Friday, April 20, 2018

How Companies Become Digital Champions

PWC has published a study in which they interviewed 1,155 manufacturing executives in 26 countries to develop an index that ranks companies by digital operations maturity, from Digital Novices, Digital Followers, Digital Innovators to Digital Champions.

Out of that study, they developed a blueprint as to how companies can build themselves into digital champions, a distinction that only 10% of companies hold.

Digital champions are defined in the study as companies that have fully integrated digital technology into their systems end-to-end. They analyzed the data according to four ecosystems, which were Customer Solutions, Operations, Technology and People. It's important to note that these are not separate systems in the conventional sense but rather layers of systems within the company. Integration using digital technology is the key.

"Digital Champions distinguish themselves by advancing their capabilities through all four ecosystem layers, creating an organizational environment that takes the greatest advantage of the opportunities from digitization."

They found that companies in the Asia-Pacific area have the most leaders.

The report is available on the PWC website.

Monday, April 16, 2018

AI - Develop, Outsource or Buy?

A recent Gartner survey showed that 4% of companies have implemented Artificial Intelligence and 46% plan to do so. That shows two things - AI is in it's infancy and interest in it is strong.

How they actually implement is an open question. They can develop it on their own, but that's really expensive and requires a major effort. Or they can outsource it from providers like Amazon or Google. A third approach is to buy it from their software provider, which involves waiting until they offer it, and then determining if it fits their organization.

The latter approach is bound to be quite popular for the larger organizations and many medium ones that use SAP or Oracle, because a great many do use one or the other of these. Also, typically SAP or Oracle as the case may be will usually have invested in learning about the needs of the company and can help develop solutions that will be most likely to be a fit.

Most companies will not build their own AI apps. So either of the other approaches, the issue will be how to establish a competitive advantage.  Forrester Research's Brandon Purcell has the answer to that issue, "Data will be the key source of competitive differentiation in the world of AI -- emerging data sources, innovative data transformations, and business-infused data understanding will lead to better models and ultimately better results from AI.

Once again, data rules the day.

For more, check this article.

Wednesday, April 11, 2018

The Future of Corporate Reporting is Digital

The UK’s FRC Lab issued a deep dive report in December that urges regulators, companies, investors and technology providers to work together to realise fully the potential of XBRL and to respond to the challenge of a new European Single Electronic Format (ESEF) for digital corporate reporting due to come into effect in 2020.

XBRL has become the leading technology in the world for digital reporting. It is required by more than 100 regulators in 70 countries, including the SEC, which last year implemented requirements for foreign private issuers to file their reports in XBRL. That was a significant requirement for all FPIs around the world using the IFRS accounting standards. This includes over 300 companies in Canada, most of its largest companies.

In the EU, the ESEF requirement takes effect in 2020. That requirement calls for the use of XHTML combined with iXBRL to present reports. All EU Companies will be required to follow this approach. In the UK, iXBRL is already required by the tax authority and some 2300 companies must comply. Also, over 2000 companies file their reports in iXBRL with Companies house, the national companies registry.

The deep dive report was triggered by the forthcoming advent  of ESEF and a recognition that preparation is required to make it work properly.

The movements of the US, UK and others towards digital reporting point to the fact that a world where corporate reporting is based on paper is rapidly coming to a close. In an increasingly digital world, where companies are engaged in digital transformation at all levels, the expectation of a continuance of paper based reporting is absurd. Paper reports will survive for some time, but they will be secondary reports, expensive relics of the past.

The deep dive report fully supports the power of XBRL and contains several important suggestions, including:
  • for regulators to work together to align reporting requirements and thereby reduce reporting burden.
  • for executives and Boards to ensure that suitable governance is in place so that digital reports meet the needs of users. Companies need to have appropriate processes and procedures in place to manage disclosure in a digital age.
  • for users to familiarise themselves with Inline XBRl and structured financial statements, to ensure that they can maximise the benefit that digital disclosure of fundamental data can deliver.
  • for software vendors to work to educate the market and to continue to innovate in the delivery of high quality software that is easier, more intuitive and more accessible for the preparer community.
Here is a link to the (PDF!) report.

Monday, April 09, 2018

Need for A Stronger Role for Libraries in Digital Information Consumption

With all the fuss during the past year on the reliability and truth of information, especially that available through the digital media and the news media, has led to renewed interest on how people can be confident about the information they have available to them.

As part of the research on this topic, Pew Research Centre did a survey last year on the types of information available and the feelings and attitudes of people about that information. They explored factors such as the following. "How interested are they (consumers) in the subject? How much do they trust the sources of information that relate to the subject? How eager are they to learn something more? What other aspects of their lives might be competing for their attention and their ability to pursue information? How much access do they have to the information in the first place?"

An analysis off these factors led to a conclusion that two main elements contribute to the level of their enthusiasm about information - "their level of trust in information sources and their interest in learning, particularly about digital skills."

Other studies have shown that people must have some trust in the information in order to be able to use it intelligently. But what to trust in the digital world, particularly that of the internet, is a difficult challenge. Levels of sophistication about information reliability tend to vary with levels of education. Also, gaining access to the information requires a certain level of digital skill with the tools being used. This in turn requires some desire to learn those technologies. This desire to learn varies as well. Often the level of sophistication about the information and the desire for learning follow the same track in tandem.

While the Pew study concluded that there is not a "typical user" out there because of the spread of the variations across the population, there is an obvious possible role for a learning mechanism for those who are at all willing to take part in learning activities, which according to the results constitute a large proportion of the population. Pew points to the libraries as a possible resource in this effort.

AS the Study says, "Library users stand out in their information engagement. Overall, about half (52%) of adults have visited a public library or connected with it online in the past year. Those library users are overrepresented in the two most information-engaged groups. Some 63% of the Eager and Willing were library users in the past year, while this is true for 58% of the Confident. Additionally, both groups are much more likely than others to say they trust librarians and libraries as information sources."

Something to think about, especially for those who think that libraries are obsolete. Here's a link to the Pew Study.

Wednesday, April 04, 2018

What we Mean by Information Integrity

With the growing focus on data for purposes of decision making, whether it be big data or regular internal data, there is a growing need for a focus on information integrity. However, what exactly is meant by information integrity is not widely understood.

In 2013, the AICPA Assurance Services Executive Committee’s Trust Information Integrity Task
Force in conjunction with the Canadian Institute of Chartered Accountants published a paper on this topic. The paper provides a full explanation of the meaning of information integrity.

In that paper, "information integrity is defined as the representational faithfulness of the information to the underlying subject of that information and the fitness of the information for its intended use."

These two concepts - representational faithfulness and fitness for intended use - form the core of information integrity.

Representational faithfulness is determined by how well the information "represents the subject that it purports to represent. For example, a weather report is the representation of the weather. Therefore, the integrity of the weather report depends on how well it represents the weather."

The other concept - fitness for use, is clearly related to the concept of representational faithfulness since if the information does not fairly represent the subject, it will be of little use.  But fitness for use goes well beyond this idea. The paper points out that "information is prepared for a specified purpose and includes: (1) the observations about the characteristics of the specific events or instances to which it pertains, (2) information about the environment in which the events occurred or the instances existed and (3) other information necessary for the observations to be used for their intended purpose."

This additional information is often referred to as meta-information. "Information integrity is determined based on both the information’s consistency with its meta-information and its representational faithfulness. Therefore, information integrity includes the accuracy, relevance, precision, timeliness and completeness of the information and its meta-information. Information that is accurate, relevant, precise, timely and complete for a particular purpose can be termed to be “fit for purpose.”

That's quite a handful to deal with. It requires some dedicated effort by management to assess the integrity of the information it is using, but this effort is crucial to making sound decisions.

The paper has some ideas for how management can obtain the assurance they need, ranging from making sure they understand the context of the information to obtaining an independent report from an information assurance professional. It's an area that deserves a lot of attention. A copy of the ASEC report can be obtained on the AICPA site.

Tuesday, April 03, 2018

The Need for Trust in Data

The rise of usage of big data, often from outside the company, with the use of data analytics enhanced by Artificial Intelligence in making decisions has led to a confluence of issues around the question of whether the data can be trusted. Since automated decision making can often operate independently of people intervention, and in fact operates along with people, the issue becomes one of governance.

C-suites are beginning to consider this issue since they are in charge of overall governance. They are asking - how does the involvement of machines in decision making affect corporate governance?

In a recent study commissioned by KPMG International, Forrester Consulting surveyed "almost 2,200 global information technology (IT) and business decision makers involved in strategy for data initiatives.The survey found that just 35 percent of them have a high level of trust in their own organization’s analytics."

This is an important issue. Trust is essential in order for people to interact effectively with machine generated decisions. Lack of trust will inevitably lead to the development of informal workaround processes that will not serve the organization well in the long term.

What it means is that machines making decisions need to be managed along with people. So organizational responsibility for data and for analytics needs to be assigned. To establish trust, there needs to be some assurance about the quality and integrity of the data and the integrity of the analytics (models and algorithms) being used.

It's a major challenge. Check out the KPMG Report here.

Wednesday, March 28, 2018

The need for Technology Training

Recent surveys show that managers lack training in the technology they are supposed to be using; in which their organization has made substantial investments, but can't get the full benefit.  For example, West Monroe Partners, a consulting firm, did a survey of 500 corporate managers a few months ago. They found that 44% of the managers received no training in their automation tools. Combine this with the fact most of them are bogged down in administrative tasks, and you can see why this is a problem. Their time for self-learning is very limited.

It's commonly felt that young people grow up with the technology. But they don't grow up with mush that's useful. Facebook, Instagram and Twitter are not core tools for enhancing manager effectiveness.

They learn some of the basics in apps like Excel, Powerpoint and Word in school, and this helps, but it isn't enough for the job market.

Universities generally, with some notable exceptions, have done very little to deal with the lack of training. They often look upon the teaching of technology applications with disdain.

Community trade schools and the like do a good job, and many young people are turning there for necessary life technology skills.  However, the greater burden rests upon the companies and other organizations that adopt new technologies. They need to allocate sufficient resources for training and implementation.  While this has been a mantra for years, clearly they are not doing this. They need to take note.

Monday, March 26, 2018

Blockchain Technologies could Enhance Data Privacy

The recent Facebook data misadventure showed what can happen when data owners give up control of their data. If they did not give up control, then such data misuse could have been forestalled. If the data owners needed to receive assurance from credible sources that the data would be used only for specified purposes, then they could decide whether to grant the permission to use it.

Blockchain comes in two basic varieties - permissioned and permissionless. Permissionless blockchains are open to the public and any participants can join together to create a consensus on the use fo the data. Permissioned blockchain reserves control over the actions in the blockchain to approved participants. Most corporate blockchains currently being implemented are of the permissioned variety.

Facebook did not use blockchain at all, but if they had used permissioned ones, with the data owners as approved participants, then the owners of the data could have had a voice in the use of their data - they could be part of the consensus. If a particular organization approached them to use the data, then the data owners could give them a 'yes' or 'no'. Or they could say 'you can use the data that directly applies to your purpose, but you don't need the data items that do not so relate, such as people's addresses, emails, etc.' The data included in the permissioned activity, in other words, could be screened out to reduce the possibility of misuse.

Blockchain does not provide absolute assurance of proper use of data, because people are still involved. However, it would provide a powerful means of reducing the possibility of misuse. We will be seeing  a growing use of blockchain or perhaps other distributed ledgers for these purposes.

For a good article on this topic, check this out.

Friday, March 23, 2018

The Rise of the No-collar Workforce

One of the ideas put forward in Deloitte's 2018 Tech Trends listing is that of the No-collar workforce. The thought of course is that Artificial Intelligence is taking over a lot of human activities. AI is nothing new, but the power of the AI that is emerging is very new, and raises a lot of important questions.

As Deloitte puts it, we have "Humans and machines in one loop—collaborating in roles and new talent models. Is HR prepared to manage both man and machine? As automation, artificial intelligence, and cognitive technologies gain traction, companies may need to reinvent worker roles, assigning some to humans, others to machines, and still others to a hybrid model in which technology augments human performance."

The question being raised here centers around the idea that HR departments may have to manage machines along with humans. This makes a lot of sense. AI capable machines carry a cost with them. If they are going to replace humans, then someone needs to manage the economics of those replacements. Is it going to save money to automate a particular function or not? If a function is carried out by humans, would it make more sense to simply augment those humans with additional cognitive abilities enabled by AI rather than replacing them?

Of course, it is management's job to allocate and manage the use of resources they have at hand and they have managed humans and technology for some time. What's new is that the role of technology is getting closer to the role of humans and more interchangeable. And as more human/machine hybrids become available, it inevitably becomes very much a HR concern. It's likely that the divisions will become more blurred as time goes on.

Just wait until the machines decide to join unions! Why not? The hybrids will already be members.

Wednesday, March 21, 2018

Digital Transformation - A Major Shift

As more and more companies make the move to digitize their entire enterprise, the challenges are coming out more clearly. A recent survey commissioned by Infosys shows that: "At the present time, respondent organizations use digital technologies for core IT management (79%), customer relationship management (62%) and business process management (60%). Moving forward, they plan to use digital technologies for knowledge management (33%), operational intelligence (31%) and product development (28%). Already, 67% leverage big data analytics. More than half of that group have already made deep learning investments."

"Adoption of AI (56%), IoT (42%) and blockchain (30%) are also growing as organizations proceed down the digital transformation path."

Implementation of applications utilizing such technologies as Artificial Intelligence, blockchain and big data analytics, will result in the elimination of numerous jobs, mostly those involving routine functions. But new skills will be needed and the challenge to organizations is to do the required retraining of their people to be able to handle new business processes, as they become more automated using these techniques.

For a great discussion of the challenges, check out this article.

Monday, March 12, 2018

The Web Needs Fixing

Sir Tim Berners-Lee has written an open letter outlining the challenges facing the web today and pointing in very broad terms what should be done about it. First, he points out that this past year saw the internet as being available to more than half the people on earth. This was indeed a big milestone, but nevertheless leaves almost half without access. That has serious social implications, as it is well known that the internet divide feeds into the social divides of poverty and inability to access important resources and participate in social discourse. Sir Berners-Lee says we need to find ways to expand the accessibility to the Web.

Second, he points to the more recent decay in the quality of content. As he says, "we’ve seen conspiracy theories trend on social media platforms, fake Twitter and Facebook accounts stoke social tensions, external actors interfere in elections, and criminals steal troves of personal data."

To address this important issue, Sir Berners-Lee says we need to get more people, including the major tech companies, involved in an effort to re-focus the Web to take into account social objectives, recognizing it is now one of the most important elements of modern society.

These are big issues, and broad solutions, but they need to be considered and acted upon.

Thursday, March 08, 2018

Smart Contracts May Not be Secure

Blockchain has been cited as a major breakthrough for developing smart contracts, ie contracts that execute transactions as agreed between parties automatically. Ethereum is a widely used form of smart contract based on blockchain. For example, if a transfer of funds is agreed upon between two parties to a third party, the smart contract could make this happen as agreed. The idea is that it would be secure because of its transparency. Nobody could get away with deviating from or changing the contract because their actions would always be transparent to the parties to the contract.

Initially, this theory was not tested because blockchain was hardly ever used. However, since its inception, use has grown to the point that meaningful studies can be carried out on their effectiveness and safety.

Recent research is indicating that Ethereum contracts may not be as secure as originally thought.
For example, in 2016 a hacker stole $50 million from the Decentralized Autonomous Organization. Also, some blockchain based electronic wallets have misfired, losing money and availability to users.

Research on this important issue is ongoing, A significant study at University College London led to release of a preliminary report last week and is bound to reveal further weaknesses in blockchain contracts as it moves forward. For more on the research, click here.

Monday, March 05, 2018

SAP - A Leader in Integrated Reporting

SAP, long an international leader in enterprise financial systems, is also a leader in corporate reporting. This is illustrated in its release of an integrated report for 2017, which can be found at its integrated reporting website.

That website reflects the company's reporting on Financial, Social and Environmental highlights. A separate PDF file is also downloadable from the website that  provides more detail on the integrated reporting.

The financial reports are of course prepared in accordance with generally accepted accounting principles (IFRS). The environmental and social reports are in accordance with the GRI standards. The social reporting website dwells heavily on employee engagement and therefore has a heavy HR emphasis, but the PDF provides a lot more information on a variety of social indicators.

The key to good integrated reporting is to truly integrate the financial, social, and environmental reports and show their inter-relationships and interdependencies. The SAP integrated report addresses this issue head on with a section in the website and in the PDF on "Connectivity of Financial and Non-financial Indicators." While far from the only section that truly integrates, this document serves as something of a focal point for that integration.

On the website, "SAP has used techniques such as linear regression analysis to document the financial impact of four non-financial indicators. We assess each indicator to see what a change of 1pp (or 1% for carbon emissions) would mean for our operating profit." The results for 2017 are set out in a table. The PDF expands on these matters.

The PDF offers up a Combined (integrated) Management Report, and other integrative information. There is also an external audit report on the financial statements as well as on certain of the non- financial indicators. The report also provides negative assurance in accordance with international assurance standards on the other non-financial indicators.

Overall the report is a good example of integrated reporting and while improvements could be made, it does provide a good example for others to follow.

Friday, March 02, 2018

Integrated Reporting - There's a Need - Lets Do It

Integrated reporting has been slowly growing in recent years. Not so much in North America as in other areas of the world. It's time we got smarter.

Financial reporting has a long and influential history and has long formed the core of business reporting by companies. It does a reasonably good job of reporting on the financial results of corporate activities.

However, there is a lot more to the world than money, important though that may be. This is recognized in the current methods of corporate reporting by reporting on sustainability, governance and to a limited extent social aspects of corporate activities. Nevertheless, these are all reported upon separately in most cases. Integrated reporting draws these area together into a single integrated report. Examples of integrated reports are included in the Integrated Reporting Examples Database. The latest winner of the integrated reporting contest sponsored by the IIRC was York Timbers, an African forestry company. Previously the winner was a  gold mining operation - Goldfields - also an African company, albeit with a NYSE listing.

The International Integrated Reporting Framework (IIRC) acknowledges that the criteria for the assessments are reasonably aligned with its International <IR> Framework and encourages further assessment and recognition of integrated reports globally.

Integrated reporting draws together the separate components of corporate reporting into a single integrated report. It has implications far beyond reporting, however, and its full adoption involves a change in corporate management and strategy development to place a greater emphasis on all impacts of corporate activity. That would include, for example, use of balanced scorecards for measuring and reporting performance.

The use of integrated reporting provides a much more meaningful picture of corporate reporting than the divided and overly complex reporting that is currently in place. Hopefully its use will continue to grow.

Thursday, March 01, 2018

What's holding up Blockchain Adoptions?

A recent Deloitte survey showed that of "developers have created more than 86,034 blockchain-related projects, including more than 9,375 that were started by organizations. However, 92% of those blockchain projects had been abandoned, and only 8% were still being actively maintained by their creators."

Clearly many companies have been caught up in the hype and have since learned that blockchain wasn't the answer to their dreams.

Further analysis showed that the most common reason the projects didn't move ahead was because of an initial lack of understanding of what Blockchain could do. Then there's the issue of how blockchain's capabilities fit into the needs of the business. 55% of the companies said that there was a lack of a clear business outcome in the project.

Also, blockchain hasn't been adopted widely as yet, and another "survey found that the number one most significant barrier to blockchain adoption, cited by 78 percent of respondents, was the lack of industry adoption."

Many are not aware that blockchain is a collaborative effort. While that can work in a company - not all companies - it is much more difficult to make it work with other companies - customers, suppliers, perhaps competitors. Most companies need to bring in other companies to have a useful application.

There are other barriers, as outlined in this article in InformationWeek.

While blockchain has established itself firmly in the case of secure contracts, and certain financial transactions, there are many other aspects of business where it is a solution looking for a problem.

Tuesday, February 27, 2018

AI The Answer To IT Management

Artificial Intelligence (AI) is exploding into the landscape and IT management is not exempt from this invasion. AI has strengthened greatly over the past few years and there is a growing feeling that it the answer to current IT management challenges, including service requests, downtime avoidance, security management, and the like.

" 'Over time we expect the traditional SLA model—99.xx availability, etc.—will have no meaning as the system is always on, compliant, secure, agile and flexible,' advises Satheesh Kumar, IBM's vice president of hybrid services, AI platform."

The first step in implementing AI for IT management is in formulating a management strategic plan. AI can be implemented through the introduction of sensors that continuously convey data to the AI engines. These sensors would be smart enough to anticipate problems, thus moving performance issues detection from those that have already occurred to those that are about to occur.

With AI involved, IT management can devote its time to innovation and planning. AI will handle all repetitive and time consuming activities initially and gradually take over more complex matters.

Check out this article for more on this topic.

Tuesday, January 30, 2018

Blockchain Ledgers are not Accounting Ledgers

There is some confusion in accounting circles about the use of blockchain in financial systems and particularly for financial reporting. While there is a role for blockchain, it is destined to be a defined and somewhat limited role. The reason for this confusion is that all the literature about blockchain refers to its central mechanism for recording transactions as a distributed ledger, which accountants think means that blockchain can somehow substitute for accounting ledgers. It's true, there are applications emerging where blockchains serve a lot of the functions of specific ledgers, such as those used for recording certain contracts or sales ledgers and other specific transaction types,  and these are very useful but they serve a different purpose than accounting ledgers. One of the difficulties lies in the fact that a central purposes of accounting ledgers is to record the transactions using accepted accounting principles. In a blockchain, it's unlikely that all participants in the blockchain are going to agree on accounting principles all the time.

This point is made in a an FEI article recently published. Some further research into the use of blockchains in the accounting cycle is being carried out by "The Financial Executives Research Foundation (FERF) in collaboration with Deloitte to explore how blockchain is currently being adopted in the financial reporting community, the potential for industry disruption and the realistic next steps for the technology to be embraced."

As this and other research moves ahead, we are likely to find that there is a distinct role for blockchain, but that it is not a substitute for accounting ledgers.

Friday, January 26, 2018

Can Artificial Intelligence Address Fake News?

To live in the age of information is a challenging experience. We now have more information available than at any time in history. Also, new information is being created at growing rates. This is well documented. The bulk of this information has become available through the internet.

Our naive selves might have assumed at one time that with all this information, the populace would be much better informed. Now we know that to be wrong. A significant amount of the information available on the internet is not based on facts. Rather it is mis-information or "fake news". Or just opinion based, with strong biases. We know that the dispersal of information in the age of the internet is seriously flawed.

The Pew Institute survey recently conducted a large-scale survey of technologists, scholars and others to see where they think the information environment is headed. The overall result was that 51% felt it would not improve over the next ten years and the rest felt it would. The report goes on to provide a wealth of information about those results, leaving the reader to draw individual conclusions. The main considerations leading to the survey result divided into technological issues and human nature. Many of the pessimists felt that the environment would not improve because of human nature.

People, faced with this vast array of information need to choose.They can't and don't want to read it all. There is a tendency of people to seek out the news that confirms their own views or biases. With the new vehicles for conveying information on the internet, notably social media, there is much opportunity to find information that confirms a variety of views and often has no factual basis whatsoever.

So, does the answer lie in technology or in human nature? It's hard to to think that human nature is going to change anytime soon. True, people may become more adept at filtering the information and one hopes we will. But better screening ability may not be enough to overcome the basic impulses to seek out validation of personal views.

Another possibility lies in the advances being made in artificial intelligence. The new AI technologies could be a big help in enabling people to cope - in seeking out more fact based and truthful sources.

While some may rebel at the notion that their information is being managed by computer programs, nevertheless the nature of the new AI technologies is such that they may be the best possible solution.

We need all the help we can get.

Monday, January 22, 2018

Corporate Reporting as Inspired by Davos

Discussions at Davos this week include some clues as to the direction that should be taken in corporate reporting. Of course, the focus in Davos is on country reporting, but the parallels are clear.

In a discussion of the need for a six part balance sheet, reference was made to the work of "Nobel economist Amartya Sen’s concept of ‘capabilities’. The question he posed was: what do people need to allow them to lead the kind of life they want? This is most naturally measured in terms of access to several kinds of assets. Do they have financial capital? But also human capital (education and skills), physical capital (infrastructure such as roads, housing), intangible capital (examples include patents, goodwill, or data), natural capital (clean air, green space, a healthy ecosystem), and social capital (a well-functioning community or nation)".

A comparison of the six concepts of capital - financial, human, physical, intangible, natural and social - to corporate reporting can yield some useful insights. Here, we should talk about the full range of corporate reporting - the financial statements and all the related disclosures such as the MD&A, the annual report, the corporate website and the regulatory reports. Of course, traditional financial reporting has always centered on financial capital. It even does a pretty good job of that, although there are critics and unresolved issues. Physical capital, as well, is measured in traditional reporting, although the state of the infrastructure is not widely reported. Deferred maintenance, for example, is often not reported.

We have seen an increase in reporting on human capital in recent years, but such reporting lacks a framework and is, at best, incomplete. Intangible assets have long been reported in traditional financial statements, but again there is an incomplete aspect, since purchased intangibles have been reported, but not internally developed intangibles. Also, although there have been attempts to measure cost  and cost consumption, the nature and worth of those intangibles has not been addressed very well - and cost consumption measurements have historically been somewhat erratic.

Reporting on natural capital has improved in recent years with the growth of sustainability reporting. But the reporting on social capital has been sporadic and scattered at best, with much of it focused on random comments about corporate culture and the corporate "family", with little real objective attention given to the idea of what has the company done to actually contribute to the wider society, the community and the nation.  Again, there has been no framework nor structure for such reporting.

There is much to do to bring corporate reporting to a standard that meets the needs of the twenty-first century. Davos provides some good insight.

One article on the Davos discussion can be found here.

Wednesday, January 17, 2018

Digital Disruption and Changing Business Models

Digital disruption has been with us for  many years. The current trend really began with the emergence of Amazon and Dell, who revolutionized the book and computer businesses respectively. Of course, Amazon went on to wreak further disruption in a variety of industries. The emergence of Google has shaken the idea of digital disruption to its core, with its amazing evolution from a good search engine to a global megafirm with far reaching ventures such as self driving cars.

Netflix offers great insights into the nature of digital disruption, highlighting the ideas of new business models becoming possible with technology - models that enable a company to make more money while at the same time saving the customers money and offering them more convenience. We saw that when they began offering DVDs to customers without requiring fixed return dates and then starting the business of streaming video to compete with cable TV. The disruptions in all these industries have been massive. All the signs are there indicating even more massive changes are coming.

This story is effectively portrayed by PWC in a recent analysis published on their website. Worth a read.