Hosted by The Business Magazine and Thames Valley 250 sponsors HSBC, Blandy & Blandy and Grant Thornton, this Roundtable did something of a SWOT analysis – Strengths, Weaknesses, Opportunities, Threats – on the Thames Valley, although one conclusion kept cropping up …
It may be a hackneyed business cliché that seems to have been around forever, but the reason it is still in use is that it’s true.
Nothing would happen within the business world without the interaction of people, and nothing successful tends to happen without experienced, skilled or talented people.
Hence, with most businesses now looking to boost their workforces with talent that will help drive their growth ambitions, the key Thames Valley focus at present is on ‘people’ – and how to attract, maintain, and retain winning teams.
Attracting, maintaining and retaining great people
With CH&Co employing more than 3,000 people Nicki Tinniswood acknowledged that “one of our company’s biggest challenges is attracting, and retaining the right people in the business. The right appointments will always enhance the prospects for a fruitful partnership.”
To meet some of the challenges in securing a pipeline of good candidates in hospitality, CH&Co has started a long-term plan to develop its own talent through apprenticeships. “And we are trying to make sure that they have a really great experience with us so that when they come out of their apprenticeship they choose to stay with the business, rather than seek alternative opportunities elsewhere.
“We do lose people to greater wages, but often there’ll be a little tap on the door and they’ll be wanting to come back. Positions can sound great, promises can be made in recruitment negotiations, but the real job . . .”
Banker Nick Hicks said recruitment and retaining a good team was certainly one of the hot topics of discussion among HSBC clients. In recent years employees have been grateful just to get a pay cheque rather than a notice of redundancy, but now engagement and rewards are on employees’ minds – and employers need to understand that those subjects are not the same thing.
“The employee age profile across the Thames Valley is probably lower than the national average and the things that make people buzz in their 40s-50s are very different to what makes 20s-30s buzz.
“Social interaction, working with like-minded people with similar value-sets can be hugely important in creating sustainable teams and retaining quality people.”
Some businesses have as many conversations about seating plans and car parking spaces as their salary bands, said Jon Stradling. Workplace environments, flexible working, social activities and so on were now becoming important differentiators for businesses aiming to grow and recruit while retaining their established teams.
John O’Hanlon said Ridgeway carried out an annual staff survey. It was important that pay and benefits were seen to be fair – for existing and new staff, for performance and loyalty. Among its incentives Ridgeway now provides extra days of holiday and recognition dinners for long-service employees.
A good working environment also included the tools of the job. Ridgeway has invested £750,000 in upgrading IT equipment to reduce communication frustrations for the workforce.
Good communication was the ‘magic dust’ of Ridgeway, he admitted. “As directors we used to know every member of staff, their partner, even their dog, but as you get bigger you just can’t maintain that. You have to recognise that there are other charismatic leaders in the organisation who can take on that role locally.”
Training was another essential building block. “We have massive budgets for training, and that’s essential in our industry to maintain not only our necessary competitive and regulatory standards, but also those of our brand-leading product partners, and of course our customer expectations.” The Ridgeway Academy, completed this spring, now delivers bespoke training to every member of staff, whether of a team programme or individual impact nature.
Improved HR information and data was also providing senior management with early warning of potential problems that might endanger staff retention.
Strengths: We’re so lucky to live and work here
David Murray had heard that the Thames Valley was 5-6% up on annual GDP performance, compared to the national figure of 3.2%, and he wondered if the Roundtable felt the region was now recovering rapidly.
Stradling said he had seen a steady uplift in business as confidence levels have grown in boardrooms. M&A activity was still relatively modest but “a lot more discussions are going on, and companies are putting firepower on their balance sheets, either to invest organically or to undertake transactions.” The future was likely to be progressively busy and HSBC had enhanced its Thames Valley banking team to support that expected growth.
“We are certainly not seeing any absence of capital – whether vanilla bank finance, equity capital, or use of bond markets, etc – to support the expansion plans of corporates generally, and there is now healthy competition between funders.
“At this point of the recovery, we are feeling as positive about life as we were in 2007 (pre-recession). Overall it’s a good story, but I am sure there will be challenges and bumps in the road going forward.
“We should also recognise that we are all fortunate to live and work in this part of the country, relatively insulated from the worst bumps.”
Grant Thornton’s Wendy Hart echoed the good fortune of Thames Valley-based businesses. “We never had it as tough as in the north or the Midlands, and we’ve come out of the downturn quicker with much faster growth and demand.”
Clive Lucking highlighted the long-standing strengths of the region:
- Location near London. Good communication/transportation links
- Industry and world-leading companies providing ample employment
- An experienced, skilled and expanding workforce.
“I also sense we have more young people coming out of our local universities now seeking employment in the region rather than further afield.”
Barometers show a fair outlook and rising
As an office design specialist, Lucking highlighted a ‘business barometer’ within his sector: “Buildings that have sat around empty for years now have ‘Let’ signs on them rather than ‘To Let’ signs.
“We are seeing profit margins in our industry starting to rise, which hopefully means more profit to invest, more recruitment and the cycle of growth starting again, which is good news. For a lot of companies, the past five years has simply been about holding on to what they’ve got.”
Tinniswood proudly announced CH&Co’s highest annual turnover at £112 million. The past two years have seen an upturn in the company’s catering workbook across most sectors. “From 2009 onwards people began to pull their hospitality budgets as everyone gripped the recessionary table, but now hospitality is coming back to pre-2007 levels.”
CH&Co now has a very healthy pipeline of new work, not least through corporate HR and facility management teams “putting staff feeding back on the agenda. Clients are increasingly thinking about their workforce, using good food provision to differentiate their company from others.”
Selling cars throughout the Thames Valley, O’Hanlon has an obvious ‘barometer’ on local consumer trends. Times had been hard in 2008-09 he admitted, but largely because Thames Valley consumers, lacking confidence in the economy, withheld their spending. “That didn’t last for long, we felt the bounce back quickly and it’s not stopped since then.
We’ve had double-digit growth year after year.”
Noticeably, people were favouring premium vehicles when they could afford them because, with low interest rates, attractive financial plans, and improved reliability and fuel efficiency, prestige cars were now viewed as very good value for money. “Our challenge in the downturn has actually been maximising every inquiry that is out there.”
“Premium is the new volume car,” said O’Hanlon, stating that shares of the car market of all the premium players had doubled (eg Audi 4% to 8%), while the traditional volume sellers (eg Ford, Vauxhall) had significantly fallen.
“We are still selling as many corporate cars as we have ever done. Our inquiry rates are up 27% this year, our footfall is up and our online enquiries are up three-fold.
“Looking at all our indicators, our business is not only strong but getting stronger. I’d love to say it is all down to the great work we are doing at Ridgeway but it is also the strong local economy and general confidence and the products from our manufacturers.”
Growth might mean new markets for some, he added, but: “We want to make sure that we are doing the best job in our existing markets, representing a great range of brands and products.”
Weaknesses: Battling against the squeeze . . .
Acknowledging O’Hanlon’s comments about consumer behaviour trends, Stradling highlighted a similar premium and value polarisation within the retail sector, with Tesco and Morrisons currently caught in the squeezed middle of a battle for consumers in the supermarket arena.
Murray queried why profit margins were still tightly squeezed, despite businesses increasing their sales and the economy growing.
Tinniswood remarked that CH&Co was growing successfully and had recorded double-digit turnover growth in the past two years, yet clients are still seeking stronger financial incentives.
The reason is a fresh austere post-recessionary mindset among new customers coming to CH&Co in the past five years.
“There is no question that the margins you have to tender with are much tighter.”
She admitted that some competitor tendering had left her astounded and saying: “Blimey, what are they doing that we are not doing to be able to come in at that price?”
Such undercut tendering was providing exceptional value contracts for customers, but barely making the work commercially viable for the providers.
“We have got hungry competitors out there, but at this rate, if margin squeezes and squeezes and squeezes, in 10 years they will have done us all out of business.”
Hicks said margin squeeze was often the result of people aiming for growth. “It’s very easy to put on business if you take on work for no margin, but it’s not sustainable business.”
Abundant liquidity had forced down the cost of financing. “Rates are at a tipping point, almost as cheap as they have ever been. Is it tougher now to get a loan agreed? Yes it probably is, and the toughest thing is the legislative requirements around account opening, which can take longer than any credit approval process.” Larger companies with longer and stronger credit quality than SMEs might gain funding more easily, he suggested, not least because they had more funding avenues to explore.
With lending margins down to record lows it was noticeable that many corporates were taking the opportunity to undertake ‘mend and extend’ loan refinancing to reduce their costs and lengthen their loan facility period, added Stradling.
“All our internal indicators would suggest that funding has more a demand-side problem than a supply-side problem, but we accept that banks still have a lot of work to do to regain people’s trust.”
O’Hanlon agreed that ample and inexpensive funding was available if companies could present a good proposal alongside robust and satisfactory support criteria. But, recessionary times had changed business culture. Today there were now no sacred cows or shoe-ins; everybody had to tender for funding or work.
“People are telling their suppliers and partners they want them on the train, but it will cost them something to join the journey.”
Hicks said the lesson of the recession had been “hunkered down businesses look at every pound and how they spend it.”
.. . and how to overcome it
O’Hanlon highlighted the disruptive effect on margins of online consumer purchasing. As customers trawled the Internet for bargains, pricing was forced down, along with seller margins.
“As an industry we weren’t ready for that, but now we are beginning to understand and develop more of our customers’ actual requirements.” Better holistic customer services had evolved. He exampled a new Ridgeway video service that shows actual vehicle faults or damage so that customers can fully understand and confirm the need for repair. “We are using technology to increase trust, and our margins are gently improving.”
Stradling echoed similar customer service improvements in banking: “We have changed in our approach. Our aim is now to add value. We don’t lead on price, and while credit quality is sacrosanct, we have always got room to get great businesses on board at the right price for customers.”
Peter Kavanagh said property consultancy margins had held fairly steady because customers accepted that the service provided expertise and quality advice, but sales margins were under pressure because of growing competition on fee rates. “When the market is good not every part of our business is good. Sometimes the bumps in the road don’t always come when you expect.”
Online property portals have changed the way people initially search for property to buy or rent, but there was still a requirement and demand for valued customer service. “We need to make sure our offering is very different to the Internet because if we do the same it will become a race to the bottom.”
Longer opening hours, local expertise, price negotiation skills and personal meetings were all typical value-for-money differentiators for property professionals, said Kavanagh, “but, today we also have to work a lot harder proving to people that we can and will get a better price for them and therefore it is well worth paying the agency fee.”
Lucking mentioned the time-saving and ease of Internet research sites and queried why more people didn’t buy or sell homes direct. Kavanagh pointed out that online sites provide generic information, not personal assistance such as explanations, negotiations, third-party involvements, and selling skills – all best provided by a professional adviser or agency team. Also many clients were time-poor or liked to avoid getting involved personally in the transaction preliminaries.
Weaknesses or opportunities on the recovery road?
When the recession hit, things changed dramatically “almost overnight”, said Romans’ Kavanagh. “From the early part of 2008 we went from what we anticipated might be our best ever year to our worst for some time.”
Ironically, the rapid change in the market proved helpful to Romans. It forced the company to respond quickly to the business challenge and make changes. “Some of the things that happened in 2008 were very good for us.”
Internal decisions led to organisational changes and a fresh strategy; the company enjoyed a period of good-value acquisitions culminating in a MBO last year. Now the price of acquisition has gone up, but “this year really will be the best we have ever had by all measures,” added Kavanagh.
“If you had a stable business then, like we did, that period was also good for recruitment too. We recruited more people of a higher calibre in that period than we had ever recruited before. Now, it is harder because everybody is trying to recruit.”
“When you look back at the recessionary period, it was not all doom and gloom. There were real periods of opportunity and now things are quite often more competitive than it was.”
Hart agreed that “through the floor” valuations during the recession gave acquisitional growth opportunities to those corporates strong enough to take them. “Corporate finance was pretty much non-existent in 2009, other than around distress.”
The recession had benefited the professional services sector too by creating an imperative for the review of traditional structures and practices, particularly with service elements becoming commoditised by consumers. “The fat in the system came out of it because clients could not afford to pay for it. Looking back it’s had a real benefit on a lot of business models.”
Lucking’s company recruited well during the downturn, and because of its stability avoided recruitment poaching. “Now, things are booming, companies that were quite frugal are throwing money at our superstars because they want some of what we’ve got. It’s quite bizarre that we are doing well in an expanding economy and we’re having to resist the people who created that recovery, going to other companies.”
Opportunities: how to fight chequebook recruitment
Stradling: “In all our business it comes down to people, people, people. Money is not everything in recruitment, but you do need to pay a market rate to get good people.”
Lucking agreed. Cash didn’t have to be the most important element of recruitment, especially if a company could build on its positives as perceived by its staff.
Fourfront Group had recently undertaken an anonymous employee engagement survey amongst 200 staff. It showed only 16% wanting more money to keep them with the company for another five years; 47% wanted career training and progression.
“We are now looking to create more synergy within our group. You can always get paid more money somewhere else, but what else is the company offering?”
Fourfront provides bonus incentives, a two-day employee seminar abroad, career progression, and staff-chosen charity workdays. “It’s a mix, a balance but what we are focusing massively on now is enjoyment.”
Successful work-life balance . . . on the slide?
Lawyer Sue Dowling considered work-life balance often meant more to younger employees than a high salary. “Recent legislation means that all employees can now request flexible working arrangements and the more successful organisations have really taken that on board. Sometimes there may be an additional cost to the company but if the concept is properly embraced, and approached in the right way, it can really pay off because businesses get better performances out of happy employees.”
Tinniswood: “Actually, the perceived inconvenience and cost of operating flexible working arrangements are more than made up for by the amount of time and money you save from not losing those valued employees, and not having to recruit and pay agency fees.”
Dowling confirmed that recruitment competition was tough in the legal field too. “All the firms which cut back in the recession are now beginning to ramp up, especially in the area of M&A activity and commercial property so today it’s all about trying to make your workplace more attractive.”
The battle for talent was translating into much more innovative and attractive offices, said Lucking. “If you think back 20 years, offices today are nothing like what they were then with the boss in his oversized office and communication stifled by poor design. Today offices are fantastic places to work; there is even one office in the City that has taken out a stairway and uses a slide.”
Romans relocated its head office in 2008 to attractive modern offices in Crowthorne and Kavanagh admitted that key to the relocation was improvement of the company’s corporate image and provision of better facilities for the staff. “Easy to drive to, and with on-site parking for all, the offices have a restaurant and coffee shop – such things do matter – and we are looking now at how we can further improve the environment for the people who work there because that is important today.”
Engagement with employees was vital said Kavanagh. Management teams should not be aloof. “Working together, being involved, is important because company loyalty comes from the people you work with. We have recruited people who have become star performers for us and their performance has never been about money.”
Also, people don’t always leave for extra money. Broken promises, lack of opportunity, or unfairness of workload can all be reasons – each relatively easily resolved, if addressed early.
Are happier workers, more productive?
Murray queried why UK productivity continued to lag behind some European workforces, if such efforts were being made to improve employee working environments
O’Hanlon revealed that a French executive had suggested to him that British workers might actually be more productive, but simply put in far more hours at work, which get combined with socialising. The French simply work at work, then go home and socialise.
Although Ridgeway did monitor its sales and technical productivity, he felt the difficulty was in measuring true national productivity, bearing in mind today’s vastly different and evolving business sectors, flexible working, home-working, and global 24/7 markets.
Dowling said productivity in the legal profession with its chargeable units of time was relatively easy to determine, but it didn’t necessarily provide an accurate KPI measurement. “It’s not about the hours spent on advising a client that matters, it’s the quality of the advice, and overall service, which is important.” The true assessment of productivity is about getting repeat business by providing excellent service that your client appreciates.
Regulatory pressures add costs to professional services
Hart: “Over past years there has been massive price competition in professional service markets as people fight for the work that’s there. We have had more or less static wages, with some inevitable salary inflation, which comes with additional graduates arriving each year for whom we have to compete.”
The growth of regulation in the accountancy sector, to demonstrate audit accountability and good governance, had also heightened the need for quality work while increasing procedural bureaucracy. “And all that’s got an expensive time-cost attached to it, which has had a real industry impact.”
“Historically, the biggest cost in banking has always been bad debts, but globally now that is just part of broader potential conduct-risk costs,” said Stradling, referencing the Basel banking requirements. “Satisfying the regulatory regime is where the cost is now in our business, and we have to grow the topline to pay that.”
Opportunities: looking forward and further afield
“We don’t hunt in Europe, but we get taken there by clients who have offices or projects abroad,” said Lucking. “We tend to design and manage the process but appoint a local contractor, whereas in the UK we will do everything. So, we are not an export business, but we have been working in France, Holland, Denmark and Italy.” In the
future, Fourfront might consider a referral partnership with like-minded overseas design companies, he suggested.
Dowling said Blandy & Blandy had recently joined an international network of law firms to add service value by helping to cater for the legal requirements of its multinational clients. Her firm is also finding an increasing demand for business immigration advice from her team, in particular from US organisations in relation to their interests in the UK.
Tinniswood commented that CH&Co was currently focused on growth in the UK but was exploring additional opportunities in existing and potential new market sectors.
Ridgeway was only UK-focused too said O’Hanlon. “There is an international motor retail model in companies like Sytner Penske, Pendragon and Inchcape, but that’s not us. We are a regional business, located within a 90-minute drive-time from Newbury.” Future growth – Ridgeway has more than doubled in three years – will come from UK M&A, moving the company internally “from good to great” and exploiting any headroom in existing markets.
Kavanagh saw acquisition as a big opportunity in his sector, particularly with many owners looking to sell, having ridden out the downturn and with their businesses now relatively healthy. Surprisingly, there seemed to be a lack of appetite for younger partners to buy-in for business successions, said Kavanagh. He revealed that the Romans Group was aiming and on target to double its turnover and profit in four years through acquisition and organic growth.
Lucking: “We have quadrupled in five years in a very depressed market, and will now be aiming to add additional services and potentially grow into the north with a satellite office.” The scale and scope of Fourfront might also now enable it to partner on a strategic level and gain framework agreements with major corporates. His company plans to be less a reactive contractor and more a proactive adviser, providing thought leadership, workplace analysis and innovative design options.
Framework agreements could be very helpful in establishing equitable relationships and the strategic requirements of the ultimate client, said Tinniswood. They also helped “open more doors more quickly” particularly for a proven but smaller company within the framework partnership.
Murray queried if CH&Co would be venturing into new products and catering styles.
Tinniswoood revealed that the recent acquisition of the Apostrophe Restaurant Group was opening up brand new opportunities to grow on the High Street as well as the introduction of the brand into new and existing contract catering environments such as the workplace and day-visitor attractions.
“It is more important to be quick to respond to the market. We are continually innovating within our menus and do food development to ensure we are offering something unique while we continue to serve the old favourites to a high standard.”
Threats: planes and votes and trains
Murray highlighted the uncertainty over the future expansion of Heathrow.
- The EU referendum. “We need to tread a very careful balance in terms of how we ultimately co-exist with Europe because if we mess that up from a regional economy perspective that will have an impact on inward investment flows.”
- Interest rate increases. Consumer spending had largely driven the recovery, not export-led growth, he noted. “I’m not worried, but am intrigued about how the public will react when interest rates start moving, probably around March or April next year. We don’t know the answer.”
O’Hanlon was equally concerned about the referendum risk, or indeed any other ‘bumps in the road’ that he could not control. “We saw the panic in Scotland. Businesses hate uncertainty and come the result, the relief in the markets was palpable.” The 2015 General Election was another uncertainty, he noted.
Hart spoke about “the window of opportunity during stability” when businesses often tried to make their moves, particularly to get M&A transactions through. “Has anybody said: ‘I’ll wait and see what the General Election holds?’ Well no, instead there has been stability over the past 12 months and a gathering momentum around transactions, particularly involving US buyers.” Confidence was not back to pre-recession levels, decision-making was more considered, and transactions were taking longer – the General Election and EU referendum would simply introduce further layers of uncertainty.
Lucking reiterated that Fourfront’s biggest threat was the poaching of its star performers, which would threaten the delivery of quality products and services to the company’s clients.
Dowling echoed this, mentioning the risk of young lawyers, well-trained locally by Blandy & Blandy, “catching the fast train up to work in London”.
Kavanagh highlighted the double-edged sword of Crossrail – being able to bring and take talent between London and the Thames Valley. He also noted the rising cost of living in the Thames Valley. “Two people with good jobs can still struggle to buy the most basic property. And, we’ve had candidates coming to us, getting the job, then turning it down because they can’t afford somewhere to live locally.”
Stradling: “The Crossrail concern is that people will choose to live in the Thames Valley but work in London.”
Kavanagh revealed it was already happening. “One of our housebuilder clients told us that over 50% of the property he sold in Maidenhead last year was bought by people moving out from west London because of Crossrail. The price differential between Maidenhead and Reading is already significant. Maidenhead is west London now, but the rest of the
Thames Valley still looks good value.”
Lucking said the housing market would find its own sensible level. “It’s self-determining. House prices depend on people paying them.”
And west London newcomers would boost consumer spending in the local economies where they lived, noted Murray.
O’Hanlon pointed out that rising interest rates would lead to pressure on employers and wage inflation.
Murray added that auto-enrolment pension costs would impact far more businesses soon as SMEs became involved. Dowling agreed it would bring a major challenge for many SMEs, who would have to factor in costs down the line.
“It’s another stealth tax,” Lucking commented.
Sue Dowling: Partner, Blandy & Blandy
Wendy Hart: Partner, Grant Thornton
Nick Hicks: Head of mid-market Thames Valley, HSBC
Peter Kavanagh: Managing director, Romans Professional Services
Clive Lucking: CEO, Fourfront Group, office design fit out and furnishing
John O’Hanlon: Chief executive, Ridgeway Motor Retail Group
Jon Stradling: Head of corporate banking Thames Valley, HSBC
Nicki Tinniswood: Head of finance, CH&Co
David Murray: Managing editor and publisher of The Business Magazine, chaired the discussion