All posts by Althea Taylor-Salmon

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The Pitfalls of Peer-to-Peer Lending

According to Bloomberg, the Financial Times and a handful of other newspapers, peer-to-peer lending could be headed for a collapse. What began as a new, innovative way of lending capital may have become a ticking time bomb.

The Chief Executive of Bibby Financial Services, David Postings, notes that the signs are negative:  “We are seeing signs of overheating in the small and medium-sized business lending market. Credit terms are stretched and pricing is down. It has all the hallmarks of what happened to personal credit pre-2007. There will be a crash sooner or later. Peer-to-peer is unproven through a credit cycle. The platforms are not at risk but the people who put the cash in could lose everything. If you put your money in a bank the shareholders take the hit – they are the ones taking the risk.”

Peer-to-peer
At its core, this form of lending is a more individual form of finance. It allows interested investors to loan money to inventors, business owners and entrepreneurs, based on a pitch.  Interest on the loan is set by the investor, but an attractive project or opportunity will likely receive several different loan offers, forcing potential investors to compete with each other.

As Postings has argued, interest rates may already have become too low, hinting a crash may be imminent.

For several years, however, peer-to-peer lending has gone from strength to strength.  In 2015, the market peaked at $12 billion in loans. In the majority of cases, these were unsecured loans. Another problem is that investors in many instances knew little about the businesses they were loaning money to, and no understanding of the risks they were facing.  There is also the question of the time and knowledge it takes to read the information provided by a company, and the ability to exert shareholder control. Listed equities are governed by extensive disclosure rules and rights that protect minority investors.  Peer lending does not offer these kinds of controls.

It is common for banks to face criticism that they are reckless with their risks, or even abusive to customers. However, banks have the benefit of experience. They’ve seen many financial cycles, as well as weathered frauds and catastrophes. Although a big enough crash could bring them down, they’re generally diversified enough to prevent it. Peer to peer does not offer this kind of security.

There are several peer-to-peer lending platforms. The UK’s leading platform is Zopa, which has facilitated the lending of almost £3 billion since 2005. According to their website, 60,000 investors have lent an average of £13,000 to businesses and startups.

The Case of Rebus
Rebus was a company that primarily dealt with clients who had been mis-sold financial products. Through Crowdcube, a peer-to-peer lending platform, Rebus was able to raise over £800,000 from small investors. Over a hundred people had lent money to Rebus, with amounts ranging from £5,000 to £135,000, with the promise of gains between 6.4 and 10.6 times their investment.

The fall of Rebus would be the largest equity crowdfunding failure in the UK. Investors lost their money.

Julia Groves, of the UKCFA noted: “We should be in no doubt that there will be failures like Rebus [but]…the question is whether people understand the risks they are taking.”

The case of Rebus should be a reminder that all investments can fail, all investments can result in losses. The key difference between small-time lenders that use peer-to-peer platforms and larger scale investors is a diversity of portfolio. It is vitally important for prudent investors to manage risk by spreading investments – something that amateurs will not be aware of, or be able to afford. It has made peer-to-peer appear more and more like gambling, rather than as a needed source of finance to spur innovation and small businesses.

It’s likely that peer-to-peer lending in its current form does not have long left before a crash. However, the concept of lending to small businesses will continue. Large financial institutions are starting to see the benefit, and they can protect themselves much more effectively than small-time lenders.

Press Releases

Thirty Business Leaders to Mentor 30 Young Engineers

Thirty engineering students and graduates could win a business leader as a mentor by developing a stand-out idea to solve some of the toughest problems in society. Thirty business leaders have volunteered to become mentors in the biggest mentoring competition for young engineers. This includes leaders from the Carbon Trust; Amazon; INSEAD; Laing O’Rourke, Honeywell Aerospace and RICS.

Engineering students and graduates can compete for a business mentor by entering Mentor30Engineers which is designed to inspire a passion for innovation.

Mentor30Engineers has been set up by Engineers in Business Fellowship, the charity that enables engineers to augment their engineering qualifications and experience with essential business skills. Engineers in Business Fellowship runs the Sainsbury Management Fellows scholarship and annually awards £500,000 in scholarships to study for an MBA at the top international business schools.

 SMF President David Falzani MBE said: “Some of the most important issues we face are not just technical challenges, but ones that require the ability to link technologies to an understanding of the market mechanism, business skills and entrepreneurial commercial thinking. Mentor30Engineers gives participants a chance to stretch their fertile minds and create solutions to big challenges in society.”
 

Entering Mentor30Engineers

The competition is open to UK-based students and graduates from any engineering discipline and undergrads can be at any stage in their degree course.

Entrants select a problem from five topics – NHS, Environment, Social Care, Finance and Corporate Tax – develop and then describe their innovation in an essay. The entry deadline is 28 February 2018.

The judges are looking for originality, feasibility of the ideas and evidence of engineering skills in the ideas. Entrants with the best ideas will win a Sainsbury Management Fellow (SMF) as a mentor.  The mentor will provide 30 hours of mentoring, supporting students throughout their degree studies or through the early stages of their career.

 

The Judges

The judging panel comprises Sainsbury Management Fellows including the president, David Falzani MBE, CEO of Polaris Associates and an honorary professor at Nottingham University Business School; James Raby, SMF Treasurer and a venture capitalist; Cathy Breeze, Director of Communications at SMF and entrepreneur Dr Robin Jones a partner at Endeavit.

Completing the judging panel is Chris Earnshaw OBE FREng, Chairman of the RAEng Steering Committee for SMF who said, “The Mentor30Engineers initiative provides access to an amazing range of expertise and experience from people who have themselves been successful in business. It is also a great example of how those who have benefitted from SMF Awards are able to widen the impact of the scheme by reaching out to the next generation of engineering leaders who have a passion to address some of the major challenges facing society today”.

This competition is now closed.

Press Releases

Sainsbury Management Fellows President Receives MBE

David Falzani, SMF President is made an MBE by the Duke of Cambridge at Buckingham Palace.  Photo: Jonathan Brady/PA Wire

Engineers in Business Fellowship, which awards the Sainsbury Management Fellows MBA scholarships, is delighted to announce that its president, David Falzani, has been appointed a Member of the Most Excellent Order of the British Empire (MBE) in the Queen’s Birthday Honours List for 2017.

David Falzani is a beneficiary of the Sainsbury Management Fellows (SMF) MBA scholarship which supports engineers in gaining business skills from top international business schools so that they can use their engineering and business skills to lead blue-chip companies and create innovative businesses.

Falzani heads a network of SMFs who, for example, have founded 275 thriving companies, and 153 SMFs have founded businesses valued at £4.6 billion and created 18,000 jobs.

As CEO of Polaris London, Falzani manages a consultancy that steers young businesses through key growth phases.  A serial entrepreneur, he founded start-up businesses in the UK, Italy and USA, raising over £5 million from venture capitalists and achieving trade sales.

Falzani has led Sainsbury Management Fellows for seven years and during his presidency has worked in close collaboration with the Royal Academy of Engineering to advance the education and training of engineers, inspiring them to develop their skills in innovation, management and governance so that they too can play a part in expanding the UK economy.

Falzani’s commitment to encouraging engineers to learn business skills led to his appointment as honorary professor at the University of Nottingham’s Business School where he has taught entrepreneurship for over five years. This association led to the creation of the SMF Engineers in Business competition which gives undergraduates hands-on experience of innovation and business practice. The competition challenges engineering students to create a novel product concept that meets a need in society and that demonstrates the use of engineering skills in the creative process. The competition is being extended to three more universities in 2017, and six more in 2018.

Falzani’s leadership has increased the power and effectiveness of the Sainsbury Management Fellows network. Today more than 260 Fellows mentor young engineers, helping them with career or entrepreneurial aspirations. He also helped SMF become a registered charity – Engineers in Business Fellowship – and the fundraising committee has already raised over £2 million to finance future MBA scholarships.

Visit our scholarship page to learn more about the MBA awards.

 

Blog

Is it Possible to Repair Reputational Damage?

According to Aon’s 2017 Global Risk Assessment Survey, reputational damage features in the top five risks for almost every industry.  Product recalls unethical behaviour, supply chain failures, business interruption and cybercrime are all precursors to reputational damage.  It warrants heightened vigilance from businesses, especially since reputational damage can subsequently lead to legal challenges, increased competition and even share price fluctuation.

It is clear that businesses should take this risk extremely seriously, and incorporate it into business risk analysis. If reputational damage has already occurred, the question is not about prevention, but about repair and the response to the issue/crisis will influence how the company is perceived, its reputation and long-term survival.

McDonald’s Response to Supersize Me
In 2004, filmmaker Morgan Spurlock released his now famous documentary about McDonald’s, Supersize Me.  It followed Spurlock as he attempted to spend a month eating nothing but McDonald’s food, with emphasis drawn to the ‘supersize’ option offered to customers at the time. The film became very popular and McDonald’s suffered reputational damage as a result, particularly due to the health problems endured by Spurlock as a result of his experiment.

The fast-food chain responded in a variety of ways, its strategy often depending on the country in which it was deployed.  In several countries, McDonald’s paid for advertising time in the trailers shown before Supersize Me at cinemas.  As a Campaign article noted in 2004:

“The calm, rationed approach contrasts strongly with McDonald’s response to the movie in the US.  While the UK advert describes the film as “slick” and “well-made”, McDonald’s in the US called it “a gross-out movie” and responded with an aggressive PR campaign.”

Although McDonald’s tried to respond to the film, ultimately it helped to push the fast food industry in a healthier direction. The ‘supersize’ option was phased out, even as spokespeople insisted the film and connected health concerns played no part in the decision.  It made little difference. The damage to the reputation of McDonald’s and the wider fast-food industry invited a wave of competitors to join the fray.  Even as recently as 2015, the chain was arguably still suffering as a result.

Uber Loses CEO
The ride-sharing app has come under increased scrutiny in recent months, with several aspects of its business suffering reputational damage.  From sexual harassment scandals and the revelations of a toxic workplace culture to public concerns about unethical business practices and exploitation, we have seen Uber’s brand tainted.  And, like McDonald’s, the reputational damage has opened the door to competitors to take market share. In this particular instance, rival business Lyft has raised half a billion dollars to capitalise on Uber’s pain.

Uber responded by opening an anonymous tip line for employees, as well as holding ‘listening sessions’ with its workforce.  However, such is the scale of the issues facing the company that CEO Travis Kalanick had no choice but to resign.  Unlike the previous combative nature of Uber to negative press, the new CEO Dara Khosrowshahi had these words for employees:

“While the impulse may be to say that this is unfair, one of the lessons I’ve learned over time is that change comes from self-reflection.  So it’s worth examining how we got here. The truth is there is a high cost to a bad reputation.”

It remains to be seen whether an ‘attitude reset’ will actually be able to turn around serious reputational damage, considering the number of issues currently facing the company.

The Knock on Effects
As we’ve seen from these two cases, the knock-on effect of reputational damage can be painful in the short-term.  However, it is the long-term effects that can make recovery and repair much more difficult.  Reputational damage makes the job of positive PR an uphill battle, and once public trust is lost, it can be elusive to regain.

We can’t always predict where the next crisis will come from. However, with a strong ethical direction that maintains the balance between shareholders, staff and customers, it makes it easier to survive reputational damage intact.  If the wider public has faith in your business, they will be more inclined to forgive a mistake – so long as the resolutions to the crisis situation is sincere and robust.

Press Releases

More Universities run the Engineers in Business innovation competition

More than 300 hundred engineering students can now compete for a Sainsbury Management Fellows (SMF) Engineers in Business prize following its expansion from one to four universities.   Engineers in Business is a business innovation competition aimed specifically at engineering undergraduates.

Initially piloted by The Ingenuity Lab, part of Nottingham University Business School (NUBS), Engineers in Business will again be run by NUBS and for the first time by Kingston University, the University of Bristol and City, University of London.   Following their successful applications, the universities are integrating the Engineers in Business prize within their existing business competitions to inspire more engineers to get involved in creating exciting new businesses that solve social problems.

University of Nottingham
The Engineers in Business cash and mentoring prize will be integrated into the University of Nottingham’s tri-campus entrepreneurship competition Ingenuity18, one of the biggest entrepreneurship competitions in the UK.  Twenty shortlisted teams will attend three days of pitching to find winners who will share a £100,000 prize fund.

 Steven Chapman, Head of the Ingenuity Lab at the University of Nottingham said “Ingenuity18 is a journey of exploration, re-engagement with the problems facing contemporary society, and a chance to discover disruptive and innovative solutions to how we address them.  It is built upon three pillars: inspiration, development, and competition, and is open to all students, alumni, and early-stage researchers, as well as staff.”

City, University of London
City, University of London is launching MakerSpark for engineering students.  MakerSpark is part of the university’s annual CitySpark business innovation competition which encourages students and recent alumni to start a business and supports them in the process of developing their ideas into successful enterprises.   In the first term, engineering students who compete in MakerSpark can win one of three Engineers in Business awards of £1,000 each and gain the support and access needed to develop and launch a business idea. Further prizes of up to £5,000 are available in the second term of competition.   

Marius Stancu, Enterprise Education Projects Officer at City, University of London commented, “CitySpark has a great record of attracting students from the School of Mathematical & Computer Sciences and Engineering. The exclusive Engineers in Business prize will encourage even more engineering students to get involved and for us to fund more successful start-ups.”

University of Bristol
Engineers in Business becomes an integral part of the New Enterprise Competition, the University of Bristol’s flagship business idea challenge, which awards over £35,000 in prizes and support to competitors which includes students, recent graduates and staff who pitch the most original ideas for a self-sustaining business. 

Neil Coles, Assistant Director, Careers Service at the University of Bristol said, “The Engineers in Business prize will enable us to engage more engineers in the New Enterprise Competition.  The prize will be divided across each of the three stages of the competition so that we are rewarding engineers at all stages.” 

Kingston University
Kingston University’s Bright Ideas Competition inspires students to develop innovative business ideas, with 10 winners receiving either £250 or £1,000 cash prizes. The Engineers in Business prize money of £3,000 will sponsor two £1,000 prizes and two £250 prizes for engineering entries, with an over-arching prize for the best engineering idea overall.  Kingston University will be encouraging civil engineering, mechanical engineering and foundation year students to compete.

Dr Martha Mador, Head of Enterprise Education at Kingston University said: “We are committed to helping students develop their entrepreneurial capabilities. Directly targeted prizes are an excellent way to encourage students to recognise the importance of wider business skills to the profession, and to their careers.  We are keen to develop their confidence for their careers which is particularly important to a university committed to widening participation.”

Mission of engineers in business competition
David Falzani, President of Engineers in Business Fellowship (EIBF), which awards the Sainsbury Management Fellows MBA scholarships to engineers said, “Supporting university business competitions is part of our commitment to develop the innovation, business and marketing skills of engineers. The competitions will increase awareness of the Engineers in Business competition, reaching over 8,000 students, graduates and lecturers at the four universities.  The competitions increase the number of engineers participating in entrepreneurialism at an early stage, broadening their career horizons and give them skills that employers’ value in engineers. Ultimately we see the Engineers in Business competition running in universities throughout the UK and, over the next three years, we will be expanding it to at least a further six universities.”

Learn more about Engineers in Business and how to apply to run the competition at your university.

Press Releases

SMF President Coaches Participants in the Royal Academy of Engineering’s Leaders in Innovation Fellowships Programme

SMF President and business consultant, David Falzani has been selected for the second year running to coach participants in Leaders in Innovation Fellowships (LIF) programme run by the Royal Academy of Engineering in partnership with the Newton Fund. The Newton Fund is part of the UK’s official overseas development assistance which aims to develop international science and innovation partnerships that promote the economic development and welfare of developing countries.

The primary objective of the LIF programme is to build the capacity of researchers within partner countries* of the Newton Fund, for entrepreneurship and commercialisation of their research. The programme brought a cohort of 15 researchers who have developed a business proposition for their innovation, to the UK to participate in a 10-day residential programme. This delivered highly focused entrepreneurship training and gave the researchers access to expert coaches who helped them to develop their business plans, all of which are based on their outstanding research.

David Falzani was delighted to be selected to take part in the 2016/17 LIF programme because it enabled him to draw on his experience and skills as a business consultant to early-stage companies, to help the researchers assigned to him. Also, as a seasoned lecturer in entrepreneurship – he has taught the subject at the University of Nottingham’s Business School for the last five years – he shared lessons and real-life case studies with the researchers on the commercialisation of business innovations.

David coached researchers working on a genomics product, a sleep monitoring system, express bone replacement and the regeneration of deactivated catalysts. He said, “It was an intense, exciting and rewarding two weeks during which I had the pleasure of working with very talented researchers. Their ideas are bringing real value within their sectors and benefits to society.”

David’s work with the researchers was tailored to each project, and covered wide-ranging topics, including helping them to identify markets and target products within international markets; exploring how to promote new products, advising on financial and cash strategies, and price negotiation theory; looking at how to engage with potential collaborators; sharing insights on investor networks and managing investors; as well as actually facilitating introductions to potential investors.

Turkey: Genomize SEQ Genetic Analysis Cloud Platform
A cloud-based genomics product that is enabling personalised genomics and preventive medicine. SEQ delivers a unique machine learning approach to eliminate 99% of false positives in genetic variant analysis. Due to its cloud-based nature, users can store and organise their genetics data in a secure data warehouse without the need to build the technical and personnel infrastructure for genome analysis.

The B2B model provides data genomic processing for Hospitals whilst the new B2C model has introduced a consumer brand resold via genetic diagnosis centres. Both models are producing revenue and are looking for scaling opportunities.

The platform allows couples, such as those that already have a child with a genetic disease, to check that a foetus is healthy via a non-invasive screening service. It also allows them to estimate the risk of genetically inherited diseases in their genome being passed on to their future children.

SEQ also opens the door to personalised treatment for patients with diseases such as cancer, and predictions to the response to certain types of drugs.

The number of hospital customers has increased from 12 to 28. SEQ is on track for sales of $300,000 this year and a 2017 sales target of $1.5m. They now estimate they have over 65% market share in Turkey, making it easier to acquire new customers as word and their reputation spreads.

Genomize won first prize in the 2016/17 LIF programme.

China:  SCR RegenTM
Fossil fuel plants are still common in many countries, including China. Chinese government rules are increasingly targeting nitrogen oxide (NOx) and other emissions, with recent regulation requiring all such power plants to install SCR catalyst systems to clean the flue gas. These SCR catalysts usually become inactive after three years of operation.

SCR RegenTM takes old deactivated catalysts and regenerates them back to virtually ‘as new’ condition. The regeneration process removes all the catalyst deactivation compounds and restores the catalyst activity back to the original OEM level.

Since it is based on recycling, this offers substantial economic advantages. For example, about a £1 million per year saving for an 800-megawatt power plant, as well as environmental benefits such as, typically, avoiding 500 tonnes of hazardous solid waste.

SCR RegenTM’s parent company, the Shenhua Group owns 78 power plants with a total of 6600 Megawatts electric capacity. However, there are also many more power plants in China and there is only one competitor able to provide a similar, but inferior, catalyst recycling solution.

Operationally, SCR RegenTM has successfully recycled catalysts during an extremely tight shutdown period for a power station, with formidable penalties for any late completion. It is focusing on licensing its now proven solution. SCR RegenTM already has six licensees so far with six SCR regeneration plants in China, covering about 60% of the Chinese market. The company is expecting sales to approach 12mRMB (over $£1.7m) in its first commercial year, which has exceeded all expectations.

The use of SCR catalysts has a profound effect on the level of pollutants and carbon emitted by fossil fuel-fired power stations. However, since the power stations are now required to fit such catalysts, the SCR regeneration project’s prime achievement has been in reducing the catalyst replacement cycle and achieving full performance recovery with recycled rather than new catalysts – something that was previously impossible – avoiding the frequent purchase of brand new catalysts.

Brazil: Lisane Valdo,  An Engineer with an MBA
Lisane Valdo has developed a watch-based wristband sensor and associated sleep monitoring system. The sleep and tiredness monitoring system has four potential large markets: weight loss, nutrition, industrial safety (process plant staff, and drivers/machine operators), and sports management.

The weight loss application has a large market and an important social aspect: there is a growing obesity epidemic threatening to overwhelm many healthcare systems in the next two decades. Well known as appetite factors, lack of sleep and poor sleep quality are amongst the key drivers for weight gain and difficulty in losing weight.

A trial is taking place with the largest hospital in South America, with 400 patients. Lisane is currently applying for phase 3 FAPESP funding and a significant new investor is being sought to develop the first of a number of sleep clinics. She is working on this with GOCIL, the biggest private security company in Brazil, with 23,000 employees.

Other opportunities being considered include a sensor to prevent cot death for premature babies and a bovine pregnancy monitor.

On completion of the residential course, the researchers returned to their respective countries and continue to push their innovations forward. However, the support did not stop there. As with all LIF programme coaches, David continued to provide long-distance mentoring for six months after the course. He concluded, “It’s wonderful to see the progress that is being made on all the projects, and I wish all the researchers great success as they achieve ‘firsts’, secure new contracts and expand into new geographical territories.”

If you are interested in becoming a teacher/coach on the Royal Academy of Engineering’s Leaders in Innovation Fellows programme, visit the website for further information.

Sainsbury Management Fellows is the scholarship scheme of Engineers in Business Fellowship. If you are an engineer interested in studying for an MBA, visit this scholarship page.

* India, China, Vietnam, Philippines, Thailand, Malaysia, Indonesia, Turkey, Kazakhstan, Egypt, South Africa, Mexico, Chile, Colombia, and Brazil.

Blog

Risky business: why you need risk analysis for your business

Even if you have been running a successful and secure business for years, problems might still arise unexpectedly that put the operation in jeopardy.  Companies are at risk of all types of potential threats, from force majeure to cybercrime to whistleblowing on an internal problem. Knowing about your company’s exposure to problems is vital, therefore risk analysis should be an integral part of your corporate governance.

Attention to detail
Risk analysis can be a complex task as it requires information on a variety of topics right across the business. Project plans, security protocols, financial data and marketing forecasts can all be used to build a picture of the challenges a business faces. The first step is to identify threats through a detailed analysis of the risks faced by the business. This work will highlight potential threats and their implications, and enable the board to identify and rectify any weaknesses and, at the same time, develop crisis contingency plans to manage any emerging crisis if a risk becomes a reality.

A threat might be a human one – for example, illness, injury or the loss of a key employee might cause significant damage to a business. ‘Key man insurance’ is an example of one strategy to address the financial implications of this particular risk.

Other threats can be classified as operational, reputational, procedural, political and structural. These example categories help you to define where the major risks to your business are and why your business is vulnerable.

External threats
It is also important to think about potential external shocks that could cause disruption to the business. Although an extreme case, you may recall that in 2013, a helicopter collided with a crane on a construction site in London – it left two dead, twelve people injured, caused damage to nearby local businesses, stopped London traffic and led to round-the-clock media coverage. External incidents can harm infrastructure, data and bring day-to-day business to a halt.  As part of the risk analysis process, it is important to consider external factors that could disrupt the business and how it would continue to operate in such an eventuality. Companies need plans to protect transactions and their reputation from unforeseen crises.

Prepare to communicate in a crisis
It is imperative that there is consensus on crisis contingency plans. All managers should be fully apprised of the plans and know their roles and responsibilities in advance.   Also, a communications plan needs to dovetail with the crisis and business continuity plans – If an incident occurs, staff, clients and the wider public will need to be informed, reassured and kept updated.

With this in mind, it is advisable to set up and test in advance, an information gathering system so that nominated staff can easily gather and collate data and share it with the relevant people.  Finally, the likelihood is that some staff will need training on the response plans and their individual roles. It is up to senior management to identify those who can carry out tasks and provide the necessary training. The faster, more coordinated and effective the response (both to the incident and communications), the less damaging the impact will be on day-to-day business and the long-term reputation of the business.

Whistleblowing
Sometimes a problem will not be a visible one. If there is a persistent issue that management has failed to act upon and is of relevance to the general public, employees may resort to whistleblowing.  The government protects corporate whistleblowers, and any gag order or non-disclosure agreement will not apply if the case is deemed to be of interest to the public at large. A whistleblower is completely protected when reporting on health and safety dangers, damage to the environment, and miscarriage of justice – when a company is breaking the law or if someone has attempted to cover up wrongdoing.

A problem that the board fails to uncover in its governance, or the risk analysis process, that is later revealed to the public by a whistleblower can be hugely damaging to the business. In terms of reputational damage, it may be a very expensive mistake to repair, if indeed it can be repaired. If the whistleblower reveals criminal activity, it might also lead to an investigation.

However, whistleblowing should not be feared as destructive in of itself. Companies that have the right system in place to deal with concerns and complaints should actually benefit from them, as it gives management the opportunity to put things right.

Employees should be made aware of a company’s whistleblowing policy and what they can expect in terms of actions and results when a complaint is made.  Once the system is in place, however, it must be allowed to run without the interference of management.  A recent case of an attempt to identify a whistleblower has shown that companies require a culture that encourages employees to speak their minds when they have a concern and that attempts to remove anonymity can badly taint that culture of openness.  Employees who know their welfare matters will be more willing to come forward. The ideal scenario is for employees to feel assured enough in their standing that they can submit complaints without anonymity and without fear of censure.

Risk analysis is an essential part of strategic business management and should be a top priority for the board.  If the issue is constantly moving down the agenda in your company, RiskNet’s article on the Top 10 operational risks for 2017 might galvanise you into action!

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NGOs and healthcare sector least prepared for cyber attacks

photo: Solarseven

Non-governmental organisations (NGOs) and the healthcare sector are the ‘least prepared’ and most at risk of cyber attacks according to a new poll by the Sainsbury Management Fellows (SMF) business research panel – 25% percent of respondents named NGOs while just over 22% identified the healthcare sector.  The next highest at-risk sector named was agriculture/agribusiness with 16%.

It is perhaps not surprising that healthcare ranked highly given that just a few months ago the NHS was given a dose of vicious ransomware sent via its email systems. This fooled some staff into opening attachments which spread a virus across some parts of the network.  This attack raised a heated debate about the robustness or otherwise of NHS computer systems, though a government spokesperson said that 97% of the NHS was unaffected.

If the SMF panel’s view that the agriculture/agribusiness is a high-risk sector, it doesn’t bear thinking about the consequences of a breakdown in the food chain.  An attack on the complex and interwoven food production processes, from growers to production and retail, could lead to food shortages in just a few days, impacting consumers directly as well as major institutions, such as schools and hospitals, which feed children and patients respectively.

Many organisations don’t feel the need for greater security
The majority of the SMF panel agreed that many organisations don’t feel the need for greater cybersecurity because they believe they have bigger problems to worry about, or that they are too small, too large or too important to be affected.

If the panel’s perception is accurate, these organisations need to be mindful of the findings of a leading security report which recently warned that ‘financially motivated criminals continued to innovate in 2017.’  The Flashpoint ‘Business Intelligence Report’ 2017 mid-year update identifies heightened threats from cybercriminals as well as ‘severe’ and potentially ‘catastrophic threats’ from China, North Korea, Iran, Russia and Jihadist Hackers. The report defines a catastrophic attack as:

‘Having the potential to cause complete paralysis and/or destruction of critical systems and infrastructure. Under such circumstances, regular business operations and/or government functions cease and data confidentiality, integrity, and availability is completely compromised for extended periods.’

According to Flashpoint, a notable trend in 2016 was cybercriminals targeting of healthcare organisations as a means of obtaining sensitive and exploitable personally identifiable information. Business email compromise is an area of rapid growth, with newly-released statistics finding that the various iterations of the scheme have led to some $5.3 billion dollars in losses globally. Overall, cybercriminals have continued to evolve in order to circumvent additional protections and new technologies designed to reduce fraud, such as EMV chips in payment cards.

Best Prepared Sectors
Perhaps unsurprisingly, the poll identified the military/defence and computer/technology sectors as the best prepared to deal with potential cyber attacks.  Over half (56%) chose the military, with 16% of the votes going to computer/tech and 13% opting for the financial services sector.  No other sector scored more than 4% of the total vote.  Almost one-third (31%) said that they felt that organisations in these three sectors recognise that cybersecurity is important and are ready to deal with such challenges because they believe that lives depend on it.

Value of Organisation/Corporate Data  
Almost two-thirds (66%) of those polled believe that most organisations don’t understand the value of the data they hold, making them vulnerable to serious attack and consequential future loss for their business.

 

SMF Panel Commentary 
These comments highlight concerns:

  • “Most companies don’t organise their data well and therefore fail to see its value, especially to others who do.”
  • “Companies that don’t monetise the data they hold don’t understand the value. Some may hold a lot of data but don’t exploit it for commercial gain so are not aware of its potential value.”
  • “The value depends on how the data is used. A lot of data that is not seen as valuable by companies could be very valuable to a malevolent party, for example, personnel records.”
  • “The data one company holds might have a lot of value when combined with another company’s data.“
  • “Data-mining can make mass data useful as opposed to individual or the data one company holds might have a lot of value when combined with another’s [data].”

Panel member David Bell from Rolls Royce points out that as cybercrime is a relatively new phenomenon, it is taking some time before organisations act to tighten up their data security.  He said, “Awareness of cybercrime is on the rise; many organisations are yet to fall victim of an attack, targeted or otherwise, and so are under-prepared and vulnerable. Shareholder pressure can cause organisations to focus more on revenue-generating activities and less on cybersecurity as, until more recently, there has been little cause for concern. Many organisations are only coming to understand the value of their data if it were to be subject to a ransomware attack.”

One panellist who felt that organisations do understand the value of their data still highlighted problems of preparedness: “Most companies do understand the value of their data, and in the last couple of years have realised they are potential targets for attack. However, it is not only the technical defences but also employee awareness and education that need to be put in place.  These take many years to develop and build in large organisations and require regular and systemic support and understanding.  The technical proficiency of many UK leaders/boards is quite low so they have been very slow in reacting and developing policies around this area.”

SMF James Raby agrees on the latter points: “There is indeed a learning curve for most organisations but the increasing number of high-profile and debilitating attacks across a diversity of organisations, from telecoms companies to the NHS, means that all organisations must make cybercrime a top priority.  This requires senior management commitment together with technical experts who can develop appropriate and evolving anti-cybercrime strategies.”

Another panellist said, “The cyber landscape is rapidly evolving and bringing with it new data technologies, risks and opportunities.  In this context of complexity, the value of organisational data is often not well understood. This has significant implications for cyber attacks – companies are often failing to protect their most valuable data or leverage data that can support cyber defence. In order to understand the value and take appropriate action companies need to invest in a cyber ambition, strategy, roadmap and culture that builds appropriate data ownership, capabilities and processes.”

The overriding perception from the SMF business research panel is that most organisations are simply not doing enough to protect their operations from cybercrime at the moment and are in danger of ‘closing the stable door after the horse has bolted’.  One panellist summed it up nicely saying, “Information is the lifeblood of a profitable business; like the air we breathe, one takes it for granted until it’s gone.”

If you would like to join the SMF Business Research Panel, please email the SMF Office with your details. 

 

Blog

AI: A threat or opportunity for UK businesses?


SMF President, David Falzani,  explores the challenge AI poses to business and wider society.

The hypothetical outcomes of AI for business have ranged from utopian to hysterical among commentators, with many focusing in particular on the implications of AI and automation for work – and the risk of redundancies. The Bank of England estimates that 48% of human workers will eventually be replaced by robotics and software automation.  ArkInvest meanwhile predicts that 76 million US jobs will disappear in the next two decades.

Daniel J. Arbess, writing for Fortune magazine, goes as far as to argue that “the accelerating penetration of job-displacing software presents maybe the most serious (and still underappreciated) socio-economic challenge to market economies in generations, both in our own country and abroad.” Jobs, it seems, are the biggest worry. “Applied software technology reduces costs and prices, taking fewer consumption dollars a longer way. We’re starting to hear a lot about this, because entrepreneurs, investors and shareholders of companies will be enjoying epic financial rewards from the AI economy–but what about everyone else?  People still need jobs.”

Meanwhile, Professor Stephen Hawking raised the stakes somewhat in 2014 saying “The development of full artificial intelligence could spell the end of the human race.” whilst Elon Musk warned that AI is “our biggest existential threat”.

AI is, then, conveyed as a threat to business, employment, and even existence, sometimes by people who don’t understand how the technology is currently being used, sometimes by the science and technology community. At the same time, it’s floated as the basis for a universal basic income and the new Industrial Revolution, as well as massively increased efficiencies across all industries. So is AI a threat or an opportunity for UK businesses?

Blake Irving, the CEO of GoDaddy, a global web hosting company, explains that “the AI that’s real today is known as ‘Narrow AI’.” Rather than worrying about super intelligent Skynets wiping humanity off the face of the earth, Blake argues we should instead focus on narrow AI as “what’s actually changing everything.” Citing Rand Hindi, who defines narrow AI as “the ability for a machine to reproduce a specific human behaviour, without consciousness… a powerful tool to automate narrow tasks, like an algorithm would”, Irving argues that narrow AI will replace or transform any job where information gathering and pattern recognition drive a volume business. “That’s not just labourers. That’s accountants, traders, estate agents, lawyers, software developers, and on and on.”

A good example of this ‘narrow AI’ can be seen in eBay’s introduction of personalised homepages and a ‘ShopBot’ for its users. “Using structured data – a transformative step to drive discoverability of our vast inventory, insights into supply and demand, pricing trends, among other things – and artificial intelligence, we’re creating a shopping experience that is tailored to each eBay user’s interests, passions and shopping history,” CEO Devin Weing explains. “With more than one billion items … we’re making shopping on eBay all about you, instead of a one-size-fits-all approach.” This is massively increasing sales conversions for the company and its traders.

Irving goes on to examine three categories of ‘AI insulated jobs’: those which require meaningful creative interactions with other people; those that won’t be replaced due to the limitations of robotics but will be transformed side-by-side with Narrow AI tools; finally, entrepreneurial roles, which can encompass such a diversity of work as to be difficult to automate. Irving uses these categories to argue that the ‘end result’ of AI displacing jobs will be the need for a population better educated to manage or interface with AI. It will, in other words, incentivise skills-based specialist technology education and ultimately spur a demand for creative thinking and skills, the things that narrow AI cannot provide.

The structuring of data that narrow AI affords us isn’t so much abolishing old skills and roles, then, as it is creating a demand for integrating new capabilities into the modern business plan. If anything, it is actually increasing the demand for creative entrepreneurs, whose skill sets are more valuable than ever while productivity and efficiency shoots up across the board thanks to AI. A similar increase in productivity was seen in the 1990s due to the implementation of MRP and MRP2 that saw skilled and semi skilled roles replaced with algorithms.

It might be worth considering that every threat is an opportunity because it forces change. The exploding volume of literature on the so-called AI revolution suggests that these technological developments may offer massive efficiency improvements, and radical changes to how businesses get things done. Are you able and willing to turn AI into an opportunity to radically overhaul skill sets and workplace practices to keep ahead of the curve, or are you not in a position to invest in this fledgling technology yet, and at risk of falling behind? The answer depends largely on the kind of organisation you run, to what extent it has information gathering and pattern recognition centred tasks, and how open it is to change, as well as how well you grapple with the reality of AI technology as it currently stands.

case studies

MBA a game changer – switching from a technical role to a broader management role

Chartered Engineer Dere Ogbe, Shell Corporate Strategy and Portfolio, who gained an SMF-sponsored MBA at LBS, tells us about his career progression.

How has the MBA galvanised your career?
The greatest benefit I derived from my MBA was acquiring the skills to tackle problems holistically; through case studies and class lessons, I learnt how to use different concepts and analytical tools to solve wide-ranging problems. This training has given me the foundation to switch from a technical to a broader management career.

With this foundation, I joined Shell as a senior strategy and portfolio consultant with the ability to lead both technical and commercial strategy projects. For example, I am leading a project stream that is helping shape Shell’s view of energy transition and future energy demand. This involves working with large numbers of industry experts to analyse multiple trends in consumer behaviours, demographics, government policies, and technology. With such complex issues, there is always a danger of information overload.

However, my MBA training on world economics and data analytics gave me the grounding and tools to lead the team though several workshops in analysing possible scenarios for energy demand transition, that won the team a Strategy Excellence Award.

Previously, I led a mergers and acquisitions (M&A) team in the evaluation of midstream opportunities across North America. This required building financial models to analyse competitive situations across the value chain. The resulting output was key to making the case for the project’s recommendations. This would have been difficult without the financial knowledge gained while earning my MBA.  Possessing an MBA has definitely galvanised my career by enabling me to broaden from a technical leader to a business leader.

In addition to professional advancement, the scholarship and resultant MBA has given me the tools and inspiration to give back through taking part in voluntarily social impact projects such as www.africacart.com, which aims to connect artisans in Africa to the international market; and www.africafa.com, which is developing grassroots football leagues for African youths and providing coaching support for African academics.

After 12 years in industry, what spurred you on to pursue an MBA?
Before my MBA, I was a senior operations excellence engineer at BP Exploration. This was a broad technical role that involved implementing best practices to drive continuous improvement across multiple joint ventures in Europe, the Middle East, and North Africa.

The role required cascading business decisions into technical requirements and gave me an awareness of how commercial choices drive project design and operational requirements.  This awareness coupled with the knowledge from courses such as Managing Engineering Projects (that I undertook as part of my ImechE Continuing Professional Development) sparked my interest in business management.

In addition, given that I was already a chartered engineer with significant operational leadership experience, the timing felt right to explore a broader career route. An MBA offered the best route for me to make this switch. It also appealed to me on a personal level as an opportunity to learn about other industries, expand my professional network, and gain new perspectives.

What were your expectations before you started to earn an MBA?
I had two key expectations in advance of undertaking my MBA:

My first expectation was that an MBA would broaden my world. The MBA exceeded this expectation, as it not only exposed me to a broader set of commercial and social viewpoints but also gave me the chance to interact with CEOs, corporate founders, political leaders, and accomplished alumni. These interactions broadened my horizons and made me more willing to step out of my comfort zone and strive for ambitious goals.

My second expectation was that an MBA would provide me with a new set of skills and areas of expertise. Again, I feel this expectation was met, as the London Business School MBA Program not only provided me with a solid grounding in finance, also enhanced my data analytical and leadership skills.

What difference did the SMF scholarship make?
Finances were a serious consideration for me as I had to defer my first MBA offer because I had insufficient saving. The SMF scholarship not only made the MBA attainable but was key to reducing my family’s anxiety about financing my continued education. Without the SMF scholarship, I would not have been unable to take full advantage of the MBA opportunity.

How did you learn about the SMF scholarship?
I first learned about SMF during my preparation to become a chartered engineer. However, it was while doing my research into business schools that I found out more about the scholarship, which is available at the only top business schools.

What was the scholarship application process like?
I enjoyed the process. There is a strong vision behind the scholarship that is evident in the application process, which requires applicants to reflect on what they hope to accomplish by having an MBA. For example, I had to get references from two senior leaders at my employer, which meant discussing my plans with them and getting their honest assessment of my achievements and post-MBA plans. These discussions made me better prepared to make use of the MBA and to pursue the right opportunities.

The interview stage of the application process was very friendly and encouraging. I was interviewed by a chartered engineer and a Fellow who both gave encouraging comments. The best part, of course, was receiving the positive news of having been awarded the scholarship.

How much did the MBA contribute to you getting the type of job you wanted?
One hundred percent! It is very unlikely I would have attained my post-MBA position without having earned the degree, as I would not have had the experience or training for the role.

How is your MBA experience helping you in your new role?
It has made me more comfortable leading a wider range of people with different technical and commercial expertise. It has also given me the necessary financial, strategic, and commercial skills to quickly analyse problems and propose possible solutions. With these refined skills, I can jump into projects and get up to speed quickly.

In addition, the intense case studies approach during the MBA practices makes leading strategy projects feel like second nature and it has increased my ability to seek and incorporate diverse viewpoints in building a strategic response.

What especially do you love about your job at Shell?
As a senior strategy and portfolio consultant, the part of my job I especially love is the challenge of thinking on my feet, rapidly uncovering the critical factors and creating with the team a roadmap for solving the problem. There is always a buzz at the start of every project and a key part of my role is keeping the team motivated by retaining that excitement and creativity throughout the project.

Are you active among SMF alumni?
Immediately after earning my MBA, I was not as active in alumni affairs because it was a period of tremendous change for me. More recently I have become much more involved: networking with other Fellows, attending the SMF annual dinners, and joining in the fundraising campaigns. I’m deeply inspired by the achievements of the SMF alumni, and the chance to networking and building relationships with senior alumni is one of the key benefits of being an SMF alumni.

Would you recommend the scholarship?
I’m biased, but yes! I highly recommend both the SMF scholarship and what it represents—the advancement of engineering talent to managerial and board positions in technical industries. With the help of SMF scholarship, skilled engineers can grow from their technical base of knowledge into broader commercial skills. The scholarship brand itself is highly prestigious as it signals a commitment to excellence in both the technical and managerial fields.

What tips would you give to a potential scholarship applicant?
The scholarship is a means to an end—the first focus of any applicant must be on the end goal, what they hope to achieve in their professional life with an MBA. if they are clear on this it will make the scholarship application easier. Secondly, I would recommend making the best use of the great networking opportunities that both the MBA and SMF provide.

Visit the scholarship page to learn about making an application.