The Intangible Economy

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May 30, 2008

Example of cool design

As regular readers of this blog will note, I have often talked about the importance of design as a competitive edge. In that vein, I have to pass along this example of cool design (from GizMag - the magazine devoted to new gizmos -- a great read for everyone like me who really is an engineering geek at heart).

Outdoor solar workstation:

If you are having trouble getting out of the office, maybe it's time to get the office out. This funky, eco-friendly workspace by Mathias Schnyder is designed to be a calming haven where office dwellers or uni students can escape to the great outdoors.

The modular workstation comes equipped with a solar cell in the roof that can generate enough energy to power a notebook via an electric socket in the center of the table. The seating comprises different movable segments so people can sit next to each other or across from each other if they need privacy. Additionally, the seating design means users can reduce exposure to wind and sun.

Its materials and form mean this workstation would sit well in a city park (where it might be mistaken for playground equipment), office lawn or on a college campus - any urban outdoor setting really. No details yet on whether the design will see a commercial release, but any concept that combines fresh air, productivity and green energy deserves applause.

The perfect workspace for the I-Cubed Economy worker? One downside to all this, however. As the story relates, it is not yet in commercial release.

Posted by Ken Jarboe at 10:16 AM | Comments (0) | TrackBack

Branding and the bashlash of the backlash

For those of you who don't live 24/7 in the blogsphere, you may have missed the latest flare up in reputation management -- Rachael Ray's scarf. Here is a summary of the controversy from the NewYork Times:

On May 7, Dunkin’ Donuts began running an ad on its Web site and others, featuring the celebrity chef Rachael Ray holding a cup of the company’s iced coffee while wearing a black-and-white fringed scarf. In the ad, which was shot in a studio, she is shown standing in front of trees with pink blossoms and a building with a distinctive spire.

On May 23, the conservative blog Little Green Footballs posted an item that likened Ms. Ray’s scarf to the type typically worn by Muslim extremists. The blog said that the ads “casually promote the symbol of Palestinian terrorism and the intifada, the keffiyeh, via Rachael Ray.”

Later that day, the conservative blogger Michelle Malkin chimed in, likening the scarf to a keffiyeh and calling it “jihadi chic.” Then the story, as they say on the Internet, went totally viral.

Dunkin' pulled the ad. But the controversy continued. As the story relates:

From there, a backlash to the backlash started to take hold.

An item about the controversy had more than 2,300 votes and 830 comments on Digg, a news aggregation site. A YouTube video, “Rachael Ray Is a Terrorist,” poked fun at the situation, with the narrator saying, “Yes, because when I look at Rachael Ray I think 9/11.” That video drew more than 2,300 comments, and a related story on The Huffington Post had more than 1,200 comments.

Sometimes the most trivial things - like a scarf - can trigger strong emotions. In this interconnected virtual world, emotions can travel faster than facts. Think of all those "urban myth" stories that pop up in your email inbox. Many times they are circulated and accepted because they strike some emotional response -- a warning of some fear, something cute we want to share.

For Dunkin' the controversy may be a net gain, in the form of a huge amount of free advertising. And it is not clear that the advertising was negative. There appear to be more folks outraged with the conservative's attempt to blow this up into some fear-mongering political statement. As Bob Parson, the head of GoDaddy.com, was quoted in the story, “You need to find and do something that is a bit edgy, that is polarizing, that provides some water-cooler conversation.”

I'm not sure I agree with that -- there is already too much polarization in our society. But, I will have to think about it over my cup of Dunkin' coffee.

Posted by Ken Jarboe at 9:44 AM | Comments (0) | TrackBack

May 27, 2008

Unleashing IP -- in a new business model

Here is a great quote from an article in the Booz & Company (formerly Booz-Allen) magazine Strategy+Business (registration required) -- Uncaptured Fortunes in Intellectual Property

It’s the subtle little secret of the corporate revenue stream. Executives now recognize that intellectual property (IP) makes up the bulk of an organization’s wealth, and most chief executives will glibly claim that IP is the key to competitive advantage. Yet most CEOs pay no attention to leveraging or drawing income from those assets. How can they? Few even know what IP their company owns.

To be fair, companies have gotten wise to the sometimes significant revenues that can be gained through patent and technology licensing. In fact, by most estimates, annual revenues for such licensing have exploded from US$15 billion to $110 billion worldwide over the last 15 years. For many companies, however, that’s the easy part; the real challenge is to make their intellectual property serve the business, not be the business — that is, to benefit from valuable IP at the business unit level, where corporate strategy intersects with customers and markets. Unfortunately, very little historical knowledge or experience is available to guide executives in generating commercial advantage from what is in reality an entirely new class of assets. (emphasis added).

Ain't that the truth. The author, David Kline of Rembrandts in the Attic fame, makes an important point I heard a number of other places as well: IP tends to be the purview of the legal department. As such, it is all about locking up the ideas, rather than exploiting them.

But that need not always be the case. Kline gives a case example where GE was able to exploit a remote turbine servicing technology by creating a new business model:

It devised an entirely new business model for its remote technology, one that leased it to customers while simultaneously licensing to them the associated IP and service procedures. GE would retain ownership of the hardware, blocking encroachment by competitors and enjoying significant licensing revenue. Moreover, GE would also retain rights to customer data from this system, which would enable the company to leverage everything it learned from operating and servicing 300 gas turbines globally to build a “predictive intelligence” platform for delivering service and supply chain improvements to the utilities. This vital intellectual asset was a key differentiator for GE that no competitor could match.
Finally, because the technology would be protected by license, GE could share proprietary knowledge about turbine operation with the utilities, allowing them to make their own adjustments to the equipment to boost performance and stability.

What I find so fascinating about this example is only in part that it utilized IP. The real fascination is the business model that fused manufacturing and services. If US companies are going to survive in the I-Cubed Economy, this type of fusion needs to become the norm -- not the rare case study.

Posted by Ken Jarboe at 1:38 PM | Comments (0) | TrackBack

Brand reputation and micro management

One of the holy grails of brand reputation management has always been consistency of the product. You want the McDonalds hamburger in one store to taste the same as in other stores. Some local variations are allowed (I remember how McDonalds french fries tasted different in Thailand because they used different cooking oil).

But, as a recent Washington Post story on gas prices points out, that can lead to a tight reign rein on local stores:

Jerry Daggle owns five Exxon stations in Northern Virginia, and even though they have different competitive conditions and prices, "Exxon magically lets me make about 8 cents a gallon" at each one, he said.

He said micromanaging extends to the snacks sold at Exxon's On the Run convenience stores. The company uses a "planogram" to show dealers where to put candy bars and soda. "If I want to put Coke on a different shelf, I have to get special permission," Daggle said. Recently he was reprimanded for selling mulch on the perimeter of his award-winning Gainesville station; the mulch, though popular in the neighborhood, wasn't an approved product.

This micromanagement wouldn't be such an issue in the old days of the Industrial Age. In fact, it was de rigueur. In the I-Cubed Economy of customization ('just-in-time; just-for-me"), it can be a major problem. At the very least, it can mean lost opportunities by allowing hot selling products -- like mulch in Gainesville. As worst, it can mean retail failure as the product mix doesn't match the local demand characteristics.

The trick is how to simultaneously maintain the basic characteristics and quality of a product which underlie the brand's reputation and embrace local variations. Notice that I did not say "balance" these two objectives. They should not be seen as opposites to be traded-off. Years (and years) ago, this was described by Peters and Waterman (In Search of Excellence) as "simultaneous loose-tight." Maybe companies need to resurrect that concept for the I-Cubed Economy.

PS - for a nice take on the continued relevance of In Search of Excellence, see "In search of ...?" by Mike Johnson (head of Futurework Forum).

Posted by Ken Jarboe at 12:01 PM | Comments (0) | TrackBack

May 23, 2008

Debating globalization and competitiveness

Yesterday there were two events on globalization and competitiveness:
• a hearing in the House Science Committee on American Decline or Renewal? – Globalizing Jobs and Technology; and,
• the Commerce Department's 2008 National Summit on American Competitiveness.

Both addressed similar issues from different perspectives -- and very different perspectives on the issue of trade agreements. But, from my attempt to listen to the two webcasts simultaneously, it appeared that they both agreed that we need to raise the profile of the competitiveness issue in the national debate. They both also talked about the need for an overall policy on competitiveness (something that we don't have now). I wish, however, the business leaders at the competitiveness summit would have stopped treating the trade issue as simply a PR problem and gotten to the real issues. By the way, my eyebrows went up when the Commerce Secretary said we have a "big budget" for trade adjustment assistance. Our worker adjustment system is woefully inadequate and underfunded.

More materials (including the archived webcasts) are available at links noted above.

Posted by Ken Jarboe at 9:11 AM | Comments (0) | TrackBack

May 22, 2008

New NAS report on Innovation in Global Industries

The National Academies (the National Academy of Science, National Academy of Engineering and the Institute of Medicine) has a new report out -- Innovation in Global Industries: U.S. Firms Competing in a New World (Collected Studies):

The debate over offshoring of production, transfer of technological capabilities, and potential loss of U.S. competitiveness is a long-running one. Prevailing thinking is that the world is flat that is, innovative capacity is spreading uniformly; as new centers of manufacturing emerge, research and development and new product development follow.

Innovation in Global Industries challenges this thinking. The book, a collection of individually authored studies, examines in detail structural changes in the innovation process in 10 service as well as manufacturing industries: personal computers; semiconductors; flat-panel displays; software; lighting; biotechnology; pharmaceuticals; financial services; logistics; and venture capital. There is no doubt that overall there has been an acceleration in global sourcing of innovation and an emergence of new locations of research capacity and advanced technical skills, but the patterns are highly variable. Many industries and some firms in nearly all industries retain leading-edge capacity in the United States. However, the book concludes that is no reason for complacency about the future outlook. Innovation deserves more emphasis in firm performance measures and more sustained support in public policy.

Posted by Ken Jarboe at 10:18 AM | Comments (0) | TrackBack

May 21, 2008

The internet sales tax

Lee Gomes's "Portals" column in today's Wall Street Journal takes on the issue of Internet sales taxes -- but not the way you might think:

Now, chances are you've ordered a tax-free book or two from Amazon, and enjoyed the experience. No one likes paying taxes. But this particular tax break is an especially pernicious one.

For starters, by giving online businesses a permanent advantage over their bricks-and-mortar competitors, it helps those who need it least -- huge, profitable e-commerce companies -- at the expense of often-struggling local retailers.

In addition, the tax policy is regressive. It disproportionately benefits the upscale citizens most likely to shop online. Worst of all, as commerce increasingly moves online, state and local governments are being deprived of the sales-tax revenues they rely on to run schools, build roads, pay police and firefighters, and do all the other things they're supposed to do.

By the way, Gomes is specifically taking aim at Amazon's challenges to new Texas and New York State laws requiring them to collect the sales tax.

The second point in his argument is one I have made before as well -- not collecting sales tax on Internet purchases is a tax subsidy for e-commerce. It is not a "technology" neutral policy -- but a very clear technology subsidy (imagine if some one suggested that anyone who drives a car to pick up a purchase should be exempt from sales tax on those purchases).

I think the last point in this argument is the most telling. We can easily get in to a tax competition as a race to the bottom (which is what the anti-tax, anti-government folks would love us to do). Simply eliminating the sales tax might be a great idea (it is a relatively retrogressive tax). But without some other form of revenue, local government services are in danger. As Gomes states:

Many Web users surely will be annoyed by a tax. It's common to see the Internet as a refuge from the quotidian annoyances of the real world, among them death and taxes. But cyberspace is grounded in the real world, as are schools and parks and streets. If you doubt that, the next time your house is on fire, try calling Jeff Bezos.

Well said.

Posted by Ken Jarboe at 12:15 PM | Comments (0) | TrackBack

The dangers of earnings management

While we are on the subject of earnings management, let me highlight today's Washington Post column by Steven Pearlstein -- Leap of Illogic on Wall Street Leaves GE Flat-Footed -- on the dangers:

Over time, this strategy has made GE the stock to own for long-term investors looking for "a safe and reliable growth company," as [GE CEO Jeff] Immelt likes to put it. Unfortunately, under his predecessor, this wonderful reputation somehow got transformed into a solemn promise to deliver double-digit earnings growth every quarter, and to do so in a way that precisely matched the earnings guidance provided by the company. To meet those expectations, GE has become suspiciously adept at booking revenue and expenses and timing asset sales to meet earnings estimates with amazing precision and consistency.

The extent of this earnings management was revealed last month when an embarrassed Immelt explained that GE's failure to hit its quarterly number was a result of the credit crisis, which in the past two weeks of the quarter had suddenly and unexpectedly reduced the market value of securities holdings and prevented it from completing anticipated real estate sales. But rather than acknowledging the folly of predicting quarterly results in the midst of a financial panic and worldwide economic downturn -- particularly for a company reliant on financial services and "lumpy" industrial sales -- Immelt prostrated himself before analysts and promised it would never happen again.

The problem Pearlstein notes, however, is that this strategy can come back to bite you:

Having decided that GE's earnings surprise was the result of flawed corporate strategy, it was easy for Wall Street's analysts to take the next leap of illogic and conclude that salvation could come only from buying and selling assets. That, by coincidence, just happens to be the only course that generates fees for Wall Street brokers and investment bankers. If Immelt had dared to tell them the truth -- that he needs the cash generated from some of these maturing businesses to invest in new markets and new technologies for the long term -- he would have sent GE shares into a tailspin.

Pearlstein is clearly frustrated with the way Wall Street treats such companies:

Immelt has the right strategy for General Electric, and he's the right man to execute it. But he risks being frustrated in his efforts if he cannot transform his company's relations with investors and opt out of the mindless earnings-expectation game. General Electric didn't become a great company just by buying and selling assets -- it did it by creating innovative products and continually finding better ways to produce them. It won't remain a great company if it allows stock flippers and Wall Street analysts to distract it from its mission.

Right on: I have argued the same point in numerous posting on this blog. The problem is what to do about it. In part, it is a case of corporate relations. Watching a recent CNBC special on Warren Buffett, it was clear that he has done a masterful job of picking his stockholders by encouraging long term investors and discouraging short termers. Of course a Class A stock price of $100,000 helps in that regard - and it has not stop some from shorting the stock. It just means that Buffett doesn't worry about the short term movement in the stock. But not everyone is a Buffett.

There is the United Technologies Corporation approach to highlight the company's reputation and intangibles. UTC undertook a systematic effort to let Wall Street know about all the various aspects of their business and the strength of their intangibles.

Then there is the option of going private. Some have suggested that the best way to keep a company innovative to take the company away from Wall Street (for example, see The Gartner Fellows: Clayton Christensen's Interview Part 1). This can be either through the existing private equity markets (at the risk of debt-overloading) or these new private trading markets.

Ultimately, there is the systemic issue of speculation. Speculation will always be a part of markets (a necessary part some would argue). But the issue is whether speculation or long term investment drives the market price. My preference is for long term investment. When speculators drive markets, markets fail -- they turn into bubbles. But I would not ban speculation. My favorite solution is the sliding scale capital gains tax. Tax short term profits at a much higher rate than long term returns. That would help discourage the stock-flippers Pearlstein (and others) worry about.

Posted by Ken Jarboe at 9:02 AM | Comments (0) | TrackBack

May 20, 2008

Changing nature of supplier relationship in IT

Is IT becoming just another supplier relationship? According to a story in today's Wall Street Journal - Competitive Approach Taken to Outsourcing, that seems to be what is happening:

The shift marked one element in a broader transformation in the IT-services industry: Rather than simply handing over the keys to the tech department to one provider, businesses are increasingly signing shorter outsourcing deals with multiple firms that have employees around the globe. Often, they hire multiple firms to work on the same project.

Years ago, the business mantra was get close to your suppliers. Then came the "china price" -- low cost sources from China in manufactured goods and India in IT services. Companies got close enough to their suppliers to say "match the price or I am out of here." IT did the same, but still in the traditional way of large multi-year contracts. That appears to be changing. Is the result making IT services just another commodity (as Nicholas Carr argued a few years ago)?

Posted by Ken Jarboe at 10:34 AM | Comments (0) | TrackBack

Lessig on new orphan copyright bill

Larry Lessig on the pending "orphan works" copyright bill -- Little Orphan Artworks - New York Times

The solution before Congress, however, is both unfair and unwise. The bill would excuse copyright infringers from significant damages if they can prove that they made a “diligent effort” to find the copyright owner. A “diligent effort” is defined as one that is “reasonable and appropriate,” as determined by a set of “best practices” maintained by the government.

But precisely what must be done by either the “infringer” or the copyright owner seeking to avoid infringement is not specified upfront. The bill instead would have us rely on a class of copyright experts who would advise or be employed by libraries. These experts would encourage copyright infringement by assuring that the costs of infringement are not too great. The bill makes no distinction between old and new works, or between foreign and domestic works. All work, whether old or new, whether created in America or Ukraine, is governed by the same slippery standard.

As a result, "The only beneficiaries would be the new class of 'diligent effort' searchers who would be a drain on library budgets."

So, once again, is Washington about to create another Experts Full Employment Act?

Lessig does have a solution:

Congress could easily address the problem of orphan works in a manner that is efficient and not unfair to current or foreign copyright owners. Following the model of patent law, Congress should require a copyright owner to register a work after an initial and generous term of automatic and full protection.

For 14 years, a copyright owner would need to do nothing to receive the full protection of copyright law. But after 14 years, to receive full protection, the owner would have to take the minimal step of registering the work with an approved, privately managed and competitive registry, and of paying the copyright office $1.

Pattern copyright after patent law? Interesting. (And who says this guy is anti-IP?)

Posted by Ken Jarboe at 10:10 AM | Comments (0) | TrackBack

The valuation crisis

Apropos the last posting on "earnings management", do we now need a new term for "asset valuation management"?

See this story from last weeks' New York Times - A Values Debate (Not the Political Kind) -

But on Thursday, at conference hosted by Standard & Poor’s in New York, several bankers complained that they have felt pressured by accountants and regulators to undervalue assets in recent months.

Accountants countered that the bankers, like any investor or homeowner, simply do not like seeing their investments drop.

“People were saying, ‘We’ve got to face up to the fact that we are selling things we don’t know how to value,’ ” said Rebecca T. McEnally, senior analyst at the CFA Institute, a nonprofit organization for investors.

I think Ms. McEnally is exactly right. But it does not extend solely to existing exotic financial instruments. There are a number of hard-to-value assets which are traded every day -- many of which fall under the classification of "intangibles". Since the markets for these assets are thin, it is difficult for outside parties to understand the valuation -- which is created in a private negotiation between the buyers and sellers. What new need is a system for better transparency in these hard-to-value assets. And a greater understand and appreciation for their volatility. Any system created to deal with the current hard-to-value financial instruments needs to also understand these other assets -- and can be used for a more general model of asset valuation, including for intangibles.

Posted by Ken Jarboe at 10:10 AM | Comments (0) | TrackBack

Earnings manangement - on the downward side

Stories about companies' "earnings management" are well known. But here is a study about using earnings management in a different way -- not to manage the perception of Wall Street but to manage the perception of Washington -- Accounting Information as Political Currency — HBS Working Knowledge:

Such "downward earnings management," as it is known in accounting, seems to have been motivated by the desire of contributing firms to not taint preferred candidates with association to the political red flag of 2004—outsourcing—as well as to ensure future benefits and avoid future costs in regulatory matters.

Is "earnings management" a part of reputation management? And should we classify it as an intangible capability?

Posted by Ken Jarboe at 9:24 AM | Comments (0) | TrackBack

May 19, 2008

Entrepreneurship as the next American frontier

An interesting essay by Michael Malone in today's Wall Street Journal (The Next American Frontier):

The entire world seems to be heading toward points of inflection. The developing world is embarking on the digital age. The developed world is entering the Internet era. And the United States, once again at the vanguard, is on the verge of becoming the world's first Entrepreneurial Nation.

At the Chicago World's Fair in 1893, Frederick Jackson Turner delivered a paper to the American Historical Association – the most famous ever by an American historian. In "The Significance of the Frontier in American History," he noted that, according to the most recent U.S. census, so much of the nation had been settled that there was no longer an identifiable western migration. The very notion of a "frontier" was obsolete.

For three centuries the frontier had defined us, tantalized us with the perpetual chance to "light out for the territories" and start our lives over. It was the foundation of those very American notions of "federalism" and "rugged individualism." But Americans had crossed an invisible line in history, entering a new world with a new set of rules. What Turner couldn't guess was that the unexplored prairie would become the uninvented new product, the unexploited new market and the untried new business plan.

Malone highlights a number of changes taking place in the I-Cubed Economy, such as more innovation, more technology, more start-ups and more networked production. Not sure all this adds up to an "entrepreneurial" nation. But it does, as we have argued in this blog, mean major shifts. As Malone says:

The economy will be much more volatile and much more competitive. In the continuous fervor to create new institutions, it will become increasingly difficult to sustain old ones. New political parties, new social groupings, thousands of new manias and movements and millions of new companies will pop up over the next few decades. Large corporations that don't figure out how to combine permanence with perpetual change will be swept away.

But, that could be said for a number of eras in history - including the relatively short period of American history. Things change and things remain the same. It will be interesting to see what part of the "permanence" remains as part of this latest upheaval.

Posted by Ken Jarboe at 12:00 PM | Comments (0) | TrackBack

Reviving an intangible

The Sunday New York Times magazine had a great story on Can a Dead Brand Live Again? -- about reviving old brands. The story focuses on the brand management company of River West Brands:

Marketers like to talk about something called brand “equity,” a combination of familiarity and positive associations that clearly has some sort of value, even if it’s impossible to measure in a convincing empirical way. Exploiting the equity of dead or dying brands — sometimes called ghost brands, orphan brands or zombie brands — is a topic many consumer-products firms, large and small, have wrestled with for years. River West’s approach is interesting for two reasons.

One is that for the most part the equity — the idea — is the only thing the company is interested in owning. River West acquires brands when the products themselves are dead, not merely ailing. Aside from Brim, the brands it acquired in the last few years include Underalls, Salon Selectives, Nuprin and the game maker Coleco, among others. “In most cases we’re dealing with a brand that only exists as intellectual property,” says Paul Earle, River West’s founder. “There’s no retail presence, no product, no distribution, no trucks, no plants. Nothing. All that exists is memory. We’re taking consumers’ memories and starting entire businesses.”

The other interesting thing is that when Earle talks about consumer memory, he is factoring in something curious: the faultiness of consumer memory. There is opportunity, he says, not just in what we remember but also in what we misremember.

The trick, of course, is to find the right partners to make the products in such a way as to tap into those memories. For example, reviving Nuprin as a heartburn drug probably wouldn't work. But creating a slightly different set of Eagle snacks (another River West brand) that the original probably would. As the story notes:

One of Paul Earle’s professors at Kellogg was John F. Sherry Jr. (now at Notre Dame), who has devoted some study to “retromarketing” and “the revival of brand meaning.” In 2003 he wrote an article (with Stephen Brown of the University of Ulster and Robert V. Kozinets of Kellogg) on the subject for The Journal of Customer Behavior. “Retromarketing is not merely a matter of reviving dormant brands and foisting them on softhearted, dewy-eyed, nostalgia-stricken consumers,” they asserted. “It involves working with consumers to co-create an oasis of authenticity for tired and thirsty travelers through the desert of mass-produced marketing dreck.”

I wasn’t entirely sure what that meant, but Sherry turned out to be more straightforward in conversation. “There’s no real reason that a brand needs to die,” he told me, unless it is attached to a product that “functionally doesn’t work.” That is, as long as a given product can change to meet contemporary performance standards, “your success is really dependent on how skillful you are in managing the brand’s story so that it resonates with meaning that consumers like.”

So brand and product are still inextricable tied together. Like many other (but not all) intangibles, the tangible is part and parcel of what makes up the I-Cubed Economy.

Posted by Ken Jarboe at 10:41 AM | Comments (0) | TrackBack

May 16, 2008

SEC to require XBRL

As this morning's Wall Street Journal reports:

About 500 of the largest public companies in the U.S. would be required to "tag" data in financial reports starting this year, with smaller companies following over the next two years, under a proposal floated this week by the Securities and Exchange Commission.

The proposal, which the SEC approved 3-0, calls for large public companies that use U.S. accounting to electronically tag financial data starting with reports covering periods that end on or after Dec. 15. The smallest companies and those that use international accounting would come under the SEC's data-tagging requirement beginning in late 2010.

Data-tagging technology uses software called XBRL -- which stands for "extensible business reporting language" -- to code individual bits of information, such as revenue, making it easy to find and compare results across companies or time periods.

This is good news for those of us pushing for greater disclosure of information on intangible assets (admittedly a small step). XBRL can be used to tag both quantitative and qualitative information. So it creates a framework for easily identifying information - including information on intangibles.

Now the task is to make sure that intangibles are a routine part of that framework.

(For more on XBRL, see the recent report by the AICPA's Assurance Services Executive Committee: The Shifting Paradigm in Business Reporting and Oversight.)

Posted by Ken Jarboe at 11:51 AM | Comments (0) | TrackBack

Patent bill update

Intellectual Property Watch has posted the following story - Bush Administration Presses On For Patent Reform Bill This Year:

Despite an apparent stalemate on patent reform in the United States Congress, the Bush administration is still pushing for a bill to be completed this congressional session.

Speaking in California’s Silicon Valley this week, US Commerce Secretary Carlos Gutierrez acknowledged that talks over S 1145, the Patent Reform Act, had broken down in the US Senate. At the centre of the disagreement is the debate over how patent holders should be compensated for infringement. Senators need to be up to the challenge of “mustering the will to forge a compromise and get it to the president’s desk,” he said.

“We can do better than this. I believe there is a way forward to pass legislation that improves our patent system - already the envy of the world - and addresses many of the concerns raised by patent holders and industries,” Gutierrez added. He made similar remarks in an editorial in The San Jose Mercury News Sunday.

The story goes on to describe many of the behind the scene activities around the bill -- not a dead bill yet, but lots of work yet to be done in crafting a compromise. That is how the Senate works.

Posted by Ken Jarboe at 8:36 AM | Comments (0) | TrackBack

May 15, 2008

UK Innovation Nation

Once again, I think the British are showing how much they get it in the new I-Cubed Economy. In March, the Department for Innovation, Universities & Skills published its new innovation strategy report: Innovation Nation.

The report starts out with a very clear statement: the nature of innovation has changed:

In the past, innovation was thought of as a simple process of investment in fundamental research leading to commercialisation by farsighted management in industry. This process has traditionally been supported by supply-side policy initiatives.

However, innovation draws on a wide variety of sources and is driven as much by demand as by supply. The insights generated by basic science are critical to long-term innovation performance but the path they follow from the laboratory to the marketplace is long, complex and uncertain.

Other sources of innovation include the creative application of tried-and-tested technologies and the role of design in developing innovative products and services. Innovation is also not restricted to the private sector – increasingly the public sector is called upon (often in partnership with the private and third sectors) to innovate in the design and delivery of public services.

Enabled and accelerated by new technologies, innovation is becoming more open. Organisations are increasingly reaching outside their walls to find ideas – to universities, other companies, suppliers and even competitors. Users are also increasingly innovating independently or in collaboration with businesses or in the co-creation of public services. Government policy needs to recognise these new sources of innovation and, in particular, develop new instruments that drive demand for innovation as well as its supply.

They refer to this as a demand-driven innovation policy. This is something that US policy has not yet come to grips with – although writing of folks like Chris Hill (Post-Scientific Society) are pushing in that direction.

The report then goes on layout action items in a number of areas. I will try to summarize what I thing are some of the key areas:
• Use government procurement and regulation to create demand to innovation – in both the public and private sectors.
• Direct support to business innovation efforts, such as vouchers for companies to work with universities and national labs and creation of technology demonstration platforms. But this also includes “examining whether there is a role for Government in helping small firms obtain investment through better reporting of their intangible assets” and training UK export and business support specialists in IP management.
• Increased government investment in S&T, but also “broaden knowledge exchange between the research base and businesses into the arts and humanities and service sectors such as the creative industries.”
• Creating an international strategy to make the UK an attractive innovation-based location.
• Stepped up efforts to increase workforce skills, including establishing “at least one National Skills Academy (NSA) in every major sector of the economy. … Government is working with Peter Jones to develop plans for a National Enterprise Academy and with James Dyson to launch the Dyson School for Design Innovation.”
• A program of public sector innovation
• Building a regional innovation strategy that acknowledges that every region can be innovative in its own ways:

In the UK, innovation performance varies considerably from place to place. It reflects sectoral specialisation and history. Traditionally, the UK’s innovation policy has been concentrated on high-tech manufacturing and this will remain vitally important. However, in the future, spatial innovation strategies must build on each region’s distinctiveness. Moreover, because of the internationalisation of knowledge production, many UK regions will increasingly depend not on the creation of knowledge but on its absorption from elsewhere.

In other words, they are developing a systemic approach to innovation. Shouldn’t the US do the same?

Posted by Ken Jarboe at 10:19 AM | Comments (0) | TrackBack

May 14, 2008

Copyright reform

Speaking of IP reform bills, a copyright bill is moving through Congress -- the IP Pro Act (HR 4279). As the Washington Post reports (House Bill To Create Anti-Piracy Czar Advances), the bill is not without controversy. For one, the Justice Department objects to the creation of an IP czar in the White House:

"Establishing such an office would undermine the traditional independence of the Department of Justice in criminal enforcement matters," department spokesman Peter Carr wrote in an e-mail yesterday. "Establishing such an office in [the White House] would codify precisely the type of political interference in the independent exercise of DOJ prosecutorial judgment that many members of Congress and senators have alleged over the last couple years."

Not withstanding that objection, the House passed the bill last week by a vote of 410 - 11. In part, that is because many of the provision had been worked out. As the Post story (written before the final House vote) pointed out

Early opponents fought hard to tone down what they said were the draconian elements of the bill.

"We just generally didn't like the whole tenor of, 'Oh, my God, we need to cut off people's toes' if they commit copyright infringement," said Gigi B. Sohn, president of Public Knowledge, a public-interest group that has advocated reducing some penalties for copyright violation. Sohn said her group is generally comfortable with the bill as approved yesterday but said Public Knowledge has its own six-point plan for revising copyright laws that it will seek to have introduced as legislation this summer.

That six point plan (Six Steps to Digital Copyright Sanity: Reforming a Pre-VCR Law for a YouTube World | Public Knowledge) covers:

1. Fair Use Reform. The existing four-part legal test for fair use should be expanded to add incidental, transformative and non-commercial personal uses of content. In addition, Congress should provide that making a digital copy of a work for indexing searches is not an infringement.
2. Limits on Secondary Liability. The 1984 Sony Betamax decision by the U.S. Supreme Court protecting a manufacturer of technology from liability as long as the technology has “substantial non-infringing use” should be codified.
3. Protections Against Copyright Abuse. The Digital Millennium Copyright Act (DMCA) should be expanded to deter copyright holders from filing frivolous requests that material be taken down from a web site. Congress should provide legal relief for legitimate users of a work should copyright owners overstate their rights.
4. Fair and Accessible Licensing. Congress should simplify the Byzantine world of obtaining rights to use a musical work, and should require broadcasters to pay performance royalties as satellite and Internet radio do.
5. Orphan Works Reform. Congress should limit damages for the use of works for which a copyright can not be found after a good-faith search. In addition, competitive visual registries should be established to protect visual artists and photographers.
6. Notice of Technological and Contractual Restrictions on Digital Media. Copyright holders should be required to provide clear and simple notice to consumers of any technological or contractual limitations on a consumer’s ability to make fair use or other lawful use of a product. There would be legal consequences if that notice isn’t followed.

So, we might see a busy fall with Congress going after both patent and copyright legislation. Or not. Stay tuned.

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Patent bill update

Rumors circulate in the blogsphere about the fate of the Senate patent reform bill (S 1145). IAM Magazine declares the bill dead: A complete waste of time that has weakened the US patent-owning communities - Intellectual Asset Management:

It has looked dead for a month or so. And now it is. The Patent Reform Act has been officially withdrawn from the schedule of the US Senate and with that decision goes just about any chance it had of being enacted. Once it became clear that no deal was going to be reached over damages apportionment, the writing was on the wall for the proposed legislation When John Whelan, on secondment from the USPTO, packed up his things and left Senator Patrick Leahy’s office and Leahy’s chief counsel started to work on other things, the game was up.

Others have a different take: Patent Reform Act Stalls in the Senate | Electronic Frontier Foundation:

There's no schedule for when the bill will return. Most sources are reporting that the bill is not dead, but it appears that the committee members will have to resolve their differences before patent reform is to continue.

According to Arstechnica: Patent Reform Act suffers serious setback, stalled in Senate:

That doesn't mean that it can't be revived at a future date, but the bill seems to have drawn some opposition at nearly every step of the way, so its passage will likely remain a challenge.

I think "challenge" is the right way to describe this. But having been around the Senate for some time, I can tell you that May is way too early to declare anything dead. Given the possible repeat of a budget deadlock, there is a possibility that this Congress could be in session for a long time. Then again, everything could get wrapped up quickly and everyone home by Columbus Day. You never know.

In any event, there is next year. And this is an issue that is not going away.

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May 13, 2008

Reading and technology

Here is an interesting article on technology and reading -- the cover story in the Columbia Journalism Review, by Ezra Klein -- The Future of Reading. Speaking specifically about the portable e-reader Kindle, he states:

It’s not just that the technology is cool, however. The Kindle is credible. As a product of Amazon, it’s intertwined with the world’s largest online bookstore, legitimized by the one company that can lay some claim to having already changed the way we use, or at least acquire, books. The real question, though, is what took so long? Though Amazon has transformed the way we purchase content, its business model has always contained a crucial inefficiency: Amazon gives you unlimited, free, instant access to text about books, so long as you read it on your computer screen. Then, when you’re ready, they’ll also sell you some text, only it won’t be unlimited or instant. Instead, it will be printed on mashed-up tree, put in a box, and sent across the country to you. What’s in that box is simply more text, no different from what you read on your computer, save for the wasteful, inefficient, and costly method of production. For all that we rebel against the idea, examined rationally, the death of the book would be no surprise.

. . .

The Kindle is far less the start of a revolution than the codification of one. It’s a declaration of war long after most of the contested lands have been conquered.

. . .

content is king. It will seek out the vehicle best suited to its absorption or enjoyment. Sometimes, it will occupy multiple mediums at the same time, in order to appeal to the largest audience (think of how books live happily alongside audio books, and then are turned into movies). But the endless discussion as to whether books are dead tends to conflate “books” with “text,” and thereby obscures far more than it illuminates. Books will not die, after all, unless we want them dead. They have survived the advent of radio, television, the Internet, and Nintendo. Rather, they will be challenged once again, and books’ content will find new ways to express itself more effectively.

. . .

The point was driven home to me while reading William Powers’s brilliant essay “Hamlet’s BlackBerry: Why Paper Is Eternal,” which considers the evolution of paper and the way it has subtly shaped not only the way we read, but what we read. “The persistence of paper flies in the face of a widely held popular assumption about technology,” Powers writes, “propagated over the years by breathless futurists and science-fiction writers.” True enough. But it was at about that moment that I realized I was reading “Why Paper Is Eternal” paperlessly, on my computer. I had downloaded it for free, which could be done because there were no shipping or production costs associated with the electronic file, and I decided to read it in my PDF viewer (the wonderful freeware Skim, for those who are interested) so I’d be better able to jot down thoughts and pull quotes. Paper may be eternal, but for some purposes, it’s simply inferior.

. . .

At the end of the day, the true advances won’t come in the Kindle, but in the content. Just as the capabilities of the device will shape what authors decide to do with it, so too will the decisions of authors shape the evolution of the device.

Fascinating! Too many arguments about technology fall into the trap of either technological determinism or an anti-technology rant. Klein has hit it right on with his analysis of the interaction. Just as papyrus (the scroll) replacing clay tablets and the book replacing the scroll changed how we read, the electronic form will also change how we read.

But will it change how we shop and how we decorate? The chaotic bookstore is still the place we can stumble into a new find. The large, well stocked library is still the outward sign of a certain status. Books have a visual character beyond their content. I would how that feature of our lives will change and adapt?

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May 9, 2008

Export bottle neck

The trade data shows an export slow down in March. But exporters are complaining of a bottleneck -- according the Wall Street Journal (Container Shortage Frustrates U.S. Exporters:

Surging U.S. exports on a range of goods including corn, soybeans and frozen pork are hitting a bottleneck in the nation's overloaded ports, threatening to crimp profits for U.S. farmers and agricultural processors at a time when it is easier than ever for them to sell their goods abroad.

The problem can be traced to a shortage of once-plentiful shipping containers and other transportation equipment, along with a lack of space on outgoing ships. The shortage is affecting other industries, including exporters of manufactured goods and sellers of scrap metal and paper.

Is the March trade simply lagging the surge? Or are the bottlenecks causing the data to reflect an export slowdown? This is an important policy question, as it relates to whether or not the changing currency levels are having an impact on the trade deficit. We may have to wait until next month to learn more.

Posted by Ken Jarboe at 9:53 AM | Comments (0) | TrackBack

March trade in intangibles

On the surface, the March BEA trade data released this morning looks good – as the deficit declined by $3.5 billion to $58.2 billion, down from $61.7 billion in February. However, the good news of declining imports was matched by the bad news of declining exports. Thus the lower deficit is more a sign of the economic slowdown than of the effects of currency changes (which should have boosted exports). As the Wall Street Journal points out, “The decrease in the trade gap followed two straight months of widening deficits, as trade has provided less of a boost to the economy so far this year than it did in late 2007.”

Our intangible trade balance virtually unchanged in March, with an ever so slight increase of $45 million. Both imports and exports of both business services and royalties increased. But the trade surplus in business services actually declined as import outpaced exports in that category. The trade surplus in royalty payments made up the difference to produce that very slight overall positive growth in intangibles trade. The revised numbers for February show a larger decrease in our monthly surplus than previously reported (declining by $76 million rather than the earlier reported $37 million).

The deficit in Advanced Technology Products was also almost unchanged, with a very small decline in March of $67 million to a deficit of $3.27 billion. Unlike the overall trade situation, both imports and exports grew slightly - mainly in electronics and information and communications technology (ICT). The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.

Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.

Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

Posted by Ken Jarboe at 8:58 AM | Comments (0) | TrackBack

May 8, 2008

Conference on measuring and enhancing intangibles

From the National Academy of Sciences:

Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth

Monday, June 23, 2008, 8:30-5:30 PM and reception
National Academy of Sciences Lecture Room
2100 C Street, N.W., Washington, DC 20418

Investment in intangibles, according to a 2006 Federal Reserve Board staff analysis, exceeds all investment in tangible property and, if properly accounted for, would raise US productivity growth by 20 percent for the period 1973-1995. These assets -- computer software, R&D, intellectual property, workforce training, brand equity and organizational capabilities -- now account for three quarters of economic activity. Increasingly, they are a principal driver of the competitiveness of US-based firms, economic growth, and opportunities for American workers. Some intangibles, like intellectual property, are being securitized, auctioned, and traded; a few years ago no one contemplated the existence, let alone the extent, of such "technology markets." Yet despite these developments many intangible assets are not reported and are treated in the national economic accounts as expenses rather than investments. And there is no coordinated national strategy for promoting intangible investments apart, perhaps, from R&D.

On June 23, 2008, The National Academies' Board on Science, Technology and Economic Policy (STEP), in cooperation with the Committee on National Statistics, will hold a one-day conference sponsored by the Commerce Department's Bureau of Economic Analysis in response to a congressional directive. The agenda includes discussions of

> what are intangibles and how they work
> how intangible investments compare and contribute to growth in the US, UK, and Japan
> how intangibles are created and used by firms
> what new markets in intangibles are emerging
> what government statistical agencies are doing to gather data on intangibles and
> what the government's role should be in supporting markets and promoting investment in intangibles

Confirmed speakers include Commerce Under Secretary Cynthia Glassman; Irving Wladawsky-Berger, IBM; Jonathan Haskel, University of London and HM Treasury; Carol Corrado, Conference Board; Ken Flamm, University of Texas-Austin; Laurie Bassi, McBassi & Co; Baruch Lev, NYU Stern School; Ron Bossio, Financial Accounting Standards Board; Doug Lippoldt, OECD; Nir Kossovsky, Steel City Re; and Ken Jarboe, Athena Alliance.

You can register online for this conference.

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Scary statistic

From David Wessel's column in today's Wall Street Journal -- Keeping Families Above Water -- come this scary statistic:

Moody's Economy.com estimates that one in roughly 12 American families with mortgages -- four million in all -- already owe more than the current value of their homes. They are said to be "underwater." The firm predicts that by early 2009 nearly one in four, or 12 million, homeowners will be underwater. Most will continue to pay mortgages on time. Many won't, and are at risk of losing their homes.

25% of all mortgages will be underwater!?! That has a whole series of ramifications -- from high levels of foreclosure to evaporated retirement savings (where the home was the major nest egg) to future impacts on the reverse mortgage industry.

Besides being a frightening fact of our economic weakness, this will be a test of economic theory. The fundamental premise of economics is that people act rationally and in their economic self-interest. Economic self-interest would tell those homeowners that they are better off walking away from those mortgages.

Let us hope that economic theory is wrong and that the newly emerged area of behavioral economics may tell us more about what will actually happen.

BTW -- in an interesting side comment, Wessel notes the following:

As the Treasury argued in a recent PowerPoint presentation: "Homeowners who can afford their mortgage but walk away because they are underwater are merely speculators." (It's a bit jarring to hear the Treasury vilifying people who are acting in their economic self-interest.)

Has the Treasury Department converted wholesale to behavioral economics?

Posted by Ken Jarboe at 9:34 AM | Comments (0) | TrackBack

UK intangible economy

In previous postings, I've discussed the papers by Corrado, Hulten and Sichel (C-H-S) on measuring the intangible economy in the US. Last summer, Mauro Giorgio Marrano, Jonathan Haskel and Gavin Wallis (M-H-W?) released a similar analysis of the UK economy - What Happened to the Knowledge Economy? ICT, Intangible Investment and Britain's Productivity Record Revisited. Their study comes to the same basic conclusions (in the UK context) as the C-H-S studies. Economic activity and productivity were greater than previously thought -- once intangibles are treated as an investment rather than an expense.

The paper also makes an interesting observation about the differences between the US and the UK. R&D makes more of a contribution to productivity in the US; design and training make more of a contribution in the UK.

That tracks other information I've had over the years. As I've mentioned before (see "U.K. Leads; U.S. Lags"), the UK has put a great amount of emphasis on design. Training and skills development has been such an important part of their innovation strategy that they combined their Department of Trade and Industry and Department for Education and Skills into a new Department for Innovation, Universities and Skills (DIUS).

The studies by C-H-S and now by M-H-W are invaluable aids to both understanding the economic situation and framing appropriate policy responses. They will be featured as an up coming one day conference this summer at the National Academy of Sciences (which I am helping to put together) -- more on that later.

Posted by Ken Jarboe at 9:24 AM | Comments (0) | TrackBack

May 6, 2008

Determining the useful life of intangibles

FASB has recently issued new staff guidance on intangibles -- FASB Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets. According to the project summary:

The objective of this project is to provide guidance on the determination of the useful life of intangible assets in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets. In particular, the Board aims to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141, Business Combinations, and other applicable accounting literature.

In other words, this deals with the technical problem of the potential difference, in accounting terms, between the expected cash flow of an intangible (which may be determined by contractual arrangements that may or may not be extended) and what is considered "useful life” of the asset. (See also BNA Software's explanation of the guidance.)

OK, so now that this technical matter is resolved, can we move on to the real issue: that 141 and 142 only apply to intangible assets acquired from outside. The accounting profession still hasn't faced the issue of how to account for internally generated intangibles -- such as a company's patent portfolio. In today's I-Cubed Economy, that is a huge gap in GAAP.

Posted by Ken Jarboe at 11:19 AM | Comments (0) | TrackBack

Co-Creation

Over the years, I have used a number of names and terms to describe the new direction in production: joint production; user-driven innovation; the fusion of services and manufacturing; "just-in-time-and just-for me;" "high-tech, high-touch;" production v. transaction v. problem solving. Now C.K. Prahalad and M.S. Krishnan have given it a new title -- "Co-Creation" in their new book The New Age of Innovation: Driving Cocreated Value Through Global Networks. (FYI - There is even a blog on the book: New Age Of Innovation | A Blog On Transforming Business Models.)

Geoffrey Colvin explains the heart of the idea in his column today in the Washington Post - 'Co-Creation' Is Your Latest Invention:

The idea is that the most successful companies no longer invent new products and services on their own. They create them along with their customers, and they do it in a way that produces a unique experience for each customer. The critically important corollary is that no company owns enough resources -- or can possibly own enough -- to furnish unique experiences for every customer, so companies must organize a constantly shifting global web of suppliers and partners to do the job.

. . .

If this sounds like the old mass-customization idea, it decidedly isn't. That concept was about a company offering customers many choices on a wide range of product or service attributes, but the company still had to decide which choices to offer and then deliver them. In co-creation, the choices are infinite, and the company neither imagines nor delivers them all. Similarly, if this sounds like Web 2.0, it sort of is, but it's much bigger, since it's more than an Internet phenomenon.

The challenges are clear. Most companies, especially old ones, are organized exactly wrong to capitalize on co-creation. They're built around the processes of creating products and services and managing owned resources -- just the opposite of the skills needed in the new model. In the same way, most managers (especially old ones) lack an intuitive feel for how the new model works.

This last point is especially important. Our organizational structures don't work for the new model. How do companies re-align themselves? What does it mean for economic prosperity and job creation? And what are the public policies needed to foster this re-alignment? Key questions for the I-Cubed Economy.

Posted by Ken Jarboe at 10:03 AM | Comments (1) | TrackBack

May 5, 2008

Sharpening Your Skills: Brand Management

And, finally, this on brands from the Harvard Business School: Sharpening Your Skills: Brand Management — HBS Working Knowledge. A collection of articles on brand management.

Posted by Ken Jarboe at 11:05 AM | Comments (0) | TrackBack

Miley as a brand

Continuing today's kick on reputation, there is this story last week from Forbes - Who's Minding Miley?:

Miley Cyrus, the 15-year-old star of Disney's Hannah Montana juggernaut, is the latest tween sensation to threaten her innocent reputation--and give her parent company a headache--after posing for racy photos that appeared online this weekend.

But the photos- including one of Cyrus topless, clutching a blanket over her chest- weren't taken by an amateur with an axe to grind. Instead, they were part of an Annie Liebowitz spread that will run in an upcoming issue of Vanity Fair. Cyrus apologized to her fans and told People magazine that she "never intended for any of this to happen."

Intentional or not, fans--and Disney--better get used to it. Like the Olsen twins and other stars before her, Cyrus is clearly growing up. But her risqué transition from tween to teen risks alienating her core fan base, and their purse-holding parents.

Point well taken: brands change -- especially if they are teenagers who grow up. The story contrasts so far success of Daniel Radcliffe (Harry Potter) and the failure of Lindsay Lohan and Britney Spears. But that just raises the question of what is the brand. Radcliffe wasn't the brand - Potter was. So Radcliffe can move on to other roles (not as easy as it always sounds -- Leonard Nimoy never did shed Mr. Spock, while William Shatner finally made the transition with Boston Legal). Lohan and Spears themselves were the brand.

And customers for the brand also change -- and get older. Maintaining customer loyalty can be hard as customers move in and out of your target demographic. GM succeeded for a number of years by having a line of products that pulled people to the higher level as their economic situation improved. That finally fell apart - but it was a great example of a form of brand transitioning.

Bottom line: brands are not static. And the management and valuation of brands needs to take that into account.

Posted by Ken Jarboe at 10:17 AM | Comments (0) | TrackBack

Protecting reputation

Some companies seem to be moving more quickly now days to protect they their reputations. Take, for example, the response to the bisphenol A (BPA) controversy as noted in this weekend's Washington Post - Speeding Up Safety:

After a government panel said there was "some concern" that the chemical bisphenol A could be harmful to infants and small children, it took less than a week for Wal-Mart and Toys R Us to announce that they would stop selling baby bottles that were made with it.

The swift response stood in stark contrast to the drawn-out reaction to concerns about another chemical, polyvinyl chloride, or PVC, that go back to the 1970s. Ikea came up with a plan to remove PVC from its products and packaging in the early 1990s. Sears Holdings, the parent company of Sears and Kmart, pledged to do so just last December.

The actions of Wal-Mart and Toys R Us were also notable for what the companies didn't do: wait for lawmakers or federal regulators to step in or for scientific consensus about bisphenol A's negative health effects. In fact, they chose to disregard the Food and Drug Administration's position that food containers made with BPA were safe.

Maybe it helps that both Wal-Mart and Toys-R-Us have gone through the PR wars before. In this case, they want to be ahead of the curve.

In any event, this case illustrates the value of reputation and brand. Brand is not an asset that hangs out there by itself. The brand is only as good as the products/services/actions that back it up. Increasing your reputation for safety is one way to improve your brand -- especially if your primary market are parents of small children (ala Toys-R-Us).

Posted by Ken Jarboe at 8:59 AM | Comments (0) | TrackBack

May 2, 2008

Reputation management

The previous posting illustrated one way of protecting a company's reputation: a proactive approach to getting ahead of problems. There are other tools as well. One is better communications -- as a number of companies have found out. Telling the world about your corporate values and what you do turns out to make good financial sense (see earlier posting.)

Then there is the PR approach. This way relies on what has become to be call "reputation management." Companies can hire services that monitor the Internet and other media for complaints and comments (see earlier posting). But, as Business Week (Do Reputation Management Services Work?) points out:

It's still hard to say how companies are using reputation management services, but industry players say clients fall into two camps. Some want to understand and respond to customer complaints; others often just want negative posts to go away. "The majority of inquiries that I get are from people who are looking to do a cover-up," says Andy Beal, a marketing consultant and co-author of Radically Transparent: Monitoring and Managing Reputations Online. "They're not necessarily interested in trying to fix the problem. They just want to make sure that other people can't find it."

Again, same point as before. For a brand to have value, it has to be backed by something that customers want. Trying to simply hide the bad stuff may work for awhile. But eventually you have to produce the good stuff if you are to survive.

Posted by Ken Jarboe at 10:39 AM | Comments (0) | TrackBack

The Cognitive Age

New York Times columnist David Brooks has discovered "The Cognitive Age". First he dismisses the "globalization paradigm":

Globalization is real and important. It’s just not the central force driving economic change. Some Americans have seen their jobs shipped overseas, but global competition has accounted for a small share of job creation and destruction over the past few decades.

Then he lays out the case for a different view:

The central process driving this [economic shift] is not globalization. It’s the skills revolution. We’re moving into a more demanding cognitive age. In order to thrive, people are compelled to become better at absorbing, processing and combining information. This is happening in localized and globalized sectors, and it would be happening even if you tore up every free trade deal ever inked.

The globalization paradigm emphasizes the fact that information can now travel 15,000 miles in an instant. But the most important part of information’s journey is the last few inches — the space between a person’s eyes or ears and the various regions of the brain. Does the individual have the capacity to understand the information? Does he or she have the training to exploit it? Are there cultural assumptions that distort the way it is perceived?

The globalization paradigm leads people to see economic development as a form of foreign policy, as a grand competition between nations and civilizations. These abstractions, called “the Chinese” or “the Indians,” are doing this or that. But the cognitive age paradigm emphasizes psychology, culture and pedagogy — the specific processes that foster learning. It emphasizes that different societies are being stressed in similar ways by increased demands on human capital. If you understand that you are living at the beginning of a cognitive age, you’re focusing on the real source of prosperity and understand that your anxiety is not being caused by a foreigner.

It’s not that globalization and the skills revolution are contradictory processes. But which paradigm you embrace determines which facts and remedies you emphasize.
Politicians, especially Democratic ones, have fallen in love with the globalization paradigm. It’s time to move beyond it.

Brooks is absolutely correct that the skills revolution (and technology) play a big role in the changing economic structure and the shift to the I-Cubed Economy. He is dead wrong, however, in positing this as "trade versus technology". Globalization and the skills revolution are the woof and weave of the tectonic shift occurring in our economy. To leave one out is an incomplete analysis. Brooks chides the Democrats for their one side view (not mentioning that the Republicans have a mirror-image view - "globalization is good"). Ironically, his analysis falls into the same trap on the other side. By ignoring and dismissing globalization as part of the situation, he misses an opportunity to look at how the two interact and impact one another.

The Democrats need to tell the entire story. But so does Mr. Brooks.

Posted by Ken Jarboe at 10:24 AM | Comments (0) | TrackBack

Internet tax case

Just a heads up on a new case on the old Internet sales tax issue:

Amazon Sues Over State Law on Collection of Sales Tax - New York Times:

On Friday, Amazon filed a complaint in State Supreme Court in Manhattan objecting to the law, which was approved as part of the $122 billion state budget that Gov. David A. Paterson signed last week. The law is expected to raise about $50 million.

The issue is not whether people should pay tax when they buy goods from out-of-state sellers like Amazon. For decades, the state has required them to pay sales or use tax.

The question is whether the vendors must collect that tax on behalf of the state. Generally, only those companies that have a physical presence — like an office or store — in the state where the purchase is made are required to collect the tax.

The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates — from big publishers to tiny blogs — that feature links to its products. The state law says that thousands of those have given an address in New York State, although the addresses have not been verified.

The law says that if even one of those affiliates is in New York State, Amazon must collect sales tax on everything sold in the state, even if it is not sold through the affiliate. This is an extension of an existing rule that companies employing independent agents or representatives to solicit business must collect taxes for the state.

Amazon’s suit challenges the constitutionality of this interpretation and seeks a declaratory judgment that it is invalid.

Posted by Ken Jarboe at 10:12 AM | Comments (0) | TrackBack

Good job numbers ... maybe

Compared to last month, today's employment numbers are good news.