Invest

Digital Transformation & Trust in the Investment Industry

7 March, 2019
  • Beverley Sharp

    Strategy Leader - Investment Research, Mercer United Kingdom

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“Investment firms should embrace the emergence of AI and smart technologies to explore new terrain and chart competitive landscapes.”

The impact of technology on today’s world has many confused and frustrated. They struggle to determine what information is real or fake, helpful or harmful. The investment industry is not immune to the digital transformation that is impacting how people view themselves, their money and their futures. CIOs need to recognize these changes and determine how to leverage the evolution of technology as it reverberates throughout the industry, and the world.

Hype vs. Reality: The Truth Is In The Middle

Much of the hype around Artificial Intelligence (AI) and digital transformation has centered on how technology and machines will replace employees in every industry, including the investment industry. AI is revolutionizing the process of interpreting valuations through the instant and comprehensive analysis of financial data and transactions, and stakeholder sentiments expressed across the Internet. AI offers new insights into unstructured data, financial behavior models and market volatility. However, the human element is still critical. As CIOs know, it is impossible to predict the future with 100% accuracy, but a mindful examination of data and research helps provide a sense of control of the unknown. The value of any security or asset is based partly on human perception. An investment team still needs to assess all of the information and data to make strategic, and very human, decisions on how to move forward.

Advances in FinTech are benefitting CIOs and their teams in meaningful ways. For example, advanced data and analytical capabilities give them more detailed and enhanced risk dashboards, placing actionable information at their fingertips. FinTech’s insightful diagnostics also help them better understand how strategies are run and how to clearly delineate between luck and skill. But it’s still very much a qualitative game.

FinTech is also significantly impacting the role of the consumer, as apps and other technology platforms offer them more control over their financial objectives and strategies. This is a positive development because when consumers pay more attention to their investment goals, everyone benefits. Currently, the speculation over advanced technologies dominating the industry has not come to fruition—and, like many emotionally-charged debates, the truth is usually somewhere in the middle.

Robo-advisors Streamline Relationships

Robo-systems and automation are helping firms streamline once bloated processes so client information is easier to access and contextualize. Many financial advisors have incorporated robo-advice into their services, providing clients with varying tiers of human interaction. From no-touch to high-touch, these different levels of interaction offer clients a menu of options to accommodate their desire to work with, or without, a live financial advisor. Robo-advisors and other technological advances will disrupt aspects of the industry, but also help financial advisors be more productive and valuable—for example, by leveraging technology that focuses on how advice is delivered to clients rather than how it is formulated. Yet, at the end of the day, many clients are still human beings who wish to speak with a human advisor before making a decision that will impact their and their family’s financial futures.

Blockchain and Rebuilding Trust

Mercer’s Healthy, Wealthy, and Work-wise report —conducted across 12 countries— examined who people trusted the most. At the high end were family, friends and employers. At the low end were financial intermediaries, banks and insurance companies. This is an issue for investment firms and the industry as a whole. After the global economic meltdown and the Great Recession, people simply stopped trusting the financial community. Many who have been burned by the industry (or know someone who has), tend to leave their money in minimal interest-bearing bank accounts, stuffed under their mattresses or buried in places far from the possible benefits of high-quality investing advice.

Cue blockchain. Blockchain technology is a game changer for the investment community and its low trust metrics. Blockchain provides investors and clients with an immutable and secure digital record of financial transactions. Investors are attracted to the prioritization of transparency after an era of intentionally confusing finance structures—such as tranches and the bundling of subprime mortgages—left the world in a tailspin. For an industry that has struggled to build trust with clients and the public, blockchain offers a new age of accountability and means of building profitable relationships.

As in other industries, clients and consumers are going online and taking control of the narrative. Businesses are being publicly held accountable for every decision and interaction. This increasing level of transparency will continue to be a compelling motivator for investment professionals and firms to provide the best services and results possible. This greater level of transparency, in truth, may be how the financial industry rebuilds lost trust with the public. 

Individuals Taking Control

Mercer—alongside other money managers and investment advisors—believes that governments, plan sponsors, financial intermediaries, and the industry in general, have a responsibility to help individuals recognize “What good looks like” regarding financial advice and investment products. So, as a service to the investment industry and to promote trust, in multiple markets including Singapore and Hong Kong, Mercer launched Mercer FundWatch.com to accomplish two goals:

(1)   Provide a rating system for funds that are available to individual investors. This enables investors and their financial advisors to compare funds according to their ratings. These ratings are based on deep-dive, qualitative investment due diligence.

(2)   Give financial intermediaries that use the site—as an input to their recommendation process for clients—the opportunity to be featured on Mercer FundWatch.com. If an individual investor or financial advisor is looking for a high-quality entity to transact with, they can easily find and access a list of intermediaries using this credible due diligence in their process.   

Digital transformation is here and accelerating at an exponential rate throughout the world. The possibilities are limitless. Investment firms should embrace the emergence of AI and smart technologies to explore new terrain and chart competitive landscapes. The evolution of technology is forever changing the industry, client expectations and how human beings relate to their money, themselves and their investments.

 

more in invest

Sean Daykin | 13 Jun 2019

Private equity (PE) is becoming increasingly important in the Gulf Co-operation Council (GCC) in light of recent intensified economic diversification and development efforts. It is emerging as a relatively new asset class in the region, with interest in "growth capital" rather than the more traditional "buy out" PE has seen in the developed markets of the UAE and Western Europe, in which fund managers take a majority stake. Indeed, venture capital (VC) has seen a surge of fundraising following the success of the region's VC unicorns, such as Careem, and the purchase of Souq.com by Amazon. Private equity can play an important role in driving economic growth. Factors, like the region's increasing wealth, recent important economic reforms and regional governments' strong initiatives to strengthen local entrepreneurship and promote small to medium-sized enterprises, make it highly attractive for PE investments. Governments in the region are attempting to foster further growth in VC by creating incubators and regional hubs with reduced regulations to encourage entrepreneurs to set up in the region. These efforts will ultimately drive sustainable economic growth, greater prosperity, and more highly skilled jobs. However, following the highly publicized case of Abraaj Group,1 the industry is calling for more robust corporate governance in the region. Local PE managers are facing far greater scrutiny as investors are starting to pay more attention to how their funds are handled. Regional investors are asking for a better understanding in gauging the performance of private markets. Buyers and investors want to base their decisions to enter the PE market on proven and tested information, considering factors like past performance and doing their due diligence on investment and operations. While measuring the absolute and relative performance of private markets is critical, it is significantly nuanced. As "value creation" is an important aspect in the private equity story, measurement should be not only accurate but also meaningful. As with all investments, evaluating past performance is always a factor when deciding whether or not to include private equity within the overall asset allocation of a portfolio. However, PE investors must look deeper to determine a Fund's true performance, through rigorous due diligence. A combination of metrics and qualitative measures are important for providing a holistic understanding of the Fund's track record and its future performance potential. In terms of quantitative metrics, the three most commonly used ones are Internal Rate of Return (IRR), Total Value to Paid (TVPI) ratio and Distributed to Paid-In (DPI) ratio. IRR is the most widely cited metric for measuring the performance of a private market investment. This is a time-based measurement which takes into account the investment made and acquired over a period of time. The longer an investment takes to mature (or sell at a given price), the more a given annualized IRR will fall. The second measure, TVPI, considers the total of how much value is received from investments (through dividends and a sale at the end), compared to the initial investment made. The final measure is the DPI ratio, which measures how much of the initial capital is returned (through dividends or other payments) compared to how much was invested initially. DPI is a barometer of realized value, not total value. All three of these metrics play an important role in helping investors evaluate a private equity fund's historical performance. While there is no single answer for comprehensively and accurately assessing the performance of a private equity fund, these metrics when employed together can help get a better understanding of it. Gauging past performance of a fund doesn't tell you much about the performance of the next private equity fund. These commitments have a long life, and it is, therefore, necessary to consider other investment related factors. They could include the stability of the investment team, looking at how the investment team sources deals or how they create value at their portfolio companies. Following the Abraaj case, assessing managers and back office operations have become an essential measure of due diligence. Effective internal controls, strong systems and a well-staffed operations team are also critical for a private equity fund to succeed. Measuring private market performance is certainly more complicated than measuring public market performance. It requires a clear view of relevant metrics and methodologies, is informed through multiple perspectives and demands specificity of analysis. Additionally, it can be subjective, prone to manipulation and ultimately represents an imperfect assessment of the success of a private market investment. However, private market performance measurement is likely to continue to evolve, thereby improving its current shortcomings. The key for investors is to identify investment talent who can generate strong investment sustainably over time. While past performance is useful in evaluating a managers' historical track record, it won't guarantee future results. Hence, an investor needs to undertake deep "qualitative" investment with operational due diligence together to assess the likelihood of future investment success. To learn more about how Mercer can help you with your investment strategies, click here. 1Ramady, Mohamed, "Abraaj Capital: The Rise and Fall of a Middle East Star," Al Arabiya, July 3, 2018,https://english.alarabiya.net/en/views/news/middle-east/2018/07/03/Abraaj-Capital-The-rise-and-fall-of-a-Middle-East-star.html#.

John Benfield | 16 May 2019

Times are changing. The world is moving toward an ethical, long-term sustainable way of investing. Forward-looking governments are increasingly emphasizing the role of financial markets in fostering sustainable development. Investor demand for responsible investment (RI) solutions has increased significantly, as observed by the growth of assets being allocated to RI-related investments. Combined with the shift toward low-cost equity index tracking, this has led to an increase in the number of RI indices that are now available. We expect RI indices to become an important first step in integrating environmental, social and corporate governance (ESG) considerations for many investors with existing passive or factor-based investments. At Mercer, we define Responsible Investment as the integration of ESG factors into investment management processes and ownership practices in the belief that these factors can have a material impact on financial performance. Meanwhile, in the GCC region, with efforts to diversify the economy, governments are gaining awareness around the importance of responsible investing. The GCC makes up four of the six Sovereign Wealth Funds (SWF), which founded the One Planet SWF Working Group in December 2017 at the occasion of the "One Planet Summit" in Paris. Within the UAE itself, numerous initiatives — such as The Green Economy for Sustainable Development and Green Agenda — are propelling the country into the future of responsible investing. In keeping with the diversification strategy, these initiatives support Vision 2030 by aligning with the nation's economic growth ambitions and environmental sustainability goals. Abu Dhabi is contributing to the agenda in a major way through various developments, such as Masdar City — a multi-billion dollar green energy project.1 Meanwhile, Dubai set up an energy and environment park called Enpark — a Free Zone for clean energy and environmental technology companies.2 As the business case for responsible investing gets stronger in the GCC, there is a growing demand for incorporating ESG factors or sustainability themes into investment decisions and processes. Institutions are factoring the benefits of responsible investing, not only to their investments but also to their reputation and bottom line. Sustainable investing offers attractive opportunities to tap into the growth potential of companies providing solutions to various challenges of resource scarcity, demographic changes and changes in the evolving policy responses to a range of environmental and social issues. Studies and industry evidence have shown the benefits of integrating ESG factors on the company's long-term performance. For example, Deutsche Bank reviewed more than 100 academic studies in 2012 and concluded that companies with higher ESG ratings had a lower cost of capital in terms of debt and equity. Another study in 2015 by Hsu (Professor at the National Taichung University of Science and Technology, Taiwan) and Cheng (Professor at the National Chung Hsing University, Taiwan) found that socially responsible firms perform better in terms of credit ratings and have lower credit risk.3 With companies operating against the setting of public concerns around environmental and social issues, incorporating ESG considerations is now also considered best practice. Employees increasingly want to work for and invest in companies that make a positive environmental impact. Global initiatives and bodies, such as the CFA Institute, have highlighted the financial and reputational risks of not taking ESG considerations into account. While the GCC is beginning to understand the benefits of applying ESG, the region hasn't been too far from its concept. Sharia-compliant investing has been around for the last two decades. Both frameworks apply the negative screening approach and seek investments which provide a sustainable return. With the combination of ESG factors and Sharia screening, Islamic investors can improve investment performance while meeting social and environmental goals at the same time. As the UAE is now focusing on diversifying its investments, it can highly benefit from creating a responsible investing market and culture where strategy and processes go hand-in-hand as important steps for successful integration. When seeking sustainable growth, an additional layer of insight and oversight is extremely crucial to mitigate emerging risks, like climate change. To that end, implementing ESG assessments will help set clear KPIs and identify where and how projects generate value and mitigate risks associated with them. For example, Mercer applies an Investment Framework for Sustainable Growth with its clients, which distinguishes between the financial implications (risks) associated with environmental, social and corporate governance factors and the growth opportunities in industries most directly affected by sustainability issues. Measuring impact and mitigating risks has become increasingly important and represents a strong investment governance process. The benefits of adopting ESG are numerous. While the GCC has started with the implementation of ESG principles, more work still needs to be done in making sure governments are fully engaged with stakeholders, including investors, and strategies are aligned across the region. Regulatory pressures to meet global standards of ESG integration will only increase in the coming years. Instead of hiding from it, it is time for companies, investors and governments to come together and define a way of working that moves the GCC forward in terms of responsible investing and sustainable growth. 1Carvalho, Stanley, "Abu Dhabi To Invest $15 Billion in Green Energy," Reuters, January 21, 2008, https://www.reuters.com/article/environment-emirates-energy-green-dc/abu-dhabi-to-invest-15-billion-in-green-energy-idUSL2131306920080121 2Energy and Environment Park:Setup Your Company In Enpark, UAE Freezone Setup, https://www.uaefreezonesetup.com/enpark-freezone 3Chen, Yu-Cheng and Hsu, Feng Jui, "Is a Firm's Financial Risk Associated With Corporate Social Responsibility?"Emerald City, 2015, https://www.emeraldinsight.com/doi/abs/10.1108/MD-02-2015-0047

Damien Balmet | 09 May 2019

Sovereign wealth funds (SWF) adopt differing mandates based on a country’s macroeconomic profile and the government’s priorities. Saving for future generations – as is the case with the Abu Dhabi Investment Authority (ADIA) or the Kuwait Investment Authority (KIA) – is the widely adopted mandate. But more recently, governments have begun to leverage their funds to transform their economies by adding an economic development component to their fund’s mandate. Consider the Kingdom of Saudi Arabia’s Public Investment Fund (PIF), which has identified several economic development initiatives under its ‘Public Investment Fund Program 2018-2020’, prioritizing maximising the value of PIF’s investments in Saudi companies; launching and developing new sectors; developing real estate and infrastructure projects and companies; and undertaking giga-project initiatives (developments costing more than $10 billion). One reason why countries establish sovereign wealth funds is to both professionalise and institutionalise the way the sovereign invests and manages its wealth. With this in mind, the combination of a strong governance framework and a highly experienced investment team are integral for success. When pursuing an economic development agenda, sovereign wealth fund investment professionals have a complex dual role to fulfil: Not only are they instructed to look after and transform the existing portfolio, but they are also tasked with identifying, initiating and leading new investment opportunities. Transforming a direct investment portfolio occurs through various initiatives aimed at improving the performance of the portfolio companies or monetising some of them. To improve performance, the critical first task is to implement best-in-class governance, often requiring the training or replacement of directors representing the sovereign wealth fund on the boards of portfolio companies. In turn, boards become more business savvy and gain more clarity on shareholders’ expectations, putting them in a stronger position to fulfil their fiduciary duties. When the situation requires drastic actions (for example, when a direct investment operates at a significant loss), the fund needs to swiftly engage an external advisor to identify strategic options, then supervise the implementation of the selected strategy. Such drastic actions can be expedited when the sovereign wealth fund owns 100 percent of the company or has the majority control of the board. Portfolio transformation also occurs when the sovereign wealth fund decides to monetise one of its portfolio companies. This can occur for various reasons, such as the need for cash to re-invest into more promising opportunities, or the need to eliminate excessive downside risk. In the Middle East, the sale of a state asset often requires an intermediary step consisting of corporatising the entity. This process aims to transform state assets or government agencies into corporations with a legal structure and financial statements for the last three or five years. Going through this process is usually the first step towards a sale or an Initial Public Offering (IPO). When it comes to new investment projects, sovereign wealth funds can operate in a structured approach. New viable investment opportunities need to be built on a detailed understanding of the economic sectors and strengths of a country. Once a sector or opportunity of interest has been identified, a more in-depth study should be performed to confirm the opportunity, its profitability, landscape of potential partners, risks, and employment potential of the project. A compelling example is the concept for a downstream aluminum cluster pursued in Bahrain by its sovereign wealth fund, Mumtalakat. One of its portfolio companies, Aluminum Bahrain (Alba), is currently building a sixth smelter line that will add 500,000 metric tonnes of aluminum per year, starting in 2019. In parallel, Mumtalakat is teaming up and co-investing with international partners to create joint ventures in Bahrain that will utilise this additional capacity while creating 2,000 new employment opportunities. By developing a strong understanding of attractive sectors in a country or a region, sovereign wealth funds should be in a position to quickly form an opinion on an opportunity. If an established player from overseas or an adjacent country has a compelling business case for expanding in the Middle East or in the country of a SWF, then the SWF should engage with the potential partner to further assess the opportunity. Funds with an economic development agenda represent a great opportunity to accelerate the development of their economy. Some African countries such as Angola (Fundo Soberano de Angola - 2012)1 and Nigeria (Nigeria Sovereign Investment Authority - 2012)2 set up their sovereign wealth funds over the last decade and both have developmental components in their mandates. Egypt passed a law in May 2018 to establish its own fund3. One of the contemplated objectives for this fund is to manage state companies ahead of listing on a stock exchange. The PIF in KSA has a huge task ahead of itself as it is expected to play a major role in the stimulation of the Saudi Arabian economy. The large and rapidly growing value of assets managed by sovereign wealth funds as well as the leadership expected of them in their countries’ economic transformation agendas is placing them in the public spotlight. It does not come as a surprise that citizens want to know how their public funds are being employed to their benefit. In developed countries, governments have traditionally focused on the regulatory aspect of an industry and then let the private sector flourish. On the contrary, in the Middle East and other developing countries, significant industries have often emerged from the will of the government. Sovereign wealth funds can be an effective tool to make this happen. To learn more click, here. 1International Forum Of Sovereign Wealth Funds https://www.ifswf.org/assessment/angola 2International Forum Of Sovereign Wealth Funds https://www.ifswf.org/assessment/nigeria. 3Egypt Plans Sovereign Wealth Fund-of A Kind https://www.gfmag.com/magazine/may-2018/egypt-swf

More from Voice on Growth

Sean Daykin | 13 Jun 2019

Private equity (PE) is becoming increasingly important in the Gulf Co-operation Council (GCC) in light of recent intensified economic diversification and development efforts. It is emerging as a relatively new asset class in the region, with interest in "growth capital" rather than the more traditional "buy out" PE has seen in the developed markets of the UAE and Western Europe, in which fund managers take a majority stake. Indeed, venture capital (VC) has seen a surge of fundraising following the success of the region's VC unicorns, such as Careem, and the purchase of Souq.com by Amazon. Private equity can play an important role in driving economic growth. Factors, like the region's increasing wealth, recent important economic reforms and regional governments' strong initiatives to strengthen local entrepreneurship and promote small to medium-sized enterprises, make it highly attractive for PE investments. Governments in the region are attempting to foster further growth in VC by creating incubators and regional hubs with reduced regulations to encourage entrepreneurs to set up in the region. These efforts will ultimately drive sustainable economic growth, greater prosperity, and more highly skilled jobs. However, following the highly publicized case of Abraaj Group,1 the industry is calling for more robust corporate governance in the region. Local PE managers are facing far greater scrutiny as investors are starting to pay more attention to how their funds are handled. Regional investors are asking for a better understanding in gauging the performance of private markets. Buyers and investors want to base their decisions to enter the PE market on proven and tested information, considering factors like past performance and doing their due diligence on investment and operations. While measuring the absolute and relative performance of private markets is critical, it is significantly nuanced. As "value creation" is an important aspect in the private equity story, measurement should be not only accurate but also meaningful. As with all investments, evaluating past performance is always a factor when deciding whether or not to include private equity within the overall asset allocation of a portfolio. However, PE investors must look deeper to determine a Fund's true performance, through rigorous due diligence. A combination of metrics and qualitative measures are important for providing a holistic understanding of the Fund's track record and its future performance potential. In terms of quantitative metrics, the three most commonly used ones are Internal Rate of Return (IRR), Total Value to Paid (TVPI) ratio and Distributed to Paid-In (DPI) ratio. IRR is the most widely cited metric for measuring the performance of a private market investment. This is a time-based measurement which takes into account the investment made and acquired over a period of time. The longer an investment takes to mature (or sell at a given price), the more a given annualized IRR will fall. The second measure, TVPI, considers the total of how much value is received from investments (through dividends and a sale at the end), compared to the initial investment made. The final measure is the DPI ratio, which measures how much of the initial capital is returned (through dividends or other payments) compared to how much was invested initially. DPI is a barometer of realized value, not total value. All three of these metrics play an important role in helping investors evaluate a private equity fund's historical performance. While there is no single answer for comprehensively and accurately assessing the performance of a private equity fund, these metrics when employed together can help get a better understanding of it. Gauging past performance of a fund doesn't tell you much about the performance of the next private equity fund. These commitments have a long life, and it is, therefore, necessary to consider other investment related factors. They could include the stability of the investment team, looking at how the investment team sources deals or how they create value at their portfolio companies. Following the Abraaj case, assessing managers and back office operations have become an essential measure of due diligence. Effective internal controls, strong systems and a well-staffed operations team are also critical for a private equity fund to succeed. Measuring private market performance is certainly more complicated than measuring public market performance. It requires a clear view of relevant metrics and methodologies, is informed through multiple perspectives and demands specificity of analysis. Additionally, it can be subjective, prone to manipulation and ultimately represents an imperfect assessment of the success of a private market investment. However, private market performance measurement is likely to continue to evolve, thereby improving its current shortcomings. The key for investors is to identify investment talent who can generate strong investment sustainably over time. While past performance is useful in evaluating a managers' historical track record, it won't guarantee future results. Hence, an investor needs to undertake deep "qualitative" investment with operational due diligence together to assess the likelihood of future investment success. To learn more about how Mercer can help you with your investment strategies, click here. 1Ramady, Mohamed, "Abraaj Capital: The Rise and Fall of a Middle East Star," Al Arabiya, July 3, 2018,https://english.alarabiya.net/en/views/news/middle-east/2018/07/03/Abraaj-Capital-The-rise-and-fall-of-a-Middle-East-star.html#.

Siddhartha Gupta | 13 Jun 2019

Talent acquisition is one of the biggest challenges organizations face, according to Mercer–Mettl's State of Talent Acquisition 2019 annual report. With technological innovations sweeping the market and more emphasis being placed on skill evaluation, talent assessment is no less than a marathon to grab high potential talent before competitors. Also, as the hiring process continues to evolve from newspaper ads to social recruiting, the next industry wave is automated recruitment. Organizations have started drifting away from manual hiring to technology driven processes. Here are three ways technology is changing the talent landscape for the better. 1. Technology Can Boost Employer Brand Values   To attract and retain top-quality talent in 2019 and beyond, building a strong employer brand should be a priority of every employer. With more organizations striving to create better workplaces and spend more to drive employee engagement, your brand must create a positive buzz in the market. A leading LinkedIn Report also suggests that 75% of candidates factor employee branding before joining an organization.1 A positive employee brand can help you attract quality talent, retain them and close multiple requisitions on autopilot through referrals. Such is the power of employee branding. How can technology make a difference here? State-of-the-art tools, applications and solutions can make a huge difference. Be it a smart career site, robust social media presence or a Candidate Relationship Management (CRM) system, technology can assist organizations in achieving a more refined branding strategy — and bringing in all the benefits that come with it. 2. Technology Can Improve the Candidate Experience   When candidates have multiple jobs to choose from, you have to give them a pretty good reason to join your organization, which should be different than a fat paycheck. Providing a gratifying candidate experience can do the job. The recruitment process is broadly classified into three stages: Sourcing, Screening & Selection, and Onboarding. Your job is to provide a seamless and hassle-free experience in each of these stages, so that the candidate thinks, "This organization has a nicely structured recruitment process. It must be a good place to work." And, you're all set! On the other hand, if there are roadblocks in any of these stages or if candidates get the impression that your recruitment process is haywire, they might look for a better fit elsewhere. Thanks to recruitment technology, there are plenty of options you can exercise to provide a great candidate experience. 3. Technology Can Enhance Talent Pool Quality   Previously, organizations did not have any standard procedures for evaluation and recruitment. They largely resorted to newspaper ads, walk-ins, unstructured face-to-face interviews or even pen-and-paper tests to fill vacancies. However, with time, they realized that these methods came with drawbacks. Traditional methods of recruitment were long, complex and biased. They failed in assessing candidates' soft skills or in understanding their weaknesses, since HR did not have any concrete data or framework to base their screening questions on. This ultimately increased candidate back-out and early attrition rates, leaving employers in a dilemma.      Such an unstructured process has given rise to online assessments that now help in shortlisting candidates ideal for a job role, based on the skills they possess. Additionally, these pre-screening tests also predict a new hire's on-the-job performance and retainability. With top talent typically available in the market for 10 days, on average, companies are increasingly making their talent acquisition process more practical, time-saving and interesting to attract talented candidates. According to the Mercer-Mettl report, 53% of organizations use competency-based interviews and 40% of organizations use video interviews for hiring top talent. New-age recruitment methods not only increase candidate engagement but also improve quality of hires. In 2017, the use of assessments in the IT/ES industry shot up by 132%, while the Banking Finance Services and Insurance (BFSI) industry experienced an increased assessment usage of 217%. The adoption of technology for hiring indicates the effectiveness of new-age methods. The tools collect inputs from candidates and compile responses to provide a final report which highlights the positives, negatives and areas in need of improvement. The data-backed results ultimately provide a boost to the employer brand value, improve candidate experience, enhance talent pool quality and help to carry out bulk, as well as niche, hiring in a seamless manner. 1"The Ultimate List of Employer Brand Statistics," LinkedIn Talent Solutions,https://business.linkedin.com/content/dam/business/talent-solutions/global/en_us/c/pdfs/ultimate-list-of-employer-brand-stats.pdf.

Mustafa Faizani | 30 May 2019

There is no doubt that family businesses are prominent across the Gulf Co-operation Council (GCC) in various industries. From small to renowned multinational corporations, family owned and managed companies are the foundation of the modern country. Many of these businesses have been in existence for five decades and still exist today. As the first-generation of individuals begin to step down, we're seeing a shift to second and third generation ownership. It is estimated that, in the Middle East, approximately $1 trillion in assets will be transferred to the next generation of family owned companies over the next decade.1 The transition from the first to the second generation, and increasingly, the second to third generation, will have tremendous implications on the sustainability and growth of these companies. As a result, legacy and succession planning are becoming an increasing concern for the region, as many businesses stand in a position to pass the baton over to the next generation. While existing leaders prefer to keep the business within the family, there are many challenges that can arise if there is no preparation done well in advance of the transition. This lack of preparation is common, as it's easy for leaders to be so involved in the day-to-day running of the business that they lose sight of longer-term, more strategic priorities. The penalty for failing to tackle leadership or ownership changes can be significant. Lack of a clear, strategic succession plan can cause disruption, conflict and uncertainty within the business, making it vulnerable to an acquisition or takeover. The long-term survival of a business and the preservation of the wealth that has been built, will likely depend on getting ahead of those changes through legacy and succession planning. Have a Strong Internal Talent Strategy   Planning can have many benefits. The priority is to ensure leadership continuity, which is an important factor in keeping employees engaged and ensuring retention. It also allows time to hire internal candidates for key positions, therefore avoiding the cost of external searches. Internal candidates know the organization better and tend to have a better chance of success than external hires. Additionally, promoting internally helps retain good people, because they see opportunities for growth and will stay on to pursue them. A strong talent strategy can also fill leadership positions quickly, not only avoiding the potential cost of unfilled positions and errors from a lack of leadership, but helping to circumvent legal consequences from potential missteps. Evaluate Your Operating Structure and Execute in Phases   Leaders often first look at the current reporting structure and organizational chart to evaluate who the next leader(s) may be. However, it is also important to think of an organization's operating structure and how it may change over time. Leaders must consider how functional activities will evolve as the business grows, while also looking at the experience of the shareholders during this significant change. These factors need to be reviewed before selecting the people who will take over the function. As part of this process, it's critical that succession planning is done in phases. Firstly, it is important to identify the roles critical to the business and the pool of successors that best fit the organization's requirements. Ensuring the right assessments to determine readiness levels can solidify the next generation of company leadership. Multiple assessments methods are suitable, including looking at historical measures of performance, 360 leadership behaviors tests and predictive measures of potential. Involve Executive Leadership   Lastly, executive leadership involvement is essential in the succession planning process. The organization's top leaders should be fully on board with the plan to bring in the next generation and meet frequently to discuss strategic talent management issues. The ultimate results of a business succession plan depend on the adherence and commitment to it from the organization. It requires a high level of engagement and continuous efforts to keep the succession moving forward over time, despite inevitable interruptions of operational needs and unexpected changes. To learn more about succession planning for family businesses, visit us here. 1Augustine, Babu, "Middle East's Family Businesses Get Serious on Sustainability" Gulf News, November 7, 2015,https://gulfnews.com/how-to/your-money/middle-easts-family-businesses-get-serious-on-sustainability-1.1614502.

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