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MAXIMISING THE SPEED OF RECOVERY: ALLOCATING CAPITAL EFFECTIVELY

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Simon Bittlestone, CEO of Metapraxis

 

How has COVID-19 impacted businesses’ financial plans?

The uncertainty thrown up by the COVID-19 pandemic has meant that many businesses have been feeling the strain and extra pressure on their cashflow. While measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) were put in place, for some businesses, these have been ineffective in providing much needed liquidity. This has affected smaller businesses significantly, as they are much more likely to default on loans than their larger counterparts, and therefore less likely to have a loan approved.

In April this year, a survey showed a pessimistic outlook for SMEs predicting that many would run out of cash in as little as 12 weeks. Taking into account various other factors at the time, Metapraxis predicted this time frame could be shorter still, giving certain businesses just 6 – 8 weeks.

 

What do you think the next few months hold?

While the outlook of businesses may have changed continuously since the beginning of the pandemic, it would be naïve to think we are out of the woods. The worst of the economic recession is still to come, so good allocation of capital and effective management of cashflow is now more  important than ever.

 

What factors do businesses need to consider in order to effectively optimise their strategy?

Financial results depend on how businesses split their capital across different strategies, projects, products or services, as well as various regions. Clearly it would be beneficial to back the most profitable service lines in a time of financial uncertainty, but in order to get this right, businesses need to consider three main points: multiplicity of inputs, complexity of comparison and multiplicity of output.

Multiplicity of inputs looks at the number of assets that can be supported. The more assets there are, the more complex the challenge of coordinating capital allocation appropriately. Tied in with that, a business also needs to be able to realistically compare one asset’s return with another’s. This is the complexity of comparison; it is hard for the board to choose which assets to support if they are not directly comparable with each other. Finally, and perhaps most obviously, all of this needs to fit into the overall goal of the business, and what areas it is trying to maximise.

To add to this already difficult process, multiplicity of output is going to change dramatically over the coming years, as companies begin to consider other factors such as climate impact, employee wellness and social responsibility as outputs.

 

What should businesses be focusing on in the short-term?

Businesses must focus their efforts on financial return. Doing so is a key part of any businesses’ recovery from financial hardship, even if they are caused by unpredictable ‘black swan events’ such as coronavirus.

Many things remain fixed in a short-term model. During recovery from such events there is not generally time to create a whole new product line, or explore a different service, although some more agile businesses have of course been able to achieve this. Building a top down model of the business is therefore key in order to streamline processes and manage cashflow, providing the necessary liquidity to survive.

 

What longer-term changes should businesses be aiming at implementing?

With multiple inputs and outputs to consider, the long-term equation is extremely complex. Businesses often underestimate the importance of building a model that allows directors to see the impact of different factors on profitability and cash flow. The ability to reach long-term goals very much depends on identifying future risks and changes in the market, and being able to react quickly.

This can only be done by analysing historical return on investment by business unit, region and product or service, and applying these ratios to test future assumptions. This allows management to run different scenarios quickly and then test these with operational deliverability. If the management team can analyse how various future scenarios might pan out and what the impact might be on the business, it can use this information to make better decisions.

Any company that doesn’t have a model like this will find themselves at a massive disadvantage as we approach the next two years of economic recovery andit is the finance team who must take responsibility for rectifying that.

 

What is the key takeaway for businesses who are looking to learn from COVID-19?

Capital allocation has always and will always be at the heart of any business’s operations. This is even more prevalent in times of economic recession when managing cashflow becomes even more vital for survival. When a business has a clear historical overview of its portfolio, how well products or services are performing, and how previous scenarios have affected profitability, it can make more informed decisions when it comes to assessing the impact of an unexpected event.

The ability to adapt to fluctuations is hugely important to the board, particularly the CFO, when it comes to successful cashflow management. Agility in financial planning, good scenario modelling and prudent assumptions will allow a business to better weather most storms.

 

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HOW PROCUREMENT TRANSFORMATION CAN DRIVE BUSINESS VALUE, CONTINUITY AND RESILIENCE

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George Booth, Group Chief Procurement Officer, Lloyds Banking Group and Henrik Smedberg, Head of Intelligent Spend Management UKI, SAP

 

As the largest bank and insurer in the United Kingdom, Lloyds Banking Group counts on a vast network of global suppliers for everything from technology to office supplies and services. Managing supply chain risk is a top priority for the group’s procurement team. So is enabling optimum contract outcomes, supply chain sustainability, and simple, transparent buying and selling for employees and suppliers. To unify and standardise procurement processes and gain the deep data insight it needs to ensure stable, secure, and compliant supply chains for the bank and its customers, Lloyds embarked on a digital procurement transformation.

In this Q&A, George Booth, Group Chief Procurement Officer, Lloyds Banking Group and Henrik Smedberg, Head of Intelligent Spend Management UKI, SAP, explore how they embarked on a digital procurement transformation journey and the current challenges and opportunities in the procurement space.

 

  1. What are the complexities and opportunities of having such a broad ecosystem and what has the past year highlighted when it comes to supply chain risk?

George Booth: Lloyds Bank has been serving the households, businesses and communities of Britain since 1765. To serve more than 30 million customers, we rely on a vast network of global suppliers for everything from technology to office supplies and services. The supply chain ecosystem offers huge opportunities, particularly in managing end-to-end supply chain risks, driving value, leveraging innovation and ensuring supply chain sustainability. Managing such a broad ecosystem is a highly complex process, with a clear requirement for standardised procurement processes, transparency and insight to ensure stable, secure, and compliant supply chains for the bank and its customers.

Henrik Smedberg: Our recent research with Oxford Economics revealed that less than half (49%) of executives surveyed regularly refresh risk mitigation plans to address potential supply chain disruption. However, from panic buying loo rolls to the spike in e-commerce, the past year has highlighted the vital need for digitalisation and end-to-end visibility.

Managing supply chain risk has always been a priority for Lloyds, so our work together centred around continuing in this vein – providing the deep data insights needed to mitigate risk and ensure stable, secure and compliant supply chains for the bank and its 30 million customers.

 

  1. Covid has forced a number of companies to transform digitally, and this has increased trust in banks. What has this period been like for Lloyds and what have we learned about the importance of data and analytics?

George Booth: The impact of the pandemic has been felt across the world and even today the news round coronavirus is continuously and rapidly changing. Lloyds Banking Group is committed to providing a swift response to the latest updates to ensure that all our stakeholders are supported and kept well informed. By following a responsive, flexible and collaborative approach we have leveraged our supply chain to ensure extra support has been offered to customers, colleagues and suppliers when needed.

Henrik Smedberg: From our research with Oxford Economics, we have identified a small group of ‘Leaders’ which are organisations that have invested more in digital transformation and are further along in automating end-to-end processes. As such, these Leaders have been able to make better-informed spend decisions across the business, with 70% saying they have been able to gain a clear view of overall spend automatically, in real time. This allows them to achieve better results, compared with other respondents, in operational efficiency, supplier performance, compliance, risk management and cost reduction and tells us a lot about the importance of leveraging data and analytics.

 

  1. What were the core drivers of this partnership and how has the transformation project rolled out?

George Booth: With a need to unify and standardise procurement processes – and gain deep data insight to ensure stable, secure, and compliant supply chains for the bank and its customers – Lloyds embarked on a digital procurement transformation process. We needed solutions to stay agile, flexible and keep our services running by giving us complete visibility into our supply chain, to manage risk and deliver real business value, as well as ensuring colleague experience was vastly improved. The partnership with SAP Ariba provided expert guidance and the technology proposition to make our digital procurement transformation work.

Henrik Smedberg: We worked with Lloyds to help accelerate them into the ‘Leaders’ category. Automatic integration of contract terms, pricing and discount data into POs has increased visibility for sourcing managers; machine learning has helped optimise catalogues so buyers can find what they need quickly; procurement data analytics has increased spend visibility to allow greater buyer autonomy. This has enabled Lloyds to achieve spend management transparency to support supply chain continuity and resilience – something all organisations aspire to achieve.

 

  1. What benefits have you seen as a result of working together and what does this mean for the future?

George Booth: Under the theme simplify, integrate, digitise, the programme motto focused team members on the colleague journey, stating: ‘You can only make a first impression once.’ One statistic captures the colleague journey success: it now takes an average of six clicks to complete a transaction, compared to 30. This user-friendly experience, automatic integration of contract terms, pricing, and discount data, as well as machine learning to optimise catalogues has transformed the requisitioner experience.

Henrik Smedberg: Our work with Lloyds shows us that organisations need to take a three-pronged approach to mitigate supply chain risk and advance their procurement digital transformation: embrace data and analytics, unlock the power of AI and drive adoption. As our research demonstrated, those that have done all three have been able to strategically up-level their procurement function for better business impact, and Lloyds is a shining example of best practice.

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Interviews

FINANCE DERIVATIVE INTERVIEW Q&A WITH ULF ZETTERBERG

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Ulf Zetterberg,Co-founded, Seal Software

 

  1. Can you tell us a bit more about Seal Software and your role at the company?

Seal Software created the contract analytics market. It was the first business to use an AI-powered platform with intelligence, automation, and visualization capabilities to enhance the management of contract data. Seal leverages elastic cloud scalability, multi-instance data security, and rapid virtual deployment to support contractual processes at all scales. Machine learning and natural language processing capabilities enable the software to find contracts across networks quickly, and to understand the risks and opportunities hidden within those contracts. The software is applicable in multiple use cases from compliance and NDAs, to M&A and procurement.

With regards to my role, I co-founded Seal Software in 2010, together with Kevin Gidney, who was the CTO. As CEO, I oversaw the rapid growth of the company from start-up to market leading provider for contract analytics. I then oversaw the acquisition by DocuSign for $188 million.

 

  1. What do you believe were the main factors behind the success of Seal Software as a business?

Ulf Zetterberg

Key to Seal’s success was its customer-first approach. Seal was a platform specifically designed for enterprises. As such, it was essential for us to collaborate closely with our enterprise customers to build out a solution that worked for them. This close collaboration allowed us to really understand how we could best automate our customers’ work and provide support across multiple use cases.

 

  1. What are the key challenges facing enterprise software companies looking to scale?

In order to scale and access new markets, enterprise software companies need to make sure their solution is easy to use and that it creates instant value for the customer. Gaining a deep understanding of the day-to-day challenges that customers face is crucial if you are going to provide real value.

As well as making sure your product is accessible and solves a problem for your customer, you need a clear mission. Having a clear value proposition and ROI will allow you to scale your organization rapidly and effectively, in multiple regions and countries simultaneously.

 

  1. What benefits can enterprises gain from scaling internationally? 

As enterprises scale, they gain access to greater pools of resources and knowledge. Sharing experiences and learnings, both internally and externally, across a scaling enterprise allows you to build and share best practices. Similarly, as an enterprise grows, it will gain access to a larger talent pool, meaning it can hire the best people to help build on its success and drive the business forward.

Although there will be differences across an organization that has reached international scale, the world is smaller today than it was ten years ago, so customers in different countries have more and more things in common. As a result, enterprises can draw on these similarities to deliver a solution that solves a universal problem faced by customers around the world.

 

  1. What insights have you gained from being involved in several software and analytics businesses simultaneously, whether that be as an investor, advisor, or board member? 

I currently have over 25 years of experience in enterprise software and services. At present, I am fortunate to hold multiple roles across several software and data analytics businesses. I am President and Chief Revenue Officer (CRO) of Time is Ltd., a productivity analytics company which seeks to create a new market for analyzing how organizations operate and collaborate. I am also investor and advisor to several other software companies, and I have recently taken on the role of board member at Sinequa, a leader in enterprise search.

My key takeaway from the varied experience I have had throughout my career is that the organization, management, leveraging, and protection of data is the lifeblood of most companies. It is the effectiveness of data management that determines a company’s level of success.

 

  1. What experience are you going to bring to your new role as board member at Sinequa and how will that shape your role? 

Sinequa is at an important stage in its growth as it seeks to accelerate its international expansion. The company achieved a strong performance last year, despite the circumstances of the pandemic. It increased its total customer billings by 30 percent and signed new logos across the globe, from global pharmaceutical and healthcare manufacturer GlaxoSmithKline (GSK), to the second largest energy and power company in the world, Électricité de France (EDF).

I have been impressed by the company’s resilience, and there are hopes that there will be continued growth this year, so I will be looking to help build on its success in my new role. As a board member, I will be drawing on my experience of scaling enterprises to provide guidance and expertise on how to drive global growth, and a key part of this will involve building effective go to market strategies for new growth regions for the business.

 

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