Brexit, political uncertainty and increased interest rates; Neil Clothier, senior negotiator at Huthwaite International, discusses how businesses can plan ahead, manage contracts and negotiate beneficial deals to future proof their finances in light of rate rises and an uncertain economy.
Generally speaking, a rise in interest rates is associated with a sign of strength and growth in the economy. For businesses, this can be a mixed blessing: those with significant reserves will benefit from greater returns, a potential increase in consumer spending and – depending on the sector – the ability to charge more for products and services. However, in reality, the flipside of this is increased borrowing costs. And, with a huge number of businesses relying on loans and third-party finance, this can seriously impact a company’s bottom line.
With the Bank of England predicting a further two rate rises over the next three years, as well as the ongoing political and economic uncertainty Brexit has presented, many business owners are understandably feeling nervous about the future. However, an area many often fail to consider when it comes to increasing margin, and re-establishing stability, is negotiation; both internally and externally. At times of uncertainty, better negotiation can and should pay dividends.
So, how can businesses better utilise negotiation tactics to help strengthen business growth, profit and general financial stability? Effective negotiation is not a dark art. It’s a well-researched science that can be used by all businesses with the right training, and there are some initial strategies that can be implemented to help stabilise the bottom line.
Renegotiate existing supplier contracts
Firstly, reviewing supplier contracts can be a straightforward and effective way to increase margin and lower operating costs. A common misconception is that contracts aren’t open for renegotiation once terms are agreed. This simply isn’t true. In most cases negotiation is always an option.
I say in most cases. it’s important to apply a strategic approach to any cost conversations you start. You don’t want toalienate a contractor or supplier that your business is critically dependent on.
For the purpose of increasing profit through contract renegotiation, most companies have suppliers that fall into one or more of three main categories. These are;
- Non-differentiated – when the supplier has an undifferentiated commodity product that’s easy to source elsewhere.
- Semi-strategic – when the supplier is important and harder to replace but not critically so.
- Strategic and critical – when the supplier is critical to your business and would be very hard to replace.
With non-differentiated suppliers, you can renegotiate contract terms quite easily. There are a bountiful number of suppliers offering the same, or similar service, so your business is, therefore, crucial to them. The balance of power is firmly with you.
An example of a non-differentiated supplier is an office stationary provider – this relationship can be treated purely on a transactional/commercial basis, in other words, you can be firm on cost, and have plenty of competitor quotes to play with. This provides plenty of room for negotiation, without opening your business to risk, should your supplier walk away.
Semi-strategic suppliers represent the ‘broad band’ in the middle where you’ll likely find the most pay off with regards renegotiation success. Neither party wants to leave the other, the relationship is important to both sides but not critically so. The key to an effective renegotiation here is to reaffirm your common ground. That is, that you’re both in the relationship to make money. You both want to continue working together. By them allowing you to adjust your financial agreement means you’ll be betterable to continue the relationship for the good of you both.A renegotiation in this case is a win-win.
The third type of supplier contracts are those that are strategically critical to your business, such as a specialist manufacturer. These negotiations need to be handled with great care and undertaken in the context of the negotiation agreements you have in place. Any attempt to revisit these mid-term could risk a negative impact on the relationship and should be avoided.
When categorising suppliers it comes down to scarcity. How unique is the supplier’s solution? In other words, how many competitors does the supplier have? A supplier with few or no competitors will constitute high supplier risk than one with many. The specialist manufacturer supplier, for example, would be very difficult to substitute and so constitutes a high supplier risk. On the other hand, and referencing my previous point, the supplier of office stationery will have many competitors and will be categorised as low supplier risk.
Meanwhile, profit impact is about the financial impact of the good or service. How dependent is the company on the particular supplier for its financial success? In the case of the specialist manufacturer, its products are likely to be at the heart of a company’s product offering, meaning it has high-profit impact, whereas the supplier of office stationery has insignificant profit impact.
However, no matter how intimidating the prospect of a negotiation may seem,remember, vendors and suppliers have a business to run too and are keen on expanding them just as much as you are. One of the best ways to ensure you have an equal say in re-negotiations is by putting forward the value you bring to the table, not just financial, but non-financial services in lieu of cash, such as strong connections in the business community, which could lead to new business for the supplier.
Buy more effectively and negotiate on price
Another point to consider is how you purchase and negotiate on price. Big businesses utilise the services of procurement companies for a reason – they can save significant amounts of money by negotiating on price and quantities. Applying, the ‘I can and will negotiate on this deal’ attitude to your own business strategy can reap real rewards. If you ensure maximum margin is extracted from all new supplier contracts from the offset, it will pay big in the long run.
Most people have a good understanding of what they need to do to secure a quality deal, however, in practice, buyers are making frequent errors that unwittingly see them lose profit.Price negotiations with suppliers can depend heavily on the skill of individual person in question. However, for those getting it right, smart purchasing has the power to accelerate market development and boost profitability.
But shopping around doesn’t just mean opting for the cheapest deal – it’s also important to consider the service you are set to receive in return. Find a comfortable middle ground. A common mistake made by many businesses is to buy the cheapest goods and as a result this can seriously impact on productivity. Think carefully about the areas in which you can afford to compromise and the areas which require a little extra investment. Striking this balance is crucial to maintaining quality service for your customers.
Of course, negotiations don’t always fall into an easy three step rule, and can quickly become a complex and time intensive strand of your business strategy if not effectively managed. Despite this, businesses really can’t afford to feel intimidated by the prospect of negotiating with existing or new suppliers, not least in a climate where interest rates are rising and deals are being rocked by an uncertain political climate.
Whether you invest in training designed to up-skill your team and improve their negotiation skills, or you take baby steps and start by looking at smaller contracts that can be re-negotiated to ease cash flow, the important thing to do is to consider negotiation as an essential tool within your business strategy, and ensure you develop an effective and systematic approach to negotiations.
Will covid-19 end the dominance of the big four?
By Campbell Shaw, Head of Bank Partnerships, Cardlytics
Across the country, we are readjusting to refreshed restrictions on our daily lives, as we continue to navigate the seemingly unnavigable waters of the coronavirus pandemic.
For all of us, the pandemic has made life anything but ‘normal’, and with social distancing here to stay, it will remain so for a long time yet. These paradigm shifts have impacted every aspect of life, including how we bank.
Focus is already turning to the role the big banks are playing through the pandemic, with experts fearing the economic downturn will only cement the position of the ‘big four’ traditional players.
But has the pandemic shaken the dominance of the big banks? Or has it simply confirmed their position?
Turning to tech
There’s no doubt that the pandemic has caused the big players to be challenged like never before on tech.
Classically slower to adapt to developments in the market, increased demand for online services and contactless payment systems have turbocharged the big banks’ need to act like a challenger.
And they have, agilely adapting to this new normal by updating systems and services to ensure customers’ safety and financial security come first.
Scale is staying power
In these new times, the power and influence of the big players has also been proven.
The big four have provided the lion’s share of the government-backed loans designed to help small and medium-sized businesses through the pandemic. It has also been the big four offering the majority of payment holidays for customers on their mortgages, debt and credit cards.
However, it’s important to note that their power to retain customers goes much deeper than their market share.
Our switching study, which looked at the reasons behind customer switching, found that even before the pandemic, despite nearly half (48%) of UK adults admitting they know they aren’t getting the best deal with their current bank, half have never switched their current account.
That’s often because of the value they can provide to their customers, through personalized service, offers and rewards that keeps customers engaged and invested in them. As brands increasingly look to
Focus on finances
As the world becomes a more financially insecure place, due to COVID-19, there’s been a marked shift towards more attention on finances, which has affected not only the business functions of banks but has impacted banking relationships with customers at their core.
From deals to savings, customers now more than ever are re-evaluating how they bank, and how they manage their money.
The impact on the big four is more pressure than ever to keep up with the best interest rates and deals. That can be difficult for a big, and often slower moving, organisation and could be a stumbling block for them in the months to come.
However, on the plus side, the big four can lean into their sophisticated loyalty schemes, using offers and deals from partner brands to demonstrate value to customers and build up their loyalty.
Engaging with purpose
The pandemic has seen many banks acting with a renewed sense of purpose. Banking has had to be more adaptable than ever before – fitting the needs of those who may be feeling financial stress or dealing with unprecedented challenges.
And showing a little heart can go a long way when it comes to increasing customer loyalty and boosting a bank’s reputation.
Over the last months, traditional banks have been quick to adapt their products and services, in response to the demands and challenges their customers have been face.
No doubt, continuing to build more meaningful, supportive and engaging customer relationships, whether it is online or on the newly reopened high-street, will be critical to banks’ dominance as we look to the future.
Bring on the challengers
However, with their meteoric rise ahead of lockdown, we must keep an eye on the challengers, who still have the potential to knock traditional players off their pedestal.
We found that more than three million people in the UK opened a current account with a new bank last year. Our research found that traditional banks made up well over half (69%) of the accounts UK adults switched from, while newer digital challenger banks such as Monzo, Starling Bank and Revolut made up 25% of current accounts switched to. And these fast moving, fast growing challengers may see further growth if traditional banks are stifled by the declining high-street.
What’s more, the high street could yet prove to be the Achilles heel of the bigger players, as shifting budgets and increasing overheads in the context of a more online banking experience could see more big players struggle with their physical presence, making way for the digital challengers to thrive.
So, while the dominant players may have the lead, they should still keep an eye on the challengers as we look ahead to the next, uncertain, six months.
To take the nation’s financial pulse, we must go digital
By Pete Bulley, Director of Product, Aire
The last six months have brought the precarious financial situation of many millions across the world into sharper focus than ever before. But while the figures may be unprecedented, the underlying problem is not a new one – and it requires serious attention as well as action from lenders to solve it.
Research commissioned by Aire in February found that eight out of ten adults in the UK would be unable to cover essential monthly spending should their income drop by 20%. Since then, Covid-19 has increased the number without employment by 730,000 people between July and March, and saw 9.6 million furloughed as part of the job retention scheme.
The figures change daily but here are a few of the most significant: one in six mortgage holders had opted to take a payment holiday by June. Lenders had granted almost a million credit card payment deferrals, provided 686,500 payment holidays on personal loans, and offered 27 million interest-free overdrafts.
The pressure is growing for lenders and with no clear return to normal in sight, we are unfortunately likely to see levels of financial distress increase exponentially as we head into winter. Recent changes to the job retention scheme are signalling the start of the withdrawal of government support.
The challenge for lenders
Lenders have been embracing digital channels for years. However, we see it usually prioritised at acquisition, with customer management neglected in favour of getting new customers through the door. Once inside, even the most established of lenders are likely to fall back on manual processes when it comes to managing existing customers.
It’s different for fintechs. Unburdened by legacy systems, they’ve been able to begin with digital to offer a new generation of consumers better, more intuitive service. Most often this is digitised, mobile and seamless, and it’s spreading across sectors. While established banks and service providers are catching up — offering mobile payments and on-the-go access to accounts — this part of their service is still lagging. Nowhere is this felt harder than in customer management.
Time for a digital solution in customer management
With digital moving higher up the agenda for lenders as a result of the pandemic, many still haven’t got their customer support properly in place to meet demand. Manual outreach is still relied upon which is both heavy on resource and on time.
Lenders are also grappling with regulation. While many recognise the moral responsibility they have for their customers, they are still blind to the new tools available to help them act effectively and at scale.
In 2015, the FCA released its Fair Treatment of Customers regulations requiring that ‘consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale’.
But when the individual financial situation of customers is changing daily, never has this sentiment been more important (or more difficult) for lenders to adhere to. The problem is simple: the traditional credit scoring methods relied upon by lenders are no longer dynamic enough to spot sudden financial change.
The answer lies in better, and more scalable, personalised support. But to do this, lenders need rich, real-time insight so that lenders can act effectively, as the regulator demands. It needs to be done at scale and it needs to be done with the consumer experience in mind, with convenience and trust high on the agenda.
Placing the consumer at the heart of the response
To better understand a customer, inviting them into a branch or arranging a phone call may seem the most obvious solution. However, health concerns mean few people want to see their providers face-to-face, and fewer staff are in branches, not to mention the cost and time outlay by lenders this would require.
Call centres are not the answer either. Lack of trained capacity, cost and the perceived intrusiveness of calls are all barriers. We know from our own consumer research at Aire that customers are less likely to engage directly with their lenders on the phone when they feel payment demands will be made of them.
If lenders want reliable, actionable insight that serves both their needs (and their customers) they need to look to digital.
Asking the person who knows best – the borrower
So if the opportunity lies in gathering information directly from the consumer – the solution rests with first-party data. The reasons we pioneer this approach at Aire are clear: firstly, it provides a truly holistic view of each customer to the lender, a richer picture that covers areas that traditional credit scoring often misses, including employment status and savings levels. Secondly, it offers consumers the opportunity to engage directly in the process, finally shifting the balance in credit scoring into the hands of the individual.
With the right product behind it, this can be achieved seamlessly and at scale by lenders. Pulse from Aire provides a link delivered by SMS or email to customers, encouraging them to engage with Aire’s Interactive Virtual Interview (IVI). The information gathered from the consumer is then validated by Aire to provide the genuinely holistic view of a consumer that lenders require, delivering insights that include risk of financial difficulty, validated disposable income and a measure of engagement.
No lengthy or intrusive phone calls. No manual outreach or large call centre requirements. And best of all, lenders can get started in just days and they save up to £60 a customer.
Too good to be true?
This still leaves questions. How can you trust data provided directly from consumers? What about AI bias – are the results fair? And can lenders and customers alike trust it?
To look at first-party misbehaviour or ‘gaming’, sophisticated machine-learning algorithms are used to validate responses for accuracy. Essentially, they measure responses against existing contextual data and check its plausibility.
Aire also looks at how the IVI process is completed. By looking at how people complete the interview, not just what they say, we can spot with a high degree of accuracy if people are trying to game the system.
AI bias – the system creating unfair outcomes – is tackled through governance and culture. In working towards our vision of a world where finance is truly free from bias or prejudice, we invest heavily in constructing the best model governance systems we can at Aire to ensure our models are analysed systematically before being put into use.
This process has undergone rigorous improvements to ensure our outputs are compliant by regulatory standards and also align with our own company principles on data and ethics.
That leaves the issue of encouraging consumers to be confident when speaking to financial institutions online. Part of the solution is developing a better customer experience. If the purpose of this digital engagement is to gather more information on a particular borrower, the route the borrower takes should be personal and reactive to the information they submit. The outcome and potential gain should be clear.
The right technology at the right time?
What is clear is that in Covid-19, and the resulting financial shockwaves, lenders face an unprecedented challenge in customer management. In innovative new data in the form of first-party data, harnessed ethically, they may just have an unprecedented solution.
The Future of Software Supply Chain Security: A focus on open source management
By Emile Monette, Director of Value Chain Security at Synopsys
Software Supply Chain Security: change is needed
Attacks on the Software Supply Chain (SSC) have increased exponentially, fueled at least in part by the widespread adoption of open source software, as well as organisations’ insufficient knowledge of their software content and resultant limited ability to conduct robust risk management. As a result, the SSC remains an inviting target for would-be attackers. It has become clear that changes in how we collectively secure our supply chains are required to raise the cost, and lower the impact, of attacks on the SSC.
A report by Atlantic Council found that “115 instances, going back a decade, of publicly reported attacks on the SSC or disclosure of high-impact vulnerabilities likely to be exploited” in cyber-attacks were implemented by affecting aspects of the SSC. The report highlights a number of alarming trends in the security of the SSC, including a rise in the hijacking of software updates, attacks by state actors, and open source compromises.
This article explores the use of open source software – a primary foundation of almost all modern software – due to its growing prominence, and more importantly, its associated security risks. Poorly managed open source software exposes the user to a number of security risks as it provides affordable vectors to potential attackers allowing them to launch attacks on a variety of entities—including governments, multinational corporations, and even the small to medium-sized companies that comprise the global technology supply chain, individual consumers, and every other user of technology.
The risks of open source software for supply chain security
The 2020 Open Source Security and Risk Analysis (OSSRA) report states that “If your organisation builds or simply uses software, you can assume that software will contain open source. Whether you are a member of an IT, development, operations, or security team, if you don’t have policies in place for identifying and patching known issues with the open source components you’re using, you’re not doing your job.”
Open source code now creates the basic infrastructure of most commercial software which supports enterprise systems and networks, thus providing the foundation of almost every software application used across all industries worldwide. Therefore, the need to identify, track and manage open source code components and libraries has risen tremendously.
License identification, patching vulnerabilities and introducing policies addressing outdated open source packages are now all crucial for responsible open source use. However, the use of open source software itself is not the issue. Because many software engineers ‘reuse’ code components when they are creating software (this is in fact a widely acknowledged best practice for software engineering), the risk of those components becoming out of date has grown. It is the use of unpatched and otherwise poorly managed open source software that is really what is putting organizations at risk.
The 2020 OSSRA report also reveals a variety of worrying statistics regarding SSC security. For example, according to the report, it takes organisations an unacceptably long time to mitigate known vulnerabilities, with 2020 being the first year that the Heartbleed vulnerability was not found in any commercial software analyzed for the OSSRA report. This is six years after the first public disclosure of Heartbleed – plenty of time for even the least sophisticated attackers to take advantage of the known and publicly reported vulnerability.
The report also found that 91% of the investigated codebases contained components that were over four years out of date or had no developments made in the last two years, putting these components at a higher risk of vulnerabilities. Additionally, vulnerabilities found in the audited codebases had an average age of almost 4 ½ years, with 19% of vulnerabilities being over 10 years old, and the oldest vulnerability being a whopping 22 years old. Therefore, it is clear that open source users are not adequately defending themselves against open source enabled cyberattacks. This is especially concerning as 99% of the codebases analyzed in the OSSRA report contained open source software, with 75% of these containing at least one vulnerability, and 49% containing high-risk vulnerabilities.
Mitigating open source security risks
In order to mitigate security risks when using open source components, one must know what software you’re using, and which exploits impact its vulnerabilities. One way to do this is to obtain a comprehensive bill of materials from your suppliers (also known as a “build list” or a “software bill of materials” or “SBOM”). Ideally, the SBOM should contain all the open source components, as well as the versions used, the download locations for all projects and dependencies, the libraries which the code calls to, and the libraries that those dependencies link to.
Creating and communicating policies
Modern applications contain an abundance of open source components with possible security, code quality and licensing issues. Over time, even the best of these open source components will age (and newly discovered vulnerabilities will be identified in the codebase), which will result in them at best losing intended functionality, and at worst exposing the user to cyber exploitation.
Organizations should ensure their policies address updating, licensing, vulnerability management and other risks that the use of open source can create. Clear policies outlining introduction and documentation of new open source components can improve the control of what enters the codebase and that it complies with the policies.
Prioritizing open source security efforts
Organisations should prioritise open source vulnerability mitigation efforts in relation to CVSS (Common Vulnerability Scoring System) scores and CWE (Common Weakness Enumeration) information, along with information about the availability of exploits, paying careful attention to the full life cycle of the open source component, instead of only focusing on what happens on “day zero.” Patch priorities should also be in-line with the business importance of the asset patched, the risk of exploitation and the criticality of the asset. Similarly, organizations must consider using sources outside of the CVSS and CWE information, many of which provide early notification of vulnerabilities, and in particular, choosing one that delivers technical details, upgrade and patch guidance, as well as security insights. Lastly, it is important for organisations to monitor for new threats for the entire time their applications remain in service.
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