to happen across aglobal village of consumers andproviders, with trust established

through electronic peer reviews.“Looking beyond the sectors

where sharing is already wellestablished, there are some veryexciting growth opportunities thatare yet to be fully realised,” headds. “Companies need to do anaudit of which of their tangibleand intangible assets couldprofitably be shared in the future.We think that this model couldspread to other sectors such asenergy, telecoms and retailing.”

Traditional businesses are goingto have to adapt, says SophieNeary, one of Vrumi’s foundingdirectors and the technologybrains behind the start-up.

Indeed,some of them already are.

Learning to shareOne of the earliest sharingbusinesses to take off globally wascar-sharing group Zipcar. In 2013,it was snapped up by Avis, one ofthe world’s biggest car-rental firms.

Hotel operator Marriott hasrecently begun marketing emptyconference rooms through anonline platform called LiquidSpace,while DIY retailer B&Q haslaunched a tool-sharing service.

Car giant BMW invested inJustPark and helped it to developits latest app. Last year, BMWinstalled the app directly into thedashboard computer of its latestBMW Minis so that drivers canfind and pay for a parking placewith minimum stress.

Earlier this year, JustPark raisedmore than a £1.7 million in justover two weeks throughcrowdfunding. Founder AnthonyEskinazi says that this will enablethe company to begin a significantnew marketing campaign. But thebusiness is already well on its wayto profitability, with transactionsworth £4 million a year goingthrough its website.

‘‘Most successful servicesassociated with the sharingeconomy are essentially aboutconvenience, cost-efficiencyand ease of access”

21

To date, the sharing economyhas largely targeted consumerconsumption. Many believe,however, that there could be evenbigger gains through B2B sharing.

In 2011, Med-Immune, a unit ofpharmaceutical company Astra-Zeneca, agreed to share itsmanufacturing facilities withfellow drugs giant Merck, pairingthe former’s excess capacity with the latter’s desire for greaterflexibility. Spotting the potentialbehind B2B collaboration,FLOOW2, a Dutch start-up, facilitates equipment- and plant-sharing. On its website, businessescan offer or request tools orservices – from diggers to micro-scopes, roofers to asset managers.

A host of back-office businessesthat offer services to sharing-economy participants are startingto emerge as well, alongside appsthat help sharing-economyworkers with their expenses andquarterly tax returns.

Teething problems?The new industryseems to present theperfect economic solution ofmatching up surplus capacity withconsumer and business needs.Increasingly, however, sceptics areconcerned that this bright newway of working may just paperover some familiar problems –particularly people being exploitedby unscrupulous employers andseeing their real rates of payplunge. How, for example, would afreelance project manager workingin an expensive city like Londonbe able to pitch against a similarproject manager in Bombay?

There are also concerns aboutthe unpredictability of making aliving from this on-demandeconomy, and real fears aboutconsumer safety and privacy.

Defenders of the sector say thatcriticism of disruptive technolo-gies is to be expected and will help

the sector to mature. The interestof governments and regulators willhelp to maintain standards, while awider user base will lead to morerigorous checks on those whoparticipate – as both providersand customers.

In reality, most successfulservices associated with thesharing economy are essentiallyabout convenience, cost-efficiency and ease of accessrather than sharing and socialinteractions. It is neither socialism nor unfettered free-market capitalism.

And Vrumi? Like many sharing-economy businesses, itsfounders know that success comesfrom adapting an old idea –renting out rooms – to the newdigital ecosystem n

Spotting the potential behind B2Bcollaboration, FLOOW2 facilitatesequipment- and plant-sharing sothat businesses can offer orrequest tools or services – fromdiggers to microscopes, roofersto asset managers”

‘‘

Face to face

22

23

visionImproving

Oliver Kastalio gave upan illustrious career atone of the world’slargest consumer-goodsgroups in the world torun glasses specialistRodenstock. He has no regrets.

24

odenstock is one of theoldest brand names inGermany. But Oliver

Kastalio’s own heritage is rathercosmopolitan. The family namepoints to an Italian background,his grandparents hailed from fourdifferent countries and his parentsmet at an airport.

“My father was a sales agent forEthiopian Airlines and my motherwas a ground hostess at TWA,” heexplains. “They were both workingat Frankfurt airport.”

Raised and educated inGermany, Kastalio went on tospend 19 years at Procter &Gamble (P&G), during which timehe and his family lived all roundthe world. He had no plans toreturn to his native land until hewas asked if he had any interest inheading up Rodenstock, theMunich-based lenses and glasses-frames specialist.

At the time, Kastalio had 20:20vision and a rewarding career as aglobal vice-president at P&G.

“It was a ‘now or never’ momentfor me,” he says. “I was 45 and Ireally enjoyed my work. But I knewthat if I stayed at P&G for anotherfew years I would probably neverleave. And when I was approachedabout the Rodenstock position Idid my own due diligence andfound out that the company had astrong foundation, a long historyand values that are highly relevantto the consumer, such as quality,functionality and innovation. Thebusiness was declining when Ijoined, but I felt that there was noreason that it could not bereturned to growth.

“It was a calculated risk, but itwas a challenge,” he adds. “I wouldnever have gone to work for acompetitor, but I liked the factthat Rodenstock was verydifferent from P&G and yet there

were also similarities. That gaveme the confidence to think that Icould manage the change andmake a success of it.”

Kastalio joined Rodenstock inNovember 2010. At the time, therewere fewer than 4,000 employeesand the company was struggling.P&G, by contrast, had a workforceof 130,000 and turnover of around€80 billion.

“Of course P&G has lots ofstrengths, but withsize comescomplexity,” he says.“There are processesfor everything anddecision-makingtakes a long time. AtRodenstock, the keydecision-makers canfit round my tableand I can really makea difference.

“I wanted to drive changewithin the business and I can,” headds. “I wanted to create value andI can – both financial value andvalue for consumers.”

Seeing differentlyRodenstock is different fromvirtually every company in its fieldbecause it makes both lenses andframes for glasses. Most rivals doone or the other, so the company’sdual specialism sets it apart. Itsmantra is: “See better. Lookperfect.” And Kastalio is a truebeliever in the cause.

“We really do improve people’slives,” he explains. “That is one ofthe reasons I joined the company,because I enjoy making anddistributing products that helpconsumers to lead better lives.”

His almost 20 years’ experienceat P&G gave Kastalio somevaluable insights, which he hasput to good use at Rodenstock.

“Both companies are about

brands, both have a strongconsumer focus, both stand forquality and both aim to be thebest. Also, I spent most of my timeat P&G involved with beautyproducts, where the focus is onlooking good – now at Rodenstockit is about seeing better andlooking perfect, which is ourclaim,” he points out.

There are further similarities,too. “P&G is very results-focused

and so are we,” Kastalio explains.“Both here and there, people aremeasured on how they deliver.There are ambitious goals and theenvironment is demanding. So allin all I was used to deliveringresults. It is just that here I am the CEO.”

As such, Kastalio wasdetermined to craft a strategy thatwould drive top-line and bottom-line growth and energise theworkforce.

“I gave myself 100 days todeliver a plan,” he says. “I wantedto understand what was workingand where there were issues and Iwanted to listen and learn. It wasnot just a table-top exercise. Itinvolved the extended executiveleadership team of about 30people, and between us weformulated a strategy with aclearly defined business plan and afull set of KPIs [key performanceindicators]. Then I communicatedthe plan to the organisation andgot them excited about it.”

R

At Rodenstock, the keydecision-makers can fit roundmy table and I can really makea difference”

25

The plan was based aroundthree initiatives: organisationalimprovement, operationalefficiency and focused expansion.

“First, we brought in some newmanagement, changed processesand refocused on the Rodenstockbrand. The company had spent alot of time and resource onlicences but these produced verylittle profit. I wanted to concen-trate on Rodenstock as a brand by

streamlining our portfolio and focusing on innovation,” says Kastalio.

“The second leg of the 100-dayplan was all about efficiency,driving down cost in operations,purchasing and logistics,” he adds.“It has really worked. Our biggestlens rival is Essilor. They are 10times larger than us, but our grossmargins are better and our servicelevel is higher.”

As for expansion, Rodenstockhad described itself as global formany years, but Kastalio felt thatthe company’s internationalambitions needed a closer look.

“We were spread too thinly andwe needed to think carefully abouthow to allocate our resources,” heexplains. “So we did an analysis of

where there was the mostpotential and chose to focus onspecific countries. This issomething you have to do all thetime in business. It is aboutmaking the right choices anddoing it right.”

Chain reactionOne of the important choices that Kastalio had to make centredon distribution.

“We had to develop amultichannel strategy,” he says.“Half of the optician sector is runby small independents but there isalso a growing number of chains.Rodenstock has historically beenlinked with the independentmarket, where there is moreemphasis on quality and service

It was a ‘now or never’moment for me. I was45 and enjoyed mywork but I knew if Istayed at P&G Iwould probably neverleave...”

26

and customers are less price-sensitive. But chains are growing,so we had to make sure wesupplied that market too.”

The company has nowdeveloped a differentiated offer foroptician chains, which is morekeenly priced but has less of aservice element attached to it.

“The chains are more focusedon closure, making sales andmoving on,” says Kastalio.“Independents tend to offer abetter service and we invest timetraining the opticians and makingsure that they are equipped withthe right diagnostic equipment.”

Rodenstock prides itself oninnovation. The latest product is aDNEye scanner, which uses lasertechnology to test people’s eyes,taking 20,000 data points tocreate lenses that are individuallytailored to deliver perfect vision.

“We help our opticians to use

this equipment but we also helpthem to market and sell ourproducts and offer aftersales carebecause they are primarily techni-cians, not salesmen,” says Kastalio.

The strategy has certainlyworked so far. The original planwas structured over a five-yearperiod but, by the end of 2014,Kastalio had already delivered onmost of the KPIs – a year ahead ofschedule. Net sales have risensteadily to over €400 million, andEBITDA has soared more than 50per cent to €82 million.

“Last year was a record year,even though there were a lot ofexternal headwinds – theexchange rate was against us andthere were problems in manycountries where we operate,” hesays. “We delivered record results,but we would have done evenbetter if the macroeconomic and political environment hadbeen easier.”

Now, Kastalio is looking to the future.

“I have high hopes for thecompany but, as I say to mycolleagues, hope is not a strategy!So we have developed a planfocused on organic growth, furtherefficiency and ‘new ways’. On theorganic front, it has taken severalyears to get out of non-productivelicensing agreements. Now wehave optimised the portfolio so wehave a few carefully chosenlicence deals, such as Porsche, Jil

Sander andMercedes-Benz,and we can reallygrow thebusiness,” he says.

“We are alsolooking at newdevelopments –such as regionalexpansion intoNorth America,

which is a huge market where weare barely represented,” he adds.“We’re also considering verticalmoves, such as retail and e-commerce and new products, suchas contact lenses. And we arelooking at M&A opportunitieswhich could extend our productlines and enhance our distribution.”

The focus on efficiency isimportant, too.

“We have a real opportunity todrive efficiency not just inpurchasing, logistics and produc-

tivity but also by focusing onwhere we spend money,” he says.“We spend in order to make adifference to the business. Thatwas not always the case.”

Kastalio did not even wearglasses when he first joinedRodenstock. Now, having turned50 last summer, he needs themand is a persuasive ambassador.

“Nobody else does what we do– making the lenses and theframes for glasses,” he points out.“Some people have started to trybut we have been doing this foryears. It makes a real difference toopticians and to the endconsumer. We pride ourselves onour innovation and we aim todeliver optical perfection. Weknow we are the best.”

Brand awareA key challenge for the company isthat few consumers ever think toask for specific lenses. Strongrelationships with opticiansencourage them to recognise thevalue of Rodenstock’s productsand give it preferred-supplierstatus. Now, however, the group isworking harder on brandawareness – even engraving a tiny“R” logo on its lenses.

“We are keen to create brandambassadors,” explains Kastalio.“We have thousands of consumerambassadors, who buy ourproducts, are happy with themand share the experience withtheir friends and family. They arethe most valuable ambassadors forus. Then, the opticians are brandambassadors, especially when weintroduce them to new technolo-gies and they are convinced bythem and talk about them.

“And we also have somecelebrity ambassadors, such asClaudia Schiffer and FranzBeckenbauer,” he adds. “In the

I wanted to understand whatwas working and wherethere were issues and Iwanted to listen and learn”

27

past, Rodenstock paid celebritiesto be ambassadors for the brandbut that has stopped: we don’tneed to do it and it is not a gooduse of our cash. If celebrities wearour products, that’s great, but wedon’t pay them to do it.”

Rodenstock has made hugestrides in recent years, butKastalio is confident that the bestis yet to come.

“We have a system of bettervision that is unmatched,” he

explains. “Competitors are tryingto copy us, but we have a brandthat stands for both glasses andlenses. That makes us very special.It allows us to offer advantages tothe optician and to the endconsumer. And we are only at thestart of leveraging that.”

Kastalio himself has around 15pairs of Rodenstock glasses,including several under the Roccobrand, which is aimed at theyounger generation. “I need to

wear lots of different Rodenstockglasses,” he says. “It’s all part of mycommitment to the brand – I needto experience the product.”

The Rocco frames are morecolourful and flamboyant thantraditional Rodenstock designs,but Kastalio loves them.

“They are bright and quitedaring. My kids feel embarrassedwhen I wear them in public,” hesays, laughing. “And I don’t wearthem to official appointments!”n

Name: OliverKastalio

Age: 50

Education:MBA in businessadministrationand electricalengineering

First job:Brand managerfor deodorants atProcter & Gamble

Family:Married with twoteenageddaughters

Car:Black Audi Q7 andracing-green MiniCooper

Interests:Skiing, rowing,sailing, spendingtime with family

Biggestachievement:Creating a warmfamily

Biggest regret:Nothing

Ambition:To improvepeople’s lives

28

Management focus

Changing the rules

he iconic film Wall Streetprovoked widespreadcontroversy – particularlyits central character Gordon

Gekko’s pronouncement on thevirtue of greed. But everyone inbusiness would surely agree thatanother “G” word, growth, isundoubtedly good. Essential, infact, because with rival outfitsalways ready to park their tankson your lawn, if your business isnot growing then it is effectivelyshrinking. And no one wants that.

Growth can be achieved inmany ways. Some companiesfavour organic expansion. Othersprefer the acquisition route. Somestrive constantly to recruit newcustomers. Others focus on sellingmore to existing customers. And for many these days, theworld of the web is seen as abusiness nirvana, full of endlesspossibilities.

Whatever companies’ prefer-ences, one point is clear: customeracquisition and customerretention are changing so fast thateven if the status quo works now,it is unlikely to do so forever.

Times are changing“The days when you could build astatic customer base and hang onto it, selling only to that set groupof customers, are well and trulyover,” says consultant andcommentator Alastair Dryburgh,author of Everything You KnowAbout Business is Wrong.

In modern markets, disruptive

models and technologies arespreading even into industrieswhere inertia and high barriers toentry have historically limitedcompetition. From utilities tofinancial services, there is no suchthing as steady-state commerceany more.

“Customers are becoming morepromiscuous – just look at banks,”says Dryburgh. “There used to bea joke that people got marriedmore often than they changedbanks, but now it is much lesshassle to switch, and there aremore banks to choose from, withmore genuine differences in whatthey offer.”

The evidence backs him up: inthe year after the launch of thePayment Council’s fast-switchingservice in the UK in 2013, thenumber of people changing theirbank jumped 19 per cent to overone million account holders.

If it can happen in that market,it can happen anywhere. So theadage that it is cheaper and moreeffective to sell more to existingcustomers than to go out andrecruit new ones is increasinglyunder the spotlight. Indeed,according to a 2014 report fromconsultants Bain & Company, thislong-standing assumption – thatearning repeat business from thesame customers is more importantthan winning new business fromfresh customers – is just not right.

The loyalty illusionBased on a survey of more than100,000 shoppers in markets asgeographically diverse asIndonesia, China and severalEuropean countries, the reportfound that what distinguishes themost successful fast-movingconsumer goods (FMCG) brandsacross the board is not therepurchase rate (customer loyalty)

29

T

‘‘This long-standing assumption – thatearning repeat business from thesame customers is more importantthan winning new business fromfresh customers – is just not right”

30

but the penetration rate – howmany customers buy at least oncein a given year. Top brands in allmarkets enjoy penetration rates atleast four times higher than theaverage of the top-20 competingbrands, and penetration rates forso-called superbrands such asCoca-Cola can reach as high as 50 per cent.

“Companies tend to think oftheir customers like they do theiremployees, which creates anillusion of customer loyalty,” saysGuy Brusselmans, partner in Bain& Company’s Brussels office andthe report’s co-author. “But yourcustomers are not a fixed group;people are moving in and out ofthe group all the time. Unlikeemployees, customers are neverreally yours in the first place.”

Although the research focuseson consumer goods, Brusselmans

believes that the sameprinciples apply to

business-to-

business (B2B) and professional-services markets. “They aresubject to the same dynamic,” heexplains. “Take consultancy: salesare based on having a strongrelationship with the client. Buthaving a strong relationshipdoesn’t guarantee you a sale; farfrom it. You’re only as good as yourlast job.”

Just as a supermarket shoppermay consider buying severalfamiliar brands of washing powderor shampoo, a client is unlikely tohave a good relationship with onlyone professional services firm. “Agood relationship means you willbe considered, but you have tokeep earning your place in thatconsideration set,” says Brussel-mans. “It’s a constant andexpensive fight.”

New recruitsOne business that is applyingFMCG principles to a verydifferent market is Oasis, the UK’slargest provider of private dental

treatment. Bought by Bridge-point in 2013, it has

grown from 200branches to 330,and like-for-likesales areincreasing atbetween five andseven per cent.

“Of course,existingcustomers are

worth more and are

less expensive,” says Oasis’s chiefexecutive Justin Ash. “But youhave to recruit new ones, too.”

How does he go about winning over those toothsomenew punters?

“You have to define yourcustomer proposition – whatmakes you different,” Ash explains.“What customers really want froma dentist is pretty similar to whatthey want from any other regularpurchase: transparency, choiceand value. But in most dentalsurgeries they don’t know whatthe costs are likely to be, theydon’t understand their choice intreatment and they have no ideaof how to assess value.”

After introducing visible, fixedpricing in all of its branches andonline, offering a clear choice oftreatment and an entry-levelnational tariff called Oasis Basics,the business has seen a clear risein like-for-like sales.

“Historically, dental customershave been quite loyal, but timesare changing,” says Ash. “Theunder-30s don’t have the same badchildhood experiences of painfulvisits to the dentist [as olderpatients], so they don’t impart thesame godlike status to any dentistwho doesn’t hurt them. Instead,they tend to treat dental workmore like any other purchase.”

Ringing the changesFinding new business also meansembracing new models and newmeans of communication. Despitespecialising in bespoke diamondengagement rings costing inexcess of £10,000, jeweller RarePink makes many of its salesonline. It has even discovered thatthe mobile app WhatsApp –generally better-known as a wayfor digital natives to swap gossipon their smartphones – can be a

‘‘We recently sold a £15,000 ring onWhatsApp. The customer worked infinancial services and wasn’t allowedto use her personal email at work”

31

valuable sales channel for clientswhose busy working lives precludemuch in the way of “face time”.

“We recently sold a £15,000 ringon WhatsApp,” says Rare Pink co-founder and chief executiveNikolay Piryankov. “The customerworked in financial services andwasn’t allowed to use her personalemail at work. Our brand promiseis to provide the best onlinejewellery experience and to dothat we have to give people whatthey want, and let them use thetools they want, too – includingWhatsApp.”

Rare Pink has offices in London,Hong Kong and New York andattracts cash-rich, time-poorbuyers from all over the world. Itraised £195,000 through a crowd-funding website in spring 2014 andis raising a further £1 million toexpand into new territories.

“We have a bespoke model thatis also very scalable, and that’swhere the opportunity is,” saysPiryankov. “With more investment,we could easily open 20 officesacross Europe. We’re ambitiousand we want to be the biggestonline jeweller. We’re not in it tobe number two.”

Not every business is a hungryyoung start-up in a consumer-facing market, however. Forestablished firms in specialisedB2B sectors, upselling to existingclients can still provide the lion’sshare of profitable growth. Bridgepoint-backed Phlexglobaloperates in the arcane butimportant business of managingclinical trials for new drugtreatments, where both budgetsand timescales are substantial.

“The costs of going to marketwith a new drug are enormous: $1 billion-plus, and a good 12years,” says Phlexglobal chairmanSteven Kent. “So selling new

things to new customers in ourbusiness is very difficult: it’shighly regulated and the pharma-ceutical business is veryrisk-averse. Unless you havealready proved your offering withanother client, the industry is veryslow to adopt it.”

Every drug trial must beconducted according to a strict setof rules and processes known as“good clinical practice”, at theheart of which is a vital set ofdocumentation: the “trial masterfile” or TMF. Phlexglobal’s systemsdeliver this TMF, which containsall the data from every doctor andevery patient involved in eachtrial. “There’s a massive amount ofdocumentation,” says Kent. “So theTMF provides all of that documen-tation in one place for an inspectorto view and review.”

Because trials last so long anddocumentation methods cannot bechanged once under way, many ofPhlexglobal’s clients– which include17 of the world’s top-20 globalpharmaceutical companies – arestill migrating from paper recordsto digital (or “eTMF”) systems.

“This migration offers us thebest growth opportunity,” saysKent. “We plan to provideadditional services around

our core TMF offering –essentially selling new things toexisting customers.”

But even in such a tightlycontrolled and conservativemarket, competition is rising andnew business must be won. “Wehave 160 customers at present,” headds. “And there are 4,500 pharmabusinesses globally – so there isplenty of potential. But the costsof acquisition are high – ittypically takes us around a year toacquire a new customer – and wecan’t boil the ocean.”

So when it comes to growth,every firm still has to strike itsown delicate balance betweenrepeat sales and new ones. Across the spectrum, however, the scales are tipping in favour ofnew business faster than manypeople realise.

Bain & Company’s Brusselmanshas one final suggestion: “Themost important point to rememberis this: don’t disappoint yourcustomers. Products don’t have towin the blind taste test, so long asthe customer is getting what theyexpect. But if you disappointthem, you will lose business. And that can have a devastatingimpact on customer loyalty and penetration.” n

‘‘Selling new things to new customers in our business is very difficult: it’s highly regulated and the pharmaceutical businessis very risk-averse”

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Sectoranalysis

In the fast lane

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The phrase “fast-growth tech company” has become almostclichéd in a world intrigued by all things digital. But delivering fast growth is not just a matter of being in the rightsector at the right time. It requires strategy and financial nous.

rom steam engines tosmartphones,technology has alwaysbeen a powerful catalystfor change, affectingnot only industry but

entire economies. So it is hardly surprising that, in

the current digital era, govern-ments, investors and businessleaders are determined to createconditions where new techcompanies can flourish and GDPscan be recalibrated.

In digital hubs the world over,start-ups, scale-ups and SMEs areall vying to be The Next Big Thing.But what are the ingredientsneeded to generate genuinesuccess? The question is particu-larly complex because, as digitalexpertise permeates almost everycorner of industry, it is becomingharder to separate “technology”companies from the rest.

Global disruptionTake the headline-grabbing carservice Uber, which has managedto disrupt the urban taxi sector ona global scale. Starting in 2009 as aluxury car service in San Francisco,it was valued at $40 billion inDecember 2014 and operates inmore than 250 cities worldwide.

“The success of Uber is that itnot only uses technology to solvea problem – booking a taxi – but ithas managed to make it easier andcheaper at the same time,”

explains Mark Mayne,editor of consumer techwebsite T3.com. “We’llalmost certainly be seeingmore of this type ofdisruptive business modelmeshed with new single-purpose technology,because they deliverexactly what consumersneed, when and wherethey need it.”

This does not just applyto the shiny world ofconsumer-facingtechnology. Any fast-growing business in thishighly competitive market needs atargeted product that connectswith customers and can scale up quickly.

Companies such as UK-basedcloud-hosting and co-locationservice provider Pulsant know thiswell. The company, formerlybacked by Bridgepoint Develop-ment Capital, was sold in 2014,following a three-year buy-and-build strategy that was designedto create a one-stop shop for ITservices to the SME market.

Pulsant’s guaranteed servicelevels come with an attention tocustomer satisfaction that largerproviders such as Amazon andGoogle cannot really offer. Theapproach has enabled Pulsant tocreate a differentiated offering andthe kind of growth that saw itrecently ranked third in the

Megabuyte50, a reporthighlighting the UK’s fastest-growing tech companies withrevenues over £10 million.

Target practice“In a crowded sector, it’s reallyimportant to segment yourmarket,” says Pulsant chiefexecutive Mark Howling. “Youhave to be targeted about the kindof customer you’re going after andthe kind of services they arelooking for. Then you need tomake sure your services are reallygood and fit that kind of customerreally well.

“Even with a business of oursize, at £43 million of revenue,we’re a tiny fraction of the market,”he adds. “So we don’t need a lot ofthat market to double or treble insize. The crucial thing is, rather

F In the tech industry youcan be here one day andgone the next, in a literalsense. It is imperativethat you move with thetimes in order to keep upwith the evolving needsof customers”

‘‘

than try to win every piece ofbusiness and therefore beundifferentiated, we focus on acertain type of customer whereour services are a good fit. Wethen just try to be one of the bestsuppliers in that niche.”

Another rising star in theMegabuyte50 was BigHand,acquired by Bridgepoint Develop-ment Capital in 2012. A leadingprovider of voice productivitysoftware to the legal sector,BigHand has annual revenues ofmore than £20 million and in 2014 delivered 22 per cent year-on-year growth.

Under chief executive JonArdron, the company has increasedits client base to 2,500 across fivecities and three continents.

“We listen to clients verycarefully and build software andproducts that solve real problems,”he says. “We are completely focusedon looking after our clients. Asoftware technology business witha great development team canbuild anything – eventually. The key challenge is to focus allthe attention on what matters. I often say internally, ‘dig wherethe gold is’.”

Staying on top of strategyIn other words, Ardronmakes sure that hiscolleagues stay focused onwhat customers want andhow to provide it. Manytech experts consider thisguidance from the top tobe essential – particularlyin fast-growing firms,where it can be easy tolose sight of the company’score strategy.

Russ Shaw, founder ofstart-up support group

Tech London Advocates andformer vice-president at Skype,says: “For me, leadership is acrucial ingredient for success. Youneed an entrepreneur or avisionary with an interesting anddifferentiated business model thatcan be scaled up substantially and effectively.

“Successful businesses alsoneed to think through theirfunding,” he adds. “As you growand build a business, havingclarity around where the first £1 million, £5 million and £10 million will come from is vital.It’s about knowing potentialinvestors and thinking about howyou’re going to pitch it to them forthe longer term.”

This can be a tough nut tocrack in the tech sector, whereproducts and services requireconstant, often-costly evolution.“Controlling cost versus revenue isone of the biggest challenges,”says Jamie Estrin, co-founder ofmobile advertising companyZapp360, whose turnover hasgone from nothing to seven figuresin the space of just two years.

“Building tech is expensive andtakes time,” says Estrin. “So youneed to know how long you have

to validate the business model,” he adds.

Fit for purposeFor companies such as sport-tracking systems providerSTATSports, the start-up phase isnot the only stage where abusiness can come undone. Thecompany’s technology providessophisticated fitness data toprofessional football coaches, fromhow intensely a player is trainingto how tired he is at the end of theweek. Used by the UK’s PremierLeague, Spain’s La Liga andAmerica’s National FootballLeague, among others,STATSports’ data can determinewhether a footballer plays at theweekend or not. Its businessadministrator, Richard Byrne,suggests that ongoing successrequires constant investment.

“All business moves fast, but inthe tech industry you can be hereone day and gone the next, in aliteral sense,” he warns. “There isalways someone trying to do whatyou do in a different way and it isimperative that you move with thetimes in order to keep up with theevolving needs of customers.”

Acquisitions can be a highlyefficient way of evolving quickly,but only if they are properlythought through.

“When you’re making acquisi-tions, you really need to bestrategic about what kind ofcompany you’re trying to develop,”says Pulsant’s Howling. “If it’ssensible to make acquisitions toget there, fine, but make sureyou’re testing them against thestrategies you’ve got in the first place.”

The same is true for companieslooking to expand across borders.The lure of “going global” is strong,

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A software technologybusiness with a greatdevelopment team can build anything –eventually. The keychallenge is to focus all the attention on what matters”

‘‘

but it is rarely the easy route to growth.

“Taking on new markets can belucrative but it comes with its ownchallenges,” says BigHand’s Ardron.“Overseas expansion is never aseasy as it seems: different territor-ies always do things differently.”

Shaw agrees: “If you’re going to operate globally, you needpeople from around the world tohelp you. Just building a globalbusiness from London can be arecipe for disaster.”

Think globalOne company that has achievedglobal success is Danish appEndomondo. Founded in 2007 to

help runners and cyclists monitortheir progress, the app has morethan 20 million users worldwideand was recently snapped up byUS clothing group Under Armourfor $85 million. For Endomondo co-founder Mette Lykke, it was clearfrom the start that the businessneeded to be global to achieve realsuccess, so its team was built toreflect this.

“The main advantage of beingbased in a small country has beenthat it forced us to think globalfrom day one,” explains Lykke, whois now a vice-president at UnderArmour Connected Fitness. “Ifyou’re based in the US or even in,say, Germany, you run the risk ofbeing happy with just winningyour home market and you missout on the international opportu-nity. We couldn’t do that. So atEndomondo we have 42 peopleand 13 different nationalities, and

we support almost 20 differentlanguages.”

It’s an approach that Shawfirmly supports: “Having a mixtureof homegrown talent coupled withtalent from overseas is animportant catalyst that bringstogether creativity, innovation and ideas. It encourages entrepre-neurs to hone their businessmodels so that it’s not just acookie-cutter approach. Instead,there are people with a range ofcultural starting points joiningforces to help create somethingnew and different.”

So that’s simple then. All it takes to become a fast-growingtech firm is a brilliant product,excellent leadership, a laser-focused strategy, a strong funding road map, an acute eye for acquisition targets and brilliant talent from around theworld. Easy n

Having a mixture ofhomegrown talentcoupled with talent fromoverseas is an importantcatalyst that bringstogether creativity,innovation and ideas”

‘‘

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Lastword

’ve had seven weeks, four days and 19 hours towrite this article. Which works out, in total, atsome 1,291 hours. Yet, as always seems to be the

way with deadlines, here I am with just twohours to go, staring at a blank screenin a tepid panic. Where did all thetime go?

Looking through my diary, Imust concede that several hourshave been wasted on nonsense.More specifically: texting; trimmingmy new beard; instant messaging;walking to the corner shop for Hobnobs;watching end-to-end episodes of StorageWars; and getting into arguments aboutHobnobs and beards and Storage Warson Twitter.

But it also seems to me that nothinggets more in the way of getting workdone than work itself. Not sure whatI mean? Well, take meetings.They’re one of the fundamentalfeatures of business life; they’rewhat children imagine adults dowhen they go to work in offices, butthey’re also one of the chief reasonswhy so little ever gets done. Research fromHarvard Business School and the London School ofEconomics reveals that employees regard between aquarter and a half of all meetings as a complete wasteof time, and Australian software company Atlassianestimates that businesses in the US waste $37 billiona year on them. No wonder the likes of Craigslistclaim to have dispensed with meetings altogether,while Satya Nadella, CEO of Microsoft, recentlydeclared that workers should skip meetings if theydon’t think they really need to be there.

Then there is email, the sending and receiving ofwhich accounts for a large part of all “work” every-where, and which is laughably described as a“productivity tool”, with each message in theorysaving people the hassle of a letter or a phone call. In

practice, however, it means that people sendthousands of messages for no reason at all.Apparently, an estimated 100 billion business emails

are sent and received each day, and one recentreport estimated that, on average,

professionals waste up to 37 per centof their working week checkingemail. No wonder some companieshave tried to deal with this delugeby banning email; others have tried

to generate alternatives to email; andothers have restricted access to

computers for parts of the working day. I could go on. Commuting? A waste of

time and energy. Office gossip? Pointless andenervating. Phone calls? Well, according to one

piece of research, it takes 25 minutes for aworker to regain focus on a task that is

interrupted by one. Basically, everyformal aspect of “work” seems toprevent any work from actuallygetting done, with yet more studiesfinding that 16 of the 45 hours thatUS workers toil every week are

“unproductive”, and that British staffare productive on only three of the five

days they work. Indeed, at times it feels as ifthe only work being done out there is research intothe fact that no work is getting done, and within thegrowing market for so-called productivity tips.

These self-proclaimed “time-management experts”have endless advice to proffer on the subject,recommending everything from switching off theinternet for part of the day; to working in 90-minuteintervals; to employing a retractable “busy belt”around your desk; to clearing your desk of all personalmementos to avoid distractions; and even dancing “tofeel clear-headed, creative and focused”. Mind you,having overrun my deadline by several hours now,and with my editor sending plaintive emails, I mightsave the celebratory bhangra jig until after I havefiled my piece and had it approved n

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We all know that time is in short supply, but where does it really go? Times columnist Sathnam Sangheragives his frank assessment.

A waste of time

I“Research

from Harvard BusinessSchool and the LondonSchool of Economics

reveals that employees regard

between a quarter and a

half of all meetings as a complete waste of time”

bridgepoint.eu