FRAMINGHAM (03/15/2000) - RISK MANAGEMENT PENNIES FROM HEAVEN By Matt Villano Don't have enough to worry about? Then consider this: According to industry experts, more than 20 percent of our nation's $7 trillion economy is vulnerable to the weather. An unusual winter or an extraordinary summer can drive up costs or depress demand. That's where weather derivatives can help.
Traded on the Chicago Mercantile Exchange (CME), derivatives are designed to protect companies against conditions that might adversely affect performance.
"To a certain extent, the derivatives market ensures that companies really can't go wrong," says Valerie Cooper, executive director of the Weather Risk Management Association in Washington, D.C. "If the weather is conducive to good business, they win on their own revenue. If it's not, they win anyway because they've bet to cover the difference."
Companies base their trades on fluctuations in average temperature. Most contracts are written in terms of Cooling Degree Days (CDDs) or Heating Degree Days (HDDs). These indices are measures of how far the mean daily temperature deviates from 65 degrees Fahrenheit. Contracts can also be written in terms of maximum/minimum temperatures, rainfall or stream flow.
Anyone with access to a floor broker can purchase a derivatives contract, but most contracts are bought and sold by financial services companies that specialize in managing weather risk. One such company is Houston-based Enron Capital and Trade Resources. If, for example, a utility is looking for protection from a warm winter, Enron would buy that utility enough HDDs to cover the revenue it might lose as a result of moderate temperatures. If, on the other hand, a state's department of transportation seeks protection from a cold winter, Enron would buy the organization CDDs to ensure profit even if the weather is mild. (As of now, the CME allows futures transactions for weather only in Atlanta, Chicago, Continued on Page 34 Cincinnati and New York City.) Since the market was launched last September, individuals and securities companies like Enron have made more than 2,500 transactions. Experts say the derivatives market is worth more than $10 billion today and could be worth nearly $25 billion by the end of 2000.
DEPARTMENT OF BIG, SCARY NUMBERS $507 billion: dollars generated in the United States by the internet economy in 1999. $28 billion: revenues forecasted for the e-consulting market by 2003. $2 Billion: revenues forecasted for the high-end application service provider (ASP) market by 2003. 91%:annual growth in revenues forecasted for the high-end ASP market. 300%: forecasted increase in executive search activity for ASP companies over the next few years. $40 MILLION: cost of the Gulfstream jet Broadcast.com that cofounder Mark Cuban purchased through Yahoo-the largest online purchase to date. Sources:
University of Texas; Kennedy Information; IDC Worldwide Application Service Provider Forecast; IDC; Christian & Timbers; Yahoo.
VENTURE CAPITALISTS THESE ARE A FEW OF THEIR FAVORITE THINGS Most internet startups don't make money. In fact, most internet startups are losing money even as they go looking for cash to enable them to lose even more money. So what are venture capitalists looking for in lieu of a rosy, robust P&L?
Management, management, management. In a recent survey of more than 100 active VC firms conducted by Fountain Hills, Ariz.-based Profit Dynamics, management was listed as the most important factor by 70 percent of the respondents.
Listed below are what the money guys are considering, with a rating of 5 being the most important and 1 being the least important. Quality of management 4.5 Size of the market 3.8 Product qualities (uniqueness, brand strength, patent protection) 3.7 Rate of market growth 3.5 Competition 3.5 Barriers to entry 3.4 Stage of development of the company 3.2 Industry the company is in 3.0 E-MAIL MEET THE SHREDDER Your e-mail is monitored. About 17 percent of companies with over 1,000 employees currently monitor e-mail and internet usage; by next year, 80 percent of large companies will use software to supervise their employees' computer activities, according to a study by Framingham, Mass.-based IDC, a CIO Communications sister company. Scared yet? Wondering what you can do about it?
Well, have you considered destroying the evidence?
Of course you have. You delete, don't you? Not good enough. When you delete your e-mail, only the link to the data is deleted. The data stays exactly where it is--on your hard drive. And even if that data gets overwritten by new data, the original message can still be retrieved.
Enter the electronic shredder. These nifty gizmos allow you to overwrite portions of your hard drive to prevent others from recovering what was there.
The shredders use algorithms developed by the National Security Agency to overwrite data 10 or more times to prevent recovery of original material. To see the shredders currently available, go to www.geniousa.com/nuker_product.htm, www.inetprivacy.com/autowipe or www.topstudio.com/products/ shred20.htm.
They cost about $30.
Cheap, if you've got something to hide. -Kathleen Carr HOT TOPIC SECURITY PICTURE THIS By Daintry Duffy Passwords are a pain. CIOs can talk all they want about security, but people still choose overly simplistic passwords, neglect to change them and use the same ones over and over for multiple applications and then forget them, leaving companies vulnerable to hackers. Stamford, Conn.-based GartnerGroup has estimated that the problem of lost passwords costs a typical U.S. company with 2,500 computers $1 million per year and that computer users with up to four applications spend as much as 44 hours per year providing the necessary security authentication.
To combat these problems, both New York City-based Passlogix and Brighton, England-based ID Arts have developed graphical interfaces designed to make the administration of security measures easier for both the company and the user.
With Passlogix's v-Go software, a user is presented with a scene, such as a kitchen or a bar. By clicking on a combination of images, rather than typing a word, the user gains access to the network. For example, a user could choose to make a martini in the bar scene. By clicking on the right bottles and glasses, he blends his beverage and authenticates his identity. These graphical interfaces present a stiff challenge to would-be hackers. Within the bar scene alone, there are at least 300,000 possible image combinations.
ID Arts has pursued a different style of graphical interface with its Passface system. With Passface, the user chooses several faces out of a random group.
Each time she logs on, the software presents her with a new set of faces that includes the ones she originally selected. By clicking on her chosen faces, the user establishes her identity.
A recent survey conducted by Professor Tim Valentine of Goldsmiths College at the University of London found that after individuals had logged onto Passface only once, 71 percent were still able to remember their particular faces five months later. When compared with traditional passwords, these results are striking. One study that measured users' ability to recall their traditional alphanumeric passwords after a three-month gap found that only 35 percent could recall a password they had chosen themselves.
After all, a picture is worth...well, you know.
For more information about the Passlogix software, visit www. passlogix.com.
For ID Arts, visit www.id-arts.com.
TELEPHONY CURSE YOU, MA BELL By Heather Baukney Phone bills. They arrive regularly and incomprehensibly, with their surcharges, taxes, optional services and wire maintenance plans. In 1998 alone, 60,000 consumers complained to the Federal Communications Commission (FCC) just because they couldn't read the darn things. And confusion facilitates fraud.
Other consumer beefs include slamming (when your phone service is switched from one company to another without your consent) and cramming (when unauthorized or deceptive charges appear on your bill).
Graham Shawn of Park Ridge, N.J.-based watchdog National Utility Service (NUS) says, "I look at my bill sometimes and think, 'Oh man, why am I paying for this?'" (And he monitors this stuff for a living!) "Billing is much more complex than most people realize," says Shawn. "There's no easy way to present the information, so telcos stop trying to please everyone and just please themselves."
But things may be getting better, says FCC spokesman Michael Balmoris, because of new FCC Truth-in-Billing requirements, including standardized bill organization and clear, brief service descriptions that will take effect next month. In order to make bills more reader friendly, can we expect help from billing software providers like Kenan Operations Support Systems (OSS), one of the largest, whose clients include AT&T and Bell Atlantic? Nope. (Last fall, Cambridge, Mass.-based Kenan was acquired for $1.45 billion by Lucent Technologies.) "No question, bills should be clearer," says Lawrence Oliver, who's in market development at Kenan. "But that's not a result of billing software but rather what the provider does with it. They ultimately decide what to include. When is that gonna change? You've got me."
Until then, advises the NUS, scrutinize your phone bill every month. And keep the FCC on speed dial. The number is 800 CALL-FCC.
HOT TOPIC CAREER GETTING BETTER ALL THE TIME By Mindy Blodgett Canny employees are no longer waiting for their annual performance reviews to ponder their future, according to Personnel Decisions International (PDI), a Minneapolis-based management and human resources consulting firm. A recent PDI survey of 1,000 employees nationwide found that workers are instead continuously assessing their career options and needs, constantly pondering their next move and seeking additional training, according to Susan Gebelein, executive vice president at PDI.
"Particularly in the IT arena, where people are getting so many calls from headhunters, employees are now reviewing their career development and goals on a monthly, or in some cases, weekly, basis," Gebelein says.
And many companies are realizing they need to give their employees access to the development opportunities they crave. The PDI survey, done at the end of 1999, found that 74 percent of employees surveyed reported their companies are helping them develop in their current roles and/or achieve career goals.
It's particularly important for CIOs to be aware of the need for staff development, Gebelein says. "The constraints they have in their own function is that they often don't have enough employees ready with the right skills when they need them, and then they have to scramble to find them," she points out.
"So they have to look seriously at managing talent, not just at recruiting."
The survey found that employees most crave development in the areas of communications skills (30 percent) and leadership skills (26 percent). Gebelein says that many employees report receiving training and development in these areas at their current jobs. "What employees define as a good boss is someone who takes a personal interest in their career and in them," she says. "They don't want the company to do everything for them in the way of development, but they are looking for the boss to orchestrate that growth or training. And if they don't get it, they are willing to move on to find a boss who will."
CRM CALL CENTER BLUES By Derek Slater
Call them holdouts, call them Luddites, say they "just don't get it"--some web surfers still want to talk to a real live customer service representative (CSR) before they cough up their Visa numbers. That means the dotcoms still need real-world call centers. And they need to connect their call centers to their websites as seamlessly as possible. So here come the vendors.
For instance, eBridge, Lucent Technologies and NetSpeak offer a voice-over-IP connection so that the CSR can pick up and talk over the same wire the customer is using for his or her web connection. Another approach is Teloquent Communications' Web Call Center. Teloquent puts a button on the website that, when clicked, automatically initiates a callback from a rep, using not the IP but the plain old telephone system. Unfortunately the surfer has to log off to take the call.
When consumers can't connect smoothly with the CSR, they often give up. No sale. "It's a very hot issue among internet-only companies right now," says Robert Metz, president of New York City-based Jewelryonly.com. "Abandoned shopping carts are something we have to get past."
Jewelryonly.com is trying a couple of things to help customers get in touch. A centerpiece of Metz's strategy is a product from Stamford, Conn.-based RealCall that puts two callback buttons on the site: one labeled "call me now" and the other, "call me in 10 minutes." RealCall collects information about the site visit and passes it to the CSR before the consumer gets the call.
Metz says customers seem to like the callback option; he plans to expand Jewelryonly.com's use of RealCall by putting the "Call Me" buttons everywhere on the site, so help is always just a click away.
THE WEB LEVERAGING THE INEVITABLE By Megan Santosus Death and taxes--life's only certainties. Taxpayers have been able to file via the web for a while, and now Todd Michael Krim has launched an online service aimed at what he calls "the end of life industry."
Krim, a former health-care attorney, came up with the idea for Finalthoughts .com (www.finalthoughts.com) during a turbulent flight from Los Angeles to London in March 1999. "If that plane went down," Krim says grimly, "I wouldn't have left any final messages for my family."
Subscribing to Finalthoughts.com is free. Users fill out a registration form in which they can include a list of e-mail addresses, final messages and instructions for such things as funeral arrangements, estate plans and taking care of Fido. Once the inevitable occurs, a guardian angel pre-chosen by the newly deceased presses the send button, and the dearly departed's wishes whiz across the internet.
Why is this a good idea? In the throes of grief, argues Krim, the last thing loved ones should have to worry about is tracking down documents.
Krim is plotting to turn his venture into a profit-making entity. Currently, "A Guide to Recalling and Telling Your Life Story," by the Hospice Foundation of America, is available at the site for $15. Krim plans to offer subscribers multimedia e-mails, funeral broadcasting, chat rooms, bulletin boards and online support groups. "Eventually," he says gravely, "we want to be the consumer portal for end-of-life planning." To do that, Finalthoughts.com will partner with funeral homes, estate planners, attorneys and the like.
"As a provider of consumer information, we'll be like the Charles Schwab of the funeral industry," Krim says.
OFF THE SHELF Edited by Carol Zarrow
Flawed Advice and the Management Trap: How Managers Can Know When They're Getting Good Advice and When They're Not By Chris Argyris Oxford University Press, 2000, $27.50 The advice biz is booming. Consultants are the new superstars of corporate America. Management books bow the bookshelves.
And the consultants and books bear the same message: Decentralize decision making. Everyone is a leader and every employee's opinion is valued. If only every business worked this way, America would be a (profitable) worker's paradise.
Of course, it isn't, and Chris Argyris, professor of organizational behavior at Harvard University, knows why. In his excellent Flawed Advice, Argyris explains that this rhetoric ignores three bedrock management mind-sets: Be in control; win, don't lose; suppress negative feelings. In order to change that psychology, it must first be acknowledged, and according to Argyris, most advice professionals can't because they want to be in control; they want to win; they suppress negative feelings by not challenging assumptions.
Argyris's advice is this: Apply the scientific method to the advice you receive. Demand that it be predictive. Demand that it be testable.
Above all, Argyris advocates for honesty in dealing with employees and colleagues. Which is always good advice.
Generations at Work: Managing the Clash of Veterans, Boomers, Xers and Nexters in Your Workplace By Ron Zemke, Claire Raines and Bob Filipczak Amacom Books, 1999, $25 After reading the rigorously analytical Flawed Advice (see above), it's jarring to confront the sweeping generalizations and unverifiable advice handed out in Generations at Work. Is it useful to be told that Nexter music includes the Spice Girls and Puff Daddy, that Boomers can be motivated by perks such as company cars, and that Veterans should be managed by giving them a picture of themselves with the CEO? I think not. -D.R.
CIO BEST SELLER LIST
5. Butterfly Economics: A New General Theory of Social and Economic Behavior by Paul Ormerod Pantheon Books, 2000 4. Dialogue and the Art of Thinking Together: A Pioneering Approach to Communicating in Business and Life by William Isaacs Doubleday, 1999 3. Weaving the Web: The Original Design and Ultimate Destiny of the World Wide Web by Tim Berners-Lee Harper San Francisco, 1999 2. Information Rules: A Strategic Guide to the Network Economy by Carl Shapiro and Hal R. Varian Harvard Business School Press, 1998 1. Natural Capitalism: Creating the Next Industrial Revolution by Paul Hawken, Amory Lovins and L. Hunter Lovins Little Brown & Co., 1999 Source: January 2000 data, compiled by WordsWorth Books, Cambridge, Mass.
Tell us what you're reading and why at email@example.com WHAT THEY'RE READING Bud Mathaisel, Corporate Vice President and CIO, Solectron Corp., Milpitas, Calif. Clockspeed: Winning Industry Control in the Age of Temporary Advantage, by Charles H. Fine (Perseus Books, 1998) "Dr. Fine does an excellent job of popularizing theory. Notable is his double helix model for the integration and disintegration of industries."
John Glaser, Vice President and CIO, Partners HealthCare System, Boston Blown to Bits: How the New Economics of Information Transforms Strategy, by Philip Evans and Thomas Wurster (Harvard Business School Press, 1999) "This is an insightful discussion of how information technology, particularly the internet, can be used to recast the relationships between customers and suppliers and the internal structure of organizations."
THE WEB WHAT'S IN A NAME? The high tide for web companies selling domain names has turned to rough seas since the federal Anti-Cybersquatting Consumer Protection Act was passed in November 1999. The law sees offenders as cyberpirates, collecting bounty by registering then selling domain names that infringe on trademarks. Under the act, the trademark holder can recover damages between $1,000 and $100,000 per domain name.
In late December of last year, when the major sports leagues, along with the Coalition to Advance the Protection of Sports Logos and the Collegiate Licensing Co., filed a lawsuit in a New York City federal court against Flairmail.com, they were one of many crying trademark infringement. The Blackbeard of their internet seas is Jeff Burgar, owner of High Prairie, Alberta-based Flairmail.com, which offers free domain names like cowboys1.com or redsox1.com. (Burgar makes money by selling ads on his site.) NFL Spokesman Brian McCarthy argues that when the cyberpirates steal team names, the value of the brand is diminished.
But Burgar and others protest, arguing that the law hinders the growth of e-commerce and hobbles free expression on the web. "It's reverse piracy," Burgar says. "A big company that wants a particular domain name bullies a smaller one. They have deeper pockets, so they use the legislation to intimidate us. The long-term effect is that large corporations, by virtue of owning domain names, will own the internet." -Heather Baukney USER INTERFACE A CRASH, ALAS Jakob Nielsen, the oft-quoted guru of web usability and cofounder of Silicon Valley-based Nielsen Norman Group, says that the essence of most error messages can be boiled down to "How could you do something so stupid!?"
Nielsen believes that error messages should be more polite and certainly more helpful. "No codes, no Error-Abort, no Error Type 2--make it plain," says Nielsen.
To that end, we offer these error messages written in the form of the classic, 17-syllable Japanese Haiku, a universal model of plainness combined with elegance and a dollop of spirituality. These poems were culled from the internet:
A file that big? It might be very useful. But now it is gone.
You seek a website. It cannot be located. Countless more exist.
Chaos reigns within. Stop, reflect and reboot. Order shall return.
First snow, then silence. This thousand-dollar screen dies So beautifully.
With searching comes loss. The presence of absence. "June Sales.doc" not found.
Stay the patient course. Of little worth is your ire. The network is down.
You step in the stream But the water has moved on. Page not found.
Serious error. All shortcuts have disappeared. Screen. Mind. Both are blank.
If you want creative workers, give them enough time to play -John Cleese, Monty Python cofounder and cofounder of Video Arts, which produces business training films, including "It's All Right, It's Only a Customer" and "Meetings, Bloody Meetings."
"If you don't engage the government, it will engage you." -Timothy Hugo, director of CapNet, a high-tech political action committee Finalthoughts.com founder Todd Michael Krim: "We'll be the Charles Schwabb of the funeral industry."