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MASTERCLASS:In a recession firms should open up, explore new sources of potential revenue and look to employees for ideas and innovations
For those already in business the main aim is to stay there and while the tendency is to dig in, experts in business survival say this may not be the best course of action. Freek Vermeulen is associate professor of strategic and international management at the London Business School. He says businesses under threat are inclined to narrow their perspective and to focus on what they do best. The downside of this approach is it usually gets in the way of seeing other options and solutions.
Vermeulen urges companies to be brave. "What firms are better off doing is opening up, exploring new sources of potential revenue and experimenting with bottom-up processes to generate such ideas and innovations," he says. He encourages companies to involve all employees in generating ideas for possible new sources of revenue.
Vermeulen cites the example of a small UK software company that was heavily dependent on the retail automotive industry. With car sales in freefall the company was finding the going tough. Its chief executive asked employees to come up with ideas for generating new sources of revenue. One group noticed the spare-parts sector was still prospering and it proposed developing an inventory control product aimed at this segment. The idea got the green light and the new product has been a big success for the company.
"If someone comes up with a good idea you need a chief executive who will be supportive and put the resources behind it to develop it," Vermeulen says. "In this case the company used an existing product as the basis for developing the new one and they allocated a lot of time to it. As a result they had the new product to market in a matter of months."
Even traditional companies with well-established brands need to move and shake every now and again or they will get left behind. UK model-train maker Hornby was founded in 1925 and its key products were very traditional. But one of its biggest coups in recent years was to snap up the licence to make the Harry Potter Hogwarts Express. The model only ever accounted for 5 per cent of sales but it received huge publicity and helped revive the brand, which was losing out to computer games. Hornby has since entered the hi-tech end of the market itself with digitally controlled trains and Scalextric sets.
Monaghan-based bottled-water entrepreneur Padraig McEneaney decided a big brave step was required to position his company for growth, even with a recession looming. Small and medium-sized bottled-water producers usually buy in their plastic bottles but Celtic Pure spent over €800,000 buying a new bottle moulding machine and a further €400,000 on the warehousing to accommodate the new production line last year.
"People were very surprised because it wasn't something they'd expect from a company of our size," he says. "But we felt we had to make this leap in order to grow the business profitably. We have derived huge production efficiencies by having bottle blowing, filling and packing all on one line and our sales are up by over 27 per cent this year."
John Lynch is managing director of Merrion Pharmaceuticals. In November last year his company signed a deal worth €58 million (one of the largest ever in Irish pharma history) with international healthcare company Novo Nordisk, which is a world leader in diabetes treatment. Merrion has developed a technology that allows diabetes sufferers take insulin in tablet form instead of by injection.
"We live or die on the quality of our innovation but it's still something we work at," says Lynch. "In R&D there are many roadblocks along the way and you have to be creative to get around them. The problem we have solved with the insulin tablet has been around for 90 years. One of the ways we empower employees to be creative is by giving them the opportunity to take responsibility early."
There is State assistance available to companies to encourage smart thinking. The Workplace
Innovation Fund (WIF) provides funding to help small and medium-sized enterprises boost their productivity and performance through encouraging innovation and creativity. WIF is a joint initiative between Enterprise Ireland the National Centre for Partnership and Performance. It covers a broad spectrum of workplace activities, from human resource management to the development of new products and services. Companies are expected to part-fund initiatives but the required spend has recently been reduced from €25,000 to €12,500.
CASE STUDY: The Orchard Centre
JOE HAYDEN is used to thinking outside the box. In 1999 he developed a new revenue stream for his 300-acre working dairy farm in Co Wicklow by turning part of it into a purpose-built venue for corporate hospitality and employee development programmes.
The Orchard Centre is off the beaten track but this has only added to its appeal. A second major attraction is the farm's herd of 120 pedigree Holstein cows which produce high-quality milk for Baileys Irish Cream liqueur. The farm is a showpiece for Baileys which regularly brings (paid for) groups there to see the "spiritual" home of the product.
Hayden initially spent around €600,000 building the infrastructure for the centre which comprises a building for meetings/conferences and an all-weather activities area. The centre's key market is large Irish and international companies and it can cater for up to 600 people in one go if required.
Bookings have been hit hard. Turnover is down around 35 per cent on 2008 with the biggest drop accounted for by the fall-off in trade from Irish companies.
Joe Hayden has been quick to respond to the downturn. "We've done a few things to ensure we ride out the storm," he says. "We have the capacity to seat 350 people for food so we have begun marketing the centre as a wedding venue which will help fill in the days when we're not booked by companies. We have also spent time and money on site optimisation for our website and that is now working very well.
"We also redoubled our efforts to keep in touch with clients and to see how we could continue to work with them in the current climate. One of the messages that came out loud and clear was budget. People are very cost conscious so we're tailoring packages to suit."
Hayden says one of the reasons he can be flexible around budgets is because he has trimmed the centre's cost base over the past 12 months. "It might seem a strange time to be investing money but we have put close to €250,000 into upgrading our facilities and specifically into creating a 10,000sq ft dry area where we can have activities even if the rain is pouring down outside. In the past we used to set up outside and then we had the cost of moving everything if it started to rain."
One aspect of the centre's business doing well out of the recession is team-building events. "We're working with companies who have been to hell and back," says Hayden. "They have shed large numbers of staff and are now faced with trying to bond those remaining into a motivated new team for the future."
Bookings at Joe Hayden's corporate hospitality and employee development centre have been hit hard by the recession but that hasn't deterred him from branching out and investing €250,000 on upgrading facilities at his Co Wicklow dairy farmAsk a simple question . . .
ASKING EMPLOYEES to come up with ideas in an abstract way is unlikely to produce good results. The process needs to be managed within a timeframe and employees given guidelines to help focus their thoughts.
All ideas welcome
- Is there a new product or service we could offer?
- Could we change the way we do something to reduce costs or improve efficiency?
- How can we take advantage of our weakened competitors?
- How can we present ourselves as the more cost-effective alternative?
- What new marketing initiatives could we launch?
- Could we become an outsource solution to big companies looking to cut their costs?
- How could we save our customers money?
- How could we save ourselves money?
- Are we making the most of internet opportunities?
- Should we be harnessing the power of social networking such as Twitter?