Despite a high level of participation, and over 1,000 attendees, the mood was rather sombre. I enjoyed the frank and realistic discussions and tried to attend as many sessions as my limited schedule permitted. I am a Chartered Financial Analyst (CFA) for the last 14 years, and attend their events occasionally. I noticed a marked difference here – a number of CFOs, strategists and business leaders were present. So the discussion was far more holistic, realistic and strategic, rather than just investments and products oriented. My own presentation on the disconnect between the worlds of finance, strategy and supply chain management was well received and prompted serious audience discussion. But, in this post I want to note the key themes that I heard from others and resonated with me:
1. The cost of financial transactions is falling dramatically:
Some observers noted a figure of upto 1/10,000 times reduction in financial transaction cost due to technological advancement. Banks are struggling to retain their high margin – somewhat like telecommunications companies tried to do when skype and VOIP came out. Yet, the competition is making inroads from many directions. Many of the new entrants were quite prominently visible at the summit.
2. Bitcoin is not a ‘bit player’ any more
About 2 years ago I wrote this blog on Bitcoin titled ‘Will BitCoin ever amount to anything more than a bit?’ In this blog I wrote:
While as a store of value, Bitcoin or its clones may or may not be a suitable replacement for money. Wild gyrations in prices tell us that they are neither good investments, nor good store of value. Unknown complex computer algorithms that create new bitcoins somehow do not create the perception of scarcity that deep underground tunnels for gold mining do.
However, as medium of exchange Bitcoin or its clones may be on to something. In a world where most supermarkets, or even book-stores are not complaining when they earn a margin of 2%-5%, it appears ludicrous that credit card companies can command a transaction fee that is equally high. These high fees, and the processes that accompany them were designed in the days of coaches and buggies when none of the efficiencies of modern communication and transportation were available. Whatever happens to the lawsuit with $7.25 Billion settlement in “eight years of antitrust litigation that accuses Visa and MasterCard of conspiring to inflate retailers’ interchange, or swipe, fees on credit card transactions“ (Reuters) in the long run sophisticated networked shoppers will become aware of the power of crypto-currencies to facilitate cheaper international transactions.
I know I should have taken a picture of the bitcoin ATM at the summit – to show the progress it is making as a crypto-currency. Of course, this is still just a start, and questions about propriety might still be in the air. Yet, it is alive and well.
3. Banks are slowly losing credibility and influence, and will have to find new ways to regain these:
A remark made by a highly respected colleague (Paul Bradley) resonated with the audience when he said
The last meaningful innovation to come out of merchant banking to boost international traded was a Letter of Credit. And that happened when ships were made of wood.
Lack of innovation is just one of the reasons. Financial engineering solutions are also more likely to be seen as counter-productive and self-serving by the client boards and CEOs. Questions about market transparency and fairness abound in answers are found less than satisfactory in many minds.
4. CFOs are looking for new ways of adding value to their companies:
Gone are the days when financial engineering could be relied upon to boost the ROE. In addition to #3 above, the QE and ZIRP have both contributed to creating an environment where cost of capital is temporarily far below its historic levels. CFOs expressed wariness about how long such an environment would last. Hence CFOs are looking for other parts of the famed “Dupont Analysis” –
ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)
Source: www.investopedia.com Operational efficiency (profit margins) and asset effectiveness (asset availability and utilisation) have become far more important for CFOs than they were ever in the past. Supply Chains are becoming increasing popular with CFOs as a result – although there is still a lot of confusion about the meaning and use of this discipline.
5. Supply Chain Management is seen as the panacea – though most people do not quite know how to use it:
This theme was a bit unexpected, and somewhat amusing. For the first time in my life, I heard the words Supply Chain Management from so many bankers and finance professionals. Everyone was sure that the answer was somewhere in there – yet there was not a lot of clarity about exactly where was the answer. I am sure with over 1,000 people in attendance, there would be an equal number of problem. Hence, the solution would be equally diverse. Yet, the lack of clarity was eye-opening. I am hoping that in future summits more clarity will emerge. On the whole, if you are a finance, strategy, technology or operations professional, or a senior executive – I will wholeheartedly recommend that you attend a future summit. The organisers pulled all stops to make this event a huge success. Kudos to them.