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Innovative thinking in the regional economy

THEBUSINESSDESK.COM SUPPLEMENT | WEST MIDLANDS | MAY 2015

THE REGION’SINNOVATORS

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West Midlands SupplementMay 2015

The right stuff

2EdITOR FOREWORd

ContentsSponsor foreword: Innovation to drive long-term economic growth. Mike Steventon, senior partner of KPMG. 3 ➔

Round Table: Innovating for competitive advantage. Midlands businesses that have grown during the recession are convinced investing in innovation has helped them to prosper. 4 ➔

Round Table: Driving growth through innovation. In the second in our series of round table debates on the subject of innovation, West Midlands companies have re-

affirmed the need for diversification and bold decision-making. 6 ➔

Round Table: Innovation the key to the region’s future. High level attendees at an event in accountancy and advisory firm KPMG’s offices in Birmingham have reinforced the need for innovative thinking for the region to move forward. 8 ➔

A LITTLE over a year ago we embarked on a project with

accountancy and advisory firm KPMG to look at the nature of innovation and the people behind it.

The idea was that over a series of round table discussions we would be able to draw conclusions about the nature of innovators

and to gain an insight into how they do what they do.

The first round table was all about ideas gaining traction and making the right decisions at an early stage of a business’s growth.

The second round table looked at continuous growth through innovation and the third focused on innovating for the good of the region.

Innovator - like entrepreneur - is an overused word and one that is often used clumsily to describe virtually any out of the ordinary business development.

We were determined to have people of the highest quality taking part in our discussions to give us an insight into real innovation.

As you will read in the pages of this supplement, there are some common threads to the discussions. One is about risk. True innovation seems to go hand in hand with taking chances.

A number of the people at our first round table succeeded by taking their businesses off in a whole new direction. In their case it was the right decision but it could have gone very wrong for them.

Innovators also tend to be self-starters. They may welcome help and certainly wouldn’t turn it down but one never feels that they would be at home twiddling their thumbs if that help wasn’t there. But innovation is really the implementation of ideas and one can’t put a price on that.

Perhaps the most important point is that innovation builds businesses, creates jobs and makes the region a more successful and prosperous place.

Thus it was appropriate that we should finish our series of round table discussions with a session looking at the future of the region and how innovative thinking can help.

It is important when we are competing against other parts of the country - and indeed other parts of the world - that we create an environment in which those with the right ideas and the right attitude to risk can not only survive but thrive.

The response from those taking part in these round tables makes me think that we are getting a lot of things right.

Cornwall House, Lionel Street,Birmingham B3 1AP.

Editor: Andy Coyne andy.coyne@thebusinessdesk.com

THE REGION’SINNOVATORS

Andy Coyneeditor, TheBusinessDesk.com – West Midlands

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We thank all of our participants for sharing their real-life experiences, challenges and achievements, all of which highlight the Midlands is a region that is already building its success on innovation.

In terms of future activity, KPMG is sponsoring the Institute for Family Business (IFB) National Conference in Birmingham in June.

The theme is Family Businesses, Innovation and Entrepreneurship. We expect this to ignite lots of debate among family-owned businesses, keen to counter the myth that they are not good innovators.

We want to explore the unique ways in which family businesses manage to stay ahead of the competition and create strong legacies for future generations.

Innovation to drive long-term economic growth

3SPONSOR FOREWORd

BUSINESS leaders in the Midlands agree that investment in innovation is a risk worth taking to secure long-term economic growth for their organisations and for the region.

At three KPMG-hosted roundtable events held over the last year, local CEOs, business leaders and owner-managers laid bare their experiences of innovation, as well as the challenges and benefits it brings.

Companies that dare to innovate, develop new technologies or find unique ways to capture market opportunities will, I believe, grow fastest and prosper most.

And if we, both regionally and nationally, embrace innovation, that can only help to secure our competitive advantage and future success.

In difficult economic times, business owners can become risk averse, putting off innovation and focusing instead on wealth preservation.

But now, as the UK emerges from recession and embraces recovery, it is time for across-the-board championing of innovation to drive long-term profitability.

I want to see greater backing from Government and the business community, in conjunction with companies themselves, to construct and foster an environment that truly supports innovation.

One way in which we strive to help businesses realise their growth ambitions is through our KPMG Enterprise programme.

designed specifically for privately-owned businesses, from small fast-growing companies to large well-established firms, KPMG Enterprise provides a full range of accounting, tax and advisory services.

We firmly believe that these entrepreneurial companies are absolutely fundamental to our business community, and that this thriving

sector benefits the regional and national economy as a whole.

Our roundtable debates have revealed that the entrepreneurial spirit is here in abundance in the Midlands. Companies are open to reinvention, redesign and diversification and are prepared to make game-changing decisions that will transform what they do, how they do it and for whom.

‘Companies that dare to innovate, develop new technologies or find unique ways to capture

market opportunities will, I believe, grow fastest and prosper most.’

Mike Steventonsenior partner, KPMG

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Founded 30 years ago, this University of Birmingham spin-off specialises in blood tests and in helping to find solutions for clinical problems.

The firm’s CEO Charles de Rohan said: “It’s all about innovation for us - finding solutions for unmet clinical needs.

“It’s about us developing antibodies etc for their needs and working with key opinion leaders.

“It’s a symbiotic existence working with academics and clinicians.”

John Murphy, commercial director of Wolverhampton-based water cooler

In the first of a series of events focusing on innovation and how it can help businesses to succeed - run in conjunction with

accountancy and advisory firm KPMG - a number of the region’s most go-ahead companies explained their strategies for growth.

And without exception they involved investing in new products or processes or taking advantage of a market opportunity.

But such decision-making is not without risk. It costs money - which in a recession is not necessarily ready to hand -, may not pay off in the short term and could cause divisive differences of opinion amongst a firm’s executives.

However, those taking part in our discussion - held at KPMG’s One Snowhill base in Birmingham - thought it a risk well worth taking.

Graham Jones, sales and marketing director of Birmingham-based Mereway Kitchens, said innovation in his firm’s case was a result of necessity.

“We have had to innovate to stay ahead of the game as we are often competing against multi-nationals,” he said.

“In the recession it was a struggle for firms operating in the mid to premium sector.”

In 2011 the company decided to instigate a three year plan of action.

“We decided to innovate in terms of the way we went to market, launching a new brand accessible over the internet with a different price point,” Jones said.

“This brand went from nothing to £6m this year.

“And we innovated by going into different product groups - furniture, bathrooms, bedrooms.”

Jones said that as a family-run company it “didn’t need to go to a committee or sub group” to push the ideas through.

The Binding Site, based in Birmingham’s Edgbaston area, is a company which has innovation in its dNA. ➔

Innovating for competitive advantage

Midlands businesses that have grown during the recession are convinced investing in innovation has helped them to prosper.

4ROUNd TABLE ONE

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Innovation, of course, doesn’t just apply to businesses that produce things. It is equally relevant in the service sector.

Mike Steventon, KPMG’s senior partner in Birmingham, revealed that the business is planning to innovate now to meet future challenges.

He said: “The big four {accountancy firms} have done the same thing for the last 30 to 40 years. It is time-based activity. Those days won’t exist forever.

Towe at Hadley Group said: “When we launched our technology ten years ago we were looking at the impact of IT on our business.

“We needed to start changing from a craft into a science.

“The cost of doing things wrong can be horrendous but if you can model it in IT you can do a lot of research there.

“We now have two doctors of engineering who analyse the working of the metal.

business Angel Springs, sees innovation in terms of decision-making around new products.

He said: “There is a risk around products. It’s about providing what the customer wants and when the trend was towards mains filtered water coolers we had to change.”

Stewart Towe, chairman and managing director of Smethwick-based steel products manufacturer Hadley Group,

has built innovation into his firm’s thinking and has been prepared to put his money where his mouth is.

The company - which is approaching the £100m annual turnover mark - has developed processes in its technology centre which have

become successes in sectors as diverse as winemaking and construction.

“We developed a process that strengthened metal but also gave it a unique look. That was a coca cola moment,” he said.

It has developed steel roofing systems for the Thai market that overcome a problem that existed with termites eating through roofing supports and produces metal posts for vines that have become popular with winemakers.

“We ask our people on the ground to find new ways of doing things,” Towe said.

“Nobody comes to you with an idea so you need to create that mindset with your people in the field.”

“The downside of innovation is you are

“We have got a lot of intellectual property and we want to offer that in a different format.

“We’ve developed an online training platform. We have had to collaborate with six other partners to do it.”

Steventon said the firm’s in-house training capability can be extended out to the wider market, based on smart cloud-based apps.

There is also a pension product clients can buy from the firm on a monthly fee.

“Otherwise we will get Google or someone else offering something we don’t offer,” Steventon said.

“It is about seeing a market need for something different.

“We do it for our own people. Why can’t we do it for other organisations such as the NHS.

“It is a market need coupled with a core competency.

“How can we make ourselves relevant in the new world? Things can’t stay as they are. You either move forward or you die.”

de Rohan at The Binding Site said: “Customers want solutions.”

Predicting where the market will be in the future is another common trait amongst innovators.

Murphy at Angel Springs said: “It’s about looking at the marketplace and thinking about where the market will be in five years’ time.”

➔

‘The downside of innovation is you are going to people who don’t believe it so it will always have a

harder time than a ‘me too’ product.’

going to people who don’t believe it so it will always have a harder time than a ‘me too’ product.”

de Rohan agreed: “You have to pick early adopters to help you evangelise,” he said.

Towe added: “You wouldn’t pick a market leader; you would pick number two or three.”

Roger Whitehouse, managing director, of Birmingham’s Lander Automotive, revealed that his company - a supplier to automotive sector OEMs such as Jaguar Land Rover - took a big game changing decision like Mereway Kitchens and Angel Springs.

“We had to reinvent ourselves in 2006,” he said.

“Our biggest customer bought us and we had this big war chest and had to decide what to do.

“We decided to do tube manipulation. It was something we had only done a little of but we decided to invest in that. It was a bold decision.

“In 2006 we closed our Eastern European operation to move it back to Birmingham. It was the opposite of what our customers were telling us to do.

“We didn’t know then what would happen to JLR but sometimes you make your own luck.”

And it has worked. It now has a circa £20m contract with JLR’s engine plant in areas such as oil dipsticks and turbo chargers.

L-R: KPMG’s senior partner in Birmingham Mike Steventon and Charles de Rohan, CEO of The Binding Site, at the event

Stewart Towechairman and managing director, Hadley Group

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IT services firm Jumar Solutions, said: “Recently we took on a non-executive director so we can be more strategic. We’ve been operating a three year rolling plan but previously we stumbled into one opportunity after another and it takes time to evaluate these.”

Investment in products and services and diversifying into new areas was also a theme amongst the companies at the event.

“We’ve invested in product development,” said Merricks. “We started as a recruitment business but as an SME up against large organisations it was difficult because you were going up against businesses that could operate on 3% margins.

“We’ve had to become a bit more niche and now we are very technical and offer flexible management services.”

Henry Yap, managing director of Birmingham food business Wing Yip, suggested that his family’s business has evolved through necessity.

“Wing Yip has changed over 40 years. It was founded as a restaurant business but over the years changed the business model to supply restaurants rather than compete with them,” he said.

“Expansion has been driven by growing demand from customers but also by ourselves.

“We weren’t the first Chinese cash and carry business but many of our competitors are not there anymore.”

Yap said Wing Yip continues to invest into the business. during the bad times we

Driving growth through innovation

TheBusinessdesk.com - brought together businesses and advisers to discuss how growth can be sustained and to look for common denominators linking successful businesses.

One of the themes to emerge was the importance of being open to bringing in outside expertise.

Wendy Merricks, chief executive of Solihull-based specialist recruitment and

“It evolved from an understanding that new technology would change the way you carried out your traditional processes.”

Towe has a fundamental belief that while businesses worry about spending money on research the return in the medium and long term will be exponentially greater for having done so.

“But you have to take that leap of faith to hope clever people will come up with solutions,” he said.

Looking for common threads linking the reasons companies innovate - or don’t - Ian Greaves, a partner in KPMG’s Birmingham office, said: “Cost is a factor in stopping people innovating. People might

shy away from it if there are problems in the business.

“But some businesses stumble across the things they need to do to survive.

“People ask how they can diversify. What is our competition doing? Are there other things we can do can we make changes in our product range?

“Some people start off doing one thing and end up doing another.”

Jones at Mereway Kitchens said: “Cost is the big issue. Culturally we need innovation but you have to kiss a lot of frogs.

“And it is a leap of faith. In our case all of our resources were invested in this

product and it would have taken a long time to recover.”

“You need to have the right balance of people to assess the risk and you need a strong hand on the tiller to follow that through.”

Steventon at KPMG said innovation is great but it needs to be done in an environment that is successful as well.

“Cold hearted commercialism comes into it,” he said.

Concluding, Whitehouse at Lander Automotive said: “You need to be flexible and responsive.”

de Rohan said: “We call it being nimble.”

IN the second in our series of round table debates on the subject of innovation, West Midlands companies have re-affirmed the need for diversification and bold decision-making.

But access to finance remains an issue for a number of companies.

The event - staged by accountancy and advisory firm KPMG at its One Snowhill offices in Birmingham in conjunction with ➔

6ROUNd TABLE TWO

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prepare for the good and during the good times we prepare for the bad,” he said.

“during the downturn we expanded the Birmingham site and we are seeing the benefits of that.”

Yap also believes that having the right mix

of people is essential to the running of a business, even a family one.

“You need a certain amount of tension in any organisation. You need different types of personalities and skill sets. Communication is very important. We get together and talk things through,” he said.

Ian downing, an investment director at the Birmingham-based Business Growth Fund (BGF), set up to provide long-term capital for fast growing companies with the backing of a number of high street banks, has the make-up of the management team high on the list of priorities when it comes to target companies.

“All the businesses we look at are established. They all have a track record. The extra thing we look for are the people in the business,” he said.

“We are a minority shareholder. We like business to have non-executive directors and especially grey-haired non execs.”

downing said poor management teams in good sectors are not as interesting as good management teams in poorly performing sectors.

Fellow investor Craig Wright, chief executive of Burton on Trent-based Wright Industries, believes outside investors or advisers can sometimes act as a catalyst for future growth..

“We are looking for potential,” he said. “A lot of companies we have tried to acquire have built their reputations over a number of years.

“Sometimes companies hit a glass ceiling. It could be turnover or the size of their facilities.

“We look at whether our skills can remove the glass ceiling.

“We have to remove any barriers to growth.”

Specialist investors, or advisers, who work with start-ups or developing ‘tech’

Wright at Wright Industries believes cashflow is a key issue.

“I see the challenges time and time again,” he said.

“It’s about having the right advisers around. We work hard on headroom. If there is not enough to deal with issues we will step away.

“Cash management is crucial in a growth business. A lot of SMEs just don’t do it.

“They need to get under the skin of the drivers of cashflow. It might be about using working capital better.

“Finance must be seen as integral to an organisation.”

The feeling around the table was that family businesses often get the balance right between taking risk and keeping a tight rein on spending.

Yap at Wing Yip said: “Every business is different. Some of our largest businesses are family businesses. But every business needs to look at its people and skills and needs to plan clearly.”

downing at the BGF added: “With some of the most successful family businesses we see, not all the senior executives are from the family.

“Some are very open minded and bring in externals and they are the most successful. It’s about creating a long-term strategy.”

Wright at Wright Industries said: “That’s why family businesses constantly outperform. They are not chasing turnover but looking at the business over the long term.”

Summing up, Ian Greaves, a partner at KPMG in Birmingham and the event’s host, said: “At Wing Yip a lot of family members are in responsible positions but they are not all doing the same thing. It’s important that that’s the case.

“It’s about having all the bases covered.

“It is a barrier to growth if you have the wrong person in the wrong job. It could hold the business back.

“And it doesn’t matter which sector you are in, you need a good management team in place.”

companies are also attempting to add value to businesses that may be full of ideas but perhaps lack a long-term growth strategy.

Again, the theme is about bringing in outside expertise.

Michelle Rayner, a programme manager at E4F - a young entrepreneurs programme based at Innovation Campus Birmingham - said: “We like to meet companies face to face. They often need to find different skill sets.

“Mentors have an important role to play here as they challenge the business.”

Tim Grasby, an investment manager at Birmingham-based venture capital firm Midven, agrees. He said: “At Midven we are very hands on. We take non-executive positions and put people into management teams.

“We have different funds, one for early stage. Later on we can bring in other teams.

“A lot of businesses we invest in have had a lot of funding from the government but it is too early to go the bank route. We come in to bridge this gap.”

Interestingly, access to funding was mentioned as a barrier to grow by several of the event’s participants, despite the widespread belief that things had become easier in this regard.

david Fair, financial controller at Birmingham-based residential developer MCd, said: Our biggest problem as a specialist residential developer has been the funding aspects. The banks haven’t wanted to go anywhere near property development over the last few years.

“The opportunities are around and the banks will come back but it is not there at the moment.

“We have looked at contractor funding so the builder in effect funds his own work.”

And Merricks at Jumar Solutions reports similar problems. “It is an issue now,” she said. “Six months ago we started to build a new product on the solutions side.

“This product is something that is in demand.

“We used retained earnings to build it but we talked to the bank about forward planning and they said they couldn’t do anything.

“We looked at other options and eventually found another bank that is prepared to lend against the debt book.”

Craig Wrightchief executive, Wright Industries

Henry Yapmanaging director, Wing Yip

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Innovation the key to the region’s future

persuading Chinese airlines to come in and now we want a regular service,” he said.

“And we need innovative thinking to get government to support the Midlands. We probably need that more than the runway extension.”

Another area where the region is having to be innovative in its thinking is when it comes to devolution. New ways of thinking need to be initiated to access central government cash and to be given authority for devolved powers.

This may also mean forging alliances with other authorities or bodies in the region.

Richard Butler, regional director of the CBI, said: “Most businesses think we need to get our act together to compete with the Northern Powerhouse. There is a lot of fragmentation - there are three LEPs covering this area. This for me would be a priority.

“If you look at something like JLR, it spreads across various parts of our area but it is a single entity.”

Schuitemaker said: “There is some disquiet about the strongest brand. Coventy and Warwickshire’s growth is giving us our biggest challenge, particularly in automotive.

“My view is that there is broad consensus that you go with the positioning that has the most resonance in overseas markets. There is more resonance around the brand of Birmingham than other parts of the region.”

Turning to the role of local enterprise partnerships (LEPs) in innovating for change, Greg Lowson, president of the Greater Birmingham Chamber of Commerce, said: “The view of the Greater Birmingham one is pretty positive.

“They have probably suffered from a lack of resources and will probably do better going forward.”

Turning to the importance of large-scale property development to the region’s prospects, Schuitemaker from Business Birmingham said such schemes are “absolutely crucial”.

HIGH level attendees at an event in accountancy and advisory firm KPMG’s offices in Birmingham have reinforced the need for innovative thinking for the region to move forward.

The third in a series of events under the banner The Innovators - staged by KPMG in conjunction with TheBusinessdesk.com - looked at how creative thinking can trigger economic growth.

Wouter Schuitemaker, investment director at inward investment body Business Birmingham, reflected on the recent decision by HSBC to relocate to the city and how it is important to be ahead of the game in terms of industry trends.

“We have perhaps dined out on deutsche Bank for a while and we needed another to keep things going,” he said.

“We are seeing a phenomenon in terms of on-shoring, near-shoring and north- shoring. That trend has

been quite recent and we try to stay ahead of the curve.”

Turning to the creative thinking around the region’s automotive sector, dr Mark Swift, head of small business programmes at WMG at the University of Warwick, said: “Innovation is driving all this change. Warwick wants to be Europe’s centre of excellence for automotive research.

“Tata’s automotive research is coming to Warwick and that’s 300-400 people.

“We opened an academy last year and we want to create a new generation of engineers and to give them confidence that there is a career there. It is sustainable.”

Birmingham Airport chief executive Paul Kehoe has seen innovative thinking lead to an extended runway - which can be used by larger planes feeding long-haul destinations - and is now keen to see smart thinking lead to an increase in traffic.

“We have taken an innovative approach in

“We’ve missed out on some big deals in the last few years, such as a legal services requirement with 600 jobs and a 500 person call centre, because we didn’t have the right properties.

“A lot of the stuff that is happening now is being driven by the Enterprise Zone and that is an innovation based on the TIF model in the US.”

Birmingham Airport’s Kehoe believes high-speed rail project HS2 is a game-changing, innovative project.

“It will change the economic landscape of the UK,” he said.

He is also keen on the extension to the Midland Metro ‘tram lines’ through Birmingham city centre.

“Nottingham is a third of the size of Birmingham and has three tram lines. We are just building our first,” he said.

“We need better public transport and I don’t mean buses. Trams will open up the city.”

Schuitemaker at Business Birmingham said: “It needs to go on out of the city centre to digbeth and Edgbaston etc.”

But he pointed out that having to deal with legacy issues has put massive constraints on Birmingham City Council’s ability to innovate.

“There is little wriggle room to be innovative,” he said.

Summing up. KPMG sales and marketing director Andy Youngman said: “Everything that we have spoken about is very, very positive.”

Business Birmingham’s Wouter Schuitemaker [L] with Ian Greaves of KPMG [R]

Paul Kehoechief executive, Birmingham Airport

8ROUNd TABLE THREE

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