Focus on performance: the new normal?

Interim managers and the economic recovery: Annual Research 2014

O ur fourth annual survey of the interim market looks at the demands on interims and their views

on the UK business environment and the broader economy.

Whilst some sense of normality has returned after five tough years of volatile trading some things are unlikely to go back to the old ways.

The recession has further accelerated the shift in businesses’ focus on performance – there will be little reversal from that position. Expenditure and investment has to be accounted for, the need to test and prove ROI in advance is more widespread than ever. Vanity projects will be rarer than ever, and an ill-defined hunch will no longer be enough to get a major investment off the ground.

The pressure to cut costs to the bone has eased, but the pressure to measure and deliver performance is not going away.

Today, senior management in publicly listed, public sector and private equity backed organisations feel that pressure to perform at every level in the organisation right up to and including board level.

For example, the Quoted Company Alliance now recommends that businesses ensure they disclose what objectives company directors are set and how they performed against those objectives. This new best practice for the C-suite in public companies is just one example of an increased focus on quality in UK businesses. If board directors are to be exposed to that level of scrutiny then we can expect that interims will

also be more closely measured on performance. After all, many of them take on roles at, or just below, C-suite.

The new emphasis on performance and the greater demand for more “bang for their buck” both feed demand for interims because it is a sector that has a justifiable reputation for delivery. Unsurprisingly, there is increasing acceptance that interims that can prove they deliver performance are getting far higher rates than their peers.

We have been conducting this research annually since 2011. The results are based on a total of 3,064 responses from our community of interim executives, and this year we see a continuation in the trend for top class managers and directors choosing the interim path as a route to avoiding the box checking

“The pressure to cut costs to the bone has eased, but the pressure to measure and deliver performance is not going away...”

IntroductionHaving played a key role in helping UK plc deal with the shocks, cost cutting and restructurings demanded by the recession, interim managers are now helping businesses across the UK deal with the equally challenging job of delivering growth.

compliance burden that is now associated with so many senior permanent roles.

The large redundancy programmes implemented by many large corporates during the downturn have also proved, to even the most valued directors and managers, that job security can quickly evaporate – traditionally a key advantage of permanent over interim work.

With interim managers now playing such an important part in driving the success of UK corporates, we think it’s important to find out exactly what that slice of the business community thinks: not just on the role of interims but also on wider issues affecting UK plc such as the continuing debate over EU membership, corporate governance and the economy.

If you have any comments or queries on the results, or on any other aspects of the interim management market, we would be delighted to hear from you. Please email me at AKyriacou@interimpartners.com

“With interim managers now playing such an important part in driving the success of UK corporates, we think it’s important to find out exactly what that slice of the business community thinks...”

Adam Kyriacou, Partner, Interim Partners

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56%

47%

43%

2013

2012

2011

Executive SummarynDemand for use of interims at the most senior level in

organisations is accelerating – 56% of interims said they are seeing a higher percentage of interims at the most senior management levels, up from 47% in 2012 and 43% in 2011.

nWhilst interims are taking more of the most senior roles, they are also getting younger – the average age of our respondents was 53 years old compared to an average of 54 last year. 15% of respondents were aged 45 or younger, in comparison to just 9% last year.

nMore senior executives are becoming interims not just for the attractions of the role but also to avoid some of the downsides now associated with the most senior positions in listed companies – for example: our research found that 37% of respondents said that pressure over boardroom pay was a factor in them becoming interims in 2013, compared to 28% in 2012.

nProject and programme delivery roles will be in the highest demand over the next year. 30% of interims put this first, followed by change management roles at 27%. Only 9% put turnaround specialists, down from 19% in 2012.

n The biggest year-on-year jump in anticipated new job creation for interims is in the technology, media and communications sector, with over three times more respondents putting this first compared with last year (23% in 2013 compared to 7% in 2012).

According to the OECD, the UK economy is expected to grow at an annual rate of 3.3% in the first six months of 2014, outpacing the US, Japan, Germany, France, Italy and Canada. But what does that mean for the interim market?

Chapter 1 – Performance and pay: what is it like working as an interim as the UK economy grows?

Our research found that the sentiment amongst interims is that hiring for senior level executives is finally starting to heat up – after so many false starts. Just as a rise in the use of contractors normally predicts an increase in the hiring of permanent staff, an increase in the use of interims is seen as an early indicator of increased demand for senior executives.

56% of senior interim executives polled said that more businesses were taking on interims at a senior management level, continuing an upward trend evident in recent years.

Percentage of senior executives who said businesses were taking on a higher proportion of interims at a senior management level

“An increase in the use of interims is seen as an early indicator of increased demand for senior executives...”

About the broader economy:

nThe Government’s economic priority should be to cut public debt according to 55% of interims, up from 26% last year.

n68% of interims said that a referendum on EU membership would be bad for the businesses they work for.

nAlmost all (92%) of interims said that businesses need to do more to address corporate governance issues that arose during the financial crisis.

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Improved confidence in the economy and the growing use of interims has led interim managers to be more confident in their pay expectations. Our research found that a third (34%) of all interim managers polled expected their daily rate to increase in the next 12 months. That is significantly up on the one in four (26%) who expected rate increases last year.

In contrast, the number of interim managers who thought their day rate would decrease over the next year nearly halved, falling to 7% from 13%.

Nearly one in five interim managers (18%) we surveyed indicated that they earned £1,000 or more per day. Interim managers also said that they earned 48% more on average as an interim than as a permanent employee in 2013.

Given that pay rates for interims have been broadly flat for a considerable period of time, these are all positive signs that the market is improving. Those interim managers who are seen as proven performers are going to be the first to benefit as real rises in day rates accelerate.

Interims also appear to be getting younger. The average age of our respondents was 53 years old compared to an average of 54 last year. 15% of respondents were aged 45 or younger, in comparison to just 9% last year.

Our research also found that even though the senior level permanent jobs market is improving, public pressure over boardroom pay and other corporate governance issues has encouraged more board level executives to avoid the increased burden of compliance by becoming interims.

Public and investor pressure about boardroom remuneration intensified in 2012 when shareholders at a number of FTSE 100 companies rallied against their boards over executive pay, in what was termed a “Shareholder Spring”. In 2013, the UK Government in response introduced legislation giving shareholders a binding vote on how much executive directors are paid.

Our research found that 37% of respondents said that pressure over boardroom pay was a factor in them becoming interims in 2013, compared to 28% in 2012.

Increasingly, top executives are choosing to become interims because it allows them to take on exciting projects but sidestep the politics, red tape and box ticking that now goes with a boardroom post.

“Top executives are choosing to become interims because it allows them to take on exciting projects but sidestep the politics, red tape and box ticking that now goes with a boardroom post...”

Chapter 2 – The interim market: what sectors and roles will see the highest demand?

This year’s responses reveal a shifting view of which types of job roles will be most in demand as we leave recession behind and business activity picks up.

W ith corporate budgets likely to be constrained for some time the competition for internal budgets will remain tough – again with those

areas that can prove profitable ROI being placed at the front of the queue.

When asked what job function or area of specialisation they expected to see in highest demand over the next year, the top response was project/programme delivery roles, with one in three (30%) respondents putting this first, up from just over one in five last year. The expectation is that firms are likely to rely increasingly on interims’ depth of experience and breadth of expertise to implement and execute key strategic initiatives to increase competitiveness and deliver targeted growth as the business environment improves.

However, respondents suggested that broader sales and marketing teams would continue to see low levels of activity.

Prospects for change management roles remained stable with 27% putting this as the highest growth area for the second year running, but demand for turnaround specialists is expected to be lower than it was last year. Only 9% said this area would see the highest demand in 2013, compared with 19% in 2012. That is not to say interims will no longer be needed to overhaul failing companies and drive major improvement programmes – far from it. However, it does suggest that sentiment about the direction of the market is changing.

Job functions expected to see highest demand over the next year

Job function 2013 2012 2011 2010

Project/Programme delivery 30% 21% 19% 31%

Change Management 27% 27% 31% 46%

Turnaround specialist 9% 19% 19% 39%

Finance 8% 6% 8% 16%

Compliance 5% 6% 3% 7%

CEO/MD 4% 2% 2% 7%

IT 4% 5% 4% 7%

Marketing 3% 1% 1% 4%

Sales 3% 4% 1% 8%

Manufacturing/ Operations 3% 5% 4% 6%

HR 2% 1% 1% 6%

Procurement 2% 3% 3% 7%

Property/ Facilities Management 1% 1% 0% 2%

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Construction was the sector expected to create the most new interim management jobs over the next 12 months,

with more than a third (34%) of respondents putting this top. This is a major turnaround compared to a few years ago – only 4% expected to see growth in their sector in 2010 in the depth of the recession. This significant change reflects both the extent to which the sector contracted following the credit crunch and the speed with which it is bouncing back as the residential and commercial property and civil engineering markets gather pace, with interims poised to play a critical part in managing and maximising its revival in fortunes.

The biggest year-on-year jump in anticipated new job creation for interims is in the technology, media and communications sector, with over three times more respondents putting this first compared with last year (23% in 2013 compared to 7% in 2012). The explosion of m-commerce, digital transformation and overall investment in corporate IT and comms infrastructure after a long period of cost-cutting, means interims feel this is a sector set to outperform in the next few years.

Aerospace + defence

Construction

Financial services

Green technology

Manufacturing + engineering

Technology, media, telecoms

Pharma

Retail

Private sectors expected to create the most new jobs over the next 12 months

2013

Aerospace + defence

Construction

Financial services

Green technology

Manufacturing + engineering

Technology, media, telecoms

Pharma

Retail

2012

Both the manufacturing and engineering and financial services sectors are also expected to see robust jobs growth in the year ahead. While financial services reports good growth in interim usage some inherent weaknesses and threats exposed by the credit crunch and the regulatory backlash remain. This is where interims’ skills can really come to the fore, managing risks effectively and capitalising on strengths to navigate firms through what may continue to be relatively uncertain times.

Interim managers are poised to play a critical part in the rapid revival of the construction sector.

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In the public sector, the NHS was the area of government expected to create the most new interim management jobs over the next 12 months, with nearly half of all respondents (46%) putting this first. This is in line with last year’s figure (47%), suggesting that the NHS will continue to rely heavily on the skills and flexibility interims can provide, at a time when the NHS continues its radical shift towards a new commissioning model, while facing growing budgetary pressures to meet the needs of an aging population.

Clearly change creates demand for interims and the fundamental reforms of the NHS over the last few years involves a broad and deep restructuring that is far from being completed.

Central government saw the largest year on year rise in anticipated new job creation in the public sector, with 17% of interims placing this first, compared to 12% last year, reflecting recent signs of robust job growth we, at Interim Partners, have seen in this area.

An opportunity is being created for public sector interims by the government’s drive to lessen its dependence on management consultancies to direct, manage and implement projects. Making use of more skilled interims is not just about saving money: it is also about ensuring that the public sector has the right skills in-house to improve the governance and performance that was seen as lacking from many central government projects.

Chapter 3 – Interims’ opinions on the UK economic recovery

Our research found that more than half of interims thought that the Government’s economic priority should be to cut public debt compared to just over a quarter last year. In contrast, 45% of interims thought that the Government’s economic priority should be to stimulate the economy with tax breaks or spending increases, down from 74% last year.

What is particularly interesting about this is not necessarily the fact that interims believe the Government should be doing more to cut public debt, but rather that the economic recovery in the UK has moved so quickly in the last 12 months that there is now believed to be less need for economic stimulus.

With most business sectors affected in some way by the cheap monetary policy, a growing share of interims think a rise in the Bank of England base rate is needed. Our research found that 29% of interims thought that the Bank of England should increase interest rates over the next 12 months, up from only 12% of interims in 2012.

Surprisingly, a high percentage of interims were concerned about whether the economic recovery in the UK can be maintained.

In line with the business community’s general concern over “zombie” companies who are only just covering interest payments on their debt, our research found that more than a third (37%) of interims thought that an interest rate rise by the Bank of England would lead to business insolvencies on a large scale.

The possibility of high inflation also remained a pressing

concern for interims in the UK. 57% of interims surveyed said that inflation posed a risk.

An overwhelming majority (95%) thought that it was important or very important to rebalance the UK economy towards more manufacturing and exporting of goods and services. 87% of interims were either very confident or confident that an increase in exporting goods and services from the UK would contribute meaningfully to strong economic growth.

Interims, like permanent employees, have faced difficult conditions throughout the credit crunch. What do interims think should be done now to ensure a quick and full-scale economic recovery?

Interim managers increasingly believe that the Government should be cutting public debt

0

20

40

60

80

100

2012 2013

Stimulating the economy with tax breaks or spending increases

Cutting public debt

High demand for interim managers within the NHS expected to continue over the next 12 months

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Chapter 4 – The future of the EU and its impact on UK plc

Significantly, an even higher proportion – almost three quarters (74%) – said that even the debate itself over whether to hold a referendum at all could be detrimental to UK plc. This accords with the stance taken by business groups such as the CBI who have argued that the political debate over the vote on Europe has been an unnecessary distraction from the real issues affecting the economy. The concern is that it could discourage business investment and undermine the attractiveness of the UK to foreign companies looking to base operations here.

However, at the same time more than half (54%) said that repatriating powers from Europe would improve the attractiveness of UK businesses, highlighting the delicate balance posed by the whole European question. As far as most interims are concerned, being in Europe is vital, but greater autonomy over the UK’s own destiny is also important.

As politicians debate the pros and cons of the UK remaining part of the EU, interim managers think that the uncertainty surrounding this key issue could be bad for the businesses they work for. Many believe that for large-scale corporates, the impact on trade as well as their ability to recruit and retain the best talent could be considerable if Britain were to leave the EU. More than two-thirds (68%) said that a referendum on EU membership would be bad for business.

More than two-thirds of interims believe that a referendum on EU membership would be bad for business

A referendum on EU membership would be good for business

A referendum on EU membership would be bad for business

Chapter 5 – What do interims say about the state of corporate governance in the UK?More than five years since the financial crisis exposed so many risks and weaknesses within companies of all sizes and in all sectors, our research has found that many interims feel that corporate governance today is not as robust as it should be.

The overwhelming majority of respondents (92%) said that businesses could do more to restructure their corporate governance to address issues that arose during the financial crisis. While may improvements have been made, the concern is that systemic flaws could remain, and that these may continue to be overlooked or even worsen as the economic recovery takes hold.

With this in mind, almost two-thirds (64%) of interim managers said that all listed companies should have a Chief Risk Officer and an independent risk committee at board level. This is up from 60% last year. This would elevate risk to a top-level priority and would help ensure that good corporate governance is instilled throughout organisations from the top down.

Another area for improvement is greater diversity in the boardroom, according to respondents. With women and ethnic minorities still a relative rarity on company boards, many believe that companies would benefit from

taking affirmative action: 17% said that quotas should be used to increase female representation at board level.

Corporate governance is an area where interim managers’ varied experience and fresh perspective can make an important contribution. Interims’ serial placements at a wide range of companies, and their position working closely with top tier management on a day-to-day basis while reporting directly in to the board, enable them to develop an informed opinion on governance issues and to feedback best practice where appropriate.

As companies push towards placing a greater emphasis on performance and making sure interims prove their value, interim managers also have the opportunity to instil positive change from within, especially in the area of corporate governance.

The number of interims who believe that quotas should be used toincrease female representation on company boards continues to rise

17%

16%

15%

2013

2012

2011

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The scope of their role has also been significantly broadened by the recession, shifting from implementing tactical programmes to more strategic change.

The mission-critical cost cutting and turnaround programmes implemented by many interims during the recession were the difference between survival and insolvency for many businesses.

Even with the recession behind us, businesses are now getting used to asking interims to lead the delivery of the kinds of in-depth structural changes that have traditionally been the preserve of top tier strategy firms.

However, for interims to continue to

pick up these key roles they will be expected to continue to find ways to measure and prove their worth.

The feedback we are getting suggests that demand for interims over the year ahead looks likely to strengthen in the construction, consumer, media and technology sectors. We also expect both the manufacturing and financial services sectors to build on recent high levels of demand to create a strong pipeline of new roles in the year ahead.

So although the purse strings might slowly be loosening, any investment in staff – whether permanent hires or interim appointments – will be carefully scrutinised. Few companies are yet prepared to take the risk of

appointing someone that does not meet the criteria they have set out and that extends to the interim job market too.

However, having demonstrated throughout the recession that interims can be highly effective additions to the skills of permanent top management teams, it is clear that they will continue to play a key role in leading and delivering the growth plans of businesses as the economy recovers.

At Interim Partners, we are keen to work with both interim managers and the businesses that use them to ensure that the unique value, skills and insight that interims can bring are fully utilised.

Conclusion – How can UK corporates make the most of interim managers’ expertise going forward?

About Interim Partners

We place experienced individuals into a wide range of roles for clients in the UK and internationally. Our blue chip client base includes companies from the Fortune 500 and FTSE-100 through to rapidly growing SMEs and the public sector.

Placements of interims by sectorFinancial & Professional Services has been the most active area during 2013-14, with over a third of interim executives being placed in this sector.

There was also significant activity recorded within Manufacturing, Energy, Infrastructure and Services, which accounted for 21% of placements. This is currently our second largest sector.

The public sector accounts for 19% of placements followed by Consumer, Retail and Technology with 18%.

Since the recession, UK corporates have increasingly recognised that interims are not just a substitute for senior executives – they can also deliver skills and experience that complement those of the board and other senior managers.

Breakdown of interim executives placed by Interim Partners during 2013-14

Other

Financial + professional services

Public sector

Consumer, retail+ technology

Manufacturing, energy,infrastructure + services

Interim Partners helps clients manage change by providing a flexible and experienced executive resource for company turnarounds, change programmes and short-term cover for executive absence.

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hello@interimpartners.comLondon Office: 020 7936 2865Harrogate Office: 01423 531022