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NO HOSTILE TAKEOVER

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By Guy Tweedale, regional VP at Rocket Software

 

Companies need to be mindful that mergers and acquisitions (M&A) can evoke a certain feeling of uneasiness amongst customers. There are concerns about job-losses, changes beyond recognition of a beloved company, and of course, the fear that the standard of service or products will decrease.

Over the years, we have gained a lot of experience through the process of acquiring other companies. Rocket’s core values begin and end with putting our customers and partners first, so it was always essential to demonstrate to them their continued trust in us is justified. In our case, developing and delivering even more solutions, was at the forefront of any deal, as was handling the process with care to ensure that the outcomes for customers lived up to the promise. Below are some of the points that we’ve learned along the way, both from our own experience and from those of other organisations.

 

Company culture

Companies are their own “worlds” and have their own set of cultural norms, values and traditions. As we all know from visiting other countries, trying to impose our own culture on the locals is rarely well-received. When a company is acquiring or merging with another, it is important to be aware that the microcosmos that is a company cannot and should not be forcefully changed. Company culture has often been honed and tended for many years, and when done well, brings a plethora of positive effects on employees, including a strong sense of belonging which in return increases health and well-being.

Furthermore, discussions around merging two different cultures need to happen. This is not supposed to be an invasion. Instead, throughout negotiations, both parties need to agree on which core elements to keep. Once decided, the culture needs to be committed to and effectively managed. If merger or acquisition is successful, a company will emerge looking strong and unified, which is reassuring to the customers. Any failure to understand the other business can result in a marketing mess, like Quaker Oats’ acquisition of soft drinks firm Snapple,  where a failure on Quaker Oats’ part to fully understand the values of the company it was acquiring had disastrous financial consequences.

 

What the customer wants

Mergers and acquisitions need to make sense to customers. Not understanding customer needs, or the market of the other party, is a sure-fire way of losing business. While there is the potential to transform two businesses for the better, it’s essential to hang on to that one thing customers were drawn to in the first place. If you lose that, you’ll lose the customers too. This was the case when Google acquired popular phone and tablet maker Motorola in 2011 to develop top-tier mobile devices. The merger resulted in Motorola nose-diving and releasing a series of underwhelming phones, as well as a broken promise to upgrade older phones to the latest Android OS, landing this M&A on worst merger lists ever since. Knowing your client base and the problems they need solving is what truly matters.

 

Merging acquired IT systems

The integration of technology is another factor that needs to be taken into consideration. In most cases, each of the organisations involved will have a whole range of IT systems, many of which may be bespoke solutions developed in-house. Joining the dots not only between the various applications but between a variety of different customer databases can take years. If you’re trying to persuade customers that your merger or acquisition will streamline processes for them, you don’t want them receiving disconnected communications from you simply because you have records for them in three different databases which have no idea that they are the same person. IT integration needs to go very high on the list of priorities – you should be thinking about it already in the due diligence stage of the process before you take the plunge.

 

A new direction

Deloitte’s 2019 M&A report which surveyed 1,000 executives at corporations and private equity firms about deal activity, indicates that acquiring a larger customer base is increasingly a key motivator for corporations considering mergers or acquisitions, as much as expanding and diversifying products and services. This makes the challenge of integrating new customer databases even more urgent, but it appears that on the whole, we are doing a good job in the tech industry. 70% of customers see tech M&As as a positive development according to a study by PwC. A further 58% agree that capabilities improved after an M&A – industry consolidation (e.g. a single interface) and having to deal with fewer vendors are just two of many factors that speak in favour of companies ‘getting together’.

 

Meshing for success

Nobody ever said that mergers and acquisitions are a walk in the park. But when companies are performing due diligence to make the IT infrastructure work, and are being mindful of their customers, two can become one, successfully. Of course, the occasional acquisition of an industry rival does happen to eliminate the competition, but the benefits reach a lot further than that. Aiming for growth and pooling capabilities and talent together can ultimately provide customers with a better product and service.   

Looking at our own history, Rocket Software has significantly grown through acquisition putting us in a position from which we are able to continuously improve our products and services. As the industry moves forward at speed, so can we, thanks to meshing our competencies with those of other strong players. It’s a very simple equation – (even) better together.    

 

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Banking

How are Variable Recurring Payments set to revolutionise the future of banking?

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By

Sean Devaney, Vice President of Banking and Financial Markets at CGI UK

 

The adoption of Variable Recurring Payments (VRP) for Sweeping – ­the automatic transfer of money between a customer’s accounts – is set to take off in 2022. An evolution of Open Banking, VRP has the potential to move the uses of Open Banking beyond the gathering and aggregation of account information and delivery of one-off payments into a much broader set of use cases.

It’s something many of us in the industry have been working toward, but what can businesses and consumers expect from the VRP rollout ahead of its industry launch later this year? How can we encourage consumers and users to buy into it and what will it mean for the future?

 

The real-world benefits of VRPs for consumers

Following years of experience analysing and implementing tech solutions across the banking sector at CGI, to me, it feels evident that the long-term success of banking and financial technology depends on its relationship and acceptance by users and consumers. It can seem obvious, but often a lack of understanding can lead to mistrust which takes years to dispel, can lead to the prolonged use of legacy systems, which in turn puts data and customers at risk.

VRP has been purposefully developed with the consumers’ experience front of mind like no other industry technology has, by allowing an account holder to set up a repeating payment authority with a degree of control and flexibility that has not been seen before. It puts the power back into the hands of the consumer and opens an inclusive world of banking for those potentially excluded.

 

What sets it apart from direct debit?

One of the biggest questions we are asked about VRP is, how does it differ from alternative payment methods like direct debit? Well, several features of VRP set it apart. For example, while the destination of the payment remains fixed with VRP, there are clear parameters around the amount that can be paid out, either as an individual payment or during a given period. At CGI we believe that this will put consumers at the heart of the financial ecosystem, as VRPs are dedicated to creating a seamless and, importantly, frictionless experience for customers and businesses across the UK. This set-up will provide customers with more options to manage customer payments for a range of services like subscriptions and utility bills.

 

But is it as secure?

This is a critical question, and one that should be taken with care when answering, but it is in fact more secure than many alternatives.

VRP will offer users additional security benefits through automated payment processing by allowing the user to set limits on the amounts of any payment taken as well as on the duration of any instruction. As with all new technologies introduced across this industry, security is of the utmost importance. VRP is focused on protecting consumers as well as helping them to lead healthier financial lives. For example, if a person has insufficient funds in one account, VRP can transfer money over from another account without needing permission for each repeated payment. This could potentially save a person time and money by preventing them from unwillingly entering an unarranged overdraft and dealing with the associated costs.

 

How does it impact businesses exactly?

The benefits for individual businesses are much of the same. As VRPs provide them with the option to collect recurring payments from a customer without needing separate permissions for every payment. Businesses can also benefit from ‘sweeping’ possibilities too. Sweeping allows businesses with accounts with multiple providers to transfer money from one account to another. For businesses and consumers, there are many examples of when this could be used such as sweeping funds from a current account to a savings account automatically.

With added security, consumers and businesses can also benefit from more transparency and flexibility across their accounts and individual payments too. Set payment parameters, decided by the consumer, limit the amount of money that can be taken from an account and also allow an end date for the mandate to be set. There is hope that this might support more people with their everyday finances, as VRP is a more inclusive offering with easier access and more day-to-day uses. Also, enabling users to authorise a series of payments rather than having to authorise each individual transaction separately should encourage more people to use VRP. As we face the current cost of living crisis, consumers are demanding easy-to-use technology that automatically helps people manage their debts and build their savings. This is where VRP comes in.

 

What does the future hold for VRP?

Technology in banking has the potential to open efficient delivery channels as well as new products and services for the industry; providing the framework to meet evolving demands and challenges in the competitive market. We are already seeing this across the industry. For example, Artificial Intelligence is widely implemented across UK banks today to assess risks and improve processes within the digital banking space. At CGI, we predict that VRP will also become a wider-reaching and integral part of the banking industry later this year too.

VRP’s future is promising, with experts and consumers alike already looking toward broader use cases for the technology in the future. There is a conversation to be had on the ways VRP can go on to play a key role within the “cashless society”. To reduce types of financial crime as well as to support more consumers with their everyday banking. As banks have developed sweeping, they have also created the infrastructure needed to support first-party to third-party transactions. Meaning that in the future VRP could potentially be used for broader e-commerce purposes too.

Overall, the future of Variable Recurring Payments is an exciting one, with many big banks and businesses already sharing some of their plans for VRP in the future. The days of innovative technology solutions across more mainstream banks are on the horizon and I am excited to see the role VRPs will have in this development.

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Energy Storage Represents Latest Investment Opportunity in the Clean Energy Transition

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By

Alan Greenshields, Director of Europe

The ongoing transition to clean energy has spurred new technologies, new markets and new opportunities for investors seeking to invest in a sustainable future and earn solid returns on their investments. Energy storage, a critical component of the clean energy future, is gaining notice by utilities, large-scale energy users and investors. Today, as the world reels from energy shocks stemming from Russia’s invasion of Ukraine and grapples with the ongoing consequences of global warming, investors seeking opportunities in the clean energy space are moving towards the massive opportunity presented by energy storage.

The UK Government recently published its “Energy Security Strategy” which established a target of 95% low carbon electricity by 2030. Achieving this target will require not only significantly more wind and solar generation, but Long Duration Energy Storage (LDES) solutions that can economically store and release clean energy over 10+ hours to balance the inherently intermittent nature of renewable resources like wind and solar. LDES technologies store valuable renewable energy when it is plentiful and ensure that energy is available when it is needed, eliminating the need for fossil fuels.

As the clean energy transition gains momentum, the rapidly growing need for LDES is already driving a new market with ample opportunities for investment.

 

The Decreasing Cost of Renewables Enables the Clean Energy Transition

Since 2010, the cost to deploy wind and solar energy has declined substantially. Today, they are among the lowest-cost options for new generation capacity. Meanwhile, recent geopolitical upheaval has driven up the price of fossil fuels and underscored the volatile nature of global energy markets. Gas prices have skyrocketed, and the UK energy price cap increased by 54% in April 2022, with speculation that the cap could increase by a further 30-50% in October.

Due to its low costs and both environmental and geopolitical developments, the transition to clean energy is proceeding rapidly. According to the International Energy Agency (IEA), the renewable energy sector is expected to grow 50% between 2019 and 2024.

However, even with improvements in technology, wind and solar remain intermittent sources of electricity. For the successful transition to renewables, the UK will need to couple wind and solar with energy storage to fully utilize these renewable energy resources and replace fossil fuels.

 

The Opportunity for LDES Technology

Today, the energy system is increasingly supplied by intermittent renewables and primarily balanced by fossil fuel generators which are able to augment the variation in wind and solar generation to maintain grid stability. With Lithium-ion (LI-ion) technology as the incumbent, most battery energy storage projects built to date have durations below four hours.  While these can help smooth brief fluctuations in generation, they lack the capacity needed to provide baseload renewable energy and fully replace fossil fuel generators over longer timeframes.

With these projects built on Li-ion technology, the same technology that powers most cell phones and EVs, they suffer from a number of operational and practical drawbacks which make them poorly suited for grid-scale storage. Risk of fire, reliance upon critical minerals and capacity fade, as you have likely observed with cell phone batteries, are just a few of the constraints presented by Li-ion technology.

New long duration technologies are now available which offer advantages over existing battery systems. For example, iron-flow batteries, such as those manufactured by ESS Inc., are now commercially available and offer a number of advantages over their Li-ion predecessors.

The new LDES systems on the market are ideal for long duration, (4 – 24 hour) energy storage. Where Li-ion system costs increase roughly in proportion to storage capacity, iron-flow batteries rely upon a low-cost electrolyte made of iron, salt and water, which is not only non-toxic and fully recyclable, but allows the cost-effective addition of capacity. At long durations, iron flow batteries are the most cost-effective form of energy storage. And, the technology is not theoretical: Iron flow batteries have already been successfully deployed at a number of utility and commercial sites.

Demand for long duration energy storage is already growing with over $3bn invested in technology providers in the last five years. These investments represent a start, but much more LDES capacity will be required in coming decades. According to McKinsey & Co., the world will need between 85 and 140 TWh of long duration energy storage by 2040 to achieve carbon neutrality.

 

Sustainable Energy Systems

Investments in the energy transition will enable society’s shift towards low-cost renewable energy to minimize climate change and deliver returns for years to come. LDES will be the lynchpin of that clean energy future, enabling wind and solar to provide baseload power and fully retire fossil fuel generators. The opportunity is commensurate with the need for LDES solutions as LDES technologies attract unprecedented interest from governments, utilities and transmission operators. This sector presents both short and long-term benefits which will deliver not only a return on investment, but a lower cost, more sustainable and more secure energy system.

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