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Financial Services

Driverless Cars and Long Term Implications

Driverless cars are reality today. The street images you look at on Google Maps came from cameras mounted on some of the first examples. It’s a logical presumption that eventually consumers will adopt the technology for mobility.

What does that mean? Is it a short journey, a “hockey stick” adoption pattern, and do the benefits outweigh the difficulties of putting those vehicles on the road? Who will own them? Who will make them? What will be the impacts on auto insurance, manufacturing, purchase, lending, and payment for usage?

The questions are multiple and should be asked if you’re in any number of fields. Government, public safety, financial services, city planning, transportation, city dwellers, auto manufacturing, and geospatial fields come to mind immediately.

The adoption? It will depend on consumer attitudes and those will be shaped by existing perceptions and the safety record of the vehicles. Google is ahead in the development with an enviably low mishap rate but the recent Tesla-related death and a culture of experimentation in the driving industry force – the software sector – means that the road ahead will be bumpy.

Plus there’s the regulatory environment which right now is a patchwork of state laws in the US without a Federal baseline that needs to be established. As typical, government lags by anywhere from 5 to 10 years just as they have with other de novo technology issues like drones, advanced analytics, and cyber-currencies.

But what you can do right now is think through the implications of eventual adoption on your career or industry. After a recent presentation where I outlined the impact of 25% of drivers switching to use of driverless vehicles a state government executive cam
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e up to me and said his department at looked at the same possibility and determined that the existing highway infrastructure is currently overbuilt by about 40%. He said his state is scrambling right now to convert construction assessments to other forms of mass transit. He believed a 25% adoption was highly probable by 2040.

Insurance and financial services already anticipate the impact. Travelers places language in their annual report on the threat to their revenue of autonomous auto adoption. Warren Buffett is quoted as saying, “when you start making the driver safer, that would be a big, big jump, and that will happen some day, and when it happens there will be a lot less auto insurance written."


Photo: By Grendelkhan - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=47467048

Quick Look at the Economy

2016 isn’t off to the greatest economic start if you’re anywhere but the United States. China’s stock market has flirted with free fall, the Middle East has Shia-Sunni outright war in the tea leaves, and commodity prices have all but collapsed. The EU and Japan still pass the mirror test to see if they’re breathing – but barely.

With clients in agriculture, financial services, and construction on the agenda for the first half of the year I’m asked to weigh in. Generally, I’m optimistic.

There are problem areas. Commodity prices in the low range means crop farmers see the end of their 6-7 year run of record returns. Not a lot of new pickups in the shed these days. It’s a return to eking out profit from slim margins. Livestock producers benefit from lower feed prices. A lot of eyes are on the presidential election where a Republican win could affect biofuel policy that’s been buoying up grain prices – with corn as the leader. Plus the El Nino introduces even more weather and moisture uncertainty than usual. The dollar is expected to remain strong, working against exports. Huge amounts of US grains are sold overseas and the competition is stiff.

Financial service companies – banks, insurance, credit unions – depend on a stable to rising economy to produce loan demand. A GDP performance for the US economy usually points to a reasonably good year but it’s not quite that simple. The Fed is raising interest rates, albeit tentatively. The rest of the world is not. It makes for difficult decision-making. I’ll be in the room for about a dozen strategic planning meetings in this sector this year and the discussions will be “interesting.”

No sector deserves a better environment than construction and the outlook is fairly good this year after nearly a decade of abysmal to bad news. Commercial construction for 2016 should be up. One of the key indicators, billings at architectural firms, were up significantly for all of 2015 which should translate to buildings coming out of the ground in ’16. The home building sector is also looking positive. The National Association of Home Builders is projecting about a 25% increase in 2016 year on year despite some nagging worries about labor availability and costs. Job creation is a big driver in this sector.

But the question about whether the US economy can stand up to a world slowdown still stands. There are several factors that work in the country’s favor:

  • The US is so much better an investment destination than other global regions that it stands to attract more capital.
  • US consumers, as long as the job outlook remains strong and fuel prices remain low, will spend.
  • China is a totalitarian state. Don’t overlook the possibility that it can do almost anything it wants to get growth back up to a 5% GDP range. Plus it still possesses huge cash reserves.
  • The EU and Japan don’t have a great recent track record for growth but neither do they stand to take a deep dive into recession.

The Big Deal About Bitcoin

Bitcoin gets a lot of hype. There’s fascination with the first digital currency to gain traction in the financial world and a bit of a dark side panache about the development. It’s the preferred payment system for cybersecurity ransom demands. A few years ago it was getting high usage from illegal drug peddlers and other miscreants. There was also a highly-publicized hack of one of the major exchanges, Mt. Gox.

Now Bitcoin is gaining more attention not only because it’s an electronic means for making payments but because of its inner workings and a unique quality that promises to shift the world of money transfers.

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Bitcoin is a decentralized payment system. Two individuals or entities can transfer value without the need for a centralized overseer. In other words, it’s electronic cash held in an electronic wallet. Decentralization is attractive for a lot of reasons but it’s the currency’s reliability and security that stands out. You can rely on a Bitcoin transaction being genuine. That’s because its “block chain” is hardened against tampering or revision.

Remember that term. Blockchain (as it’s most often cited) will be one of the buzzwords of the financial field over the next five years as reputable organizations adopt alternatives to the “rails” of the ACH, card systems, and alternatives. This is not a short journey. It won’t even be free of bumps along the way but it’s another disruptive new entry. And it’s worth watching to see if it could give way to something even more powerful that maintains all the advantages of its predecessor. Just look at the millions of dollars of venture capital that is flowing into the Bitcoin-related businesses.

Even if Bitcoin itself doesn’t have a long run I believe that the blockchain will. The ability to transfer funds at the speed of e-mail between individuals located anywhere in the world without conversion fees or international currency wars at very low cost is a game-changer. I believe we’ll see the blockchain being used earliest for international transfers but long term for secure tracking of everything from legal services to land titles.

2012 - The first half in the practice

2012 began as our busiest year in a decade. For the first six months of the year I’ve been on an almost non-stop schedule of strategy sessions, conference presentations, retreats, decision-making meetings, and consulting projects. Financial services, telecommunications, agriculture, executive education, information technology, and healthcare have been the most prominent sectors.

Among the highlights:
  • An interesting decision-making project for a financial services client. The eventual outcome will establish a path for the organization for at least the next two decades. Like all of my best clients this group is taking time and a major due-diligence discipline in order to choose correctly.

  • Executive education sessions in strategic leadership and “anticipatory habits.” I’m usually in front of a few hundred mid to top level managers from corporate environments and a similar number of governance participants from the association and cooperative space. This is some of my most rewarding work.

  • National-level strategic planning for resource-based industries in North America. The global focus of my work and scope of my forecasting background helps provide a baseline for advising and facilitating planning in this environment. Two very engrossing projects stand out in the first half of 2012. Both involve organizations with huge upside opportunities in a world with growing populations and burgeoning middle classes.

  • A deep dive into government agencies as advisor and strategic advisor. While I’ve done advising work with government clients in the past (look here) I worked on a project that broke new ground in the past six months. It was a government agency that had never gone through a formal strategy process before. It was a combination of education, facilitation, and development. Very interesting to see the group take to the processes under a highly respected leader.

  • I moderated professional society meetings recently that gave me a global perspective and insight to the intersection between business considerations and those of specialized expertise within organizations. Every organization needs professionals that generate the intellectual property, streamline the workflows, manage risk, and protect the most precious assets. As an attendee/reporter/moderator/presenter I was able to see connections, take away lessons, and pass along advice from a high-level observer’s perspective.