Added Value: Capital or Consumption (Article 2 on this topic) Sunday, January 26, 2014
In order to facilitate Blog 2 reading, please take a bit more time and start with Blog 1 on this page. Author: Mr Zidago Sako, CEO ‘Who can really take on Short-Termism’ is the title chosen by Adi Ignatius, Editor in Chief of Harvard Business Review (HBR) for the January-February 2014 Edition. The editor is once again conveying HBR readers to the very theme we are inviting our Blog’s readers to meditate upon in our previous publication in September 2013. It is not a coincidence that the HBR editor seems to suggest that short-termism is not the way forward to achieving added value and therefore economic growth. Short-termism here can easily be seen as the side of economic activities’ funding that prioritise the value of capital as prime objective in the equation and therefore, may imply that it is more important than all other production factors. When considering the key incentives to capital investment in recent years at least (if not for a long time now according to Ida Ignatius’ editorial piece), instantly making the most return on cash and other forms of capital invested, in a relatively very short period of time, is the most obvious element that strikes any observer’s attention. Those who own capital stress the facts that, though innovation is a key incentive in their decision making process, a quick exit strategy, all of which is about monetisation of the whole innovative process is even more rated; the objective being an easy to measure return on investment tactic. This does not necessarily mean that easy to measure ROI is the most objectively accurate way of assessing the best possible economic gain in comparison. What’s happening in this instance of a quick exit is comparable to a betting situation where the individual involved is losing their nerves and want to exit the game as quickly as possible in order to limit exposure to a possible loss of their bet altogether. The other reality of this situation of a quick exit is an inadequate state of affairs whereby, current tools and instruments used to make investment decisions may not be sufficient to predict, or at least provide, some sort of commonly acknowledged factual criteria upon which such decisions should be based. This therefore puts pressure on the economy with the inevitable consequence of not paying enough attention to satisfying the real problems facing individual consumers, or the whole of the economy. Solving the economy’s real problems would have involved putting in place the tools and instruments that would allow funding bodies to truly assess the merit of adequate solutions proposed in context, via products and services that are creative enough to meet the problem solving requirement. Market forces were supposed to regulate this phenomenon but unfortunately, it is no longer accurate to stand by this maxim previously considered as the only way forward in capitalism. Addressing such an issue of solving real problems in the economy requires capital of course, but not necessarily a quick exit strategy type capital. It should still be possible to fund real problem solving products and services whiles taking into account return on investment as an important constraint. On the other hand, capital ownership has become a difficult responsibility to manage, given the risk associated with long term investment strategies. It seems almost impossible to predict with accuracy return on investment beyond 5 to 7 years for most venture capitalists who generally make this sort of decisions. In contrast, some (if not most) truly viable projects for innovative and really needed products and services can take longer before becoming profitable. Capital owners therefore often find themselves having to fund products and services simply because they are classified as belonging to a sector of activity they perceive as being the least risky and easy to deploy their efforts onto in order to make a quick exit. Often, those sectors get saturated quickly and capital owners, like ‘nomads’, move to the next sector they consider will again provide them with the opportunity of another profitable quick exit. Meanwhile, real problems in the economy are not being dealt with. The reality unfortunately, is that we all have become so incapable of putting in the efforts to finding real solutions to this problem that the answer to Adi Ignatius' question should be: ‘No-one’. Sako Technologies Limited Company Registered in England and Wales No 07713141 at 1A Sheepfold Lane, Amersham, Bucks HP7 9EL VAT No 169841269 - ICO Certificate of Reg. No ZA014926 www.sakotechnologies.com - zst@sakotechnologies.co.uk +44(0)7803342355
However, we are still human beings and therefore capable of solving problems. So how can we just resign to 'Noone should take on short-termism?' In this Blog, we are attempting to suggest that this problem could be solved by finding a consensus. For instance, rather than applying the straight forward rule of production cost to setting products or services' price (cost based pricing), it would be interesting to see this slightly differently. Any human being that consume a fruit or vegetable would be better off than the next person that went and bought a cake full of sugar and other ingredients not always advisable for that individual’s health. However, that person is still free, according to the consensus of market rules to buy whatever their preference ‘dictates’. Never mind what cost went into that cake’s production, it should never, on any market on earth (inhabited by humans sharing the same biological realities), cost dearer than a fruit, regardless of market rules as previously set. So, in our view we could redefine market rules for all possible products and services. A complex task maybe but not impossible. The implication in economic terms is that capital owners would come to the realisation that they have to reconsider their decision making process in prioritising real needs, not mere capital market rules i.e. cost, price and profit. This implies however, that even more creative should become, the tools and instruments used to identify consumers’ inevitable problems that truly maximise satisfaction and return on investment concomitantly. Also, professionals making these investment decisions should be better trained, because currently, they are not (Helen Burrows, Kity Ussher, 2011).
Sako Technologies Limited Company Registered in England and Wales No 07713141 at 1A Sheepfold Lane, Amersham, Bucks HP7 9EL VAT No 169841269 - ICO Certificate of Reg. No ZA014926 www.sakotechnologies.com - zst@sakotechnologies.co.uk +44(0)7803342355