Transcript

DAVID P. MONK

So the question I was answering within my MBA project was how could the hospital I was working in report against the new Department of Health mandated reporting standards for use in emergency departments that measured the care and the time patients spent in the emergency department with timestamps and reporting requirements throughout the patient's journey?

So the question I answered for my project or, rather, the project focus was literally looking at the threats coming from the external environment. And in the case of my project, it was a nationally-mandated change in how we reported patients' journeys through an emergency department at an NHS hospital, arising from a nationally-mandated change in reporting coming from the Department of Health and recognising that currently we weren't reporting against those standards, and we needed to move quite quickly to meeting that national requirement.

NARGIS MCCARTHY

The main question that I was trying to find the answer to in my MBA project was, essentially, how could knowledge be shared within an organisation, within a department, where knowledge sharing didn't really happen, it didn't really exist, and no one really understood what knowledge sharing was?

The way that I came up with a specific question was really an iterative process. So it involved me collecting a lot of information and evidence. So collecting interview- so undertaking interviews and speaking to stakeholders, looking at publicly-available information such as the accounts, utilising data that was available to me, but also, as well, undertaking a rich picture to understand the organisational context and the problems within the organisation.

Also, as well, using different academic theories such as the power-versus-interest matrix. And essentially, it was a constantly iterative process of gathering information, analysing the situation, and then going back to- as to whether I felt that that specific question would allow me to, one, undertake a MBA project that was suitable and also, as well, allow me to make a difference within the organisation. But it was very much an iterative process of narrowing down the scope of the project and the question.

KATHRYN MUNT

I would say that as a curriculum and assessment organisation, there was an expectation from our customers that we would help those students from the beginning to the end to get their qualification. And we were letting those customers down. And I needed to find the answer to how to overcome that and because that was my area of responsibility that had been given to me.

So thinking about how I came up with this question- and I think, fundamentally, I'll just qualify this with that- I come from a very commercial background. So I'd always worked in for-profit organisations, creating educational products. And so my main concern was we're getting a big complaint here from customers. This is wrong.

And it's my remit- it's my role to do something about it. But it also- the question- choosing that question was a pragmatic decision, because it was part of my job to do something about it. And it was in my job description to come up with a new strategy and new product service strategy. I thought, well, I'm not going to have time to do something outside of what's in my current remit.

I've just recently started this job. So to look at something perhaps further afield, I wouldn't have time to do that, wouldn't have the resources, know the people, know how to go about doing that. And then again, I think I felt that this was something that would really help me apply my MBA learning, my MBA education. My favourite module was strategy. So I was absolutely really keen on looking at how I can develop a new strategy here.

GILLIAN HANNON

So the main question that I'm- that form the basis of my project was whether we could capitalise the R&D expense to the balance sheet under IAS 38 in a way that a pure form pharmaceutical company could not. Because I felt that we had more flexibility, because we were a medical device company.

And this was clearly a sort of shift in thinking within the finance department. Because as I discovered, they were quite risk averse and quite subject to the herd instinct. So in order to- I did go through a sort of laddering technique in order to actually go from more of the conceptual big picture to getting down to the actual question about, could we capitalise the R&D expense?

So initially, just to go through that laddering technique. So the bigger picture was to move from a 590 billion group company to a 1.5 billion FTSE 100 company by 2021. So all of my colleagues, including myself, wanted to work towards that goal. We wanted to make a difference. So the strategic goal under that was looking into the 60:40 ratio of R&D to overhead spend in a project and whether that was optimal.

So just to give you a brief overview on IAS 38 in the context of that. So IAS 38 allows for qualifying R&D spend to be capitalised on the balance sheet, instead of expensing it to the income statement. It's then amortised over a product lifecycle. So the value out of this is increased profitability, because you're not expensing all of your R&D costs and thereby reducing your profits.

You're capitalising and amortising over time, so you're driving higher earnings per share and reduced taxation because of capital allowances for R&D tax relief. So this has the advantage of allowing for more profits to be distributed via dividends, ultimately driving up the share price, potentially decreasing the cost of credit. So that was the background.

However, this is where the buck comes in. It was an established convention that because of the risks inherent in the pharmaceutical industry, you do not capitalise the costs of drug trials, as there is a risk that the grant of final regulatory approval will not happen.

However, I felt- as we were positioned in the medical device sector, which is less heavily regulated and there's more of a probability of success when you reach a certain point- that the applicability of IAS 38 to our company was more opaque and therefore open to more interpretation. So therefore, I chose that as the basis of my inquiry.