Marwick January/February 2017 by KPMG Česká republika

JANUARY/FEBRUARY 2017

A magazine for clients and friends of KPMG Česká republika

p. 4

Industry 4.0

p. 16 p. 22 p. 28

Something extra from the auditor Why do large IT projects fail so often? Turning garlic into science: meet Professor František Štepánek

Damit der Handel in Tschechien für Sie kein Böhmisches Dorf wird Wir helfen Ihnen sich zurechtzufinden.

Als die größte Beratungsfirma Tschechiens verfügen wir über ein umfangreiches Team von deutschsprechenden Spezialisten. kpmg.cz

Anticipate tomorrow. Deliver today.

© 2017 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a Swiss entity. All rights reserved.

3 — editorial

Czech-German relations For the Czech Republic, Germany represents a business partner it would be hard pressed to do without. About a fourth of our imports come from Germany; more than a third of our exports go to our closest Western neighbours. Since the revolution in 1989 and owing, among other things, to the Czech Republic’s accession to the EU, the number of German companies active in the Czech Republic has increased significantly. Investors praise the country’s low labour cost and its highly motivated employees. Compared with other Eastern European member states, Czech employees are also better qualified. Among companies with the highest turnover are many German of origin, as car producer Škoda (member of the Volkswagen Group), RWE Supply & Trading and E.On Energie can attest to. The German-Czech Chamber of Industry and Commerce offers a more complete listing of companies at www.dtihk.cz. Thanks to a stable economy and a positive outlook, these companies are more than content here. Last year’s survey of German investors revealed that 92% would again invest into the Czech regions. The Czech government, on the other hand, considers this dependence on the German economy to be too pronounced and in its foreign economic policy leans more towards a greater diversity. So far, this surprising inclination has not really been acknowledged on the other side, most likely also because imports from the Czech Republic amount to just 4% of the overall import volume, while exports to Czechia come to only 3% of all exports.

Marwick – a magazine for clients and friends of KPMG Ceská republika. Published six times a year by KPMG Czech Republic, Pobrežní 1a, Praha 8.

Recently, Czech companies have come to invest on the German market, hence playing a more significant role in the German economy. This, for example, involves vertically integrated energy utility EPH, which last August acquired the East-German lignite producing branch of Vattenfall and has expressed serious interest in mines and coal power plants in Brandenburg and Saxony. In 2013, the Barilla corporation sold bakery giant Lieken AG (known for its Golden Toast and Lieken Urkorn brands) to Agrofert, the Czech agricultural and food industry giant. This corporation is already well known in Germany, as its turnover from agricultural products like fertilizers exceeds EUR 1 billion. The mentioned acquisition will no doubt extend its influence on the German economy. From the above, three tendencies for future Czech-German economic relations can be deduced: First, the number of Czech companies investing in Germany is likely to increase, as the origins of supra-national contacts in the Czech Republic very often lie in Germany and because contacts with customers and markets with German companies are already excellent. Second, German companies will continue to realise research and development projects in the Czech Republic, even though the country no longer offers low labour costs and is beginning to lack qualified experts. Finally, thanks to a better infrastructure (highways, rail connections), business relations between the Czech Republic and Germany as well as Austria will continue to deepen. Andreas Schwarzhuber Senior Manager, KPMG Deutschland Since 2013 in charge of services to German companies within KPMG Česká republika’s German Desk.

MK CR E 22213. On-line subscriptions available at www.marwick.cz. Editor in chief: Michaela Raková Art director: Štěpán Prokop Photoeditor: Barbora Mráčková Copy-editor: Martina Ohlídalová Cover illustration: Václav Havlíček KPMG Česká republika’s offices are located in Prague, Brno, Ostrava and České Budějovice. www.kpmg.cz © 2016 KPMG Czech Republic, s. r. o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International“), a Swiss entity. All rights reserved.

5 — topic

Industry 4.0: More heads, less hands

Czech-German business relations are flourishing. Further growth will most likely be helped by Industry 4. 0. Why is this a good thing and why should we join German firms on their path into the future?

Text: Pavla Francová

→

Digital ecosystems Research, development and innovation are steadfastly gaining in importance, as these areas are closely intertwined with Industry 4.0 (Industrie 4.0 in German). While this term was just about unknown a couple of years ago, according to experts, it today may mean the future of competitiveness and a further chance for economic growth. “Industry 4.0 envisions hope for the reindustrialisation of Europe. The digitisation of production leaves behind the wage element and the connected offshoring, outsourcing and transferring of production into countries with

6 — topic

In economic matters, the Czech Republic has a very close relationship with its most Western neighbour. For quite some time, Germany has been our greatest economic partner; with the onset of the new industrial revolution, mutual relations are bound to change, however. Quite understandably, Germany is trying to maintain and further develop its prosperity and in the future will aim to do so with a more intensive use of Industry 4. 0. To start off, let us look at some numbers. In 2015, the reciprocal commercial exchange between both countries exceeded a record two billion Czech crowns. Last year quite likely was another record year. Exports from the Czech Republic in 2015 came to over 46 billion euros (roughly a third of the country’s total export numbers), while German imports into the Czech Republic totalled more than 33 billion euros. To compare, Czech exports to Russia were valued at around 3 billion euros in the same year, while to China, Czechs delivered goods worth a measly 1,6 billion euros. Since 1993, Germany has been the biggest foreign investor in the Czech Republic with a total of 20 billion euros in investments. What’s more, German firms create more than 150 000 jobs on Czech soil. With all these impressive numbers, it makes more-than-ample sense for Czech businesses to look for investment and cooperation opportunities in Germany. And, in turn, for German firms, the Czech Republic is the number one market in the Central and Eastern European region. “It’s an attractive investment location. In fact, 92% of the companies that already invest here would do so again,“ says Bernard Bauer from the Czech-German Chamber of Industry and Commerce. The Czech Republic’s popularity among German investors is no longer just based on lower labour costs as it was in previous years.

minimum labour cost. Instead, logistic aspects like flexibility, reaction speed and transport cost come to the foreground. Thanks to digitalisation, customers, their needs and the overall consumer market will gain on importance, as production takes place geographically closer to the markets were the customers are,” so Harald von Heynitz, Head of Industrial Manufacturing KPMG Germany. He adds that with so-called digital ecosystems, individual partners in Germany and the Czech Republic may get an even bigger chance to interconnect and cooperate. The Industry 4.0 concept embodies a new industrial revolution currently under development and hence offers a unique opportunity for all willing to join the trend and to actively help to advance it. The ultimate goal of this modernisation is the strengthening of competitiveness on a global level. It doesn’t just involve the region of Europe, as the originally German term has gained a foothold all over the world. “When in China they talk about the digitalisation of industry and production chains, they in all honestly speak about Industrie 4.0, even with the ‘ie’ at the end,” so Henning Kagermann, former CEO of SAP and current president of acatech, the German National Academy of Science and Engineering, recently in the daily Frankfurter Allgemeine Zeitung. Cooperation with German companies and research institutes offers interesting opportunities also for Czech firms and other institutions dealing with digitalisation, automation, and the enhancement of competitiveness in general. It no longer makes sense to look for one’s own idiosyncratic path, as one of

7 — topic

the full digitisation of all company processes, new configuration of production chains and processes, quality assurance and fundamental cyber safety as well as the modification of business models will all not be easy. The challenges are indeed manifold, and Industry 4.0's German investors believe that it is high time to vigorously work on their resolution.

the main challenges of Industry 4.0’s successful implementation is the configuration of standards and automation to make them transferable. The results of Industry 4.0 are to be individual solutions custom-made for each costumer and the just-intime delivery of orders, but these standards must function on a universal level. Czech businesses generally fulfil the preconditions to take advantage of the chances offered by Industry 4. 0. “Germany and the Czech Republic have concluded a cooperative agreement concerning digitalisation. Germany has not signed such an agreement with any other country in the EU. With this project, the countries take a fundamental step towards their future cooperation on the swift development of digitalisation,” comments Bernard Bauer and adds that during her last visit to Prague at the end of last August, even German Chancellor Angela Merkel confirmed this strategic Industry 4.0 cooperation. The undertaking is still in its infancy, but contacts have been exchanged and first projects covered by the agreement are springing up. On the Czech side, the agreement’s guarantor is ČVUT, on the German side, it’s the German Research Center for Artificial Intelligence (DFKI). As is to be expected, the advent and gradual implementation of Industry 4.0’s various aspects involve a number of challenges. As Harald von Heynitz points out, for example, the extensive linkage of all production elements, equipment and systems through the internet requires broad investments. According to von Heynitz,

Factories without people? The often-voiced fear that due to greater automation and digitisation, Industry 4.0 will lead to the decreased need for human employees certainly deserves its own chapter. It is quite easy to anticipate that many blue-collar jobs will become redundant, while new positions will come into existence in so-far publicly unknown fields. This is exactly the area where cooperation between Czech and German companies will be most beneficial, to prepare for unavoidable changes on the job market. Meanwhile, Germany will have to figure out where to locate its “human-less” factories and whether the Czech Republic will be still as an attractive destination as it has been so far. Currently, companies are belabouring the lack of domestic labour as an obstacle to further expansion of production and investment. “This would not be helped by a prospective influx of workers from other countries, as this would only be a stop-gap measure. After the onset of automation, those workers would be left without a job and their unemployment would have to be dealt with alongside the joblessness of the domestic workers. If additionally a large section of blue-collar jobs are replaced by machines, then our position will undoubtedly weaken”, notes Milan Bláha, Partner at KPMG Česká republika, offering advisory services to family businesses and investors from German-speaking countries. But how can the Czech Republic maintain its position? “Companies should try to solve the existing workforce shortage with their heads rather than with hands, i.e. through the automation of production as a precursor to fully robotized production plants,” adds Bláha. “The only recourse is to start to invest heavily into education and to support technical and IT schools, to bring up young people not afraid of mathematics, physics and programming. All of it with the goal to have an appropriately educated generation at hand at the right time. That’s the only way to retain investors and to avoid a decline in our standard of living,” concludes Bláha. �

Opinions

↓

First Industrial Revolution: At the end of the 18th century, manual production in manufactures begins to be replaced by mass production in factories. An essential role is played by new industrial equipment inventions like the mechanical loom and the steam engine. The later in particular becomes the symbol of the first industrial revolution with tremendous impact on society and human life style.

In production, Industry 4.0. will first become mandatory for fields that feel strong pressures to innovate, have significant fundamental competencies and high demands on quality. Apart from the automotive industry (including OEMs and suppliers) and the engineering sector, this also concerns producers of communication and entertainment electronics and consumer goods as well as highly sophisticated fields like aeronautics, defence and medical technology.

Second Industrial Revolution: Its beginnings go back to the invention of the light bulb at the end of the 19th century and the increased use of electricity. Work in the new factories becomes even more effective, helped not only by new machines but also by newly introduced conveyor belts and assembly lines. Mass production reaches a new, higher level.

Harald von Heynitz Head of Industrial Manufacturing KPMG Germany

Third Industrial Revolution: This revolution begins sometime during the second half of the 20th century, when the use of computers, information technology becomes commonplace and the automation of mass production is introduced on a broad level. Fourth Industrial Revolution: The complete proliferation of information technology into all industry and service areas goes hand in hand with the rapid development of the internet. In the economic sphere, the term Industry 4.0 takes hold and signifies a higher level of automation and digitisation of all parts of the production chain. Instead of bulk production for a unified mass of consumers and owing to data analytics, businesses can now react just in time to the concrete demands of individual customers.

It is no coincidence that the term “Industrie 4.0” was coined in Germany and that it arrived in the Czech Republic with a fiveyear delay. Every production company wanting to be at the top of its field has to optimise its activities by applying all available knowledge and processes. This has to be done in an organised and targeted fashion, unlike a number of individual projects realised in the past and leading only to partial improvements. It is hence not surprising that we have advanced past lean management and have fluidly arrived at Industry 4.0. The current shortage of qualified labour will only serve to hasten along Industry 4.0’s implementation and make it far more attractive than before. Pavel Rochowanski Partner KPMG Česká republika, German Desk

8 — topic

Industrial Revolutions

Survey ↓ 1. 2. 3.

What effect will Industry 4.0 have on your line of business? In your opinion, what are the major opportunities and threats of any imminent changes? What position and importance do Czech activities have within your entire corporate group?

9 — topic

1. What effect will Industry 4.0 have on your line of business? The Industry 4.0 concept affects us on two levels: as the suppliers of solutions for industrial companies and as the operators of seven manufacturing plants. We believe that Czech businesses will quickly begin to reap the benefits of digitalisation and that the solutions’ share on Siemens’ turnover will increase. At the same time, we are working on turning our Czech plants into best practice examples for Industry 4.0. 2. In your opinion, what are the major opportunities and threats of any imminent changes? For Czech firms, the Industry 4.0 concept represents a unique opportunity to increase their competitiveness. Thanks to new digital technologies, they’ll be able to significantly shorten the time it takes to launch their products onto the market, increase the flexibility of production, enable individualisation and heighten effectiveness. But Industry 4.0 does not only concern industrial production: its principles will change many related areas – logistics, human resource management, education, services, and many more. These correlations have to be taken into consideration right from the very start. 3. What position and importance do Czech activities have within your entire corporate group? Within the global structure of Siemens, its Czech organisation has had a stable and strong position, as it belongs among the 20 so-called lead countries. Our corporate research and development activities are very important; in the Czech Republic, we operate eight development centres with over 600 experts. Our production plants are just as significant for the group and their capacity is continuously rising. Eduard Palíšek general manager, Siemens ČR 1. As automation develops, so will a higher demand for production equipment, which will be very advantageous for our business. 2. Our group places significant emphasis on IT. We employ people who offer a higher added value – and these are the experts who will be very much in demand on the job market in the future. I perceive our biggest future challenge to be the retention of this talent within our firm.

3. We have been active in the Czech Republic since 2002. We are closely interconnected with our parent company, cooperate extensively and are considered a successful business unit. Michael Roth IKB leasing ČR 1. Industry 4.0 can be characterised as a process of changes within industrial production caused by technological advancements in robotics, the internet of things and services and big data. We perceive the biggest changes to be in production and logistics processes, where Industry 4.0 and its methods help us increase our effectiveness. For example, in the production plants of our Central Electronic Plants organisation, consisting of 28 plants worldwide and specialising in automotive electronics, we are already introducing Industry 4.0 technologies, including collaborative robots, automated guided vehicles and big data processing systems. 2. Any major change brings with it both opportunities and threats. With Industry 4.0, we are seeing many positives. We will be able to significantly lower the costs for our automated production systems. Owing to systems using smart sensors and collaborative robots our production lines will take up a lot less space. For our employees, Industry 4.0 will bring about a more flexible organisation of their work. What’s more, some of the monotonous and often exhaustive work procedures will be taken over by collaborative robots. 3. In our plants, we apply a holistic approach when implementing new Industry 4.0 technologies and methods. We are not looking for isolated local solutions, nor do we implement one central approach, but share experiences across our organisational structure. In this manner, the Czech production plants both create and take advantage of the shared knowledge of the entire Continental group. In our plants in the Czech Republic, several collaborative robots already aid production processes and will soon be joined by others. Jiří Černý Plant Controller Continental Automotive Czech Republic s.r.o.

One thing is clear – Bavaria and the Czech Republic have much more in common than just a fondness for good-quality beer. The two countries should continue building on their successful industry and engineering tradition. “The biggest opportunities for economic development lie in digitalisation,” says Ilse Aigner, the Bavarian Minister for Economic Affairs. In our interview, she explains what this means for companies and how her federal state is supporting companies in terms of digitalisation. Not in the least does this issue involve only industrial giants. It is even more essential for small and medium-sized companies. → Ilse Aigner – Bavarian Minister for Economic Affairs, Media, Energy and Technology Ilse Aigner has been Bavaria’s Minister for Economic Affairs, Media, Energy and Technology since 2013. Her department has been striving for the modernisation of industry and the use of modern technologies in the Bavarian economy. From 2008 to 2013, Ilse Aigner, member of the conservative CSU party, served as the Federal Minister of Food, Agriculture and Consumer Protection. © 2017 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Text: Andreas Schwarzhuber, Pavla Francová, photo: Bayerisches Staatsministerium für Wirtschaft und Medien

Digitalisation is our opportunity

Realistically, productivity may increase by up to 30 per cent.

How would you describe current Czech-Bavarian economic relations? The Czech Republic is one of Bavaria’s major business partners among the countries of Central and Eastern Europe. If you look at the volume of mutual trade in the first half of 2016, with EUR 9.6 billion the Czech Republic ranked sixth among the business partners from the whole world. In terms of imports, it even ranked third. Bavarian-Czech relations have developed very positively since the Czech Republic joined the EU in 2004 and since the introduction of the free movement of labour between the Czech Republic and Germany in 2011. Since then, our mutual volume of trade has more than doubled. In 2015, it showed a new record of over EUR 17.4 billion. More than three thousand Bavarian businesses have trade relations with the Czech Republic and approximately 350 Bavarian companies have branches in the Czech Republic.

In your opinion, which industrial sectors offer the largest potential for future cooperation? Which sectors will influence the economy’s and industry’s future the most? Bavaria and the Czech Republic have a similar industrial structure and high competences in engineering; however, neither has any major raw material deposits. As a result, research, innovation and the further development of our cooperation are the primary keys to enhance competitiveness and to ensure prosperity. Most innovations come from the information technology sector. The dynamics in the development of digitalisation are highly significant. Nanotechnology, new materials and biotechnology represent other key technologies. In the future, innovations will not only arise within individual disciplines. New opportunities will also occur from interconnections between individual technological areas, both on a local and international level.

Where do you see the major opportunities for both countries? A major chance for further economic growth is digitalisation. This holds not only for the Czech Republic and Germany but for the whole world. Numerous innovations, new products and services will come about due to digitalisation as the main driver for growth and prosperity. Bavaria’s objective is to be a leader in digital growth. With this goal in mind, we developed a strategy called Bayern Digital, founded on three spheres of activity. One is research carried out at the Zentrum Digitalisierung.Bayern (ZD.B), the Bavarian centre for digitalisation, as the basis, the second is support provided to existing companies to advance the digital middle class. Thirdly, we want to renew the cultivation of businesses with entrepreneurial incubators for digital start-ups in all regions. This topic is increasingly getting to the forefront in the Czech Republic as well. The Czech government has launched a national Industry 4.0 (Průmysl 4.0) project and is working on its strategy. The Czech-German Chamber of Industry and Commerce and a Bavarian business delegation want to build on the chamber’s topic in 2015, which was Industry 4.0 in the sphere of connectivity, and use the potential of Czech and German start-ups for wellestablished companies from the industrial, ICT, energy, and logistics sectors. “Connect Visions to Solutions” is the name of an on-going

competition that connects industry leaders with young and dynamic start-ups from the Czech Republic and Germany, with a focus on Bavaria. I place great hopes in these initiatives and projects and believe that they have huge potential to take our cooperation even further. Do you perceive any major hindrances? To be able to actually utilise this potential in the future, we now have to establish reliable framework conditions. I also think that it will be insufficient to stay within national borders. The IT sector needs Europe-wide solutions, as they will be essential to provide the economy with sufficient security for further planning. Only this way will companies want to bring on new investments. In addition, we have to ensure that companies can make digitalisation a reality. An important building block is our recently launched digital bonus. This bonus is a financial support instrument that thousands of Bavarian SMEs can use to digitalise their operations. IT and cyber security also play a key role, primarily in the international context, as this topic also involves great risks not only for companies but also for society as such. We have to move ahead as fast as possible and clarify any outstanding issues on an international level as well. �

14 — topic

Bavaria and the Czech Republic have similar industrial structures but both lack crucial raw materials.

What is the role of Industry 4.0 in this process? Digitalisation also offers big opportunities in manufacturing. The interconnection of information, automation and manufacturing technologies makes it possible for production to become more effective, faster and more individualised. The Industry 4.0 initiative represents more than just the optimisation of manufacturing processes. In the future, industrial businesses will also offer services and digital interconnectivity will bring about more and more data. Depending on this data’s utilisation, new business models will arise. Realistically, productivity may increase by up to 30 per cent as a result. The digitalisation of manufacturing and services is obviously also important for our competitiveness. The Bavarian government has therefore declared digital transformation to be one of its strategic keystones. What do you perceive to be the major risks and challenges of Industry 4.0? Due to ever-faster production cycles and the growing complexity and flexibility of processes, the existing competitive advantages and traditional production chains may lose their value, only to be replaced by others. The infrastructure, companies’ organisational structures, employee qualifications and the legal framework must adjust to this development. Investments and the involvement of all stakeholders are required. A big challenge is also the satisfactory protection of IT systems.

All companies, from big corporations to small craftspeople, have to actively face these challenges. It is a key strategic task. Should we associate Industry 4.0 with staff-less businesses? Could this negatively affect German companies operating in the Czech Republic? Interconnectivity and automation will not automatically result in factories without people. The digitalisation of production makes it possible for humans and machines to cooperate better, and this will be especially beneficial for an ageing society. To be able to fully take advantage of a digitalised work environment, we will have to emphasise continuing education and training more. This is not only about everyone’s possibility to participate in a digital work environment but also about the challenges posed by a growing demand for qualified employees. This is why the Bavarian Ministry for Economic Affairs has been investing in educational centres and in the creation of significant projects for the future. Can the German-Czech or, respectively, the Bavarian-Czech market develop into a sort of a European trademark on the global market? Bavarian-Czech relations are very close and friendly. Bavaria and the Czech Republic are closely connected through numerous projects (cross-border transportation, energy, INTERREG projects). Cross-border cooperation between the administrative districts, regions, municipalities, and Euroregions is flourishing. In short,

15 — topic

Ensuring proper skills and qualifications will change the job market.

Eastern Bavaria and Western Bohemia are creating an increasingly better functioning common economic and work area. Whether one day it will become a kind of European trademark remains to be seen. How does Bavaria support the launch of Industry 4.0? Industrie 4.0 (Industry 4.0) represents the successful introduction of a German term for the digitalisation of production. With the Bayern Digital strategy, the Bavarian government has established a comprehensive concept in which Industrie 4.0 and digitalised production play a prominent role. Our objective is to present Bavaria as the leading provider and market for Industrie 4.0. with the Bavarian digitalisation centre’s digital production platform. Bavaria currently provides tools for interconnectivity and the creation of knowhow in digital production. In our viewfinder are issues connected with the development, implementation, and use of digital technologies in manufacturing. Through numerous informational and networking meetings, Bavarian clusters have been accompanying and strengthening Industrie 4.0. We have launched an additional information campaign on this topic for SMEs. Individual companies can also use the already mentioned digital bonus when implementing Industry 4.0. With regard to automation and digitalisation, what should be done for employees and the labour market in general to better adjust to the new needs of companies? We should expect that in the years to come everything that can be digitalised, will be digitalised. This process has already set in and both companies and employees have to adjust. So far, it has affected the labour market positively, as, according to a study of BITKOM, over 1.5 million new workplaces have been established in Germany since the turn of the millennium. If we take care of the new work profiles’ necessary qualifications and provide a suitable labour-law framework, the labour market’s transformation may indeed be successful.

Eurosceptics continue to question the European idea. In this respect, what is your advice to German and Czech politicians? What would you tell the companies? No more war, prosperity for everyone, unity in diversity – those were the motives behind the European Community after World War II. So far, we have achieved many things. For 70 years, the member states of the EU have not been at war with each other. This is the longest phase of peace in the history of the European continent. The level of prosperity has also risen in all countries over this period. In particular, Bavaria as an export-oriented state has been profiting significantly from the open borders policy, the single market and the single currency. As regards cultural diversity, we are confronted daily with how to deal with different values within Europe. This is a decisive question in terms of both the possible future enlargement and a further deepening of the EU. Europe is more than an economic union. It is also a community of values. Apart from the need for a legal anchoring of fundamental rights and freedoms, we also need to come to an understanding on our commonly shared values. Nobody really wants to seriously challenge the basic idea of European unity, even if certain questions bring out different opinions and approaches. We have to clearly state all existing issues and challenges in an open and sincere dialogue. Any solutions must include human beings and their expectations, however. It is crucial that all EU member states come together over the refugee crisis to find a common answer. In this sense, the refugee crisis is an actual test for the EU. As regards the economy, a close interconnection of countries with the same rules of the game is for all the best way to a successful Europe. People will thus best recognise that mutual trade brings prosperity and supports peaceful coexistence between nations at the same time. Relations between Germany or Bavaria and the Czech Republic prove this in the best possible way.

16 — audit

Something extra from the auditor

Auditors, checking whether companies have come clean in their financial statements, are in for a major change concerning the main output of their work. After more than 20 years, the format of the audit report is changing substantially. ↗

17 — audit

The amendment to the Act on Auditors extends the scope of the audit report for selected companies: a section titled Key Audit Matters has been added, describing some areas under review and explaining the reasons why the auditor focused on these particular topics. In other words: it will be made clear what matters the author of the audit report considered significant, and how they were addressed in the audit. The more detailed reports should be appreciated by investors, creditors or business partners of the companies being audited. The feedback from countries where for selected companies the extended scope of report has already been required for two years (in, for instance, Great Britain, Australia) is mostly positive. Statistics show that the most frequently described topics include fixed asset valuation, taxation and revenues. The British experience has shown that investors have started to pay more attention to reports of companies from a similar field of business. Also, auditors are now more often hearing from investors what areas of the audited companies they consider of key importance, or what information they would find useful for assessing the company’s performance among its competitors, for instance. No more boring reads So far, reading audit reports was not really an exciting thing to do. Unless the company was verging on extinction, or, in the auditors’ opinion, suffered major deficiencies in its statements, hardly anything substantial was to be found. Hence, the revision of the standards of auditing, used in more than 100 countries worldwide, aims to improve the level of information that financial statements provide to users. The transparency of audit work should improve as well. Simple as it may sound, the preparation process took years, and only the events following the financial crisis gave more dynamics to the initial theoretical effort: for listed corporations, the extension of the scope of the audit report is already effective for 2016. From now on, chances that reports will not contain any key audit matters are slim. In fact, this will maybe even seem suspicious. Also, telling a securities’ issuer that they are not really interesting from an audit perspective may take a considerable amount of pluckiness. New possibilities Thanks to the new regulation, auditors have been given, for the first time, a certain freedom in drafting the wording of their

report – so far they have been very much tied up by international or local standards. Still, the general rules of confidentiality of information apply, meaning that an audit report really should not be the first public document to mention a planned acquisition, for example. Reports still have to be based on facts, easy to understand and free from technical jargon. However, they may now contain not just a dry description, but also an evaluation, subjective expressions, tables or other graphic depictions of facts – simply speaking, something readers have not been used to so far. The new possibilities will also encourage the auditors’ endeavour to differ from their competitors – by the form and content of the expressions used in describing their work. In the British Isles, some investors’ associations have even announced awards for the most innovative audit texts, with a sash for the author. A controlled take-off To prevent the auditors’ bursts of creativity surprising not just the public but also the entity itself, the international standards of auditing stipulate a process of communication with competent persons within the accounting entity under review. Listed companies usually establish an audit committee for this purpose; its members have to be notified in advance of the topics that the key audit matters will involve, and the final selection must be substantiated. The committees, however, do not have the right to veto the auditor’s decision. The European Union did not want to fall behind: in their effort to increase the added value of audits, the EU bodies did not simply adopt the global changes, but extended the scope of their mandatory application also to public interest entities defined at a national level. In the Czech Republic, these include namely banks, insurance companies and pension companies. Apart from key audit matters, from approximately the middle of 2017, auditors must obligatorily disclose information on the term of their audit contract, non-audit fees, and the applied materiality threshold: its amount or the manner in which it is determined will indicate to the users what level of accuracy the auditor worked with. In our circumstances, the new duties will affect more than 140 companies. Tens of their auditors are now preparing and fine-tuning suitable topics, discussing them with clients and finding suitable wordings. It will be interesting to see how far expectations of higher transparency and understanding of an auditor’s work will materialise. �

Karel Charvát KPMG Audit Partner kcharvat@kpmg.cz

What may an audit report look like? Take a look at the possible new form of auditors' reports. The report mentions, among other things, a fire in one of the plants of the group which affected the group's accounting. Key audit matter In August 2014, an accident occurred at the production plant in southern Bohemia, Czech Republic. The accident resulted in substantial damage and forced a complete halt to production at the facility. An impairment loss of CZK 254 million was recognized in the consolidated financial statements in respect of the damaged assets. The Group’s entities are protected by insurance policies with the coverage including inter alia the replacement cost of the damaged plant and compensation for lost profits. The Group expects the insurance to cover the costs of rebuilding the installation, estimated at CZK 989 million, as well as lost profits and other accident-related costs through the end of 2014 in the estimated amounts of CZK 950 million and CZK 97 million, respectively. The total amount of the expected insurance proceeds was disclosed as a contingent asset as at 31 December 2014. Under the relevant IFRSs, compensation for insurance recoveries is recognized in profit or loss when receivable, i.e. when the entity has an unconditional contractual right to receive the compensation. The assessment of the above recognition criteria involves significant judgment. When the receipt of compensation has been assessed as probable but the right to insurance payment is not unconditional, a contingent asset is disclosed. Our response Our audit procedures included, among others: reading the external loss adjustor’s report to assess the scope of the insurance coverage; analysing the memorandum prepared for the Group by an external attorney discussing certain aspect of the insurance proceedings; ǫǫsending letters of inquiry to the Group’s legal department and its management and assessing the responses received; ǫǫevaluating the insurers' ability to provide compensation by assessing their ratings and financial standing; ǫǫcritically evaluating the estimate of the amount of expected compensation and the related assumptions; ǫǫevaluating the appropriateness of the Group’s accounting for the estimated insurance recoveries in the consolidated financial statements; ǫǫevaluating the completeness and adequacy of the related disclosures.

18 — audit

What is an audit report Audit reports are the key outputs of the audits of financial statements of listed companies. The new rules will apply to public interest entities and listed entities in the Czech Republic and in the EU. Public interest entities are defined by the Accounting Act and include, for instance, banks, pension companies, insurance or health insurance companies, as well as all firms with securities publicly traded in the EU.

You only trust what you see with your own eyes One more reason to look properly

Combining data, technology and expertise in various fields allows us to identify anomalies in your business and help you discover untapped potential.

Find out more about KPMG Audit at kpmg.cz Anticipate tomorrow. Deliver today.

Not just batteries

Petr Bučík Partner, Management Consulting pbucik@kpmg.cz @PetrBucik

The current debate on the future of energy, or, more precisely, power storage technologies, is dominated by batteries. But people have known how to store energy for a very long time. →

Research and development

Demonstration and deployment

Pumped storage hydropower (PSH)

Lead-acid battery

Pit storage

Cold water storage

Underground thermal energy storage

Compressed air energy storage (CAES)

Residential heaters with storage

Sodium-sulphur battery

Flywheel (low speed)

Ice storage

Molten salt

Lithium-ion battery

Liquid air energy storage

Redox flow battery

Flywheel (high speed)

Sensible thermal / latent thermal

Adiabatic CAES

Hydrogen

Synthetic natural gas

Thermochemical

Capital requirement x technology risk

20 — energy

Just looking at Czech history, the oldest (now defunct) local pumped-storage power station at Lake Černé jezero had been in operation since 1930. The future of energy is decentralisation. The question is how fast and to what extent it will take place. Batteries got to the forefront of interest because of their time-tested and undemanding usage as a power source in a number of applications, most importantly automotive. Yet, apart from the above mentioned huge pumped-storage hydropower stations or air compression in former mines, other technologies should not to be left out of the discussion: from hydrogen energy storage to ice or flywheel storage. At KPMG, in cooperation with Kinstellar, we have taken a closer look at back-up technologies. From the publication titled Electricity Storage Insight 2016 we have selected the following chart showing the maturity of knowledge and development in the field of energy storage. Hydrogen Energy Storage (HES) Electro-chemical Storage (ECS) Thermal Energy Storage (TES) Pumped Hydroelectric Storage (PHS) Cryogenic Energy Storage (CES) Electro-mechanical Storage (EMS)

Commercialisation Current maturity level

© 2017 KPMG Česká Energy republika, s.r.o., a Czech limited liability company and a member firm of theStorage) KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Source: World Council, IEA: Technology Roadmap (Energy

Hydrogen energy storage (HES) � Efficiency: 25–45%

21 — energy

When prices are low, electricity is converted into hydrogen by electrolysis. Hydrogen can then be stored and eventually re-electrified in fuel cells, gas power plants, or by converting it to methane.

Thermal energy storage (TES) � Efficiency: 80–90% This technology uses compressed gas or liquid to heat a medium (molten salt, stone); the energy is kept in the form of heat and released through a heat pump to generate electricity.

Cryogenic energy storage (CES) � Efficiency: 60% Liquid air or nitrogen is stored at atmospheric pressure and liquefaction takes place at times when energy is cheap; to release the energy, the pressure is increased and the liquid warms up. The resulting gas is used to drive turbines.

Electro-chemical storage (ECS) � Efficiency: 60–98% A fast-growing market segment, as batteries are available in many sizes and suitable for various use. There are, for instance, lead-acid, lithium-based or sodium sulphur batteries. Consumers are familiar with them in the form of small-sized rechargeable batteries, e.g., for mobile phones. Their use has potential also in transportation – in electric or hybrid cars. Pumped hydro storage (PHS) � Efficiency: 70–85% The gravitational potential energy of water is stored in an upper-elevation reservoir, where it is pumped from a lower-elevation reservoir at times when energy is cheap. The required energy is then generated through a system of turbines. This technology currently dominates the field.

Electromechanical storage (EMS) � Efficiency: 70–95% A rotor (flywheel) is accelerated to a high speed when energy is cheap; energy is thus stored mechanically. Energy is extracted from the system by the flywheel’s slowing down and connecting to a generator. Another form with lower efficiency (40–75 %) uses compressed air in an underground pit. When energy is demanded, the compressed air is released through a turbine driving a generator.

Text: Jiří Táborský

22 — IT advisory

Do you have enough money to finance unsuccessful projects?

23 — IT advisory

Charles Darwin once said: “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” In his research conducted at the end of the 20th century, Clayton M. Christensen proved that the same holds true for companies as well. Not only does the ongoing digital revolution bring with it significant changes in the entrepreneurial environment, but it also significantly accelerates these changes. ↓

Twelve percent of investments are lost Within a company, the capacity to adapt depends on the ability to successfully bring a project to its completion. Research into the success of projects has shown that for more than the last ten years, the majority of projects have failed. According to a study of the renowned Project Management Institute (PMI), regularly monitoring the situation since 2012, almost 40% of all projects failed to meet their initial goal, approximately half of all projects were not delivered on time and ca. 15 % were never finished. PMI estimates that 12% of overall investments into projects are automatically lost, while the question remains how accurate this estimate really is. KPMG’s Project and Programme Management Survey has dealt with this issue repeatedly. Its results show that only 12% of all companies actually attempt to evaluate the fulfilment of a realised project’s initially declared benefits. It would appear, then, that the actual numbers on the success rate of project might be even more pessimistic than the above estimate. Why is this happening? So what is the problem and how is it possible that companies have such a miserable project realisation and success rate? Both of the mentioned studies try to explain this phenomenon. One of the main reasons is the incongruity between the goals set for individual projects and the overall strategy of the company. “In most companies, you encounter measurement tools that focus on the short-term horizon, let’s say a year.

But big projects or programmes are long distance endeavours. Not only their realisation has to be taken into account, which in and of itself may take several years, but also the effect the projects will have on the firm’s business processes as a whole. These changes may become apparent only after several years. And if management’s motivation is linked to yearly goals, then it will be just about impossible to bring a multi-year project to its successful end,” explains Martin Hladík, leading KPMG’s team focusing on successful project realisation. Underestimating the importance of the need to manage a project’s scope can also lead to failure down the road. “It is very common that new exigencies appear once a project gets underway. Those making these new demands usually have an entire arsenal of reasons at their disposal to explain why their requirements are crucial and essential. The project manager hence has to turn to management and request additional finances. Projects then often take on new requisites while nobody takes the time to find out whether these new essentials are in line or compatible with the goals of the project and if the realisation of these new needs will actually entail any benefits for the company. If management fails to stand firmly behind the project, it will not approve any increases in the project’s budget, creating a further problem. Ironically, the third problem may occur if management actually grants a budget increase, as now the risk of not finishing the project has grown based on its increased size,” so Hladík. �

Project benefits linked to executive performance plans

Am er ic a AS s PA C

EM EA

AS PA C

EM EA

30 %

20 %

Am er ic as AS PA C

EM EA

Am er ic as

Am er ic a AS s PA C

40 %

0% Never/rarely linked

Sometimes linked

Mostly linked

Always linked

Source: Global IT Project Management Survey, KPMG International

Paradoxically, while most companies have a formal process for the treatment of business case projects, KPMG’s study shows that only 23% of them integrate the potential benefits of ongoing projects into their company plans and a mere 12% even monitor the fulfilment of project goals and benefits. The art of admitting defeat All too frequently, the end of a troubled project is postponed indefinitely. Again, this may be caused by the above mentioned incongruence between management’s motivation and the alleged benefits of the project. In other words, management may consider it easier to continue investing in a project rather than pronouncing the project a failure. As they are responsible for the success of the project, admitting defeat they would surely lose their bonuses. The manner in which company’s accounting system recognises projects only contributes to this predicament. As long as a project is in its realisation phase, its costs are not projected into the income statement. A company records project costs in its income statement only after their termination and unsuccessful projects are recorded as write-offs. According to KPMG’s study, only 12% of all companies terminate a project once it no longer fulfils its initial benefits and goals. “These stories are quite common in the Czech business environment. A perfect example is the implementation project for an entire banking system. The project’s finalisation was repeatedly delayed; eventually, the project had to be declared

unsuccessful. Most likely as the aftermath of this failure, the bank’s entire management was replaced. So this is mainly why I consider the incongruence of a project’s goals with a company’s strategy and its management’s personal ambitions to be the most important factor leading to a project’s failure,” adds Hladík. How to avoid it all? Well, so what can be done to avoid the major project pitfalls? Undoubtedly, the art of project realisation is crucial for a company’s survival and future success. A key moment is the harmonisation of goals throughout the entire company and the intensive project involvement of management. It is fundamental that the entity’s shareholders are interested in this issue as well. A further recommendation is the strict management of the project’s scope, including especially a detailed check of all requirements that the project is to fulfil against its expected benefits. “It is advisable to leave the setting of a company’s goal management system as well as the evaluation process of the goals up to an independent subject, mostly because it is hard to imagine that management will be able to configure such a system objectively for its own company. An interesting test is also the assertion that a company’s maturity measured in its ability to implement changes correlates to its ability to terminate a troubled project,“ concludes Hladík.

24 — IT advisory

10 %

How long has your organization had a formal PMO (Project Managemnt Office)? 5 er Ov

70 % Met original goals/business intent Completed within original budget

Le ss th an

rs yea

4-5

40 %

yea rs

Failed project’s budget lost

% 15

Experienced scope creep

Completed on time

50 %

60 %

1y ea r

Current state of project outcomes

11 %

30 %

25 — IT advisory

20 %

22 Deemed failure 4

10 %

s ar ye

% 1-

ye ar s

0% 2012

2013

2014

2015

Source: Project Management Institute’s Pulse of the Profession® – 8th Global Project Management Survey (2016)

2016 Source: Global IT Project Management Survey, KPMG International

Successful project For the benefit of future projects, it may serve well to take a good look at those that have been brought to a successful end, to see how it’s done. An example may be the complete replacement of a core system by Českomoravská stavební spořitelná (ČMSS), a Czech building society. “The first and actually only serious condition I had when I was asked to take over the project was the harmonisation of the project’s KPIs with those of the management,” says Petr Laštovka, in charge of the project at ČMSS. In practice, this meant that key executives had a significant and material interest in seeing the project to its successful conclusion. “The extent of their interest really has to be significant. Ten percent won’t cut it. For such a measure to have any effect it has to impact any performance assessment by about 50%,” says Laštovka and adds that in big corporations, KPIs are often problematic, as the success or failure of projects is influenced by a plethora of factors. Management is hence reluctant to take responsibility for something it can’t control a hundred percent. “I myself recommend only partially submitting to such arguments and to insist on setting the greater part of the KPIs as a common goal,” suggests Laštovka. In the project at hand, the KPIs were indeed set to appear either black or white. Either, the project gets fulfilled in the set time and scope, or it will quite simply fail. “This really brought out the team spirit in people and rewarded all of us with a successful project,” concludes Laštovka. © 2017 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Czech football still wearing the same jersey

Text: Richard Valoušek, illustration: Barbora Töggl

Were the year of Czech football a few weeks longer, the total expenditure for its first and second leagues would be exactly four billion Czech crowns. Last year, this amount, representing a nonnegligible portion of the state budget, came to TCZK 3 638 000. Included in this sum are the clubs’ consumption, amounting to most of the total, but also income from bets, investments into stadiums, costs for television broadcasts and the consumption of fans. As becomes apparent from KPMG’s study, especially the item mentioned last offers a fairly distinct potential for a price hike, mostly because Czech football could really afford to do so. In comparison with countries at a similar level, as e.g. Poland, Austria, Belgium and the Netherlands, the Czech Republic significantly lags behind in attendance numbers. With an average of 5000 fans at every game, Czech football loses out by more than 1000 fans over its southern neighbours, while Polish football matches bring in 4000 more of them and Belgium and the Netherlands see even multiples of such visitor numbers. It turns out that ticket prices are by far the lowest in Europe. Tickets to Polish football matches are twice as expensive; Austrian fans have to come up with four times more money and in the Netherlands, the price of a ticket is six times higher than in the Czech Republic. Looking for reasons for this disparity, we may encounter a number of clues. It makes no sense to try to compare the population’s relationship with football; in this area, we are sure to lag behind our Dutch or Polish counterparts for quite some time. What lies at hand is the need to increase the attractiveness of the entire competitive system. A more attractive competitive system In all of the mentioned foreign leagues, the best teams encounter each other in many more interesting match-ups; a greater number of matches are decisive and contribute to either league standings, championship titles or the struggle against the spectre of relegation. For the Czech football league,

one solution could be to add to the current model more matches among equivalent teams, from either the top or the bottom of the standings. A good idea would also be to reimagine the entire system and to separate the teams according to their performance at a much earlier point in time. We leave it to the football experts to decide whether to instate playoffs or just to divide the current standings into several groupings where teams would meet repeatedly. The KPMG study does show, however, that Czech football lags behind other football nations especially in this respect. Video referees as in ice hockey Commonplace in international ice hockey but still taboo in football, the use of instant replay by referees has nevertheless become a central discussion topic for football functionaries. Czech football officials have also become involved in the debate, and for good reason, as, according to KPMG’s study, the non-transparency and decision-making in Czech football are the main reasons why the stands at Czech football stadiums remain mostly empty. Simply put, fans are unwilling to pay for a comedy performance whose outcome so often appears to have been decided beforehand. The Czech League Football Association has thus made the appropriate decisions and will trial the use of video assistant referees next year. The association won’t be alone in this undertaking as it will be joined by a number of European football associations. For now, the testing will be only offline and video recordings will not be used in the referees’ decision-making during matches. This may happen only within two to three years, allowing enough time for referees and trainers to receive adequate training and for the system to undergo sufficient testing and be tried in preparatory matches. World football is changing and its Czech branch must play along if it wants to survive and thrive. To do so, Czech football will have to learn how to make the most of its potential.

26 — sport

Will football finally agree to use instant replay for divisive moments, will it increase the number of attractive match-ups and will it ever come up with an idea how to draw more fans to the stands? These calls for change, repeatedly voiced by the football community during the last couple of years, are gaining on intensity. They are, among others, helped by the results of a study KPMG has conducted for the Czech League Football Association, which unites professional football clubs in the Czech Republic. The association decided to turn football inside out to find out where it fails to live up to its potential. ↓

27 — sport

Three ways how to reconcile Czech fans KPMG’s study was led by Ondřej Špaček, expert in sports and leisure advisory. His conclusions offer up three recommendations that may increase the attractiveness of Czech football for its fans.

1. Heighten attractiveness Our neighbours may serve as an inspiration here, as in all European states significantly more attractive matches among the highest quality teams are played than in the Czech Republic. Czech football also features fewer decisive and challenging matches. According to President of the Czech League Football Association Dušan Svoboda, this is currently being dealt with and if the clubs come to an agreement, the league’s system could change starting in the 2018/2019 season.

2. Increase credibility Behind lower attendance numbers and the mediocre interest of sponsors is the distrust of the public in the fair conduct of the sport. It will be difficult to get rid of the label of corruptibility that the football league gained in the past. The unequivocal support of the most transparent decision-making processes will go a long way, however, and help turn football into an honest and open sport once more.

3. Cultivate football’s environment Repeated displays of extremism and violence in the stadiums will not get many fans back to the stadium cauldron. Key to the further development of a Czech football culture will be the modernisation of the facilities as well as better fan services and safety.

Text: Eva Samšuková, photo: Barbora Mráčková

28 — science

A visit with the garlic scientist

Testing detergents abroad, František Štepánek decided come back home to look for an answer to the growing drug resistance of bacteria. In the Czech Republic, he was able to gain sufficient private support to supplement his state research grants. Since 2013, the research conducted in the laboratory of Professor Štepánek’s alma mater, the University of Chemistry and Technology in Prague (VŠCHT), has also been receiving support from the Neuron Foundation. →

The atmosphere reminds me of my university days, waiting for the start of a scientific seminar. We are standing at the entrance to the Faculty of Chemical Engineering in Prague’s Dejvice district. A steady stream of VŠCHT and ČVUT students passes by and I am trying to recall what I learned about alicin in preparation for this story. And I can see that I am not the only one. Even though there’s not a single student in the group, all participants are well prepared, as soon becomes obvious from their well-founded questions. I shouldn’t be surprised at the level of preparation, though, as for the first time since Karel Janeček founded the Neuron Foundation in 2010, its patrons are getting ready to observe a supported scientist in action, doing what wouldn’t be possible without their funding. A world-renowned scientist at VŠCHT “The scientists who we support conduct their research in places entirely unknown to us,” remarks the foundation’s Executive Director Hana Křepelková Rezková as she commences the meeting. “We hence wanted to thank our patrons by letting them take a look at the results of their support through laymen’s eyes and by letting them ask questions about the actual research projects, “ she adds and explains that Professor František Štěpánek was historically the second scientist who succeeded in the foundation’s competition for funding. “In the Neuron Foundation’s early days, most scientists applying for financial support had no idea about how to make their project attractive

29 — science

“I threw out my anchor at VŠCHT after having been active in France and Great Britain based on a combination of both professional and personal reasons. For our family’s sake, my wife, my kids and I wanted to return to the Czech Republic after several years spent abroad. At the same time, I was able to get an ERC grant, which is transferrable and which made it possible for me to establish my laboratory at Prague’s VŠCHT, to which as a graduate I feel indebted.”

and how to “sell” it to us. But František Štěpánek had us all spellbound. As he confidently and impeccably presented his scientific intentions, we immediately knew that we were in the presence of an exceptional scientist with international exposure and experience,” Monika Vondráková, chair of the Neuron Foundation’s supervisory board, recalls the beginnings of their collaboration. Despite being an active and successful research scientist both in the public and private sphere in France and Great Britain, Professor Štěpánek nevertheless decided to return to his academic roots in the Czech Republic. He was able to do so not only thanks to a transferable ERC grant, but also because he was able to count on the support of private science fans in the Czech Republic. Four of his patrons have now come to visit Professor Štěpánek in his laboratory and shower him with questions as he talks about the effectiveness and transportation of allicin, a compound we all probably have in our kitchen – hidden in a head of garlic. What’s it all about? Bent over a confocal microscope, which measures the size and fluorescence of elements, Štěpánek explains the various aspects of his research. The first aspect is the creation of structured microelements that are supposed to harbour the bio-effective compound. After its transport to its final destination, the microelements again should dispense their load so that it may react locally with the affected tissue and not burden other parts

“Being responsible for one’s misjudgements and the entrusted money of others is of course a big burden. At the same time, the budget that I am currently administering did not come into being overnight. The scientific environment is rather selective in this respect. As a fresh graduate you start out with one smaller project and the subsequent ones always unfold depending on the success of the previous project. Of course you get caught up in dead ends, that’s quite normal, and I certainly do not consider this to be a failure, unless, of course, it isn’t the result of some badly conducted literature review. What’s important is to be able to distinguish early on whether you are at an impasse and then to be able to learn from every result so that the overall sum of successful and unsuccessful trials results in the advancement of your state of knowledge.”

of the body. For allicin, which is generated when fresh garlic is chopped or crushed, such a storage and transport system is ideal, as its effectiveness is limited to a very short period. Thanks to its instability, which makes it effective only shortly after we bite down on it, bacteria are not able to become resistant to it. The second focus of Štěpánek’s work is then on the specific effects of allicin. In a study published in 2013, the United Kingdom’s Department of Health belaboured the resistance of bacteria towards modern synthesised drugs. These medications remain active over several months, giving bacteria sufficient time to become immune against them. The mentioned study pointed Professor Štěpánek towards his current research focus. He asserted that allicin may indeed contribute to the solution of the problem. Should it remain unresolved, we could very soon look forward to the mass-reoccurrence of tuberculosis or infections caused by Staphylococcus aureus. “According to the American Center for Disease Control, antimicrobial resistance is one of our most serious health threats; in the US alone, approximately 20 000 deaths can yearly be attributed to complications due to bacterial resistance,” warns Štěpánek. Apart from bacterial diseases, scientists are also dealing with microelement transport for oncology and neurochemistry. Getting a patent for garlic To our group, František Štěpánek, explains the principles of the research going on in his laboratory in pleasantly simple terms,

In the laboratory with Karel Janeček Karel Janeček began to systematically support science in 2010, when he established the Karel Janeček Foundation for the Support of Science and Research. Three years later, the foundation was rechristened the Neuron Foundation. František Štěpánek’s research was among the first to receive the foundation’s financial support. So, how did Karel Janeček like his visit to Štěpánek’s laboratory? “I perceive the entire visit to have been tremendously positive. Here, the utilisation and effectiveness of our funds is truly great. The support of science across all specialisations is definitely the right way to go,” so Karel Janeček immediately after his excursion.

as he has plenty of experience talking to diverse audiences that require different linguistic approaches. He is quite willing to simplify his speech when talking about his discoveries and is happiest when his research addresses the general public in an easily understandable form. In his presentations, he also uses a video spot that the Neuron team produced to help in Štěpánek’s patent application. Štěpánek intends to submit the application on behalf of his thirty-member team soon. “The fact that garlic has antibiotic effects has been known in literature for quite some time, but this assertion of course cannot be patented. What can be patented, however, is the chemical make-up of the transport capsules and the specific conditions for their preparation,” plans Štěpánek. In the future, he would like the elevate his garlic nano-weapons to the status of intravenous pharmaceuticals: “This will nonetheless require a huge amount of testing,” Štěpánek replies to his patrons’ questions regarding his future plans. These also involve utilising the encapsulation of effective compounds and their transport to affected tissue within the treatment of oncological diseases, which could prevent proliferation in localized chemotherapy, which in this way will not have any effect on the rest of the human body. The inspiration for this idea was Professor Štěpánek’s experience in the testing and research on detergents in Great Britain. “There, we also were trying to figure out how to transport effective substances to localised stains,” Štěpánek laughs, reminiscing on his beginnings.

30 — science

“Our ambition in researching allicin is of course to advance as far as possible or to at least try. The question is whether it is feasible to undertake certain activities on academic soil. We definitely want to develop a scalable preparation method, to demonstrate effects on the widest scale of pathogens possible and to support these effects with robust data, and to assure IP protection. Any further steps appear to fall more into the scope of subjects other than universities. This could even involve a joint start-up with some of my students or it could even be an already-existing larger company interested in gaining a licence.”

31 — science

The Neuron Foundation The Neuron Foundation for the Support of Science is a non-profit foundation whose mission is the development of patronage of science and research in the Czech Republic. The foundation distributes funds its patrons have donated and finances scientific projects in biology, physics, chemistry, mathematics, medicine and the social sciences. In 2017, its support will broaden to also include computer science and information technology.

“To see one’s own work retold in the media for the lay public is very entertaining. I myself am used to participating in various events popularising science, presenting to the broader public or to high school students, and it always thrills me when I am able to explain what we are working on and what it may be good for. It is understood that this sometimes calls for a certain amount of simplification and that’s quite alright.”

prof. Ing. František Štěpánek, Ph.D., aged 42 He graduated from the University of Chemistry and Technology in Prague and received his Ph.D. in Paris, France. For several years, he served as a researcher in Great Britain, but in 2008 decided to return to his alma mater in Prague. He is responsible for the development of elements which are able to transport effective antibacterial compounds to their destination within the human body. Recently, he has been studying possibilities for the transport of allicin isolated from garlic, as microorganisms are not able to develop resistance to this compound. In 2013, Štěpánek received the Neuron Foundation’s Neuron Impulse award for his research.

European scene

↑

Picasso-Giacometti Paris ǫǫMusée Picasso Paris, France ǫǫuntil 5 February 2017 The Picasso Museum in Paris has confronted the works of Pablo Picasso with those of Albert Giacometti. Apart from some of the painters’ most famous paintings the museum is also putting so far unpublished documents explaining the artists’ relationship on display. 1

2 New Year’s concert Vienna ǫǫWiener Musikverein, Golden Hall ǫǫ1 January 2017 This may well be the most famous concert of the Vienna Philharmonic. Due to extremely high demand, tickets for the three traditional end/beginning of year concerts of the Vienna Philharmonic are drawn by lot at the beginning of each year, so you may want to consider trying your luck for next year. The concert on the first day of the year is traditionally broadcast into more than 90 countries worldwide and its programme will again feature, among others, traditional melodies of the Strauss family.

Ice sculptures Hasselt ǫǫHasselt, Belgium ǫǫuntil 8 January 2017 The Belgian town of Hasselt is putting on an ice sculpture festival that will take visitors all the way to the far-away Antarctic. Don’t delay, the Magic Ice Snow and Ice Sculpture Festival will start melting on 8 January of the new year. 3

Light Festival Amsterdam ǫǫAmsterdam, the Netherlands ǫǫuntil 22 January 2017 In winter, the best Dutch and international light artists get together in Amsterdam to install their playful light show in the city’s centre and on its picturesque canals. All the different colours of water are this year’s theme. 4

Carnival of Venice Venice ǫǫHistorical centre of Venice, Italy ǫǫfrom 11 to 28 February 2017 For a few days, Venice will be transformed into a colourful paradise featuring extravagant costume balls and extravagant parades full of colours, music and traditional masks. Il Carnevale is a glorious must-see experience.

Text: Anna Batistová

6 Fashion WeekMilan ǫǫMilan, Italy ǫǫfrom 22 to 28 February 2017 Be it in New York, London, Milan or Paris, February belongs to the world’s most famous fashion shows. Milan’s Fashion Week, taking place from 22 to 28 February, is the closest to us, so don’t miss it.

32 — revue

The main gift-giving season may be behind us, but why not splurge on one more present? Especially if it’s a cultural experience? In January, take the kids to the town of Hasselt in Belgium for the Magic Ice Snow and Ice Sculpture Festival. Or leave them at home and go on a romantic trip to experience the canals, lit up during Amsterdam’s Lights Festival.

Marwick Revue

Marwick recommends

Marwick Revue

Únava materiálu (Material fatigue) Literature ǫǫMarek Šindelka The new novel by Magnesia Litera awardee Mareka Šindelka was written in reaction to the migration tragedies happening around us. Readers will follow the painful journey of two escaping brothers and take a look at Europe from the outside. 1

Trainspotting 2 Film ǫǫDirector: Danny Boyle In the beginning of February, the sequel to Trainspotting, the twenty-year old cult classic will come to Czech cinemas. The film has again been directed by Danny Boyle, and again stars Ewan McGregor and Jonny Lee Miller. 2

I See You Music ǫǫThe xx On 13 January, British indie-pop grouping The xx will bring their third album, titled I See You, onto the European market. The band presents its catchiest tunes on its European concert tour, which includes a stint at the Prague Forum Karlín.

Kati (Hangmen) Theatre ǫǫKlicperovo divadlo ǫǫDirector: Jan Frič On 17 February, the Klicperově divadlo theatre in Hradec Králové will premiere the newest play by popular Irish playwright Martin McDonagh. This will be the fifth play critically acclaimed director Jan Frič has staged at the theatre.

Jan Zrzavý’s Illustrations Exhibit ǫǫNational Gallery, Trade Fair Palace Visitors will be able to see Jan Zrzavý’s illustrations at the Trade Fair Palace premises of the National Gallery until 5 March. The exhibit includes his most famous illustrations for Karel Hynek Mácha’s Maj and Karel Jaromír Erben’s Kytice, as well as Jan Zrzavý’s drawings to accompany William Shakespeare’s sonnets. 5

Slečna Julie (Miss Julie) Dance ǫǫJK Tyl Theatre in Pilsen ǫǫDirector: Libor Vaculík On 7 January, permanent guest of the Pilsen Ballet, choreographer and director Libor Vaculík will stage the premiere of Slečna Julie (Miss Julie), inspired by Swedish playwright August Strindberg’s most famous play of the same name.

Text: Anna Batistová

33 — revue

Mikrolux sun lamp (design: Jozef Havlík, Zdeněk Kovář)

Marwick Revue

Design News Neglected area of Prague 5 to become Smíchov City A neglected part of Prague’s Smíchov neighbourhood will undergo extended reconstruction and become the new Smíchov City. The project will begin this year and its redevelopment will reach from Anděl’s Na Knížecí bus depot to the Smíchovské nádraží train station. The project includes multifunctional and residential buildings as well as 22 000 square metres of green spaces.

Plastic toy car to be played with during the exhibit

2 Farebná šeď – Buntes Grau exhibit showcasing CSSR and GDR design Until the end of February, the Slovak Design Centre in Bratislava, Slovakia will feature its Farebná šeď – Buntes Grau exhibit, which shows the best of CSSR and GDR design from the 60s and 70s of the past century. The extensive display includes fashion, home décor, toys as well as automobiles. Visitors will surely want to compare products made in the Czechoslovak Socialist Republic with those designed and manufactured in the German Democratic Republic.

34 — revue

Josef Pleskot transforms defunct factory halls in Ostrava Together with his studio, renowned architect Josef Pleskot transformed three halls of a former power plant se in Ostrava’s Karolina neighbourhood. The new multifunctional centre Triple Hall Karolina may serve as an exemplary model of how to go about converting industrial heritage into desperately needed objects serving culture, sports and entertainment. Má plast exhibit in Pilsen introduces plastics creations Pilsen’s Má plast exhibit will welcome visitors until the end of February. Talking over all of DEPO2015’s premises, the show presents all sorts of plastic works from several perspectives. The first shows the ecological utilization of plastics in art and design, the second perspective depicts the transformation of trash fished out of the ocean into functional design. The show’s organisers also want to point out the over-use of plastics and show ways how to rid our lives of too much plastic.

Furniture by Finnish design company Artek, Vitra wall clocks

5 Extra tip: New showroom featuring exceptional design Design icons like Vitra chairs, Artek stools, Fatboys and František Vízner’s collection of glass vases, bowl and drinking ware for the Czech glass manufacture Bomma. The newly opened Design Showroom on Plzeňská in Prague 5 offers the best in Czech as well as international design: furniture, lighting fixtures, home decor and accessories, and giftware.

Text: Ondřej Krynek, editor -in-chief of DesignMagazin.cz

Marwick Revue

TOP 3 new venues Prague’s new Donut Shop Originally, the Donut Shop meant to greet its first customers in its location on Jiří z Poděbrad Square already last autumn, but now it looks as if a February opening date is more realistic. “It’s bureaucracy that keeps ups from opening up,” the owners complain. So far, they have at least been supplying nearby coffee shops with their handcrafted ware. Once they open their own outlet, they plan to offer a wide variety of yeast donuts, but also baked, vegan and savoury ones. And of course you’ll be able to wash it all down with upmarket coffees. Extra tip According to the proprietors, current favourites are their Matcha glaze donuts and the caramel and fennel combination. Top sellers are also the Chocolate Ganache Glaze and Peanut Butter Glaze donuts.

A new concert hall, restaurant and café on the Elbe River Wednesday, 11 January 2017 will see the grand opening of a new concert venue in the Hamburg Hafencity neighbourhood. The unique piece of modern architecture from the drawing boards of Swiss architects Herzog & de Meuron can accommodate up to 2 100 spectators in its main hall. The Elbphilharmonie was constructed in the space vacated by a warehouse. Three concert halls, a hotel, 45 apartments, a restaurant and a café all hide behind the Elbphilharmonie’s glass facade. An observation platform offers a panoramic view of the Port of Hamburg.

Coffee laboratory Imagine that upon entering a coffee shop, rather than the classic “What can I get you?” the wait staff instead asks you “How are you? What do you feel like getting?” Depending on your answer, the barista prepares a custom-designed coffee speciality. Welcome to the Kofi Lab, Ostrava’s first coffee laboratory. “I like doing things differently. What I like most about coffee is its versatility. You can play around with alternative ways of preparation (vacuum pot, aero-press or drip), and enjoy your coffee in more detail,” explains Nikola Repaská. Upon entering the shop, the first words of her regulars allegedly are “Surprise me!” “…and I love doing just that,” says the owner. 2

Extra tip Apart from coffee, you can also order Ghanaian cocoa, homemade ginger beer or Kofi Lab’s Double Chocolate cake. “We’re also planning to bake our own bread,” Repaská promises.

Works by Wagner, Beethoven and Cavalieri will fill the main concert hall during the opening concert of the Elbphilharmonie.

Extra tip Elbphilharmonie’s construction costs increased threefold from the original project estimate, to a total of EUR 866 mil. The structure is 100 metres in height and together, the three concert venues can house 2820 concertgoers.

Text: Lukáš Rozmajzl, editor-in-chief of CityBee.cz

35 — revue

KPMG Finance Forum 27 January 2017

� Michaela Erbenová Czech economist at the International Monetary Fund

� Jack Stack Chair of the board of directors of Česká spořitelna

� Mojmír Hampl Vice-governor, Czech National Bank

� Dorel Blitz Head of Fintech, KPMG in Israel

36 — revue

and others… Attendance at this event is by invitation only. Please check your email boxes for your invitation.

Zdeněk Tůma KPMG’s Partner in charge of the financial sector

Marwick Revue

His home is in Frankfurt am Main, where, at the Frankfurt International Book Fair, he last autumn received the prestigious German Book Prize (Deutscher Buchpreis), for German authors the equivalent to the Man Booker Prize. At the age of 80, Bodo Kirchhoff old stunned the prize jury with his new novel Widerfahrnis (Encounter), which touches upon the current refugee crisis. Czech publishing house Akropolis has promised to publish its Czech version later this year. ↗

Leonie Palm used to be a hat maker; Julius Reither a book publisher. They are no longer working and even though both are at an age where such things are no longer expected, both are still yearning for true love…and for red wine, Italy and adventure in the autumn of their life. The meet and while not certain of their destination, they head south. On Sicily, their romantic road trip is interrupted by a young refugee, fleeing north from the South. The young girl transports the elderly couple back into the reality of the European summer of 2015, confronting them with some of the elementary themes of their past: loss, parenthood, but also radical new beginnings. Her story awakes their desire to start a new life… So much for the story line of the exceptional novel Widerfahrnis by the recent laureate of the German Book Price. Bodo Kirchhoff’s newest novel will be translated into Czech this year. The somewhat usual title of the book, “Widerfahrnis,” is fairly underused and archaic and translates into the English term “Encounter”. Bodo Krichhoff himself admits to have heard the word only five years ago. Bodo Kirchhoff is the author of a long line of novels; the most famous one of them is Infanta, whose German original was published in 1990. Among Kirchhoff’s novels, only Schundroman (trashy novel) has been translated into Czech and published under the title Krvák by Mladá fronta publishers in 2004. Czech readers were able to encounter Kirchhoff nine years ago at Prague’s Svět knihy (book world) trade fair, where he introduced his novella Der Prinzipal (the principal), about man whose career is ruined by an affair. Last December, Kirchhoff again came to Prague to read from Widerfahrnis.

“Kirchhoff’s “Widerfahrnis” (“Encounter”) is a many-layered text that masterfully interweaves private and political existential questions and releases the reader out into the open.” -- Justification of the German Book Prize Jury Text: Anna Batistová

37 — revue

FOCUS: Bodo Kirchhoff

First shock, then scepticism, acceptance, and finally passion. When Roman Komárek, the founder of Artstaq, first introduced Jozef Bárta, art collector and long-term boss of Credit Bank Slovakia, to the concept of the Artex500.com online art exchange, the latter shook his head in disbelief. Recently, he began his second year as head of the start-up. And he’s enjoying it tremendously. ↓

Text: Anna Batistová

You launched the online art exchange Artex500.com approximately half a year ago. It looks like you brought about a revolution in fine arts trading, doesn’t it? It really is a revolution. We are changing the patterns of the entire fine arts trading system that has been around for centuries. Our art exchange is based on the same principles as capital markets. We are responsible for data collection, independent analyses, rating and automated listings of artists and art works. The trading itself is performed in real time, transparently and with liquidity. Investors cannot only purchase art works, but also store and promptly sell them. At present, we are trading young up-and-coming artists, but next year we will open an exchange for collectors and top artists. Naturally, it will take a while before the art market becomes accustomed to its transition onto the online world. However, the trend is clear and supported by the latest numbers: online art trading is booming, with a 24% increase over last year. How does the rating system work? At the beginning of the whole process, independent art experts assess an artist’s potential. Once the artist gets onto our platform, an algorithm is applied, taking into account over seventy parameters, such as the number of exhibitions, reviews, aesthetic aspects, originality of art works, etc. Investors who come to the platform see the artists’ rating, their quality and maturity and the market value of their works at the same time.

According to market value fluctuations, they can then decide whether it is advantageous to invest into a specific artwork. How vast is the business? The art market today is worth 65 billion US dollars a year; this, however, only includes data from official auctions. Moreover, when we look at solvent private bank clients, only 2% of them invest into arts like conventional collectors do. Of the very rich, 98% do not invest in fine arts. They are reluctant to do so as the market is non-transparent, not regulated, has low liquidity and the gathering of data is time-consuming. At the same time, however, the market offers unbelievable investment opportunities. Artstaq’s ambition is to set new principles for global trading, make available all data, and use a new exchange model to tear down the barriers and the traders’ reluctance. As a result, we could easily double the market in the end. You recommend investors invest up to 5% of their capital into art. Why should they? Many investment experts recommend holding a part of one’s portfolio, let’s say one third, in alternative investments, be they gold, diamonds, real estate, coins or fine arts. Art has many positive investment attributes: in its own way it is resistant against inflation and fluctuations; in many countries, its revenue is taxed at an advantageous rate.

38 — art

Looking for an investment alternative? Go for the fine arts

Local art as an investment opportunity

Below, readers will get to meet some of the best-rated local artists whose artworks are currently being traded at Artex500.com. The online exchange assigns individual artists an AQ (art quotient) rating that serves as a realtime investment indicator continuously evaluating an artist’s investment stability, integrity and overall quality. AQ indicators move on a scale of 0 (lowest) to 10 (highest).

1 Patrik Hábl * 1975 AQ 4,90 One of the most dominant figures of the current Czech fine arts scene. He first studied at the Academy of Arts, Architecture and Design in Prague with Professor Pavel Nešleha and now also works there. His abstract artworks are on the dividing line between painting and graphic art and follow up on the works of Josef Šíma, Václav Boštík and Vladimír Kokolia. Traded artwork: Chinese Mountains (Čínské hory) 2 Zdeněk Kučera * 1935 AQ 4,25 A Czech painter, sculptor, graphic artist and academician (he is a professor at the Department of Art Education at the Palacký University in Olomouc). Since the end of the 1960s, he has been pursuing geometric and constructive art. He is a leading representative of geometric abstraction in the Czech Republic. Traded artwork: Nostrume 3 Michal Macků * 1963 AQ 4,68 He is a graduate of the Art Photography Institute in Prague. Since 1989, he has been using his own Gellage technique, making use of the possibilities of transferring moist photographic emulsion. After years of working with Gellage, he discovered the potential of carbon printing. His passion for this technique culminated in the creation of glass objects. Traded artwork: Glass Gellage No.III

Jozef Barta ’s personal favourite, CEO Artstaq �

4 Matej Fabian * 1979 AQ 3,71 Slovak artist Matej Fabian is a graduate of the painting atelier at the Academy of Fine Arts and Design in Bratislava. He continuously tries to deal with objects as media; however, painting remains his principal means of expression. “Fabian is an artist I personally like,” says Barta (CEO of Artstaq). Traded artwork: Aurora

Text: Anna Batistová

39 — art

↓

How to proceed when you‘ve decided to invest into artworks “Just register at Artex500.com and you can immediately start trading. Trading is easy and intuitive. If you need advice, you can choose from various options: use our automatic recommendations that will pre-select art works according to set criteria, the online chat, or write directly to jitka.psejova@artstaq.com, our business development manager,” adds Jozef Bárta.

In the Czech Republic as well as all over Europe, family businesses are doing great. Neither sluggish economic growth nor the uncertainties caused by Brexit have taken away any of the trust they enjoy or the optimism they exude. Their revenues are increasing; they are planning to enter new markets and to innovate. West of the Czech Republic, the trend among family firms is leaning towards the professionalization of management and the implementation of more formal processes, which may serve as an inspiration and opportunity for their Czech counterparts. →

Milan Bláha Partner in charge of Family Business services KPMG Česká republika mblaha@kpmg.cz @BlahaMil

40 — study

You’ll get half of my kingdom…no, wait, make that 60 %

Last year, your company recorded: turnover 2013

26 %

31 %

43 %

2014

16 %

30 %

54 %

2015

16 %

26 %

58 %

2016

16 %

30 %

54 %

2016 (ČR)

17 %

30 %

53 %

number of employees 2013 2014 2016

42 %

10 %

2015

48 % 38 %

16 % 9%

2016 (ČR)

40 %

36 %

24 %

46 % 47 %

44 % 27 %

20 %

53 %

activities abroad

41 — study

2013

36 %

2014

2015

2016 4 % 8% 2016 (ČR) decrease

59 % 44 %

50 %

35 %

58 % 65 %

31 %

48 %

44 %

stagnation

increase

Whereas the lack of qualified labour seems to worry Czech and European businesses alike, the domestic corporate scene is facing yet another challenge: A quarter century after the Velvet Revolution, many Czech family firms are now facing the departure of their founders from management and the transition to a new generation of leadership, as many heads of family businesses are passing the torch to their children. KPMG’s new European Family Business Barometer describes the general atmosphere and the most significant changes in this business segment.

Does your strategic plan involve any investments or divestments? Yes, investments, 66% No, 27% Yes, divestments 7%

Czech company figures

A comparison of Czech and European family firms

Our outlook is positive European and Czech family firms see the future in a positive light: regarding their company’s economic outlook, 72 % believe it to be positive, about a fifth take a neutral stance and only 7% expect bad times ahead. Faith in the future of the business is reflected in a company’s sustained growth and increasing turnover, reported by more than half of the firms; for Czech family firms, this number comes to 53%. A third of the companies have stable revenues, while 16% report a turnover lower than in the last surveyed period. Respondents for whom rising revenues are not a priority and who are content with a stable turnover claim that their main motivation is the maintenance of a leadership position within their segment and higher profits. European family firms also outperform Europe’ s annual economic growth, which in the survey period remained at less than 2 % while almost three fourths of European family firms grew by more than 5% annually. More than four fifths of respondents expect to increase their turnover in the upcoming years as well. �

What areas are Czech companies planning to invest in? 63%, main line of business 42%, employees (recruitment and training) 21%, activities abroad

Czechia looking for talent European family firms are not satisfied with the amount of qualified workers they are able to employ, while the severity of this problem has steadily increased over the last four years. In view of the tendency to robotise routine task it is also quite likely that the demand for qualified personnel will grow, as less qualified work processes are increasingly being taken over by machines. On a European level, 37% of all firms have problems recruiting the right type of workers; in the Czech Republic, this percentage comes to a dizzying 70%. A second reason for uneasiness is the high level of political uncertainty felt by 37% of all European family firms. To blame for this are the results of the referendum on the United Kingdom’s exit from the EU, whose fairly unpredictable consequences for the European economy also quite naturally add to the worries of family firms. Brexit overshadowed many other unpleasantries that family businesses usually mention: growing competition (36 %), high labour costs (32 % in Europe, 43 % in the Czech Republic) or changes in legislation (21 %). What can family firms depend upon to overcome these obstacles? Both European and Czech firms agree that their strength lies in the ability to make quick and flexible decisions (63% of Czech firms) and in their long-term positive outlook (50% of Czech firms). What’s more, according to their representatives, Czech family firms most of all rely on their shared values and family integrity (70% of all Czech respondents).

21%, diversification

Changing of the guards For many family firms, the most difficult hurdle to overcome will be passing the torch to the next generation. As a result of the Velvet Revolution, in a third of Czech family businesses, the transition to the next generation of owners will happen next year, while on the European level, only a fifth of the surveyed firms expect such a significant change in their management. What is considered most important for the success of such a momentous step? Czech respondents emphasise financial literacy among all family members and Germans as well as other Europeans consider good intergenerational communication to be crucial (92 % respondents). Communication among family members really does play a central role, as the opportunities for misunderstanding are many. Representatives of the younger generation fear forced integration and becoming a slave to the family business like their parents did. The older generation is in turn bothered by the perceived disinterest of the young in the business or, in contrast, has a hard time giving up their own influence and power. The complexity of relationships within family companies is underscored by the survey’s results, according to which only 10% of the current business owners feel that the rest of their family shares their enthusiasm and dedication and a mere 6,7% consider intra-family cooperation to be on a good working level. In 85%, European family firms agree that the essential condition for a successful transition to a new leadership generation is the long-term preparation of their successors, way before they plan to take their spot at the firm’s helm. This is nonetheless a twoway process. As Christophe Bernard, KPMG Global Partner and European Head of Family Business told The Economist, the company must dedicate just as much care to the departing bosses and prepare them for their life “after”. The changing of the generational guards is not an easy process and it often does pay to bring in a professional mediator who can point discussions into their right direction and lessen any existing tensions among family members.

42 — study

47%, innovation and technology

About the survey The fifth annual European Family Business Barometer involved 959 companies from 23 countries. Most of the respondent companies have less than 250 employees and three fourths of them are in 100% owned by members of the same family. More than 80% of the surveyed companies have been on the market for over 20 years; less than half have been in existence for over 50 years. European Family Businesses (EFB) is the EU federation of national associations representing long-term family owned enterprises, including small, medium-sized and larger companies. The annual turnover of its members exceeds one billion euros or 9% of the European GDP. EFB’s mission is to press for policies that recognise the fundamental contribution of family businesses in Europe’s economy and create a level playing field. The entire survey may be found at www.kpmg.cz.

Which of the following mechanisms and process are present within your family business? 100 %

fo bo rm ar al d su pe r

vis or y

70 % 60 % 50 % 40 % 30 % 20 %

s m ett fa att lem m er e ily s nt m fo of em r s i be ha nhe rs re rit ho a fa ld nce co mil in de y c g o of n et stit hi ut cs io n, su m cc an e ag ssi in on g di pla re n ct fo or r ru an les d fo pr r om se ot lec io ti n on fo , r f re su am mu fo cc ily ne r l es s ea io m ra an tio d n ag n po pl er si an tio s ns

80 %

ru an les d fo pr r om se ot lec io ti n on fo , r n re sh on mu ag ar -f ne re eh am ra em old ily tio en er m n t an ag er fa s m ily co un ci l

90 %

fo of rm di al re bo ct ar or d s

43 — study

Split the firm fraternally or in half? The formalisation of management mechanisms and processes is, next to functioning communication channels, an additional prerequisite for a firm’s smooth transition from one generation to another. Supervisory bodies are present in 47 % of the surveyed Czech family firms, while 73% of the European companies have them. One attribute of this formalisation is the handing over of the management to a person outside of the family if the heirs are not sufficiently prepared to lead or if they are simply not interested. On the European level, the proponents of this strategy have gained in numbers over the years. Whereas in the Czech Republic two thirds of the family firms’ managerial positions are held by members of the successor generation, in Europe this number has declined to 50%. Generally said, formal processes make it easier for a company to decide on a more beneficial strategy without any emotional dependencies. An increasing number of European businesses have formalised boards, shareholder agreements, set recruitment and remuneration rules and various advisory bodies. A rationalisation of steps also pays off when it comes to dividing a company among one’s children. Most parents would probably want to split their legacy evenly among their children, but in case of conflict, such a division is bound to paralyse the company and keep it from easily finding any workable solutions.

10 % 0% 2016

2015

ČR 2016

A comparison of Czech and European family firms

Text: Anna Batistová, foto: Barbora Mráčková

“Rather than being concerned with existential issues, they look at whether their job is enjoyable and makes a difference. Members of generations Y and Z, who are joining organisations today, will account for 30 percent of all employees by the end of 2020. Management will have to gradually adapt to what these people need in the workplace,” says Stanislav Háša, head of the Department of Management at the University of Economics, whose book What’s New in Management was published on 5 December 2016. ↗

The title of your book begs the first question: What’s new in management? Above all, it’s the return of the whole person to management. The main question starting to be asked today is: How to build organisations designed for people? In the past hundred years, management has not taken people into account much. That’s changing now, with consideration being given to what people in an organisation actually need to not only work well but to feel well, too. The fundamental change in management is being driven by how people and their environment are changing. The issue of a job’s meaningfulness is becoming increasingly relevant today. What matters to us is whether we enjoy our job and whether organisations let us enjoy it. Needless to say, management is also being shaped by technology such as Industry 4.0 and the internet of things. Another major trend is that fewer professional managers will be needed, as people today are capable of being self-managed, self-motivated and selforganised. I am intrigued by your notion that, in the 21st century, management actually hinders an organisation’s performance. How should one interpret this? On the one hand, management can be credited with today’s high standard of living in Western civilisation. By stressing efficiency and effectiveness, it drives global growth. On the other hand, traditional management is based on tools for making people work hard. It involves a manager who allocates tasks, checks the results and tells you what to do. If you get it done, you’ll gain recognition; if you don’t, they’ll fire you. In this sense,

Stanislav Háša (* 1974) is the head of the Department of Management at the University of Economics in Prague and the founder of PoPoli, a development and therapeutic centre. He works as a coach, tutor and therapist. © 2017 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

44 — generation XYZ

People can manage and motivate themselves

45 — generation XYZ

management restricts employees’ engagement. It is a hindrance because it deprives people of the freedom to make decisions, emphasises external motivation and establishes a system of punishment. Traditional management can make people work hard, but not with joy. Clearly, the limitation lies not only in managers but in people themselves as they often prefer someone to tell them what to do. So how can you make people work hard and with joy? You have to make them feel that they themselves are shaping their professional career. Ask them to compose their own job description. Don’t force it on them. Then organise a meeting where each team member will promise the others what they’ll do for the team. There are even firms where people voice out loud the remuneration they want to receive for their work. The team then meets at regular intervals and evaluates performance. That way, you will no longer need hierarchical systems, and people will stay with the firm because they will genuinely enjoy it. You will also enable people to make decisions. Managers often object that they can’t apply this in their organisation as they have blue-collar workers reporting to them. What an awful stereotype! When someone is a blue-collar worker, does it mean they can’t be excited about their job? Some companies have achieved miracles by empowering production line operators. How would you describe a good modern-day manager? Good managers empower their colleagues and see themselves as having just one of the many roles in the team. They stop referring to the people around them as subordinates or employees, and start calling them co-workers or colleagues. Their main goal is to create conditions for others to be successful. In Management 2.0, a manager acts as an enabler or coach rather than a supervisor. He or she empowers people to design their own work, to make decisions about themselves and to utilise their internal motivation. A manager is someone who stands behind the team, enables it to do a good job and does not interfere much.

You stress the importance of a human approach, but isn’t that often difficult to implement, especially in large organisations? I believe it’s all about an organisation’s top management. The first thing I look at is the approach of the CEO. When the managing director adheres to the old-fashioned management style, you can’t expect much freedom in the organisation. Top management is responsible for choosing a management model within the organisation. It is a conscious choice. W. L. Gore – the manufacturer of Gore-Tex products, among other things, and one of the world’s most innovative firms – employs 10,000 people, operates worldwide and is one of the most liberal companies and one of the best examples of a completely different management style. They have no managers, no organisational structure, they work in project teams that elect their leaders, and the CEO is elected by employees. So even large firms can adopt this approach. It’s always a question of what management principles a firm’s leadership applies and how it actually treats people. And size is not a factor. Do you have examples of Czech firms where the new management principles are already in place? How did they accomplish that? Linet, Plastia, Etnetera or Avast are all organisations that, in my opinion, are trying to use a different management style. And again, it all stems from how the firm is managed by its founder or top management. Either those firms were already established with the intention of operating based on these principles, or their management gradually worked its way to that stage. A good example is the Bernard brewery, with its founder Stanislav Bernard; or LMC, a company that has also embarked on a journey to alternative management.

Text: Jana Samšuková

Non-profit organisations often face two major problems. They usually obtain financial subsidies and grants for specific projects with no money left for the very operation of the organisation. In addition, they are often unable to exactly evaluate the effectiveness of their activities. To deal with both issues, the nonprofit organisation Nadání a dovednosti, helping children and young people develop their talents and prepare for professional lives, can now draw on a club programme as one of its sources and employ other ideas resulting from its yearlong partnership with KPMG in the A YEAR together – A STEP forward programme.

Nadání a dovednosti, o. p. s. As the name Nadání a dovednosti (talent and skills) suggests, the non-profit organisation Nadání a dovednosti, o. p. s. helps children from foster families and children’s homes develop their talents and select study programmes. It prepares them to enter the labour market and their future professional lives. All this is carried out within the scope of courses and projects, such as Rozhled and Roadshow. However, these big things are accomplished by a small team – six young women led by Director Linda Hurdová take care of the operation of NaD.

A YEAR together – A STEP forward Within its A YEAR together – A STEP forward programme, KMPG Czech Republic enters into a year-long cooperation with a non-profit organisation selected by KPMG’s employees. For an entire year, KPMG then provides the selected organisation with professional help, expert services and volunteers and educates this organisation’s staff in appropriate fields.

→

46 — case study

Customer Experience in a non-profit organisation

The mapping of a customer journey always starts with a detailed description and understanding of the client, utilizing marketing's person method.

47 — case study

Within the scope of this programme and for one entire year, KPMG provided the organisation Nadání a dovednosti with professional help and custom-made services. Most often, these included legal advisory services or advisory services related to European funds and internal processes. The Management Consulting department’s Customer Experience team lead by Jan Klimeš also came up with two projects – the aforementioned club or donor programme as well as a new system that will evaluate whether the particular projects of the non-profit organisation have helped where they were supposed to. “I liked Nadání a dovednosti from the start, because as a foster father I can relate to their work and I know what burden the children from children’s homes or foster families carry into their adult lives. I contacted Ms Hurdová, the director of NaD, and together we came up with ways that our methodologies could help them. This led to both of the aforementioned projects,” says Jan Klimeš. Club programme as a source of funds For non-profit organisations, sufficient funds for their operations are very important, as is being able to rely on steady financial resources. “Non-profit organisations very often receive a big grant for a project; they hire staff for this and have to unite these people together in an office. However, they might not receive the grant again in a year and all of a sudden, they have to deal with providing for their employees,” Jan Klimeš explains. And this is where a club programme can help – ensuring a certain predictability and stability of financial resources without the necessity to allocate funds for particular projects. Instead, it allows for other activities outside of the main plan. At the same time, the programme assists in the active development of relationships with donors and helps to stay in touch with them. The programme’s basic prerequisite is that club members contribute small financial amounts on a regular basis or help in a different way – for instance with their own energy as volunteers. Jan Klimeš’ team built on their own experience and expertise – the model has already proven to be useful with a number of non-profit organisations from the Czech Republic and abroad. For example, KPMG mapped and modified the donor journey for the Canadian branch of the Salvation Army. To design the programme, KPMG used the customer journey (donor journey) mapping method, which is also used by commercial entities. Jan Klimeš’ team designed individual parts of the journey in detail – from the first registration in the club, through communication with donors, all the way to subsequent opportunities to deepen donor relationships. According to Denisa Fousová, the coordinator of the Nadání a dovednosti project, the programme will be launched in a few days’ time. Do our projects help? Jan Klimeš’ team of experts also focused on evaluating whether and how in particular projects of the Nadání a dovednosti

organisation help those who seek assistance. NaD’s Rozhled and Roadshow projects strive to perfect the skills and talent of young people, supporting them on their journey towards their dream career and preparing them to enter the labour market through various workshops, trainings and other activities. KPMG designed a set of questionnaires and an evaluation system to assess the life situation of young people entering the programmes and the impact of these programmes on their subsequent development. “Those who have completed the programmes provide feedback to NaD by means of questionnaires that they complete before they enter the programme, once they finish it and subsequently after a certain period of time,” explains Jan Klimeš. “Data acquired this way will help the non-profit organisation further develop its programmes and will also facilitate communication with the public and sponsors,” he adds. Cooperation evaluation Apart from recommendations relating to a new source of financing, the Nadání a dovednosti organisation also received human resource and financial accounting advice. “Participating in the programme was attractive for us because it has led to the professionalization of our team. A YEAR together – A STEP forward has exceeded our expectations,” remembers Denisa Fousová. “Thanks to the Christmas campaign, we were able to arrange education courses for 22 children from children’s homes, which helped them on their way to a dream career. In addition, we acquired the financial means necessary for the next round of the Rozhled project for another 25 children. The training course with Jan Mühlfeit, who helped the children uncover their strengths and motivated them, was also very valuable for both the children and us. In the coming days, we would like to launch the donor programme we built with Mr Klimeš’ team. The cooperation with KPMG has put us in touch with other companies that are KPMG’s clients. Among others, we have started cooperating with Jan Mühlfeit. We will definitely recommend that other non-profit organisations participate in the programme,” she adds. Jan Klimeš also likes looking back at the cooperation: “It was a great experience. I would be very glad if all our suggestions worked and enabled NaD to move another step forward and help more young people on their way to follow their dreams.”

The massive sandstone towers of Bohemian or Czech Switzerland and its cool ravines shrouded in legends are considered the birthplace of modern tourism and mountain climbing in the Czech lands. Picturesque natural phenomena, like ice stalagmites forming on overhangs in winter, complement the local scenery, guaranteed to amaze onlookers from every perspective with its abundance. The region along the right side of the Elbe River was declared a national park on 1 January 2000. With the Czech Switzerland National Park’s director Pavel Benda we discussed the park’s history and future. We also talked about the many animal and plant species returning to nature and the park’s coexistence with its surroundings across the border.

Text: Ivo Půr, photo: Václav Sojka

→

48 — report

Czech-Saxon Switzerland’s future

49 — report

The aim is to have the Czech and the German sides of the park look the same within several decades

The Czech Switzerland National Park stretches over 80 km2, while its German counterpart, the Saxon Switzerland National Park covers an area of almost 94 km2. The administrations of both parks together take care of the territory of SaxonBohemian Switzerland, an erosive sandstone landscape unique on the European continent. The area extends along the Elbe River from the Czech town of Děčín to Pirna in the Free State of Saxony, Germany. Attempts to protect the local landscape go back centuries to the era of Leopold Graf von Thun und Hohenstein (1811 –1888). Even though the area’s declaration as a national park was on the Czech side accompanied by disputes and discussions, today the Czech Switzerland National Park serves as a showcase of environmental protection. According to Director Pavel Benda, a number of the park’s then-opponents have now turned into its staunchest proponents. Environmentalists from the German side also contributed to the campaign to afford the most valuable parts of the area the highest possible protective status. The Saxon Switzerland National Park was declared in 1990, ten years prior to its Czech counterpart. Among German and Czech environmental activists, close cooperation continues until today. ”Together, we formed four working groups; one concentrates on forestry and focuses on the biggest task faced by the park – the renewal of the park’s original vegetation mix,” so Pavel Benda. Spruce forests expand over almost 60 % of the park’s territory and are man-made. “Apart from deep valleys, where spruces have grown since the ice age, these trees should be present on

only 5% of the park’s area,” says Benda. “The aim of the park is not the restoration of its original state, but we would like to get to a point where spruces will grow on only 30% of the area, with the rest being covered by beech and fir trees, as at the onset of the park. Despite differing legislations, the cooperation among both parks is nicely synchronised and even though historically the woods on the German side are in better shape, we expect to have our surroundings look approximately similar on both sides in a couple of decades, “ Benda adds. Four million tourists After the inception of the national park, tourism boomed. “In one season alone, almost four million people visited both Czech and Saxon areas, which amount to less than 200 km2,“ Benda explains the region’s visitor capacity. He also mentions that most of the visitors go on tours that begin and end at the outskirts of the park. It is in the interest of the park to expand and develop this area. “In fact, the park itself has an expanse of only 80 km2, but if we look at Czech Switzerland as a tourist destination, then we are actually speaking of an area with a size of 400 km2. Often these are undiscovered areas which are just as beautiful as the park. The whole region hence offers a huge potential for development without the need to deplete the park itself,” Benda points out. The return of the falcon and salmon The Bohemian Switzerland National Park’s re-introductory programmes, aiming to reintroduce endangered species to nature, are among the most successful of their kind. Every

According to Pavel Benda, the aim is to establish a population large enough so that it will no longer need the annual release of artificially bred fry into the rivers. “To the woods, we would also like to return the hazel grouse and the Western capercaillie,” so Pavel Benda on future plans. Spring and autumn are best for visits If you have yet to visit Bohemian Switzerland or if you would like to be enchanted by its beauty yet again, Pavel Benda recommends coming to the park outside of the main season, especially since spring and autumn turn the local landscape into a truly magical wonderland. Pavel Benda also recommends venturing into lesser known places and paths that are in no way inferior to the main tourist trails. As an example, he mentions the Studený vrch observation tower, the close-by Zlatý vrch (Goldmount) with the Czech Republic’s largest columnar jointed volcanic rocks and the picturesque Pavlino údolí (Pauline’s Ground). The area surrounding the national park also offers tremendous opportunities for enjoyment. “The Lusatian Mountains are a half-forgotten region; very romantic and beautiful. The surroundings of the town České Kamenice offer truly glorious views. During the last couple of years, the local communities have also improved and are now definitely worth a visit. I recommend walking through the urban monument zones and beyond. Arnoltice, Jiřetín, Kytlice, Stožec, to name just a few, are worth a visit,“ concludes Pavel Benda. Personally, he wishes for a Bohemian Switzerland that has gotten rid of the alien Weymouth white pine and where one again can hear the Western capercaillie’s mating call.

50 — report

year, the peregrine falcon, having faced extinction in the past, comes to nest on the park’s cliffs. Indeed, from this location, the population of this bird of prey spread further into Czech territory. The pair of peregrine falcons nesting in the towers of the Church of Our Lady before Týn on Prague’s Old Town Square are originally from Czech Switzerland. While the population of the falcon has risen to sustainable levels, visitors to the park are nevertheless asked to stay away from the bird’s nesting areas from March to the end of June, as just one callous visitor could put the survival of the species at risk. The programmes to reintroduce species back into their original habitat are not restricted to only wildlife. “Some renewals take place on their own, when species that were preserved in the neighbouring states return to Czech territory. The raven may serve as an example. Its population came back to us through Poland and Germany and today, we have raven flocks all over our area. Then there are the returns that we initiate ourselves. This concerns both animals and plants. As an example, I can mention the black poplar, nowadays a very rare tree, that used to grow in floodplains and that man had just about eradicated,” says Pavel Benda. “The European silver fir used to cover 20% of the park in the past; today, it makes up one tenth of a percent of the park’s vegetation. From the trees that are left we regularly collect the seeds and replant the seedlings back where they belong,” adds Benda. Immediately after its designation, the Czech Switzerland National Park joined forces with the Czech Fishing Union and started working on the return of the Atlantic salmon. Since 2002, native fish are regularly returning to their native rivers to spawn.

There are new competitors with a fresh vision Is your company agile enough to outpace them?

Using innovative tools, thinking and frameworks, KPMG can help adapt your business in the face of constant disruption. Learn more at KPMG.com kpmg.cz

Anticipate tomorrow. Deliver today.

Regularly in your inbox .marwick.cz

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. © 2017 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.