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Young workers value progressive practices over pay

Survey of Millennials and Gen X reveals changing attitudes to workplace

Young people entering the workforce want to work for organisations that are socially-conscious and have progressive attitudes to work, including flexibility, a defined career path and strong training and development programmes. Workplace characteristics such as these, it appears, are more highly valued than pay. These are among the findings of a study of 2,700 global Millennials and Gen X employees undertaken recently by HBR Ascend, a division of Harvard Business Review.

The study reveals a generation that is more idealistic and expects organisations to engage with causes other than business. Some two thirds of respondents believed that their employer should take a stand on social issues, while a quarter felt that their organisation should take a stand on political questions. Only one in 10 believed that it was not appropriate for organisations to take a stand on either social or political issues.

Asked to define the key characteristics of their ideal employer, flexible work conditions and work-life balance (27%) and a clear career path with advancement opportunities (25%), emerged as two most valued requirements. These was followed by strong training and development programmes (20%), a clear vision of corporate goals and mission (20%) and passionate and engaging leaders (19%). 

Other characteristics mentioned included a sense of empowerment in teams across the organisation and honest communication and fairness. Significantly, all of these characteristics were rated above a competitive salary and bonus structure, suggesting that young employees are taking a more holistic view of who they want to work for. 

The respondents  placed a strong emphasis on continued learning to improve their employability, with learning technical skills (23%) at the top of their wish list, followed by strategic thinking (22%) negotiation techniques (22%), networking skills (21%), business communications (20%) and analytical thinking (18%). 

The respondents were generally highly active in self-improvement activities to make themselves more employable.  Asked about the tools they used to improve their knowledge, the most popular were online articles and blogs (39%) videos (37%), books, periodicals/journals and published research papers (32%) free online education programmes (26%) and talking to friends and colleagues (24%). 

There were noticeable regional differences in how people learn. While the vast majority of people around the world learn through articles, blogs and research publications, the majority in India (57%) and Southeast Asia (56%) prefer to learn by watching videos. 

Interestingly, respondents also placed more value on knowledge rather than educational credentials with around two-thirds saying that they would value a course even without certification. 

The threat of artificial intelligence was a major concern for many, with 61% believing that at least some of their tasks could be automated, while 6% felt that all of their work could be automated.

The survey also looked at barriers to high performance. Respondents cited office politics (27%), a lack of training and development (26%), unclear/changing job roles (22%), a restrictive work culture (20%), a lack of collaboration (18%) and excessive workloads (18%). Too many meetings and a difficult boss were also cited as problems for 11% and 17% respectively. 

In the United States, 40% of respondents identified office politics as their number one barrier to better performance at work. Just over one third said they were not clear about their job roles or that these changed frequently, and 30% said a lack of training and development opportunities was a barrier to performance. The data was similar for the UK on the European Union with 32% also saying that a restrictive workplace and excessive workloads were barriers to better performance. 

Worryingly, levels of engagement for respondents were low only 29% said they were engaged and excited to go to work every day, while 18% said they were engaged only when there is something really interesting to work on, with a further 8% saying they did not feel engaged at all. 

Turning to the issue of skills, nearly two-thirds of respondents expressed confidence in their technical and subject matter skills with one fifth stating that they were very confident. Some 90% were confident in their soft employability skills such as empathy, communication skills and the capacity to work with others. 

However, according to the survey authors, such a high level of confidence in relatively young workers about their hard and soft skills could indicate a blind spot for many respondents as other published research has highlighted skills gaps. The SHRM 2019 Global Skills Shortage report, for example, reveals that 75% of HR professionals who experience recruiting difficulties, say there is a shortage of hard skills for job openings and that 83% of respondents have had trouble recruiting suitable candidates in the last 12 months.

While there may indeed be a gap between the expectations of young people entering the workforce and how they view themselves versus the realities of their own shortcomings and what organisations can provide, the survey results do highlight changing attitudes and opinions that organisations need to factor into their thinking if they are to attract and retain young talent.

The New Perspective on Work – changing attitudes and opinions of young professionals about Work and the Workplace is based on reseach conducted among 2,700 global respondents in June 2019 by HBR Ascend, a digital-first learning platform for early career professionals and graduating students.

Unlearn before you relearn

For innovation efforts to succeed, first you must unlearn before you relearn says Barry O’Reilly.

Letting go is often the secret to successful innovation efforts, as Irish-born and US-based business advisor and author Barry O’Reilly knows well. He recounts the story of the senior executive of airline IAG who was wedded to the idea of a new booking system that he felt would transform the business. 

O’Reilly challenged him to test it with a group of customers who were totally underwhelmed. The executive was undeterred. “Customers who really understood airline pricing and ticket types would understand why it was such a good product. Get me the right customer,” he told me. “So we did, a number of times, with the same customer response. Eventually the penny dropped and he admitted that the problem was the idea not the customers,” he tells The Irish Times.

Letting go is often the secret to successful innovation efforts

The executive, he hastens to add, went on to become a champion of successful innovation efforts along with colleagues on one of O’Reilly’s eight-week bootcamps. The secret was a change in approach, recognising what he didn’t know and setting about relearning based on solid customer-based insights, a process O’ Reilly calls unlearning.

In the case of IAG, the results were tangible and impressive. A slew of new initiatives included the Hanger 51 Accelerator Programme, a collaboration with industry start-ups and disrupters to further challenge their thinking and behaviours. IAG adopted Blockchain to build the first digital identity service to share data safely with passengers taking connecting flights. 

The airline group also leveraged predictive analytics to analyse unstructured customer feedback and visualised key insights in minutes, a process that used to take months of manual data processing. A new transatlantic airline called Level was also launched in 2017 in response to increased competition in the low-costs long-haul market. Level sold 52,000 seats in its first 48 hours.

Barry O’Reilly, business advisor and author.

For O’Reilly the common denominator was a changed mindset. “Leaders throughout the organisation went back to the company with newly found confidence and capability to get uncomfortable and unlearn while helping others to unlearn, relearn and achieve breakthroughs.”

Unlearn is the title of O’ Reilly latest book, a playbook on how to throw out approaches and attitudes that may have worked in the past but are no longer sufficient in a time of rapid business transformation. It suggests a three-step process of unlearning, relearning based on customer insights and an adoption and scaling process. The book is aimed squarely at those in leadership positions who need to model different behaviours themselves before expecting their reports to change. Letting go is a major theme and CEOs especially need to unlearn decision-making, he maintains. 

“When you are a senior executive all of your feedback mechanisms suggest that everything that you are doing is working. You get promotions and pay rises. Your reports come to you looking for answers to difficult questions, so you tell them what to do. When you embrace unlearning, you start to see things as a hypothesis rather than an assumption and so instead of imposing your own answers you build systems to rapidly test those hypotheses cheaply and quickly.”

Even in military settings, a command and control style of management doesn’t work. “Napoleon was a very successful general because he didn’t offer very specific instructions but rather communicated the intent of the mission – the what and why and the expected outcome,” he notes.

Letting go does not mean a ‘free-for-all’ approach for your team. “You need to be very specific about what you want to achieve. A clear and concise outcome of an initiative might be to increase customer retention by 15% in eight weeks, for example. When you are clear about the aspirations and outcomes you desire, you will be able to properly explore the behaviours to attain them, determine the right steps to get there and then know through data and measurement whether or not you have achieved them.”

O’ Reilly comes back to the theme of learning from customers, as in the case of IAG above. 

“The reason the biggest, most successful companies in the world are all tech companies is that they have built platforms that allow them to discover exactly how their customers interact with them and to more deeply understand their customer behaviours. They are constantly going through cycles of unlearning what they believe to be true for what’s actually true, at a massive scale, and taking a data-informed approach to design their products and services,” he observes.

O’ Reilly is a major fan of Amazon, a company he notes that deploys software multiple times per minute and which is constantly iterating based on customer data. “Jeff Bezos worked in hedge funds before retail so he was used to dealing with complexity and diversifying risk. Amazon see technology as the strategic capability of their business and they use it to rapidly experiment. Their so-called ‘two pizza’ teams (10-12 employees) own business problems, with one team responsible for recommendations, another for search, another for booking engines and so on. They can directly see how their changes are affecting customer behaviour and optimise that at speed.” 

O’ Reilly’s background in a Californian tech start-up and later work on lean and agile strategies cemented his belief in the ‘small bets’ approach now very much in vogue in innovation thinking.

“It’s important to have a moon-shot vision but its more effective to have lot of small bets, where failure isn’t a disaster. Where people feel comfortable about failure they are more willing to take risks whereas, if something is too big to fail, it drives perverse behaviours. 

“A problem with large companies is that they take on one or two big projects at a time and force them to work because so much has been invested in them whereas, what you find with experimental companies, is that they make hundreds of bets and learn from the failures. Failure is to do nothing. To do anything results in some new or surprising insights. You are always going to learn something, discover something or invalidate something,” he says.

O’Reilly’s four breakthrough innovation strategies

Reflect: step back and reflect on what you are doing and the results your effort is yielding. Ask if you are achieving the outcomes you intended.

Feed forward: feed the results of your first small experiments into the next ones. The quality of each experiment increases as you compound the lessons learned.

Scale the breakthroughs: learn from the small experiments and commit to grow and push out innovation initiatives. 

Increase the unlearning: pairing greater experimentation with deliberate practice enables you to respond to a rapidly changing world.

Barry O’ Reilly will be speaking at the Leading Business Innovation 2019 event, hosted by IRDG, in Kilkenny on 22-23 October. Unlearn – Let go of past Success to Achieve Extraordinary Results, is published by McGraw Hill.

Innovation Capital

It’s not just the quality of your ideas that determines whether your innovation will succeed says author Nathan Furr.

Many of those involved in innovation fail to win the funding, talent, technical support or other resources required to progress their plans, despite having clever and potentially winning ideas. The missing link could be their failure to develop what is known as innovation capital, according to the authors of a new book of the same name. 

They suggest that far from being an elusive element, innovation capital can be acquired, developed and amplified to achieve success in innovation efforts.

Authors Jeff Dyer and Nathan Furr, strategy professors at Wharton and INSEAD universities, together with co-author Curtis Lefrandt, have spent many years studying how people compete for and obtain resources to launch innovations – in some cases even before they have established track records as innovators. 

Their conclusions suggest that winners in this area are those who are firstly forward- thinking and skilled at problem solving and persuasion. In addition, they know how to leverage social connections and build reputations for innovation which they then amplify to generate attention and credibility. This builds their stock of innovation capital which helps them win the resources needed for innovation to thrive.

Speaking to The Irish Times Nathan Furr explains that innovation capital is more than mere charisma. “It’s an entire set of skills tied to leadership, influence, social capital and relationship management. It’s a synthesis of who you are, who you know and what you are known for,” he says.

Moreover Furr explains that his team’s research suggest that the interplay between who you are as an individual (human capital), who you know with expertise (social capital) and what you have done to warrant a reputation for innovation (reputational capital) has a multiplier effect.

“These three elements work like gears and positively reinforce each other. Eventually you  get a flywheel effect. Resource holders simultaneously consider all three components when deciding whether to give someone their time or resources.”

The authors compare the two great inventors Thomas Edison and Nikola Tesla. Tesla was regarded as the more brilliant of the two but Edison had a far better ability to build and leverage innovation capital so achieved far more.

Edison carefully fashioned an image as a hardworking hands-on inventor and built social capital with other inventors, financiers and wealthy families such as J.P Morgan, the Vanderbilt’s and the Rockefellers. When Edison developed a commercially viable light bulb, he was able to convince Morgan to advance him $30,000 for the Edison Electric Light Company. Morgan’s home in New York was one of the first to be electrified, generating further attention for the project.

Apple co-founders Steve Jobs and Steve Wozniak similarly differed as the former, like Edison, had the skills to recruit talent, secure financial resources, develop desirable products and gain attention for themselves.

Nathan Furr, co-author of Innovation Capital.

An unshakeable confidence and the ability to persuade often go hand-in-hand, Furr notes. He cites the case of where Jobs used his powers of persuasion in 2007 to convince Corning CEO Wendell Weeks that he could develop and manufacture enough crack-resistant glass– branded Gorilla Glass – for one million iPhone within six months. At the time, the glass was only a prototype and Corning didn’t have a production facility to build it.

Jobs placed a large order anyway, telling Weeks, “Don’t be afraid, you can do this.” Corning not only figured out how to do but reportedly produced enough Gorilla Glass to cover the equivalent of more than 20,000 football fields for the iPhone over the following decade.

Another important quality is the capacity for forward thinking. The best innovators are those who try to imagine the future and then place smart bets on the technologies that could be transformative. They start by learning and developing expertise in the technologies and trends that will shape the future of their industries, Furr notes.

Three questions innovators should ask are: what will customers want next, what trends are shaping the world over the next few years and what will emerging technologies allow us to do that we couldn’t before, he says.

Lowe’s, a traditional US retailer, brought in a team of science-fiction writers to shake-up thinking amongst its conservative top team. The team was challenged to see how it might take advantage of augmented reality, robotics and other technologies to transform its retail offering. It provided what Furr calls ‘speculative organisational fiction’, with disbelief suspended long enough to do something meaningful.

Among the results was that Lowe’s deployed robots in-store to take inventory, created exosuits (external robotic skeletons) that help workers do their jobs and launched innovative 3-D printing services.

The capacity to leveraging network is another important determinant of success. Surprisingly, Furr says research shows that weak ties rather than strong ones often produce the best effects. This runs counter to the idea of the primacy of the so-called ‘Dunbar number’ which suggests that we can only maintain strong relationships with a maximum of 150 people. 

The reason, he says, is simple – it’s down to scale. Because of network effects, the volume of resources available through weak ties completely dominate the volume of resources available through strong ones. Many of the key steps Mark Zuckerberg took in the technical development and funding of Facebook, for example, were facilitated through second and third degree contacts rather than his primary network, he notes.

When it comes to building your reputation for innovation, the authors suggest the most valuable thing you can do is to be a founder. This does not have to involve quitting your day-job as up to half of all successful projects start as hybrid or side-line projects, they suggest. It can also be done in the form of corporate entrepreneurship by launching an innovative project in your firm, preferably a visible, challenging project.

Another technique is to build your reputation by ‘borrowing’ through associating yourself with high-prestige individuals, projects or academic institutions that lend you credibility.

Finally, they suggest building a reputation for scrappiness, the quality of doggedness that enables you to get a lot done with few resources. Although it is easy to tell yourself that you could get a lot done if only you had the money, the smartest entrepreneurs find innovative ways to accomplish a lot with the little that is available to them.

Amplifiers that strengthen support for an innovation project

Materialising – making abstract ideas tangible works because people tend to believe an idea more when they can see and touch it as opposed to it being an abstract concept.

Comparing -employing relevant analogies to link your idea to something familiar and successful. Works because it gives listeners a reason to believe in your idea in light of something they already understand.

Committing – signalling that you believe in your project so much you are willing to put yourself at a significant risk in supporting it, encourages others to support it too.

FOMO – generating a fear-of-missing-out that involves creating a sense of urgency, scarcity or exclusivity which switches potential supporters from a critical evaluative mindset to an acquisitive mindset eager to capture the opportunity.

Innovation Capital – how to compete and win like the world’s most innovative leaders, by Jeff Dyer, Nathan Furr and Curtis Lefrandt is published by Harvard Business Review Press.

Innovation for the fatigued

Innovation needs to move beyond a shallow lip-service approach says author Alf Rehn

When Finnish Professor Alf Rehn was asked to deliver a presentation on innovation to the executive team of a major US tech corporation, he decided to undertake an interesting experiment. An established authority on the subject, Rehn composed and delivered 20 minutes of nonsense, employing every empty slogan he could think of.

Professor Alf Rein.

“It started out gently with exhortations such as ‘we need to disrupt transformation and to transform disruption’. It made nonsensical claims about the power of business model innovation. I proudly declared the need to ‘find the white spaces in the blue oceans’ and told the audience that they needed to ‘be in the box that you think outside of’. If you could make sense of it, it would mean that you were not so much an innovator as a zen master not quite on this earthly plane,” he recalls.

The audience listened intently, diligently taking notes. 

Rehn asked someone to recap. An eager vice president volunteered only to get stumped when he couldn’t understand his notes. When Rehn fessed up about his insincerity, the same vice president came back meekly to observe, ‘but you sound just like the others’.

The phoney presentation highlighted how an industry has built up around shallow innovation. Rehn estimates that around 7,000 English-language books with the word ‘innovation’ in their title have been published in the last five years, not to mention the numerous LinkedIn posts, twitter feeds, blogs and white papers that are churned out by so-called innovation experts. As someone who reads extensively in this field, he says that the most telling feature of this material is how repetitive and boring it is.

“As innovation talk has become more and more superficial, we have started seeing a narrowing of innovation thinking where people look to repeat whatever buzzword is beloved at the moment – be it gamification, open innovation, freemium as a business model, or AI – rather than what impact it may have.”

The problem is that framing everything around innovation debases the term and as Rehn notes, it no longer rallies and focusses the imagination of those in the firm but fatigues and bores them instead.

Innovation for the Fatigued is Rehn’s own contribution to this over-sized publishing genre with his pitch being that organisations should practice what he terms ‘deep innovation’ instead. 

Acknowledging that some could accuse him of being guilty of his own form of sloganeering, he says that deep innovation is different and involves radically rethinking major problems and potential solutions. 

Having a higher purpose lies at the heart of this. Where shallow innovation is about extending existing lines, changing appearances and being profit and consumption-focussed, deep innovation is bold, ambitious and aims to make a real impact in solving major problems. 

Rehn draws the analogy of shallow innovation being creating an app to find the best time to go to the beach while deep innovation is about creating a way to clean plastics from the ocean.

Among the specific barriers to real innovation he sees is that too few people are involved in the innovation process, resulting in a clear failure to capture the organisation’s cognitive surplus, as he terms it.

“Too many people are excluded from the innovation process, so we need to be more inclusive and creative psychological safety so as many people as possible feel free to express their ideas. Just because people don’t wear cookie glasses and far-too-tight jeans doesn’t mean that they are not a fount of good ideas.” 

Similarly, innovation doesn’t always come from the most obvious sources. 

The solution to a major world health crisis might well be cooked up in a small firm in Ireland rather than in an Apple, Google or Tesla or from someone else sitting in a plush office in Palo Alto. We might be in danger of creating images that might be difficult for other smaller companies to look up to because it doesn’t fit our narrative of innovation.”

One of the more interesting chapters in Rehn’s book relates to the pacing of innovation, where he notes that management has a toolbox of times. 

In some cases, agile spurts may be appropriate, classically seen in industries such as software where a minimum viable product is developed, often by start-ups restricted by resources such as time, cash or knowledge. They test quickly, fail fast and while not always getting the right answers, they unearth clues that drive them towards the ultimate solution.

“The message is don’t get it right, get it done. The reason that works is that if you are expected to do something in seven days rather than seven weeks, your levels of ambition change. The power of compressed times is that they make organisations more action focussed while at the same time, lessening the cost of experimentation.,” he observes.

CEOs who seize on clear example of best practice can also take advantage of the power of moments, he says. Too often when an employee presents an example of a good innovation, they get a nod or a polite round of applause. Instead, the CEO should say ‘This is a clear example of exactly what we should be doing’. Being very specific in our feedback feeds a sense of purpose.”

Innovation is often a long slog and there is an absence of patient capital as the World Economic Forum has labelled it. Rehn cites the case of Chester Carlson the pioneer of dry photocopying received the patent that underpins this technology in 1942. It was 17 years, however, before this technology was commercially exploited in the Xerox 914, described for many years as ‘the most successful single product of all time’. 

Among the approaches suggested here are making small bets on big ideas and pooling knowledge and resources in tech clusters and technology transfer programmes. 

Sometimes the best way to encourage innovation in an organisation is to totally disregard it by taking a holiday from it, he adds. The reason a pause or a break works is because paradoxically, it creates both calm and tension. The team comes back to the challenges refreshed and stimulated in the same way that initiatives such as capping overtime and restricting the use of emails outside office hours have consistently been proved to increase efficiency rather than limiting it.

Rehn says that far from becoming fatigued, we need to get excited about the possibilities deep innovation brings. “In the age of big data and AI, imagination is the one true advantage we have,” he concludes.

Leading better innovation

Call out nonsense: Every organisation has empty innovation talk. Leaders need to show courage to call this out and should ask pointed questions about shallow innovation.

Respect uncertainty and doubt: Engage with doubters rather than punishing them. Respect that not everyone wants to play innovation games.

Challenge group-think: If everyone in the organisation is focussed on novelty, for example, leaders need to remind them to focus on impact. 

Display insecurity: by being transparent about not understanding a new technology or by expressing that they don’t know what ‘disruption’ really is, a leader can deepen an innovation culture by making it more honest.

Innovation for the Fatigued – how to build a culture of deep creativity, by Alf Rehn is published by Kogan Page.

Build an A Team

Whitney Johnson

The secret to having an engaged and productive workforce is to have a master plan for developing employees at all stages of the learning curve. That’s the key message from leading US author and consultant Whitney Johnson. On a recent speaking engagement in Dublin, she spoke to Decision Editor FRANK DILLON.

It is almost a given at management conferences these days that a slide will appear at some point in the proceeding showing the appalling state of employee engagement in the western world. A Gallup figure of 15% is often quoted representing the minority of employees who say they are truly engaged with their jobs. The impact on productivity is clearly devastating.

This is the backdrop to author Whitney Johnson’s latest book, called Build an A Team (Harvard Business Review Press). For Johnson, the secret to tackling this problem is to have a master plan for employees at the three key stages of their career journey. Her Eureka moment was the realisation that the ‘S’ curve model for disruptive innovation as it applies to product life cycles, also applies to careers.

Johnson is well used to disruption. Graduating with a music degree, she stumbled into financial services and has not looked back. “Wall Street in the late eighties was exciting but it didn’t have many opportunities for pianists so I started as secretary at a financial services firm and took business classes at night. After a few years my boss, Cesar Baez, helped bridge the gap for me to become an investment banker and it laid the groundwork for my entire career.” Moving into equity research and analysis, Johnson proved adept as a stock picker achieving a high ranking by the industry journal Institutional Investor.

Have a master plan for developing employees at all stages of the learning curve

By 2004, she was hankering for a new challenge and struck out on her own. She co-founded an early stage investment fund with legendary Harvard Business School professor Clay Christensen called the Disruptive innovation Fund, that continues to enjoy success today. Christensen’s 1997 book, The Innovator’s Dilemma, famously proposed the theory of disruptive innovation by which start-ups can dislodge incumbent market leaders through leveraging new technology.

S Curve

It’s S curve model suggests growth is really slow at first, until a product or service reaches a tipping point of around 10-15% market penetration, the so called ‘knee of the curve’. This can be followed by rapid market growth where the product or service lies in a sweet spot. Finally, when market penetration reaches 90% or more, saturation is reached and growth tapers off.

Johnson was curious to see if the same principles could be applied to career lifespans and her research suggest that there was indeed a link. The three stages in this case are termed inexperience, engagement and mastery.

“The S curve model helps us understand the development and shifts in individual careers. S curve math tells us that the early days of a role, at the low end of the S, can feel like a slog. Cause and effect are seemingly disconnected. Huge effort yields little but understanding this helps avoid discouragement,” Johnson explains.

The S curve model helps us understand the development and shifts in individual careers

“As we put in days, weeks and months of practice, we will speed up and move up the S curve, roaring into competence and the confidence that accompanies it. This is the exhilarating part of the S curve, where all our neurons are firing, the sweet spot.
“As we approach mastery, tasks become easier and easier. This is satisfying for a while but because we are no longer enjoying the feel-good effects of learning, we are likely to get bored. If we stay on top of the top of the curve for too long, our plateau becomes a precipice.”

Johnson says that to have a healthy organisation, you need a good mix of people at different ends of the curve and that if you don’t have enough people at the lower end of the curve, you are not going to get innovation. All three stages of the curve are normal and legitimate. The secret is recognising this and having a strategy to manage each stage.

This starts with hiring policy. Johnson says risk aversion is a problem in many hiring decisions, with managers playing safe for risk of failure. Hiring an ‘Ivy League’ star may seem like a great move and many organisations crave these so-called A-list hires, but in many ways these are not always the sure-bets that they might first seem, she says.

Whitney Johnson

“Firstly, if they know how to do the job, they are probably not going to be learning. Secondly, they are going to be really expensive to hire as they are considered premium talent, they have options to go elsewhere and thirdly, they are probably going to be bored very quickly so their shelf life is very short. The economic cost of hiring that person can actually be very high.”
As in the principle of nobody ever getting fired for buying from IBM, if that hire doesn’t work out the consequences for the one who has recruited them are limited. Hire someone with a so-called ‘second tier’ qualification, however, and the risk profile for the recruiter is greater.

“Managers will typically feel a greater sense of responsibility for the failure if that person doesn’t work out. We need to consider how do we make it safer as a manager to risk failure as we don’t deal with failure very well.”
She adds: “We need to hire people for potential not for proficiency. Yes you have to have people with the right credential to do the job but it is about more than that. Motivation is hugely important. Over time you will have a group of people who are much happier and the organisation will benefit.
The lower end of the curve is where the challenge is most obvious. Johnson has this advice:

“Discouragement is a real danger at the early stage and one that needs to guarded against. You need people to understand the ‘why’ of the organisation – why are we doing the work we are doing. You also you need to understand their own motivation. There’s a risk in doing that. What they are doing is showing you their hopes and dreams which is giving you a lot of power. You have to respect that. If you can see what they are trying to get out of the job, you can better manage them. You also need to be honest and tell them that they are at the lower end of the curve, how long they are going to be and what will happen when they move to the next part of the curve.”

Specifically, she advises giving new hires short-term tightly defined projects that provide feedback as in your first few weeks in the job, feedback is important.

The second or middle stage of the curve is where employees tend to have maximum engagement. They may be still making mistakes but learning and innovation are at their peak. It is vital for organisations to have lost of people at this stage of the curve. One of the dangers here is maintaining the growth mindset of this cohort so pushing and challenging this group is vital.

“The danger at the third or high end of the learning curve is that your people can get complacent and settled. Bored and complacent people don’t innovate. They are just dialling it in. They get disrupted. If you have too many people are at that stage of the curve you are in a dangerous position as an organisation,” Johnson cautions.

It is not always possible, or advisable, to hold on to people, Johnson acknowledges. “Sometimes people need to go elsewhere. You need to have conversation about what they want to do. One of the greatest gifts you can give is to help people jump to the new curve, ideally in your organisation but if not in a trading partner or a client. That’s how you build valuable networks.”

Skills Mix

Another interesting observation Johnson makes is that it is easy to assume that people know what their strengths are, when often they don’t. Usually, she notes, we have a tough time spotting our own superpowers because these are things we do instinctively well, so our strengths are often invisible and easily dismissed. “We sometimes hire people into the wrong roles because they include on their resume what they worked hard to do not what they do without thinking. You need to identify your reports’ strengths – their superpowers, their genius – and play to them.”

Diversity in skill sets is equally important and Johnson cautions against hiring too many people in your image. In the book, she cites an example of the entrepreneur Walter O’Brien, founder of Scorpion Computer Services. A child prodigy, who started programming computers at the age of nine, O’Brien initial hires were all like him, technology geniuses with high IQs. He soon discovered that when he puts two geniuses on the same project, they ‘tried to kill each other, all the while insulting the customer’.

Recognising that he needed to hire people who were strong in ways that he wasn’t, O’Brien started hiring single moms, elementary school teachers and psychologists – people with skills such as self-awareness, empathy and the ability to manage conflict. These high EQ (emotional intelligence) liaise between Scorpion’s high IQ technology specialists and its clients and are nicknamed ‘Super Nannies’.

Seven accelerants of growth

According to Johnson, managers need to know about seven accelerants of growth and learning

The right risks
Managers need to become talent developers

Distinctive strengths
Pinpoint employees’ talents and utilise them

Embrace constraints
Use time limits to motivate and hone focus

Battle against entitlements
Celebrate success and be generous in helping employees fulfil their potential

Step back to grow
Sacrifice short-term productivity to encourage curve jumping

Give failure its due
Let employees take on uncomfortable challenges and support them through failure

Be discovery driven
Shift players on your team as their skills and talents emerge

“Nearly every human being is looking for growth opportunities. If a person cannot grow with a company they will grow away from it. As with any rules, Johnson acknowledges that there are exceptions: “There are people who won’t grow no matter how you try to help them. Then there’s the issue of past high performers who are currently underperforming. If it is time to jump and they wont, you may need to give them a nudge.”

She likens the process to the leaven bread; a little bit is all that it takes for the whole mass of dough to rise but let it rise too long and it will collapse. The energy of the chemical reaction will have spent itself. The key is to capture the leavening at the right time, bake our loaves and reserve some ‘starter’ for the next batch.

The prize in getting performance management right is enormous and she feels that organisations need to incentivise their managers to

“If people are engaged operating margins go up and if they are disengaged margins go down. Let’s make sure that when we do performance reviews that people are developing talent and if they are it is linked to their bonus. If we really believe talent is important, then we need to put metrics around that.”

Creative disruption lies at the heart of Johnson’s message. “Managing people so that they can disrupt themselves honours the biology of change that is in our human nature. We each have a life cycle, made up of myriad smaller life cycles, beginnings and endings, growth and decline; we cannot stay the same.”

As Johnson concludes: “We can only rummage through the same rocks for so long and find diamonds. Eventually, its time to swing our picks into the solid wall of the unknown and begin the work of discovery anew.”

 

 

Smurfit revisited

Dr Michael Smurfit’s legacy is secure. As he prepares to celebrate his 80th birthday, Ireland’s most consistently successful business leader can reflect on a career that saw him transform a small family-owned box-maker into Ireland’s first global leader in its sector. His defining role as the first Chairman of Telecom Eireann arguably created the infrastructure for Ireland’s multinational-based economy. Twenty years after appearing on the cover of the first ever issue of this magazine, he sat down again recently at the K Club with Decision Editor FRANK DILLON. PHOTOGRAPHY BY MARK MCCALL

Twenty years is a long time in the life of any individual so it unsurprising that Dr Michael Smurfit is a different man to the figure we interviewed 20 years ago. At 60, Dr Smurfit was a man in a hurry, building a phenomenally successful global corporation that now has revenues of over $8 billion.

The prospect of speaking to an eager young journalist at first seemed an irritant to him that day when we met at the company’s HQ in Beech Hill.

The frostiness soon evaporated. I didn’t grill him on the latest short-term developments in the publically quoted multinational, somewhat to his surprise. Instead, we talked that day in some detail about family, about culture and the values and strategies he believed made his company successful. He relaxed and opened up. Afterwards, he thanked his guest graciously for what he said was a very reflective and interesting discussion and wished me every success with my new publication.

There is less urgency when I meet him again recently. Casually dressed in his golf gear in the splendour of his home Straffan House at The K Club, Michael Smurfit is still an active business man, with close on 100 investments, he tells me. Though he stepped down as Chairman in 2008, he is still a major shareholder in Smurfit Kappa, and proud of the elevation of his son Tony to the CEO role last year.

The demeanour, however, is that of a man who has nothing to prove.

Dr Smurfit is excited at the time by the hosting of the Irish Open at the K Club that week. It represents a return to top level golf at the Club he established and now owns outright. It is 25 years since the impressive estate opened, 10 since it hosted the Ryder Cup that put it on the map of world golf and almost 80 years to the birth of Michael W. J. Smurfit in St Helen’s, Lancashire. After our meeting, Prince Albert of Monaco is due to arrive for a private visit coinciding with the golf tournament. They are well acquainted from Dr Smurfit’s role as honorary consul to the principality.

Getting to 80 is an achievement in itself, he says, one that previous generations of Smurfits didn’t enjoy. Mortality is something he thinks about periodically. “When you see your friends passing on or you consider a terrorist attack like the one at Brussels airport, you realise, that could have been you. No Smurfit made it past the age of 70. I’m blessed to have had good health, especially in my latter years,” he notes.

When a company is doing very well, all the owners see is a better year. Only when they see a downturn or a tech change are they are open to suggestions. You can buy many businesses but you can only sell them once

His life story is well documented in a weighty autobiographical volume published two ago entitled, ‘A Life Worth Living’. It was a monumental effort that involved a small team working for five years. It charts the family’s modest beginnings and struggles for viability in the Lancashire of the 1930s, the move to Ireland and the setting up of a small box-making company in Rathmines through to mega mergers at the turn of the last century and beyond. “We had to take some of the best bits out on legal advice. There were some nice stories we couldn’t run with because they were probably slanderous,” he smiles.

There’s a lot to be proud of in terms of business achievements along with some regrets in a life lived at a frantic pace. “I made a few stupid investments and I backed the wrong people from time to time, but clearly I made the right decisions a lot more often than I made wrong ones,” he says.

One source of regret is pushing himself too hard down a ski slope almost 20 years ago. The resulting injury means that he can no longer play golf and only got to play the K Club course on a small number of occasions. It was characteristic of his approach to life. “I think most successful people are like that, very driven in everything that they do,” he says.

Exercise consists of two hours a day of walking, maintaining a constant 75 kilos, the same weight as he was in his 40s.

The Michael Smurfit of his 40s was a difficult man, he readily accepts. “Up to my mid 40s, I didn’t like myself and I don’t think many people liked me either. I was so self-centred – I wasn’t a bully but I was self-centred. I couldn’t wait to wake up. I went to bed at night with a pen and paper as I had so many ideas. I must have been very difficult to live with. Family holidays always had to be cut short so I could attend to some urgent business,” he recalls.

The realisation soon dawned that to grow Jefferson Smurfit Corporation would require the development of a team. A cadre of hand-picked senior management figures like Howard Kilroy and David Austin were to help transform the fortunes of the Jefferson Smurfit corporation. “I realised that I needed to bring in management – I needed to motivate them. It took me time to realise that I needed to focus on key people. You don’t automatically get respect, you earn respect, so I changed my focus around that, which made a big difference to what we were able to achieve.”

For most of his time at the helm, Michael Smurfit remained very singly focussed on the task of building what he happily refers as a ‘dull, boring type of business’ – making cardboard boxes. In this, he differed from Dr Tony O’Reilly, a contemporary to whom he was often grouped with as one of the two great titans of Irish business from the 1970s onwards.

O’Reilly’s business career has not ended well, having filed for bankruptcy last year. Unlike Smurfit, O’Reilly’s interests ranged from newspapers to food to luxury goods and oil exploration amongst others, as well as deep involvement in philanthropic interests such as the Ireland Fund.

Dr Smurfit has huge sympathy for him.

“I went public about the decision of AIB to go after him. I was horrified by that decision. He didn’t deserve to have his career ended in bankruptcy. I wrote to him at the time and got a very nice reply. There but for the grace of God … I used to meet him at dinners and I remember worrying that he was trying to do too much. He must have had boundless energy. I stayed focussed. I put all my eggs in one basket and watched the basket.”

It is a sad decision made by the older generation of the population from which the ramifications for the younger generations will be felt for many years to come

One of the acknowledged attributes of Michael Smurfit is his capacity to make good deals. When buying a business, for example, finding a vulnerability on the part of a seller is the key to being able to extract value, he says. “When a company is doing very well, all the owners see is a better year. Only when they see a downturn or a tech change are they are open to suggestions. You can buy many businesses but you can only sell them once.”

Understanding the intimate workings of a business is crucial, a task that proved relatively easy for Michael Smurfit given his immersion on the shop floor of the business as a young man.

“I worked every machine, including working in a paper mill. I knew what made a good corrugated box – nobody could fool me. In the industry people knew that I knew this and I could tell a lot about a business from a visit to a plant.”

Successful acquisitions and mergers to produce scale and market dominance are commonly viewed as the key driver of the Smurfit business but the man who built it says this was only part of the story.

“That culture we installed back then of being the best was the real driver – to have the best product, best service, lowest working capital, best on-time delivery and lowest stocks etc. These were the parameters of running a world class business. We made 29% return on sales for 25 years. It just so happened we became the biggest by being the best.”

Diversity was also as important as scale. “One of the reasons I diversified out of Ireland was sheer fear, specifically because of the Anglo Irish Free Trade Agreement. I knew that all of our customers would go out of business and that’s exactly what happened. The shoe box and shirt box business all went to Asia. We had to get out of Ireland.”

The decision to sell to Madison Dearborn was the first stage in stepping back from the empire he had built over five decades and was ‘opportunistic’, he agrees. “When they came to see me I thought it would be about something else, they had studied the company and thought it would do well in a leveraged buyout. I went to the family, the board and finally the shareholders. That’s not an easy thing to do when you run a company the way I did but that’s the decision that we made. Fifty-four years was enough for me.”

Telecom Tribulations

The one major diversion that Dr Smurfit made from running the Smurfit corporation was taking up the invitation of the then Government to chair Telecom Eireann, the newly spun-off semi state company in 1983. Feargal Quinn, the driver of another successful family-owned business, Superquinn, took the chair at An Post, the other part of the old Department of Post & Telegraphs.

Leading Telecom Eireann is one of his proudest achievements.

“What we inherited was such a shambles, an unbelievable mess. Words couldn’t describe how difficult it was to get a phone. It was worth £500 extra on the value your house if you had one,” he recalls.

One of the first people that he spoke to was Tony Mullins, then chief technical officer. At the time the organisation had geared up for purchasing the latest analogue system to upgrade the network. Mullins briefed him on a more advanced option, they travelled to Sweden to check out the latest systems there and needing no further convincing, the new Chairman cancelled the order and specified that the future needed to be digital.

“To have someone like that and not take their advice would be stupid,” he observes. “We were one of the first countries to install a digital network. Had we not gone down that road I don’t think we would have been able to attract a lot of the foreign direct investment that came into this country later.”

Dr Smurfit’s motivation for accepting the offer of the Chairmanship was around ‘giving something back’ to the country, he says. He asked for a salary of IR£7,000, considerably more than comparable positions offered at the time. The Government were somewhat taken aback by this demand but agreed.

The rationale for this wasn’t around personal reward. This would have been small money to him. Rather it was around establishing the status of the office of the Chairman. “I never took a penny in salary or expenses from Telecom Eireann. I didn’t have a car or a secretary. I donated all of the salary to Camphill (a charitable trust working with people with special needs) but didn’t reveal that at the time.”

Dr Smurfit relished the role and played hardball with his political masters. “I just ignored the politicians. I told them that If you don’t like what I am doing you can fire me but I will do the best job I can, as I see fit.”

Smurfit believed that Telecom Eireann, then highly regarded for its state of the art telecom service, had the potential to grow an international business and to create high quality sustainable jobs. Building a new HQ on the site of the old Johnson Mooney & O’ Brien bakery in Ballsbridge was part of this vision but a controversy involving the circumstances of the buying of the site led to him being effectively forced out of the role in 1991.

In a radio interview, then Taoiseach Charles Haughey suggested that Dr Smurfit should step aside from his role until a full investigation was completed. “It was one of the most stupid things a politician could have said because it is not possible to step aside for a long investigation when you are leading an organisation. He should have said nothing.” In evidence before The Moriarty Tribunal in 2001, Dr Smurfit revealed how Haughey had solicited a donation from him in 1989 of Stg60,000, despite denials from the former Taoiseach that he had done so.

“Any money I was asked for was for the party – one donation didn’t go there but I didn’t know about that at the time… there was no way I could have known about it,” he says now. Despite this and deep annoyance and hurt about how he was forced from office at Telecom Eireann, Dr Smurfit says time has healed any wounds in relation to the former Taoiseach. “I have moved on and I think history will be kind to Mr Haughey. He achieved a lot. He was a fascinating man with many flaws but the side to him that came out in the Moriarty Tribunal was not the one I saw.”

He believes that Enda Kenny and Michael Noonan have also performed a great service to the country in restoring the economy to good health and was surprised that they were not re-elected decisively earlier this year.

“I thought that they would be a shoe-in. I don’t live here so I don’t understand all of the nuances, my understanding is that the Irish didn’t get the feel good factor. Balance of payments is not something the average person would give a damn about or the IMF outlook. We were getting all the kudos at the international level but the person filling up their car with petrol or getting their groceries wouldn’t have got a sense of that.” He is concerned that the minority administration will not be a secure one. “That’s not stability. A minority government is a licence for troubles ahead,” he says.

That’s all the more important as Brexit will be a huge challenge to this country. “It is a sad decision made by the older generation of the population from which the ramifications for the younger generations will be felt for many years to come. As a result of this the markets will remain very volatile and sterling very weak for some time to come.”

Begrudgery

Having built much of the success of the Smurfit corporation in North America, Dr Smurfit is well positioned to compare and contrast business and personal cultures. “Willingness to change was one thing that struck me. If an US executive had to relocate to the East Coast from the West or vice versa, for example, that is not a problem. In Ireland, moving between Maynooth and Dublin is a problem.”

A begrudging attitude to success has traditionally been a problem in Ireland too although that is now changing. “You know the Irish character as well as I do. It’s a trait we have and not an admirable one. The Irish were downtrodden for centuries, we’ve had an anti-authority attitude and have traditionally been a little suspicious of success. Only a very small number of Catholics made it to the top so that’s understandable.”

“In the US they look up to success, but then it is made of a people like the Irish or those from other parts of Europe who were dispossessed and Went there with the idea that they could make a success of things.”

Modern Ireland is a different place, however, and we have much to be proud of. “We punch well above our weight. We are an extraordinary nation. Just look at sport, despite the fact that we have our own Gaelic games to support, we also excel in areas like rugby and golf. We’ve hosted the Ryder Cup here. Then look at entertainment area, U2, the Corrs, Riverdance.

Graduate School

Another key legacy of Dr Smurfit is the UCD Graduate Business School that bears his name. One of the areas we discussed in our interview in 1996 was the absence of women in the higher echelons of the Smurfit organisation, something he was keen to put right. He believes that the School has played a role in this in general.

“One of the reasons I helped start the Business School was to see if we could get more trained women in the system. There wasn’t a pool then. I believe that the pool is much greater now. I don’t agree with gender quotas. That’s the wrong approach. It must be based on ability and your achievements. The Business School is now qualifying more female students than male in the master’s category according to my last conversation with the Dean there.

“I get great pleasure from the School and I read all the papers they send me,” he continues. “I’m very proud of it. When I had considerable resources I wish I had put some of those resources in the Foundation however I am planning to do so in the future.”

The Crash

So did the crash affect him badly? “Yes, I lost a fair bit in the crash although there has been a recovery – property, bank shares, Smurfit shares went under one pound. A lot of my investments tanked.” The bursting of the property bubble was one he anticipated although the toxic effect was one he had not reckoned on, he says.

“What I didn’t know – and I consider myself fairly astute – was how property had infected every aspect of our economy, the car industry, the advertising industry, the professions, the taxes the government was taking in from homes etc. I anticipated the property crash but didn’t understand how deep it had got into every fabric of the country, how it destroyed earnings. I regret not studying the thing in greater detail and understanding where this was going to end. It wasn’t just 50% off property prices, it was 50% off a lot of things.”

Could the Government at the time have done more to prevent it? “I don’t think so. Not when you had foreign banks coming in and offering people 120% loans. Banks were throwing money at people. One bank rang me up at the time and said we don’t have you on our books and we’d like to lend you €50 million. I said ‘no’. OK, what about €100 million then? they replied.

Dr Smurfit says he doesn’t borrow personally and doesn’t allow The K Club to operate an overdraft facility. “Early in my career I did borrow when interest rates were 15 and 20%. It’s easy to borrow, but harder to pay back.” Money is not a personal driver for him, he says.

“I have never been money conscious. Money was never a goal or to be famous. My goal was the make the company I was born into with my dad’s name respected. That’s what I set out to achieve and what I hope I have achieved. I have got a lot of honours from countries through the years, Italy, Spain, Poland, France, the UK and one of the reasons I accepted those honours was on behalf of my dad. This is what he should have had.”

One incident from the 1950s is highly significant in this regard and still rankles with him. Having produced a breviary for the Catholic church, a massive project at the time, Jefferson Smurfit Senior, a convert to Catholicism, was set to be awarded a Papal honour by the Vatican.

The Archbishop of Dublin, John Charles McQuaid, intervened to block it, however, on the grounds that he was born a Protestant. “My understanding is a Catholic is a Catholic is a Catholic. You have the same opportunities to enter heaven. My dad was very hurt by it.” Does that affect his religious outlook?

“I have a reasonable degree of faith. I had good instruction in Catholic teaching when I went to school in Clongowes Wood and for a year was giving thoughts to going to Maynooth. I know there is something there. What exactly I don’t know as nobody has come back and told me,” he concludes.

As he contemplates his life at 80, that’s one mystery he seems happy to park for now at least. D

 

Powerful Profits

JUSTIN COMISKEY finds that often quite simple energy saving measures can make significant bottom line contributions.

“There is a really compelling business case for companies to make energy savings today,” says John Walsh, who heads up the ESB’s recently established Smart Energy Division which brings the semi-state’s considerable suite of energy expertise to bear on reducing consumption. “Companies really don’t appreciate the scale of the opportunity that’s open to them to reduce their energy costs. It’s a big untapped opportunity to get a competitive edge.”

The ESB’s Smart Energy Division is working with around 50 firms at the moment and expects to reduce their energy consumption by 25 per cent. Typically, investing in energy saving measures pays for itself in 18 months to three years – well within the return on investment horizon of most companies. And, even if a client can’t foot the cost of introducing energy-saving measures, Walsh says they can fund the initial capital cost and let the energy savings going forward take care of the expense.

Many energy companies point to energy saving measures, rather than renewables, as currently offering the biggest bang per buck invested. Charlestown shopping centre in Finglas, for example, is bagging annual energy savings of €60,000 after introducing a range of energy-saving measures recommended by energy consultant SmartPower. These measures, after grants and energy credits were deducted, cost the centre €35,000 to introduce.

“The interesting thing about the Charlestown project is that the client got their money back after seven months, was €25,000 up after a year and can now look forward to annual energy savings of €60,000,” says Fergus Wheatley, MD of SmartPower.

Companies really don’t appreciate the scale of the opportunity that’s open to them to reduce their energy costs

“Getting an energy efficiency audit done really is a no-brainer. It’s mind-boggling that it’s not more widely known how much money can be saved by property owners and those leasing buildings.”

So how does an energy audit work?

At Charlestown, Wheatley followed the “excellent” EXEED process championed by the Sustainable Energy Authority of Ireland. This sets out a framework for identifying energy savings by challenging the initial energy design spec so it can be determined why energy is being used in an area and whether reducing this energy would still do the same job.

Once these questions have been assessed, the on-site energy equipment (lights, fans, air-conditioning, heating, pumps, etc) is investigated. At Charlestown, it took Wheatley about two weeks on site to work out how all the centre’s various energy systems worked and interacted with each other. “Then I could determine if, for example, the heating and air-conditioning systems were in competition with one another and using too much energy as a result?”

Dan O’Connor, centre manager at Charlestown, says EXEED was “very useful” in identifying energy efficiency projects. “One notable example was with the basement car park lights where we identified areas that needed light and areas that could be reduced. The outcome was a two-third saving in capital cost while nearly doubling the energy savings from an earlier proposal that we had from another vendor. We also identified that due to poor controls we were wasting huge amounts of energy heating hot water for the toilets, which were upgraded as part of the project.”

Among the key energy saving changes made at Charlestown were: installing LED lights in mall areas, car parks, loading bays and residential spaces (LED bulbs are up to 90 per cent more efficient than traditional incandescent models); fitting a new how water cylinder which reduced use of the district heating pump; introducing variable speed drives on the district heating pumps meant the pumps no longer had to work at 100 per cent during the summer months; and upgrading boiler controls allowed for more efficient use.

It was also found that rain blown onto sensors on the centre’s automatic doors caused them to open with consequent loss of hot air during the winter. This issue was resolved by installing rain covers over the sensors.

Another problem was that, as Charlestown’s mall roof is made of glass, the centre experiences significant solar gain on sunny days which then places increased demands on the air-conditioning system. By installing a new controller with rain and light sensors to control the roof vents, a “chimney system” to naturally vent the building is now used to reduce energy consumption.

David Willis, energy service manager at Electric Ireland’s Business Markets division, says they have worked with a variety of third-parties to provide simple energy saving solutions such as “energy monitors, smart heating controls and an analysis of bills” to identify areas for savings.

“We have assisted GAA clubs, shops, hotels and other Irish workplaces to install more energy-efficient lighting, heating, air-conditioning and refrigeration plant, and reduced their bills by €300,000 per year,” he says. “A typical small business, spending less than €25,000 a year on energy, might expect to save 50 per cent of their lighting bills by installing LEDs, save 20 per cent on their space heating bills by installing boiler optimisation and some insulation, and a further 5 per cent of their total bill through monitoring and good staff practices. This leads to a saving of about €7,500 a year and will likely pay for the work carried out in under two years.”

But, once a company is lean in terms of energy-saving measures, the next energy efficiency step is renewables where a  number of  energy technologies are about to happen, scale-up and offer Irish business a significant opportunity to reduce their costs and gain a competitive edge.

Bord Gáis Energy points to electricity-generating solar photovoltaic panels as becoming “more and more cost effective”. Solar energy is essentially a digital technology and, just as the power of computers is increasing exponentially, so is the output of solar panels while their cost of manufacture is typically falling by 5-10 per cent per annum. In fact, in many parts of the world it is now far cheaper to generate electricity from solar than fossil fuel sources and, as a result, traditional power utilities and oil companies are facing a wave of disruption. Solar is improving its cost position relative to fossil fuels so quickly that one leading energy expert, Standford university lecturer Tony Seba, believes it’ll all be over for fossil fuels by 2030.

Evidence of a shift to solar comes from Kingspan ESB, a joint venture between the ESB and solar panel manufacturer Kingspan to offer “Funded Solar”. This allows businesses to install, without any upfront capital costs, a state-of-the-art solar photovoltaic system to generate electricity and make productive use of otherwise idle roof space.

And Irish companies are moving into this space. Kingspan Insulation in Castleblayney, Co Monaghan installed what’s currently the largest solar PV system in Ireland of 300kW in 2015 while Butlers Chocolates is currently putting in an even larger 420kW system at Clonshaugh in Dublin.

The cost of installing renewable energy sources has plummeted in the last few years and we are now seeking a scenario where a solar PV installation will pay for itself within six to seven years

Cormac Mannion, energy services manager at Energia, says there are “quite a few options” for Irish businesses looking to engage with renewable energy. “These include solar thermal and solar photovoltaic panels, biomass boilers and combined heat and power units, and wind energy. Also, an interesting option that is available to businesses is heat pumps. However, it is important to realise that not all of these options are ideal for businesses and site suitability is one of the primary factors that drive such an investment.

“But the cost of installing renewable energy sources has plummeted in the last few years and we are now seeking a scenario where a solar PV installation will pay for itself within six to seven years. While this may seem like a long time for many businesses, the key advantage is that it can act as a hedge against a scenario where energy prices rise. That in itself makes the proposition far more attractive. Also, many of these technologies may become far more cost effective with the introduction of the Renewable Heat Incentive which is expected to be introduced before the end of 2017.”

While the range of energy-saving solutions can be bewildering and the jargon confusing, the bottom line is that energy-saving now contributes handsomely, and quickly, to a company’s finances. Choosing an appropriate renewable energy source can compound the energy-saving effect and give companies a strategic advantage going forward. D

The power of CREATIVE DISRUPTION

Staying relevant in a time of  rapid transformation in the business landscape has proved a challenge for many industries. The creative one is no exception. CONOR BROPHY looks at how one Dublin agency has responded.

When VHI was planning a new paediatric clinic in Dublin it faced a problem familiar to any parent with young children: how do you take the fear out of a visit to a medical facility?

In the search for a solution the health insurer naturally sought advice from…its advertising agency. Actually this particular agency, Publicis, now uses the term “creative consultancy” to describe the service it provides to clients. Managing director of Publicis Dublin Padraig Burns feels this better explains how the company is transforming its offering in response to disruption being experienced both by its clients and the agency itself.

If we’re going to be saying we’re creative problem solvers, the first problem to solve is the disruption in our own industry

“If we’re going to be saying we’re creative problem solvers, the first problem to solve is the disruption in our own industry,” he says. That means finding a way to remain relevant, and profitable, in an era where consumer brands are moving spend away from traditional ad campaigns and the agencies which devise them. Digital ad spend will surpass traditional ad spend in the US this year, for the first time, according to eMarketer. Amid criticism around transparency of metrics used to gauge the effectiveness of some of that online spend brands are also laser focused on getting full value for their ad spend. Procter & Gamble, for example, is in the midst of a cost-cutting drive through which it plans to make $500 million a year in savings by reining in ad production costs and slashing agency fees.

Mark Ryan and Padraig Burns of Publicis

The impact of these trends in agency land is compounded says Burns, by the rise of tech titans such as Amazon, Google, Uber and Netflix, which have been less reliant on storytelling and more on consumer experience to build their brands.
Publicis’ newest non-executive director Mark Ryan, who joined the board earlier this year, is embracing these challenges. Ryan, former managing partner with Accenture, says he enjoys working with a business “in a very interesting industry that was being massively disrupted by technology” but which isn’t “caught in the headlights”.

Publicis’ response to the disruption has been to go back to core principles. “What there is here is a unique culture of creativity,” says Ryan. That ability, as he puts it, to approach a problem with a “blank piece of paper”. Approaching the issue in the same way it would a challenging client brief, the agency began to sketch out a solution on its metaphorical blank piece of paper. The emphasis was on finding the best way to utilise its intuitive grasp of what lies at the heart of all successful creative campaigns – understanding the consumer.

Armed with that insight the distance between creating clever ad content and divining clever ways to improve customer experience was not so much a leap as an obvious and natural next step.

“If you have a good experience you have affinity towards the brand and that’s positive brand equity. If there’s a really nice piece of communications (an advertising campaign) it’s also a positive experience that builds equity towards the brand,” says Burns.

As Mark Ryan explains, where Publicis might once have been called upon by clients simply to come up with the big idea behind an ad campaign, now it is applying creative brainpower in a different context for clients. “How do you take that idea and ensure that any interaction that a consumer has with that brand will be consistent and that creativity – whether it’s an app, a TV ad, whatever it is – it’s all consistent?”.

This requires clients to let Publicis loose on problems that would not traditionally have formed part of a brief sent to an “ad agency”. Happily from the Publicis perspective a number of longstanding clients have seen the value in doing so. VHI looked to the agency to help with customer experience design for its paediatric clinic. Irish Rail also sought its help for a complex, ongoing project to design a new lost property process for the state’s entire rail network.

Convergence
There was a certain amount of surprise at Publicis making these forays outside of what might have been considered its natural domain. “You’ve got people in board meetings saying: ‘That’s your creative agency doing that? I didn’t know they did that’. Because you’ve stepped outside the traditional barriers but, guess what, that’s the disruption and the convergence that’s happening. Everybody is stepping outside their traditional comfort zones and getting involved in, very simply, solving clients’ problems, not following traditional demarcation lines,” says Ryan.

Everybody is stepping outside their traditional comfort zones and getting involved in, very simply, solving clients’ problems, not following traditional demarcation lines

One clear sign of this convergence was the purchase by Accenture of the Irish creative agency Rothco. The former Accenture managing partner describes this as a sort of “external validation” of the Publicis approach. For the consulting firm to see the value in integrating the creative agency’s skillset into its business, for Ryan, underlines Publicis’ focus on the “convergence of brand experience and customer experience”.

That doesn’t mean, says Burns, that Publicis is on a journey to become a management consulting firm. Its selling point is as a “unique creative consultancy that has something the management consulting firms don’t have,” he says.

The transformation from “creative agency” to “creative consultancy” has still required that new skills be hired in, however. That means project managers, for starters.

“The single biggest skill people are out there looking for across any industry that I’m involved in is project managers. Project managers, project managers. This stuff is complex. It’s getting more and more complex all the time. If you’ve got that creativity and you can execute it right through the organisation it’s a deadly combination,” says Ryan.

Burns lists some of the skills now found in its Dublin offices. Apart from the highly prized project managers it also houses such varied professionals as videographers, journalists and music producers… “a blend of people that you just don’t find in other organisations”.

It’s blend that he believes contains all the right ingredients to help Publicis achieve the vision of a people-powered “creative consultancy” in a digitally-disrupted era. “Creativity in all of its manifestations is going to be increasingly important and I just don’t think you can write algorithms for it,” he says.

Plugging the BLACK HOLE

The National Children’s Hospital is just the latest in a long line of public capital projects to suffer from a massive cost overrun. BARRY MCCALL asks what can be done to prevent this happening in future.

The maxim about those who do not learn from history is often attributed to Napoleon or other great historical leaders but it was actually first stated by philosopher George Santayana. And it wasn’t necessarily intended as advice, it was more a lament for humanity’s inability to learn from even the most painful of experiences.

Who knows what the great philosopher would make of Ireland and its public procurement systems? Cost overruns for capital projects has long been a systemic failing. Most observers attribute it to the natural tension between the parties in a system set up to be adversarial.

That’s the kind version. The less charitable one puts it down to a lack of honesty. Not in a corrupt sense but in the way that people often prefer to obfuscate the truth, particularly when politics are involved.

You begin with a public capital programme. Notionally, the projects included are there because of sound, objective reasons – they have undergone rigorous cost benefit and needs analyses and prioritised accordingly. Well, that’s the theory anyway.

The facts of the matter are somewhat less clear cut. Political geography usually trumps benefits and needs when it comes to project prioritisation. A minister’s constituency here, a marginal seat there, a vociferous lobby group in another place. But these projects aren’t included at the expense of other more urgently required pieces of infrastructure – they are added to an already excessively long list.

And that brings us back to quarts and pint pots.

When Taoiseach Leo Varadkar stood up in the Dail earlier this year and complained of “low balling” among contract bidders he should really have considered the mote in the government’s own eye first.

Contractors have to make money, or they wouldn’t stay in business very long and this leads to the claims game. The ink will barely have dried on a contract by the time the contractor is back with a claim for increased costs saying that provision hadn’t been made for any number of things in the specifications on which the tender was based

How do you get €100 billion worth of projects to fit into an €80 billion budget? Simple. You underestimate the cost of all of them by 20 per cent. Or, closer to reality, you underestimate the cost of projects near the bottom of the list very significantly and try to put more realistic prices on the ones which will take place soonest.

Indeed it is not unknown for government departments and others to underestimate the cost of projects in order to get them included on a list.

In one sense, there is not a lot wrong with this. In a system where everyone is doing the same thing there is little point in accuracy as it lowers the prospects of the project making the list. But one thing which should never be underestimated is the cynicism of politicians – it is wise always to take commitments to projects with a start date more than five years away with a very large grain of salt.

Those with long memories will remember not only the number of times Tallaght Hospital was promised but had start dates announced as well. The hospital climbed the priority list with extraordinary rapidity when Dublin South West became a five-seat constituency.

A few more Dail seats along the proposed route of the long promised and much announced Cork to Limerick M20 motorway might do that project the world of good.

So, cost overruns are inherent in a system which, charitably, takes an overly optimistic view of costs in first place. But there are other factors at play as well.

Michele Connolly

According to KPMG partner Michele Connolly the quality of the original cost estimate, regardless of political considerations, often leaves something to be desired. “How good was the process that went into the budget or programme or works plan?” she asks. “Very often it’s been done on the back of an envelope. I’m exaggerating for effect, of course, but quite often the cost estimates are done very early before projects have been speced up and designed in any detail.”

SIMPLE SOLUTION
She offers a relatively simple solution to this issue. “Take a €100 million project, for example. That cost estimate is based on an early and very broad spec. It’s probably too low. There should be a risk premium on top to reflect the early stage. But that doesn’t happen. The price is given as €100 million and then the next few years are spent on recriminations and arguments over cost overruns.”

And then comes the tender process itself. The mantra here is that the lowest tender will not necessarily be awarded the contract. But that is almost invariably the case nevertheless.

Connolly again: “In a lot of cases the tender process is very price focused. They might say price is only 40 per cent and quality is 60 per cent but in the end quality doesn’t outweigh price. This forces people to bid bottom dollar prices. That leaves very little scope to absorb variations if something goes wrong when you put a spade in the ground. They have no choice but to get into the claims culture and look for more money. The State is pushing so much risk onto contractors that it leads to an adversarial claims culture.”

The claims culture she refers to is a kind of cat and mouse game which is probably as old as public procurement. On one side of the equation is the custodian of the public purse looking for the lowest price possible and on the other side is a bunch of contractors bidding against each other for much needed work.

 

The Office of Government Procurement has over two hundred staff working on the goods and services contracts

Tendering is an expensive and time-consuming business and only a fool would go into a process without giving themselves the best chance of winning. That means going in with a bid that is barely profitable or indeed marginally loss-making. This is well known in the industry – the Construction Industry Federation frequently issues warnings in relation to below cost tendering.

The only thing that stops bidders going in with massively loss making tenders is the fact that they would be ruled out as unrealistic.
Contractors have to make money, or they wouldn’t stay in business very long and this leads to the claims game. The ink will barely have dried on a contract by the time the contractor is back with a claim for increased costs saying that provision hadn’t been made for any number of things in the specifications on which the tender was based.

Historically, this was an accepted fact of life. Negotiations took place and a figure was arrived at which both sides deemed acceptable. Various efforts have been made to eradicate the claims culture, but all have failed, mainly because of the nature of the system which places excessive risk with contractors while failing to reward them for taking it.

And this brings us back to the less than honest basis of the system. Both sides enter into the process in the knowledge that the eventual cost will be significantly different to the one originally estimated as well as the one agreed at contract stage. Most charitably, this is unrealistic.

But it is important to be clear. No one is cheating, there is no suggestion of corrupt practices, the people involved are all honest and doing their best. It is the system which needs to be changed.

Public procurement processes and rules for construction contracts are much more complicated than they need to be

SECURE VALUE
The public servants running procurement competitions are keenly aware of the need to secure value for money, according to Dr Peter Brennan, managing director of tender manager service specialist Bid Services. “They are incredibly protective of the taxpayer’s dollar”, he says. “If they do a business case for a €100 million project, they will pull it if the cost goes to €115 million and can’t be justified.”

But that still leaves the question of what to do about the broken system.

Shane MacSweeney, head of government and infrastructure with EY, stresses that the benefits of public capital projects have to be taken into consideration before reform is contemplated. “It is important to reaffirm the huge economic benefits that flow from delivering infrastructural assets”, he says. “Whether it’s a hospital, school, rood or a runway, it’s about stitching together the economy. The National Development Plan sets that out to 2040.”

He worked in Australia for eight years before returning to Ireland two years ago. He has also worked on projects in South East Asia and the Middle East. “I’ve seen what worked and what didn’t. You have to see it in the context of the massive economic benefits delivered. You are always going to have challenges with major projects. This is not unique to Ireland. What is crucially important is not to throw the baby out with the bathwater.”

 

COLLABORATION
But how can we do it better? “We need to broaden our choice of procurement routes”, he says. “Globally, the system has evolved into a much more collaborative approach. It’s not adversarial which you get in Ireland. The adversarial relationship between public and private sectors results in the variation game being played.”
The collaborative relationship he refers to is known as alliancing. “The government and private sector get into bed together and co-develop the design, sensibly share risks, and sensibly share pain and gain. They both work together to design out risk. It’s used a lot in Canada and Australia for water and transport projects. In the UK it’s used for water and is coming into transport now. They are using it for their Smart Motorway programme, for example. In Ireland, we have a couple of small examples in Transport Infrastructure Ireland where has successfully used it. There are some examples in Irish Water for smaller projects as well. It is now being mooted for Metrolink. That will be a massive example.”

EARLY INVOLVEMENT
The system has the virtue of early contractor involvement. “It gets the contractor into it earlier and has proved exceptionally successful. I worked on a rail project in Australia which came on time and within budget.”

It’s not necessarily suitable for absolutely everything, of course. “It’s best used for big large complex projects where risk is difficult to define.”

“One of the other major challenges is market capacity”, MacSweeney adds. “The volume of construction workers is not there. We can either take a risk on contractors who are not fully road tested or we can attract foreign contractors. In terms of delivering the pipeline ahead we need to promote Ireland inc in Europe and globally from a construction perspective. Other sectors go on trade missions. We do it for agri and so on very successfully. We should do a roadshow across Europe and globally. We should point to the project tracker for the next 10 years – it’s €116 billion. Worth of projects and we can’t deliver it by ourselves. There is an opportunity for overseas contractors. We can show a pipeline of activity that the industry can identify as an investment opportunity.”

This is not an entirely new concept. “We did it successfully in the early 2000s successfully for eight public private partnership projects. We need to go out to the market to bring the most sophisticated players into country.”

Peter Brennan points out that there is nothing technically wrong with the way major works contracts are awarded at the moment. “A bid is scored on different aspects and the contractor with the highest score wins. That is nearly always the contractor with the lowest price. That’s fair enough, they are the rules. But they don’t necessarily deliver the best value for money.”

He also believes in a form of alliancing. He argues that every project over a certain size, €5 million perhaps, should be subject to a different approach with a rigorous risk assessment and business assessment carried out before it ever goes to tender. The process he suggests is a competitive procedure with negotiation.

“You shortlist two or three tenderers for a contract like a bundle of schools worth an estimated €100 million”, he explains. “You then enter into a dialogue with the tenderers and their design and technical teams and negotiate over a period of two, three, four or even five months. You find out what the contractors can do, you talk about the design, the site, and various other aspects of the project. At the end you get a best and final offer. You get an agreed appreciation and understanding of what’s involved and an alignment of the parties’ requirements. That way you get best value for money.”

“There is a very strong argument that the competitive procedure with negotiation will produce much better results”, he adds. “It might delay a project slightly at the early stages but will deliver much greater cost certainty and value for money in the long run.”
It will also rule out the prospect of appointing a contractor who can’t do what the client needs. “They will drop out during the negotiations if the job is too much or too risky for them.”

Increased resources are also required for the procurement of works contracts. “Works contracts are three or four times more complicated to procure than goods and services”, Brennan points out. “The Office of Government Procurement has over two hundred staff working on the goods and services contracts and they do an exceptionally good job. But there is only a handful on the works side. They are seriously under-resourced. What’s there is excellent, but they could do with another 30 or 40 staff.”

“Public procurement processes and rules for construction contracts are much more complicated than they need to be and, in some cases, might not even be compliant with EU rules”, he adds. “They need to be overhauled.”

There are better ways to procure projects, the question is if there is the political will to adopt them. The government has committed to ensuring that all major projects will have to have a business case made for them before proceeding. This is a start but won’t address the cost overruns on its own. The procurement system itself must change.

GOOD REPUTATION
Notwithstanding that, Ireland does have a good reputation when it comes to the delivery of the projects themselves. “It’s not that we are very bad in Ireland at doing these projects”, says Michele Connolly. “Globally we are seen as very good. Where we are poor is at balancing risk with pricing. Other jurisdictions set up infrastructure delivery authorities. This takes the politics out of it. They leave it up to the professionals to tell the government what to build for the good of the economy. Projects are prioritised on the basis of bang for buck and on the basis of need.”

We have shown that this can work in Ireland with Transport Infrastructure Ireland and, despite its unfortunate experience with charges, Irish Water. Maybe it’s time to hand the National Development Programme over to an independent body which will employ best practice procurement processes and take the politics out of it.

Blowing up a Storm

Wind energy continues to break records as its contribution to Ireland’s energy supply increases. CIAN MOLLOY reports.

During our school days, those of us of a certain age were told that Ireland was an island of few energy resources, but it turns out our teachers were wrong. Of course, we don’t have an abundance of fossil fuels but, better than that, we have an abundance of renewable energy that is ripe for exploitation. Situated on Europe’s Atlantic edge, we are perfectly placed to generate electricity using wind-power and increasingly we are doing just that and harnessing the potential of what God, or accidental circumstance, has given us.

The beginning of the year saw yet another milestone for the Irish wind energy sector with a new record being set for the total amount of electricity generated on this island by wind power – 2,815MW. During most of the time period in question, wind generation accounted for 60 per cent of electricity usage on the island. Indeed, renewable energy, primarily wind power, at present accounts for between 20 and 60 per cent of the electricity on the Eirgrid transmission network depending weather and other conditions. Indeed, with 3,169MW of installed wind capacity in Ireland, there is the capacity for 55 percent of Irish electricity to be produced from wind. Overall, some €200 million is saved in avoided fuel imports each year as a result.

There is the capacity for 55% of Irish electricity to be produced from wind

Anyone curious to see what proportion of electricity is currently being produced by renewable energy can check out ‘Fuel Mix’ on this webpage: http://www.eirgrid.ie/how-the-grid-works/system-information/

Of course, there are times when the wind doesn’t blow very strongly, but on average wind power formed about 21 per cent of the total electricity demand on the island of Ireland last year. This average figure for 2016 is provisional based on wind generation dispatched by Eirgrid on the high-voltage transmission network; a more precise figure that includes wind generated power dispatched by ESB Networks on the lower-voltage distribution network will be published by the Sustainable Energy Authority of Ireland (SEAI) in the near future.

But one thing is clear – wind energy is now our primary source of renewable energy, having overtaken hydro power in 2005. Last year (and every year for more than two decades), hydro has had the capacity to provide the transmission system with 212MW of power, but wind has just under six times that amount with a transmission system capacity of 1,271MW.

Looking at connections to the distribution system, which include Ireland’s first commercial wind farm Bellacorrick in Co Mayo which has been live since 1992, ESB Networks reckon that the total installed capacity as of December 1st last year was 1,493MW. However, though these distribution system connections comprised 174 wind farm developments only 132 were exporting electricity, 42 of them were ‘energised’ but still awaiting final permissions, and infrastructure investments, to begin exporting electricity in to the all-island electricity market. Once these 42, and others still in development, come on stream wind power’s share will increase still further.

Ireland is committed to an EU target of meeting 16% of its total energy demand from renewable energy by 2020

“Ireland is committed to an EU target of meeting 16% of its total energy demand from renewable energy by 2020 and the greatest share of this target will be met in the electricity sector, with 40% of electricity demand being met from renewable sources,” says Brendan Heneghan of the Irish Wind Energy Association. “Wind is the cheapest form of renewable energy for the Irish climate and wind will play a crucial role in meeting not just our 2020 target other targets such as the EU decarbonisation target for 2050.”

However, there is an anti-wind lobby that is growing in strength, with organisations such as the European Platform Against Windfarms working to support local opposition to wind farm developments. Indeed, in the SEAI’s report to the International Energy Agency last year, among the issues affecting growth of the wind sector were: increased community and political disquiet about wind farm developments and increasing numbers of judicial reviews of the planning appeal board’s decisions in favour of wind farm planning applications. The planning permission issue doesn’t just affect wind farms, says Heneghan. “It has got harder to get planning permission for any major new development whether it is a new Apple data centre in Athenry of a new town by-pass. The whole planning process needs reform.”

The reference to data centres is an interesting one – there is strong evidence that multinationals are choosing Ireland as a location for data centres not just because our temperate climate means that less energy is required to keep these centres running efficiently. Large multinationals are looking for low carbon energy supplies to power their facilities, so wind power can play a role in bringing FDI firms into the country.

As far as rolling out new windfarms goes, Heneghan says, a major positive development is that Eirgrid and ESB Networks are getting much better at integrating wind power, with its fluctuating supply, into the national grid. At present, Eirgrid is rolling out its DS3 programme, so named because it is designed to deliver a ‘secure, sustainable electricity system’, which essentially means that the national grid will be a smart network capable of handling increasing amounts of variable non-synchronous renewable generation.

In fact, the record breaking red letter earlier was a significant evet for the DS3 programme. At the time, EirGrid’s director of operations Robin McCormick said: “Dealing with wind generation of this scale on a small, island electricity grid hasn’t been done anywhere else in the world and so this is a huge achievement for EirGrid. We’ve been working hard towards making this happen, analysing data and using all of our expertise to harness ever increasing amounts of wind.  We will continue to optimise the electricity system, which is ultimately about reducing the cost of electricity for the consumer.”

Significent Climate Change

And there are more costs than the euros in your bank account involved. A senior ESB manager, told Decision magazine: “The world has just crossed the 400 parts per billion CO2 threshold. This means that we are on the way to significant climate change if we don’t take action. We simply have to decarbonise. There is no other choice. Wind energy, of which Ireland has plentiful supply, is making an essential contribution to that effort.” D

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