Is Corporate Responsibility Profitable?

Though it is not always easy, big firms that aim to produce outcomes beyond company profit tend to find that profits actually improve after social responsibility goals become part of the core firm mission. 

More than 2,000 academic studies have examined the impact of environmental, social, and governance propositions on equity returns, and 63 percent of them found positive results, versus only eight percent that were negative. 

About 93 percent of U.S. Fortune 500 CEOs believe their companies should not mainly focus on making profits to the exclusion of other social goals. That makes sense. What executive from a Fortune 500 company would say anything but that, in an age when customers and employees say they care about many outcomes from large firms, beyond maximizing profit?

That is not the point. The point is what happens if such goals become a core part of the company mission, allowing pursuit of profit to remain in place, but also adding other social outcomes as well. 

Reality arguably lags, as you might guess. In the McKinsey survey of 1,000 participants from U.S. companies, 82 percent affirmed the importance of purpose, but only 42 percent reported that their company’s stated “purpose” had much effect. 

source: McKinsey

Contributing to society and creating meaningful work, the top two priorities of employees in the survey, are the focus of just 21 percent and 11 percent of purpose statements, respectively.

To be sure, “there is a frustratingly simple reason why business leaders have struggled to square all these circles with coherent statements and credible actions: it’s difficult to solve, simultaneously, for the interests of employees, communities, suppliers, the environment, customers, and shareholders,” McKinsey says. 

But McKinsey argues it can be done, while not damaging firm profits. Purpose can generate top line revenue growth (or serve as an insurance policy against revenue slippage) by creating more loyal customers, fostering trust, and preserving the customer base.

There is some evidence, McKinsey argues, that 47 percent of consumers disappointed with a brand’s stance on a social issue stop buying its products. Perhaps 17 percent will never return.

Also, purpose-driven environmental stewardship can reduce costs. In some cases, companies gain because energy and water consumption fall as a result of stewardship activities, for example.

Some results can be hard to quantify, but purpose can unleash employee potential, helping firms win the war for talent, retain the best people, and boost employee motivation. 

Perhaps 66 percent of millennials take a company’s social and environmental commitments into account when deciding where to work, for example. 

Purpose also can make management more aware of shifting external expectations, policy directions, and industry standards, helping identify risks management  might otherwise miss.

Some Day, This is How We Will Feel

Facebook Takes 10% Stake In Reliance Jio Platforms

Facebook’s $5.7 billion investment in Reliance Jio has a number of business objectives. Simply, Facebook believes it wins when “everyone” is connected to the internet, and Jio has 388 million internet access accounts. 

The investment gives Facebook a 10-percent stake in Jio Platforms, the umbrella entity for all of Reliance digital and internet businesses, including mobile apps, broadband connectivity, smart devices, cloud computing, big data analytics, artificial intelligence, internet of things, augmented and mixed reality, and blockchain.

source: Facebook

The investment should help Facebook increase usage of WhatsApp, its messaging platform; the Facebook app and create additional opportunities for mining and monetizing all the Reliance firm data. Facebook conceivably also could get a boost for any e-commerce efforts. JioMart is envisioned as  primary beneficiary from integration of WhatsApp messaging, for example. 

Some might also note that the move is consistent with expansion of Facebook’s role in multiple parts of the internet ecosystem, from connectivity to social networking and other apps. 

Not Everything that Occurs Post-Pandemic is Caused by the Pandemic

Some already speculate about the impact of Covid-driven 5G deployment delays in Europe, which both Ericsson and Huawei have noted. Analysys Mason predicts a significant 3.4 percent dip in developed market telecom revenues in the immediate aftermath of the pandemic, resulting from business failures that--at least temporarily--reduce the customer base. 

With the caveat that trends could be quite different from region to region, what is not so clear is how “permanent” the pandemic economic shutdowns will be, longer term, on infrastructure deployment by service providers, business or consumer spending on communications. Correlation is not causation. Not everything we observe, post-pandemic, will be caused by the pandemic. In other words, cyclical changes of a short-term nature and longer-term secular changes should not be confused.

The short-term impact is going to be clear enough, since policy makers created a deliberate recession. Recessions tend to depress growth, and also telecom spending growth by businesses and consumers. What remains to be explained, though, are the long-term effects, if any. 

source: Analysys Mason

And while post-pandemic spending is likely to be depressed, a rebound to the underlying trend is almost certain to happen within two years, as was the case in the wake of the 2008 Great Recession. And some believe flat connectivity revenue growth, not contraction, is in store, even if economic growth falls fairly sharply. 

source: IDC

There is a long term decline or flattening  trend at work for connectivity services that is hard to pin on any single recession, since spending in the aftermath of the Great Recession of 2008 actually recovered by 2010. Looking at global telecom spending, which is relatively flat, despite growth in developing markets, something else--or several trends--seem to be at work. 

Internet-based product substitutes often allow users to reduce spending even as value increases. Competition is causing price declines for virtually all products. Open source and products that improve with Moore’s Law allow firms to reap value even when total cost is less. Virtualization of most processes also allows value to increase while the cost of solutions often decreases. 

source: Statista

The issue is whether the effects of the Coronavirus pandemic will be transitory or permanent. If gross domestic product grows, that will drive higher IT spending, and presumably also higher enterprise connectivity spending.

Some would note that the longer-term trend for enterprise spending on information technology both tends to track GDP growth, but also has shifted to “newer” technologies, and away from legacy products. 

It can be hard to quantify telecom spending that is buried in wider information technology forecasts, but IT spending tends to grow over time, and often at rates faster than GDP grows. Telecom spending tends to fall, over time, in real terms, though growing (globally) at about one-percent annual rates. 

source: IDC

source: IDC

The impact of the Great Recession of 2008 was sharp, but relatively short, if it had effects at all, on productivity levels, research and development spending or gross domestic product. So the question is whether the same thing will happen in the wake of the pandemic. A return to the underlying trend might well be assumed. 

source: Intereconomics

Some might note revenue trends in the aftermath of the Great Recession of 2008 that they would describe as “permanent.” So some might hypothesize that post-pandemic trends will similarly be long lived. 

BT Global Services saw its revenue from businesses grew between 2005 and 2008 but suffered a long-term decline after 2008,  Analysys Mason notes. Revenue from data services and managed network services increased in both 2009 and 2010, but at a slower rate than in the previous three years.

Orange saw revenue from enterprises become stable between 2005 and 2008 but began to fall steadily after 2008. 

The rate of decline of business services revenue for AT&T and Verizon increased significantly after 2008. Both business services divisions served mainly large enterprises.

The issue, though, is whether those are long-term effects of the recession itself or are simply reflections of wider underlying changes in the business. We can note that consumer spending on connectivity, as a share of household spending, has been dropping for a decade since 2008. Yet few customers would likely argue the value they derive from the lessened spending is lower than it once was. 

source: Scope, OECD

Business spending likewise has been computer-centric rather than telecom-centric for some time, though growth trends can be flattened in the wake of a major bubble burst or recession. Spending growth flattened in the wake of the Internet bubble crash of 2000.  

source: Researchgate

In part, that reflects slower revenue growth, as business budgets set such spending on a “percentage of revenues” basis. Slower revenue growth also means slower IT spending growth. So temporary dips are expected. The issue is whether long-term trends also are created. 

source: IMF

The value to be wrung from better technology also means less information technology spending is required to achieve a desired objective. Also, much spending is shifting from hardware and software to services, which are much harder to quantify, in terms of impact, value and productivity. 

Enterprises might be spending less on connectivity services, long term, because the unit prices of connectivity services are dropping so much. Business customers might be substituting less-costly products for legacy products (IP telephony for traditional long distance calling or conferencing services). 

Business demand for fixed network voice arguably continues to drop, much as consumer demand for such products began to drop about 2000. 

The bottom line is that permanent trends specifically caused by the pandemic are going to be subtle and hard to quantify.

Data Consumption at-Home is Probably Not Up as Much as You Might Think

Stay-at-home rules likely have not increased total data usage as much as you might think. 

This chart showing at-home internet access usage suggests the stay-at-home orders have led to an increase in data consumption, as average at-home usage is up 38 percent overall. 

source: Statista

But Cisco predicted there would be about a 50 percent growth in mobile data consumption between 2019 and 2020 in any case.

source: Cisco

The baseline for fixed network global IP traffic growth tends to run about 24 percent annually. Cisco has estimated global consumption growth rates growth rates of as high as 53 percent. 

The point is that the Covid-19 impact on data consumption is more subtle than one might presuppose. Normal growth over a single year would be expected to boost data consumption between 24 percent and 50 percent, as a base case. 

To be sure, at-home data usage is up. But mobile consumption and consumption at business, office, factory, entertainment venues and schools is down. Total consumption therefore is likely fairly nuanced.

Productivity Likely is Lower as Huge Numbers of Employees Work from Home

About 34 percent of work-from-home employees report they are getting less done while working from home, while 25 percent said they were getting more done, a survey by Waveform finds. 

source: Waveform

Those are self-reported outcomes, and might not be entirely accurate, but the reports are congruent with at least some other reports of lower productivity as huge numbers of workers are forced to work from home. 

The new conventional wisdom is that more remote work is coming, as a permanent change after all the stay-at-home rules put into place to deal with the Covid-19 pandemic. But there is some debate about whether remote work is less productive or not. And if remote work turns out to be less productive or more productive than face-to-face work, there will be consequences for its extension and use. 

Looking only at the impact of the massive stay-at-home orders to counter the Covid-19 pandemic, there is at least some evidence that productivity has suffered, in some countries, because of remote work from home. 

Aternity, for example,  has aggregated from millions of employee devices from over 500 Global 2000 companies, reveals that the United States has become less productive due to remote work because of the pandemic. The metric is hours of work, captured because Aternity hosts a cloud-based analytics application that captures work-related application usage. 

source: Aternity

At the end of March, 77 percent of work has been moved to be performed remotely in North America, the largest amount of any continent. The North America trends were bifurcated. U.S. enterprise worker productivity actually dropped 7.2 percent, Aternity reports, though Canadian productivity increased about 23 percent. 

“Overall productivity (as measured by hours of work computing time) in Europe declined by 8.2 percent,” according to Aternity. 

Another study of worker attitudes suggests that about half of workers 18 to 24 believe their productivity is lower when working from home, according to a study by National Research Group. Half also believe they are distracted at home. That does not necessarily mean productivity is lower, but the workers feel their productivity is lower. 

Some believe remote work, in some cases, is wildly less productive. A study by Scikey MindMatch that estimates only 0.2 percent of the Indian IT workforce actually is capable of working from home at high levels of productivity.

Consumer Technology Adoption is a Self-Correcting Problem

Some “problems”--be in use of telephones, smartphones, the internet or apps--are self-correcting over time. 

When he was CEO of Tele-Communications Inc., at that time the largest U.S. cable TV operator, he sometimes was asked about adoption of then-newish cable TV services. Some people do not want to buy your service, one financial analyst quipped. “Yes, but they’re dying,” Malone said. What he meant was that adoption data showed younger people buying at much-higher rates than older people, a trend that has continued in the internet era as well. 

That same basic adoption behavior has been evident in the internet era, relating to use of the internet generally, apps and internet access services. There is a well-established pattern of higher use by the youngest age cohorts, with the lowest use by the oldest age cohort. 

https://buildfire.com/app-statistics/

As Ofcom data for the United Kingdom, shows, use of the internet scales almost inversely linearly with age. 

source: Ofcom, Bendict Evans

source: Pew Research