ADDED VALUE: CAPITAL OR CONSUMPTION? Zidago Sako - Friday, June 13, 2014
The Beginning of a New Era? (For a better understanding please read all previous articles on this theme (Added Value: Capital or Consumption) published in the Blog)
We posed the question ‘Added Value: Capital or Consumption’ for the first time in a public arena (our Website) back in September 2013 (1st article on the subject) inviting more of us to think profoundly about this important issue. It seems we have achieved this objective. Whether a new initiative or not, a big impact obtained or not, or even pure coincidence, there has been in recent weeks or months more pertinent and engaging moves on the subject. Also there are concrete actions now being taken. Public Sector authorities and Central Banks have been busy developing new policies to take some power away from capital owners as well as from the Banking Franchise, and this new wave of actions could lead to a more accommodating mind set into achieving a (positive) added value (‘assured consumption’ as we phrase it). For instance, the ECB’s (European Central Bank) decision, alongside numerous reform programmes being announced by the Bank of England to encourage efficiently managed capital supply into the real economy, apart from sensational News headlines, could lead to longer term investment strategies, given that the opportunity cost to managing speculative short term gain operations in comparison may no longer be an advisable business proposition to investors. This may also explain the recent positive reaction to 'Eurozone-Peripherals' bond market recovery. This market according to experts may have become attractive to investors because it has relatively better longer term growth prospects. If well-managed, such actions could lead us to better investment strategies on the part of capital owners that could lift business operations for innovative products and services that better target ‘assured consumption’ and therefore boost added value as a direct result, given that longer term operations mostly meet 'assured consumption' type products criteria. Recent events in the economy seem to be feeding the debate further. It seems that actions taken are mostly market led decisions that may well constitute a new era and a shift in investors' mind set who are becoming more sensitive to consumers’ concerns.
1. For instance, the failed AstraZeneca take-over bid may be due to the fact that the company’s shareholders and directors became more conscious of the general public’s reaction (or the company’s loss of goodwill) and that this weights more than the bidder’s (Pfizer)) ability to ever be able to retrieve that important asset in addition to clearly spelt-out operational risks.
2. Another such recent market led situation is that, companies ‘board rooms’ and investors alike are more and more prone to considering RORC (Return On Research Capital) as a valid metric in considering long term prospects and implications on P/E. R&D and therefore innovative operations have become a good indicator (of what makes investors tick) to assess any company’s long term P/E maximisation strategy.
3. Another trend on the same line of (positive) added value products is the increasing occurrence of situations similar to Coca Cola's now bringing a new product called ‘life’ on the market. It is clear the company is using a re-branding tool in order to offset the damage that may have been caused by their previous and current product range. Again in this case, the company is reacting to a public outcry on the issue of a possible negative impact of their ‘sugary’ drinks on people’s health and the likely costs to consumers, and to public coffers.
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4. Consumers are doing their bit too by directly voting in their larger numbers than ever, for more healthier and 'assured consumption' products and services than they used to chose. Also, consumers are more informed (knowledge/know-how and positive marketing) and therefore are taking control in clearly expressing the sort of products/services they really need and want and they are increasingly becoming louder (politely) and much more powerful. A good example of this is the recent situation of a Smart Phone App for Taxis offering cheaper fare and faster service to passengers. This could be seen as a good tool for a better transportation policy in urban areas. However, any such disruptive technology that pose a real threat to a whole industry sector to a point that job losses and a sudden change in people's lives, not sufficiently taking into account legal and a serious and wide spread damaging social capital, should not be encouraged by investors. Innovations of this type (efficiency or performance improving innovations) generally bring about disproportionate amounts of job losses as well as some other not always welcome by-products. They provide no, or too little, alternatives to mitigate the negative impact on social capital as a result of their implementation into the real economy. Unless this key criteria was met, there is not much added value from such operations. In any case, the Taxi industry’s true players’ reaction (those drivers and sections of the public who have over the years loved what they do, or simply make their living directly or indirectly from the sector), have spontaneously voiced their discontent throughout Europe. Clearly this shows that not much attention was paid to that aspect of a piece of technology with good intentions maybe but not much done to predict the rejection it is experiencing. In this debate the easiest is making critical statements on the wrong speculative decisions for short terms gains in any market arena. However, we do have enough examples in the economy today to substantiate that a different approach will be as favourable to capital owners’ interest when rewarding themselves (or even when getting rewarded) in the process of positively contributing to growing the economy. We therefore think that now is the time to make some tangible propositions in order to switch our attention from just making critical statements regarding capital owners, towards solutions that if better articulated and really convincing, could put some of the key variables of market economy on a new path. These propositions we believe have the advantage of being realistically achievable and put both sides of the funding equation’s interests at par. On that note our observation shows that it’s not a mere coincidence that most ‘tech companies’ such as Google, Facebook, Twitter and the likes (coincidently some of the biggest on the planet currently) fund much of their offerings via sales and marketing applications. Marketing applications particularly (with advertising as their core offering) is currently valued on the basis of pure imagination. We think we now know why this is so, with in-depth explanations available for those who would like to know more. We also know that a high proportion of this imaginary cost is factored into most products and services’ market value. If this postulate can be tested and factually demonstrated, it is therefore possible to suggest that rethinking sales and marketing tools deployment (with advertising as a main factor), could revolutionise (financial) capital sourcing, and resource allocation; the objective being balancing the supply and demand sides of funding in order to promote ‘real’ added value. To give an idea of what we think is possible, innovative sales and marketing applications can be developed in the sense that, the more added value can a product or service generate, the easier and less pricey it should be for that product or service to be widely made available to consumers. So marketing and sales functions, tools and applications should be developed further or ‘re-invented’ in order to achieve that. There may be some practical challenges to this journey but the good news is that the world now have the means (technological as well as capital) to get this done; in today’s market economy, there is enough evidence to affirm that financial capital is no longer a rarity. Smooth monetary payment tools, time management,
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
knowledge and optimal training still are, and this is not just us saying it but now common knowledge by academia (Bever, 2014). We used to be taught three production factors (labour, land and capital) as scarce resources. It is now proven that capital at least no longer is one of them in current economic contexts. In contrast ‘Knowledge-Universal Values’™©, and ‘Time- Universal Values’™©, upon which capital owners, and users, base decision making processes in order to achieve (positive) added value are, and must therefore be where our current challenges lie. That’s where we should put our focus.
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