The Product Lifecycle (PLC) is one of the pieces of business theory that is most clearly visible in the world around us. A new product is take up by a small group* of “lead users” initially before being gradually adopted by the rest of the population once (or if) the benefits of the given product are well demonstrated.
Smartphones appear to have now gone well beyond the lead users, and the take up by amongst the majority of the population is well underway. Since Spring this year, T-mobile has focussed its marketing on offering “A smartphone for everyone” with Blackberries and other top-name brands on contracts for £20 per month. And Tesco mobile has begun offering iPhones at prices that undercut the mainstream networks.
Although society is just beginning to see the effects, the widespread availability of data communications literally “at our fingertips” is bound to cause some dramatic changes throughout whole segments of business. The impact may eventually prove even more dramatic than the growth of the (wired) internet. Present-day applications like paid-parking-by-telephone, mobile-phone boarding passes and setting your video recorder from your phone are already making our lives easier, but there is infinitely more scope out there.
If phones were integrated with shopping then personalised recommendations and vouchers could be sent to you as you walk around the store; you could photograph barcodes of things as they go into your basket and bypass the need for a checkout (barcode photography already allows you to price-check against online sites!) In clothes stores, precise data about your body dimensions could be downloaded from your phone to a store’s computers to direct you straight to the best fitting clothes. With advances in 3-D printing, bespoke items could one day be rapidly-manufactured while you wait. At a bar, you could order on your phone and get drinks and food brought directly to your table, paid for automatically from your bank account. And I have already written elsewhere about the integration of smartphones within everyday conversation.
At the moment smartphone apps are designed to be used in parallel with existing pre-smartphone business models. The fundamental shift that we haven’t seen yet is the re-design of business models on the premise that the vast majority of customers have smartphones. The potential benefits are so great that I doubt this shift is far off.
*Small in this sense is proportional, it is a few percent of the population so still numbers in several million people
Thursday, 22 July 2010
Sunday, 18 July 2010
Government debt? Out-of-sight, Out-of-mind
It’s been clear for a while now that the UK’s public finances are in a mess, but this week’s ONS report on “off-balance sheet” liabilities really rubs it in. Although it made the front page of the Independent, and a small article in the FT, it hasn’t yet had the attention it deserves.
The Office for National Statistics has attempted to quantify some of the future payments the government is locked into, but that are not accounted for in the figure quoted as “the national debt.” Some of the liabilities it has included, related to guarantees on financial instruments and the government’s stake in the banks, are not likely to materialise into real losses. In that sense, the upper estimate of the liabilities of £3,000,000,000,000 (Three trillion) pounds is a bit alarmist.
However some of the future payments are inescapable – most notably the Private Finance Initiative (PFI) obligations. PFI is a mechanism almost solely designed to allow governments to put off expenditure. Instead of paying up front for buildings and infrastructure, such as new roads, hospitals or landfill sites, the government signs a contract to pay a fixed fee at a future point in time for the services delivered in that infrastructure. The private sector then finances the capital investment in property and equipment, and aims to get a reasonable return on its capital when the services are delivered.
In the private sector it is akin to a “leasing” model where you are replacing a capital cost with an operational cost. However in the private sector, the assets being leased are generally being used to generate revenue. The cost of one year’s lease can be straightforwardly compared to one year’s revenue. In this context, then, the lease makes the accounting simpler. When applied to the public sector, however, there is no income to offset the cost, and the effect of the PFI is often to complicate the accounting. Furthermore, the need to draw up large, long-term contracts is a costly process. And flaws in the contract can leave the government with major costs incurred, without seeing the benefit expected (as happened with the London Underground expenditure, which used the related “PPP” mechanism).
Fundamentally, the move towards PFI has allowed the government to hide its liabilities. It is similar to the “Off-balance sheet liabilities” that contributed to the bankruptcy of Enron, and to the 2008 financial crisis (most of the CDOs held by banks were off-balance sheet).
On the bright side, the fact that the ONS is beginning to pay more attention to the obligations that will fall on future generations is most certainly a good thing.
The Office for National Statistics has attempted to quantify some of the future payments the government is locked into, but that are not accounted for in the figure quoted as “the national debt.” Some of the liabilities it has included, related to guarantees on financial instruments and the government’s stake in the banks, are not likely to materialise into real losses. In that sense, the upper estimate of the liabilities of £3,000,000,000,000 (Three trillion) pounds is a bit alarmist.
However some of the future payments are inescapable – most notably the Private Finance Initiative (PFI) obligations. PFI is a mechanism almost solely designed to allow governments to put off expenditure. Instead of paying up front for buildings and infrastructure, such as new roads, hospitals or landfill sites, the government signs a contract to pay a fixed fee at a future point in time for the services delivered in that infrastructure. The private sector then finances the capital investment in property and equipment, and aims to get a reasonable return on its capital when the services are delivered.
In the private sector it is akin to a “leasing” model where you are replacing a capital cost with an operational cost. However in the private sector, the assets being leased are generally being used to generate revenue. The cost of one year’s lease can be straightforwardly compared to one year’s revenue. In this context, then, the lease makes the accounting simpler. When applied to the public sector, however, there is no income to offset the cost, and the effect of the PFI is often to complicate the accounting. Furthermore, the need to draw up large, long-term contracts is a costly process. And flaws in the contract can leave the government with major costs incurred, without seeing the benefit expected (as happened with the London Underground expenditure, which used the related “PPP” mechanism).
Fundamentally, the move towards PFI has allowed the government to hide its liabilities. It is similar to the “Off-balance sheet liabilities” that contributed to the bankruptcy of Enron, and to the 2008 financial crisis (most of the CDOs held by banks were off-balance sheet).
On the bright side, the fact that the ONS is beginning to pay more attention to the obligations that will fall on future generations is most certainly a good thing.
Saturday, 10 July 2010
Are indebted graduates good for the country?
Last week I read an article in the Evening Standard that neatly summarizes some of the growing problems surrounding higher education in the UK.
Firstly the problem of debt. Teaching needs to be funded and as the government cannot afford it themselves, they introduced ‘top-up fees’ in 2006, which most students pay for with student loans. Given that most students also take out loans to cover living costs, this means many who graduated in 2009 onwards will have debts of c.£20,000. That is a massive debt for someone in their early twenties. To pay back the debts, 9% of what a graduate earns over £15,000 is taken directly from their pay check. So someone earning an average of £30k p.a. would take 15 years to pay their student loan. That is one long hangover.
The second, related problem, then is employment. Young people are given statistics like “on average, graduates earn £100,000 more over their lifetime than non-graduates.” This makes a degree sound like a great investment, and sadly many people don’t look at these statistics critically. For one thing, this “average” figure hides a lot of variability, from artists at one end to bankers at the other. Even more fundamentally, this figure does not tell you the marginal benefit gained by going to university. The number of graduates that end up in non-graduate-level jobs seems to be proof that doing a degree is not a good investment for everyone.
As the government prepares to re-examine top-up fees and consider whether to lift the tuition fee cap, what we need is a more critical look at the effect student loans will have on future generations. With the Universities and Lord Browne clearly intent on raising the cap, we need to hear the other side of the story. Luckily, the mainstream media appear to be picking up the story of graduate unemployment in a big way. I will be watching closely to see whether a fair solution can be found.
Firstly the problem of debt. Teaching needs to be funded and as the government cannot afford it themselves, they introduced ‘top-up fees’ in 2006, which most students pay for with student loans. Given that most students also take out loans to cover living costs, this means many who graduated in 2009 onwards will have debts of c.£20,000. That is a massive debt for someone in their early twenties. To pay back the debts, 9% of what a graduate earns over £15,000 is taken directly from their pay check. So someone earning an average of £30k p.a. would take 15 years to pay their student loan. That is one long hangover.
The second, related problem, then is employment. Young people are given statistics like “on average, graduates earn £100,000 more over their lifetime than non-graduates.” This makes a degree sound like a great investment, and sadly many people don’t look at these statistics critically. For one thing, this “average” figure hides a lot of variability, from artists at one end to bankers at the other. Even more fundamentally, this figure does not tell you the marginal benefit gained by going to university. The number of graduates that end up in non-graduate-level jobs seems to be proof that doing a degree is not a good investment for everyone.
As the government prepares to re-examine top-up fees and consider whether to lift the tuition fee cap, what we need is a more critical look at the effect student loans will have on future generations. With the Universities and Lord Browne clearly intent on raising the cap, we need to hear the other side of the story. Luckily, the mainstream media appear to be picking up the story of graduate unemployment in a big way. I will be watching closely to see whether a fair solution can be found.
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