Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
SouthWestern – Ireland
Prepared by George Foster
SouthWestern (Business Process Services Ltd) was founded in 2003 as a subsidiary of a cooperative group in Cork, Ireland, known as SWS Co-op. SWS Co-op was a farming services company. SWS was founded in 1957, and by the turn of the century many of its service lines produced marginal profits. At this stage the co-op diversified into natural resources and business process outsourcing (BPO) services. The BPO company was built upon a small contract with the Irish Government for the processing of cattle passports. From a BPO perspective, it involved building a national database for animals, an application system and a call centre for resolving queries. Between 2004 and today, SouthWestern has applied these business process innovation techniques to other public sector organizations in Ireland and the UK as well as to mid-sized private sector companies. Today SouthWestern employs over 700 people, 500 of whom are based in Cork, Ireland, and 200 in Poland. The company is opening a new operations centre in England in 2013. It is now a market leader in providing a range of quality BPO services to leading-edge public and private sector clients in the Irish and European markets. SouthWestern specializes in delivering end to end BPO solutions that deliver real value to its clients in Ireland, the UK and beyond.
Eoin O’Driscoll is on the board of a number of early-stage telecommunications companies and is Chairman of Forfas, Ireland’s national policy and advisory board for enterprise, trade, science, technology and innovation. He is also Chairman of e|net, the company that holds the concession to manage the Government Metropolitan Area Networks; Chairman of Oak Acquisitions; Director of Ion Equity; Director of The Irish Times and The Irish Times Trust; Director of the Cork University Foundation, Director of the Trinity College Institute of Neuroscience; and Member of the National Executive Council of IBEC.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
Calnan: “At the turn of the century, SWS needed to find new sources of growth and value creation. At this time we saw major opportunity emerging in two areas, one of which was the signing of the Kyoto protocol, and the other was the speed of change in broadband.
“In following the Kyoto protocol, we set up natural resource companies in forestry, wind energy and other renewables. Over time we focused on building out wind farms and we sold those in 2009 for over €300 million.
“In broadband, we knew that we could deliver complex data processing contracts, such as the one we had with the Irish Department of Agriculture, from regional locations such as West Cork, through the growing availability of broadband. We believed we could grow this service out to other government services, and also to commercial companies. Over time this company has grown into SouthWestern, one of the largest employers in the region.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Calnan: “All of the growth of SouthWestern over the years has been organic. It was only possible to do this through hiring the right people. Initially this was through partnership with University College Cork (UCC) and the hiring of graduates from there with qualification in IT and business knowledge in agriculture. In order to grow from there we needed experience in the outsourcing sector. We did not have the finances to pay high wages, so we incentivized these people through shares in the company, to supplement average pay for the sector. It was this combination of the right people, with the right incentives that gave acceleration to the company.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Costello: “As Kieran described, the management of SWS at that time embraced the available aspects of the entrepreneurial ecosystem. The hiring of the right people, collaboration with local University of Cork and the creation of incentives were critical. SWS though was not certain of the market. On the areas mentioned:
- Access to markets: This access was questionable. We had one government contract, but otherwise the Irish Government had not adopted outsourcing like the UK or US governments. The model was also new in the private sector. This was a problem.
- Availability of human capital: We hired qualified resources from the local university and from returned emigrants, who had experience of the outsourcing models in other countries. There was high availability of semi-skilled labour in the region and this has provided for a stable and loyal workforce. We have the lowest staff turnover numbers in the industry.
- Funding: This was also a challenge. We didn’t have access to vast amounts of capital and the energy subsidiary was thirsty for capital. So there wasn’t much left. We needed to grow using our working capital.
- Availability of mentors and advisers: There was good availability of mentors and advisers, including the former CEO of SWS and state agencies.
- Favourable regulatory framework: Ireland is an easy place to do business. Where we needed certifications and accreditations, these were available to us as we took the right steps for training and certification. But there was little bureaucracy, so it has been possible to add new services and contracts fast.
- Training: Initially there was little specific outsourcing or shared services training and education available. We built up our own training programmes by hiring skilled trainers from multinational firms, with experience in this domain. Over time we got the state training agencies to introduce certifications in customer services, project management and other disciplines that we needed.
- Collaboration: We collaborated extensively with UCC. First UCC helped us to build our strategy. Then we collaborated with them to find good, qualified people. We have continued this relationship over the years.
- Cultural and societal support: This support has been vital to our success. We started as a farm services company and now provide regulated services to major state and commercial companies. Yet we retain a strong identity to the regions in which we work, our history and our values.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Calnan: “Despite the existing contract, outsourcing had not yet been embraced in Ireland as a business model, either in the public or private sectors. This was the major task that needed to be completed by the new team. Partnerships with universities, professional services firms and government agencies were all used to help raise awareness of the business model and to build demand.”
O’Driscoll: “The company was bought in 2006 by private investors in a leveraged buy-out. ION equity, based in Dublin, bought the wind energy company and the outsourcing business. The wind business was capital hungry. So the outsourcing company did not have capital available to invest in acquisitions or major sales and marketing campaigns. The company needed to grow organically and pay down debt as it did so.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Costello: “In 2007, the company decided to open an operation in Lodz, Poland. This was required to support lower cost demands from Irish and UK clients as the economic recession hit their businesses. The main factor was lower costs and growth potential. Poland was selected after significant review of options. But Poland would mainly be a delivery centre, since there is just a small domestic market there. We did expand our sales offices to Dublin and to London to be on the doorstep of the major buyers in the sectors we were going after.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
O’Driscoll: “The board of SouthWestern supported the international growth plans, provided SouthWestern did not overly draw on the financial resources of the company. All growth had to be organic and had to provide for the future growth potential of the company. Poland was a great choice, a stable economy that was joining the European Union. The board were concerned also about the ability to manage the cultural and business differences that would arise from this expansion. In addition, the 250 staff (at that time) in Ireland were worried that the business was going to relocate. This fear was addressed by sharing the company growth plans with staff that the international expansion would provide the scope for.”
Costello: “Initially Poland was chosen to base our operations centre, but we also wanted to build business development in international markets. After one year, we found that Poland was not a good choice for domestic sales and we moved our international sales efforts to London over the next couple of years. This learning cost us about a year of growth in the Polish market, but we quickly adapted and focused on international sales out of London, with delivery from Ireland, Poland or a blend of the two, using our technology developed over time from Ireland.”
Q7: What major role, if any, did key aspects of the ecosystem in the country(countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Costello: “Initially, the analysis of where to locate our business was conducted without much use of agencies in the various countries that we considered. We wanted a truly independent view and used independent information sources for our analysis (European Union statistics). As soon as we had built our economic and cultural business case and had a shortlist, we then worked with the universities and state agencies in the shortlisted countries. This allowed us to benchmark cultural, educational and social aspects as well as the statistics, and get an “on-the-ground” feel for what it would be like.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Calnan: “I suppose the high moment was to see this formerly regional co-op in the South of Ireland emerge into an international player. My first visit to the Polish office and the official opening with the Mayor of Lodz in Poland was a very proud moment. Winning our first UK Government contract was also a special high point. It was with the UK Department of Agriculture and was proof of our niche international growth strategy.”
Costello: “The highs were the deals we won. Our first UK deals were breakthrough with independent newspapers. Also, our first global contract with CarTrawler meant we were now open 24 hours a day, 365 days per year, delivering in 15 languages to half the world, from Hawaii to Eastern Europe and every country in between. I guess the lows are the deals you lose. We have had some major breakthrough deal wins over the last 10 years, but we lost some good ones too. It is a cliché, but you have to pick yourself up, dust yourself off and drive on. Make improvement where you need to and win the next deals.”
O’Driscoll: “The highs were the growth, the awards and the employment of such large numbers of people. The hiring of great resources always fuelled the growth and the shareholders have always been very positively engaged in the business. The company has only taken on profitable business and has continuously grown its profits over the years in line with revenues. They have won many awards including national and international recognition and Company of the Year awards.
“Of the lows, the company has had to ride through one of the toughest economic depressions in Ireland since the 1970s. Despite cuts in government contracts, a fall in commercial transaction volumes and a very tough business environment, the company continued to increase both revenues and profits.”