The Weekly: Edition #95 - April 30th, 2021
Functional Obsolescence
"The Defense Department spends an estimated $10 billion a year managing and mitigating electronic-part obsolescence. In some cases, obsolescence can trigger the premature overhaul of a system. The F-16 program, for example, spent $500 million to redesign an obsolete radar."
As a business owner, have you ever asked yourself the question "why are we still doing things this way?" You aren't alone. Maintaining legacy systems within a business often becomes burdensome to such a degree that the functional obsolescence of the systems necessitate change. What's more, the cost and effort of upgrading legacy systems becomes more onerous as time passes, so it's best to keep an eye on systems that need improvement before they get out of hand.
This week, we stumbled upon a piece written about functional obsolescence in military technology where development and sales cycles are extremely long in nature. The lesson is clear and applicable to all organizations: obsolescence creeps in at every turn and it is up to the leadership to continuously monitor systems in their business for opportunities to improve them. Corporate inertia is hard to change and often times, the real answer to the opening question above is "because we've always done it this way and don't want to change it."
Obsolescence in job roles. Technology is moving at such a rapid pace that often, work that used to be completed by two people can now be done by one. Are there roles in your organization that are functionally obsolete or easily combined into other roles if new technology is introduced?
Obsolescence in technology. Not only is technology improving the efficiency of the workforce, but at times it moves so fast that one cutting edge system quickly becomes obsolete within a few years. In many industries, there are entire software suites that are designed to be the operating system of the business, but this comes with significant 'legacy system' risk. The more your business depends on a core piece of technology, the more your organization will be at risk of price squeezes, business interruption, and functional obsolescence over time.
When thinking about making a switch in legacy systems in your business, here are a few thoughts to consider to avoid system obsolescence in the future:
1) Consider the availability of alternatives to the system you are considering. The more, the better for competitive reasons.
2) Consider how customer friendly the system is. The less customer friendly the organization, the more likely the system is to become stale and lack maintenance over the long-term.
3) Consider the warranties of the product or service.
4) Consider the history of customer service and maintenance for the product or service in question. The better history, the more reliable the system will be for your business.
5) Consider the market for add-ons, spare parts, or ancillary products and services. The bigger, the better.
6) Consider how well this system will scale as your business scales.
7) Consider whether you are spending more in maintaining the status quo than if you were to upgrade to the new system.
Trapped on technology's trailing edge (IEEE)
+ "The systems hit hardest by obsolescence are the ones that must perform nearly flawlessly. Technologies for mass transit, medicine, the military, air-traffic control, and power-grid management, to name a few, require long design and testing cycles, so they cannot go into operation soon after they are conceived. Because they are so costly, they can return the investment only if they are allowed to operate for a long time, often 20 years or more. Indeed, by 2020, the U.S. Air Force projects that the average age of its aircraft will exceed 30 years—although some of the electronics will no doubt have been replaced by then."
Why the Chip Shortage Is So Hard to Overcome (Wall Street Journal)
+ "Chip makers are trying to eke out more supply through changes to manufacturing processes and by opening up spare capacity to rivals, auditing customer orders to prevent hoarding and swapping over production lines. The bad news is, there are no quick fixes, and shortages will likely continue into next year, according to the industry’s executives."
More Americans are leaving cities, but don’t call it an urban exodus (Bloomberg)
+ "A year into the Covid-19 pandemic, after much speculation about emptied downtowns and the prospect of remote work, the clearest picture yet is emerging about how people moved. There is no urban exodus; perhaps it’s more of an urban shuffle. Despite talk of mass moves to Florida and Texas, data shows most people who did move stayed close to where they came from—although Sun Belt regions that were popular even before the pandemic did see gains."
The two most underappreciated forces driving markets today (A Wealth of Common Sense)
+ "Do valuations and fundamentals still matter in these markets? Yes, fundamentals will always matter. But could demographics overwhelm those fundamentals at times? Definitely. My entire argument for a strong housing market for most, if not all of this decade rests on the fact that the huge millennial demographic is getting older and two-thirds or so of them will buy a house. Interest rates and economic cycles and housing prices will have a say in how many of those young people buy a house but the desire for the American dream will likely have a far greater impact over the long-term than short-term fundamentals."
Young audience flees TV, creating an uncertain future for sports (Sportico)
+ "While it would be premature for anyone to start digging TV’s grave, the ongoing depreciation of the traditional cable bundle and what amounts to a generational indifference to a habit that goes back more than 60 years have made it prudent for advertisers to start sizing up cemetery plots. If the wholesale defection of teenagers from the TV-watching ranks amounts to a real logistical nightmare for anyone trying to sell lip gloss, bubblegum and benzoyl peroxide, the collapsing young-adult audience is bad news for just about everyone with a vested interest in being in business 20 years from now."
The podcast paywall wars have arrived (Axios)
+ "Between the lines: As the subscription podcast ecosystem develops, it wouldn't be surprising if other major podcast publishers start to toy with the idea of putting some of their podcasts behind a paywall.
Driving the news: Spotify on Tuesday launched its new subscription podcast platform that gives podcast creators the ability to create podcasts exclusively for paid subscribers on and off Spotify."
How trader Jeff Yass parlayed poker and horse race handicapping into a $12 billion fortune (Forbes)
+ "Yass is the cofounder and head of a global trading powerhouse named Susquehanna International Group. His firm is the largest trader of listed stock options in America by some measures and like Citadel, Susquehanna’s skilled traders devour the order flow coming from free trading apps like Robinhood. In 2020, Susquehanna’s quants traded some 1.8 billion stock options contracts, 80% more than the prior year, and accounting for nearly a quarter of all options trades in the U.S., according to Alphacution Research. Yass bootstrapped Susquehanna in part with startup capital plucked from racetrack pots and poker tables in the 1970s and early 1980s. He then applied his gambling instincts to options markets during the 1980s bull market, and his skill for handicapping odds and finding an edge set him apart."
The secretary who turned Liquid Paper into a multimillion-dollar business (The Hustle)
+ "On a warm Texas night in 1956, Bette Nesmith — later known as Bette Nesmith Graham — sat in a garage surrounded by buckets of white tempera paint, empty nail polish bottles, and handmade labels. She didn’t know it then, but she was on the brink of something magical. The product she would eventually create — Liquid Paper, a white correction fluid used to conceal handwritten or printed typos — would become one of the world’s most popular and enduring office supplies."
Why are Hawaii visitors cruising around in U-Hauls? Blame the pandemic (Hawaii News)
+ "As the state reopens and many tourists return, there are not enough rental cars to meet the demand. That’s driving up the price of rentals and leading some visitors to get creative. Some are even turning to U-Hauls to get around the islands."
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