MARWICK First-hand content
THE CUSTOMER OF THE FUTURE Top managers’ forecasts for the Czech economy in 2016 • Retro brands rule the luxury market The story of a power plant producing good • The Achilles’ heels of family businesses A magazine for clients and friends of KPMG Czech Republic
We are changing The KPMG quality you are used to is now recognisable at first sight. From January 2016, all our materials will sport a new attire. A new visual identity. A new style of communications.
© 2016 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.
The Customer Apocalypse For companies, the onset of modern technologies and new generations of customers signify the beginning of an era of enormous changes. If you think that this doesn’t concern you, you’re either wrong or are not looking sufficiently far ahead, as even more obvious trends usually arrive in our country with a two-year delay. How large companies are coping with the changes and how the customer experience sector works are the main focuses of the current issue of Marwick. For example, we will show you the results of our survey uncovering how young people perceive banks and insurance companies. The demand for new technologies in this industry has so far not been very high among customers. People used to perceive banking institutions almost like authorities – functioning in a certain way with the customers having to adapt. This is no longer the case, however. We have embarked on a new stage in this sector where customers, especially the new generation, are starting to have their say at last. What is more, they no longer keep their personal experience with a bank to themselves. Thanks to new technologies, customers now have an array of channels to communicate their experience to other customers and to store it in the eternal memory of the internet. To switch lanes and adopt brand new approaches is in no way simple. In the past years, banks have wreaked havoc on their IT systems. The period of growth and trying to win over new prospects have significantly com-
plicated their internal IT architecture, which is now extremely complex and expensive to adjust. An important role is also played by the banks’ way of thinking and the efficiency of their economic strategies. Every decision they make is assessed primarily in terms of its immediate return. Banks think twice before investing into a distribution channel or into a solution that may be used by half a percent of their clients, most of whom are still students lacking sufficient funds. One of these days, these companies will have to make dramatic changes in their IT systems and the operation models anyway. Now they are only postponing the inevitable. As soon as the first bank decides to make this major change, it will cause an avalanche that will greatly affect the economic functioning of the entire industry. I expect customers to see real changes in about five years’ time, although I hope it will be sooner. The client structure will change and millennials will become a group with significant market potential whose habits and requirements will principally transform the whole market. Those who are now still asleep will find it extremely difficult to catch up with the others. Michal Pobuda Director, Management Consulting KPMG Czech Republic firstname.lastname@example.org
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MARWICK January/February 2016
The pulse of the economy 2016 Czech companies will hire new employees and increase salaries. What else are managers predicting for the Czech economy for 2016? page 5
The customer of the future Thanks to new technologies, customers are gaining ever greater power. To keep up with them, businesses are changing their strategies. page 6
The Achilles’ heels of family businesses Martin Hrdlík’s commentary focuses on the pitfalls of running a family business. page 16
Richard Galovič about the new Favorit How to do business with a traditional Czech product turned luxury brand? We asked the owner of the Favorit bicycle company. page 20
A manager riding the waves Surfing is on its way to becoming a trendy hobby for managers. What are the best surfing locations for an active winter holiday? page 30
A recipe for business success Libor Winkler reveals his recipe on how to establish a food business able to hold its own. page 34
Marwick – A magazine for clients and friends of KPMG Czech Republic. Published six times a year by KPMG Czech Republic, Pobřežní 1a, Praha 8. MK ČR E 22213. For subscriptions of on-line versions, go to www.marwick.cz. Editor-in-chief: Michaela Raková, art director: Štěpán Prokop, photo editor: Barbora Mráčková, proof-reader: Edita Bláhová. © 2016 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.
4 © 2016 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.
GDP to grow further
Expectations of further GDP growth in 2016
66 % Czech Republic
63 % Romania
63 % Croatia
61 % Lithuania
29 % Estonia
24 % Poland
Competitiveness depends on qualified labour Factors impacting competitiveness of the Czech Republic
63 % Qualified labour
58 % External demand (export)
37 % Geographical location
No layoffs expected
What are you planning to do with your employee count in 2016?
15 % increase by 5–10 % 15 % increase by up to 4,9 % 8 % increase by more than 10 % 4 % decrease by 5–10 % 9 % decrease by up to 4,9 % 49 % no major changes planned
2016 THROUGH THE EYES OF TOP MANAGERS Every year KPMG publishes the results of the Pulse of Economy survey, conducted among top managers who make predictions about the upcoming period. This year, nearly 800 of the most significant business players from nine Central and Eastern European countries participated. “Next year’s key economic question that we do not know the answer to is whether the extremely poor international situation will be reflected in consumer and business sentiments on the main Czech export markets, in particular in Germany. In this respect, the crucial factor will be the capability of the EU to stop the inflow of immigrants in a coordinated way, which will in turn require the ability of the German Chancellor to declare that there indeed is an upper limit and that it has already been reached, and to come to an agreement with Turkey. As for specific Czech events, we will all be eager to see what steps the new Czech National Bank Board will take and whether it will keep its exchange rate promises.” Miroslav Zámečník, economist “From a macroeconomic point of view: the ECB and security. Low ECB rates, a relatively weak euro and continuing interventions against the Czech crown could lead to mortgage and construction industry booms. Provided the security situation does not deteriorate, this may not impact the level of corporate investments in Europe and may prevent fuel prices from surging dramatically for the time being. From a microeconomic point of view: VW and the energy sector. Due to the automotive sector’s extremely strong influence on employment, it will be crucial whether the VW issue will fade away or whether it will inflate even further and also cause problems for other players on the market.” Martin Machoň, CEO at APS Holding “I would describe the upcoming period as “the calm before the storm”. Everybody feels that a “storm” is looming but nobody knows yet how strong it will be and where it will be coming from. The prudent, the smart and the skilled see it as an opportunity for their own development and the strengthening of their position on the market. The less provident believe that the world and business will develop in a predictable and straight-forward way, building on the previous period and are thus preparing their companies for something that is not much likely to happen.” Petr Karásek, CEO at TATRA TRUCKS a. s.
5 © 2016 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.
The customer of the future Customers of the future expect the fulfilment of their wishes even before they can voice them. They want prompt answers and expect the same approach when writing an e-mail or visiting a bank. If they have to visit their bank, they definitely want to get at least a decent cup of coffee. Please meet the customers of the future. Text: Zdeněk Mihalco, Illustration: Daniela Olejníková
Thanks to the internet they are more informed; thanks to smart phones they are smarter – sometimes even smarter than the entire firm providing the service. Information technologies have given customers power. Millennials or the members of the Y generation (young people born in 1980–2000 who have grown up in the IT age) have mastered the use of new technologies to the extent that they have changed the entire system of how companies deal with their customers. As millennials grow older, their approach to sales and services has become the norm. Accordingly, companies wanting to succeed on the market have become increasingly interested in customer experience.
The customer’s feelings matter “Twenty years ago sales focused on the product. Advertisements promised products that were quicker, bigger, and nicer. But now it is the customer’s feelings that matter. This is a fundamental change,” says David Conway, director of KPMG Nunwood, a global specialist in customer behaviour and experience. Twenty years ago, customers who had bad experience with a firm or a product couldn’t do much about it. Now, using social networks and internet reviews, they can announce to the whole world in a second that the product is defective or report a seller’s aggressive behaviour. And this customer’s experience will stay posted on the internet for years, not just days. Just one customer’s bad experience can therefore significantly influence a company’s future business. This does not only concern reviews of hotels on booking.com
and similar portals; practically anything can be reviewed. On the internet, we can find rankings of the best gas suppliers or attest to the knowledge and qualifications of the tourist guide on the trip that we just took. However, as David Conway mentions, changes in customer behaviour have been much broader. “Another trend we are noticing is the occurrence of a kind of upward spiral of growing expectations. Anytime we are perfectly satisfied with a company’s approach, we expect other firms to live up to the same standards,” he says. Businesses are thus forced to continue to improve their services and customer expectations grow once again. At KPMG Nunwood, they are looking for the “DNA” of excellence, i.e. excellent customer experience – a universal set of rules – once a firm complies with these rules, it will achieve maximum customer satisfaction.
Six pillars leading to customer satisfaction Based on the surveys of hundreds of firms and taking into account principles of psychology and behavioural economics, KPMG Nunwood has arrived at a six-pillar system as the basis for exceptional customer experience: personalisation, integrity, expectations, empathy, time and effort, and resolution. Each of the pillars is based on its own specific features, basic rules and scientific research knowledge (an overview of the pillars can be found in the infographics on the next page). According to David Conway, the core pillar contains the rules of integrity and trustworthiness. And when trust is lacking, nothing else helps. Personalisation and
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empathy, then, are features that help move customer experience from the good to the exceptional category. And it is these two pillars, personalisation and empathy, that give rise to the greatest customer loyalty, suggests KPMG Nunwood. The world’s most progressive companies therefore invest huge amounts of money into personalisation – for example, some time ago, Netflix offered a one-million-dollar reward for the best personalisation algorithm. And the same company is currently trying to develop an artificial intelligence system which will choose programmes for viewers according to the same principles that govern the functioning of the human brain. David Conway nevertheless stresses that mere custom-tailoring will not add up to instant success. “Firms often make the biggest mistake: they focus on improving just one thing, one pillar. However, to be successful, all pillars must be improved at the same time,” he says. According to him, the pillars are, with small exceptions, universal, irrespective of the sector in which a firm operates. And also irrespective of what country the customer is from, as the pillars rely on the knowledge of human psychology, which is the same anywhere in the world. However, at KPMG Nunwood corrections according to new data are performed annually and changes in customer behaviour can also spark the development of new technologies.
An attack on all senses So how will customer desires change in five years? David Conway is convinced that in 2020 we will much more often encounter what he calls a “multi-sense experience”.
“I believe that customer experience will come to us from many directions, to a much fuller extent. A few years ago, when you went to the bank, it was a well-arranged, functional, but a bit fuggy environment. Nothing really enticing. The bank of the future, however, will look like this: part of the entrance hall will be a café offering specially roasted coffee with a unique type of chocolate,” he says. “Branch visits will become much more than just transactions, but special moments, relaxation. Putting an end to the mustiness, here comes the scent of selected coffee and the enchantment of all senses.” KMPG Nunwood also expects that an omni-channel strategy will become much more important to firms. This assumes that the customers of the future will be able to contact firms through a number of channels – via e-mail, a call centre, a brick-and-mortar shop – and expect the same quality of services and that the shop will know why they called the call centre and wrote an e-mail to the company two days ago. A firm wanting to succeed should therefore no longer split its services and departments into digital and non-digital but instead should have a comprehensive strategy applicable to all channels. As confirmed by recent KPMG surveys among young customers in the Czech Republic (more information about the surveys can be found on the next pages of the magazine), the combination of services of the same quality via smart phone, e-mail and brick-and-mortar shops is bound to become a must for companies. Younger customers also require a more personal approach, simplicity, tailored services and always something extra. How would David Conway define the customers of the future in just one sentence? “Discerning, critical, well-informed and with the constant ability to determine their best choice.”
7 © 2016 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.
The six pillars of perfect customer experience 1. Personalisation
Personalisation means understanding the specific needs of specific customers. The key is to establish an emotional and personal relationship for which you need to know the customer’s personal wishes and preferences and to have an overview of their recent interactions with the company.
One single negative customer opinion posted on the internet can destroy a company’s trustworthiness. The key to gaining the customers’ trust is honest behaviour by the whole company which is not trying to squeeze its customers dry. Such trustworthy behaviour has to be permanent and long-lasting.
Customer satisfaction is determined by the difference between expectations and reality. The key is understanding what the customer’s expectations are, keeping all promises, and ideally outperforming these expectations.
• Demonstrate that you know what makes a specific customer unique. • Addressing someone by their name is key. • Show that you remember your previous encounter by saying, e.g.: „Last time, you said/mentioned that…“
• Show that you are after more than just profit. • Always act in the best interest of your customer. • Keep your promises.
• Tell your customers exactly when they can expect to receive the goods they ordered. • Fulfil your customer’s expectations with 100% accuracy. • Respond to questions and complaints faster than customers expect.
A practical example:
A practical example:
A practical example:
The cosmetics producer Lush is famous for its personal approach to customers. Through long-term training Lush teaches its employees to correctly recommend appropriate custom-tailored cosmetics to their customers. Store personnel are trained to ask questions such as: Do you have any skin problems? Which cosmetics did your skin not tolerate well in the past? What’s your favourite fruit smell?
What exactly does the rule “always act in the best interest of the customer” mean? We can demonstrate it on the example of the Charles Schwab investment bank. For example, when the bank found out that its clients were interested in the reliability and security of peerto-peer banking, the bank let them review this platform on its web page, regardless of whether the reviews were positive or negative.
The Appliances Online internet shop has become famous for free-of charge, next-day delivery, at times specified by its customers. The aim of the company is fully reliable timing, requiring perfect logistics. The company tries to outperform the customers’ expectations with special staff training on how to remain friendly under any circumstances.
8 © 2016 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.
5. Time and effort
Empathy is more than just looking at things from the customer’s point of view. It means having the right emotional intelligence to choose the right emotional reaction leading to a better feeling. Essential is the mastery of the art of showing customers that you understand them and their needs and also know why they have them.
Customers usually do not have time to spare. Everything needs to take as little time as possible and require the least effort possible. The key to improving this pillar is to remove any unnecessary obstacles, to simplify and reduce all the requirements which customers consider superfluous or annoyingly bureaucratic.
Not even renowned companies can avoid complications and there will always be a certain percentage of unsatisfied customers. But the best companies always have plan B. The goal is to transform negative incidents into situations that leave customers even more satisfied than they would have been without the negative experience.
• Invest time into listening to your customers’ problems. • Do not say the same things every time you meet. Adjust your response to the specific situation. • Share similar experience, both your own and those of other customers, to establish a relationship.
• The customer should enjoy the time spent with you. • Customers should get to the finish line in as few steps as possible, the maximum being three. • Always aim to simplify the whole process.
• Surprise customers with how quickly you can resolve their problem. • Always assume that customers are honest and have not caused the problem. • A heartfelt and sincere apology is key.
A practical example:
A practical example:
A practical example:
Zappos, a US e-shop offering shoes, considers a high level of empathy one of the basic criteria in the recruitment process. New customers are linked with shop assistants coming from the same state so as to have common taking points from the very beginning. The employee evaluation system assesses employees according to the following criteria: Did they find out why the customer wants to buy new shoes? Is the customer getting married or is their daughter graduating soon?
The story of the supermarket chain Lidl shows how good it is to follow the no-more-than-three-steps rule. Some time ago, Lidl caused a stir around the world by making fun of its competitor – the Morrisons chain – in its advertisement. Lidl calculated that to get a discount at Morrisons while using their customer card, customers had to take 44 steps. The advertisement concluded by saying: To get a discount at our supermarket, all it takes is one step – come to Lidl.
The Umpqua bank has a somewhat daring slogan: “We are the best bank in the world.” To keep their word, every branch office has installed a so-called silver telephone. If you need to complain or resolve a problem as soon as possible, you can pick up the phone – you’ll be connected with the bank’s director who will provide quick redress.
9 © 2016 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.
Today’s youth… What are today’s young people around 25 like compared to their peers from the mid-1990 s? Politically, they lean more towards the right (29 %) than the left (15 %). Parties at the extreme ends of the political spectrum are of little interest to them.
They are more tolerant of infidelity. Almost 44 % of young people tolerate short-term infidelity.
They enter regular employment at a later date. Since 1995, for 15 to 20 year-olds, unemployment has tripled to 37 %; for 20-25 year olds, it has doubled to 13 %.
They are more satisfied with their lives. Compared to the entire population, people under 29 are somewhat more satisfied with their lives.
Young people want their own car. But just not now. In the world of cars, two major trends have been under way: the development of alternative resources and car sharing. Impulses for both did not necessarily come from the incoming generation, but both trends reflect this generation’s requirements. The massive advance of electro-mobility is instead the result of an overall departure from fossil fuels, whereas the increased interest in car sharing, or mobility services in general, stems from the high costs of owning a car, i.e. taxes, parking charges, tolls for driving into city centres, and partly also from the young postponing the very purchase of their own car. This generation prefers buying experiences and electronics, but would also occasionally like to use a car. The period between getting a driving licence (the number of people in driving schools has not declined) and buying one’s own car is a prospective niche for car sharing offers. The question remains whether a truly massive boom in car sharing or other forms of mobility services will be driven by car makers, who do not currently have any problems with sales, or by other strong players on the market able not only to build up a large car fleet with its own servicing infrastructure but also to provide such services.
Jan Linhart Partner in charge of Automotive, KPMG Czech Republic email@example.com @JanLinhart_cz
Renting your home? A norm in the West The Czech Republic is in a somewhat exceptional position in terms of real estate ownership. Most apartments traditionally belong to their occupants, which is the result of the privatisation of apartments after the Velvet Revolution. To get an idea of what housing might look like in the future with respect to the preferences of the young generation, it may be better to have a look abroad. New generations are postponing buying housing and having a family until later, just like they are holding off on many other things. And there are essential differences in the ratio of owned to rented housing in the Czech Republic and abroad. For young people in the West, it is more complicated to buy own housing due to the high debts they are left with after graduation and the high cost of real estate and real estate taxation. Wanting to predict developments in this field, we could say that the number of people living in rented housing on one hand and the number of people owning and sub-letting a number of apartments on the other will surely both rise. It will be interesting to see how Prague, the Czech Republic’s main economic area, will develop. Town planners and developers believe it may be able to accommodate up to two million people within its existing borders. Pavel Kliment Partner in charge of Building, Construction and Real Estate, KPMG Czech Republic firstname.lastname@example.org @PavelKliment
© 2016 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.
They choose to remain single more often. women 1995: 1,2 % 2013: 8,5 % men 1995: 2,6 % 2013: 12 % More often, they live at their parents’. Proportion of young people (aged 25–29) living with their parents women 1995: 15,1 % 2013: 31,1 % men 1995: 32,2 % 2013: 47,7 %
Just take a look at breweries Small producers, special editions and products with a story are things currently energising the food and beverage market and will continue to move it in the future. Breweries, for example, provide clear evidence of changing consumer requirements and market disintegration. Why breweries? Large breweries are trying to allay the rise of small ones either by using the same weapons as them, i.e. by introducing new brands and special editions, or through mergers, with the hope to cut costs and acquire new distribution channels. By now, every large brewery has let its customers suggest a new taste, new ingredients or a new label at least once. Looking at the figures, analogous developments can be seen in the US in 2013 when the total beer market dropped by 1.4 % while that of small breweries rose by 9.6 % at the same time. We need not mention only breweries. Giants such as Coca-Cola, competing with traditional, story-backed Kofola, or Red Bull are now also producing a huge number of different brands and special editions. The young generation has changed the world of beer, soft drinks or coffee for good and will continue to change other sectors. In the Age of the Customer, large producers will have to listen more carefully and react more promptly. Karel Růžička Partner in charge of Consumer Markets, KPMG Czech Republic email@example.com
Retail’s challenge? Mastering the omni-channel The internet has changed retailing as such. In the Czech Republic, on-line shopping has become extremely popular. What makes us different from the rest of the world is that people in the Czech Republic on-line primarily shop at Czech e-shops and do not trust the foreign ones. The preferences of the young generation, easily navigating the electronic world, will not further impact retail to any great extent, and the need to master the omni-channel (sales, distribution and communication) has been in place for some time already. The analysis of large amounts of data left behind by customers constantly-on-line provides a compelling opportunity for retail. First, it makes it very easy to foresee the profitability of a certain location for a new branch; second, it is easy to use data in form of reviews in creating sales offers, staff assessments, etc. KPMG Czech Republic’s data team has recently carried out a data analytics pilot project in the UK and processed four thousand variables. In this way, it was able to estimate the future revenues of a chain store’s particular branch with only a 15 % error, while conventional estimates recorded a 30 % error. For the young generation, an increasingly greater role will be played by the retail chains’ approach towards the environment, food wastage and social responsibility as such.
Martina Štegová Director, KPMG Czech Republic firstname.lastname@example.org
© 2016 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.
Don’t bother us on social networks
“Social networks are not a place where we want to discuss bank transactions or insurance offers”, young people say. This is one of the conclusions of the recent KPMG survey looking to find out what university students and graduates expect from Czech banks and insurance companies. 235 respondents aged 18 to 27 took part in the survey. Almost half of them were students or graduates of the University of Economics in Prague,
i.e. a demanding, financially literate and in the future potentially solvent client segment.
The survey shows: 75 % of young people have at least one insurance product.
70 % of young people stated price as the most important factor when choosing an insurance
66 % of respondents use the internet and comparison websites in particular when shopping for insurance
57 % have life assurance
45 % of respondents would prefer to communicate with their insurance company via a policyholder portal (similar to internet banking)
Insurance companies: price and simplicity come first Fair and transparent, not trying to hide anything. Functions well on-line. Offers simple and straightforward products with clear insurance conditions. And, primarily, cheap. For young people, price is the main criterion when choosing an insurance company, according to the survey that looked for what today’s students and graduates expect from Czech insurance companies. Three quarters of respondents have at least one insurance, more than half have accident insurance or life assurance. This rather high number is partly due to the fact that the respondents are either financially literate people who often have just started working for firms offering insurance as a benefit, or that the insurance has been arranged by their parents. When choosing an insurance company, these young professionals mostly use comparison websites and the internet in general. A chaotic and confusing system of insurance products and the limited possibility to do everything over the internet are considered the biggest obstacles. Young adults would instead be happy to have personal access to an on-line interface where they could choose and manage their products. Regarding social networks, the same applies as for banks: Facebook et al. are not places where young people would like to discuss insurance products. In a rating of communication tools between insurance companies and their clients, social networks ended up at the very end.
Marek Čáp Director, Risk Consulting KPMG Czech Republic email@example.com
12 © 2016 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.
Banks: They better change or they will lose customers Never before have customers had such power. The internet and social media have given the public the possibility to influence corporate strategies. Companies such as Uber or Amazon understood this in time, and built their businesses on customer communication. Partially, young Czechs grew up with awareness of these firms but at the same time still live with cold and rigid institutions, such as public authorities and schools. Do young Czechs perceive banks to be as impersonal as public offices, or do they instead see them as progressive firms? The answer is halfway between these two: on one hand, 60% of respondents still go to the branch to open an account (to be fair, often there is no other option); on the other hand, they commonly use internet banking and prefer to manage their products themselves. And, despite the fact that 70% of respondents are happy with their banking services, the survey also shows that young people want a change – although they do not know exactly what kind. Be that as it may; it’s not really the issue. Examples such as Amazon or Uber show that such notions may come from the outside. Simply, nobody has sufficiently demonstrated to the young how things could change. Moreover, all over the world, the banking market is being entered by originally non-banking institutions that are eating into the big banks’ profits. Czech banks now have three options: either they are going to lose a substantial portion of their customers, as is happening abroad; or they will have to fortify their position with strict regulation; or they must change. And how? The data shows that the bank of the future must be simple, with customer experience its priority, and it should know its customers better then they know themselves.
The survey shows: 77 % of respondents conduct day-to-day transactions via internet banking.
69 % of people under the age of 23 have not thought about mortgages or bank loans yet.
49 % of 24-year olds or older have looked into mortgages or loans from their bank.
17 % of financially literate young people use mobile phone apps to make common banking transactions.
Tomáš Potměšil Manager, Management Consulting KPMG Czech Republic firstname.lastname@example.org
13 © 2016 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.
Software Asset Management step by step In the last edition of Marwick, we touched on the benefits of software asset management (SAM). Organisations spend a fortune on licenses every year and the failure to manage these licenses can result in heavy fines. Text: Petr Marounek, KPMG Czech Republic
As we already talked about the benefits of SAM, it is now time find out how to get these benefits. Here are some best practices for SAM’s implementation into your rganisation. o
1. Obtain all license details A starting point for the implementation of SAM is to find out where you currently are in terms of software and what you own. You will need to identify all your organisation’s procured licenses. All licenses do not come in the same shape or colour; hence, deep analysis of your licensing position will be required. Here are some common types of licenses: user license, volume license, agreement types, concurrent licenses, OEM, test evaluation, free licenses.
2. Identify what you actually use
Once you have established a baseline of the licenses your organisation owns, you will need to identify the deployment of these licenses across your organisation. All license deployments need to be consolidated to identify how many machines have individual licenses.
3. Compare licenses purchases vs. license deployments
In most cases you should be able tell whether your organisation is in software license compliance by comparing procured licenses againstdeployed ones.
4. Uninstall or procure licenses
After comparing owned vs. used licenses you should be able to tell whether your organisation is exposed to any noncompliance risk. There are two actions to be taken in case of any potential license exposure: either uninstall or procure the products that do not have any licenses assigned.
5. Plan for ongoing SAM
Uninstall or Procure
An organisation’s software environment and software requirements evolve on an ongoing basis and should be reviewed periodically. Software asset management needs to be a continuous process to keep in step with the organisation’s requirements.
We recommend getting professional help from outside of your organisation while you take the above-mentioned steps, to evaluate each step before taking any actions. To learn more about our services involving SAM, please contact Petr Marounek at email@example.com
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Start-ups in the viewfinder of wellestablished financial institutions Well-established financial institutions are casting around for start-ups that will bring them new technologies as well as new customer approaches. This is the biggest current trend in mergers and acquisitions in the financial sector. For both sides, i.e. for the institutions and the start-ups, this step involves certain risks.
Companies in the financial sector are under constant pressure. On one hand, they have to face ever-increasing regulation that especially smaller players find tough to handle. On the other hand, the market is experiencing the emergence of more flexible and aggressive players. The first factor benefits large, well-established companies that can use new opportunities for market consolidations while for these giants the second factor represents a potential risk of losing their market share. One of the newcomers’ big competitive advantage is their flexibility and particularly the ability to be innovative while using new technologies. The dynamics of the market make it essential to be able to react to customer needs using ever newer and flexible products. According to last year’s survey by KPMG International, a total of 57 % respondents among top global companies consider product innovation to be the main foundation for their development strategies for the next two years. New technologies, however, are merely the tip of the iceberg. Greater flexibility goes hand in hand with operational optimisation, client data (Big Data) collection, analysis and evaluation, searching for new distribution channels and business models, all with the aim to be closest to the customer and get the biggest yield at the same time. This individual approach calls for new enhanced system security requirements. Innovative products cannot do without modern technologies in areas such as customer identification, payment authorisation or fraud prevention and protection from ever-increasing cybercrime. Well-established companies cannot ignore these new trends. We therefore expect that investments in innovations will also be one of the key factors driving mergers and acquisitions in the Czech Republic. Global financial institutions are well aware of the need for innovation and are spending a lot on investments into internal R & D centres or are closely monitoring the fintech start-up market. Companies directly acquiring innovation centres may have a substantial competitive advantage, as they not only get a technological hub but at the same time minimise their competitors’ access to the given technology. As the KPMG survey suggests, innovations are the main engines driving mergers, acquisitions and strategic partnerships in the existing financial sector.
Fintech acquisitions, however, entail new risks. First, an optimum purchasing price that is convenient for both sides must be set. Setting the price of new technologies is a major challenge, with the significant risk that evaluation prerequisites will be set incorrectly. Prices of companies can therefore hardly be expected to be based on objective and verifiable parameters. Another pitfall involved in this type of transaction is the possible clash of two cultures – that of corporations and that of start-ups. Successful integration of the two markedly different cultures may turn out to be the biggest challenge. A corporation may be tempted to impose its culture, processes and norms onto the company purchased. That will, however, put the corporation at risk that a once innovative environment will give way to established financial institution structures. If the purchasing corporation underestimates this factor when drafting its integration scheme, the acquisition will be more prone to fail. Despite the cited risks, large institutions cannot avoid entering the hi-tech world if they want to keep their current positions. Time will tell whether they will prevail.
What is your primary motivation for strategic partnerships in the financial sector? Source: KPMG International 2015 access to new ideas and talents
rapidly entering markets
Petr Kostinec Director, Deal Advisory KPMG Czech Republic firstname.lastname@example.org
Lukáš Marek Senior, Deal Advisory KPMG Czech Republic email@example.com
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One computer and enthusiasm were all it took to establish our business Mr and Mrs Vítek started their business in a warehouse smaller than a garage. And yet, their family business NWT currently ranks among the most significant technological and innovative companies in the Czech Republic and has branches in Zlín as well as in England and Russia. “Reciprocal motivation and trust are definitely the main strengths of family businesses”, says Martina Vítková, NWT’s finance director. Text: Lenka Medvecová, Photo: Barbora Mráčková
After 1989, when Czechs were again given the chance to start-up businesses, many of them immediately took this opportunity and began their operations without strategies, long-term plans or management knowledge but with unbounded enthusiasm and commitment to use the freedom of choice and bring new and appealing products to the market. Martina and David Vítek founded their firm at a time when they were both still at school. “We didn’t have a plan. We’re just interested in new technologies: computers and access to them. To put it simply, we bought components, put them together, performed tests, learned what was there to learn, presented the final product to others and sold it so that we could buy new parts. We learned everything through practice over
time,” says Martina Vítková, describing the birth of the company. The business continued to grow with the market. And not much later this also brought management skills. “Hewlett-Packard noticed us at that time and made us their official partners. They paid for management and golf courses. We didn’t have much time for golf but the training was overall very helpful. We’re grateful to HP for all that. I’ve also got to admit that in the following years, the subsidies either we or our customers received really helped. They motivated us to do things that we otherwise would have had to postpone to never,” she says. And they succeeded. NWT currently employs almost two hundred employees in IT, telecommunications, renewable energy
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sources and biotechnology. A few weeks ago, the company received a Czech Top 100 award.
Trust is vital in a family business According to Martina Vítková, the major advantages of family businesses are trust and reciprocal motivation. She says that disagreements between spouses most often arise when one of them thinks that he or she is working harder than the other. It is therefore good for each spouse to keep their own separate roles of importance within the company. “This may lead to negative motivation, a feeling that “you must”, which can also move oneself forward,” says Vítková. Every family business also has its own worklife balance approach. There are firms in which family members discuss business matters over dinner; in contrast, there are some families that strictly forbid business talk at home. Martina Vítková believes that it is vital to separate work from home life. In their family they stick to the rule that work just does not belong at home.
Being prepared to take over Czech family businesses currently have to deal with the issue of handing over their businesses to their first successors and involving them in their business operations. Many a company has even gone under over this. Some family businesses recommend sending children on secondment to other family businesses abroad; others believe that children should try various jobs and career paths in other firms when they are young, to gain experience and to successfully join the family business later on without regretting that they actually wanted to try out something else first. NWT’s Martina Vítková believes that children who are supposed to succeed their parents in the family business should first test their skills abroad. Although the Víteks themselves have not yet started preparing their daughters for their future involvement in their business, she is sure that, when the day comes, they will proceed systematically. “Our daughters have been living with our firm since birth. They know what it means to have a family business. They help, doing after-school jobs. When the time arrives and they come asking for a job, we will prepare them gradually”, adds Martina Vítková.
Bringing flexibility to business Although many family business founders count on their successors joining their firms, they are still prepared to react flexibly. According to Martina Vítková, flexibility also pays off in business. “Our ability to adjust to changes is our most significant strength. Innovation. We operate in a very turbulent part of the industry. In 2009, for example, we had to hire almost two thousand people at once to cover all our orders and our system did not overheat.” In conclusion, she quotes their family motto: “We don’t manage our business so as to earn bonuses next year but to continue to add value”.
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The Achilles’ heels of family businesses According to numerous recently published articles, family firms constitute the healthier core of the Czech economy, are more stable, and manage employee relations more fairly. Although we don’t want to question these assertions, it would be wise to also look at the flip side and examine whether family businesses have any weaknesses in comparison with other companies. In our practice, we have come across a few.
When parental pride takes over When the time comes to hand over the reins, family business owners should choose their successors carefully. It may happen that their offspring have the required business and managerial skills, grew up with the firm, and have strong ties to and a good understanding of it. But not every entrepreneurial parent is as fortunate, and their successors often lack not only the necessary business aptitude but also the desire and motivation to carry on a business. Unfortunately, even seasoned businessmen and experienced entrepreneurs sometimes fail – or refuse – to acknowledge that their offspring lack some of the requirements for successful business management, and tend to view them from a parental rather than entrepreneurial perspective. Their otherwise unerring judgement, which helped them turn their family workshop into a publicly traded corporation, suddenly leaves them as they assume that their kid will make a great CFO just because he or she happened to be great at maths at school. They could be right, but it is just as likely that the prodigy will lack sufficient experience, and to entrust one of the highest posts to such an individual may prove ill-advised. A retiring director not encumbered by parental pride might in fact conclude that a carefully selected external professional would be much more suitable for the role.
You always liked my brother more anyway Any decision-making in which multiple people are involved is always about trying to push through one’s own interests into the overall compromise. In a family business, the usual clash of visions and interests is accompanied by emotions and intricate family relationships. Even a well-functioning family may harbour a host of personal wrongs and conflicts as well as mutual favours. Naturally, those are most apparent when property is at stake. Whereas a regular family would typically encounter this while working out how best to deal with grandma’s heirlooms, such ‘inheritance’ proceedings are an everyday occurrence in a family company. Decisions on how to manage the company’s assets, where to invest, what not to buy and who to hire are made continuously. Even such purely operational issues, which should be handled rationally after weighing all the pros and cons, are thus easily permeated by emotions and mutual animosities, which are logically much more pronounced in a family setting than in a non-family business.
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What do you keep hoarding that profit for, Dad? Although members of any company may have diverging opinions as to how to use the profit generated, fathers/ mothers acting as founders of family firms will be more inclined to safeguard their precious business and to reinvest profits in it. The younger generation, on the other hand, may feel that there is no reason for keeping the profits conservatively in the company and not paying them out (at least partly). This may be caused not only by the desire to splurge on expensive cars and trendy lofts, but also by the aspiration to pursue one’s own plans and investments. Such a situation may then lead to a certain frustration in the younger family members, who may feel that, in spite of their loyalty and work for the family business, they don’t enjoy sufficient trust and appreciation. In extreme cases, when they finally get access to the company’s assets, they might want to make up for it all and tend to spend more of the profits than would be desirable.
If it wasn’t for your dad, kid… Some long-time business partners and key employees will often remember the younger family members as children. That may be an advantage as long as they are keen on extending their loyalty to the owner’s descendants. At the same time, however, some, in particular older, employees may feel that the offspring (being a generation younger) don’t fully understand their job, which may undermine the respect required for good working relationships. While a young manager hired externally will enjoy the employees’ objective respect simply due to being the boss, a manager recruited from within the family may be suspected of having been chosen purely because of being the owner’s offspring, not because of actual abilities.
No strangers allowed in our home? Any successful firm (be it a family or other type of company) with the potential to expand will eventually attract the interest of third-party investors. The loss of full control of the company and understandable concerns about changes in the firm’s environment and organisation, in particular the disruption of operations based on informal family relationships, may make the owner(s) wary of external investors. Yet, despite certain compromises, a third-party investor may present the firm with the opportunity to move to higher business levels, expand internationally and/or develop new products. Moreover, such a third party can also provide the owner(s) with an impartial view free from excessive sentiment and nostalgia.
All eggs in one basket As long as a family business is doing well, its maladies can be worked on in an effort to eliminate them to
the satisfaction of all parties concerned. However, the situation will change drastically if the firm encounters difficulties, e.g. in the form of an economic downturn. Such developments may negatively affect the income of all family members participating in the family business. It is thus always better for the family’s income to be diversified, with each member working in a different sector or for a different employer, so that if a particular industry performs poorly or is marred by layoffs, the family is left with at least one source of income.
When gardening and once-a-year general meetings are not enough Providing that the inter-generational handover is successful and a skilled successor is appointed to the firm’s management, the original founders can finally fully enjoy their grandchildren and long-neglected hobbies. But, after decades spent in a company that they built from scratch, many owners find it very hard to stop playing the role of the boss. Such founders, acting in good faith, may tend to give advice to their successors. That may be counterproductive, though, as they may lack some of the information required to assess and understand the concepts and visions of the new management, and their well-meaning advice may disregard reality. The situation then becomes difficult for the new management as well because the respect, loyalty and gratitude to the founders may be in conflict with actual business judgement. That may result in awkward dilemmas, both managerial and moral.
Cabin fever Running a business within the family almost always impacts private matters and mutual relationships. Such an undertaking often fails to provide the much-needed time that “regular” spouses and children spend on their own, working in different workplaces and building their own life away from parents, respectively. Working and spending time with loved ones blend together, which may result in a classic case of cabin fever. In family firms, stress and the need to solve work-related problems are easily imported to the home environment, thus contaminating the relationships that should normally energise an entrepreneur after a long day at work. Many family business owners have suffered the consequences and seen their marriages break up. While children can usually escape excessive tension relatively easily by leaving the nest, the end of a joint business endeavour between spouses or partners may spell the end of their relationship. Martin Hrdlík Counsel, KPMG Legal firstname.lastname@example.org @MHrdlik
19 © 2016 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.
20 © 2016 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.
”A layperson won’t understand the price of today’s Favorit bicycle“ Richard Galovič, owner of the Favorit company
21 © 2016 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.
In a few years, the Favorit brand will celebrate its 100th anniversary. Were it not for Slovak entrepreneur Richard Galovič, it may not have come even close to this milestone. Years ago, he put the brand back on its feet, or, better said, its wheels and is now dreaming about a Favorit fashion brand and the expansion of Favorit cafés. Text: Richard Valoušek, Photo: Barbora Mráčková
To what extent were you helped by the brand’s popularity in the last century? If we had launched a totally new brand, it could have taken well up to 20 years to achieve any kind of brand awareness with regular communication. Thanks to the well-known brand, we got there in three years. However, it is now so much harder for our product to live up to the spirit of the brand and at the same time meet current day customer demands. Are you fulfilling the dreams of those who wanted to have a Favorit bicycle as children but didn’t get it, or are your customers instead children or grandchildren who know of the bike just from the memories of their parents and grandparents? Our customers span all generations so age does not matter much; although obviously a 14-year old boy won’t be able to afford it. Half a century ago, there was a waiting list for the bicycle and it was unattainable for many, but this has changed now. Do you have collectors buying the bikes? I’m not sure whether they are collectors but a very athletic looking couple let us know that the bicycle they bought perfectly matches their living room’s design. They actually hung it on their wall as a souvenir. But that’s more of a funny story, as we have other customers who cover 600 kilometres per week on their bicycle. Your target group seems to be a very specific one. Maybe at first sight, but in fact it is almost 12% of the population. Our customers are people who know what hard work is and thus appreciate the value of quality. They are leaders who don’t let others lead them. Among them are directors and business owners, successful sportsmen, managers, artists, in short, important personalities. Listening to you, it seems that you’re basically looking for discerning customers for the perfect product. I primarily believe in the absolute sophistication of our new bicycles. They have to perfectly fit the customer to whom we offer a bespoke product. Are these customers very demanding? They have to be as they want a well-working product with convenient maintenance and other related services. Purchase, service, maintenance – they have to have the
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The Favorit brand in numbers 1922 – The first Favorit bicycle is manufactured in Rokycany. 1 000 000 That’s how many Favorit bicycles were manufactured until 1978. 2011 – Richard Galovič buys the Favorit brand. 3 That’s how many different Favorit models the company produces.
best quality, which is something the bicycle industry has not been very good at so far. Concerning bicycle service, any kind development has just about stopped. Where did you seek the inspiration to differentiate yourself from the competition and to be unique on the bicycle market? We did not go too far and stayed on the road as we seek inspiration in the automotive industry. Just think, when you buy a new car no matter at what price, the service is always perfect, with check-ups and whatnot. This is still missing in the bicycle industry and with the Favorit, we want to change this. You’re talking about a very low failure rate. How long did it take until you had a bicycle meeting your expectations in front of you? It wasn’t easy. In fact, it was much more time consuming than I originally expected. Based on my previous experience, I was convinced that the project would take off very quickly and that we would launch our products soon after. In the end, however, the development of the brand took six months, the development of the design another six months, and the technological development took almost two years. Were you always the first one to hold the prototype in your hands? The whole team was involved in the development, they lived for it and watched even the smallest alteration.
“We seek inspiration in the automotive industry and their perfect service.” 23 © 2016 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.
These were years of hard work and detailed adjustments, dealing with the design, technical development, and various manufacturing limits. Everybody was fully involved in the process. However, as soon as we started working on the development, we did not make any radical changes to the designs. At that moment we already had a clearly defined concept and slowly adjusted the technological parameters to it. Not all of us identified themselves with the product from the very beginning, though. It’s like raising a child – you gradually bring it up and it grows on you and you wouldn’t want to trade it for another child. You do speak about the Favorit as if it was your child. How does the rest of the team feel about it? I believe that they are as dedicated as I am. The people around me sacrificed a lot to the brand; they often left stable jobs and risked working on a project with potential but without any real foundation at the time. They followed their dream and it paid off. Without their enthusiasm and faith, the bicycles would not have happened. However, at the very beginning, you dissolved the original project team. Those designers were quite honestly barking up the wrong tree. I really did not get what they were after. When I went to get the first proposals, I asked them: what do you think, how many of these bicycles can we sell? Their answer was 50 bicycles a year. This opened my eyes. It turned out they did not understand how the economy works. We need to sell several thousand bicycles a year to keep the whole process running. Those guys were basically playing around without any clue. With designer Petr Novague we finally hit the bull’s-eye; within 20 minutes he understood our ideas and immediately began drawing. We got the first drafts within a few weeks. How do you like the design of the bicycle? Is it sufficiently in its predecessors’ footsteps from the previous century? To a degree, it is definitely on the same track as its predecessors. Several partners and people close to the company claim that our bicycle resembles its predecessor a lot. On one hand, this was our goal, so that’s great, but on the other hand, a normal person won’t appreciate the advanced technical equipment of the new Favorit and as a result will not fully understand its price. The price is approximately CZK 60,000, isn’t it? Yes. And it is significantly below our costs, but we have to go this way at the beginning. We want to sell a big number of bicycles, several thousands of them. Only then can we play with the price. It needs to be said that the
bicycle’s current manufacturing costs are between TCZK 100 and TCZK 120, whereas its selling price is CZK 59 700. Your product can only be bought on-line. Don’t you lose potential clients as a result? It is similar to car sales where you first want to look at the car and only then buy it. It’s like that in our showroom; people can try out the Favorit bicycles there. At present, you have only one showroom. Are you planning to open more of them? Our plan is to have five showrooms in the Czech Republic and Slovakia. All of these showrooms will include a customer zone, a service shop and a bike rental. We are also planning to sell bags, handbags, clothing, safety gear, and sports and urban fashions. We have yet to set the name of the brand, but its working title is Favorit Fashion. Urban cycling apparel seems to hold a lot of potential. You yourself go to work on bicycle. Did the idea come to you during your regular rides through Prague? I am not sure whether this idea came to me during my rides but they definitely do inspire me. No traffic jams, no being late. On the bike, I am my own master. I like the freedom and being at ease. If you look at the bicycles in front of us, what comes to your mind? I have to smile a bit, as the very first thing that comes to my mind is – they’re absolutely gorgeous. Unfortunately it is very difficult to depict this beauty in photographs. So far we haven’t been able to find a photographer who would depict the bikes to look at least as good as in reality. We often hear people saying: “Oh, they are so gorgeous; they did not look like that in the photograph at all.”
Who is Richard Galovič? He graduated in Applied Mechanics from the Faculty of Mechanical Engineering of the Slovak University of Technology in Bratislava. With his team, Richard has been working on the revival of the legendary Czechoslovak bicycle brand Favorit, aiming to establish its strong position in the market. In the past, he launched singletones.com, a service which connects people sharing the same interests all over the world through activities they like and enjoy. Richard Galovič lives in Prague and is a big fan of cooperation and networking.
Thanks go to Pavilon (Vinohrady) for providing the backdrop for the photoshoot.
24 © 2016 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.
Retro brands are making a comeback A host of Czechoslovak retro brands are riding the nostalgia wave. In recent years comebacks have been made by the Čezeta scooter, the Remoska electric mini-oven, Botas shoes, Pedro chewing gum and Prim watches, to name but a few. As with the Favorit, most of them are shifting towards the luxury goods segment. Text: Anna Batistová
Čezeta After 50 years, the legendary Čezeta scooter, nicknamed the ‘Pig’, is returning to the Czech market. The new model is powered by an electric motor giving the scooter a top speed of almost 100 km/h and a range of 100 km. The vehicles are hand-built in Mirošovice (near Prague) and are based on the design of the original models. Čezeta Motors will deliver 100 scooters to the market this year, with as many as 1,000 units planned to be sold annually five years from now. Potential buyers of the Čezeta 506 may choose from eight colours, including two retro designs. The basic price of the scooter is approximately CZK 270,000 (excluding VAT).
Remoska The Remoska, a small portable electric cooker, has recently marked its 50th anniversary. At the start of the new millennium the benefits of this Czech contrivance – ease of operation, low energy consumption and a long useful life – helped it make its way not only back to Czech kitchens but also to international markets, especially Great Britain (where it was made popular by Lady Milena Grenfell-Baines, aka the ‘Remoska Lady’). The company’s manufacturing plant, located in Frenštát pod Radhoštěm, turns out some 30,000 units a year, of which more than half are exported.
Botas The Czech company Botas has been making its legendary sneakers in Skuteč (a town in the Pardubice region) since 1949. The brand experienced a comeback after receiving a facelift in 2009 from graphic design students Jan Kloss and Jakub Korouš, whose project won first prize at the European Design Awards. The new collection, marketed under the name Botas 66, is a reboot of the original
classic. The students treated the footwear as an icon – they took the well-known, unmistakable shape of the Botas sneaker and worked only on its appearance.
Pedro The character of a sombrero-wearing boy has been associated with Pedro, a popular brand of strawberryflavoured chewing gum, since 1968. Although the brand ran into difficulties after 1989, it is now making a glorious comeback in the Czech market with an extended range of sweets. In addition to bubble gum, the current selection also includes Pedro jellybeans, black liquorice, lollipops, lozenges, chocolate lentils and a sweet mix. The brand now even has its own store at the Letňany Shopping Centre (on the outskirts of Prague), where customers get to choose candy to their liking and pay by its total weight. One hundred grams sell for CZK 10. 90.
Prim Prim, a traditional Czech watch brand, is also enjoying a successful period. The company Elton hodinářská has been manufacturing the famous Czech wristwatches in Nové Město nad Metují since 1949. Last year it increased its turnover by approximately 25%, from CZK 40 to 50 million. Its sales are primarily driven by the Tobruk and Spartak limited-edition mechanical watches. Nowadays, Prim watches are mostly luxury goods, selling at tens of thousands of Czech crowns. About 90 percent of the company’s products are made to order.
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Sustainable good A unique hydroelectric power plant was established near Štětí. Its profits will be used for charity. This project’s several investors want to enhance the value of their money not for their own profit but for a good cause. Text: Zdeněk Mihalco
After the Velvet Revolution, Marek Černocký wanted to start a non-profit project popularising science in the Czech Republic. Occasionally, he would gain some funds but they always dried up very quickly. He kept looking for answers such as: How to assure that sponsors’ donations serve a good cause constantly? How to invest the sponsors’ donations coming in to bring long-term benefit? And how to combine business and charity under one organisation? In 1999, he came up with the idea of filling the space between donors and charitable donations with an investment opportunity into a hydroelectric power plant. He was convinced that he would be able to build a hydroelectric power plant with the full or at least partial help of sponsors. He envisaged not only a functional business and a sustainable energy source but also a sustainable source of money for publicly beneficial purposes.
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Millions from bene-investors As Marek points out, he had no inspiration from abroad and tried to go unexplored ways. First he tried to gain individual donors; companies joined the project only later on. In the end, he obtained donations totalling CZK 71 million from sponsors and philanthropists. “We call these donors “bene-investors”, i.e. people who decide to invest their money into a project which will bring profit not for their own enrichment but to finance publicly beneficial activities,“ explains Marek Černocký, director of Energeia. „The donors understand our way of financing charity. They know that thanks to water energy their one-off donation will become a renewable donation with the perspective of increasing in the future.”
Energeia’s aim is to invest at least 10%, (i.e. CZK 7.1 million) of the overall volume of the donations received into publicly beneficial projects. The amount should increase once the loan is paid off, as in compliance with the law, this type of company must spend all available profit on publicly beneficial activities. „In the first years it will probably be the above mentioned 10% of donations received. However, I believe that the amount will keep growing in the future, “ says Marek Černocký, while pointing out that a lot will depend on nature and hydrological conditions, i.e. the water flow rate.
The power plant in numbers: 31,5 GWh – the average volume of electricity produced by the Štětí small hydroelectric power plant per year CZK 964 million – the power plant’s total construction cost CZK 71 million – the amount of money provided by donors; at least 10 per cent of this amount will go to publicly beneficial purposes each year
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Both the loan and donations helped Donations from sponsors would have by far not been sufficient to cover the construction costs of the power plant as the whole investment amounted to CZK 964 million. Problems came when banks refused to provide a loan for the construction because of Energeia’s status as a public benefit association. In the end, the company initiated its own tender containing the condition that the general contractor would need to fund the construction until a use permit had been issued and would receive payment only once a fully operating power plant had been handed over. A consortium of Metrostav a. s. and Zakládání staveb, a. s. eventually won the tender for the construction of the Štětí small hydroelectric power plant. The project was significantly helped by a subsidy of CZK 250 million from the Ministry of Industry and Trade, which was, however, to become due only after proper pay-off and takeover of the work by Energeia. Hence, immediately after receiving the use permit of the power plant, Energeia needed to draw a loan to pay for the construction. This was the very end of the financing process, ensured for Energeia by KPMG. The key task lay in convincing banks that a public benefit association may indeed own and operate a power plant and obtain a loan for its acquisition (as the direct debtor). The total volume of provided funds came to CZK 871 million and consisted of two parts. The main portion is represented by a long-term loan of CZK 621 million due in 15 years. The outstanding amount of CZK 250 million is covered by a bridging loan provided until the ministry pays out the subsidy. Komerční banka eventually won the tender to finance the construction and Energeia drew the funds from the loan and subsequently paid the construction supplier.
Despite the drought, money is already flowing to charity
What specific projects will the money go to? Energeia is not a foundation and does not distribute the money further. Instead, as a public benefit association, it creates and operates its own projects or co-operates on mutual projects with other organisations. Specific projects include for example the children’s hospice care project operated together with the Klíček Foundation (Nadační fond Klíček). Energeia also organises numerous educational and cultural lectures, supports programmes for senior citizens, co-organises conferences and the Musical Summer Festival in Heřmanův Městec in Eastern Bohemia. As Marek Černocký notes: “I don’t need to be in business for myself. I am happy to have a good and perspective job which satisfies me. Accumulating assets is not meaningful to me. Our motto is “Energy of cognition”. I would like there to be as much of this energy as possible.”
The power plant has already been in operation for one year and it even survived the extreme drought in 2014 without having to decrease the disbursements to publicly beneficial projects. As Marek Černocký emphasises, this was primarily thanks to the “bene-investors” as the invested money does not have to be repaid to a bank but invested in non-profit projects.
Fish have their own crossing Hydroelectricity in and of itself is environmentfriendly. The power plant in Štětí, however, also sports a few above standard details, e.g. protection features for water animals. As part of the power plant’s construction, a unique 70-meter long and 6-meter wide fish crossing was created, consisting of a platform made of boulders and stone thresholds with fissures. The fissures
were projected to enable fish, including e.g. the salmonidae, to safely swim between them. Among the Štětí power plant’s other technical features intended to protect fish are ultrasonic repellents (producing sounds unpleasant to fish) and stroboscopic repellents (giving of light). These devices ensure that fish do not get close to the dangerous area around the turbines.
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Modern CSR is not just about money Social responsibility goes hand in hand with entrepreneurship. And the activities of the major market players are inconceivable without CSR. Responsible firms seek opportunities to efficiently use their own technologies and expertise to resolve social issues. A popular option is to engage employees in non-profit activities. One of the firms setting the trend of modern CSR is IBM.
IBM encourages its employees to take an active part in dealing with issues within their communities. Employees themselves choose the non-profit organisation, the focus and the specific activities they want to get involved in. Often, they become engaged based on their place of residence, their interests, or they monitor the needs of the non-profit sector, taking into account what they can and want to offer or change. IBM also offers community grants. Employees volunteering at non-profit organisations can apply for grants for specific activities. “This year we granted more than 1.5 million Czech crowns,” says Kristina Kosatíková, IBM’s corporate social responsibility manager in the Czech Republic. Voluntary training activities also take on strategic importance – programming for secondary school students, motivation of girls to study technical fields or various types of internships. Technical fields are losing popularity among students and the number of professionals is decreasing. IBM therefore strives to motivate young generations to pursue further studies to make sure it has qualified staff for the future. Radek Hovorka, financial director of IBM’s Czech branch, is one of those who lead by example in volunteering. He actively participated in the Pohovory nanečisto project, intending to re-socialise former inmates, primarily helping them to return to work. The participants received valuable advice on future work interviews from top figures of Czech business. “IBM introduced this activity, as it is in line with our basic values. We are not afraid of unpopular topics; we make an effort to solve them and thus change how they are perceived,” adds Kosatíková. At the same time, IBM fully trusted its non-profit sector partner, the Rubikon centre, which won the National Career Counselling Award for the Pohovory nanečisto project last year. “Taking part in these interviews, I was very much surprised by the number of myths and generalisations concerning this topic. And I also got to adjust my own values,” says Radek Hovorka. Locally, 300 IBM employees actively and regularly participate in voluntary activities, with a major focus on
professional pro-bono activities. “The volunteers often help repeatedly in specific non-profit organisations. They develop a long-term relationship; it is not just a one-time event,” says Kristina Kosatíková. “Thanks to this involvement, the firm receives a more comprehensive and realistic view of society, our clients, our co-workers or of the issues that are being solved. We believe that this approach also leads to smart solutions in information technologies. I admit that this is often associated with higher costs. However, this is clearly reflected in the higher added value of our products and services for our customers,” concludes Radek Hovorka.
IBM provides training. Support of technical education helps the firm, too KPMG – we help with what we do best “Within the communities that we are engaged in we focus on two major goals: we help non-profit companies to make their operations more efficient and support the financial literacy of groups exposed to social exclusion. Professional assistance provides our employees with the opportunity to further develop their technical as well as soft skills.” Ivana Ježková CSR Supervisor, KPMG Česká republika email@example.com www.cestakudrzitelnosti.cz
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A manager’s splashy hobby
Tereza Olivová founded the Surf-trip.cz travel agency at the age of 27, when she was already the director of the well-established Yezede production company. From a young age, she had always wanted to surf but only after graduation did she earn enough money to at least see the ocean she had always dreamt of. “I realised that if I wanted to permanently be near the sea, I would have to work there as well. That’s when we got the idea to start a surfing agency,” says Tereza about her love at first sight. Text: Eva Samšuková
If I had known how demanding it would be to start a travel agency, I would have never done it.
How demanding is it to start a travel agency in the Czech Republic? If I had known in advance how demanding it would be, I would have never done it. I thought that most difficulties I would have to face abroad but the biggest problems were in the Czech Republic. In the first years of our travel agency’s existence, almost every six months we were dealing with somebody telling on us at the revenue office. Plain and simple jealousy was indeed the major problem. And also that we did not know how to surf. During my studies in Rome I met an Italian surfer who helped us a lot with the sports side of the business at the beginning. What type of people go on surfing trips with you? I can’t really give a straight answer to that. We offer packages both for the middle class and for very discerning clients. Our cheapest packages currently sell for CZK 10,000 and the most expensive ones cost five times as much. Our typical client is 27 years old on average, but we also have families with children among our customers or well-earning forty-somethings who don’t want to just sit in a hotel but want to explore a country from another
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side. Most frequently, we have physicians and IT professionals among our clientele. Often, freelancers or people with flexible working hours go and spend a month in our rented house on Bali or in Spain and work from there. What is the strategy of your travel agency? Why do your clients keep coming back? I think that this is mainly because we concentrate on surfing and try to have people spend their time at the ocean actively. We are constantly offering them some kind of programme. Another thing is that we endeavour to rent accommodations and get all other services locally so that our clients are not isolated in holiday resorts but get to spend time with local people. In every destination, we try to adhere to European standards but it is our intention that our clients walk right out into the street from their accommodations rather than just to a swimming pool.
Surf-trip in numbers
You are currently managing two companies, not just Surf-trip but also a production company. Why not just stick to the travel agency? It wouldn’t be possible any other way. I never wanted to be dependent on whether someone decides to buy a trip to Sri Lanka with us or whether we sell a sufficient number of our holiday packages to the Dominican Republic. I still want our employees to see the work in the travel agency as entertainment and a reward instead of work. The magic would be all gone if I could not sleep for fear that I don’t have enough people signed up for tomorrow’s trip to Bali. But since I also have an event agency, I know that we can still live off something while Surf-trip can remain a small travel agency with a friendly approach. At present, we serve approximately 1,500 clients a year and most of them we know personally.
A manager riding the waves
Can you choose your clients? Of course not but if we have ten people on a waiting list for a sold-out trip, then we sometimes give preference to those who we already know. In my opinion, every travel agency prefers repeat customers. We just took a look at the numbers and it turns out that 60% of our clients have travelled with us before. Some of them maybe came to our first camp and now, after ten years, they take their children along. This makes me really happy.
9 years of existence 1,500 clients a year 60% of its clients are repeat customers 8 destinations 5 days – the minimum number of days one needs to spend surfing to learn the basics
Jakub Holec is the director of the 108 AGENCY real estate agency and in his leisure time he participates in the unofficial Czech and Slovak surfing championship in the team category (www.surfchamp.cz), which he and his Plonka Team have already won twice. How did surfing win you over? This hobby is rather unusual in our geographic location. I am a big snowboarding fan; I always try to spend most of the winter in the mountains and will go or climb anywhere where there is good powder snow. Surfing is actually very similar to powder skiing. After high school, my classmates and I went on a road trip around Europe and made it even to Hossegor in the south-west of France. Since then I go there every year – last year was already my 15th time. Exquisite sand beaches, pine woods, and of course the ocean with its waves. Here I have met Martin Černík (our first professional snowboarder, sponsored by Quiksilver) with whom I tried surfing for the first time. We did it with a group of friends and had a great time in the water. When someone caught the wave, the others edged them on and such… simply lots of adrenaline and a bunch of great people. Over the years I’ve met a lot of local people and I can say that we’ve become really good friends. It is great that you always meet some friends on the waves, whatever the season or the spot.
Do you have any favourite locations? All my favourite spots are located on a 20-kilometre stretch of the seashore around Capbreton and Hossegor. It has its advantages because you already know how a specific spot behaves and how it works. Every morning you hit several spots and stay at the one with the best waves. The ocean works in a different way depending on whether it is spring, summer or autumn. In general, the worst season is summer as all locations are crowded and the swell does not have such power.
31 © 2016 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.
european cultural highlights
Cultural highlights for travellers The beginning of a new year is not only the right time for enjoyable skiing trips. It also features numerous cultural events it would be a pity to miss, both in the Czech Republic and abroad. The highlight is, needless to say, London’s celebration of the 400th anniversary of William Shakespeare’s legacy. Text: Anna Batistová
Shakespeare 400 London From January 2016 The Shakespeare400 arts festival, featuring spectacular celebrations of 400 years with the works of William Shakespeare in London will not only offer theatre performances, but also exhibitions, ballets, concerts and operas, as the world-famous English playwright also indelibly inspired the world of music and fine art. Of the hundreds of events to take place in London, let us name for example a concert cycle by the London Philharmonic Orchestra featuring, among other pieces, Dvořák’s Othello Overture at the Royal Festival Hall on 3 February. The orchestra will be conducted by Yannick Nézet-Séguin.
Morricone to open his tour in Prague Prague, Dublin, Antwerp, Budapest, etc. from 15 January 2016 Ennio Morricone, the Italian film music icon, will open his 60 Years of Music World Tour in Prague’s O2 Arena on 15 January. His music from The Hateful Eight, Quentin Tarantino’s new film, will have its live world premiere and visitors will also hear other famous music pieces from Oscar-winning films. The eighty-seven-year-old composer, holding an Oscar for lifetime achievement, will again be accompanied by the Czech National Symphonic Orchestra on the entire tour. After Prague, Morricone will have concerts in Budapest, Bratislava, Dublin, London, Cologne, Antwerp, Amsterdam, Wroclaw, Moscow and Paris.
Writers retell Shakespeare V arious countries including the Czech Republic Throughout 2016 For Shakespeare’s 400th anniversary celebrations, UK publishing house Vintage has come up with the idea to address famous writers throughout the world to retell the playwright’s stories. Czech publishers Práh have also joined in this international project and starting in 2016, will begin publishing the Czech translations of the adaptations of Shakespeare’s works by Howard Jacobson (The Merchant of Venice), Margaret Atwood (The Tempest), Tracy Chevalier (Othello), Gillian Flynn (Hamlet), Joe Nesbø (Macbeth), Anne Tyler (The Taming of the Shrew) and Edward St Aubyn (King Lear). The pilot publication of the cycle, the adaptation of The Winter’s Tale by Jeanette Winterson called The Gap of Time, is already on sale.
Cement Garden in the Švandovo Theatre Prague From 30 January 2016 The year 2016 will see the first performance of McEwan’s Cement Garden (1978) outside of the UK. The author only rarely authorises foreign adaptations of his works but made an exception for the Švandovo Theatre, maybe also because the play will be directed by Dodo Gombár, the theatre’s art director, while Petra Hůlová, one of the foremost Czech middle-generation writers, wrote the Czech adaptation. The weird and shocking story of four orphaned siblings living in a house with an increasingly tense atmosphere will premiere on 30 January.
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european cultural highlights
Iñárritu’s The Revenant Czech cinemas From 14 January 2016 Mexican director Alejandro González Iñárritu arouses passion and enthusiasm among spectators and critics alike. His 2014 movie Birdman won four Oscars. His latest film The Revenant, to which he also wrote the screenplay, will be shown in Czech cinemas from 14 January. The story of explorer Hugh Glass, played by Leonardo di Caprio, was inspired by real-life events. The lead character is injured by a bear in the American wilderness; his friend John (Tom Hardy) abandons him dying and leaves with the rest of the expedition. Hugh, however, is ready to fight…
Rigoletto in La Scala Milan From 13 January to 6 February Where better to see an opera than in Italy? The Teatro alla Scala in Milan, one of the most famous opera houses in the world, invites spectators to a new performance of Verdi’s popular opera Rigoletto. La Scala will stage the opera from 13 January to 6 February. The title character Rigoletto (played by Leo Nucci) will be accompanied by Vittorio Grigolo as the Duke and Nadine Sierra as Gilda. The piece will be directed by Mikko Franck, the music director of the Radio France Philharmonic Orchestra.
Chagall to Malevich Vienna From 26 February 2016 On 26 February, the Viennese gallery Albertina will open its Chagall to Malevich exhibition. As the title suggests, it will feature masterpieces of the Russian fine art avant-garde. Visitors will be able to enjoy over 140 works of art collected from museums and galleries worldwide, including those by Marc Chagall and Kazimir Malevich but also other avantgarde artists such as Wassily Kandinsky, Mikhail Larionov or Natalia Goncharova. The exhibition aiming to document one of the key chapters of 20th century fine art will be open until 26 June.
David Bowie released his 25th CD Swing in the Czech Republic Prague, Liberec, Ostrava, Olomouc, Brno, Pilsen, etc. From 9 to 18 January 2016 The World-famous Glenn Miller Orchestra is coming to the Czech Republic, supposedly for the last time. The orchestra will be on tour from 9 to 18 January and the first performance will be staged in Prague’s Municipal House. Then, the orchestra will play its swing concerts to listeners in Liberec, Hradec Králové, Ostrava, Olomouc, Brno, České Budejovice and Pilsen, where the tour ends. Although the orchestra alters its repertoire every two years, it is always certain to play its most popular pieces, such as In the Mood or Moonlight Serenade.
Various countries including the Czech Republic 8 January 2016 Incredibly, on 8 January, David Bowie brought out his twenty-fifth album in a row, called Blackstar. The new CD also contains the single of the same name, introduced by the UK singer at the end of last year. David Bowie, truly a pioneer of new music trends, considered the new CD a gift for his 69th birthday. The music icon celebrated his comeback in 2013 when, after more than ten years of inactivity, he issued the successful The Next Day CD.
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A recipe for business success: working shareholders He is the chairman of the board of directors at RSJ, a shareholder of DOX and involved in several nonprofit organisations. Besides that, he co-owns Prague’s Vinograf wine bars and Field restaurant. “Both of these projects are my subsidiary business activities, and the amount of profit is not that crucial,” Libor Winkler says about his gastronomy investment concept. How does a science graduate, formerly into programming and stock exchange trading, come into his own restaurant? Text: Eva Samšuková, Photo: Jindřich Kodíček
Which of all these projects is the closest to your heart? What we do at RSJ, i.e. financial markets and investment projects as such, is still closest to my heart. That’s my main business and we always try to invest in fascinating projects with added value.
Winkler’s kingdom Vinograf: Míšeňská 8, Prague 1 Senovážné nám. 23, Prague 1 Radlická 1C, Prague 5
When did you become fascinated by gastronomy? For me, the key gastronomic impulse was wine. I’ve always found it appealing, maybe because in the 1990 s I used to work in South Moravia where I met small winemakers. I became co-owner of the Dobrá vinice vineyards and gradually became involved in the Vinograf project. It all started with the Vinograf Míšenská where, together with sommelier Klára Kollárová and Honza Hořešovský, we began to focus on Moravian wines. And because the concept was a success and we had people coming in, we opened one Vinograf at Senovážné náměstí in Prague, and last April another one near the Anděl metro station. We would like to have about five Vinografs in Prague in the future.
rienced architect Václav Červenka who helped us with the realisation of our concept. Other than that, we did not interfere in the professionals’ business. Of course, I keep track of what’s going on but the shareholding agenda is the responsibility of one of my RSJ co-workers.
When you started dabbling in wine, was it more of a hobby or did you start doing it to make some profit? The truth is that I’ve never wanted to be involved in these projects just as a hobby or as charity; but I don’t see them as part of my main business and profit is neither the key nor foremost aspect. Nevertheless, in the long run we do want to breakeven. By that I mean that those directly engaged in the project can make decent living of it. And what’s more – investors will be happy to support a quality product they don’t not need to subsidise. To what degree were you engaged in the creation of the Field restaurant concept? Did you intervene into its design or are you merely an investor? All in all, Field has five co-owners – three shareholders from RSJ, i.e. Michal Šaňák, Martin Ducháček and me, Radek Kašpárek who is in charge of the kitchen, and Miroslav Nosek, who runs the restaurant. We were all involved in the project from the very beginning. Through DOX and Leoš Válka I got in touch with expe-
Field: U Milosrdných 12, Prague 1 Dobrá vinice: Do Říčan 592, Prague 9
Within several months, Field not only managed to breakeven but in fact has generated profit. What’s your recipe for such a success? We were warned by many that restaurants as well as start-up risk factors are plenty. None of that has proven true, however. The restaurant found its clientele quite quickly, which was surprising to us. We expected it to be successful in the long run but we had no idea it would be so fast. Maybe the timing was right and we were lucky. Be that as it may, I mainly believe in a concept where the people who create the project and are crucial to its success are at the same time also its shareholders. That’s how it works in my parent company as well as in the Vinografs. Launching Field and maintaining its high quality was extremely tough in the beginning and I don’t think that hired people would have been able to cope. That’s why Radek Kašpárek and Mirek Nosek are co-owners. In the Czech Republic, business shares are usually distributed depending on performance. How did you come up with the idea to do it the other way around? This is my life philosophy and also the principle that RSJ is based on. I call it the “working shareholders” concept, who of course do not necessarily have to own 100 %. When you are building something from scratch, I find this working shareholder concept to be most beneficial.
34 © 2016 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.
“Working in services is complicated and demanding. One of the key aspects is a properly motivated team of people attending to customers.”
35 © 2016 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.
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THE CUSTOMER OF THE FUTURE Top managers’ forecasts for the Czech economy in 2016 • Retro brands rule the luxury market The story of a power plant producing good • The Achilles’ heels of family businesses A magazine for clients and friends of KPMG Czech Republic
PF 2016 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 The KPMG name and logo are registered trademarks or trademarks of KPMG International. © 2016 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.
A magazine for clients and friends of KPMG Czech Republic