Restructuring Should be Strategic

Restructuring Should be Strategic

Many businesses look for short cuts when it comes to restructuring. Nevertheless, restructuring should be strategic where businesses can set strategic goals and avoid any long term losses. No matter how big the issues arise during the crisis, such as the coronavirus pandemic, businesses should take time to plan strategic long-term restructuring that will bring benefits. Restructuring experts are finding themselves in demand, anticipating that companies will not be able to make good on their promises on time.

As organisations have become more sophisticated, agile, and responsive to market needs, business restructures should now aim far beyond simple capacity and headcount reduction. The main goal should be to improve long-term health and capacity. Having the right business strategy is one of the keys to success.

Moreover, restructuring is more likely to be successful when managers first understand the fundamental business/strategic problem or opportunity that their company faces. An example of Chase Manhattan Bank and Chemical Bank is when they used their merger as an opportunity to both reduce operating costs and achieve an important strategic objective. 

Combining the two banks created opportunities to eliminate overlaps in such areas as back-office staff, branch offices, and computing infrastructure. Management of both banks also believed that larger and more diversified financial institutions would increasingly have a comparative advantage in attracting new business from corporate and retail customers. The merger was therefore also viewed as a vehicle for increasing top-line revenue growth. Internal cost-cutting alone would not have enabled either bank to achieve this second goal.

Moving forward, COVID-19 related uncertainty is triggering a vast array of business restructuring activities. Companies that are facing fast changes and crises, tend to react poorly or irrationally due to the pressure. For example, removing a company’s product development team may improve short-term profit, but badly damage future sales. Businesses should think long term, and act on critical areas of their business, without removing supporting sectors.

Restructuring Impact on People

Management must know what it is trying to achieve and what it wants the company to look like following the business restructure. People need to know it’s not their fault and there’s a bigger picture they couldn’t change. Employers should provide help and support for those leaving the company. Such support can range from offering services, such as career coaching and mentoring, to helping them network and find new jobs.

Meanwhile, for those employers that find themselves in the position of having to change the composition of their workforce as they reorient the business to exploit new opportunities, there is a talent management secret: upskilling or reskilling the workforce. One US bank, upon shutting down 80 per cent of its branches as a result of the pandemic, used an AI system to analyse the skills and experience of the 35,000 staff affected. The aim, according to Bersin, was to understand who would be the fastest and easiest to retrain for call centre positions and who should be placed on leave.

Successful business restructures tend to feature much wider strategic goals that position them for future growth. Heading the restructuring path, employees should have more compassion and provide help to people leaving the company.

To sum up, one thing has come to light, a need for change. Businesses are becoming aware of technological and digital transformation needed to accelerate their business through online apps or retail shops. Therefore, the goal of many restructures is to ready businesses to bounce back in an economic recovery. Achieving strategic goals requires continuous improvement. Once you think you have finished, start again.

Startup Unicorns in Europe in 2020

Startup Unicorns in Europe in 2020

Startup ecosystems are partly defined by how many companies have hit the billion-dollar valuation mark. In Europe, the unicorn count is steadily growing. In 2020 so far, at least 10 new unicorns have been ‘born’. There are plenty more fast-growing startups likely to join the list soon.

Unicorn aggregate valuation holds steady at $600B+ for the year 2019 and following more in 2020. The unicorn phenomenon contributed significantly to the ongoing globalization of VC.

There is a confluence between nontraditional firms and foreign investors, both of which fueled unicorn financing rates for the past year. That said, VC is globalizing as nontraditional and foreign players seek exposure to fast-growing tech companies in order to diversify their own portfolios.

We listed below unicorns founded in Europe, by following the list from Sifted and CB Insights.

GLOBAL SWITCH

Global Switch, the most valuable Europe-based unicorn, operates data centers in Europe and Asia. In July 2018, a consortium of investors bought a nearly 25% stake in the company for almost $2.8B. The company said that the investment would help fund its expansion plans ahead of an anticipated IPO.

HOPIN

The online events platform gained its spot on Europe’s unicorn list just eight months after launch. Towards the end of 2020, it is also Europe’s fastest-growing company. The question is, will the events return to physical form quickly in 2021? If so, how will Hopin past this obstacle?

KLARNA

Klarna provides online payment services. The company has made a handful of acquisitions in recent years, including its purchase of cart and checkout browser extension Shop.co in 2018 and its $75M acquisition of Germany-based payments company Billpay in 2017. It is the most well-funded tech startup in Sweden.

CAZOO 

Online used car retailer Cazoo is proof of the power of the serial entrepreneur. It was founded by Alex Chesterman, the entrepreneur behind successful start-ups Lovefilm and Zoopla. It claims to have become “the country’s leading online car retailer” since its launch. It has raised an extra £25m in funding from venture capital firms Draper Esprit, General Catalyst and DMG Ventures, bringing the total funding raised to more than £200m.

AUTO1 GROUP 

Founded in 2012, this Berlin-based company runs an online used car marketplace in over 20 countries. In 2018, it launched a fintech subsidiary, Auto1 Fintech, with Deutsche Bank and Allianz.

KARMA KITCHEN

Karma Kitchen, the London-based kitchen space startup, has raised £252m in a Series A funding round to open dozens of new sites across Europe.

OTTO BOCK HEALTHCARE

Medical technology company Otto Bock is a prosthetics maker. Swedish buyout group EQT Partners bought a 20% stake in the company in June 2017.

NORTHVOLT

When green energy startup Northvolt raised $1bn in 2019, it came as quite a surprise. It hit the headlines again in 2020 when Spotify founder Daniel Ek announced that he was participating in a new $600m funding round into Northvolt.

N26

N26 is a mobile banking platform. The startup offers account holders benefits like no minimum account balances, no annual maintenance fees, accelerated paycheck direct deposits, and a built-in personal finance tool.

REVOLUT

Revolut is almost the fastest-growing digital banking app in Europe. Having begun as a travel currency-exchange card, the company has since expanded aggressively into a full range of services, including cryptocurrency and stockbroking services. You may be wondering what is the difference between the two competitors? N26 is available in both the web and mobile app versions, while Revolut is only in the mobile app. Revolut has features that are not available in N26 like access to cryptocurrencies. N26 and Revolut both have a premium/paid plans that offer travel insurance features like overseas travel, luggage, and trip insurances.

With its recent funding, N26 intends to double down on its most promising markets (EU, US, Brazil) while Revolut wants to double down on its core features, down to providing full bank accounts in Europe in the future, replicating the many services currently available in the UK. Revolut also intends to launch in the US and Japan.

MONZO

Monzo’s valuation at £1.25bn. reached unicorn potential.  The startup is best known for removing the hassle from personal finances, as well as progressive features like gambling-blocks.

KAHOOT

Norway’s Kahoot! has become an edtech force this year in particular. Teachers have been using the platform to interact with their students remotely. Investors include SoftBank, Northzone, Creandum, and Microsoft Ventures.

VOODOO

Voodoo is ‘hyper-casual’ games have been downloaded over 2bn times, it has raised money from Goldman Sachs and Tencent and is expanding into Asia.

Infobip 

Infobip, a company from Croatia provides the messaging platform for some 750 banks and works with some 650 mobile operators around the world. If you’ve ever received a message from your bank, or from Facebook or Uber, you’ve used Infobip. Infobip is Croatian first unicorn with a $1 billion valuation.

If Infobip does IPO in three years’ time, these learn-on-the-job employees will be in for a decent payday. Some 10% of Infobip shares are owned by the staff. Much like Romania’s UiPath, which is also considering an IPO, Infobip could become a big source of tech wealth in a country where average salaries still lag behind the rest of Europe.

BOLT

Bolt, a leading European on-demand transportation platform (formerly known as Taxify), launched an environmental impact fund with a seed capital of €10 million aimed at initiatives that deliver global social and environmental benefits.

The company now plans to operate 130,000 electric scooter and ebikes by 2021.

AUTO1

Auto1 Group’s marketplace is Europe’s leading used-car platform where buyers and sellers of cars can connect and do business. The Berlin-based company was founded in 2012 and 7 years later it matches supply and demand in over 30 countries, with a portfolio of over 30,000 vehicles.

MindMaze

MindMotionPro has pushed MindMaze to be worth over 1 billion dollars and hence converting its startup status to become the first Swiss unicorn. It has developed digital therapies to help patients with Alzheimer’s and Parkinson’s, among other conditions. 

DELIVEROO

Deliveroo has so successful enmeshed itself into the lives of consumers across Europe that its name has even become a noun. That ubiquity has landed it plenty of investment over the years — but also scrutiny.

ESG in private equity: a moment of glory?

ESG in private equity: a moment of glory?

ESG has gained more traction in the private equity industry in recent years. Moreover, ESG has become a core demand from limited partners (LPs) amid consumers behaviour change and the growing climate change concerns of socially responsible millennial investors.

That said, ESG considerations in private equity are being formed within contracts more frequently, and LPs can use their leverage and “walk away” if their terms are not met. With dedicated and active management, ESG investing can help firms increase return rates and outperform the market.

There has been an “evolution” among private equity managers in integrating ESG over the last three years, said Michael Cappucci, senior vice president, from Harvard Management Co. He also mentioned that ESG is now core to LPs expectations.

Investors in different regions often have different priorities for ESG investments and employ distinct strategies for influencing the behaviour of portfolio companies. In Europe and the United States, social and environmental concerns may be paramount, while in Japan, corporate governance and diversity are at the top of the list.

 

ESG Success in Private Equity

 

PE firms are moving along with ESG objectives, as long-held concerns of trade-offs between maximized returns and ESG investing have been challenged. Over the years, compelling evidence has emerged showing that the return on investment value can be magnified by incorporating ESG factors into the decision making process. Morningstar research found that investors can build global portfolios tilted toward high-scoring ESG companies without compromising return.

However, many investors make a similar mistake by focusing on a global ESG objective, instead of the factors that affect their operations and performance in a financially material way.

We can agree that a couple of months have been unprecedented. However, we have seen sustainability funds outperform their peers since the COVID-19 crisis began and across the first quarter, both in developed and emerging markets. Again, figures from Morningstar suggest that in the period through February 28, which saw the biggest downturn in stock prices globally, “the returns of nearly two thirds (65%) of sustainable equity funds ranked in their category’s top half.

More than four-tenths (43%) placed in the top 25% of their group and only 10% were in their peer group’s bottom 25%”. Morningstar data also shows that in March, when market activity saw further downturns as countries began to implement lockdown measures, 62% of ESG-focused large-cap equity funds outperformed the global tracker.

 

ESG in Private Equity Industry: Actions and Intentions

 

In 2020, private equity firms have raised more than $370bn of commitments to funds that integrate ESG principles into their investment decisions, according to data provider Preqin. However, a recent survey by Institutional Investor found that fewer than 10 per cent of 8,810 global private equity firms, with a total of $3.4 trillion under management, are signatories to the Principles of Responsible Investment.

ESG in private equity is here to stay, as well as ESG investment opportunities will increase over the next three-five years. However, the lack of harmonization of sustainability frameworks is a brake to ESG integration. The survey also found 53 per cent of respondents admitting they are not using any ESG framework like the Sustainable Development Goals (SDGs) and Taskforce on Climate-related Financial Disclosure (TCFD) to identify opportunities at a tactical level.

Therefore, private equity firms should consider setting a strategic vision and fostering a culture that sees ESG as a significant value creation opportunity.

The next stage is that investors will not just want a commitment to ESG – they will also want tangible proof of how the private equity fund has delivered on that commitment.

Digital Sustainable Finance Opportunities

Digital Sustainable Finance Opportunities

In the age of COVID-19 digital transformation is demanded, but so is the commitment to face climate change. Technology lies at the core of attempts to prevent global warming. Therefore, the combination of both sustainable and digital finance can lead to new business models that will reduce energy consumption.

According to PWC recent research, over 1200 tech startups have arisen to the market. Investment in climate tech has grown at almost five times the rate of the overall global venture capital market, with similar growth seen in numbers of deals.

Consumer demand for sustainable business practices has rocketed. The first generation of ‘climate tech unicorns’ have emerged, with companies including Tesla, Nest, and Beyond Meat showcasing the importance of disruptive consumer brands that also deliver substantial sustainability impact.

Channelling sustainable investments is a critical challenge for the global financial system. Sustainable finance has, therefore, become an integral part of how many financial services firms operate.

 

What is sustainable digital finance?

 

According to The World Economic Forum, the definition for digital finance refers to the integration of big data, artificial intelligence (AI), mobile platforms, blockchain and the Internet of things (IoT) in the provision of financial services.

Sustainable finance, on the other hand, refers to financial services integrating environmental, social and governance (ESG) criteria into the business or investment decisions for the lasting benefit of both clients and society at large.

WEF believes that blockchain represents a core element of sustainable digital finance — a new paradigm that combines emerging technology with environmentally conscious business models.

Moreover, blockchain technology along, with artificial intelligence, mobile platforms and the Internet of Things combined with ESG objectives, could help governments and organizations reach sustainable goals.

In addition to that, technology can also help raise consumer awareness about the environmental and social implications of consumption and allude them to more conscious sustainable choices.

 

Consumers behaviour affects sustainability

 

Consumer behaviour can affect investors decision to incorporate sustainability into investment decisions. A clear ESG commitment can also attract Millenials, as sustainable consciousness consumers. A 2019 Morgan Stanley Institute for Sustainable Investing survey of high net worth investors found that 95% of millennials were interested in sustainable investing.

In Switzerland, Deloitte research suggests that 42% of millennials started or deepened a business relationship because of a company’s positive impact on society or the environment.

Sustainable products are starting to demonstrate higher growth rates than their non-sustainable rivals. In the US, sustainability-marketed products make up just 16% of the consumer packaged goods market but are responsible for 55% of the growth. 

The shift to digital persists across countries and categories as consumers in most parts of the world keep low out-of-home engagement. Food and household categories have seen an average of over 30 per cent growth in online customer base across countries.

Lastly, WEF believes that sustainable digital finance will play an essential role in efficiently channelling this capital to fuel innovation, growth and job creation, at the same time supporting the transition to a sustainable, low-carbon economy. The future is now, with the wake of COVID-19, digital sustainable finance could focus investors on more sustainable economic oppor

The Digital Economy in CEE – market overview

The Digital Economy in CEE – market overview

The development of the digital economy in CEE has shown a remarkable achievement and grew almost twice as fast as the previous two years, a new report from McKinsey has revealed. Even though in 2020 the Covid-19 outbreak has led to numerous uncertainties about the future, one thing is clear – the pandemic has accelerated the digital transformation of CEE countries as it has brought about the emergence of a “new normal” world that is more digital than ever. 

The report Digital Challengers in the next normal in Central and Eastern Europe has revealed the ten CEE countries analyzed —Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia—increased per capita GDP by 115 per cent in the period 2004–2019. With the digital economy reaching €94 billion in 2019, it is clear that CEE exceeded the “business as usual” scenario from the year before.

 

The engines driving the digital economy in the CEE

The lockdown has drastically transformed the way people interact, travel, spend their leisure time, and use public services. As the McKinsey COVID-19 Digital Sentiment Insights survey shows, almost 12 million new users of online services appeared in CEE—more than the population of Slovakia, Croatia, and Slovenia put together.

Given the data from the McKinsey report, consumers are getting used to new digital channels and therefore drive digital economy change. Although consumers habits are changing now, they may stay changes for good as the COVID-19 safety measures will not disappear anytime soon.

The situation has changed for SMEs, and the pressure is becoming more severe as organizations lag behind digital adoption.

Many CEE startups tech companies achieved admirable results in tech space with a huge impact on a global scale. CEE’s unicorns are worth around €30 billion according to Dealroom. In recent years, CEE startups in tech-led to huge traction of the market to venture capitals. About 10,000 emerging Eastern European businesses raise their first rounds of funding in the last five years. In the same period, the CEE market has seen more than ten unicorns emerged, with a total valuation of €30 billion.

To move the engines for the digital economy in CEE, the action is required by all stakeholders in Digital Challenger countries. Restrictions imposed during the pandemic are an incentive for digital transformation. That said, the restrictions have made the solution all the more important. Now, businesses need an e-commerce website, online customer service and cloud and automation technologies in order to survive.

Lastly, CEE markets need to move with more dynamism. Today Big Tech must provide commanding benefits to consumers and other users while looking to other mechanisms, such as advertising, to support good margins. The digital economy usually reflects innovation and dynamic efficiency. In CEE markets, organizations will have to embrace the change and explore new business opportunities through digital transformation.


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