How is the new city-making industry evolving to help cities create extraordinary economic value?

A new city-making industry is perhaps the best vehicle for cities around the world to successfully deal with mega challenges such as: energy efficiency, environmental sustainability, natural disasters and manmade disruptions, infrastructure development & renewal, and the holistic deployment of smart technology.

I have observed and participated in the making of this emerging industry since the beginning of the twenty-first century as I helped cities in Asia, the Middle East, Europe and the Americas plan and launch districts designed to support innovation and entrepreneurship. Conceived after the turn of the twenty-first century, the intent of such districts is to jump start extraordinary high value industry clusters within 10-15 years, a process that formerly took 30-50 years or longer in places like Silicon Valley, Cambridge, UK and the Kendall Square area around the Massachusetts Institute of Technology.  These projects are propelled by alliances forged among the following: public sector agencies at local and national levels, established start-up businesses of all sizes, education and research institutions, financing enterprises, real estate developers, and information & communication technology companies.

At the heart of these alliances is a mindset that encourages participants to work together across organizational boundaries in order to invent new ways to discern and exploit economic and business opportunities. This attitude supports the adoption of new business models and the transformation of relationships that move participants beyond their own core competence and to a mode where they can create products and services outside of ‘what they always do.’ The organizational form and leadership of cluster-making alliances varies from city to city, influenced by local capabilities, interests and politics.

High value clusters, which act as linchpins for economic development, are complex ecosystems of (i) physical facilities for corporate-specific & shared research, development, education, business incubation & acceleration, and product-making, (ii) communication technology, and (iii) human talent. These clusters serve as a platform for social and organizational networks to facilitate intersections among disciplines and organizations within knowledge supply chains, from the point of idea creation to marketable products and services. Underpinning the clusters is an array of inducements, e.g., tax or funding incentives and regulatory permissions, which support entrepreneurial risk management.  Clusters are hosted within large-scale, mixed-use developments (100-500 acres) with digitally enhanced environments designed to serve the life and work style of a creative, hard driving workforce.

Three key characteristics mark the behavior and organization of alliances as they plan for, weave together, and create synergy among the many elements of the cluster.

Convergence. Participants converge their expertise, interests and knowledge at the very outset of a cluster’s conception to co-invent a narrative that weaves together a coherent story about purpose and how it can be achieved by a blend of physical and human capital. The narrative is steeped in the economic, social capital, business capabilities and interests of the place, the region and its initial & future occupants. The narrative clarifies how development will add value to all interested parties and lays out a conceptual roadmap for creating the cluster’s ecology.

Launch and Learn. Alliance participants quickly mount small-scale experiments and beta projects, even as they design the narrative. Planning and implementing these projects help alliance members to collaboratively envision potential futures at a time of uncertainty and rapid change.  This exercise also helps participants learn how to proactively contribute their expertise to one another’s work.

Networked Leadership. Leadership for these alliances plays out through a network of people who engage and align the interests of the full array of stakeholders. These networks have little in common with traditional schemes for project management that function with predetermined roles and lines of authority. Members of the cluster-making network act with agility to achieve what has to be done. Three actors are critical for the network to function. One is the enabler – a person who forges a commitment to the cluster among colleagues and business units within his or her own organization.  A second is the trend spotter– a creative contributor who skillfully brings new –sometimes-disruptive – ideas into the concept and planning arena.  The third is the integrator – a person (sometimes a group) who plays a facilitative role working with the different groups to help them define their interests in the cluster and understand how those interests can be served through collaboration with others.  The integrator is essential for the group to weave together different perceptions and objectives into a shared narrative.

Although industry clusters occupy a small part of their host cities, the lessons learned from the alliances supporting them are germane to how cities can respond to the mega challenges that they face. Like cluster-making, these challenges elude simple definition and defy solution through traditional compartmentalized, linear responses. They also require many independent groups to converge perspectives and expertise. Fluid alliances will continue to form in response to cities demanding effective solutions to the mega challenges before them and businesses coming to appreciate the extraordinary large market for solutions delivered through the alliance approach. Over time, these will add-up to a new city-making industry.

 

What are the key trends that will impact the media and entertainment industry in 2015?

The convergence of technology, devices, new content forms, and data continue to make the media industry one of the most fascinating consumer categories in the 21st century. The pace of change continues to accelerate as consumers move from the time-shifting paradigms brought on by the introduction of the DVR, to the long tail content discovery of the original Netflix offering, to the more recent behavior of binge watching one’s favorite show over the course of a single weekend. But even with this fast-paced change, you can still catch, and utilize, the key industry trends in 2015 which include (1) the battle for the living room, (2) the water cooler of the future, (3) media metrics and (4) a new Golden Age.

The Battle for the Living Room

For years, the battle for dominance in the living room drove competition amongst technology giants like Sony, Microsoft, Apple, Amazon and others to develop new smarter set-top like experiences that gave users more control over their viewing experience and greater flexibility in content offerings (video, games, and music) controlled centrally from the living room. Motivated by an overly optimistic perspective that the days of the cable bundle were numbered and the dawn of the à la carte entertainment service model was near, technology companies invested heavily in “Trojan Horse” like operating systems to take over the living room. The reality proved much more challenging. Comcast, Time Warner, DirecTV and other TV service providers demonstrated that they were up for the battle and have managed to slow the flow of cutters, at least for now, with nifty technical innovations of their own, as well as the clever management of digital rights across platforms, to make their service irreplaceable for marquis broadcast events.

Similarly, the proliferation of mobile screens with strong A/V capabilities is chipping away at the old media adage that “the best screen” wins and thus rendering the battle for the living room as nearly irrelevant. The new battle will follow the trend of TV’s “appification” as device makers and content providers will follow viewers across these devices and battle for ownership and loyalty from the audience. As more viewership moves to Apps, we will continue to see an emergence of new media brands (the Kardashians, Five Thirty Eight, TED) and a reshaping of existing established brands as providers realize they are competing not only on the quality of their content but the quality of their experience across multiple platforms.

The Water Cooler of the Future

Much has already been written about the roiling impact that Big Data is having across the business landscape. Media is no exception as content providers, platform owners, and device manufactures have more sophisticated insights into how, when, and where users are engaging in content experiences. Over the last view years, the industry has seen several attempts to enhance this experience with interactive features on screen and via companion viewing devices like Xbox Smart Glass. While we have not yet witnessed the ultimate breakthrough experience, it’s likely coming soon. Broadcast hits like “The Voice” have proven that they can create a market for a previously unknown artists on iTunes. Sports giant ESPN has led in leveraging social media to extend the discussion on the latest sports story online. The industry should expect the social integration of media experiences to increase rapidly. Today, one’s social graph quickly extends the discussion about the latest show like a virtual water cooler, helping followers discover new content, while building viral excitement around the next big thing. Expect content creators to continue to leverage social sentiment and real-time data and analytics to more quickly inform decisions about what content to create and for whom. The emergence of the Audience Manager is a trend that is here to stay.

Media Metrics

In the midst of all of this, the manner in which we track audiences across devices and platforms is changing as advertisers want better gauges of their true reach. Billions of media dollars are still exchanged on the basis of outdated panel-based methodologies. Expect to see continued innovation in performance-based media measurement that follows users across platforms and ad dollars flow to providers that are able to demonstrate effective messaging performance against their marketing objectives.

A New Golden Age

Like the fabled Golden Age associated with the birth of television, we are in a new Golden Age of media. Consumers have more ways to access, discover, and enjoy content whenever, wherever, and however they choose on sleek, new & shiny devices. The quality of the content continues to improve as providers battle to “out-innovate” each other in search of the next big franchise. The proliferation of apps and platforms enhance the experience in ways previously unimagined. All of this comes at a cost that has to be funded by someone. Cord cutters hope that they will only have to pay for content that they enjoy. Glib in their technical savvy, many of these cord cutters don’t realize that they would not be able to enjoy “Breaking Bad” via their streaming subscription if not for the millions who still buy a cable bundle and fund AMC’s development cycle. Advertisers dream of more precise and efficient placements that solve the age-old Wannamaker problem – identifying the 50% of advertising that’s valuable – yet they still participate in media upfront buys and bid millions for 30 seconds spots during Super Bowl broadcasts.

The business models that control this global category are deeply entrenched and managed by very strong and sharp companies. The trends outlined above will continue to put pressure on the existing status quo but we are still a few years away from true business model innovation in this category. Technology giants, TV service providers, device manufactures, and content providers are all battling for supremacy here. Innovation will come, the stakes are too high and the players too big. The clear winner will be the consumer in the short run, as they will have more unique content experiences to immerse themselves into. What will be fascinating to watch is whether the net cost of all this innovation comes at a cheaper price for the consumer. Regardless, as this battle continues to unfold, it promises to be one of the most exciting areas of business innovation for years to come.

What cutting-edge technologies will impact the industrials sector in 2015?

There are many cutting-edge technologies that we are beginning to hear about that will affect the industrials sector beyond this year. In 2015, we are seeing several major trends that are dramatically impacting the sector including the internet of things, 3D Printing, Robotics and LEDs. While none of these things should be new to any of us, they are unquestionably causing more disruption and impact in 2015 than ever before.

The first cutting edge technology changing the industrials sector in 2015 is the Internet of Things, or IoT, by creating connected or smart environments for many different types of buildings and infrastructure. While the idea of having devices linked together is nothing new, the IoT has created the ability to do this with less capital, and with a simpler interface. While there is still a long way to go, connected buildings arguably became viral because of several factors including devices being addressed by individuals, cloud based capabilities and the interconnectivity of devices. Individually addressing devices is important in personal space within a larger shared area, such as a large open office. For instance, now everyone can individually address their lighting needs without having to adjust the full common area; each light can be individually addressed. Being able to connect these devices to the cloud allows for endless content capabilities. Finally, interconnectivity has been critical to improve the user experience; a single device or app can control HVAC, lighting, security, safety and many other things.  IoT now provides indoor connectivity, outdoor connectivity, retail connectivity and city connectivity.

Next, 3D printing is becoming more and more widely adopted in many industries and the possibilities are limitless in terms of what other industries this technology will disrupt. In fact, it is hard to find an industry not impacted by this technology. The use of 3D printing is common in expected industries like electronics and automotive, and there are many unusual applications beginning to use 3D printing. For instance, a 3D gun has already been printed. Often, military equipment can be customized and replacement parts must be made quickly. Utilizing 3D printing will catch on in this industry shortly. Furthermore, 3D printing can be done in zero-gravity; there are now plans to begin using the technology on the International Space Station for printing tools, parts and other items. In common industries, 3D printing is widely used for product development and it is beginning to be used to replace manufacturing where it makes sense. There are many advantages to 3D printing over traditional manufacturing, the most important being its environmental impact; traditional manufacturing is often wasteful and dirty, while 3D printing can lessen the waste and carbon emissions. As the technology continues to speed up the process in a less expensive manner, we will see 3D printing as one of the most common manufacturing processes.

Next, when you consider the impact of IoT and 3D printing on the industrials sector, it is hard not to also look at robotics at the same time. In manufacturing, robotics can be the brains that utilize the core competencies of the previous two technologies with additional manufacturing benefits. Robotics are now utilizing more sensors, such as vision and force-sensing, to work with more delicate components, increase accuracy and ultimately drive down manufacturing costs. Robots, utilizing IoT technology, are now being programmed and monitored remotely. Being able to monitor remotely not only allows a facility to avoid any manufacturing shutdowns, but also enables the ability to monitor and improve efficiencies. Finally, the overall cost of robotics has dramatically decreased, providing further opportunity for industries to take advantage of this disruptive technology.

Finally, LEDs are completely transforming lighting as we know it. LED lighting now has shifted from ‘good enough’ for the early adopters, to performance and price points allowing for mass adoption. They are not only changing the performance and efficiency of lighting, but changing complete infrastructures. In the past when a high intensity discharge streetlight burned out, a truck would come along and replace the bulb that failed. It would not be unheard of to replace that HID lamp two or three times a year, sometimes more often. Now, the cost of an LED replacement, coupled with the enormous energy savings and the quality of light, the return on investment is down to one year, even less in certain cases.  Now LEDs are the choice for retrofitting, and the retrofit is now removing the antiquated screw-based fixture from the streetlight pole and replacing it with an integrated LED fixture.  This trend is not only catching on in exterior lighting, but industrial lighting and commercial lighting, while residential lighting is not far behind.

Beyond general lighting, LEDs are making an impact on other niche markets. LED penetration in automotive lighting is growing dramatically. Additionally LEDs are providing much needed light, both visible and invisible, ultraviolet light in industrial automation because of their robustness and longevity compared to traditional light sources. LEDs are also gaining tremendous market share in horticulture and agriculture applications. With LEDs, you can now grow most plants, including food bearing, indoors throughout the entire year. You can now tune the spectrum of your light to positively affect livestock moods, therefore increasing the throughput of the farms production. The applications for LEDs are growing daily and penetrating markets never before thought of.

Generally speaking, the cutting-edge technologies impacting the industrial sector can be looked at from a different perspective to see the true reasons why they are disruptive. Each of these technologies have blurred the lines of what the sector is and who is part of the value chain. LED light sources now have more in common with televisions than they do with incandescent or halogen lights. Tech giants have tried to bypass the traditional supply chain to treat it as an electronics appliance. This will continue to evolve as non-traditional manufacturers and applications continue to emerge because of LEDs. The same hold true for connected devices, 3D printing and robotics. Apple and Google will quickly gain tremendous footholds in the IoT realm by converting the value proposition in the software instead of the hardware. They are beginning to blur the lines between the industrials sector and the technology sector. We will continue to see each of these technologies grow exponentially through the rest of the year and into the future.

How will the health care supply chain be transformed in 2015?

Introduction

The healthcare system is transforming due to a myriad of internal and external factors.  The challenge common to Integrated Health Care Delivery Networks (IDNs), Accountable Care Organizations (ACOs) and others can be summed up in a single word – reimbursement.  A survey of thought leaders from these organizations found that over 70% expect their margins to decline 10-20% due to lower reimbursement.  Manufacturers see significant supply chain improvement opportunities through the adoption of new technologies such as cloud computing to reduce costs and increase revenue.  Quite clearly, healthcare in general and hospitals in particular need to rapidly change, adapt and embrace the benefits of supply chain management long employed by healthcare industry manufacturers and suppliers.

The Suppliers

Pharmaceutical, medical device and other suppliers have incorporated supply chain management systems into their companies.  A 2015 study found that supply chains are responsible for 25% of pharmaceutical costs and 40% of medical device costs.  Cleary, there is work to be done here given the annual spend of $230 billion on pharmaceuticals and $125 billion on medical devices. If the healthcare sector as a whole adopted the systems used in other fast moving industries such as consumer and technology, it is estimated that costs could fall for the above two mentioned segments by more than $130 billion.  The lead time from pharmaceutical plants to distribution centers is on average, 75 days.  Contrast this to approximately a week, from order to deliver, for a shipment of laptops from sources in the Far East.

Suppliers of healthcare will likely find 2015 supply chain solutions in cloud computing.  The Cloud offers a common supply chain platform that ameliorates many of the problems associated with implementing fully integrated, specialized supply chain systems and addresses the critical need for collaboration amongst all in the value chain, and yet, challenges remain.  Cloud computing is very dependent on legacy systems and although Information Technology (IT) departments are asked to do more, they only spend on average 10% of their budget on new applications.  As cloud computing becomes more widely adopted by large scale supply chains, they can look to enjoying the rewards of greater response speed, agility and resolving problems through greater collaboration between all stakeholders. These benefits can be expected to improve the bottom line, resulting in increased margins and revenue.

Hospitals

IDNs, ACOs and large hospital groups are faced with not only lower reimbursement, but the impact of legislation from the enactment of The Affordable Care Act (ACA), commonly known as Obamacare.  This alone has morphed the reimbursement focus from being volume based to incentive based. Instead of being paid on the number of procedures performed, hospitals must embrace end to end healthcare delivery supply chains to manage procurement costs, monitor cost per case, re-admissions and other factors that could jeopardize their continued operations.  It is a business tenant that you cannot manage what you do not monitor. Supply chain systems provide the data that can be turned into actionable management, system improvements and business critical cost savings.

Expect the distribution model to continue to change in response to market factors.  Many IDNs and ACOs are adopting Warehouse Management Systems (WMS) of their own, rather than ordering from large medical supply distributors such as McKesson, Cardinal and others.  Savings from these new procurement solutions is a significant opportunity for users.  Simply put, it immediately eliminates the distributor markup on products and does so in a very fast period of time. It is estimated that with self-distribution, where hospitals purchase directly from the manufacturer and assume the distribution responsibility by implementing WMS’s, the payback can be in as little as six months by moving just ten vendors from traditional to new self-distribution systems.

Summary

Healthcare is an extremely fragmented and non-standardized industry relying on traditional methods and systems to successfully overcome today’s rapidly changing challenges. Utilizing new technologies such as cloud computing, WMS and fully integrating and refining supply chain management systems will help both suppliers and users of healthcare products to deliver better quality of health care at a lower cost. Collaboration among all those involved in the value chain, IT software suppliers, manufacturers and end users, to name a few, is essential for the healthcare industry to profit, evolve and prepare for the business challenges of 2015 and beyond.

What innovation strategies will unlock the growth in the financial sector in 2015?

Growth drivers of financial services, Today and Tomorrow

It will be very difficult to not mention ‘Fintech’ when discussing financial innovation of today. The buzz word has captured the attention of the media and, in turn, the media has started a cycle of monetization (conferences, special reports etc). No doubt, financial technology will be a key growth driver for the industry as a whole and over a longer period of time. Financial services companies that have brushed it aside will likely suffer customer attrition, while those that have embraced it will attract more and more ‘mobile’ customers. Some thinkers speculate that new comers coming from outside the financial industry could oust big and slow incumbents, but that is a little too stretched. Finance is, at the very core, a ‘conservative’ industry. But even though ‘Fintech’ is here to stay, it won’t be the main driver of growth for the year at hand, 2015.

Having touched upon the hype of today, which innovation strategies will unlock the growth in the financial sector in 2015? The short answer is the innovation that has been happening at the core of innovative financial services firms, which is to acquire the execution capability to provide cross-border investment solutions and advice in the institutional space, while also providing the ability to replicate something similar for retail investors. These early movers will immediately reap the benefits and growth will come in the traditional forms of increased AUM and fatter fees, not tomorrow, but today.

Asia’s Institutional Appetite for Global Assets

There is much money in Asia that is looking for solutions to invest in global asset classes. China’s sovereign wealth fund CIC (China Investment Corporation) which holds assets of 652.7B USD (end of 2013) of which about 220B is invested in overseas assets, manages about 67% of this through external management. Those Chinese and global advisors who have invested in their network and relationship with CIC and Chinese decision makers will reap great rewards. CIC holdings grew a whopping 13% (77B USD in absolute terms) in 2013.

Japan’s Government Pension Investment Fund (GPIF), the largest of its kind in the world, manages some 137B JPY (1.14T USD, end of 3Q 2014). Its overseas allocation is 13.14% in global bonds and 19.64% in global equities. Recently, its decision to more than double its target allocation of foreign stocks to 25 percent, which came together with BOJ’s shocking decision to ramp up stimulus, was greeted with a world-wide equities rally. Again, those firms who had strategized before-hand and have come up with innovative solutions will stand to benefit.

NPS, the Korean national pension grew 10% in 2014 to 426B USD. Of the 42.9B USD increase, 20B was in global asset classes.

Recently, the Ministry of Employment and Labor of Korea, selected one lead manager to manage its 14B USD holdings. In the past, it used to directly apportion the holdings to about 10 different managers. In the new scheme, a single manager will be making the decision as to which asset manager will get how much, while the firm earns a fee on the total AUM for providing advice and risk management services. This ‘beauty-contest’ to decide which firm will lead was decided based on many criteria, of which allocation and execution skills were key.

Reduced home bias, a common trend for all Markets

In their Global Pension Assets Study 2015, Towers Watson calculated a 6.1% rise in the assets of the top 16 markets reaching a 2014 year-end total of 36T USD. During the last 10 years, the most rapidly growing pension markets have been Mexico (16.1%), Australia (11.7%), Hong Kong (10.0%), Brazil (9.7%) and Canada (7.3), when measured in US dollar terms. Since 1995 bonds, equities and cash allocations have been reduced to a varying degree while allocations to other alternative assets have increased from 5% to 25%. There is a clear sign of reduced home bias in equities, as the weight of domestic equities in pension assets portfolios has fell, on average, from 64.7% in 1998 to 42.9% in 2014.

Innovation of Core Competencies: How to execute is a strategic choice

As the most visible ‘smart money’ in each of the regions, SWFs and pensions have great impact on how wealth managers advise and HNWIs invest. Financial services firms all over the world, both local and global, both emerging and developed, will be competing for the patronage of not just institutional clients but also HNWIs.

Winners will have already answered critical strategic questions: Will it provide execution for all or part of the vast space that is global asset classes? Will it forge alliances or go it alone to create a platform for that chosen space? How much customization and dedicated personnel will it provide to the major SWF and pensions? How much, if at all, can this capability be replicated or mirrored for the retail clients?

Local firms have the clients, global firms have the execution capability. Fintech firms are providing easier and cheaper ways to reach both clients and execution platforms. The innovation challenge is huge: people, IT and networks. It is almost to the scale of reinventing the whole business process and value chain.

In the Now

This megatrend is not in the near future, it is in the here and now: 2015. Firms that innovated their old locally oriented models are experiencing growth. Those that think this is still a future event are quickly losing ground.

How oil and gas producers can take advantage of the new energy environment in 2015?

For many years the discussion on climate change has been on the table. It is obvious that the earth’s climate is changing. The real question is, is it a natural behavior of our solar system or is it triggered by humans and the industry?

Physics tells us that energy cannot be created nor destroyed, it can only be transformed into various forms, such as heat (e.g. steam or hot water), electrical energy, gases (various hydrocarbons in gas or liquid forms). We see this clearly in the operation of nuclear power plants where the heat generated in the nuclear reactor is transformed into electrical energy.

Almost every transformation of energy will have undesired by-products or lost unusable energy forms. The challenge now is to reduce, or avoid, undesired by-products and energy forms. Politics urge the industry to reduce their emissions, particularly CO2 (Carbon-Dioxide, which should force the “Global-Warming”), and many other emissions (like SO2 (Sulphur-Oxide) and NOx (Nitrogen-Oxides) which also have an impact on our climate. The major complication is that these emissions don’t stop on national borders, they move across them, dependent on the weather system which exists at the time. A small difference is between local micro climate, which might be influenced locally only, by small emissions, and the larger influence of large emissions, which may have a regional or a global influence.

This means, in order to archive any success in protecting the earth’s climate, which is changing due to forced industrial emissions and the wasteful use of energy in homes or buildings, we need everybody to participate. This might be difficult to achieve right away, but to start with those which are already known as the biggest waste and emission producers could help significantly.  Having a 70% to 30% rule or an 80% to 20% rule is better than a 100% rule with no result at all.  Bringing ~7 billons humans under one umbrella is nearly impossible, not to mention the different industries at the same time.  This needs to happen gradually over a longer period of time; political rules and economics have to meet in an acceptable way.

As we all know, the primary energy form is oil or coal, but more and more electrical energy is coming from wind driven generators and solar panels.

To produce the equipment that is needed to transform wind or solar energy to electrical energy, will also use energy to be made and will produce unwanted waste. But the real questions are:

  • How long can these equipment’s be economically used?
  • What kind of waste will be produced after decommissioning?

Some other energy forms are also under development like “Hydrogen” (to produce hydrogen, is also energy intensive; you need electrical energy or a lot of heat, to transform other energy forms to hydrogen). It is clear, using “Hydrogen” as clean fuel, has a positive effect on the micro climate where it is used, but not on a larger scale, because of the amount of energy which has to be used to come to the energy form of “Hydrogen”.

The question here is:

  • Can “Hydrogen” be produced with low emissions that are less than the amount of emissions hydrogen creates when it is burned? It will produce nearly 100% water.

There is a large amount of research necessary to find technologies that make other energy forms usable without having a lot of undesired effects and wastes.

A good and feasible alternative could be the use of natural gas (Methane), which is available in many regions across the globe. But of course, there is also a lot of energy needed to get the natural gas out of the ground.

You have to drill and you may need compressors to operate to get the gas out of the grounds. And be sure the natural gas has some other gases, which are coming out of the ground with it (like H2S (Hydrogen-Sulfide), which needs to be removed and safely destroyed. In addition, to store natural gas under atmospheric conditions is not easy. There mainly two possibilities, (1) in a high compressed version and (2) in a liquefied version.

Using the high compressed version (several hundred bars) is used to supply cars, but the amount of gas which can be stored is still limited and it doesn’t matter if it is in the automobile or in the industrial environment. The distribution of high compressed gas is done by special trucks which can transport this form of gas and deliver it to the end user distribution terminals (some gas stations are already selling natural gas). The challenge for producers is to build more stations which sell natural gas. In the end, we need a dense network to make natural available to end users. The other challenge is for car makers since the distance you can drive with one load of compressed gas is not long enough for most users. For drivers in cities, it is already quite convenient with today’s cars. But driving long distances may still take a long time in regards to developments for both car makers and gas distributers.

One option is using natural gas to make electrical energy with gas turbines and attached generators, then using the waste heat for district heating. These combinations currently have an efficiency factor of ~61.7% and soon above ~62%. Gas turbines are very efficient to make electricity, but the current economic situation show that other primary energy forms are cheaper, so the option does not foster political desire.

Another option is using liquefied natural gas which is already utilized in the Oil & Gas industry, because it is the only form where natural gas can be stored and transported in large quantities. The disadvantage lies in the fact that natural gas needs to be cooled down to -162 °C to store it in a liquid form. Not to mention the cooling process also requires a certain amount of energy with another small amount of energy required to keep it cool.

In addition, to get the liquid natural gas back into a form of gas that can be used by end users it needs to be evaporated again. Again, this process will need some energy to make the natural gas available for commercial or industrial use.

But overall, “Natural Gas,” is the cleanest burning hydrocarbon gas of all, as it burns to water a lower amount of CO2. Natural gas can be produced, stored and transported in large quantities which is economically feasible. This should be the favored form for Oil & Gas companies.

Another possibility is the distribution and use of refinery produced gases like “Propane” and “Butane”. These kinds of gases have been used for decades now, but the widespread use has not really been seen.  There is also LPG (Liquefied Petrol Gas) which is offered at gas stations in many different countries and is used in vessels for cooking and many other applications.

LPG for cars is becoming more and more popular, due to the fact that it is much cheaper than gasoline or diesel. Due to the fact that is liquid under the conditions it is stored and sold, cars need to be modified to use it for the engine. Engines can burn only gasified products otherwise they wouldn’t work. 

With the all these options, it is clear that “Natural Gas” seems to be the future for Oil & Gas companies, as it has a positive impact on climate change and yet, is still economically feasible.

In conclusion, the “Full Energy Balance” for all kinds of energy forms and transformations needs to be achieved by oil and gas producers. This includes the investigation of all forms of losses and wastes or by-products, as well as a declaration to make the best and most economical form of energy, always in conjunction with the protection of our climate and, in general, our world.

What are growth drivers in the global retail chain sector in 2015?

Being a leading-edge retailer requires a high-effort diligence to be innovative and a commitment to excellence in customer-centric practices, whether they are customer facing or not. To maintain a competitive advantage in 2015, retailers should focus their attention on meeting consumer demand in the following three areas: omnichannel capability, information security and customer loyalty.

Omnichannel capability

Omnichannel, in its simplest definition, means to be everywhere the customer is and provide the options to browse, consult and buy on demand when and how the customer wants. Consumers are looking for simplicity in their shopping experience – invisible transitions from one mobile platform to another (i.e. tablet to smartphone) and limitless accessibility to a retailer’s merchandise. While purchases at physical stores still far outpace the rapid growth of traditional retailer’s online shops – 94% to 6% according to the U.S. Census Bureau – retailers are finding innovative ways to blend selling channels for consumers.

In-store pickup for online orders. Major U.S. retail chains such as Macy’s, Sears, Target and Wal-Mart give consumers the option to make purchases online and pick up items from a local store, which uses existing e-commerce technology and store-level inventory systems to repurpose the store as a fulfillment center. Retailers who leverage both the brick-and-mortar store experience and a digital presence, with appropriately tailored features and benefits, will see results from this winning combination for both the retailer and consumer.

While continued investment in technological systems is critical, retailers also need to focus on attracting, grooming and retaining the right talent who can think broadly and strategically to create and grow the infrastructure needed to bring the omnichannel vision to life. The sector needs leaders who can drive results through people, and not at the expense of one over the other.

Information security

The level of awareness – and concern – about potential security breaches of personally identifiable information is on the rise. The 2013 security breach at Target, which cost an estimated $148 million and impacted over 40 million payment card numbers, was followed by the data loss of 56 million credit cards at The Home Depot in 2014. These similar breaches have occurred at eBay, T.J. Maxx, Marshall’s and Michael’s.

Chip card + PIN transactions. To gain consumer confidence, active measures must be taken to mitigate risk and safeguard collected data. Consumers will see a widespread adoption of PIN and chip card technology at point-of-sale by retailers, primarily driven by an October deadline among the major U.S. card issuers. Under the agreement, the least compliant party – card issuer or retail merchant – assumes liability and expense for future breaches. More commonly referred to as EMV, this global payment system works to reduce fraud and secure data through multiple levels of encryption. An estimated 575 million chip cards will be issued by the end of 2015. Information security has to be a priority for everyone who handles data – not just IT, systems or legal.

Retailers also must be willing to disclose how they are using data such as email addresses and spending levels: not asking for the sake of asking, but leveraging information appropriately to drive business decisions toward the benefit of the consumer.

Customer loyalty

Consumers who feel connected to a retailer’s identity are usually its most consistent social promoters and most profitable customer segment. Brand affiliation for consumers is an outward expression of lifestyle choices – social responsibility, fitness and environmental consciousness, among others. Retailers must continue to invest in rewards delivery networks that provide personalized, tailored experiences for consumers – often, this comes in the form of a loyalty program that offers value in both tangible and intangible ways.

Shared partner loyalty programs. Coalition loyalty programs allow consumers to earn and redeem a single rewards currency at multiple stores with a single card, offering retailers a unique and unprecedented view into consumer behavior. Popular and successful in driving engagement and profitability worldwide for over 20 years – Germany’s Payback has a household penetration at 60% or Spain’s Travel Club at 70% – the U.S. introduced its first national loyalty program coalition, the American Express-operated Plenti, in 2015.

Retailers must also focus on a multi-generational strategy for attracting and retaining all customer segments. A new generation of best practices will continue to emerge on how to recruit millennials to build loyalty to brands without alienating existing customers from other generations who are driving sales and profit today.

“How should Corporate Treasurers handle currency volatility in the markets with hedging?” Interview with Mr. Ashish Advani

According to David Woo of Bank of America Merrill Lynch, an unspoken currency war has broken out, which would make it more expensive for companies to take out insurance against currency flows. How should corporate treasurers handle this currency volatility in the markets with hedging?

The world has been experiencing some form or another of currency wars for the past couple of years. This has led to a significant amount of volatility in individual currency pairs. Each international company has been affected by this and has had to respond in various ways.

Dependent on the currency hedging policies, companies rarely hedge their translation risk. Translation risks are too large and expensive to hedge and can have a very material effect on cash flow of the company. But many companies will hedge transactional risk, also known as Balance Sheet hedging.

In today’s volatile world where we have such currency wars, there is a definite pattern to the direction of the currencies. The emerging market currencies tend to bunch together while the commodity currencies will act in a particular fashion. It is a little bit easier to manage groups of correlated currencies then hedge each risk by itself.

In this environment, it would be wise for companies to utilize techniques such as Value at Risk (VaR) or Cash Flow at Risk (CFaR) which enables companies use statistical functions of correlation and determine an optimum level of risk between the various currencies. Once a company determines such a statistical level of risk, it can use portfolio risk hedges to manage its currency risks. There are a number of SaaS software solutions that one can use to manage currency risks in such fashion.

Will hedging currency with Exchange-Traded Funds (ETFs) dampen volatility?

There is little to no evidence that currency volatility managed by Over The Counter (OTC) derivatives increases or reduces volatility compared to utilizing Exchange Traded Funds (ETF) as a means of instrument used to hedge risk. One of the critical components of hedging is receiving Hedge Accounting treatment so that the volatility of the hedge portfolio does not run through the P&L each period. By utilizing OTC derivatives, the risk metrics are closely aligned to the hedge instrument thereby achieving a close to perfect matching of terms and thus obtaining Hedge Accounting with very little ineffectiveness.

When we use ETF’s we lose a fair bit of the close matching of the terms of the risk (duration, notional volume, etc.) and thus one can experience a fair bit of effectiveness leakage into the P&L when applying hedge accounting. It is therefore advisable to utilize OTC hedge instruments compared to ETF’s for corporate hedge accounting programs.

What are the steps corporate treasurers can take in regards to foreign exchange risk?

I believe that currency volatility is going to remain with us over the next few years. As the world goes though some unprecedented geo-political, as well as economic turmoil, we may see increase in such currency volatilities. I believe we are in the early phases of a sea change in the world with the US Dollar facing an imminent threat to losing its reserve status in the world. Last time this happened in history was when the British pound lost its reserve status around the 1910-1915 era and the world experienced a World War as one of the outcomes of that turmoil. While I am certainly not predicting similar outcome, it will not be a smooth and orderly transition if the US Dollar loses its reserve status.

This is not a time for Treasurers to be indecisive or nervous about hedging the currency risks that the company faces. It is time to seek and obtain the necessary skills required to manage its risks as well as stay continually abreast of the changes that we are experiencing.

The changes are not limited to the market movements and directions but also refers to the new innovations and techniques of hedging along with the multitudes of changes in accounting guidance that are being unleashed upon corporations. Finally, the new laws and regulations that mandate the tax laws that affect cross border transactions also have to be studied in lock step to ensure that the company is in full compliance with its objectives and is not caught unaware.

It would behoove a Treasurer to obtain professional advice in determining the currency risks, evaluating the various techniques of hedging, choosing the right instruments, understanding and obtaining compliance to accounting regulations and guidelines and then executing a series of hedge transactions. Once that is done, it is also important to continually monitor the risks, observe shifts in markets and then adjust the hedge strategy accordingly.

According to Jared Cummans of ETFdb, “one of biggest hindrances for the currency-hedged world is education; investors simply are not comfortable with the idea of hedging their fund because it sounds intimidating on the surface.” What would you say to these investors hesitant to a currency-hedging strategy? 

Granted that hedging can be an intimidating concept to an average investor or company not large enough for having its own dedicated treasury department of currency and hedging expert. It can become an enhancer of risk rather than a mitigation of risk if applied inappropriately. In some rare cases it can lead to a higher risk of bankruptcy if one is not careful.

Yet that should not be the reason an investor or company decides not to hedge its currency risk. One has to realize that a decision not to hedge is a decision to allow risk to control some part of the results of your business. Like most other risks in business, if you do not manage it, it can have unintended consequences for you. A decision not to hedge or a decision to postpone the decision of hedging due to lack of knowledge is not a prudent decision.

Fortunately today in the market, there are quite a few currency services that can be employed to help assess the situation, determine the risk, optimize the hedging strategy, execute the hedges and manage the accounting behind those hedges. There are a number of turnkey outsourced solutions available for the inexperienced or fearful investors / companies that can help in gaining such expertise in a quick fashion and help getting control of the currency risks that can significantly affect the outcome of your business or investment portfolio.

10 Million Euro Deal boosts Business Growth

atheneum_post_image

Berlin, June 2nd, 2015 – The global knowledge broker today announced that it has received a strategic growth investment of 10 Million Euros. This investment was provided by Vogel Business Media, Germany’s largest B2B trade media house, as well as other distinguished investors including Redstone Digital, Senovo, and Atheneum ambassador Dr. Jens Odewald, former Chairman of the Board of Tchibo Holding AG and CEO of Kaufhof AG. The funds will be used to secure the company’s global market position, strengthen their technology enabled marketplace, and fuel international growth.

Currently, the Atheneum Expert Platform comprises over 210,000 industry experts and senior executives. Thanks to the additional investments, Atheneum is able to expand this network significantly to provide clients with more rapid and tailored business intelligence. Moreover, the company uses this cash injection to develop an even more robust technology platform to better connect leading investment funds, consulting firms, and corporations with foremost industry experts and key opinion leaders.

Mathias Wengeler, Founder and Chief Executive Officer at Atheneum: “We are excited to partner with Vogel Business Media, as this relationship will help us further develop the world’s leading platform for shared business intelligence. Since its founding in 2010, Atheneum has empowered its clients globally by connecting them to the world’s most relevant experts. Now, we have the capabilities to continue on this path of rapid growth.”

Stefan Rühling, Chief Executive Officer at Vogel Business Media: “We have been impressed by Atheneum growth since its founding and by the quality of its customer base. As the largest European media company for the industrial sector with broad international activities we see an increasing need on expert information. We are very pleased to be partnering with the Atheneum management to accelerate the company’s growth even further with a strong focus on B2B communication. This investment represents also an important part of our transition from a publishing house into an information services provider for business intelligence.”

About Atheneum

Atheneum is a global knowledge broker, which connects leading investment funds, consulting firms, and corporations with the world’s most renowned experts to empower our clients’ business decisions.

Thanks to the Atheneum Expert Network complemented by our custom recruitment, clients can gain the latest and most in-depth insights across more than 7,000 niche market segments. The company’s global footprint extends to 7 offices on 4 continents including Berlin, London, New York, Santiago de Chile, Lahore, Shanghai, and Hong Kong, and our team represents 35+ nationalities and 40+ languages. This allows us to offer global reach and local knowledge depth through our custom-made solutions, tailored to our clients’ needs.

About Vogel Business Media

Vogel Business Media, Germany’s major specialist media publisher, provides high-quality specialist media for established and up-and-coming professionals. We are a multi-media partner for industry, automotive, IT and Law/Business/Tax in information and communication, and support our customers in their professional success. For this, we offer 100+ specialist media, 100+ web portals, 100+ business events – national and international. In other words: what the specialist needs to know, in all common media channels from print magazine or web portal to social networks.

“Oil & Gas – Ever changing market insights” Interview with Mr. Sapan Dalal

This interview was conducted May 14th 2015

What is the state of the Oil markets? More specifically, how are politics and the global macro events trumping supply and demand in the trading of the Oil futures markets?

In late 2014, Saudi Arabia kicked off a crude oil price war in quiet recognition that US shale represents an existential threat. Now the pressure on shale companies is starting to show results.

When Saudi Arabia realized that US shale had the potential to become the new “swing producer” for global oil supply, there was really no alternative to price war. The old playbook was torn up forever with the presence of this new force in markets. In the old pre-shale days, Saudi Arabia could keep the oil price high – or at least stabilize it – by cutting back supply when demand softened. This worked because Saudi production closed the gap in the global supply and demand balance for crude. By making adjustments, the house of Saud could turn marginal pressure on crude oil prices into marginal support, by way of restricting supply until demand levels slightly exceeded supply levels once again.

With the new producers on the scene, however, any cutback in Saudi supply would simply be met by a US shale supplier. Let’s say there is global equilibrium between oil supply and oil demand at 90 million barrels per day. If demand levels slipped to, say, 89.5 million barrels per day, that would produce downward pressure on the price of oil… until the Saudis cut 600,000 barrels per day worth of production, bringing supply a notch below the new demand level. But now you have US shale fracking on the scene providing an extra couple million barrels per day. With the addition of U.S. shale, Saudi cuts would NOT bring supply and demand back to balance. Supply levels would remain above soft demand levels regardless. Now, any supply cut by the Saudis, would only be giving money to the U.S. shale producer, filling in as the new global oil “Swing Producer”.

Another way to understand OPEC, both pre- and post-shale, is to think in terms of price collusion. When a few companies (or countries) dominate a market, they can get together and decide to keep prices above a certain level. If just one player decides to break the pact, however, they can sell with size at lower prices than everyone else, and prices are forced down across the board. The U.S. shale fracking industry was the odd man out and basically, threw in a huge monkey wrench for the colluders.

What are the key opportunities and challenges facing the Oil & Gas industry?

There are several opportunities and challenges facing the Oil & Gas industry. When the US shale boom arrived in and ramped up US crude oil production by nearly 4 million barrels in five years, the Saudis knew their control regime was in serious trouble. From a long-term perspective it was clear that, if U.S. shale just kept pumping, the oil price could fall drastically. Furthermore, oil prices could then stay low permanently. Imagine a world in which global oil supply consistently exceeded demand, by a few million barrels per day, for years on end. That would be a nightmare for OPEC. The Saudi solution is to kill off high cost producers sooner rather than late, and make sure they are good and dead.  This will ensure U.S. production so that current production is scrapped and new production is mothballed. Theoretically, enough short-term pain could give the Saudis their swing position back. If short-term pain is great enough to bankrupt a whole slow of producers and shutter a hundred-billion-plus worth of longer term projects then at some point down the road, the global supply / demand balance will favor supply again, and the Saudi financial future will be better assured. The plan only makes sense, however, if the Saudis finish what they started. Saudi Arabia will not let the oil price rise too much now, after investing so heavily in a strategy to crush the shale enemy. However, given this threat, opportunities have arisen to produce a barrel of oil more efficiently and to enter different markets through acquisitions. This efficiency, is a result of better bargaining power from producers, technological advances that produce efficiencies, strategic acquisitions of producers by larger better capitalized companies, for example, Shell’s acquisition of BG Group. As always in the oil and gas industry challenges yield innovation and opportunity.

According to Daniel Yergin, vice chairman of IHS, the Oil market is “going to be a lot more volatile.” Do you agree with this statement, and if so, why?

Yes, I absolutely agree with Mr. Yergin. The retreat in U.S. oil drilling is a prime example of how the market will play out in the future. Oil prices began collapsing in September, and yet U.S. producers didn’t really start pulling rigs out of fields until December. When prices rebound, their return to shale fields will again take months.

OPEC, but more so, the Saudis, could snap their fingers and make prices rebound by tomorrow. Hence in essence there is a whole sector of a couple hundred companies, countries, and political regimes, looking out for their own self-interests. Throw in the cross current effects of global currency moves and their impact on oil priced in dollars and the uncertainty only grows. With so many forces at play, the end result is a volatile market that is at the mercy of such forces.

The International Energy Agency noted that competing forces are still playing out in the market, making the direction of prices difficult to discern. With this said, how sure can we be on our predictions?

The International Energy Agency is correct that competing forces are still playing out in the market, making the direction of prices difficult to discern. As for predictions in prices, we can’t be sure, since any change in regulations, geopolitics, M&A activity, global growth or lack thereof, global interest rates and moves undertaken by global central banks would have a material effect on oil price predictions. Unless, you can predict every single political event outcome, adjust for the different political regime agendas, and account for how global central banks will leverage interest rates and their respective currencies to stimulate their economies, you can’t predict global energy prices with great certainty and be 100% confident in your price predictions.

As international sanctions have sharply reduced Iran’s sales of Oil, what would be the potential effect on Oil supplies if the proposed nuclear accord with Iran eases and/or lifts those sanctions?

A huge uncertainty in the oil market is the potential effect on oil supplies of a proposed nuclear accord with Iran, a major producer. International sanctions have sharply reduced the country’s sales of oil, and an accord is expected to ease, or lift, those sanctions. However, the U.S. Senate has just passed a bill that would require congressional approval and review on any deal with Iran. In addition, since Congress imposed many of the sanctions on Iran, any lift of Iranian sanctions imposed by Congress, could not be bypassed by president Obama through the U.N. The bill passed the Senate with bipartisan support and should easily pass the House of Representatives, with its GOP majority.  Therefore, this deal is very much up in the air.

However, if an accord was to be reached and sanctions were lifted so that Iran could legitimately sell its oil in the global market, it would take time for Iran to organize the enormous investment that would be required to sustainably bolster its production capacity; the country might be able to make short-term changes to increase output and exports relatively quickly.

Iran has 30 million barrels of oil stored on tankers, which could quickly feed an increase in exports. It has also been estimated that Iranian oil fields could ramp up production to as much as 3.6 million barrels a day, a 29 per cent increase, within months of sanctions being lifted.

Under the pressure of sanctions, both Iranian production and exports have been curbed. Many reporting agencies state that Iranian exports are down about 50 per cent since 2012, to an average of around 1.1. Million barrels a day, although some reports state they rose to 1.3 million barrels a day in March on high demand from China.

The issue I see here is the one of geopolitics. First, with the U.S. shale already threatening Saudi price dominance, surely Saudi would not be pleased with Iran pumping crude back onto the global oil markets thereby, further threatening Saudi pricing power. Secondly, there is the proxy war being fought by Iran backed Houthi rebels, and the coalition of Saudi, Egypt, Israel and other countries. None of the coalition countries want Iran to have access to more funding to support its proxy war. This is secretarian conflict for some of the countries involved, but for Israel, its very existence it feels is in question. So the question is if sanctions were lifted and Iran benefited from the renewed source of revenue, how would the coalition countries respond? Would it trigger a nuclear arms in the Mideast, as most of the countries in the Mideast believe whatever nuclear deal is reached that Iran would cheat, just it as has had on previous agreements. Would it be the final indicator that prompts Israel to take matters into its own hand and bomb Iranian Nuclear sites? The short term impact on the oil market should there be a nuclear deal, might be more oil supply from Iran thereby further depressing crude prices but this could change on a dime depending on the reactions of the coalition countries. I think supply/demand are indicators that are certainly the crux in the formation of a commodities price but with Oil, geopolitics are the dominant theme to be followed closely in the formation of short, medium, and long term outlooks.