Thursday, November 8, 2007

Promoting Sustainable Consumer Products with Collective Intelligence

Public awareness and heightened interest in environmental sustainability issues, driven by growing consensus that climate change has occurred, has brought sustainability to the fore as a key business issue - both as an opportunity and as a risk. An example of the business opportunity seen in sustainability is demonstrated by GE’s commitment to grow US $20 billion revue from what GE refers to as “eco-business”, which is supported by its “ecomagination” campaign. “Ecomagination” puts into practice GE’s belief that, “financial and environmental performance can work together to drive company growth”. GE is ranked as the world’s second largest company by market capitalization.

Parallel to GE’s ecomagination commitment, Clean Tech venture capital funding, which comprises of alternative energy, pollution and recycling, power supplies and conservation, saw record levels of investment with US $844 million going into sixty-two deals in the third quarter of 2007. This represented an 80 percent increase in the dollar level and 35 percent increase in the number of deals in the Clean Tech sector in the second quarter of 2007.

At the same time as the business community is making investments and placing bets in the perceived opportunities of sustainability the Internet has continued to bring network connectivity to the global community. Internet penetration is approximately 19% of the global population, which equates to approximately 1.2 billion users as of September 30, 2007. The growth rate of Internet penetration is estimated at 245% for the period 2000 – 2007. This growth in network connectivity suggests that, “For the first time in history, you have a global market of 1 billion-plus people, all connected over an interactive network. The opportunities are bigger than ever before.” (Marc Andreessen, New York Times, October 28, 2007). This connectivity enables a phenomenon termed Collective Intelligence. While there are many suggestions for definition of Collective Intelligence, a generally accepted definition of Collective Intelligence is, “the capacity of a human community to evolve toward higher order complexity thought, problem-solving and integration through collaboration and innovation" (http://www.p2pfoundation.net/Collective_Intelligence, 2007). On the Internet these Collective Intelligence technologies manifest themselves as search engines, social community based websites, blogs, viral email campaigns, SMS text messaging, instant messaging and wikis.

As consumer sustainability and Collective Intelligence gather momentum, so do the services that orbit around these activities. The response to the needs of business will be identifiable by marketers’ communications promoting the new sustainable consumption paradigm. The marketers’ strategies will adapt to the sustainable consumption model and in turn will create their own momentum in their dialogue with consumers as marketers’ transition to promoting sustainable consumption product life-cycles. There now exists the possibility to leverage Collective Intelligence technologies to help create and promote the marketing of sustainable consumer products.

to be continued ...

Thursday, August 30, 2007

Eric Hoffer

Absolute faith corrupts as absolutely as absolute power.

More here: http://www.quotationspage.com/quotes/Eric_Hoffer
and more info here: http://en.wikipedia.org/wiki/Eric_Hoffer

Sunday, June 24, 2007

Greentoob's first What-a-Waste Award, Financial Weapons of Mass Destruction & Beehive Co-ops

Well I haven't intentionally been neglecting my blog but I do have some material that I have accumulated since my last post.

What-a-Waste

First of all I would share with you an article from the Spring 2007 edition of the MIT Sloan Management Review, Gloor and Coopers, The New Principles of a Swarm Business. This is most probably one of the most important papers I will read this year and importantly an absolute landmark model of operation and execution for our very own Greentoob. You can obtain a copy of the paper here: http://sloanreview.mit.edu/wsj/insight/pdfs/48312.pdf (When I read this article I was reminded of Jack Welch's comment about competing in China in his Business Week podcast).

Next, I would like to acknowledge some information sent to me by Kristin. Her first piece of Greentoob intelligence is a newsletter from www.recycline.com about Robert Redford's "green" show on the Sundance channel. I haven't caught the show yet but this is invaluable information as Greentoob begins to take shape. Its very much like being in a pitch dark room and trying to find out just what it is that is in the room with you. Kristin's second piece of Greentoob intelligence concerns the UK's Green Directory, www.greendirectoryshop.co.uk

"The Green Directory is the UK's most comprehensive listing guide to green living. As well as being the UK's only national directory it is the only directory to also include Regional listings - helping you to find organisations close to home".

(Talking of which, how dare my local telephone company send me three massive Yellow Pages directories - completely unsolicited. Who uses the Yellow Pages any more anyway? I'm not even a local phone company subscriber. So I would like to award the first ever Greentoob 'What a Waste' award to this particular organization).

Financial Weapons of Mass Destruction

Next up is a paper I wrote that I would like to share for comments. This paper really signifies the moment when I understood just what the risk is that obfuscated Private Equity poses to us all. In no ways am I trying to be a harbinger of gloom - just reporting what I found out. And as Black-Scholes states, "the option is implicitly priced if the stock is traded".

Introduction
There are two basic types of options: call options and put options. A call option allows its holder the right to buy a specified amount of the underlying asset during some period in the future at a predetermined price. A put option gives the holder the right to sell a specified amount of the underlying asset (Levy, p650).

Options are types of financial instruments that are classed as derivatives; value is derived from the underlying asset’s value rather than trade or exchange of the asset itself. Types of derivatives include futures, forwards, options and swaps. The main use of derivatives is to either remove risk – hedging, or take on risk, speculating.

An investor who is hedging wants to minimise the risk of financial loss from holding an asset when and if the price changes. For example, an investor who owns an asset such as portfolio of stocks wants the value of that asset to increase. The investor wants to limit, if possible, any loss in value. Therefore, the investor use the markets to take a position that can minimise the risk of financial loss from holding those assets when and if their price changes.

The speculator does not own the underlying asset. The speculator buys a call option, or sells a put option, hoping to profit from rising prices, while selling a call option, or buying a put option, hoping to profit from declining prices.

Discussion
Because of the sophistication of derivative trading, individual investors are typically warned to steer clear of derivative investing because of its complexity and risk. (For example, there are issues with the standardisation of trades). To demonstrate how a call option would be of benefit to individual investor I modified an example provided by Investopedia:

A speculator negotiates the option to purchase a house for $200,000 in three months time - a call option is created with a strike price. The right to do this costs the speculator $3,000, the premium. It’s discovered that the market value of the house is $1 million. Because the investor sold the speculator the option to purchase the asset, the investor is obligated to sell the house for the agreed $200,000 . The speculator is now “in the money”. An inspection of the house reveals the house is uninhabitable and the investment is now worthless. Because the speculator bought an option, there was no obligation to go through with the sale and the option is allowed to expire. The speculator forfeits the price of the option, $3,000.

Whether it is to hedge the risk of foreign-exchange transactions or to give employees ownership in the form of stock options, most multi-nationals today use options in some form or another. Despite an initial reluctance to use derivatives by institutional investors, now a variety of derivative instruments are used to hedge corporate activity. For example, in 2006 Hewlett Packard used derivate trading to hedge against its stock being diluted. The company’s stock price had increased 30% which prompted stock-options holders to trade their outstanding options. This sell off threatened to dilute the value of HP shares. To avoid this, HP entered into an agreement with BNP Paribas, for a fee to HP of $1.7 billion, whereby BNP would use an options collar of selling put options and buying call options with different strike prices to purchase HP stock and return the shares back to HP. This was achieved with a market price that was under the average listed market price of $38 for an HP share. HP had funded BNP to spread the repurchase of its share with different options on strike prices, spreading the risk of price fluctuation over a period of time. BNP bore the risk of price protection for HP by managing the risk between buying call options – a rising stock price - and selling put options – a falling stock price. BNP succeeded by managing the risk of trading in the space in between a rising and falling stock price. (My research could not establish whether European or American call options were used. The American call option allows the holder to exercise the option at any time during the life of the option. The European call allows the holder to exercise the option only on the option expiration date). ICI was one of the first companies that leveraged derivative trading when it purchased put options in the FTSE100 and call options in the fixed-income market to increase the performance of its pension fund in the early 1990s (Global Finance, Internet accessed June 3, 2007).


Conclusion
Trading commodity futures and options is not for everyone. It is a volatile, complex, and risky business. In 2003 Warren Buffett, in his annual letter to Berkshire-Hathaway investors, called derivatives, “financial weapons of mass destruction” [ http://www.berkshirehathaway.com/2003ar/impnote03.html ]. Buffet points to the Enron collapse, a company which relied on derivatives for most of its deals. To this end, Buffet closed down the derivative trading component of the re-insurance company that he had purchased, General Re Securities. In the US, the FBI acknowledge that stock options account for one-eight of FBI’s fraudulent caseload largely before the implementation of the Sarbanes-Oxley regulation. While the sophistication of derivative trading is typically beyond the means of the lay investor, for corporate institutions, the advantages of derivative trading are being promoted as a way to hedge corporate activity.


References
Levy H, Post T; 2005, Investments 3rd Ed., Pearson Education Limited, Prentice Hall

Commodity Futures Trading Commission, What you should know before you trade [Source]
[ http://www.cftc.gov/opa/brochures/opafutures.htm ]

Investopedia.com Options Basics [Source]
[ http://www.investopedia.com/university/options/option.asp ]

March 2007, Trading Derivatives, Global Finance, p52 – p54. [Internet] Accessed June 3, 2007

4 March, 2003 Buffett Warns On Investment 'Time Bomb'
[ http://news.bbc.co.uk/1/hi/business/2817995.stm ]

Beehive Co-ops

Finally ...
I came across a seemingly interesting company here in Atlanta, www.beehiveco-op.com.
Their mission, "is to nurture the creativity and entrepreneurial spirit of emerging designers and provide them with new markets and opportunities for their products". To facilitate this, their goal is to become, "a network of innovative stores all featuring and promoting local emerging designers". Best of luck to them I say and I'm looking forward to visiting the Atlanta location soon.

So I hope all this information does go to prove that I have in fact haven't been sitting on my Greentoob laurels and that I have indeed been thinking about just how big that elephant really might be. More developments soon I hope.

Wednesday, May 2, 2007

Carbon-Neutral Is Hip, but Is It Green?

Great article in the NYTimes regarding the trendiness of carbon offsets. (You may need an account to read this article).

http://www.nytimes.com/2007/04/29/weekinreview/29revkin.html?_r=1&oref=slogin

Adjustment isn’t optional

How must marketing strategy and implementation be adjusted/conducted to position a product for the 21st century consumer, and succeed within the new internal/external environmental forces associated with Business social responsibility (BSR)?

Introduction
I think all society, in particular the consumer societies, are at the cusp of a cultural shift (bear in mind that poverty excludes five/sixths of the world population from purchasing industrial goods). We are departing the recklessly naïve age of the consumer society and today stand at the dawn of the new epoch of the sustainable consumption model, inherent with the challenges and opportunities that this new era brings with it. Some governments and businesses will anticipate this transition and plan for it; others will have it forced upon them. For those who are not prepared, the transition will occur anyway. Fifty years after the apex of the Friedman consumerism age, we now know that the disposable consumption model is unsustainable; transition to the new model will be mandatory. Because of this change, to remain relevant and to maintain a resonant discourse in the new consumer model, the holistic marketing strategies of the new era will have to communicate the new language of sustainability. Marketing will continue to both reflect, influence and promote this culture shift.

Discussion
According to Hartman, a consumer has eight dimensions of consumption. Of these eight dimensions I think the Personal Benefits dimension will be of particular importance. Consumers will no longer consider the personal benefits of the purchase – the ‘me and my family’ benefits. Consumers will be compelled to ask ‘am I doing the right thing for my family and for the environment?’ Consumers are becoming compelled to do this because of the emotional connection between the well being of the family and the environment. The two are no longer disparate but are now directly connected. What is good for the family should also be good for the environment. Even suburbia America will have to succumb to this altruism (witness the slow death of the American automobile industry as an example of this enforced altruism).

So what is driving this new awareness? I actually think it is being driven from the boardroom. Many leading US corporations are dumping their own government’s intransigent stance over climate change and recognising the problem as the opportunity that it is. GE is a very prominent example of this. I would argue that investors are seeking accountability in sustainability from their boardrooms because, as investors, they recognize the detrimental consequences of climate change will have to the global economy and to their investments. Venture capitalists, for example, see the challenge for what it is – business opportunities to invest and develop ‘clean tech’ solutions.

A BSR report, Sustainable Business Practices, reports that “Many companies are publishing sustainability reports in addition to traditional annual and environmental performance reports. These reports not only present companies' efforts to integrate the environmental and social equity aspects of sustainability in their business practises, but also demonstrate the increased business value linked to these efforts. The Global Reporting Initiative is a collaborative effort to provide guidelines for sustainability reporting that is gaining increasing acceptance” (Internet, accessed April 23, 2007).

So as the sustainable consumption movement gathers momentum so do the services that orbit around these businesses. The response to the needs of the business will be identifiable by marketers communications promoting to the new sustainable consumption paradigm. As they do so, their strategies will adapt to the new model and they in turn will create their own momentum in their own dialogue with consumers as the marketers transition to promoting new sustainable consumption product life-cycles. I think in the US you can see this cultural change being forced down the corporate command chain - primarily because management is beginning to be held accountable to practice consumption sustainability, which in turn means that a performance criteria of good management will be the practice consumption sustainability. As this sustainability awareness permeates through the households of corporate American society, brands that are considered not be practising good sustainability will be impacted. Consumers will exercise their new awareness as a preference for sustainable consumption products over non-sustainable products. (Although I would suspect that that this will vary among age cohorts).

Conclusion
One of the ways to counter act the effect of green house gases is carbon offset. Carbon offset is already a sustainable consumption business model that is gathering momentum. I thought it might be interesting to review some of these vanguard business social responsibility (BSR) companies. If you are not already familiar with these companies I hope you find them interesting.

For example, travel is one of the most environmentally threatening activities consumers undertake. To offset some of the damage of travel pollution you can invest in “carbon offsets”. There are a number of companies that will allow you to do this.

Silverjet, from the UK, is “the first carbon neutral airline worldwide and is the [UK] Institute of Transport Management's environmentally aware airline of the year, 2007” http://www.flysilverjet.com/. A Silverjet ticket price includes a mandatory carbon offset contribution which is invested by their world leading climate consultancy partner, The CarbonNeutral Company, to ensure that every tonne of CO2 associated with a Silverjet flight, "is matched by one tonne saved through climate friendly projects around the world".

TerraPass, (US), http://www.terrapass.com/about/index.html, lets you calculate your emissions based on car model and mileage or flight distance. You then buy a Road TerraPass card calculated on the amount of your car’s CO2 emissions, which are then used to fund clean energy projects.

DrivingGreen.com, (US), http://www.drivinggreen.com/, does the same except its focus is on methane gases and nitrous oxide gases, which the site explains are more powerful than carbon dioxide.

Adjustment isn’t optional.

References:
Solomon et al., 2006, Consumer Behaviour; A European Perspective, 3rd Edition, Prentice Hall, Pearson Education Limited

May 19, 2003; Forging a Link Between Shareholder Value and Social Good
[Source] Knowledge@Wharton [Internet] Accessed April 23, 2007

Veeresh Srivastava 2007, Customer Behaviour Seminar 6 Lecture Notes, UOL/Laureate Education MBA program/

Sustainable business practices, available at http://www.bsr.org/CSRResources/IssueBriefDetail.cfm?DocumentID=50106
[Internet] Accessed April 23, 2007

BSR and marketplace, available at http://www.bsr.org/CSRResources/IssueBriefDetail.cfm?DocumentID=49040
[Internet] Accessed April 23, 2007

CSR: Strategic Implications, available at http://econpapers.repec.org/paper/rpirpiwpe/0506.htm
[Internet] Accessed April 23, 2007

Marketing and Sustainability, available at the Center for Sustainable Design (click on “booklet” archived at http://web.archive.org/web/20031003071542/www.cfsd.org.uk/smart-know-net/smart-know-net.pdf )
[Internet] Accessed April 23, 2007

Building sustainable value throughout supply chain explained at http://web.archive.org/web/20050210034351/www.cfsd.org.uk/sv/index.html
[Internet] Accessed April 23, 2007