The event was packed full of information on how to get ideas off the ground including a presentation by Bryan Forbes from the Technology Strategy Board (TSB) on Research and Development Grants and the new SBRI program that partners public sector organisations with businesses that can help them find a solution for a specific problem.

More on Research and Development (R&D) Grants
Research and Development (R&D) grants are available to assist micro, small and medium sized businesses and pre start-ups to deliver successful new products and achieve economic growth. The grants are UK wide and from 4th April 2011, the Technology Strategy Board (TSB) has taken over the R&D grant schemes previously managed by the Regional Development Agencies (RDAs), so the TSB supersedes the Regional Development Agency schemes. You can apply for funding for:

1. Proof of Market – such as market research and assessing the commercial viability of your idea;
2. Proof of Concept – initial feasibility studies and prototyping, testing or demonstrations and investigating productions options;
3. Development of Prototype – making pre production prototypes, getting Intellectual Property (IP) protected and for trials and testing including clinical trials plus identifying routes to market.

Applications are taken every two months so you can apply at any time and wait for the next round of applications to be considered. You will need some match funding with the grant funding being between 35% and 60% or in some circumstance 75% of the project costs, depending on the size of your company and which type of funding you are applying for.

Project timelines are also limited to 9 months, 18 months and 24 months respectively for funding types 1. to 3. as listed above.

More on SBRI Competitions
SBRI is a very different type of funding although still firmly focused on innovation. It is led by the needs of government departments – ie there is a public sector body (PSB), such as the Department of Health or the Ministry of Defence or the Ministry of the Environment that has a problem that needs solving. The problems could be anything e.g. the need for more efficient street lighting or a method of treating babies with asthma.

The aim is to facilitate government departments to engage with innovative companies, helping to accelerate technology commercialisation and provide a route to market, by matching the innovative company with a PSB from the outset.

The solutions sought are procured under EU procurement rules for Pre Commercial Procurement and development contracts are 100% R&D funded, against deliverables, with the IP staying with the company.

Solutions are sought through open competitions which are widely advertised by the TSB and on the SRBI website. Risks are mitigated through having a staged approach:

Phase 1 – proof of feasibility, 2 to 9 months, £20 – £100k
Phase 2 – Prototype development can be up to 2 years and £1M (depends on the challenge).

Look out for forthcoming competitions with Ministry of Defence, Health, Home Office, Cabinet Office and Foods Standards Agency requirements.

Just to get the picture straight FLASH Innovation forms part of the Institute for Sustainability’s FLASH program which is part funded by an ERDF grant and the above only covers the first presentation.

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The analogy

The immediate analogy that comes to mind is the quick-service restaurant business.  Why?  Because the operators of this type of business have basically the same value-creation strategy as Groupon.   They keep adding outlets to support their high-growth model.  The real issue starts to occur when they reach saturation.  Groupon does somewhat the same thing but in a totally different industry.  They are bringing deals to their subscriber base on behalf of clients where they have negotiated a deal-sharing arrangement, e.g., once-in-a-lifetime daily spa treatment for one-third the normal price.  As they add sales reps (think restaurant outlets), they add new subscribers (think restaurant patrons), and they sell more deals (think meals) and grow revenues.

We know that listed restaurant chains can do phenomenally well until they hit the wall that we call market saturation.  Starbucks is a good example of someone who hit saturation a couple of years ago, and the stock suffered.  The chain has since gone back to basics, retreated from poor outlets, and rejuvenated the offer in order to get back on track, but there is a lesson to be drawn here by the Groupons of the world.

Implications for Groupon et al.

Groupon is adding staff, subscribers and deals, but basically it’s the same story as for the expanding quick-service chain.  We as subscribers are starting to suffer deal fatigue.  I know because I get a couple of daily feeds from cities to which I frequently travel.  In my consulting world the key strategic challenge is helping key decisionmakers figure out the next step before it even occurs – looking forward to the eventuality and trying to make it work in your client’s favor.

In the quick-service restaurant world, operators respond by thinking about how to increase same-store sales (a year-on-year comparison of sales for outlets that have been open at least a year).  This is a key metric of the overall vitality of a quick-service restaurant chain.   Those who will invest long-term in Groupon need to identify what they same metric is and how Groupon or a similar company is responding to it.  The initial look is pretty sobering.  The New York Times did some nice analysis on Groupon metrics, as sourced from their S-1:

What can we do

The moral of the story is that for all the success of Groupon, they still need to be thinking one step further ahead in order to justify their proposed valuation.  Each of us works in different industries, probably less dynamic than this, but there is the same opportunity to help identify new sources of value creation by better understanding business analogies.  This is one of the things we do at Faculty Partnership.  If you are interested in discussing further, please do get in touch.

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Most of us have gleaned there are big changes ahead in the NHS, such as funding and commissioning functions being vested in GP consortia from 2013 and the need for large scale efficiency savings to be found to meet the needs of a growing population over next three to four years. But what does this mean for NHS suppliers and users of the service and what changes are already having an impact? I have picked out a few of the highlights to share with you from what promised to be a very dry day at the NHS National Procurement Conference 2011.

I admit I arrived late and left early but there was still enough flavour and some key insights that were more than worth sharing. There were some fairly controversial issues laid out but no opportunity for comments from the floor as questions were strictly by telephone text messages to the panel! As we were under a heavy few stories of concrete which my mobile phone service provider was unable to penetrate, I was left without a voice.

The catchphrase of the day was “there are more questions than answers!” And that was from government officials and others in the fast track.

NHS Restructure – A Diversion?

Bob Dredge, senior Fellow, School of Public Policy, Keele University alluded to the restructure of the NHS, such as GP commissioning and abolition of Primary Care Trusts and Strategic Health Authorities as a “diversion” not likely to be helpful in meeting the challenging £20bn of savings required in the NHS over the next few years.

More Than 50% of OJEU Contract Notices A Waste Of Our Time?

As someone who gets involved in tenders for public contracts the figure that most stuck in my mind and is a shocker is that in relation to OJEU contract notices (these are notices about tenders valued above £100k which must be published in the European Journal), of 255 notices that were published only 96 resulted in a contract being awarded. What a huge waste of time and money that represents especially when you consider that it costs thousands of pounds, sometimes tens of thousands of pounds for a company to put a tender together. The National Audit Office found that tenders costs from £5k to £150k, NHS Supply Chain puts the mean cost at £93.5k. At the end of the day these costs have to be absorbed into product costs. This fact was highlighted by Ray Hodkinson MBE, Director General of British Healthcare Trades Association (BHTA).

The Pressure Is Down When It Comes To Tariffs

There are big changes taking place right now in how for example acute care is funded. Post April 1st 2011, that is this Friday, tariffs paid to hospitals such as for a hip replacement or coronary bypass will reduce. The shift is towards more product based tariffs with performance bonuses e.g. if a TIA (transient ischaemic attack or “mini stroke”) is treated within four hours the hospital will be paid a bonus. On the other hand if a patient is readmitted within a month of treatment for various ailments a penalty will be levied, although the devil is in the detail and this is clearly going to be a complex area to administer. Bob Dredge also mentioned that there is no evidence that it is cheaper to keep people out of hospital, which of course is a key policy driver for the NHS.

Centralising Procurement – What Does It Mean?

Luke Jarvis, Strategic Commercial Adviser for the Government Department of Health, looked back at recent history from 2000 to the Coalition Government’s White Paper: Equity and Excellence Liberating the NHS and the role of Buying Solutions, the UK partner for all UK public services and now a part of the Efficiency and Reform Group within the Cabinet Office then went on to talk about the central government Efficiency and Reform Group – ERG. Sir Philip Green of retail chain New Look was roped in to do an Efficiency Review which in October 2010 highlighted the need for Centralising Category Procurement (CCP), he said “centralizing procurement – what does it mean? Whitehall is investigating.” CCP covers all the categories of commonly bought goods and services across central government such as telecoms, energy and professional services. They are looking at implementing LEAN procurement processes and have set up a new database that is supposed to list all contracts above £20k spend.

Big Business Is In Control of Supply Chains – Are There Fair Competition Issues?

There were two really interesting stories about how the private sector is being used to oil the wheels of procurement and manage supply chains.

One was told by Ray Hodgkinson, BHTA. He gave an insight into the workings of the Master Services Agreement (MSA) between NHS Supply Chain (NHSSC) and the British Government. The MSA is held by DHL whose role is to provide a dedicated supply chain to the National Health Service (NHS) in England. The contract is subject to Key Performance Indicators and includes an anti-embarrassment clause which essentially caps allowable profits – profits in 09/10 were c£26m.

One controversial issue that has been highlighted by the BHTA who reviewed the MSA, is the ethical question around whether it is appropriate for a body that is responsible for negotiating a contract to have their own brand in competition with brands from other manufacturers/suppliers. Ray’s view is that what we have is a tendering process that seemingly allows the ‘principle’ (NHSSC) to both tender with their own brand alongside suppliers with their own brand, a game keeper / poacher situation. Whatever your view might be, it is believed that DHL is successfully increasing their own market share and it is hard not to put two and two together and see this as a direct result of their unique position in the marketplace. The Office of Fair Trading is examining the sector as there are concerns that there are not enough players and not enough choice for consumers so there may be a competition issue brewing.

An interesting story of how a UK Healthcare Purchasing Consortium (HPC) can become a branch of a USA company was told by Fiona Chew, Deputy Director, Strategic Sourcing, Healthcare Purchasing Consortium. Healthcare Purchasing Consortium was formed in 2001 as the NHS collaborative procurement hub for the West Midlands, Luton and London with a membership of 36 Trusts. It has a contract portfolio of 900+ contracts with value of around £350m. In 2009 the government published Necessity – not nicety: A new commercial operating model for the NHS and Department of Health which proposed the introduction of Commercial Support Units (CPUs). As a response to this the West Midlands Strategic Health Authority established a working group on the needs of the region and the way forward. The outcome was that HealthTrust Europe was formed by the purchase of HPC by HCA International (20%) and HealthTrust Purchasing Group LP (80%) a USA company based in Delaware, also with a presence in Shanghai.

The ambitions for HealthTrust Europe are big, including to extend their customer base across all sectors and right across the UK. Their target is coverage of 80% of all NHS Trusts’ influence-able spend in 3 years time, with Trusts being 8o% compliant and prices offered in the top quartile. There will be penalties for non compliance such as loss of your right to buy at the lower contract prices. They want to move towards an ‘Amazon’ style dynamic online catalogue with their own warehouse. They envisage moving to transaction based fees. NHS buyers will know that fees have been subscription based with a payback via savings delivered by HPC in a 4:1 ratio. Meanwhile as HealthTrust Europe is an established NHS supplier you can buy from them without the need to tender, but you cannot buy from US contracts as they are not OJEU contracts.

Introduction of Barcodes

Another interesting point from the conferences made by Andrew Rudd, Former Chief Operating Officer, NHS Purchasing and Supply Agency, was that the NHS is the biggest industry that does not have a single product barcode – a standard GS1 barcode. Generally medical products and suppliers have no barcode with the result that one simple medicine may have many different names/labels. Not a good thing when you consider the risks of mislabeling and therefore mixing up of critical medicines and also not helpful in being able to understand and track the quantities of supplies being purchase and used. In fact for this one reason alone there is very little useful data available to help with price comparison and managing logistics. The vision is to move to a dynamic procurement catalogue (Amazon model) with proactive management of codes and classifications. Andrew posed the question – is there a case for a single NHS catalogue of product information?

So what appeared to be a rather dry conference with virtually no interaction from the floor was actually a day with quite a few pointers and points of interest for those of us who need to grapple with the unfolding NHS and health sector agenda. It held a few pearls of wisdom about how the NHS is being reshaped with GPs to be in the driving seat but massive savings require. It gave some critical insights into how large international private sector companies are involved in UK supply chains. Most of all it set the scene of a change agenda where the outcomes are largely unknown – more questions than answers.

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My sense was that Mr Templeman is coming at the issue from an ideologically free market stance without accounting for the paradoxical nature in the IOD’s own policymaking. For example, there is a later article in the same newsletter bemoaning the difficulty of getting high calibre women into boardroom positions. The paradox here is that apart for gender inequality in the boardroom, there is often a forced choice between having a family or a career due the inflexibility of our current working practices. Our nations current ways of working hark back to the industrial revolution rather than an age of technological achievement and flexibility. Surely, if couples can choose which parent goes back to work and which takes leave there is an opportunity for women, who have there eye on high office, to continue their climb?

I’m unsure as to whether the IOD spends a great deal of time looking for best practice, but if the argument against paternity leave is around reduced shareholder dividends, company profits and thus productivity, Mr Templeman should look to the most productive countries for a model. Alas, for the IOD’s capitalist credentials those countries with the highest levels of social welfare and shortest working hours have the most productive workers. France and Switzerland are two European examples of highly productive workers enjoying the fruits of their labour by spending time with family. The USA (8th) and Great Britain (10th +) lag far behind the productivity ratings both of which follow a similar free market doctrine with long working hours and in the case of America limited social welfare support.
The reason behind such strong productivity ratings in countries such as France I can only reflect on. As a Dad myself, I took time to understand the dynamics of becoming a parent and working in the UK.

Firstly, post birth support for new mothers is very patchy. This is partly due to the dispersed nature of modern families. Grandparents now do not necessarily live in the same city or even region, so ‘popping next door’ in an emergency to get help is not an option. There are support groups such as the National Childbirth Trust (NCT) and various local authorities groups who attempt to fill the void left by absent families. These support networks are all aimed primarily at first time parents. Much less is available if it is your second child. The other options for support are employing a nanny or a childminder, unfortunately, this has an impact on the family both personally and financially.

We joined the NCT for our first child and noticed the Dads went back to work almost immediately. Bonding between baby and Father was quite difficult as most of the ‘breadwinner’ roles demanded long hours, especially in the South East where a long commute adds 2 hours plus onto a working day. Stress levels for both parents were high as sharing the childcare role was difficult when the child is more attached to one parent than the other.

We chose a different route. I took 6 weeks off work and have been working flexibly to balance my work with our childcare needs ever since. Whilst this arrangement obviously has financial implications, the rewards outweigh the financial sacrifice. We share the childcare equally, an activity that has brought unplanned rewards. Our son is happy, content and secure to be without his mother for a week at a time whilst she updates her skills and I work from home.

Modernising our current governmental policy around the relationship between work and families may well have the kind of beneficial effects that I have experienced. The short-term benefits have certainly not been financial, as I have paid for my own leave directly. The medium term will be different, as both of us will continue our businesses. For our children, (the next is due in 6 weeks) they will benefit from a happy and secure home environment.

My own view is that such a newsletter article worded in such a way has unpleasant overtones. I was left feeling that the way the senior managerial strata, represented by the IOD, think about their own position and the position of those they manage has not changed over the last 100 years. Would it not be deeply disappointing if all of the co-created change energy expelled over the last 20 + years was wasted, because senior management were just playing lip service to it?

Therefore, as a member of the IOD myself, I am in favour of Nick Clegg’s plans to make paternity leave available to all families. I would like to suggest that because of the benefits in the long term to our commercial productivity and thus prosperity, that the IOD should take the lead by commissioning research and developing best practice around how flexible leave for families can work for commercial business.

Andrew Woodward – Executive Director at Faculty Partnership CIC Ltd
February 2011

Tim has been chief executive of several companies in the software, telecommunications and systems space. His many accomplishments include leading two companies in stock market flotations that each raised more than £10 million.

Tim’s work experience spans Europe, the UK, USA and in Australia. He rose to become Chief Executive of Logica Communications Ltd. responsible for all UK business in the telecoms, media, computer vendor, transport and central government sectors. As CEO, he helped float Oxford Molecular Group plc, computer aided molecular design software and drug design company raising £10M, and floated Intelligent Environments Group plc, a leading supplier of Internet enabled business solutions, as the London stock market’s first internet company, raising £16m.

Tim has held numerous Non Executive positions for small and large companies. He is currently a venture advisor to NESTA (National Endowment for Science, Technology and the Arts) in the UK and Chairman of NESTA’s portfolio company Six to Start. He has recently retired as NED of The Chesham Building Society, where he advised on IT strategy and internet banking activities.

Tim has a Chemistry DPhil from Oxford University and an MTech from Brunel University.

Faculty Partnership CIC management and strategy business consultants work with all types of organisations, intelligently using collaborative and people focused techniques. We find cost effective solutions whatever the circumstances and understand the importance of securing you a positive return on your investment.

For further information, please contact us at enquiries@facultypartnership.com or contact Andrew Woodward at +44 7743 871 229.

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I began working with the organisation on an efficiency project, asking questions that pin pointed saving in the delivery of services. It soon became clear that this direction was not going to produce any tangible results. I requested that the group be cut free from any requirement for tangible measurable aims but rather be allowed to discuss what they felt critical at the time. My sponsors agreed and the work continued.

Staff started to form themselves into action research groups based around their own professions (Social Worker, Care Support Worker, Administrator, Occupational Therapist, etc) and developed questions around service improvement. What was interesting was the realisation that in order to change one’s work environment, the first port of call for change is at the level of self and the lived experience. This was not simply a philosophical question without any sense of practicality, but a deep questioning around what gives vitality to, for example, a Social Worker or Occupational Therapist on a bleak Tuesday morning in February, when life seems dull and at its worst. What fundamentally made them enthusiastic on such a day?

The breakthrough in finding this lost inner light came when groups began to reminisce about why they joined their various professions or roles and what they should be doing in these positions. The outcome from these ‘action reminiscence groups’ was an ideal care pathway that had its feet firmly placed in practicality.
There is an approach that is firmly located in story telling to share meaning called Appreciative Inquiry (AI). AI is powerful because of the focus on the power of stories being the foundation of cultures in organisations. If these stories are studied closely, they form belief systems and are quickly shared becoming folklore. Positive stories provide positive foundations and negative one’s, the reverse. This approach also takes people in the organisation much farther than simply fixing what is broken. It produces whole new ways of working based on the best experiences of the past and this was my experience with this local authority; a quantum movement to a new set of values and beliefs. At its inception, this was immensely fragile and at risk of being destroyed at any moment, either from within the group or from as yet unknown external forces; perhaps a stray word from a senior manager and negative comment from inside the group.

Diagram to show generative change vs fixing processes

In an AI approach, the question is fateful. It is the questions that are asked that set the course of the conversations. This meant that I had to move right away from what was broken in the current situation whilst remaining with the good things that were happening now. What an incredible balancing act that proved to be. I think that the group and I fell off a few times but managed to climb back on to our high wire act before we dived into a spiral of “Aint life bad” monologs.
What kind of things did we discuss?

Initially the discussions were focused around how disempowered the group was, and how badly things were run. When ever the subject of making individual changes was broached, the response that returned was a rather smug smile and an “ahh we can’t possibly do that, it’s not our job. That’s why we have management”. There was a point when I, as the discussion leader, felt exasperated by these fatalistic responses and allowed a personal emotional response to the group. There are a number of different schools of thought around allowing this to happen and I’d pondered over this for a number of weeks. Eventually, I decided that if I was to make a positive contribution to the group dialogue, I would need to express myself. Self expression in this way had a strange effect on a number of levels. Firstly, I felt that it actually drew me into the group much more than could have been possible as merely a facilitator sitting and observing from the outside. Being angry was my entry pass into the group’s central core of understanding. We were now ‘all’ angry. We ‘all’ understood each other. Secondly, it stopped the discussion revolving around the same subjects and opinions. I was asked a question which in summary translates as “OK, now you’re as angry as us, what can we do?”

An Appreciative Inquiry approach starts with a positive topic, but this topic isn’t always obvious to the group, and for the group leadership to simply think one up would be disingenuous to the spirit of enquiry. If I had given out a question, this would have positioned me as someone who was in a position of knowledge and thus, the group would be in a position without knowledge by default. For the enquiry to progress, the group would need to find a positive question as a collective.
The group started with “what do we like about our jobs?” This is a seemingly simple question that threw up complex thoughts and discussions around the personal satisfaction gained from seeing a citizen freed from the dependency of state run services. It provoked a rush of happiness and sadness mixed together. ‘A happy sadness’. Stories started to be told around the group of experiences without a spirit of positive stories or negative ones. Every stories was positive because it was part of the job cut loose from the shackles of what ever system had lead them to feel disempowered in the first place.

Appreciative Phases:
“The discovery phase invites participants to reflect on the best of the past with respect to a chosen strategic topic” (Barrett & Fry; Appreciative Inquiry)

Most of the literature on AI focus’s on a 4 / 5 day approach working with each of the following topics. This works very well in many situations apart from those where the group is starting from a position of low morale. My view is that the group needed to get to a position where an affirmative topic for discussion is applicable and chosen by the group.

Once the group was free to discuss something positive that happened in the past without too many negative caveats, there was an opportunity to discuss what might be in the future. For this group, the future of their service was located very much in past experiences rather than in developing new processes and systems. There was no ‘blue sky’ thinking, simply a returning home to what gave them vitality and energy as individuals.

There were also some difficult discussions to be had as well born of a simmering distrust between the various disciplines. A new group had been created called ‘Community Support Workers’ who spanned the normal narrowly defined activities of the social workers and occupational therapists. The CSWs were recruited from a mixture of backgrounds, from shop workers to ex-nurses, and their diversity was their strength. Hierarchy had no place here and this threatened the more traditional professions. This was something that could not be addressed deeply enough by a senior team protocol; it needed to be thrashed out by those who live the experience every day.

Had I known where the workshop was going to end up, I could have planned an appreciative inquiry text book style. Fortunately, the approach is flexible enough to adapt as situations present themselves, as in this piece of work.
What happened in the end?

This group of social care professionals had a myriad of central initiatives floating around as well as day to day delivery of services. Personalisation was one of the main focuses at the time and its development was high on the senior team’s agenda.
The group found that by refocusing their service delivery on the very motivations that attracted them into their various professions in the first place, Personalisation of the entire service was a natural by-product. This was a good result for service users and for government policy.

At a local level, there was a sense that the first of the tough conversations had been had, and that this would open the floodgates to many more in the service of working together. In this area of the public sector, I notice that it is seen as good form for everything to be ‘in the service of the service user’. This is a noble gesture, but at times, ‘in the service of ones self and well being’ is a quicker way to a greater good.

My approach to this was in no way an Appreciative Inquiry in the way I’d experienced it with David Cooperider at the Weatherhead School of Management in Cleveland, but it does illustrate a level of deep complexity in having conversations around difficult subjects can lead to a number of approaches being relevant at different times in an intervention.

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Freeconomics is the idea of making money by giving things away.  The classic example is razors and blades.  Give away the razor and sell the blades at a premium.  The less pithy economic term is cross-subsidy, where one thing can be free if you pay for the other.  Free downloads and paid concerts is a more recent example of this concept.

How does the cost of my recent airline ticket relate?.  My gross airfare to and from Dublin was zero – zero Pounds Sterling, zero Euros, zero whatever.  But the total cost of the ticket was £117.85.  It made me realize that there are good freemiums and bad freemiums, both that impact on corporate strategy, which is my area of interest.  This ticket was an example of a bad freemium.

Let me explain this ticket in a bit more detail.

Cost Breakdown of Aer Lingus Return Ticket – LGW-DUB

Airfare                                      £  00.00

Internet handling fee                £  10.00

Tax and Charges                   £  57.85

Golf clubs                                 £  50.00

Total £117.85

This approach made strategic sense the first time, for example when RyanAir was pushing free and £1.99 airfares.  But that idea is no longer fresh.  I was taught in 10^th grade grammar that “Every sentence gotta make sense”.  The price breakdown above makes no sense.

With freemiums and freeconomics, I get something of value for paying nothing.  It may be a basic social networking service, a few free music downloads with an invitation to a paid concert, entrance to part of an exhibit, and so forth.   But with this airline ticket, there is nothing I receive that is free.  I can’t fly for free because I have the internet handling fee and of course the taxes.

As intelligent strategic thinking is one of the things we focus on, I would postulate that there really has to be a deal here for this type of pricing to make any sense.  An internet handling fee of £10 isn’t a deal when we know that we are saving airlines money on reservations agents.  Think ATMs as a precedent.

Referring to a credit card fee would make more sense, given we are all starting to understand credit card costs better and are given choices ranging from less expensive (EFT and debit cards) to more expensive (Amex).  This fee would vary with the type of payment used – from nothing to around 4%.

There still is room to charge a bit more for the base ticket while still keeping it a great deal.  Would my behavior change for a £4.99 fare each way?  I doubt it.  Finally, I won’t deal here with special charges here, as I deal with it in our blog about competitive discontinuity in the ski industry which speaks to these charges (http://bit.ly/frGMMl )

By not having this a la carte pricing make intuitive sense, companies are sending a subliminal message to check out competitors that take a simpler pricing model, e.g., British Airways in the UK and Southwest in the USA.

The moral of the story is to not to be too smart by half.  Freeconomics works great but be prepared to back it up with a true offer.  For example, why shouldn’t a walk-on airfare with no luggage be exceptionally cheap while add-on services apply to anyone who doesn’t want plain vanilla.    Companies need to think clearly to get these concepts right.

By the way, I felt that the Aer Lingus deal was too good to be true and checked on British Airways fares.  This time they weren’t better, but there will be a time when they are.

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This was a seminar held on the 8th of November with an illustrious panel including Colin Matthews, CEO at BAA, Paul Nash, Head of Airbus New Energies, Martin Powell, Advisor on the Environment to London Mayor Boris Johnson, Jonathan Counsell, Head of the Environment at British Airways and Steve Howard, CEO at The Climate Group. British Airways CEO, Willie Walsh, presented the introduction.

I found the seminar a rather gloomy affair that neither covered the subjects of economics, low carbon or enablement. Instead, the discussion centered around how the industry was going to cope with a rapid massive expansion in the demand for air travel, whilst tipping its hat to the ecological needs of our environment. The message was clear; ‘London business first and foremost’.

The statistics from the panel stacked up as follows:

• Global population growth is going to go from its current 6 billion people to 8.9 billion by 2050.
• Global consumers will increase from around 1.5 billion people to a forecast 5 billion during this time.
• Emissions from the aviation industry will continue to rise for the next ten years at least.
• Jet engines will become 1.5% more efficient at burning fuel per year.
• Bigger aeroplanes and a 3rd runway at Heathrow will increase the throughput of people leading to efficiencies in fuel used per customer unit.
• Other technologies, such as biofuel may help reduce emissions.
• The industry has a target to reduce emissions by 50% in about 40 years time.

Really, none of these statements and statistics from the industry adds up to a reduction in carbon emissions or a real investigation into the economics of sustainability for the industry’s future. A cursory glance without doing any mathematics suggests that the airline industry will increase its pollution into the environment driven by its growth and has very little chance of effecting the targeted 50% reduction at any time.

Let’s Talk Economics:

Our current economic model is based on growth as its primary driver towards a greater state of stability and prosperity. It is considered blasphemy in political and business circles to suggest that growth does not lead to prosperity. The concept was founded in a time when the planet was less populous and an understanding of resource limitations and consumerism was barely understood. It is now fairly consensual that continual growth has limits and that we are at that point now. Oil for jet fuel will soon become very expensive and replacing it with bio-fuel is not a viable option if we look at the global resource situation as a whole. In order to grow bio-fuel, farmland normally allocated for food production will have to be used, and with a growing population, presumably all wanting to fly somewhere, there will be competition for fertile land. Remember, we’re reducing our fertile arable land at the moment through deforestation, topsoil erosion and desertification. This along with an over use of ground water will mean bio-fuels will be grown at the expense of food.

Growth economics has proved itself time and again not to provide prosperity if we understand this to mean subjective well-being or happiness.

Factors influencing subjective wellbeing

• 47% Partner / Spouse and family relationships
• 24% Health
• 8% A nice place to live
• 7% Money and financial situation
• 6% Religious and spiritual life
• 5% Community and friends
• 2% Work fulfillment
• 1% Other

Growth economics also presents society with unstable global economies leading to regular boom-bust cycles. Our recent financial crisis is an example in point, caused by runaway growth activity, which caused an unsustainable activity bubble.

Whole system economics, or as EF Schumacher called it, “Buddhist Economics” may be the answer. I doubt that anyone is seriously suggesting that we return to an agrarian way of life, but certainly doing much less of the things that destroy our only ecological home may be a good alternative.

The list of statistics presented by the BAA, BA and London Mayors office panelists did not show any reduction in the use of carbon fuels, but within the next 40 years they may be forced to by fuel shortages.

My suggestions to BAA, BA and the London Mayors Office are as follows:

Look at the prosperity of their businesses and that of London as a whole, not in terms of traditional GDP, but as subjective wellbeing and devise their business strategies to suit people rather than growth figures.

• Look at modeling a profitable and sustainable business on being a transport company rather than flying aeroplanes.
• What would a smaller Heathrow be like?
• What would happen if London lost its place as a major world capital but gave its population a better standard of living?

Thousands die in the capital each year due to carbon emissions. Reducing this number should surely become a priority!

• Analyse the diminishing marginal returns (DMR) on flying based on subjective data as well as objective. Fuel and material costs are relevant issues, but so is a change in public perception about flying and airports.
• It was mentioned that the people of Putney, West London don’t trust BAA as they are on the flight path to Heathrow. Is this because the airport isn’t working for them? What does that mean for DMR over 10 years? Notice food stickers that say, “We don’t air freight food”. Are people’s perceptions changing?

My hope is that the panellists actively participate in modeling ‘doing less’ rather than ‘exploiting more’ or they may get a nasty shock as the world changes.

We attended this introduction to hear the gleaned insights from 4 Norton Rose partners as well as from 4 outside panelists — Scott Richardson-Brown, Corporate Finance and Investor Relations Director, CSR Plc; Ian Stoodley, Intel Capital EMEA, Patrick Ugeux, VP Corporate Development, Chellomedia (a Liberty Media company); and Jeppe Zink, Amadeus Capital Partners. The Search for Growth study was based on in-person interviews with key personnel at 40 global TMT firms with collective revenue in excess of £100 billion and very dispersed globally. Some highlights:

Sources of Growth
BIC not BRIC was a key takeaway. “The interviewees overwhelmingly felt that Russia would offer little opportunity for revenue growth over 2- and 5-year time periods.” Jeppe Zink did think that Russia was attractive for start-ups given the technologies emanating from there. As you would expect the rest of BRIC is viewed as a huge opportunity. Some other possible surprises were: 1) that Eastern Europe recovery was taking longer than expected; 2) as a converse to overall Russia lack of attractiveness but start-up favourable was China being very attractive in general but unfavourable for start-ups; and 3) the general view that Japan isn’t attractive, meaning these companies don’t see the recovery from Japanese malaise and it’s a difficult market to deal with.

Opportunities and Risks of New Markets
Keeping an eye on corruption and business ethics was another key takeaway. The Norton Rose team emphasized that the Bribery Act that will come into force in April 2011 “marks a new era in the international community’s commitment to eradicate corruption.” Its teeth are far sharper than FCPA. Patrick Uguex gave an example by highlighting some of the things that one needs to look out for in media. Piracy and the basic rule of law are obvious risks to factor in, but one they kept a close eye on was “underreporting of subscriptions”. If someone says that you will get 1 million subscriptions in a market. you need to assume that it will take 1.6 million gross subscriptions to achieve 1 million net, as a certain percentage of actual ones aren’t reported to the western owner.

The chart below shows the overall view of new market entry risk in TMT:

A good summary of the situation was made in reference to regulatory barriers: “Many countries, particularly in developing countries, have shiny ‘state of the art’ legislative documents, but what matters is how they are applied in reality.

Current Sentiment Regarding Market Entry Opportunities
Finally, as relates to what we do in helping clients assess these types of markets and opportunities, there was a panel discussion of whether opportunities are looking as good at the end of 2010 as they appeared to be earlier in the year. The short answer is no. One panelist said, “The recent negative sentiment is being driven by reduced demand coming from end consumers.”

While this study focused on the TMT sector, the rules and learnings seem applicable to most other sectors as well. They point out how we need to really assess markets to see what is attractive and what isn’t. Here we learn that Russia may not be for everyone. And we realise that we need to keep our eyes open to what market entry hurdles might be relevant to our particular product and/or service. Subscription reporting was the example cited here. What is it for your sector? This is the type of work that a small (but not too small) firm like Faculty Partnership is good at helping you with. Please contact us if you would like to discuss issues like this, or visit www.facultypartnership.com. Thanks to Norton Rose for sharing their insights.

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