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Morning Briefing Strap Line
Fri 18th Jul 2014 - Friday Opinion
Subjects: The progressive tax that acts as a brake on business, the importance of company culture and how marketing plans have evolved
Authors: Martyn Cornell, Professor Chris Muller and Ann Elliott
 

How a ‘progressive’ tax acts as a brake on business by Martyn Cornell

Last month I was among a lucky few given an early look at the new Guinness Brewhouse Number Four in Dublin, which is still not yet officially open, but which will eventually enable Diageo to produce all its brewing needs from the one site, instead of the four it has been using in Ireland. The main brewing hall is a stunning sight, filled with enormous, gleaming stainless steel vessels, the largest of their kind in Europe. The giant mash-tuns alone are 21 feet across, and can take 23 tonnes of grain at a time. The whole operation, once running, will be processing 500 tonnes of malted barley every day, and making around 200,000 hectolitres of ale, lager and stout a week. All this will be done with just 140 production staff: around 60,000 hectolitres of beer per worker per year. It’s hugely impressive.
 
A couple of weeks after I returned to Britain, I picked up a poster map showing the 40-plus new small breweries that have opened in London in the past five or six years. That’s an impressive number, too. Put together, those new breweries probably employ half the people in total that Guinness in Dublin does solely in its production department. However, those new breweries, all 40-plus of them, totalled up, almost certainly make less beer together in a year than the new Brewhouse Number Four will make in a week. Making a wild stab at guessing the number of actual production people those new breweries employ, you can reckon their output per head is going to be some 15 times smaller than Guinness’s.
 
Inevitably, on figures like that, a new small brewer’s production costs per pint are going to be considerably larger than those achievable by a brewing giant, even if both are working on spanking, shiny new kit. It was to address this issue, to try to level a steeply sloping playing field, that SIBA, the Society of Independent Brewers, campaigned long and, ultimately, successfully for the introduction in the UK of Progressive Beer Duty. PBD, brought in by Gordon Brown in 2002, means that a brewer making no more than 5,000 hectolitres of beer a year pays only half the normal excise duty. After VAT is taken into account, that means an effective subsidy of 24p a pint for the small brewer’s beer versus the big brewer’s. However, the tax relief falls off with rises in production, and, eventually, full excise duty is payable on every pint once a brewer’s production goes over 60,000 hectolitres.
 
There can be no doubt that PBD, by making the little guys more competitive, has helped massively in powering the explosion in new small breweries the UK has seen over the past 12 years, with around 800 start-ups since 2002 – more than one a week. But it has become clear that while PBD acts as an excellent carrot to inspire new entrants into the market, in its current form it acts as a brake to any small brewer successful enough to find business expanding past that 5,000hl limit.
 
Just this week the owners of the Lancaster Brewery, which was topping 17,000hl a year in 2013, only eight years after it was founded, revealed that they had deliberately cut back production in 2014/15 to below the PBD threshold of 5,000 litres, in order to try to actually make a profit. The demands of PBD, they wrote in the company’s annual accounts, “have damaged margins as the brewery’s production has flourished. This has led directly to the brewery’s losses.” Reducing output to under 5,000 hectolitres means the brewery is looking to break even in 2014/15, and be “significantly in profit for 2015/16, when the duty costs reduce by approximately 40% on current levels,” Lancaster Brewery’s owners said.
 
Clearly, any tax regime that causes companies to cut production in order to make a profit, rather than expand to the maximum that consumer demand impels, is a tax regime that is not working properly. The problems are that the PBD ceiling starts too low and rises too fast, and all the benefits of PBD disappear completely once a brewer gets past 60,000hl a year (a figure than, by coincidence, is equal to the amount every Guinness production worker makes on his or her own). As Dave Bailey of the Hardknott Brewery in Cumbria pointed out two or three years ago, 5,000hl represents a turnover, ex-VAT, of around £700,000 a year, out of which, after duty, raw materials and other costs, the operation might get a net profit of £50,000 at best – a net profit out of which, probably, at least two people have to draw salaries. There are, as Bailey said, town centre pubs turning over more than £700,000 a year, and making much more profit than a sub-5,000hl brewery.
 
Few will disagree, I think, with the idea that small producers should be encouraged: doing so increases consumer choice, boosts employment and is likely to result in greater product innovation. PBD was, on the face of it, a good way to give small producers a start on their vastly bigger rivals. But the problem now is that PBD is acting as a glass ceiling: if the Lancaster Brewery is an example, then successful small brewers cannot afford to grow precisely because of the existence of PBD. That cannot be right.
Martyn Cornell is managing editor of Propel Info

The importance of understanding your company’s culture by Chris Muller

Each organisation has a dominant culture and usually a range of sub-cultures. Whether it is a small pizza shop or a multi-billion dollar conglomerate, all organisations communicate a set of shared beliefs that help them define values, moderate behaviours and set rules. For the leader of managers, the understanding of a corporate culture becomes a crucial component of both control and advancement.
 
Each culture may be developed and grown by the organisation’s leadership, perhaps at the founding, in a mission statement, or organically, as the company grows and finds its own character. But, just as easily, culture may be created by someone else in a management position within the enterprise who, because of charisma and follower power, steps up to define it for the entire organisation.

Not infrequently, when these first two pathways are not directly managed, organisational cultures are co-opted by the employees themselves. When this third option occurs, culture is entirely self-determined by lower-level natural leaders within the organisation and a new culture develops which may or may not match one desired by the original leadership. In each case values, norms and beliefs will be shared within the organisation and a culture, strong or weak, good or bad, healthy or sick, will be formed.

The reason this carries so much importance for the leader of managers is that culture fills in the organisational gaps otherwise left empty. By gap, I mean the loose emotional spaces where people interact together, with few written or spoken rules but with a mutually shared purpose. Culture can be viewed, therefore, as the glue which holds an organisation together: the stronger the corporate culture, the stronger the organisational bonds and the more likely there will be clearly understood goals and forward progress. Where thought and purposeful decision-making have gone into the planning of a culture by senior leadership, there will also be thought and purpose in the shared decisions made by all layers of the team when those leaders are not physically present to guide them.

Culture is a way of behaving, thinking, and acting that is learned and shared by an organisation’s members. Culture helps an organisation to relate to the outside world, creating rules of normative behaviour to aid employees in both boundary setting and boundary spanning. At the same time, culture moderates internal behaviours and helps build ways for people within the organisation to relate to each other.
 
Culture is important in four key ways. Culture strategically encourages employee commitment by offering them a sense of higher purpose, of being a part of an organisation which is bigger than they are, and which holds a set of core values they can choose to share and build upon. Culture can be inspirational.

Culture, when managed effectively, can become a competitive advantage. Because no manager can ever be 100% involved in every single aspect of an organisation’s daily activities, culture becomes a management decision tool when it acts as a moderator of individual employee behaviours. Culture can act like an organisation’s conscience.

A strong culture can help to give employees a useful system of guideposts and borderlines for dealing with each other in their own working subunits, within the broader organisation itself, and with individuals external to the company including customers, suppliers or the media. Culture both sets limits and expands horizons.

Culture can become a core competency for any company, especially where a positive culture is recognised by outsiders as a desirable component of the organisation. Companies named as “best employer” or who are given other accolades from external sources often find it easier to recruit, retain and promote employees who seek to become part of the organisation and, ultimately, self-identify with the culture itself. Culture defines a brand.

What I suggest is that you as the leader of managers must understand your own company culture. To accomplish this, I offer these simply applied practices: a) you need to identify the “heroes” that other employees admire; and b) you will want to listen for the stories being told that are starting to become legends, and from those legends listen for the stories turning into the myths that reinforce core values. You will then be able to discern what employees think are the underlying cultural beliefs, shared values and normative behaviours they feel should be emulated in their daily routines. The application and understanding of dominant and sub-cultural language, symbols and rituals will be beneficial for the development of a strong organisation as it grows, and will advance your growing role in it.
Adapted from The Leader of Managers: Leading in a Multi-Unit, Multi-Site and Multi-Concept World by Christopher Muller, published 2013
 

Content is King by Ann Elliott

Look at any marketing plan in our sector today and, without question, email and social activity will lead this plan.
 
Independents and smaller savvy groups have had the lead in this space for some time now, truly winning with digital and, in most cases, leaving the less nimble larger groups behind. This is far from the case now. Most chief executives we meet at Elliotts are investing heavily in building audiences for their brands, giving them a platform to communicate directly with their customers.
 
In the digital world, where everything can be tracked, it can often seem that numbers are everything. I fundamentally believe that proof of success is critical (otherwise why spend money on activity that doesn’t deliver capex investment-equivalent ROI figures?) and that KPI setting is crucial. Sometimes though, when we review digital strategies, all too often the emphasis is on fan acquisition and building email newsletter sign-ups. What is frequently missing is any real mention about the other key element of digital – content.
 
Having an amazing fan base and not working equally as hard on the content being shared is like taking out a front page advert in The Guardian and not worrying about the artwork. It is a waste of an amazing opportunity.
 
To best engage an audience, content has to be timely, relevant and worth taking note of. All too often the emails, I receive from big brands in the sector communicate nothing more than an offer. There is little other attempt at engagement. Ask any marketing professional whether editorial coverage or advertising is better and they will say “editorial” – because it is fundamentally more engaging. This means thinking more like a journalist and less like a traditional advertiser when communicating to customers
 
Before doing any work on a social or direct marketing strategy, it is critical to create a content strategy. This should comprise three distinct areas:
 
1.  Consistent weekly content mechanisms as a base for activity
2.  Key campaign content
3.  Seasonal content themes to fill any gaps.
 
For each segment of content, the first decision to make is around the message being shared – engaging content comes first, the platform comes second.
 
A television executive producer once told me that we naturally decipher the world through stories. We try to link actions and messages together in this way so they make sense. The first thing a commissioning producer will consider when evaluating a script is the effectiveness of the story. So, if brands create content with strong story elements, then customers don’t need to create their own. The work has been done for them. 
 
In many ways, this philosophy is no different to what advertisers have been doing forever. It is the responsiveness to different media and communication formats that has changed. In recent years there has been an increasing mistrust of above-the-line advertising among consumers, particularly in younger audiences. The latest study by the McCarthy Group shows 84% of millennials do not trust advertising at all.
 
The best way to start this journey is to run workshops with all the key players in the executive, brand and marketing teams. The session should concentrate on content theme mapping, media formats, content creation, tone of voice, targeting by audience, the platforms being used to share content and of course measuring success.
 
Perhaps unsurprisingly the most successful content marketers are some of the biggest brands. For inspiration look at the digital work of Coca Cola, McDonald’s, Ben and Jerry and Nando’s. Pret A Manger and Innocent are also doing great things in this space.
 
Companies that succeed digitally tell engaging stories and look beyond commercial messages in their content to generate higher engagement. Doing that means they capture the attention of their audience more regularly.
 
It is time to get working on that content strategy.
Ann Elliott is chief executive of the leading sector marketing and public relations agency Elliotts – www.elliottsagency.com

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