Showing posts sorted by date for query recession. Sort by relevance Show all posts
Showing posts sorted by date for query recession. Sort by relevance Show all posts

Monday, May 10, 2021

Black Swans in Action

The Covid pandemic was a vivid reminder to all of us who create models, build scenarios or make predictions that we are unable to accurately account for all possible influences and outcomes. By definition, we are unable to account for highly-improbable, very rare events that have high effect on whatever it is that we are modeling. 


The pandemic also was a reminder of how difficult it is to create organizations that respond better to unexpected stresses. One tactic for reducing fragility is to possess more cash. That is akin to reducing reliance on "just in time" supply chains, which, as the pandemic showed, increases risk and fragility.


Many businesses and non-profits assume there will be times when revenues slow or increase. Cash reserves or contingency funds are one way to create "antifragile" capabilities. But I know of no organization that prepared for a sudden and complete shutdown of all operations--and a virtual ban on customers buying--extending for months to nearly a year.


Though for many of us the Covid pandemic is the biggest black swan event we have ever seen. A black swan event is unpredictable and unprecedented in scale and retroactively explainable, according to Nassim Taleb


Nassim actually states the case more dramatically: "nothing in the past can convincingly point to its possibility.” By that standard, some argue Covid is not a black swan; perhaps neither is the Great Recession of 2008; nor the emergence of the internet. We have seen major pandemics in human history. We have experienced severe global recessions and seen the impact of computer technology on human life. 


Perhaps the definition does not matter much. After all, Talib’s whole point is resilience; the ability to create organizational ability to adapt to low-probability and high-consequence events. Whether one believes Covid, for example, is a black swan or not, what might we have done to prepare for it. More to the point, what should we be doing to prepare for some unknown future black swan?


Retroactively, we can put into place mechanisms to deal with pandemics. But we cannot spend unlimited amounts of resources doing so. Nor, as a practical matter, can we easily design better systems to account for threats we cannot presently imagine. Yet that is what Taleb counsels. He calls such resilience “antifragile.”


Exercise is one antifragile practice, he argues. Perhaps cash in the bank also is an antifragility measure. Some might say this is  “resilience.” Taleb rejects that notion. Antifragility as Taleb views it is a property of systems that get stronger in the face of stressors, shocks, volatility, noise, mistakes, faults, attacks, or failures. 


“Antifragility is beyond resilience or robustness,” he argues. “The resilient resists shocks and stays the same; the antifragile gets better.” Antifragility is the ability to demonstrate a non-linear response to events. 


“You have to avoid debt because debt makes the system more fragile,” he says. “You have to increase redundancies in some spaces. You have to avoid optimization.” In a real sense, Taleb says antifragility is enhanced by being deliberately less specialized and less structured. 


The concept was developed by Nassim Nicholas Taleb in his book, Antifragile, and in technical papers.[1][2] As Taleb explains in his book, antifragility is fundamentally different from the concepts of resiliency (i.e. the ability to recover from failure) and robustness (that is, the ability to resist failure).  


Others might say it is disaster preparedness.   


One might well argue that there is a normal human resistance to spending too much time, effort or money on preparing for unpredictable; low-probability events with massive impact. By definition, we cannot foresee the sort of event we are preparing for. 


No forecaster, therefore, can predict or model the impact of a black swan event: it is, by definition, unpredictable. 


 We simply assume that present trends will continue, within some zone of variation. 


A positive black swan might be the internet; a prior negative black swan was the global Great Recession of 2008. We can all agree that one essential element of a black swan event is that it has a sudden and unexpected magnitude outside our models. 

source: Alex Danco 


The main idea is that black swan events are extremely unpredictable and have massive impacts on society. 


A corollary might be that black swan events are “preemptively ruled out” in human mental models or forecaster predictions.


“For an event to really be a Black Swan event, it has to play out in a domain that we thought we understood fluently, and thought we knew the edge cases and boundary conditions for possible realm,” argues Alex Danco. 


Immediate "economic curtailment worse than the Great Recession of 2008" was outside the thinking of anybody I have encountered.


Thursday, April 8, 2021

Maybe Covid Will Not Have Lasting Significant Impact on Connectivity

One hears much casual talk about permanent changes caused by Covid-19 lockdowns or work from home policies. Where it comes to use of communications capabilities, however, there is some evidence that the impact was quite transitory. 


Data gathered by Ofcom shows that use of the internet climbed in February 2020, but by October 2020 was down to pre-pandemic levels. Most casual statements note the sudden surge in demand as the lockdowns began. Few seem to note that demand has returned to pre-pandemic patterns


source: Ofcom 


Some argue that mobility usage climbed during the pandemic. Ofcom data suggests quite the opposite. As you might expect, people confined largely to their homes spent less time connected to the mobile network. 


People were not traveling outside their home areas so much. That is why roaming revenues dropped for virtually all mobile operators. 


source: Ofcom 


In other ways, mobile phone behavior was, in fact, not changed by the pandemic. Many casually make the argument that the pandemic “proves” the value of connectivity. It was important; it is important. But it might not be significantly more important, post-Covid. 


Demand in urban office areas is likely to drop, as more people spend more time working from home, on a permanent basis. There will be some upgrading of connections in suburban or rural areas. But internet access was vital before the pandemic. It did not suddenly become more important because of the pandemic, though the places people used the internet did shift (from office to home; from school to home).


There was less use of mobile phones on the mobile network between March and October of 2020, as more people were confined largely to home, and used Wi-Fi connectivity. 


Nor did calling behavior change. “Our crowdsourced data showed that 75 percent of panellists made a call in the first 11 weeks of the year, and 78 percent of panellists made or received a call,” Ofcom says. “There was no significant change in these proportions between pre- and post-lockdown.”


The impressionistic sense that “communications must be more important” is not necessarily borne out by the facts. It is similar to the anecdotal comments all of us have heard about “communications proving its value,” along with a belief that “communications firms must be making more money because of that.” In fact, most service providers saw revenue dip during the March to December 2020 period, for obvious reasons.


Economic activity was suppressed by government orders. And less economic activity, as in any recession, stifles communications revenues. 


There are likely to be permanent changes because of the pandemic. But a dramatic and permanent leap in communications industry revenues or growth rates is unlikely. 


In fact, there will be some downward pressure on demand, as urban office space begins to go unused. Fewer people working “downtown” means less bandwidth demand. Fewer people at work also means less demand for all surrounding merchants. Those merchants are also likely to require less bandwidth or connectivity demand. 


Bandwidth demand overall will likely keep growing, at past rates. But the pressure is not all “up.” There will be some redistribution of “work” demand to residential areas. But the key driver of residential broadband demand is entertainment video, not use of work apps. 


That will ripple through network planning assumptions, at the very least, even if revenue impact is relatively neutral. What seems to be developing is a rather temporary Covid impact on capacity demand and user behavior. In other words, Covid might, in the end, not have very much impact on connectivity revenue or demand. 


Usage grows every year, irrespective of temporary events. More people watching more video streaming is going to affect usage more than did Covid.


Saturday, April 3, 2021

Implications of GDP Damage Worse than Great Depression, Far Worse than Internet Bubble or Great Recession

For those of you who lived through the internet bubble burst in 2001 and the Great Recession of 2008, the Covid-19 pandemic exceeds the economic damage by quite some scale, surpassing the carnage of the 1929 Great Depression. 


We all seem to sense that many changes in business and personal life will be permanent, post-Covid. Enterprise executives indicate big changes are coming. 

source: McKinsey 


Remote work environments seem to have encouraged “output oriented” work flows and may have enabled faster decision making, McKinsey reports. Hybrid work situations are expected to become permanent, while “site agnostic” employee sourcing will increase, along with possibly 35 percent to half of all existing office space to be shed over the next two years. 


source: McKinsey 


McKinsey argues that geographically “distributed work” produces more value than “remote work.” And those are not even the most important implications enterprises must consider. The “recovery” from the crisis will not follow patterns we have seen in prior economic downturns. 


So a new operating model will be necessary. The need for agility no longer will be a nice to have organizational capability, but might be a requirement. Business will run about four times faster than in the past, making “three months the new year.”


source: McKinsey 


New threats and opportunities might well be the new reality as well. That might well include a change of revenue sources and business models.


Lots of people talk about disruption. Not so many have actually had to face it. Many more might get their first chance to do so.


Friday, March 26, 2021

Telecom Revenue Recovery in Asia Pacific: How Soon?

Retail connectivity service provider revenues tend to track gross domestic product growth or contraction, so it would not be surprising to learn that the economic recession caused by Covid-19 public health measures have caused retail service provider revenue to contract, in Asia and the Pacific region. 


Always, telecom service spending tracks household income. So when income falls, telecom services spending tends to dip as well. During the Covid-19 economic lockdowns, when people were working from home, lower travel also meant lower roaming revenues, for example, though counterbalanced to some extent by higher spending on broadband access services.  


Virtually everyone expects a rebound as economic activity accelerates. So how fast will the Asia-Pacific recovery occur? It depends. Global tourism is expected to remain below pre-pandemic levels till 2023 and delay economic recovery in tourism-dependent economies, so that also is an issue. 

 source: World Bank


Among major economies of the Asia region, only China and Vietnam have followed a V-shape recovery path with output surpassing pre-COVID-19 levels in 2020, a World Bank report says.


Most of the other countries have not seen a full-fledged recovery in terms of either output or growth momentum, the World Bank says. 


By the end of 2020, output in the four other major economies had rebounded but remained on average around five percent below pre-pandemic levels, with the smallest gap in Indonesia (2.2 percent) and the largest gap in the Philippines (8.4 percent). 


 source: World Bank


As you might expect, economic contraction has been particularly severe and persistent in some of the small island economies with output in 2020, remaining more than 10 percent below pre-pandemic levels in Fiji, Palau, and Vanuatu. 


Longer term, it is possible that growth over the next decade could be as much as 1.8 percentage points lower than pre-Covid-19 projections for the region excluding China. 


Still, China and Vietnam already are on pre-Covid growth paths. Indonesia and Malaysia will be back to 2019 later levels this year. Thailand and the Philippines will do so by late 2022, the World Bank estimates. 


Connectivity service provider revenues should track those developments quite closely, with the caveat that tourism-heavy economies will take longer to recover than export-oriented economies.


Friday, February 19, 2021

When Will Travel Approach Pre-Covid Levels, and What Does it Mean for Telecom Revenue?

Travel behavior has had a significant impact on mobile revenues globally, primarily in the form of reduced roaming revenues, though some reduced upgrade or new account activity might also be an issue. By definition, a return to pre-pandemic travel is key to restoring roaming revenue volume. 


Some believe recovery will take a few years. 


Global spending on business travel is expected to show a 52 percent decrease for all of 2020 (to $694 billion), down from $1.4 trillion in 2019, according to the Global Business Travel Association, an “unprecedented” decline. 


“The magnitude of these losses and their impact on travel suppliers is unprecedented: the 2020 business travel spending losses are expected to be 10 times larger than the impact of either 9/11 or the Great Recession of 2008,” says GBTA. 


More significantly, GBTA expects a 21-percent increase in business travel spending is projected in 2021, mostly at the end of 2021. A full recovery to pre-pandemic levels is not expected until 2025.


Consumer travel demand also matters. In that regard, one analysis suggests travel tops the list of things U.S. residents want to do after they get vaccinated, a survey by Ipsos finds. And there appears to be significant pent-up demand. 


About 40 percent of respondents say they’re saving more now than they were before the pandemic, and most people who have plans for the money say they’re saving it for travel.


About 19 percent of survey respondents say they’re saving for a domestic trip by plane, while 16 percent say they’re saving for a domestic road trip. About 15 percent say they’re saving for an international trip.

 

source: Ipsos 


So 2021 might still be a challenging year for mobile operators, in terms of revenue growth.


Friday, February 5, 2021

Is Covid a White, Grey or Black Swan? It Matters

Is the Covid-19 a white swan, a grey swan or a black swan? The answer portends the amount of disruption we could see, post-Covid. 


A “white swan” event that is one that could have rationally been expected to happen at some time, and has major effects. If Covid-19 was a white swan, the world will not be disrupted as much as many expect. Essentially, change will happen without expected and “normal” statistical ranges. In other words, Covid will have about as much impact as a normal recession. 


White swans are said to have relatively few negative implications, impacting the life of one or a group of people rather than the entire globe. 


Grey swans--neither a completely unexpected black swan nor a predictable white swan--can be devastating for many, and can have radically unsettling implications. To be sure, black swan or grey swan events can be positive, not just negative, though the most common outcome is a negative impact. 


The main difference between a grey swan and a black swan event is that one is known about beforehand, while the other takes us completely by surprise. But the bottom line is that a grey swan event can still be disruptive and devastating. 


If Covid-19 was a grey swan, we might see unexpectedly large outcomes, in terms of change. 


A true black swan event is typically expected to have disruptive implications. Black swans are outliers, events that are outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. 


Climate change, population growth or rising debt levels could be grey swans. Long-term water shortages could be a grey swan. 


Black swans typically have “extreme” or “massive” impact, exposing fragility in ideas or practices that had underpinned “normalcy.” Many would consider the personal computer and the internet as examples of black swans. 


Keep in mind that highly-disruptive events can still be white swans. Some consider the internet bubble burst of 2001 and the Great Recession of 2008 to be white swans. If that is the test, a grey swan or black swan would have unimaginable consequences. 


Others might consider the 2001 internet bubble burst a white swan, but the Great Recession of 2008 a black swan. World War I, World War II, the fall of the Soviet Union, the rise of Islamic fundamentalists, 9/11 and the internet might be called by some black swan events.


Others might consider the Great Depression and World War II as a single black swan event. Some consider the sinking of the Titanic a black swan event. Others might consider larger events, such as the Spanish defeat of the Aztecs, to be black swan events. 


The point of black or grey swan events is not “how to prevent them.” By definition, they cannot be predicted or prevented. But organizations can try and create robustness for their occurrence. 


Small businesses, sadly, almost by definition cannot create much robustness. 


Many businesses--large and small--will survive or die based on when economic activity can be resumed on a “normal” basis. A survey of U.S. respondents taken mostly in January 2021 suggests most believe it will be six months until they feel comfortable attending large public events. 


A plurality say it will be six months until they are comfortable taking a vacation. Other life sustaining activities--such as going to work--are largely believed safe now. A majority of respondents feel safe shopping in retail stores now. Less than half are comfortable eating at a restaurant. 


If these attitudes do not change, many restaurants and travel-related businesses will not be in business by the end of 2021. Failures in many OECD countries will eliminate more than three percent of jobs

source: Civic Science 


The number of active business owners in the United States plummeted by 3.3 million or 22 percent in just two months from February to April 2020. The drop in active business owners was the largest on record, according to the National Institutes of Health. 


By December 2020, 42 percent of small businesses surveyed on Alignable said they were in danger of going out of business. By the fall of 2020, at least 49 percent of businesses reported they were unprofitable. Some 18 percent were operating at about breakeven levels. 


It almost does not matter whether economic shutdowns and travel bans are classified as white, grey or black swans. For small businesses, they have the impact of a black swan, even if other segments of the economy will not be so affected. 


It remains unclear whether Covid will prove a black swan for cruise lines, retailing, the travel industry, airlines, entertainment or real estate. As with small businesses, Covid might well turn out to have black swan impact on some industries. 


Tuesday, February 2, 2021

Some Covid-19 Winners Boosted AI Spending Because Financial Advantage was Seen

In virtually every recession or economic panic, some firms, in some industries, are able to boost sales, take market share and maintain or even boost profit margins. Often known as high-performing firms, there might not be a single clear reason for success.


The firms could be in growing young markets, have leadership or capital access advantages, have made astute technology investments, or simply be in industries that benefit from the particular crises or recessions.


Likewise, some firms, across industries, seem to have continued to invest in artificial intelligence during the Covid-19 pandemic, and those firms seem to have done so because they saw clear advantages to use of AI in ways that helped their business models.


If the Covid-19 pandemic affected enterprise information technology investments, it arguably has slowed such investments at some firms, which have had to shift support to remote workers. On the other hand, some firms who already have found use cases, and invested more heavily prior to the pandemic, seem to have increased their investment level, a  McKinsey survey found.


Respondents from 61 percent of firms who report success with AI also say their firms increased investment in 2020. Patterns across industries show big variations.


 source: McKinsey


Firms in healthcare, pharma, medical products; as well as companies in the automotive industry were most likely to have increased AI investments in 2020. 


 source: McKinsey


Most enterprises likely have not yet found clear financial benefits from AI deployment, though. A survey of more than 3,000 company managers about their AI spend found just 10 percent had gotten significant financial benefits from their investment so far, a report from MIT Sloan Management Review and Boston Consulting Group found. 


A separate survey of U.K. firms found that 40 percent of 750 surveyed U.K. executives plan to invest in artificial intelligence in 2021, a survey by Fountech Solutions finds. 

  

Some 30 percent of respondents say their firms piloted an AI solution for the first time since the onset of the Covid-19 pandemic. New AI specialists will be hired by 41 percent of respondent firms. Also, 48 percent of respondents say their companies will seek AI training for existing staff.


As a rule, some firms managed to grow revenue and profit during recessions and crises, Boston Consulting Group data suggests. While 44 percent of firms might experience shrinking profit margins and sales growth in a recession or crisis, 14 percent have shown growth in both sales and profits. 


Some 28 percent of firms see lower sales but manage to increase profit margins. About 14 percent of firms see higher sales and lower profit margins. 


Firms in health and consumer staples are most likely to see winners in recessions. Companies in energy, information and communications technology and financial industries are least likely to emerge with higher sales and profits in a recession.


source: Boston Consulting Group 


It is possible--even likely--that firms continuing to invest in AI during the Covid-19 pandemic were already finding themselves gaining market share, increasing sales volume and maintaining or increasing profits. 


The McKinsey survey found, for example, that a small number of respondents at some firms attributed 20 percent or more of their firm earnings before interest and taxes (EBIT) to AI. Those companies planned to invest even more in AI during the COVID-19 pandemic. 


That is in keeping with the BCG data suggesting some firms gain market share and boost sales during recessions and crises. If such gains are attributed to AI, it makes sense that firms would maintain or boost such investments.


Sunday, January 24, 2021

Are There Big, Permanent Demand Changes Post-Covid?

How much will the new business-to-business environment post-Covid “normal” resemble either the “old” normal or the temporary pandemic normal? And to what degree will the new normal create new trends that affect business models? 


The safest answer--based on history--is that the new normal will accentuate underlying trends in place before Covid, with incremental changes to business models for many businesses and industries. Most of us likely assume that the consumer and business shift to online behaviors--already underway before Covid--will be reinforced at a higher level. 


That includes a shift to remote work and more collaboration at a distance. But that arguably will affect many industries and firms in an incremental way.


The bigger issue is whether some industries--such as airlines, cruise lines and hotels--might see big and permanent drops in demand, which will force big business model changes, including industry exit if markets shrink.


Some believe business travel, for example, will never return to pre-pandemic levels. That will have negative repercussions for hotels, airlines, trade shows, restaurants and associated industries.


If demand shrinks, so must operating costs and investment. Some business models might break altogether. Most trade shows will suffer; some will disappear.


Beyond all that, the question is whether any important new trends with business model implications--unseen before Covid--could be created. “Contact-less” procedures and business processes could be one example of a big new trend affecting many, if not all, place-based businesses.


Big financial and technology disruptions tend to have a big short term impact on business models--revenue and cost; customers and sales; products and services; production and distribution--and operating procedures. 


The long-term impact is harder to gauge. Do disruptions such as recessions (economic cycles or deliberate result of government policies) cause new trends or only accelerate underlying trends


Will some industries find demand permanently reduced or enhanced? Which industries might see permanent shrinkage? How will they cope? Beyond big demand changes, what are the more prosaic operational changes?


Will a shift to more “contact-less” retail commerce emerge as a permanent shift? And how much in-person retail shifts permanently to online ordering and fulfillment? How much will remote work and work from home persist? Will business travel be permanently reduced? If so, how do sales and marketing practices change? 


The easy “answer” is that big recessions or pandemics accelerate trends already in place. You would have to search very hard to find a recession that actually reverses a key underlying trend. 


The obvious example is online retail spending, which in the United Kingdom, for example, sharply accelerated during the pandemic. The issue, of course, is how much reversion to the mean will occur once the pandemic is over. 


The conventional wisdom seems to be that a permanent shift could occur. The magnitude of the shift is the issue, as is the timing of the shifts.  


source: A.D. Little


It is easier to show that recessions accelerate technology substitution than to illustrate new trend causation or at least correlation.


The short term effect is obvious: technology investment drops in the wake of a recession, even if firm professionals tend to believe the opposite


In line with that expectation, there is some evidence that the Covid pandemic has caused firms hit by massive drops in demand to decrease digital technology investment, while firms able to continue operating have increased investment. 


Retailers, for example, have remained open while cruise lines and theaters have been completely shut down, while other travel-related entities such as hotels and airlines have seen drops in demand above 70 percent. It obviously is easier to maintain investment when revenue has not been devastated. 


source: BDO 


Disparate investment in technology might easily be explained by relative differences in firm and industry revenue during the pandemic. Streaming services gained customers and revenue. Cloud computing sales increased, as did purchasing of broadband internet access services. 


In contrast, it is hard to increase technology spending when a firm’s revenue has been reduced to zero or close to zero. As firms cut operating costs, their investments in technology also tend to be reduced. 


source: A.D. Little

Alphabet Sees Significant AI Revenue Boost in Search and Google Cloud

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