Company Directors Conference

Last month, we gave you a rundown on the IT related forum at the Company Directors Conference.  We also covered the very interesting pre-conference session where Phil Ruthven and Peter Sheehan explored the emergence of “Generation Y” as a force in the evolution of business. 

In his opening address, AICD Chairman Don Mercer (one time CEO of ANZ Bank and now chairman of Orica) noted that forces for change are evident in the labour market, in convergence of Information Technology and Bio Technology, and in Climate Change.  He said that there are greater pressures on Directors now than ever, but cautioned that the emphasis on compliance needs to be better balanced by a corresponding emphasis on the creation of wealth for shareholders and for the economy as a whole. 

Conscious Computers vs Mankind

Technology was used to bring the thoughts of British Telecom’s Futurist-in-Residence, Ian Pearson.  A webcast of this session is available from the AICD website, at: http://www.companydirectors.com.au/AICDMCMS/Templates/Events/Standard.aspx?NRMODE=Published&NRORIGINALURL=%2fEvents%2fConference%2f&NRNODEGUID=%7bEEB875AC-C3C1-4E5B-BADC-E53B88F4431E%7d&NRCACHEHINT=Guest#.  The webcast runs for 45 minutes.

Pearson started with his rendition of the facts of life:

• Everything is faster and faster, but everybody is on the same treadmill and we can’t get off – or even take a rest;

• Inappropriate use of IT can destroy productivity, loyalty and commitment – especially if it leads to micromanagement and too much centralisation;

• Centralising destroys the value of previous business models;

• Everybody is stealing everybody else’s lunch (ideas);

• Five year plans are a dead weight – agility is key and 6 to 12 month plans are appropriate;

• Tying IT to 5 year plans will guarantee getting IT wrong – things change too fast;

• Convergence is a major pressure and creates new fields of opportunity;

• Artificial intelligence is following an exponential development curve, in which early progress is miniscule and the most progress happens at the end of the curve.

Pearson depicted the evolution of ICT by plotting the growth of communications capacity to the typical home environment.  He suggests that we are already transitioning from the “Broadband networked economy” to the “Ambient Intelligent World”, beyond which lies the “Age of Simplicity” and “Virtual Worlds”. 

He went on to forecast developments we will see in the near future, based on the ongoing convergence of “Nano, Bio, Info and Cogno(tive)” technologies, where there will be extensive green field opportunity but it will be hard for established companies to make the change.  His vision of the future includes:

• Dramatic evolution of portable computing by 2007, where the device assists in most aspects of the individual’s life;

• Smart environments, that provide data that supports the casual information and processing requirements of these portable devices, thereby creating the capability for what he calls “Ambient Intelligence”;

• An extension of this concept, in which individuals wear a “digital bubble” that makes available personal information.  Digital bubbles would automatically exchange information when people meet.  Of course, he went on to note the potential risks of such processes being uncontrolled and used inappropriately, referring to “cultural pollution”;

• Active contact lenses, where users will see a synthesised 3 dimensional overlay of the real world;

• Virtual worlds, where digitally generated graphics become indistinguishable from reality.  This is followed by Duality, in which physical and virtual worlds are overlaid, and individuals can select their “duality of choice” – adding new pressures in marketing and design;

• Digital mirrors, where what you see is not what you are, but an altered reality that shows you possibilities;

• “Active skin” where your own body becomes a place where digitally generated graphics come alive – opening up entire new realms of fashion as well as vast possibilities for modifying the way work is done.

Pearson went on to discuss the development of Artificial Intelligence, positioning AI as being quite inferior to human intelligence today, and growing to being vastly superior in the future.  He said that this would lead to a revaluation of human skills, in which people would cease working as smart machines, and instead would work as people.  He foreshadowed a time, perhaps as soon as ten years hence, where machine intelligence will have completely changed the nature of work, and the world will enter the “Care Economy”.

The State of the World

Associate Professor Bjorn Lomborg – author of “The Skeptical Environmentalist” – continued the forward-looking theme (Change is Inevitable: Adapting is crucial) of the conference with a wide ranging and refreshing discussion of environmental issues.  Lomborg, reputed to be one of the world’s top intellectuals, told us something we all know – that the NIMBY (Not In My Back Yard) syndrome is alive and well!  In this discussion, he said that 70% of people believe that there are problems to be solved at a national level, but only 20% of people see the problems as being local.  People believe that by and large, it’s everybody else that gets it wrong! (Now where have we seen the same syndrome?  Of course – in use of ICT – nobody believes that their own organisation is fallible – they see the problems as prevailing only in “other” organisations).

Lomborg noted that there needs to be wider perspective when discussing problems, including recognition of the problems that have been solved.  For example, London’s pollution levels are now vastly below the level of the 19^th century, and are equal to what was experienced late in the 16^th century.

He said that, as a result of substitution, many forecasts of resource availability are wildly inaccurate.  For example, in 1999, the world’s oil reserves were estimated as 43 years.  But if shale oil is included (as the price of crude oil increases, shale oil becomes economically viable), the supply based on current usage trends will be good for 5000 years.  He also said that solar energy is so plentiful that just 2.6% of the Sahara Desert can supply all of the world’s current energy needs.  He forecast that the price of fossil energy will rise to the point where renewable energy is competitive, around year 2050.

Lombard’s message was not that the problems are over-dramatised – but that in prioritising attention, we need to take the big picture into account.  He said that the Kyoto Protocol is estimated to cost $150billion – twice the estimated cost of resolving all global problems with water supply, sanitation, health care and education.  In another graphic illustration, he said that global warming (his forecast is 2 – 3degrees by 2100) will have most of its impact in the “third world”.  He noted that in the United Kingdom, such temperature changes would see an increase of 2,000 heat-related deaths per year – but this would be more than offset by a reduction in cold-related deaths of 25,000 per year.

Again, Lomborg’s messages are very much akin to the messages we think organisations need to take on board about IT: It’s vital to look at the big picture and act in that context, and it’s vital to understand and manage the relative trade-offs that come with investment in IT.  For further information relating to Bjorn Lomborg’s thinking, we suggest browsing the Copenhagen Consensus Centre website at: www.copenhagenconsensus.com.

The Global Economy: The Dangers and the Risks

Professor Ian Harper from the Melbourne Business School opened his briefing with a note that we are enjoying a “golden age” of low inflation economic growth driven by expanding supply, supported by firm monetary policy, Japan’s emergence from 10 years of recession and China’s investment in the US.  Along with the growth comes change, such as in China and India where living standards are improving appreciably (and we note with interest recent press that suggests Indian firms are coming under cost pressure as the salaries of their domestic workforce move up toward international parity).

On Oil, he noted that Alberta (Canada) has more oil reserves than the Middle East, and that escalating prices are now driving development of these resources.  He said that oil pricing is mostly driven by short term political issues that cause problems with supply, and that even in May 2006, real oil prices are only 60% of the 1979 level.  He forecast that a price of US$100 per barrel is unlikely.

Harper suggested that the main risks would come from an untidy rebalancing of global trade, and from politics.  In global trade, China is the key engine, with an economy that may be slowed by short run supply constraints (electricity and, rather intriguingly – cement – the most fundamental building material) driving up cost inflation; or by losing its exchange based competitive advantage (floating the Chinese currency would overwhelm the undercapitalised Chinese banking system).  On the political side, in addition to the widely recognised risk areas of Iraq, Iran and North Korea, he cited India as being at risk, while its economy transforms from one based on its large, impoverished agriculture sector to one based heavily on manufacturing (14% of GDP in 2002, and now running at 16%) and services.

Ian Harper’s forecast for the future is for 2 to 3 years of strong global growth, with low value manufacturing declining and increased emphasis on adding value.  He sees services continuing to rise, commodities becoming cheaper, and living standards linked strongly to knowledge and skill.

One might ask: What does this have to do with IT Governance?  On one hand, the answer is – very little – it illustrates the breadth and depth of content that is delivered at the AICD conference.  On the other hand, it contains pointers to matters where ICT governance needs to be effective – such as in managing the risk to major business change investments based on ICT that might come from an unexpected shift in economic conditions.  With India being referenced as an area of risk, organisations contemplating, or currently using India as a source of cheap, well educated IT specialists might identify a warning that there are new or increasing risks to be monitored.

China: The World’s Most Watched Economy

George Beader, a senior consultant with the US based Monitor Group spent an hour bringing the audience up to date in its perceptions of modern China.  He said that since 1976, there have been four profound shifts in the Chinese economy:

• Economic reforms opening the door to joint ventures since 1978;

• Inflation under control from the late 1980’s;

• Reliance on foreign investment since 1992; and

• Entry of China into the World Trade Organisation.

He says that China should not be considered as a mere cost-shifting and cost reduction opportunity.  It is much more significant to consider China’s enormous domestic market as an aid to playing on the world stage.  He cited a range of statistics to illustrate his point:

• China has 670 cities, and 17,000 hospitals.

• The largest 4 cities have a population of 31million, and an annual household income of US$7,700.

• The next 91 cities house 161 million, with an average income of US$4,200;

• The next 270 cities house 230 million, with annual income of US$2,200 per capita;

• The remaining cities have 870 million people each earning around US$500 per year.

• By 2020, more Chinese people will speak English than the rest of the world combined.

China presents diverse opportunities for Australia in natural resources, food, education (tertiary) and tourism (inbound to Australia).  The challenges China faces in environment, energy, water, food and health demand innovative solutions.  For example, to meet its energy demand (forecast to be 300 Gigawatts in 2050 – which is near total global electricity production of 350 Gigawatts), China has little choice but to develop nuclear power.  The key to this, according to Beader, is Pebble Bed technology, in which there is no core, no steam, and straight-forward modular expansion.

Again – what does this have to do with ICT?  On the surface, perhaps nothing.  But consider the potential for an Australian organisation to enter, and then expand its Chinese market.  What will be the role of ICT in supporting such a move?  Will current processes and systems be adequate?  Will the move create demand for new systems and capability?  What aspects of new and emerging technologies might be useful in developing a plan for expansion into China?