Entrepreneurship + Innovation = Growth
August-December 2013

Bris Rocher on
sustaining beauty
brand Yves...
Growing Beyond
Growing Beyond

Where will your growth
Where will your growth
journey take you next?
journey take you next?...
“Investing in new products and
processes remains an important
ingredient for growth”


Cover photography Alexe...

5.3 million

the number of software downloads
generated by Softonic every day, one million
of which are mobile a...
“Quote unquote”

Guest columnist

Building a better working world
Mark Weinberger, new Chairman and CEO of EY, introduces ...
Profile: Eurocement Group

the way
Visit any city in Russia and you
will see busy construction sites.
Wherever you ...
Profile: Eurocement Group

“The most powerful machinery and
the most advanced technologies won’t
work without the right pe...
Profile: Eurocement Group

The percentage of the Russian cement
market accounted for by Eurocement Group


Analysis: How to grow beyond

Recognizing risks
and reaping

Growing your business beyond boundaries requires kno...
Profile: Yves Rocher Group



Bris Rocher discusses the original sustainable business that
women have ...
Profile: Yves Rocher Group


his death.” Having grown from a small
family business to a national heavyweight,
The big picture: Home Shopping Network

Screen test


customer spending. HSN has since
invested heavily in engaging wit...
Profile: PageGroup

Turning a
new page
Steve Ingham, CEO of PageGroup, has watched
the business flourish from a specialist...
Profile: PageGroup
Another important move under his leadership occurred
in 2012, when the business rebranded from Michael ...
Analysis: Institutional investor survey

IPO market

“Good-quality companies priced at
the right level, run by the right t...
Profile: Campbell Soup Company

The reinvention of an

When Denise Morrison took over
Campbell, the 144-year-old busi...
Profile: Campbell Soup Company


Food trends
for thought
Patricia Novosel, Global Food Leader and Americas Consu...
Head to head: Softonic and EY

Tech talks

Softonic’s Tomás Diago and EY’s Pat Hyek discuss growth
opportunities, trends a...
Profile: Brunello Cucinelli

A stitch
in time
Brunello Cucinelli’s cashmere
brand is built on history,
philosophy and an e...
Profile: Brunello Cucinelli
Solomeo is his great work and he has invested millions
in the restoration of the ancient villa...
Profile: Brunello Cucinelli

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


Investing in
30 seconds with ...

Frank Stührenberg
Executive Vice President Global Sales and Executive Board Member, Phoenix Contact
E&Y - Exceptional CIS - August-december 2013
E&Y - Exceptional CIS - August-december 2013
E&Y - Exceptional CIS - August-december 2013
E&Y - Exceptional CIS - August-december 2013
E&Y - Exceptional CIS - August-december 2013
E&Y - Exceptional CIS - August-december 2013
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E&Y - Exceptional CIS - August-december 2013


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06 Paving the way Mikhail Skorokhod on how Eurocement became the biggest cement manufacturer in the CIS
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

12 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

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

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E&Y - Exceptional CIS - August-december 2013

  1. 1. Exceptional СIS Entrepreneurship + Innovation = Growth August-December 2013 Bris Rocher on sustaining beauty brand Yves Rocher Exceptional | Entrepreneurship + Innovation = Growth | August–December 2013 Denise Morrison, CEO of Campbell, has a hunger for growth Brunello Cucinelli has grand designs Cementing growth Eurocement’s Mikhail Skorokhod on keeping up with Russia’s building boom
  2. 2. Growing Beyond Growing Beyond Where will your growth Where will your growth journey take you next? journey take you next? 1 1 2 3 4 1 1 Africa Cape Town Africa Cape Town 5 7–8 March 2013 2013 7–8 March 2 2 Turkey Istanbul Turkey Istanbul 6 4 7 4 Mexico Mexico Mexico Mexico City City 24–25 October 20132013 24–25 October 5 Brazil Paulo Brazil São São Paulo 6 United States United States Palm Springs, CA CA Palm Springs, 13–17 November 20132013 13–17 November 3 Israel Tel Israel Tel AvivAviv 17 October 20132013 17 October 4 28–29 October 20132013 28–29 October 8–9 May 20132013 8–9 May 3 3 8 Russia Moscow 7 Russia Moscow Coming soon soon Coming China 8 China Coming soon soon Coming 5 5 6 6 7 7 8 8 EY EY Strategic Growth Forums Strategic Growth Forums JoinJoin CEOs, entrepreneurs, influential business top top CEOs, entrepreneurs, influential business and and government leaders, investors and advisors from government leaders, investors and advisors from around the world to share experiences on innovation, around the world to share experiences on innovation, transactions, growth and and what’s shaping future transactions, growth what’s shaping the the future of the global economy. of the global economy. FindFind more at ey.com/sgf out out more at ey.com/sgf © 2013 EYGM Limited. All Rights Reserved. EYG no. CY0506. ED None 2
  3. 3. “Investing in new products and processes remains an important ingredient for growth” Exceptional Cover photography Alexey Kuzmichev For EY Marketing Manager, SGM, EMEIA Victoria Nice Marketing Director, SGM, EMEIA Victoria Gravett Project Assistant Director, Russia Adel Khalilulina Project Director, Russia Aleksey Rybnikov For further information about Exceptional, please email victoria.nice@uk.ey.com or call +44 (0)20 7980 0285 For Wardour Editor James Cash Art Director David Donaghy Account Director Emma King Exceptional 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 www.wardour.co.uk 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, many of the entrepreneurs interviewed highlight the opportunities for growth presented by emerging markets, innovation and diverse portfolios. For our cover story, Mikhail Skorokhod, head of Eurocement Group, explains how the company became the biggest cement manufacturer in the CIS in a matter of 10 years. 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, CEO of Campbell Soup Company, 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. And while the pace of technology innovation shows no sign of abating, adapting to it quickly 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 on page 30. Despite their different perspectives, they both believe that operational agility and a deep understanding of the customer are crucial. 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 surviving and thriving in our “How to grow beyond” guide on page 12. Our “Doing business in Europe” feature (page 46) also explores how prospects for growth are returning to this specific region —­don’t miss it. And last but by no means 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. 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! Dmitry Neverko Strategic Growth Markets Leader CIS, Ernst & Young Exceptional August–December 2013 1
  4. 4. Contents 5.3 million the number of software downloads generated by Softonic every day, one million of which are mobile apps (page 30) “Today, half of our fee earners are in fastdeveloping countries” Steve Ingham, CEO of PageGroup (page 20) Profiles Analysis 06 aving the way P 12 Recognizing risks and reaping rewards Mikhail Skorokhod on how Eurocement became the biggest cement manufacturer in the CIS Optimizing your business model to thrive in the current climate 14 eauty and the brand B 24 IPO market in numbers 20 urning a new page T Regulars How French cosmetics producer Yves Rocher has blended profitability with sustainability An EY survey reveals that appetite for investment in IPOs has increased over the past year As PageGroup continues to enter new markets, Steve Ingham ensures its brand and values stay consistent 04 Guest columnist Mark Weinberger, the new Chairman and CEO of EY 26 The reinvention of an icon 18 The big picture Campbell’s Denise Morrison explains how she’s created the perfect recipe for success “We did the impossible: we became one of the world’s top 10 industrial companies in only 10 years” Mikhail Skorokhod, Eurocement 06 “I decided to make something that you would want to keep forever” 30 ech talks T Softonic’s Tomás Diago and EY’s Pat Hyek consider trends and opportunities in software Brunello Cucinelli, Chairman and CEO of Brunello Cucinelli 32 32 stitch in time A 37 30 seconds with ... Frank Stührenberg, Executive Vice President of German electronics company Phoenix Contact 38 Intelligence Philosophical fashion designer Brunello Cucinelli strives to remain exclusive while expanding operations Events, programs and research from EY 40 iking spirit V 46 Doing business in … Odd Reitan promotes positivity and strong decision-making to all his Reitangruppen employees Signs of recovery are offering hope to entrepreneurs in Europe 44 he generation game T Entrepreneur and family business expert Philip Aminoff discusses innovation and acquisitions Tuning into Mindy Grossman’s innovative vision for shopping channel network IAC Retailing 14 26 48 Beyond profit Michael Carey is helping improve the fortunes of people in Haiti 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. EY refers to the global organization and/or one or more of the member firms of Ernst Young Global Limited, each of which is a separate legal entity. Ernst Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 37 2 40 © 2013 EYGM Limited. All Rights Reserved. EYG no CY0530. ED 10/13 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 Exceptional August–December 2013 3
  5. 5. “Quote unquote” Guest columnist Building a better working world Mark Weinberger, new Chairman and CEO of EY, introduces his vision 4 Insight and opinion from this issue’s interviewees 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. “As your brand grows, it becomes inflated and you risk losing your specialness.” • 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. “I believe business has a positive social role to play in how the world evolves.” “My idea of leadership of this company is to unleash the potential of our people to do amazing things.” “We have long recognized the potential of entrepreneurs” Mark Weinberger at a glance “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) Brunello Cucinelli, Brunello Cucinelli (page 32) Denise Morrison, President and CEO of Campbell Soup Company (page 26) Photography Kaapo Kamu, Andrew Cutraro, Lorna Fitzsimons, Gunnar Knechtel, Mark Harrison, Helge Skodvin, Alexey Kuzmichev N early 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. 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, PageGroup (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) “You have to include other people in your dreams to see the vision and make it come true.” Odd Reitan, Reitangruppen (page 40) “A brand must evolve with its time, even if it is grounded in history.” Bris Rocher, Yves Rocher (page 14) “We’re constantly working to improve quality, and that’s how we maintain our strong market position.” Mikhail Skorokhod, Eurocement Group (page 6) Exceptional August–December 2013 5
  6. 6. Profile: Eurocement Group Paving the way Visit any city in Russia and you will see busy construction sites. Wherever you look, there are towering cranes and new buildings. Mikhail Skorokhod, President of Eurocement Group, shares his views on the future of Russia’s building industry words Kevin O’Flynn_photography Alexey Kuzmichev_translation Carleton Copeland R ussia’s construction boom has been under way for many years, though there was some contraction following the 1998 economic default and the global crisis of 2008. The Russian Eurocement Group, headed by Mikhail Skorokhod, has weathered these storms to become the largest cement manufacturer in the CIS in a matter of 10 years. Eurocement Group’s headquarters is a six-storey building on a quiet street in central Moscow, where Anton Chekhov lived in the late 19th century. Today, Chekhov might recognize the building from the outside, but he would certainly be lost if he went in and found the spacious atrium instead of apartments. The company’s logo, prominently displayed in the office, is composed of the letters C and E and resembles a euro sign, with three parallel bars (forming the E) instead of two. “We did the impossible: we became one of the world’s top 10 industrial companies in only 10 years,” says Skorokhod, who began his career in the mining industry. “The experiences of cement companies such as Holcim and Lafarge show it usually takes manufacturers decades to achieve a respectable position in the market. “We’re constantly working to improve quality and that’s how we maintain our strong market position. It hasn’t been easy.” 6 Exceptional August–December 2013 7
  7. 7. Profile: Eurocement Group “The most powerful machinery and the most advanced technologies won’t work without the right people” Eurocement Group has 16 plants in Russia, Ukraine and Uzbekistan, which collectively produced more than 40 million tons of cement per year. “Our holding operates more efficiently than international giants such as Holcim and Lafarge. This has to do, first of all, with favorable market conditions. Second, we’ve boosted our energy and eco-efficiency by implementing an efficient cost management system at our enterprises,” says Skorokhod. “This market has seen colossal growth rates in recent years and still has tremendous potential.” Modernizing production The company’s development strategy includes a number of projects to modernize production. The first has already been completed: a new plant began operating in the Voronezh region in 2012 using state-of-the-art equipment, which has resulted in a 40% reduction in costs. In the second stage, all the company’s plants will be converted to the dry process of cement production, in which raw materials are mixed and added to the kiln without water. This will be done using existing equipment and without any disruption in the company’s operations. For Russia, these innovations mean a new technological base for the cement industry. For Eurocement Group, the changes will bring a 15% growth in capacity, a cost reduction of between 30% and 40%, and the company’s impact on the environment will be two and a half times lower. “There are many who say you need new markets in order to diversify risks, but Russia is a gigantic market in its own right. Take the northwest region, centered upon 8 St Petersburg, and the Southern Federal District, including Sochi — two regions relatively far apart from one another. In the south, as the Winter Olympics approach, intensive construction has been going on year-round thanks to the warm climate, while in the cold northwest region, such work is seasonal and largely confined to the summer period.” Eurocement Group also has strong positions in other CIS countries. Markets such as Ukraine, Belorussia, Azerbaijan and Uzbekistan help the company maintain a high level of sales. “Deliveries to Azerbaijan and Uzbekistan allow us to make the most of our production capabilities, despite seasonal dips in some areas of Russia. Thanks to the climate, our products are in demand almost all year-round,” he says. Long-term strategy Eurocement Group’s strategy for the period to 2020 focuses on five main areas: • Expanding production capacity by building modern plants and upgrading existing production lines • Improving energy efficiency by implementing energy-saving technologies and converting to alternative energy sources • Cutting production costs by introducing automated processes and increasing labor productivity • Improving product quality by constantly developing and testing new cement materials and monitoring client needs • Minimizing environmental impact by means of clean technologies, the most advanced environmental solutions and nature conservation measures Eurocement’s priority, however, is Russia, where a number of projects for the development of residential, industrial, transport and social infrastructure will be launched in the near future. These projects will require large quantities of materials produced by Eurocement. “The demand for construction materials on the Russian market has enormous growth potential,” says Skorokhod. “The Russian Government’s plans for the period up to 2020 involve growth in housing construction by up to 120 million square meters per year. In 2012, only 63 million square meters were built, so we need to double the rate.” According to Skorokhod, Russia has a severe housing shortage when faced with the need to accommodate its population of 140 million. In Western countries, one square meter of housing per capita goes into circulation each year. However, the figure for Russia is less than half of this, and a large number of old buildings have already been condemned. Developing Russia’s infrastructure The road situation in Russia also leaves much to be desired. “Russia’s total road length is four times less than in most countries and three times less than in America,” says Skorokhod. Russia also needs cement for new infrastructure projects in the oil, gas, atomic and transport industries, and for the 2018 FIFA World Cup, during which the country will host football matches in 10 different cities. “In the past four years our turnover has seen over 15% annual growth,” says Skorokhod, “and it has already grown more than 15% in the first four months of this year. That’s a good start.” Though its line of business can hardly be called creative, 40m tons The cement production capacity of Eurocement Group’s 16 plants in Russia, Ukraine and Uzbekistan the company is widely known as a patron of the arts. Eurocement Group provided financial support for a unique publication. Geniuses of War, Weal and Beauty is the first monograph devoted to the British artist George Dawe, who was officially appointed First Portrait Painter of the Russian Imperial Court in 1828. Dawe produced a unique series of portraits of military leaders, statesmen, scholars and poets. Eurocement Group has also collaborated with the Moscow International House of Music and the State Tretyakov Gallery for many years. In 2012, the Group received a Golden Mask Award for his contribution to Russian culture and his pioneering work in developing and supporting the theatrical arts. The award is the Russian equivalent of the American Tony and the British Laurence Olivier Award. He was the first businessman to receive such an accolade. Supporting communities and staff The company often has to take on the role of chief employer in small cities that lack a developed industrial base, as well as being a city patron and playing an active part in developing the social infrastructure. “Helping communities is not something we have to do. We could pay our taxes and leave it at that, but we feel our support is important,” stresses Skorokhod. Exceptional August–December 2013 9
  8. 8. Profile: Eurocement Group 40% The percentage of the Russian cement market accounted for by Eurocement Group Viewpoint The cement industry in the Customs Union Denis Borodenok, Director, Marketing and Business Development, Mining Metals, Industrial products The company is often the major employer in small cities He speaks of Eurocement Group’s approach to staff training and development with particular enthusiasm. “We’ve put together an outstanding staff and management team at our plants, and the proof is that our employees are in high demand on the market,” he notes. Thanks to its working conditions and effective management, Eurocement Group is frequently included in expert ratings of leading Russian firms. In 2012, for example, five Eurocement Group managers were listed among the top From 2002 to 2012, 1,000 Russian managers Skorokhod consistently by the business ranked among Russia’s newspaper Kommersant. most professional “This goes to show that managers in the annual we’ve been successful in rating of top 1,000 Russian creating a strong brand, managers prepared by effective staff incentives Kommersant publishing and tremendous growth house and the Russian potential for the company Managers Association. In and its employees,” says 2010 he was top of the list, Skorokhod. “The most and in 2007, he topped powerful machinery Sekret Firmy’s list of and the most advanced the most effective technologies won’t work managers in the heavy without the right people.” industry in Russia. Eurocement Group has Best of the best 10 introduced a special program to develop a pool of highly qualified staff. The company identifies talented employees, focusing on their strengths and weaknesses, and gives them an opportunity to upgrade their qualifications in a particular area so that they can move up the career ladder. According to Skorokhod, each employee in the talent pool “knows what position he’d like to hold.” Eurocement Group works closely with universities and vocational schools to help students find jobs in its enterprises. “They have an opportunity to experience the life of the plant, see everything first-hand and learn to love the field,” says Skorokhod, who himself graduated from an institute in Donetsk as an engineer-economist. “Each of us was a student once, and we wanted to work in a modern plant with the latest equipment and progressive management,” he adds. Work at Eurocement Group helps students acquire marketable skills. “A new plant is a great place for young people,” says Skorokhod, adding that such a personnel policy is in the company’s interests as well. Each plant has a free cafeteria for employees and a training center, as well as providing career development courses. “We use the training center as a meeting place for specialists from various fields. They get together twice a year to discuss the latest trends in the industry and best practices that could help us maximize the efficiency of our industrial processes,” says Skorokhod. “It helps us utilize our employees’ potential and helps them regularly upgrade their skills.” The company also supports employees who wish to obtain a higher level of education. Skorokhod says Eurocement Group has lost count of the employees who moved rapidly up the career ladder. “Many today are interested in working not for a bank or insurance company, but in large-scale industry. Work in the real sector can be stressful and involve exhausting trips around the country, but it’s inspiring to know that your company’s output is essential to the nation’s economy.” Eurocement Group is a prime example of how the Russian cement industry is growing and consolidating, and how a company can become a major international player within only a decade. Russia reached a record level of cement production and consumption in 2012. Analysts forecast strong growth in demand by 2020 due to the modernization of the Russian and Kazakhstani transport systems, federal housing programs in Russia and Kazakhstan, and preparations for the Sochi Winter Olympics in 2014 and the FIFA World Cup in 2018. Competition has intensified in such an attractive industry and cement producers have been forced to rethink their long- and short-term development plans. They need to optimize their operating structure and learn to manage production costs. They also need to think about converting to energy-saving technologies and upgrading their existing production facilities or raising loans on the capital market. An EY survey of cement manufacturers in Russia, Kazakhstan and Belarus showed that the markets in these countries have tremendous potential and are demonstrating good growth, despite current problems with price formation, tougher competition and growing imports of cement. The respondents are positive about the future and expect the Russian cement industry to grow by anything from 2% to 11%. Some Russian analysts expect Russian demand for cement to reach 97.6 million tons by 2020. The forecasts of major international players and EY experts, however, are more conservative with estimates of 89 million tons by 2020, given annual market growth of 3% on average. The survey’s participants also noted that more efficient use of resources — especially energy — would be a priority for them in the area of corporate social responsibility. Additional information For more detailed information on the cement industry and the Overview of the cement industry in the countries of the Customs Union, visit the Mining Metals section of EY’s website (ey.com), or contact Denis Borodenok on +7 (495) 648-9605 or Denis.Borodenok@ru.ey.com Exceptional August–December 2013 11
  9. 9. Analysis: How to grow beyond Recognizing risks rew ards and reaping Growing your business beyond boundaries requires knowledge, ingenuity and a healthy dose of courage H 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 12 words Mark Alexander 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 reach More 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 The top 10 risks Pulse provides guidance around the top risks and opportunities in 2013 and beyond, and it does so by scrutinizing four key areas. The 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. 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 agility The 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 More information To 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 The top 10 opportunities Stakeholder confidence The 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 “A crisis can be an opportunity” 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. yield the same bottom-line results as a 10% boost in sales, which can be a massive pickme-up in today’s ultra-competitive markets. Cost competitiveness 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 The center of the radar represents the risks and opportunities that survey respondents felt were having the biggest impact on their organization Exceptional August–December 2013 13
  10. 10. Profile: Yves Rocher Group Beautyand the brand Bris Rocher discusses the original sustainable business that women have been in love with for more than half a century words Agnès Poirier 14 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 “We owe our success to nature, so the least we can do is to look after it” A botanical entrepreneur blooms 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. Photography Courtesy of Yves Rocher Group I 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-billiondollar 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, Exceptional August–December 2013 15
  11. 11. Profile: Yves Rocher Group Viewpoint 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. 16 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 “We were the second company to open shops in Russia after 1989” Photography Courtesy of Yves Rocher Group Sustainable development For 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. “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.” New markets, new methods Mark Beischel, Global Sector Leader for Consumer Products and Andrew Cosgrove, Global Consumer Products Lead Analyst, EY 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. More information To view the report Disrupt or be disrupted, please visit ey.com/brandneworder Exceptional August–December 2013 17
  12. 12. The big picture: Home Shopping Network Screen test 18 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.” Photography Geoff Levy When 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 19
  13. 13. Profile: PageGroup Turning a new page Steve Ingham, CEO of PageGroup, has watched the business flourish from a specialist national recruiter to a global giant words Jenny Little and Barnaby Simons_ photography Mark Harrison S 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 20 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.” Exceptional August–December 2013 21
  14. 14. Profile: PageGroup 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, Despite significant expansion into new regions around the world, PageGroup has maintained its domestic strength in the UK 37 years Key facts of recruitment experience network of 156 34 global offices countries 5,042 staff worldwide £526.9m gross profit in 2012 25 specialist businesses 22 very 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.” 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.” “The business is changing to reflect the new geographies we work in and their needs” 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.” Viewpoint Nothing ventured, nothing gained Alexis 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 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. More information For the latest research, insights, or emerging market leaders to connect with, please visit the content-rich Emerging Markets Center at emergingmarkets.ey.com Exceptional August–December 2013 23
  15. 15. Analysis: Institutional investor survey IPO market “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” in numbers 35% 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. 21% 51% 39% of this category are from Central and South America Institutional investors are more confident about the initial public offering (IPO) market in 2013 43% of those invest from North America 36% of these investors are from Asia of respondents view consumer retail as their preferred sector 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 Investors’ top five investment markets 1. United States 2. ainland China M and Hong Kong 3. Brazil 5 4. ther Asia Pacific O countries 5. United Kingdom 2 1 Confidence is rising 82% invested in pre-IPO or IPO stocks in the last 12 months 4 IPO critical success factors 3 of investors rate technology as a top sector preference The survey results suggest that goodquality 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. see financial services as their sector of choice Geographical focus The 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 appeal Financial 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. More information 57% 65% 91% Right team Right story Right price 24 To download a copy of this report and access other materials, visit ey.com/ipo or contact martin.steinbach@de.ey.com for more information Exceptional August–December 2013 25
  16. 16. Profile: Campbell Soup Company The reinvention of an icon 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 W 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 PepsiCola, 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 consumers Morrison 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 26 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 US$14b Current market cap of Campbell Soup Company 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 journey Since 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 Exceptional August–December 2013 Exceptional January–June 27
  17. 17. Profile: Campbell Soup Company Viewpoint Food trends for thought Patricia Novosel, Global Food Leader and Americas Consumer Products Leader, EY 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 superpremium fresh beverages. 28 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 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. “We need to respect the past and be inspired by it, but not be stuck in it” 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.” 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. More information To learn more about leading practices for the consumer products industry, visit tinyurl.com/EYconsumerproductparadigm Exceptional August–December 2013 29
  18. 18. Head to head: Softonic and EY Tech talks 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 “The challenge is to adapt to change at the speed of customers” 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. Pat Hyek, EY 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 30 Tomás Diago, Softonic 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: 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. 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: But with so much more digestible information available, concerns about the privacy of information and how governments deal with privacy remain 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. 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 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 than desktop, but desktop downloads are still on the increase in emerging countries. I don’t believe that mobile will “Now the consumer has much more knowledge and power” 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 technologyenabled 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. More information To find out more about the latest trends and insights in this exciting sector, please visit EY’s Global Technology Center ey.com/technology Exceptional August–December 2013 31
  19. 19. Profile: Brunello Cucinelli A stitch in time Brunello Cucinelli’s cashmere brand is built on history, philosophy and an exclusive market for luxury clothing words Lee Adendorff_ photography Alessandro Albert I 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. 32 Exceptional August–December 2013 33
  20. 20. Profile: Brunello Cucinelli 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 selfmade 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 34 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 multibrand distribution channel to establish his American presence, eventually subsuming the Rivamonti and Gunex brands into the Brunello Cucinelli brand two years ago. “As your brand grows, it becomes inflated and you risk losing your specialness” 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 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 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. Exceptional August–December 2013 35
  21. 21. Profile: Brunello Cucinelli A team discusses designs in Cucinelli’s open-plan sales office Viewpoint Investing in human capital Dina Pyron, Global Director of Human Capital, EY “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 “I don’t think of myself as an owner of a business, but as a custodian” 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. 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 rapidgrowth 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. More information For more advice about talent management and human capital, please email Dina Pyron at dina.pyron@ey.com
  22. 22. 30 seconds with ... Frank Stührenberg Executive Vice President Global Sales and Executive Board Member, Phoenix Contact 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. P Photography Sabine Bungert hoenix 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 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. Exceptional August–December 2013 37
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