Nonlinear Thinking

Things I Wanna Know

As we make a mad dash thru 2009, trying to survive, maybe thrive, while wondering if the world we grew up in will return in any semblance of it’s prior self, I gotta lot of things on my mind, such as:

• At what point will McDonald’s and Starbuck’s become competitively undifferentiated and, essentially, interchangeable? 

• Do any of the traditional advertising agencies have a chance for survival in the world of Web 3.0/4.0? 

• Is the great suburban experiment really over? 

• Are the strategic concepts of “white space” and “blue oceans” interchangeable? 

• When will Wagamama come to my town? 

• Do we have the capacity, both socially and economically, to take care of the many disenfranchised individuals that now face a challenge they never expected? 

• Is “capital is scarce” ever a good reason to put innovation on the back burner? (I believe the correct answer is “no”) 

• Who will be the last print daily newspaper standing? 

• Where do I go to cure my addiction to Alltop? (If you haven’t visited it, I’m warning you!) 

• What is the revenue model that will make Twitter more than a passing fancy?  And how can it not include advertising? 

• What will the drought in Napa/Sonoma do to cabernet/pinot noir/chardonnay affordability? 

• Has adding to your LinkedIn network now devolved into a digital age parlor game?  

• No offense, but, why do we need this?
  

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International Financial Reporting Standards (IFRS)

I don’t hear very much discussion in the broader market about the International Financial Reporting Standards (IFRS) initiative that has taken hold globally.  That is surprising because on the following:

1. The SEC is leaning strongly in the direction of adopting IFRS for U.S. public companies, replacing the tradition accounting standards according to GAAP.

2. The adoption of IFRS will have wide-ranging impacts on virtually every function in a public enterprise – accounting, tax, IT,

3. The extraordinary economic/financial environment we find ourselves operating in.  IFRS addresses many of the issues that have been cited as underlying causes of the current crises.

International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. The IASB is an independent accounting standards body, based in London.

More than 12,000 companies in almost 100 nations have adopted IFRS, including listed companies in the European Union.  Other countries, including Canada and India, are expected to transition to IFRS by 2011.  Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the next few years. Other countries, such as Japan and Mexico, have plans to converge (eliminate significant differences) with their national standards.

Many people believe that acceptance of IFRS in the United States by the SEC for public companies is inevitable.  For many years the SEC has been expressing its support for a core set of accounting standards that could serve as a framework for financial reporting in cross-border offerings.  In recent years, it has supported efforts of the Financial Accounting Standards Board (FASB) and the IASB to develop a common set of high-quality, global standards.  And most recently, it issued a Concept Release seeking input on allowing U.S. public companies to use IFRS when preparing financial statements.  SEC Chairman Christopher Cox also announced that later this year the SEC staff will formally propose to the Commission an updated “roadmap” that will lay out a schedule and appropriate milestones for continuing U.S. progress toward acceptance of IFRS.

By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier.  Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide.  Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS.  In addition, companies may benefit if they wish to raise capital abroad.  

Until the SEC issues a rule allowing or requiringU.S.public companies to adopt IFRS, they must continue to prepare their financial statements under GAAP.  Several large multinational corporations, such as Procter & Gamble, however, have started using IFRS for their foreign subsidiaries where allowed by local law.  Also, some private companies owned by foreign companies are using IFRS to obtain financing in the U.S.

 

Economics

While I generally hew to the reasonably narrow themes outlined for this blog, it is sometimes necessary to venture beyond those parameters simply because enterprises, and the technologies that underpin their performance, do not operate in a vacuum.  So, as the global economy continues its slog through an environment that is viewed as incredibly challenging and, in some quarters, as unprecedented in its potential severity, this recent assessment from George Soros seemed a reasonable view of where we are in the cycle.

There is now a widespread belief that the crisis is over. I think, on the contrary, that the effect on the real economy is yet to be felt. The measures taken by the authorities will not bring recovery. There are four reasons for this. First, the fall in house prices in the US is only halfway over and in Britain it has hardly begun. Second, consumers have been slow to adjust their spending habits, but this is about to happen. Third, the financial system is severely wounded, and even though banks have been remarkably successful at raising more equity, they will cut back on lending and this will feed through to capital spending and business activity. Finally, and most important, there is a threat of inflation at the same time as a slowdown. The rise in energy and food prices will turn the slowdown into a recession.

The debates rages on as to whether the increase in energy, food and other commodity prices are based on fundamentals or speculation.  Fundamentally, there are simply more people on the planet than there were last year and the year before.  Economics 101 rests firmly on this relationship between supply and demand. 

 

The $100 trillion dollar question appears to be whether we, as a planet, are going to manifest the supply to meet the demand and achieve/maintain some sort of equilibrium.

I don’t know the answer but I continue to believe that technology, done right, can have a pervasive effect at both the microeconomic and macroeconomic levels.  But, firms and countries must possess the ability to invest and the willingness to view returns over the longer term for the impacts to be realized.

SMART 2020: Enabling the Low Carbon Economy in the Information Age

In the vein of previous discussions regarding technology’s ability to positively impact energy usage and man-made emissions comes a new report published this week by The Climate Group and the Global e-Sustainability Initiative (GeSI). The report concludes that transformation in the way people and businesses use technology could reduce annual man‐made global emissions by 15 per cent by 2020 and deliver energy efficiency savings to global businesses of over EUR 500 billion [USD 800 billion].

SMART 2020: enabling the low carbon economy in the information age – is the world’s first comprehensive global study of the Information and Communication Technology (ICT) sector’s growing significance for the world’s climate.

The report’s supporting analysis, conducted independently by international management consultants McKinsey & Company, shows that while ICT’s own sector footprint currently two per cent of global emissions will almost double by 2020, this is countered by the sector’s unique ability to monitor and maximise energy efficiency both within and outside of its own sector could cut CO2 emissions by up to five times this amount. This represents a saving of 7.8 Giga‐tonnes of carbon dioxide equivalent (GtCO2e) by 2020 – greater than the current annual emissions of either the US or China.

Although tele‐working, video‐conferencing, e‐paper, and e‐commerce are increasingly commonplace, the report notes that replacing physical products and services with their virtual equivalents (dematerialisation and substitution) is only one part (six per cent) of the estimated low carbon benefits the ICT sector can deliver.

Far greater opportunities for emissions savings exist in applying ICT to global infrastructure and industry and the report examines four major opportunities where ICT can make further transformational cuts in global emissions. These exist globally within smart building design and use, smart logistics, smart electricity grids, and smart industrial motor systems.

Luis Neves, Chair, GeSI, said:

“The ICT industry is a key driver of low carbon growth and can lead transformation towards a low carbon economy and society. The ICT sector must act quickly to demonstrate what is possible, require clear messages from policy makers about targets and continue to radically innovate to reduce emissions.”

One key finding is that a new ‘socially networked’ generation around the world continues to drive unprecedented global demand for ICT hardware, software and services providing mobile and instant access to information. 

The global study predicts PC ownership will quadruple between 2007 and 2020 to 4 billion devices and emissions will double over the same period, with laptops overtaking desktops as the main source of global ICT emissions (22 per cent); mobile phone ownership will almost double to nearly 5 billion accounts to 2020 but emissions will only grow by four per cent; and broadband uptake will treble to almost 900 million accounts over the same period, with emissions doubling over the entire telecoms infrastructure. Despite the major anticipated advances in the energy efficiency of products, the ICT sector’s own footprint – currently two per cent of global emissions – is expected to grow at six per cent per year (CAGR) and double by 2020 driven by increased technology uptake in India, China and rest of the world.

Trends like virtualisation of data centres, long‐life devices, smart chargers, Next Generation Networks, and growth of renewable energy consumption (eg solar powered base stations) could help deliver future sustainable sector growth. To help, rather than hinder, the fight against climate change, the ICT sector must manage its own growing impact and continue to reduce emissions from data centres, telecommunications networks, and the manufacture and use of its products.

Crucially, the new report reveals significant opportunities for emissions reductions and how cost savings can be leveraged by applying ICT to global infrastructure and industry. Through enabling other sectors to reduce their emissions, the ICT industry could reduce global emissions by as much as 15 per cent by 2020 – a volume of CO2e five times its own footprint in 2020. If global businesses systematically used ICT to realise all of the solutions indicated in the report they would unlock global energy efficiency savings of over EUR 500 billion (*calculated as at December 2007 prices and not including a carbon price which may emerge if a global carbon market is established). This enabling effect is due to ICT’s unique ability to allow us to measure, optimise and therefore manage energy consumption. 

Four major global opportunities are highlighted in the study:

1. Application, globally, of smart industry motors and industrial automation 
2. The global emissions savings from smart logistics
3. Institution of smart buildings technologies 
4. Implementation of smart grid technologies 

While there has been some significant criticism of the information technology industry in the past for it’s perceived contribution to increased energy usage and the attendant impacts of that usage, the report shows that the global ICT sector has a, relatively, small footprint but an extraordinary potential for improving energy efficiency and reducing carbon emissions.

You can access the full report here.

More Companies Offering Telecommuting Option

As a follow up to my recent post on Technology As A Hedge, here is a report from CNBC that looks at the increase in employer supported telecommuting.

Companies and their employees are searching for new ways to deal with soaring gasoline prices that have risen to heights unimaginable only a few months ago. Telecommuting, in which employees take advantage of growing technological opportunities to work from home, is regaining popularity now that gas costs more than $4 a gallon.

At firms that already had telecommuting, the practice has taken on new importance with gas prices.

"We offer telecommuting as part of a much broader flexibility strategy. It is widely used across the firm by individuals at all levels, including many senior executives," says Taylor, general counsel at BDO Seidman, an accounting and consulting firm based in Chicago, though Taylor works out of the Manhattan office.

"Given the nature of our business and the nature of technology, we have found we've been extremely successful," she adds.

Telecommuting has established itself as a major business trend as large Wall Street companies, government offices and several colleges across the country are encouraging employees to stay at home when possible to do their work. Technological tools like e-mail, instant messenger services and videoconferencing hardware help make the process easier.

The benefits to workers are obvious--less stress during travel and substantial savings from gas costs, plus more time to spend at home.

Technology As A Hedge

With the economic/financial tsunami that continues to build in both the U.S. and global markets, the real-world impacts of those dynamics are becoming more profound for individuals, families, businesses, corporations and industries. Far be it for me to proselytize on macroeconomic theory/practice and financial management, but blogs that I rely on daily (The Big Picture, Calculated Risk, Minyanville) to keep me informed and educated are painting a very troubling picture of the next five to ten years

Those of us who have operated in the broad technology product and services marketplaces of the past several decades have had to constantly balance our enthusiasm for the pure whiz-bang sexiness of the next great technology with the practical application opportunities offered by the technology. How does it make lives, business, industries and communities better off? What is the real value proposition, at both the micro and macro level?

The current U.S. economic environment requires every enterprise of size to consider the application of technology as a hedge against challenges to their successful operational and financial performance. Those challenges manifest themselves at different levels of the business - the overall cost of labor, the cost of sourcing services and materials, and the cost of capital. They also impact the employees that work in a centralized office as average commute times have grown in both time and distance over the past decade.  

Where possible, enterprises need to consider or reconsider the viability of the telecommuting workforce.  By doing so they relieve their rank and file of the increasingly onerous burden of filling their gasoline tank, in some cases, every other day.  Beyond on that, there is substantial research that has shown that telecommuters are more productive while working longer hours than their office-based counterparts. The employees benefit, the company benefits and society benefits with fewer automobiles on the road.

Enterprises should aggressively engage the many technologies that exist to reduce their costs, streamline their operations, enhance their reputation and support their employees during the difficult times ahead.