by Adam Hartung | Nov 28, 2014 | Current Affairs, Innovation, Leadership, Web/Tech
Last week I gave 1,000 VHS video tapes to Goodwill Industries. These had been accumulated through 30 years of home movie watching, including tapes purchased for entertaining my 3 children.
It was startling to realize how many of these I had bought, and also surprising to learn they were basically valueless. Not because the content was outdated, because many are still popular titles. But rather because today the content someone wants can be obtained from a streaming download off Amazon or Netflix more conveniently than dealing with these tapes and a mechanical media player.
It isn’t just a shift in technology that made those tapes obsolete. Rather, a major trend has shifted. We don’t really seek to “own” things any more. We’ve become a world of “renters.”
The choice between owning and renting has long been an option. We could rent video tapes, and DVDs. But even though we often did this, most Boomers also ended up buying lots of them. Boomers wanted to own things. Owning was almost always considered better than renting.
Boomers wanted to own their cars, and often more than one. Auto renting was only for business trips. Boomers wanted to own their houses, and often more than one. Why rent a summer home, when, if you could afford it, you could own one. Rent a boat? Wouldn’t it be better to own your own boat (even if you only use it 10 times/year?)
Now we think very, very differently. I haven’t watched a movie on any hard media in several years. When I find time for video entertainment, I simply download what I want, enjoy it and never think about it again. A movie library seems – well – unnecessary.
As a Boomer, there’s all those CDs, cassette tapes (yes, I have them) and even hundreds of vinyl records I own. Yet, I haven’t listened to any of them in years. It’s far easier to simply turn on Pandora or Spotify – or listen to a channel I’ve constructed on YouTube. I really don’t know why I continue to own those old media players, or the media.
Since the big real estate meltdown many people are finding home ownership to be not as good as renting. Why take such a huge risk, paying that mortgage, if you don’t have to?
That this is a trend is even clearer generationally. Younger people really don’t see the benefit of home ownership, not when it means taking on so much additional debt. Home ownership costs are so high that it means giving up a lot of other things. And what’s the benefit? Just to say you own your home?
Where Boomers couldn’t wait to own a car, young people are far less likely. Especially in, or near, urban areas. The cost of auto ownership, including maintenance, insurance and parking, becomes really expensive. Compared with renting a ZipCar for a few hours when you really need a car, ownership seems not only expensive, but a downright hassle.
And technology has followed this trend. Once we wanted to own a PC, and on that PC we wanted to own lots of data – including movies, pictures, books – anything that could be digitized. And we wanted to own software applications to capture, view, alter and display that data. The PC was something that fit the Boomer mindset of owning your technology.
But that is rapidly becoming superfluous. With a mobile device you can keep all your data in a cloud. Data you want to access regularly, or data you want to rent. There’s no reason to keep the data on your own hard drive when you can access it 24×7 everywhere with a mobile device.
And the same is true for acting on the data. Software as a service (SaaS) apps allow you to obtain a user license for $10-$20/user, or $.99, or sometimes free. Why spend $200 (or a lot more) for an application when you can accomplish your task by simply downloading a mobile app?
So I no longer want to own a VCR player (or DVD player for that matter) to clutter up my family room. And I no longer want to fill a closet with tapes or cased DVDs. Likewise, I no longer want to carry around a PC with all my data and applications. Instead, a small, easy to use mobile device will allow me to do almost everything I want.
It is this mega trend away from owning, and toward a simpler lifestyle, that will end the once enormous PC industry. When I can do all I really want to do on my connected device – and in fact often do more things because of those hundreds of thousands of apps – why would I accept the size, weight, complexity, failure problems and costs of the PC?
And, why would I want to own something like Microsoft Office? It is a huge set of applications which contain dozens (hundreds?) of functions I never use. Wouldn’t life be much simpler, easier and cheaper if I acquire the rights to use the functionality I need, when I need it?
There was a time I couldn’t imagine living without my media players, and those DVDs, CDs, tapes and records. But today, I’m giving lots of them away – basically for recycling. While we still use PCs for many things today, it is now easy to visualize a future where I use a PC about as often as I now use my DVD player.
In that world, what happens to Microsoft? Dell? Lenovo?
The implications of this are far-reaching for not only our personal lives, and personal technology suppliers, but for corporate IT. Once IT managed mainframes. Then server farms, networks and thousands of PCs. What will a company need an IT department to do if employees use their own mobile devices, across common networks, using apps that cost a few bucks and store files on secure clouds?
If corporate technology is reduced to just operating some “core” large functions like accounting, how big – or strategic – is IT? The “T” (technology) becomes irrelevant as people focus on gathering and analyzing information. But that’s not been the historical training for IT employees.
Further, if Salesforce.com showed us that even big corporations can manage something as critical as their customer information in a SaaS environment on mobile devices, is it not possible to imagine accounting and supply chain being handled the same way? If so, what role will IT have at all?
The trend toward renting rather than owning is monumental. It affects every business. But in an ironic twist of fate, it may dramatically reduce the focus on IT that has been so critical for the Boomer generation.
by Adam Hartung | Jul 17, 2012 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
Most investors shouldn't be. Given demands of work and family, there is almost no time to study companies, markets and select investments. So smaller investors rely on 3rd parties, who rarely perform better than the most common indeces, such as the S&P 500 or Dow Jones Industrial Average. For that reason, few small investors make more than 5-10% per year on their money, and since 2000 many would beg for that much return!
Most investors would make more money with their available time by studying prices on the web and simply buying bargains where they could save more than 10% on their purchase. The satisfaction of a well priced computer, piece of furniture, nice suit or pair of shoes is far more gratifying than earning 2-4% on your investment, while worrying about whether you might LOSE 10-20-30%, or more!
And that's why you don't want to own JPMorganChase (JPMC.) Last week's earning's call was a remarkable example of boredom. Yes, Chairman and CEO Jamie Dimon and his team spent considerable time explaining how the London investment office lost $6B, and why they felt it was an "accident" that would not happen again. But the truth is that this $6B "mistake" wasn't really all that big a deal, compared to the $100B in mortgage and credit card losses since the financial crisis started!
Perhaps Mr. Dimon was right, given JPMC's size, that the whole experience was mostly "a tempest in a teapot." Throughout the call the CEO kept emphasizing that JPMC was "going to go about the business of deposits and lending that is the 'core' business for the bank." Although known for outspokenness, Mr. Dimon sounded like any other bank CEO saying "things happen, but trust us. We really are conservative."
So if a $6B surprise loss isn't that big a deal, what is important to shareholders of JPMC?
How about the unlikelihood of JPMC earning any sort of decent return for the next decade, or two?
The world has changed. But this call, and the mountain of powerpoint slides and documents put out with it, reiterated just how little JPMC (and most of its competition, honestly) has not. In this global world of network relationships, digital transactions, struggling home values and upside down mortgages, and very slow economic growth in developed countries, JPMC has no idea what "the next big thing" will be that could make its investors a 20-30% rate of return.
Yes, in many traditional product lines return-on-equity is in the upper teens or even over 20%. But, then there are losses in others. So lots of trade-offs. Ho-hum. To seek growth JPMC is opening more branches (ho-hum). And trying to sign up more credit card customers (ho-hum) and make more smalll-business loans (ho-hum) while running ads and hoping to accumulate more deposit acounts (ho-hum.) And they have cut compensation and other non-interest costs 12% (ho-hum.)
You could have listened to this call in the 1980s, or 1990s, and it would have sounded the same.
Only the world isn't at all the same.
And Mr. Dimon, and his team, knew this. That's why JPMC created the Chief Investment Office (CIO) in London, and the synthetic credit portfolio that has caused such a stir. The old success formula, despite the bailout which created these highly concentrated, huge banks, simply doesn't have much growth – in revenues or profits. So to jack up returns the bank created an extremely complex business unit that made bets – big bets – sometimes HUGE bets – on interest rates and securities it did not own.
These bets allowed small sums (like, say, $1B) to potentially earn multiples on the investment. Or, lose multiples. And the bets were all based on forecasts about future events – using a computer model created by the CIO's office. As Mr. Dimon's team eloquently pointed out, this model became very complicated, and as reality varied from forecast nobody at JPMC was all that clear why the losses started to happen. As they kept using the model, losses mounted. Oops.
But now, we are to be very assured that JPMC's leaders are paying a lot more attention to the model, and thus JPMC isn't going to have such variations between forecast and reality. So this event won't happen again.
Right.
If JPMC didn't need to use the highly complicated world of derivatives to potentially jack up its returns it would have closed the CIO before these losses happened. Now they claim to have closed the synthetic trading portfolio, but not the CIO. Think about that, if you had a unit operated by one of your very top leaders that "made a mistake" and lost $6B wouldn't you closing it? You would only keep it open if you felt like you had to.
Anybody out there remember the failure of Long Term Capital Management (LTCM?) Certainly Mr. Dimon does. In the 1990s LTCM was the most famous "hedge fund" of its day. The "model" used at Long Term Capital supposedly had zero risk, but extremely high returns. Until a $4B loss created by the default of Russion bonds wiped out all the bank's reserves and capital.
Let's see, what's the big news these days? Oh yeah, possible bond defaults in Greece, Portugal, Spain, Ireland……
The recent "crisis" at JPMC reflects a company locked-in to an antiquated business model which has no growth and declining returns. In order to prop up returns the bank took on almost unquantifiable additional risk, through its hedging operation. Even though hedging long had a risky history, and some spectacular failures.
But this was the only way JPMC knew how to boost returns, so it did it anyway. In an almost off-hand comment Mr. Dimon remarked a capable executive fired CIO Ina Drew was. And that she was credited with "saving the bank" by some of Mr. Dimon's fellow executives. Most likely her money-losing, high risk efforts were another attempt by Ms. Drew to "save the bank's returns" and thus why she was lauded even after losing $6B.
But no more. Now the bank is just going to slog it out being the boring bank it used to be. Amidst all the slides and documents there was NO explanation of what JPMC was going to do next to create growth. So JPMC is still susceptible to crisis – from debt defaults, Euro crisis, no growth economies, etc. – but shows little, if any, upside growth.
And that's why you don't want to invest in JPMC. For the last 3 years the stock has swung wildly. Big swings are loved by betting stock traders. But quarter to quarter vicissitudes are not helpful for investors who need growth so they can generate a 50% gain in 5 years when they need the money for junior's college tuition.
For that matter, I can't think of any "money center" bank worth investing. All of them have the same problem. After being "saved" they are less likely to behave differently than ever before. At JPMC leadership took bets in derivatives trying to jack up returns. At Barclay's Bank it appears leadership manipulated a key lending rate (LIBOR.) All actions typical of executives that are stuck in a lousy market, that is shifting away from them, and feeling it necessary to push the envelope in an effort to squeek out higher returns.
If you feel compelled to invest in financial services, look outside the traditional institutions. Consider Virgin, where Virgin Money is behaving uniquely – and could create incredible growth with very high returns. In a business no "traditional" bank is pursuing. Or Discover Financial Services which is using a unique on-line approach to deposits and lending. Although these are nothing like JPMC, they offer opportunity for growth with probably less risk of another future crisis.
by Adam Hartung | May 2, 2012 | Defend & Extend, Lock-in, Web/Tech
My latest bi-monthly column for CIO magazine came out in print this week. In it I challenge CIOs to think hard about what made the role successful in the 1970s – then in the 1990s – and how it is transitioning today. Far too many CIOs are locked in on old notions about what made them successful – usually controlling both hardware and software and forcing managers to behave in ways acceptable to IT. But today cloud computing, mobile devices and apps make it possible for many "users" to obviate the IT department entirely – skip the enterprise applications – and find an easy route for their information needs.
I encourage you to click through to the article on CIO.com, or ComputerWorld.com – if you're in IT it should give you something to think about regarding your role. If you are an investor it should give you some new thoughts about what IT companies are worth your money (time to rethink Oracle and SAP, for example.) And if you're a manager it just might embolden you to focus on your needs and fight back on IT solutions that don't work for you.
CIO Mag – http://www.cio.com/article/704934/CIOs_Will_You_Be_Relevant_in_2017_
ComputerWorld – http://www.computerworld.com/s/article/9226722/CIOs_Will_You_Be_Relevant_in_2017_
by Adam Hartung | Dec 27, 2010 | General, In the Rapids, Leadership, Web/Tech
"Too Add Value Through IT, Pick Up the Ball" headlines my latest article published by IDG group. For years IT leaders thought their job was to "keep the joint running." Today, that's insufficient. Nobody can avoid being part of the growth agenda if they are to be a successful leader or manager.
To drive success, and keep their jobs, IT leaders now have to move beyond simply being defensive. Keeping the systems running, and cutting operating costs, is not enough to be a great CIO. Too many have ended up outsourcing almost everything in order to lower costs, only to discover that IT becomes far too rigid and unable to support market needs when so many services are outsourced to third parties.
Today's CIO has to spend more time figuring out how to flexibly, adaptively, bring new solutions to both insiders and customers. It's important CIOs not just track historical (and accounting) data, but behave like the offensive team, identifying and tracking considerably more market-based data. And creating various future scenarios to help the company spot trends and opportunities. On top of this, IT must demonstrate how using emerging solutions – from Salesforce.com to Groupon, Foursquare and Facebook (examples) – can reach more customers, faster – driving higher revenues.
Read how important it is for IT to become part of the growth engine at one of the locations where this article has been published:
@ CIO Magazine – @ PC World – @ Network World – @ IT World Canada – @ CIO Australia – @ ComputerWorld Norway
Additionally, read my latest article on effective strategic planning – for IT or any part of the organization – published by the Strategic Planning Society of the UK "Disrupting the Marketplace". This article describes how to add maximum value, growing revenue, cash flow and profits, by identifying and implementing opportunities to disrupt the marketplace. And allowing those disruptions to invade your own organization for more dynamism.
