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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.

 

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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EVOLUTION OF THE LIFE INSURANCE INDUSTRY

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by Samantha Chow, LAH Markets Lead at EIS

1.  What problems does the life insurance industry face when it comes to data?  

The most significant problem that life insurers face is how they use data and how it is spread amongst multiple legacy systems.  Sometimes the data is split over at least 25 different legacy systems all through the business.

This data is also typically defined differently between disparate systems. For example, in one system of record, the policy number may be the key identifier for a policy, and in another system, it could be the national insurance number. This makes it extremely difficult to pull data together to get a clear picture of an individual’s policy life cycle or journey.   

Without understanding what the entire journey looks like, tools like AI and ML are only superficial. These tools can only work in situations when it has unhindered access to all the information, during the underwriting and onboarding process, for example.   

With modern core technology, life insurers are able to integrate legacy systems through open API architecture and provide an all-around view of the customer. 

2.       Why is data quality an extensive challenge for the life insurance industry?  

The data is often fragmented and stored in separate blocks for each piece of software being used. For example, claims need access to a data centre in order to access underwriting data for the claims review process. With this data often being disparate over various areas, most of it is recorded manually. 

We are now starting to see the automation of applications and a movement from paper to electronic, but this isn’t happening enough to improve the not in good order challenges (NIGO) that life and annuity providers experience.   

The amount of manual data entry that still occurs creates immediate challenges and challenges that arise later down the line. The mistakes made in the application process will haunt the insurer down the road when it comes to the likes of billing, payments and claims.   

However, life insurers can use solutions such as LexisNexis Risk Solutions or Equifax to help with the onboarding process. These are great solutions and can check for any potential inaccuracies in the customer’s address, telephone number and finances. With that being said, insurance carriers’ archaic legacy systems will still leave space for manual errors, with some even leading to fines. 

3.       How has technology impacted life insurers?   

With 59% of insurers upping digital transformation spend this year, it is clear that they understand how important technology and automation are. However, insurers tend to have outdated legacy and modern legacy solutions, which slow down the insurer’s response to product development and changes.

Insurers will need the technology platform that follows the coretech model to enable an ecosystem to meet customers anywhere, any way they wish, with the products that are fitting for their personal needs, and predict and act quickly in the face of unforeseen circumstances. The emergence of insurtechs, spurred by the development and capabilities of new technology, has enabled insurance firms to future-proof their businesses and provided them with the opportunity to create new value propositions based on the modern customer’s needs.  

Achieving large-scale cost reduction is a significant aim for life insurers and automating manual tasks and simplifying processes will help them reach that point faster. This way, life insurers can achieve substantial advantages and reduce errors caused by human intervention.

4.       Does an ecosystem help life insurers to build their business for the future? If so, how?

Becoming part of a partner ecosystem can help life insurers offer a portfolio of different products and services. This includes capabilities from adjacent industries, technology giants, and the emerging insurtech community. Ecosystems allow insurers to create their own unique fingerprint in the industry while being more flexible to change and evolving as their customers do.

A strong ecosystem provides insurers the opportunity to be proactive, rather than reactive. It gives them to tools that provide the insurer the opportunity to personalise their business to the individual customer and product level and build relationships with their customers. If insurers want to become more innovative, they must continue to produce new products and services for their customers. Transitioning from the “one-and-done” sale to a more interactive, always-on relationship will create expanded revenue opportunities through long-term relationships and brand loyalty.

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