History
SWS Group
The SWS Group’s journey from humble regional cattle breeding station to diversified services group with market-leading positions in renewable energy, outsourcing and business services is truly remarkable. The story of how the Group utilised strategic planning, R&D and innovation to create a business with an enterprise value of over €600m in less than ten years could serve as an inspiration to other Irish businesses in these challenging times.
Background
The SWS story goes back to 1957 when the South Western Cattle Breeding Society was established in Bandon, Co. Cork to meet the AI needs of the farming community in the South Munster area. Over the years the society branched out into a number of related sectors, including milk recording, farm accounts and forestry.
In 2000, with Kieran Calnan at the helm, SWS initiated a major strategic review that looked at opportunities for further development and growth. The review team looked at key evolving global trends and the opportunities they might present. Two areas emerged as worthy of further development: broadband-dependent services (which developed into business process outsourcing) and renewable energy.
Business process outsourcing
Around 2000 there was much discussion nationally about the need to roll out broadband to facilitate balanced regional development and job creation. SWS saw how this could lead to significant opportunities in areas such as shared services and data processing. The outcome was the establishment of SWS Business Process Outsourcing (now SouthWestern) which over time came to be a market leader in the provision of front and back-office services to leading organisations in Ireland and the UK. SouthWestern now employs 450 people in its operations in Clonakilty and Bandon and a further 150 in Lodz, Poland.
Renewable energy
Behind the drive for renewable energy was the signing of the Kyoto Protocol in December 1997. SWS management felt that this new emphasis on combating climate change and reducing carbon emissions presented opportunities in renewable energy. Ideas such as wind energy, biomass, and waste-to-energy were considered at length, and this led eventually to the setting up of SWS Energy, which grew to become the largest independent wind energy player in the country.
Ancillary service businesses
SWS also established a variety of other service businesses in areas such as property, accounting, financial services, marketing, forestry and the environment. These profitable businesses were extremely important for local development and also as sources of funding for the growth of the two major businesses of energy and outsourcing.
SouthWestern
Business process outsourcing: the foundations
SouthWestern’s success in developing a business process outsourcing (BPO) business was founded on a number of factors that came together at the right time:
- The company’s experience in data capture services;
- The availability of physical and communications infrastructure in West Cork; and
- The ability to attract people with the right blend of expertise and leadership.
Data capture services
As far back as 1996, SWS was successful in bidding for a contract to provide data capture services relating to cattle births for the Department of Agriculture. Over time this work expanded and SWS gained critical skills in the areas of data processing and management, IT and customer support – the core skill sets for the BPO business.
Infrastructure: buildings and communications
The SWS Group played a key role in setting up the West Cork Business and Technology Park in Clonakilty as a focal point for investment in West Cork, and this was enhanced considerably by an investment of over €20m in broadband infrastructure by Eircom and BT. In 2004 SWS relocated its Department of Agriculture activities to the Technology Park where it now had the physical and ICT infrastructure necessary to expand its area of operations.
Investing in people
The final and key ingredient for the development of a successful BPO business was investment in people with the right expertise and profile, and among the new arrivals to SWS at this stage were people with very strong IT and BPO experience. Jim Costello, who would eventually become CEO of SouthWestern, joined from Unisys where he had accumulated extensive experience of working in the BPO sector worldwide.
BPO: winning contracts – building momentum
With the foundations for a successful BPO operation in place, SWS began to win contracts and open up opportunities in a range of new areas. The company’s first major BPO business came from Independent News and Media (INM) who were looking for providers of front-office, financial back-office and supply chain management services for its Irish businesses. Against stiff international competition, SWS won this business by assembling a cross-functional team of specialists with proven expertise in customer service, finance, IT and administration. The INM contract was very significant for SWS because it enabled the company to scale up and expand its area of operations.
SWS also played a part in helping the newly-established Personal Injuries Assessment Board get up and running. This contract was won in open tender against some of the leading global providers; so by this stage, SWS had put itself firmly on the map as a credible international player in the BPO arena.
Topaz Energy was the company which was formed out of the purchase of Shell Ireland by ION Equity, a leading Irish corporate finance house. As ION Equity was extracting the Shell Ireland activities out of Shell Europe it turned to SWS to provide back-office services, including accounts payable and financial reporting. This was a challenging project for SWS as it involved transferring elements of Topaz Energy’s financial operations into Clonakilty and out of Shell’s European shared services centres in the UK.
And what did ION Equity think of SouthWestern’s performance? Well, they liked it so much they invested in SWS’s BPO and renewable energy operations.
Expansion into Poland
SouthWestern is constantly looking at new and exciting ways of growing and gaining competitive advantage. One such idea that has now come to fruition is that of mixing ‘near-shore’ services in Poland with onshore services in Ireland, which came about with the opening of a delivery centre in Lodz in 2007. This has enabled the company to provide customers with a blended model of service in which higher-value ‘close to customer’ activities are carried out in Ireland and back-office transaction type procedures are carried out in Poland, with considerable savings for clients.
Innovation and emerging trends
SouthWestern has always maintained a commitment to innovate both in technology and in its business practices, and understanding how technology can integrate with BPO best practices to create powerful solutions has been a hallmark of the SouthWestern success. BPO is a fast-moving business, and SouthWestern needs to keep up with emerging trends. One such trend that the company has identified and turned to business advantage is the increasing demand by companies to return previously offshored business functions (such as customer contact management) closer to home. The company has invested heavily to meet demand in this area, offering (for example) 24/7 multilingual services to a range of clients across different sectors. Another innovative service that SouthWestern offers is helping companies keep up with what customers are saying about them on social networking sites. This is particularly important for companies in consumer markets.
SWS Energy
In the course of its strategic review in 2000, SWS concluded that the impetus behind the Kyoto protocol and the need to combat climate change would create significant opportunities in renewable energy. The company conducted detailed research into wind energy, biomass and waste-to-energy production, as, unlike traditional fossil fuels, these energy sources are both more environmentally friendly and sustainable in the long term.
Ireland is one of the most promising locations in the world for capturing and exploiting wind energy. However, at the time, harnessing the wind to create energy was a relatively new concept, which had failed to produce the expected results in other locations, such as California and Eastern Europe.
Nor is it simply a matter of using technology to exploit a natural resource – commercial success also requires a favourable regulatory environment, planning permission, connection to the national grid, and an open market for energy that facilitates the sale of electricity into the grid. Despite these difficulties, SWS was determined to become a leading player in the wind energy sector. The target was to have 100MW of generating capacity in place within five years.
The company recognised that it could leverage its existing strengths to overcome the obstacles:
- Through its forestry business, SWS had experience in land acquisition and management;
- Through its financial businesses, it had expertise in financial modelling; and
- Through its environmental services business, it had expertise in planning and the environment.
SWS established a multi-disciplinary team to develop the wind energy business, under the direction of Tim Cowhig. The team included expertise in engineering, planning, grid connection, financial modelling, and legal and regulatory affairs.
Regulatory environment
In 2000, Ireland’s energy sector was dominated by the ESB – a State-owned monopoly providing energy primarily from fossil fuel sources. An independent energy supplier would have no chance of commercial success without considerable change in the regulatory system. SWS worked closely with the Department of Communications, Energy & Natural Resources, the Department of Environment, Heritage & Local Government, the Department of Finance, the Commission for Energy Regulation, and the European Commission to bring about a more liberal and enterprise-friendly regime. SWS was one of the founder members of the Irish Wind Energy Association, and, as chairman of the association, Tim Cowhig had considerable influence in convincing Government of the need for change and of the benefits that would accrue to the country as a whole from such a change. These included a clean, sustainable energy sector, with the potential for significant employment, security of energy supply and more competitive consumer prices. These activities were successful: the ESB is moving to a position where it will only have 40% of the market going forward, competition is actively encouraged, and renewable energy sources account for an increasing share of the market.
Site acquisition and planning
Development of a significant wind energy business required SWS to identify suitable sites for turbines, and to acquire rights to them. The environmental engineers on the team developed an innovative piece of GPS software to map and identify attractive sites nationwide. The team then had to secure planning permission from the relevant local authorities. This also presented a challenge, as there was no history of planning for large infrastructural projects in rural locations. Again, the team engaged in an extensive consultation process with key stakeholders, including the Department of Environment, Heritage & Local Government, the local authorities, and community groups, in order to ensure success.
Technological innovation
Research and development and continuous innovation in all aspects of the energy sector were critical to the success of the business. For example, the company constantly researched the latest turbine technology to ensure optimum performance on each of its sites – SWS was the first company in the world to implement V.90 turbine technology – the largest turbines available worldwide at the time.
Financing
The financing of these projects was also highly innovative. SWS grew the business with significant bank borrowings, and was a pioneer in this respect. This was achieved by creating comprehensive and realistic business models that convinced the banks of the commercial potential of these projects. The first wind energy project SWS developed had 90 per cent debt, which was unique at the time for projects of this nature. And in December 2008, despite considerable uncertainty in the financial markets, SWS Energy completely refinanced its business on very favourable banking terms.
Commercial operation
Starting in 2000, the Government conducted a number of competitive tendering processes for the supply of electricity. In the first of these, SWS was outbid by other operators who tendered at unrealistically low rates. While these operators were awarded licences, they were unable to deliver their projects. A further tender competition was held in 2003 following which SWS was awarded licences for a total capacity of 77MW. Another competition for licences was held in 2005 and in this instance SWS were successful in getting approval for a further 225 MW’s. They also had another 300MW of capacity strategically positioned for development over the next three to five years. SWS Energy continued to expand, and by 2009 had become the largest independently-owned wind energy business in Ireland. In December 2009, Bord Gáis acquired the SWS Energy business in a deal valued at more than €550m – the second largest takeover in the country that year.
The next phase
In 2006, SWS management sought out fresh investment to realise their ambitions in Renewable Energy and BPO.. Ion Equity, a leading Irish-based finance company with ambitious plans for the business led an investment in SWS.. The business was separated into two divisions, each having its own board and management team, and Eoin O’Driscoll was brought in to chair this phase of development.
Backed by Ion, SouthWestern is poised to grow from 550 people in its Irish and Polish operations to over 1,000 people across multiple locations within the next five years. The SWS journey is by any standards a remarkable one. In 2000 when the major strategic review was being undertaken the balance sheet value of the business was in the region of €20m. In December 2009 the SWS businesses had an enterprise value in excess of €600m.
In seeking to identify some of the key success factors Kieran Calnan’s comments are insightful:
‘There were a number of key things that drove our business success. These included a clear vision of where we wanted to go, the burning ambition to achieve that vision and, critically, having the right people in place to make it happen. These factors aligned to research and development, innovation and hard work are what helped us succeed.’
