Gone are the days when the buzz phrase was 'breaking down the barriers' between client and contractor. Nowadays business relationships are more egalitarian, particularly between blue-chip companies such as hospitality group Whitbread and waste management specialist Viridor.
Today, buzzwords in the waste sector include 'openness' and 'smart partnerships'.
What would a conversation on waste management and corporate social responsibility (CSR) between Whitbread – which owns brands such as Costa Coffee, Premier Inn and Beefeater Grill – and Viridor, part of FTSE 250 utility company Pennon Group, which has South West Water in its portfolio – produce? What commonality is there between the two companies?
As matters currently stand, Viridor already looks after some of Whitbread's sites in the South West, albeit as a sub-contractor to Veolia, the hospitality specialist's waste management contractor.
"We have a good relationship with Veolia," says James Pitcher, Whitbread's CSR director. "Veolia is not tied into any of our targets contractually. Instead we have a contract with them that includes service level agreements and we have regular meetings with them; a key part of which is an innovation tracker. This means that if there are specific areas we want to look into, it gives us the ability to work with other organisations." The CSR director pauses before adding: "I quite like the flexibility with our current arrangements."
An abused term
Ian McAulay, chief executive at Viridor, says he has been in the environmental industry for 33 years and has gone through many cycles of partnering in different sectors. He believes 'partnering' can be an abused term.
"I think you've got to be very clear about the outcome you seek before you define a partnership," states McAulay. "You see very good examples of it in the UK and in the water and resources sector in particular , but I see others who declare themselves partnerships and aren't.
"I came back to the UK from the US 18 months ago. Prior to that I travelled all over the world and I've seen examples of excellence in recycling and resource management everywhere I've gone, but I haven't seen one nation that has managed to work consistently at the national level to deliver towards the aggregated target [when targets have been brought together]."
The CEO points to the waste partnerships in Somerset and Manchester as being examples of excellence on the municipal side of waste. "The next challenge is to bring the commercial and industrial into the model and look at how it scales up because, at that aggregated level, we have chances of hitting new 70% targets. But when we disaggregate it down to discrete local contracts, it doesn't have the same chance," warns McAulay.
As for operating in an open forum where a client and its contractors put commercial interests to one side to find a communal solution, the CEO says Viridor has been "very familiar with this concept for many years and is delivering great results in the contracts it works in. We can draw parallels and lessons from the water industry [where McAulay began his career] where it has been the norm for many, many years."
Factoring in failure
When the CEO goes into a new partnership, one of the first questions he asks the client is how much they have "priced in" for innovation and, pertinently, how much budget they have for failure. "It's quite common to find there is no budget or indeed appetite for failure. It's difficult to see how, in an immature sector, you can innovate and push boundaries unless there is an acceptance that sometimes innovation doesn't work perfectly. Therefore if you truly want or need innovation, make sure that is part of a defined process and that you can fund it properly, otherwise I don't think you would ever get to the scale you could reach."
Putting partnerships to the test
The CEO smiles before adding: "The most innovative partnerships I have worked in have actually recognised and embraced failure to some degree and have said: 'For this particular piece of innovation there's a high chance it won't work, but we've got to try it to take the steps forward that we need.' It's a great question and a great test for a partnership. Let's be clear though – the best partnerships achieve success through innovation."
Trial and error is an approach that Whitbread is no stranger to, states Pitcher: "There are a number of targets that we've set for 2020 that are key for us to achieve, but actually the roadmap to achieve them is not quite clear. We don't have a step-by-step instruction manual on how we're going to achieve our target in a specific area, so that will require a bit of trial and error. I like to try new things and, if they don't work, I don't see that as a reason for never trying it again, but to see it as an opportunity to apply it elsewhere."
There is a pause before McAulay adds with a chuckle: "The caveat on that is that we are very happy with success."
Lack of national pride
Although the CEO goes on to note: "Sometimes I despair of the UK and its ability to be so self-deprecating, talking about how bad we are at things. We have so many things to be proud of. When I left the UK many years ago, we had a very low (10%) recycling rate, and since then we've done really well to get close to 50%, but we have a major challenge to go from the current level to 70%. Technology is going to have to be brought in and technology laggards with low margins and low investment expectations are going to struggle to make that happen. It's going to cost in the long term. This applies to clients as well as contractors."
Belgium leads the way
In terms of pockets of excellence elsewhere in the world, McAulay points to Antwerp in Belgium where a 70% recycling rate has been achieved. However, he warns: "It doesn't happen overnight. They have spent many years of learning through practice which, when high performance is achieved, just makes it seem easy."
When it comes to barriers to achieving
higher recycling rates, what is holding Whitbread back?
"Last year we achieved 94.6% landfill diversion at Whitbread, but we are looking at the last 5%. Some of our sites are challenging geographically as there are long distances to take the waste and what services and facilities are around those sites. That can be solved by 'trunking' waste, but we're not keen on the increased carbon impact and doing that over long distances," says the CSR director, who confesses to be a fan of technology. "We have a fuel cell in one of our Gloucestershire hotels.
"In fact, we're very keen to trial new technologies and you can only do that by partnering with a technology provider. I can see that as being the direction we're going in."
Another barrier, of course, is cost. "You are given the budget in terms of the financial return for the business, so that can mean your capital gets pushed where you can save the most money. What with energy prices increasing – particularly in the electricity and gas markets with projections stating costs are going to rise rapidly with all companies pushing money in that area – introducing changes such as LED lighting is going to be challenging, so budgetary pressures could be a barrier."
From Viridor's point of view, McAulay says the quality of MRFs is a chief concern.
"What is the best starting point? Better regulation at the aggregated scale would be useful. I have had some really interesting conversations with senior ministers about the optimum infrastructure for recycling and energy recovery. Does it make sense to have municipal collections with local authorities and C&I collections with private companies, some areas with MRFs and some not? Is there a better model?"
The CEO returns to his favourite theme of aggregation: bringing things together.
"It's a case of managing an asset base. We need to bring all the elements closer together, while with some major blue chips we may start with a national approach. But it's all about balance. There are times when local solutions are exactly right, but do you have the right information to make that decision? I think that is the area where there is a lot of progress to be made."
Envy of the world
An example of successful aggregation is UK Water, where McAulay says he cut his teeth in business.
"There used to be many departments, whereas there is one now and that is performing very efficiently," he states. "We have a very efficient water sector that is the envy of the world. Wherever I worked around the world, people looked closely at, and in many cases copied, what the UK does. I think we need to look at some of the same principles for resource management."
With a new UK government in situ, what hope is there for the waste sector?
"It is early days in terms of their hopes and aspirations," says Pitcher promptly. "I hope they look at resource management as being a good means of helping the UK meet their renewable energy targets. Also, with recycling rates plateauing, what incentives could there be for businesses to do more? Then there are mechanisms such as enhanced capital and energy-efficient technologies. Could some of the new technologies be made more accessible and more affordable?"
Like John Major, McAulay wants to take things back to basics.
"We have to think about resources and not waste. The Scots have the right concept with zero waste and are heading in the right direction. They are trying to push forward and I applaud it. Waste is a term that suggests zero value. If we move to the resource world, that would be a monumental step forward – so would be changing the name from waste partnerships to resource partnerships.
"It's a step that has to be made; it's a name that has to be changed. Let's get the public into the area of resource management."
Sharing of risk
What are Pitcher's thoughts on risk and the sharing of risk in waste management contracts? How does he think risk should be shared between companies like Whitbread and Viridor?
"Financial risk in supply relationships is best managed through a genuine partnership approach," he says. "On the one hand, we expect our suppliers to honour the bids they make for our contracts, give us certainty that we won't be surprised with any extra charges and also reduce our costs by being innovative and constantly finding better ways of working. On the other hand, we understand that there are some volatile cost factors in the waste market and we want a successful supplier base to work with us in the long term.
"The way we manage this is through tangible steps such as financial due diligence before appointing suppliers and having clear contracts in place, but also by ensuring we have constructive working relationships with our waste suppliers, focused on our long-term commercial and environmental goals."
According to the CEO of Viridor, the sharing of risk in any long term, partnering-based waste management arrangement should be designed to provide the mutually agreed best outcome for the participating parties as a 'combined' entity. "It is important to recognise that sharing is not simply a question of apportioning financial incentives or penalties. Sharing should also involve recognising the interests and capabilities of the contracting parties who will be managing the risks and assigning responsibilities on that basis regardless of the financial risk-sharing," emphasises McAulay.
"It is vital to identify what the key risks are and acknowledge that this can cover a wide spectrum, including things such as health and safety, reputation, legislation, etc. There is also the question of external risk factors, e.g. commodity prices, which cannot be directly managed, and adopting a balanced approach to risk and reward in relation to these."
He pauses before adding: "Risk sharing is complex but essential and the arrangements which are agreed in a long-term relationship are a good test of the partnering ethos."
With Pitcher having recently joined Whitbread as CSR director, what advice would McAulay give him?
"Far be it for me to give James advice," he says. "I've seen his CV. But if I were to give him a tip that has served me well, I would say get as much perspective as you can from as many places as you can. Be curious, as I am always encouraging my 17- and 16-year-old children.
"Go out looking for things and connect the unconnected. If you think it will work, turn to technology. It will disrupt, but through the whole cycle – from materials extraction through to recycling and reuse – applying technology in innovative ways is one thing that is really going to help us." RWW