SAKO TECHNOLOGIES - Capital or Consumption?

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CAPITALORCONSUMPTION

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Author: Mr Zidago Sako, CEO Sako Technologies Ltd

http://www.sakotechnologies.com/blog



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What’s inside this eBook?


Letter from the author 3

Zigado Sako 3

Chapter 1 - Added Value: Capital Or Consumption 4

Should the accumulation of capital be the underlying driver and/or incetive to generating

added value? or should we mostly keep the focus on the task of satisfying real needs/

wants? 4

Chapter 2 - Added Value: Capital Or Consumption continued 5

Is short-termism seen as the side of economic activities that prioritises the value of capital

as the prime objective in the equation? 5

Market forces were supposed to regulate the phenomenon of solving the economy’s real

problems. 6

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Chapter 3 - The Balancing Act 8

Remember IBM? Used to be biggest, maybe no longer but still here! 8

What makes capital owners tick? 9

Chapter 4 - The Beginning Of A New Era? 10

Public Sector authorities and Central Banks have been busy developing new policies to take

some power away from capital owners as well as from the Banking Franchise 10

Disruptive technology that pose a real threat to a whole industry sector... should not be

encouraged by investors 11

Marketing applications particularly (with advertising as their core offering) is currently

valued on the basis of pure imagination. 12

Author Bio 14

Zigado Sako 14


!!!Le1er from the author


Economics in the end in our view is about survival as a natural instinct in the human ‘eco-system’: it’s about the symbiosis effect. !What economics as a social science brings in the equation is an attempt to providing normative tools in the arrangements that naturally exist and co-exist between ‘giving’ and ‘receiving’ functions amongst the participants and non-participants within the whole of the eco-system. !The ‘Added Value: Capital or Consumption’ debate aims at contributing to a certain degree to questioning current arrangements to balancing the giving and receiving environment that should underpin a balanced global economic growth. !When observing this phenomenon of ‘a balanced global economic growth’, current reality shows that there obviously still is a long way to go before the world feels really satisfied. That journey we think needs more attention to its various steps along the way and it needs to contextually start.

Zidago Sako!'Our main ambition is to help organisations grow and become successful while working for their customers' satisfaction as a top priority.' !


Chapter 1 -‐ First published September 06, 2013

Added Value: Capital or ConsumpFon? The theme we are planning to develop in this eZine is going to focus on the economic concepts of added value, capital and consump8on.

There is nothing new in sugges8ng that the best approach in securing economic ac8vi8es’ funding at a micro and/or macroeconomic level(s) is to make sure the ac8vi8es concerned generate a clearly measurable added value directly deriving from them. This obviously is common sense as the added value protects all players on either side (demand and supply) of the funding equa8on.

What could be new is the thought that we are sFll struggling to clearly explain which side of this equaFon should take priority on the other?

To our humble knowledge and view, this key ques8on has not yet been fully answered and therefore deserves a lot more thinking on the part of those who specialise in this aspect of economics. We therefore propose in this eZine to open the debate by puCng forward key contras8ng views we think could be of interest to most.

Another way of expressing the above could be: would anyone want to invest capital with a view to specula8ng on future uncertain revenues or rather invest in the tools (one of which is 'forensic marke8ng' for instance) that would allow them to iden8fy that ‘real consump8on’, and once this exercise is successfully achieved they could be certain their investment will almost always pay off?

Though both types of investment have risks aKached to them, our task here is to analyse them compara8vely, and decide once and for all, the best way forward in order to maximise return on investment whiles concomitantly maximising added value for a faster and most sustainable solu8on to economic growth.

We provide readers here with an interes8ng plaLorm to express their views on the ques8ons posed with arguments backing those views.


1. Should the mere accumula8on of capital i.e. the remunera8on of capital invested be the prime objec8ve to economic ac8vi8es; in other words, should it be the underlining driver and/or incen8ve to genera8ng added value?

2. Or should we mostly keep the focus on the task of sa8sfying ‘real’ needs/wants in a way that the capital invested almost always generate, with a considerable degree of cer8tude, the targeted added value based on the fact that what we call ‘assured consump8on’ would have been achieved if the main objec8ve for the investment risk was in essence construed to iden8fying it (assured consump8on)?



Chapter 2 -‐ First published January 26, 2014

Added Value: Capital or ConsumpFon? ‘Who can really take on Short-Termism’ is the title chosen by Adi Ignatius, Editor in Chief of Harvard Business Review (HBR) for the January-February 2014 Edition.!The editor is once again conveying HBR readers to the very theme we are inviting our Blog’s readers to meditate upon in our previous publication in September 2013.!It is not a coincidence that the HBR editor seems to suggest that short-‐termism is not the way forward to achieving added value and therefore economic growth. Short-‐termism here can easily be seen as the side of economic ac8vi8es’ funding that priori8se the value of capital as prime objec8ve in the equa8on and therefore, may imply that it is more important than all other produc8on factors.

When considering the key incenFves to capital investment in recent years at least (if not for a long Fme now according to Ida IgnaFus’ editorial piece), instantly making the most return on cash and other forms of capital invested, in a relaFvely very short period of Fme, is the most obvious element that strikes any observer’s a1enFon.

Those who own capital stress the facts that, though innova8on is a key incen8ve in their decision making process, a quick exit strategy, all of which is about mone8sa8on of the whole innova8ve process is even more rated; the objec8ve being an easy to measure return on investment tac8c. This does not necessarily mean that easy to measure ROI is the most objec8vely accurate way of assessing the best possible economic gain in comparison. What’s happening in this instance of a quick exit is comparable to a beCng situa8on where the individual involved is losing their nerves and want to exit the game as quickly as possible in order to limit exposure to a possible loss of their bet altogether.




!!The other reality of this situa8on of a quick exit is an inadequate state of affairs whereby, current tools and instruments used to make investment decisions may not be sufficient to predict, or at least provide, some sort of commonly acknowledged factual criteria upon which such decisions should be based.

This therefore puts pressure on the economy with the inevitable consequence of not paying enough aKen8on to sa8sfying the real problems facing individual consumers, or the whole of the economy.

Solving the economy’s real problems would have involved puTng in place the tools and instruments that would allow funding bodies to truly assess the merit of adequate soluFons proposed in context, via products and services that are creaFve enough to meet the problem solving requirement.

Market forces were supposed to regulate this phenomenon but unfortunately, it is no longer accurate to stand by this maxim previously considered as the only way forward in capitalism. Addressing such an issue of solving real problems in the economy requires capital of course, but not necessarily a quick exit strategy type capital. It should s8ll be possible to fund real problem solving products and services whiles taking into account return on investment as an important constraint.

On the other hand, capital ownership has become a difficult responsibility to manage, given the risk associated with long term investment strategies. It seems almost impossible to predict with accuracy return on investment beyond 5 to 7 years for most venture capitalists who generally make this sort of decisions. In contrast, some (if not most) truly viable projects for innova8ve and really needed products and services can take longer before becoming profitable.

Capital owners therefore o^en find themselves having to fund products and services simply because they are classified as belonging to a sector of ac8vity they perceive as being the least risky and easy to deploy their efforts onto in order to make a quick exit. O^en, those sectors get saturated quickly and capital owners, like ‘nomads’, move to the next sector they consider will

again provide them with the opportunity of another profitable quick exit. Meanwhile, real problems in the economy are not being dealt

with.

In this chapter, we are aKemp8ng to suggest that this problem could be solved

by finding a consensus. For instance, rather than applying the straight forward rule of produc8on cost to seCng products or services' price (cost based pricing), it would be interes8ng to see this slightly differently.

Any human being that consume a fruit or vegetable would be beKer off than the next

person that went and bought a cake full of sugar and other ingredients not always advisable for that individual’s health. However, that person is s8ll free, according to the consensus of market rules to buy whatever their preference ‘dictates’. Never mind what cost went into that cake’s produc8on, it should never, on any market on earth (inhabited by humans sharing the same biological reali8es), cost dearer than a fruit, regardless of market rules as previously set.


The reality unfortunately, is that we all have become so incapable of puTng in the efforts to finding real soluFons to this problem that the answer to Adi IgnaFus' quesFon should be: ‘No-‐one’.

However, we are sFll human beings and therefore capable of solving problems. So how can we just resign to 'No-‐one should take on short-‐termism?'


!!So, in our view we could redefine market rules for all possible products and services. A complex task maybe but not impossible. The implicaFon in economic terms is that capital owners would come to the realisaFon that they have to reconsider their decision making process in prioriFsing real needs, not mere capital market rules i.e. cost, price and profit.

This implies however, that even more crea8ve should become, the tools and instruments used to iden8fy consumers’ inevitable problems that truly maximise sa8sfac8on and return on investment concomitantly. Also, professionals making these investment decisions should be beKer trained, because currently, they are not (Helen Burrows, Kity Ussher, 2011).



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Chapter 3 -‐ The Balancing Act: First published May 29, 2014

Remember IBM? Used to be biggest, maybe no longer but sFll here! Bea8ng short-‐termism can be done and this is actually happening. It's all about being imagina8ve and crea8ve. Since our latest piece on the subject, we have already heard about a lot of ini8a8ves from companies and other types of organisa8ons that are or have been approaching the issue the way we are sugges8ng.

Research by Imperial College scien8sts (Thomas Moore, Health & Science Correspondent) reveals how economically powerfully our approach to long-‐termism may impact P/E ra8o in favour of both sides of the funding equa8on without at all altering the fundamentals of economics. Also, we are discovering that the formerly most prominent company on the planet (IBM) have been keeping this balance by just applying the principles of the approach we have been 'advoca8ng' for.

Referring to the research men8oned above, let's for a second imagine the impact of preven8ng 37 million human deaths worldwide by adop8ng our approach of reaching a consensus of

cheaper price for healthier food and lifestyle in contexts currently being suggested in certain government quarters, what would the effect be on P/E to both sides of the funding equa8on whiles maintaining a sustained growth in the economy?

Our analysis of this is a simple one: capital owners will win on the bond market as well as the stock market. The public sector benefits from this approach, because of less expenditure on repairing damaged health inflicted onto the public via unhealthy products and services yet funded with money borrowed from the market to make short terms gains. This will make savings, which in turn and if efficiently managed, should lead to more investment in be1er products and services, with healthier bodies and minds necessarily leading to a be1er yield on capital invested.

Where private sector market is concerned in this case (of the possible implica8ons of the Imperial College's study), the same should be valid, with the difference of less earnings (opportunity cost) in the short term as well as longer term of course for those who keep making the mistake of inves8ng into products and services that may have a beKer P/E now but in the long run do not benefit healthier bodies and minds with diminishing returns as a consequence.

However, if the above illustra8on were to be rejected on the grounds of wishful socialist thinking with no real capital market 'meat' on it, what about IBM's example, the 'crème de la crème' of capitalism?


The IBM Blue Gene/P supercomputer installation at the Argonne Leadership Angela Yang Computing Facility located in the Argonne National Laboratory, in Lemont, Illinois, USA. Image courtesy of Argonne National Laboratory under Creative Commons License



!Mr Palmisano and his team's approach to dealing with this issue, was to dig deeper away from the usual, in order to find an innova8ve model of Capital Alloca8on not just applicable to IBM

but also to any other business (or organisa8on for that maKer) with a balanced economy at heart; it can be done. The key to the success

of his model as we understand it is:

Transparency, Trust, Dialogue/Nego8a8on and finally sheer Hard Work.

The simplicity of the idea is striking. He and his team thought that by seCng P/E from $6 to $10 in 2010 that would allow them to fix through nego8a8on with shareholders, one of the unknown on any capital market: the unknown here being what makes capital owners 8ck? If this becomes a known variable in the funding equa8on, life is made so much (more) simpler to all sides. Everyone involved can go away and know what to expect, or do in order to pass the test, when they meet next.

The magic of this is that Mr Palmisano did not invent the basis to his model. All he did was to apply one of the most basic rule in QMS. Self-‐seTng objecFves and meeFng them no ma1er what. A penny less on the $10 of P/E and Mr Palmisano and his team would be in deep trouble.

Shareholders have something to hold onto. Let's always remember that they have no real

understanding of what goes on behind those published figures (and frankly they will never do). Maybe business has since become more complex today than it was when these shareholders were s8ll around, and on this side of the equa8on (where Mr Palmisano was as CEO), or it could be due to other factors but in reality shareholders will not get it the way CEOs do, hence the transparency via the nego8a8on approach. And this is one of the points made in the interview when Mr Palmisano says: 'The porLolio guys tend to be older; their analysts tend to be younger'.

A key observa8on to be made from the IBM experience is: if more and more companies make their choice for the 'long-‐term' funding strategy, the market will at some point force 'ac8vist traders' (or 'joy-‐traders' as we kindly call them) to change and adopt or even follow the movement of where their real interest lie.

Long-‐Termism does not at all need altering capitalism to become a threat to capital owners' interests. In our view it enhances it because it achieves sustained growth, a substan8al degree of certainty and necessarily higher P/E.

For those who have access to HBR, please do read the interview and you may be able to understand be:er the point we are making. For those who do not, we will, in our next ar?cle, provide more analysis of the interview in the context of Added Value: Capital or Consump?on?


HBR (Harvard Business Review) in their June 2014 publication have interviewed Mr Samuel J Palmisano, former CEO at IBM (2002 to 2011). Much of the content of this interview in our view best illustrates what we mean when asking the question:!!Added Value: Capital or Consumption?!!The interview is titled: 'Managing Investors' and in essence is describing how both sides of the funding equation can be satisfied concomitantly and still run a truly viable business operation for the longer term.


!!

Chapter 4 -‐ First published June 13, 2014

The Beginning of a New Era? We posed the quesFon ‘Added Value: Capital or ConsumpFon’ for the first Fme in a public arena (our Website) back in September 2013 (1st arFcle on the subject) inviFng more of us to think profoundly about this important issue. It seems we have achieved this objecFve. Whether a new iniFaFve or not, a big impact obtained or not, or even pure coincidence, there has been in recent weeks or months more perFnent and engaging moves on the subject. Also there are concrete acFons now being taken.

Public Sector authori8es and Central Banks have been busy developing new policies to take some power away from capital owners as well as from the Banking Franchise, and this new wave of ac8ons could lead to a more accommoda8ng mind set into achieving a (posi8ve) added value (‘assured consump8on’ as we phrase it).

For instance, the ECB’s (European Central Bank) decision, alongside numerous reform programmes being announced by the Bank of England to encourage efficiently managed capital supply into the real economy, apart from sensa8onal News headlines, could lead to longer term investment strategies, given that the opportunity cost to managing specula8ve short term gain opera8ons in comparison may no longer be an advisable business proposi8on to investors.

This may also explain the recent posiFve reacFon to 'Eurozone-‐Peripherals' bond market recovery. This market according to experts may have become a1racFve to investors because it has relaFvely be1er longer term growth prospects.

If well-‐managed, such ac8ons could lead us to beKer investment strategies on the part of capital owners that could li^ business opera8ons for innova8ve products and services that beKer target ‘assured consump8on’ and therefore boost added value as a direct result, given that longer term opera8ons mostly meet 'assured consump8on' type products criteria.

Recent events in the economy seem to be feeding the debate further. It seems that ac8ons taken are mostly market led decisions that may well cons8tute a new era and a shi^ in investors' mind set who are becoming more sensi8ve to consumers’ concerns.

!www.sakotechnologies.com/blog

1. F o r i n s t a n c e , t h e failed AstraZeneca take-‐over bid may be due to the fact that the company’s shareholders and directors became more conscious of the general public’s reac8on (or the company’s loss of goodwill) and that this weights more than the bidder’s (Pfizer)) ability to ever be able to retrieve that important asset in addi8on to clearly spelt-‐out opera8onal risks.

2. Another such recent market led situa8on is that, companies ‘board rooms’ and investors alike are more and more prone to considering RORC (Return On Research Capital) as a valid metric in considering long term prospects and implica8ons on P/E. R&D and therefore innova8ve opera8ons have become a good indicator (of what makes investors 8ck) to assess any company’s long term P/E maximisa8on strategy.



A good example of this is the recent situaFon of a Smart Phone App for Taxis offering cheaper fare and faster service to passengers. This could be seen as a good tool for a be1er transportaFon policy in urban areas. However, any such disrupFve technology that pose a real threat to a whole industry sector to a point that job losses and a sudden change in people's lives, not sufficiently taking into account legal and a serious and wide spread damaging social capital, should not be encouraged by investors.

Innova8ons of this type (efficiency or performance improving innova8ons) generally bring about dispropor8onate amounts of job losses as well as some other not always welcome by-‐products. They provide no, or too liKle, alterna8ves to mi8gate the nega8ve impact on social capital as a result of their implementa8on into the real economy. Unless this key criteria was met, there is not much added value from such opera8ons.

In any case, the Taxi industry’s true players’ reacFon (those drivers and secFons of the public who have over the years loved what they do, or simply make their living directly or indirectly from the sector), have spontaneously voiced their discontent throughout Europe. Clearly this shows that not much a1enFon was paid to that aspect of a piece of technology with good intenFons maybe but not much done to predict the rejecFon it is experiencing.

In this debate the easiest is making cri8cal statements on the wrong specula8ve decisions for short term gains in any market arena. However, we do have enough examples in the economy today to substan8ate that a different approach will be as favourable to capital owners’ interest when rewarding themselves (or even when geCng rewarded) in the process of posi8vely contribu8ng to growing the economy.

!www.sakotechnologies.com/blog

3. Again, on the same line of (posi8ve) added value products is the increasing occurrence of situa8ons similar to Coca Cola's now bringing a new product called ‘life’ on the market. It is clear the company is using a re-‐branding tool in order to offset the damage that may have been caused by their previous and current product range. Again in this case, the company is reac8ng to a public outcry on the issue of a possible nega8ve impact of their ‘sugary’ drinks on people’s health and the likely costs to consumers, and to public coffers.

4. Consumers are doing their bit too by directly vo8ng in their larger numbers than ever, for more healthier and 'assured consump8on' products and services than they used to chose. Also, consumers are more informed (knowledge/know-‐how and posi8ve marke8ng) and therefore are taking control in clearly expressing the sort of products/services they really need and want and they are increasingly becoming louder (politely) and much more powerful.

!


!We therefore think that now is the 8me to make some tangible proposi8ons in order to switch our aKen8on from just making cri8cal statements regarding capital owners, towards solu8ons that if beKer ar8culated and really convincing, could put some of the key variables of market economy on a new path. These proposi8ons we believe have the advantage of being realis8cally achievable and put both sides of the funding equa8on’s interests at par.

On that note our observa8on shows that it’s not a mere coincidence that most ‘tech companies’ such as Google, Facebook, TwiKer and the likes (coincidently some of the biggest on the planet currently) fund much of their offerings via sales and marke8ng applica8ons. Marke8ng

applica8ons par8cularly (with adver8sing as their core offering) is currently valued on the basis of pure imagina8on. We think we now know why this is so, with in-‐depth explana8ons

available for those who would like to know more.

We also know that a high propor8on of this imaginary cost is factored into most products and

services’ market value. If this postulate can be tested and factually demonstrated, it is therefore possible

to suggest that rethinking sales and marke8ng tools deployment (with adver8sing as a main factor), could revolu8onise (financial) capital sourcing, and resource alloca8on; the objec8ve being balancing the supply and demand sides of funding in order to promote ‘real’ added value.

To give an idea of what we think is possible, innova8ve sales and marke8ng applica8ons can be developed in the sense that, the more added value can a product or service generate, the easier and less pricey it should be for that product or service to be widely made available to consumers.

So markeFng and sales funcFons, tools and applicaFons should be developed further or ‘re-‐invented’ in order to achieve that. There may be some pracFcal challenges to this journey but the good news is that the world now have the means (technological as well as capital) to get this done; in today’s market economy, there is enough evidence to affirm that financial capital is no longer a rarity. Smooth monetary payment tools, Fme management, knowledge and opFmal training sFll are, and this is not just us saying it but now common knowledge by academia (Bever, 2014).

We used to be taught three produc8on factors (labour, land and capital) as scarce resources. It is now proven that capital at least no longer is one of them in current economic contexts. In contrast ‘Knowledge-‐Universal Values’™©, and ‘Time-‐ Universal Values’™©, upon which capital owners, and users, base decision making processes in order to achieve (posi8ve) added value are, and must therefore be where our current challenges lie. That’s where we should put our focus.


“MarkeFng applicaFons parFcularly (with adverFsing as

their core offering) is currently valued on the basis of pure

imaginaFon”

Home of one of Scotland’s oldest Industrial revolution sites - Prestongrange!A hub of commerce and industry established in the 13th century.


!!!!Happy clients are the best! !Our main ambition is to help organisations grow and become successful while working for their customers' satisfaction as a top priority. !

!


“I recently worked with Sako on a grant application for Research & Development (R&D) funding. I found Sako to be very thorough in his

research, very effective in negotiating contracts with potential suppliers/partners, and persistent in finding a solution when faced with challenges that would have stopped others. Sako’s feedback, both during and at the

end of the process, was both enlightening and encouraging, and has helped me grow in business confidence.”!

Mr Dewi Hughes Managing Director of Silverlock Ltd


!!!BIO -‐ Mr Zidago Sako

!!


Zidago Sako!'To the future with Sako Technologies in a more transparent and accountable world'

CEO with over 27 years’ experience at senior management level in Finance, Internal Audit, Marketing/Sales, Human Resources Management, ICT and Education. !Lecturer-Examiner positions in Economics and Business Studies in several Further/Higher Education Institutions and Examination Boards, of which the University of Cambridge International Examination Board and OCR (Oxford, Cambridge and RSA). !Owner of ZS-VSA® (Vehicle Side Advertising) and ‘ZS-VSA & The Emotional Vehicle®’ Trade Marks. Also completed a huge amount of research in telematics more specifically on the theme of Digital Vehicle Side Advertising Technologies applicable to advertising and to the deployment of this medium in the UK and worldwide. !Author has a wide experience in Multi-disciplinary Technology research, new product design, building strategic alliances with global corporations as well as SMEs. Has expertise in relationship management with funds managers, banks and venture capitalists. !Hold a Degree in Applied Economics and a Post-Graduate Degree in Education.


Sako Technologies Ltd 1 Aston Court Kingsmead Business Park Frederick Place High Wycombe HP11 1LA!!Mr Zidago Sako - [email protected]


mailto:[email protected]


mailto:[email protected]


SAKO TECHNOLOGIES - Capital or Consumption?

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