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Taking Stock: New Thinking Wins In The Long Term

Earnings bad news isn't over, but innovation continues.

I've been watching a lot of late-night TV ads lately. The ones I can really relate to are those about upset stomachs. How can you avoid indigestion when there's so much volatility in the stock market? USA Today recently pointed out that between Memorial Day and Labor Day this year, the Dow saw 39 trading sessions with a 200-point swing up or down, or about 57% of the total trading sessions. Last year, same time, there were only 11 such days (and because the indices were much higher, such a swing represented a smaller percentage of the market). In 2000, the comparable period saw only four such days. Speculation is rampant, and the traders, not investors, are ruling the day.

This isn't likely to improve over the next few weeks as earnings reports start coming in. The numbers most companies will report for the past three months won't be as important as what management says about their near-term prospects. And I'm not hopeful that the outlook has improved.

But it's important not to get caught up in the near term and instead realize that innovation and technology are still occurring under the market's nose and may lead to better products, services, sales, and profitability. To explore this topic, InformationWeek is co-sponsoring a conference called "High Altitude Thinking: The International Informatics Summit" in Santa Fe, N.M., from Oct. 27 to 30.

The subject is especially timely given current events. Informatics is the practical application of combining data mining with simulation technologies. Informatics algorithms can be used in a variety of applications, especially security and military intelligence. However, if that were all informatics technology was used for, I wouldn't be talking about it. It also has applications in finance (insurance and banking modeling), fraud detection, drug modeling, retail, and manufacturing. Informatics lets companies and government agencies apply and commercialize powerful applications from the analysis of massive amounts of data to solve real, significant problems.

If you go to http://www.highaltitudethinking.com, you'll see some of the major applications of informatics already under way. They include:

  • A Citibank process that forecasts delinquency rates in credit cards. The new techniques uncovered $200 million in exposure that Citibank didn't realize it had.

  • DuPont created adaptive control systems for its chemical plants. It expects to save $500 million annually when the systems are fully implemented.

  • Procter & Gamble reduced portions of its supply-chain cycle from 65 to 30 days using informatics research. The consumer-products company also reduced its cost of getting goods to the consumer by one-fifth using simulation techniques.

  • Southwest Airlines significantly improved the efficiency of its cargo-delivery system.

    And since this is a financial article, I should point out that there are new ways of using the technology to trade equities. CommodiCast is having some success applying informatics to trading in this turbulent market, says Kelly Myers, the company's CEO and founder.

    It's easy to get caught up in the downturn, but it's important to look for ways to improve real business processes to remain competitive and take advantage of the next upturn. Business is a long-term race not designed for short-term thinking.

    To discuss this column with other readers, please visit William Schaff's forum on the Listening Post.

    To find out more about William Schaff, please visit his page on the Listening Post.

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