In my opinion

In my opinion - Chartered Management Institute companion Bo Lerenius, group CEO of Associated British Ports Holdings, believes consistency is what wins the day.

by BO LERENIUS, group CEO of Associated British Ports Holdings
Last Updated: 31 Aug 2010

Chartered Management Institute companion Bo Lerenius, group CEO of Associated British Ports Holdings, believes consistency is what wins the day.

In 1870, in a speech to the House of Commons, Benjamin Disraeli intoned: 'The secret of success is constancy to purpose.' As the group chief executive of Associated British Ports Holdings (ABP), which owns and operates the largest ports group in the UK, this is a precept that I hold dear in my business and management philosophy, along with 'keep it simple'.

I was appointed to this post in 1999, a few months after a major strategic review of the business had been carried out. In my opinion, as the 'new broom', you can speak softly without having to carry a big stick - you don't change things for the sake of change, or so that your presence can be universally felt. The strategy to grow the business was fundamentally sound and the board, as well as the senior management, took ownership of the strategy. I saw my task as further improving that strategy and making it more rigid. Obviously, the task was also to head its implementation and to roll it out through the ranks so that everyone in the company had buy-in.

And what is our strategy? To be a 'ports company in the business of growth': as simple as that. It is so easy to lose sight of one's direction. Just because we handle more cruise liners than any other UK port, it does not mean we have to enter the cruise-shipping business; just because we have large holdings of land that are no longer required for port operations, it does not mean we should build cineplexes and shopping malls. We are a ports company - it's what we know best; it's what we're good at. We berth ships; we handle commodities; we operate terminals.

In the past three years, the relentless focus of our strategy has been to grow our existing core ports and transport business. The disposal of non-core assets continues, and proceeds from the disposals have funded a share-buyback programme and a major capital investment programme in our ports business.

The company's core ports and transport business operates in a highly competitive marketplace, where standing still is the equivalent of a death sentence. We have been growing the business with existing customers, by strengthening and cementing relationships through rigorously targeted investments and commercially attractive projects, producing an internal rate of return of at least 15%. These projects are customer-driven and linked to long-term agreements, guaranteeing not only good returns but also a secure and steady flow of revenue.

More than 50% of our business is secured under contract. The 21 locations of our UK ports provide a good geographical spread of risk and no single type of cargo accounts for more than 10% of our UK ports turnover, making the group more resilient to the possible effects of any downturn in trade volumes.

Attracting and creating new business with our customers, both old and new, has also opened up opportunities to offer them value-added services in their supply-chain management, and extending the range of activities they can avail themselves of within our ports. These include operating terminals, storage and warehousing,freight forwarding and distribution.

Although we are not averse to bolt-on acquisitions in principle, in practice we apply the same rigorous investment criteria to those activities or possible acquisition targets as in areas where we already have a high degree of expertise. With the potential we see for growth in our core UK ports business, big strategic acquisitions are not on our agenda.

Acquisitions based on speculative developments in areas where one has very little experience or knowledge suffer from high margins of error and uncertainty - you have only to look at recent corporate scandals to understand this point. In a difficult economic climate, such acquisitions could be disastrous. If you don't know where you're going, you will probably end up elsewhere.

A good example of our strategy in action is the recent investment we made to grow our roll-on/roll-off business. This was a creative response to a customer's needs following a significant increase in traffic on its popular Irish Sea sailings. P&O Irish Sea, a customer for more than 30 years, had outgrown the port that it had been operating from.

We persuaded the company to move its operation to our Scottish port of Troon, agreeing to construct a new pounds 5 million terminal that would improve not only cargo handling but also vessel turnaround, essential for maintaining the customer's high standards of service in a competitive market. We won the business, secured the right returns and continue to work in partnership with a much-valued and longstanding customer.

At the same time, we have constructed similar deals with customers totally new to ABP.

In this way we ensure growth in our business going forward.

For a business strategy to produce effective results and business solutions, it has to be consistent. It is essential for one's management team to be constantly focused on the execution of strategy. The great chef, Paul Bocuse, was once asked: 'Who does the cooking in your restaurant when you're not there, travelling as you do in Quebec, Osaka and Hong Kong?' He replied: 'The same people who do it when I am there.'

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