Liens de la semaine (weekly)

  • “On July 31, the U.S. Bureau of Economic Analysis will rewrite history on a grand scale by restating the size and composition of the gross domestic product, all the way back to the first year it was recorded, 1929. The biggest change will be the reclassification€”nay, the elevation€”of research and development. R&D will no longer be treated as a mere expense, like the electricity bill or food for the company cafeteria. It will be categorized on the government’s books as an investment, akin to constructing a factory or digging a mine. In another victory for intellectual property, original works of art such as films, music, and books will be treated for the first time as long-lived assets.”

    tags: digitaleconomy assets intangibleassets r&d investment

    • Business R&D was never counted in that total. It was considered an expense, an “intermediate input,” that ate into profit
    • As Federal Reserve Chairman Ben Bernanke said in a 2011 speech, “We will be more likely to promote innovative activity if we are able to measure it more effectively and document its role in economic growth.”
    • The “comprehensive revision” won’t raise wages or put anyone back to work. Then again, that’s not the BEA’s job.
    • The second stage is part of a change agreed to through a United Nations working group in 2008. Australia and Canada have already made the switch, and Europe will do so in 2014.
    • If all forms of intangible investment were officially recorded, they would exceed investment in bricks, mortar, and machines, according to estimates by economists Carol Corrado of the Conference Board and Charles Hulten of the University of Maryland.
  • “On July 31, 2013, the US Bureau of Economic Analysis will release, for the first time, GDP figures categorizing research and development as fixed investment. It will join software in a new category called intellectual-property products.

    In our knowledge-based economy, this is a sensible move that brings GDP accounting closer to economic reality. And while that may seem like an arcane shift relevant only to a small number of economists, the need for the change reflects a broader mismatch between our digital economy and the way we account for it. This problem has serious top-management implications.”

    tags: gdp digitaleconomy digitalassets intangibleassets accounting businessmodel

    • Digital capital takes two forms. The first is traditionally counted tangible assets, such as servers, routers, online-purchasing platforms, and basic Internet software. They appear as capital investment on company books. Yet a large and growing portion of what’s powering today’s digital economy consists of a second type of digital capital€”intangible assets.

        

       They are manifold: the unique designs that engage large numbers of users and improve their digital experiences; the digital capture of user behavior, contributions, and social profiles; the environments that encourage consumers to access products and services; and the intense big-data and analytics capabilities that can guide operations and business growth. They also include a growing range of new business models for monetizing digital activity, such as patents and processes that can be licensed for royalty income, and the brand equity that companies like Google or Amazon.com create through digital engagement.

    • Conventional accounting treats these capabilities not as company investments but as expenses, which means that their funding isn’t reflected as capital. Since the amounts spent aren’t amortized, they take a large bite out of reported income. Spending on those capabilities sometimes should be treated as capital, though, since they can be long-lived.
    • We’re acutely aware of misguided efforts to justify sky-high valuations during the late-1990s Internet bubble by claiming that finance and accounting fundamentals were no longer relevant.
    • Above all, we want to emphasize the importance, for many business leaders, of making the mind-set shift required to embrace the importance of digital capital fully. The disruptive nature of digital assets is intensifying in markets such as search, e-commerce, and social media (where attackers can build business models with near-limitless scale). Disruptive digital assets are also important in segments where behavioral data and user participation can be monetized, by defining entirely new business opportunities or fostering breakthroughs in collaborative innovation. As the mobile-payments start-up Square is demonstrating in the credit-card arena, increasingly, companies that deploy these assets have the potential to threaten large existing profit pools thanks to the challengers’ vastly different economics or radically new ways of doing things.
    • Today, the market valuations of many Internet-based companies are higher than those of their counterparts in other sectors, including high tech
    • Viewing the numbers differently” illustrates, treating digital intangibles as assets rather than expenses clarifies the logic behind valuations.
    • Macroeconomic studies we have done suggest that digital capital is not only growing rapidly but has also become a major contributing factor in global economic growth
    • Likewise, the accumulating global value of digital-capital investments has reached more than $6 trillion, about 8.5 percent of nominal world GDP.
    • In more highly digitized economies, such as Israel, Japan, Sweden, the United Kingdom, and the United States, spending on intangibles represents two-thirds of digital capital’s total value.
    • We estimate that digital capital is the source of more than one percentage point of global GDP growth (roughly one-third of total growth)
    • a remarkable thing, since the digital economy has emerged in the relatively brief space of 15 years. By contrast, it took 80 years for steam engines to increase labor productivity to the same extent, about 40 for electricity, and more than 20 for conventional information and communications technologies
    • the implications are even greater for executives, who often are not tuned into their organizations’ digital strengths or weakness. Few companies have gone through the internal exercise of reclassifying expenditures or segregating benefits from spending on intangibles. And of course, companies can boast a high ROE thanks to strong legacy-product margins but may nonetheless have muted growth prospects as a result of underinvesting in digital capital. To set a more effective digital course, leaders should consider the following ideas.
    • Many have realized only recently that they can use social-media interactions with their best customers to leverage innovation efforts or that they may have unused data they could restructure into valuable big-data assets to sharpen business strategy. Similarly, companies should take stock of how digital capital they don’t own may be relevant to the business.
    • Conversely, companies may wrongly assume that their growth results from conventional capital spending and therefore compromise growth by underinvesting in digital competencies.
    • Even companies that have a considerable stock of digital assets should understand that capturing value from them isn’t a given. Instead, such companies must define (and relentlessly innovate with) business models that can be scaled up to match those assets.
    • One clue suggesting that a company might face emerging digital challenges is the existence of businesses that have unusually high levels of revenue per employee in adjacent market spaces
    • Unusual financial profiles are another warning sign. Since digital funding is counted as operating expenditure, digital leaders often have small capital-investment levels relative to their size and growth potential.
    • Most companies rely on digital agencies for things like optimizing search marketing. In such cases, they may be ceding digital capital, since they never develop a full understanding of consumer segments or what inspires a customer who searches for their products. Seeing such capability building as an investment may change the logic of using third parties.
  • “However, that now finally seems to be changing. The next-generation digital business seems to have arrived in scale. With the advent of a potent new generation of high-velocity online startups aimed much more deliberately at reformulating the basis of what many types of traditional businesses do, the revolution originally entailed by social business does appear to be happening, but not quite as envisioned.”

    tags: socialbusiness economy socialeconomy collaborativeeconomy sharingeconomy

    • The basic idea of the Collaborative Economy, like so many major shifts, is actually pretty simple: The world has started moving beyond the simple mass sharing of ideas and media over the Internet. Instead, we have now begun sharing products and services directly with each other en masse using the same social media principles
    • Companies risk becoming disintermediated by customers who connect with each other. The Collaborative Economy Value Chain illustrates how companies can rethink their business models [DH: my emphasis] by becoming a Company-as-a-Service, Motivating a Marketplace, or Providing a Platform
    • The sharing economy reaches directly into this vast and largely untapped stored value that consumers now control by helping them make much better use of what they have.
    • There are two dominant narratives about the institutional changes we are experiencing and neither one of them gives anyone much respite: The first is that companies will fragment to smaller and smaller entities and even down to individual providers; the second is a winner take all world where only the largest survive. 
      •  

         

      • Don’t compete with your customers, cooperate with them
  • Design for change, give up non-essential control, and learn the power laws of networks.
  • Rethink the structure and processes of your organization to transition gently but swiftly to a social business.
  • “The developed world enjoys the benefits of running hot and cold water, refrigerators and electric stoves, all of which have been around for generations. But can we innovate beyond that? Can today’s inventions — the iPod, for example — even compete with those “low-hanging fruit” that dramatically altered our homes and daily lives? In a 2011 Making Sen$e report, which you can watch above, George Mason University economist Tyler Cowen, author of “The Great Stagnation,” argued that we’re in an “innovation drought” where the rate of progress has slowed.”

    tags: technology machines robots technopessimism work

    • Entrepreneur Peter Thiel’s widely quoted line “we wanted flying cars, instead we got 140 characters” reflects a sense of disappointment. Others feel that the regulatory state reflects a change in culture: we are too afraid to take chances; we have become complacent, lazy and conservative.
    • technological progress has an unusual dynamic: it solves problems, but in doing so it, more often than not, creates new ones as unintended side-effects of the previous breakthroughs, and these in turn have to be solved, and so on.
    • The advances in science will make it possible (among other things) to make even more sophisticated instruments, some of them foreseeable just by extrapolating what we already have, some as unimaginable as the Large Hadron Collider would be to Archimedes.
    • As the body of knowledge expanded, this became impossible given the finite capacity of even the best brains. Scientists began to practice specialization, a division of knowledge, similar in principle to the division of labor so beloved by economists. But the division of knowledge, much like the division of labor, requires organization.
    • If society is going to make use of the expert knowledge that has accumulated, it needs to ensure that this knowledge can be stored at low costs and that it’s accessible
    • All of these wonderful developments of the past are dwarfed by the storage and search capabilities of our own age. Throughout history, humans had to struggle with costly and perishable information storage
    • Today, copying, storing and searching vast amounts of information is, for all practical purposes, free.
    •   

      But as we’ve seen, technology is a double-edged sword: it solves problems while creating new ones. This is especially true for a technology that controls knowledge. As we are constantly reminded these days, a large body of knowledge can be abused by paranoid or totalitarian governments, overzealous law enforcement agencies and aggressively greedy commercial interests

    •   

      Many of these issues, it will be said, do not have a “technological fix” — they need intangibles like human trust.

    • As an economist, I am especially interested in what will happen to the nature of work. Technology leads to machines replacing people, and the more capabilities these machines (whether we call them robots or not) have, the less there is for us to do. Some jobs still seem beyond mechanization as of now, but the same was said 50 years ago about many tasks carried out by machines today. If machines make certain jobs redundant, what will people do?
    • Part of the answer is that new types of work will emerge that we cannot foresee.
    • But if the bulk of unpleasant, boring, unhealthy and dangerous work can be done by machines, most people will only work if they want to.
    • The other sea change that new technology is eventually going to bring about is the demise of the “factory system” that emerged during the Industrial Revolution.
    • Modern technology is well on the way of liberating more and more work from the tyranny of the rush-hour commute to work. We may not go back to the days in which people worked from home; instead they may work from wherever they happen to be, as anyone can observe during an hour in an airline lounge
    • But experience suggests that the metaphor of low-hanging fruit is misleading. Technology creates taller and taller ladders, and the higher-hanging fruits are within reach and may be just as juicy.
    • echnology alone cannot provide material progress; it’s just that without it, all the other ways of economic progress soon tend to fizzle out. Technological progress is perhaps not the cure-all for all human ills, but it beats the alternative.
  • “On July 31, the U.S. Bureau of Economic Analysis will rewrite history on a grand scale by restating the size and composition of the gross domestic product, all the way back to the first year it was recorded, 1929. The biggest change will be the reclassification€”nay, the elevation€”of research and development. R&D will no longer be treated as a mere expense, like the electricity bill or food for the company cafeteria. It will be categorized on the government’s books as an investment, akin to constructing a factory or digging a mine. In another victory for intellectual property, original works of art such as films, music, and books will be treated for the first time as long-lived assets.”

    tags: gdp r&d intangible investment expenses intangibles

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    Head of People and Operations @Emakina / Ex Directeur Consulting / Au croisement de l'humain, de la technologie et du business / Conférencier / Voyageur compulsif.
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