Smart Business spoke with Tyler A. Shewey, an associate at Berliner Cohen, about three tax issues that are receiving more attention in 2014.
What is happening with sales and use taxes?
The California State Board of Equalization (SBE) has focused on several areas lately.
One area relates to delivery charges. When a business invoices customers, it must provide a separate line item for shipping charges paid to a common carrier in order for that portion of the charge to be exempt from sales tax. If a business ships merchandise using its own vehicles, invoices must specifically state that title transfers to buyer before delivery.
Otherwise, the SBE will require sales tax to be charged on the entire amount.
Custom manufacturers should be aware that the SBE is auditing businesses to determine whether labor charges should have been included in the measure of sales tax. In general, labor charges are not taxable in California.
When it comes to product fabrication, however, this often is not the case.
Why should someone considering an IRS Offer in Compromise act quickly?
An Offer in Compromise allows a taxpayer to settle tax debts for less than the amount owed. A proposed Offer Amount is based on a formula that accounts for income and equity in assets. If assets and income are significant, the Offer Amount must be higher; but if both of those are low, it may make sense to file an Offer.
In recent years the Offer terms have been more lenient; however, the pendulum now is swinging back the other way, so it may become more difficult in the future to make it through the Offer process.
What has changed regarding foreign bank account reporting?
For many years, the U.S. Treasury Department has required U.S. persons with a financial interest in, or signature authority over, any foreign financial account (i.e., bank, securities, or other types of financial accounts) to disclose such accounts if their aggregate value exceeded $10,000 at any time during the calendar year.
These persons were required to report such accounts on Schedule B of their U.S. individual income tax return, and on the Report of Foreign Bank and Financial Accounts (FBAR), which is required to be filed annually and must be received by the IRS on or before June 30th of the succeeding calendar year.
Historically, FBAR compliance was low because civil penalties for the non-willful failure to file the FBAR were nominal and IRS enforcement was weak. Two developments changed this. First, the Jobs Act of 2004 enacted a $10,000 maximum non-willful FBAR penalty which applied to FBAR forms due starting June 30, 2005 (for the 2004 tax year).
For willful violations, the penalty could be up to the greater of $100,000 or 50 percent of the account balance per account per year. Second, the IRS began to prosecute FBAR violators more aggressively. Although a voluntary disclosure practice has been in existence for many years, it became clear that the IRS was applying the voluntary disclosure mechanism to taxpayers inconsistently.
Accordingly, the IRS instituted a new offshore voluntary disclosure program (OVDP) to resolve these cases in a consistent and predictable manner. To date, approximately 39,000 people have applied for the OVDP, which has generated $6 billion in revenue. Still, the U.S. Treasury estimates that offshore compliance is still only around 10 percent.
It is important to note that starting in November 2013, all FBARs must be filed electronically. It is expected that electronic filing will enable the IRS to apply greater scrutiny to offshore reporting. ●
Insights Legal Affairs is brought to you by Berliner Cohen
To provide or not to provide? That is the most pressing health insurance question facing companies across the country this year. As implementation of the Affordable Care Act moves forward, many businesses are making strategic decisions regarding health care benefits. Those that have sponsored health insurance for years are now considering dropping coverage and reallocating resources.
But what are the true costs of dropping coverage? While the questions may be simple, the analysis can get fairly complex and extend beyond easily identifiable costs.
Smart Business spoke with Sholly Nicholson, human resources manager at Sensiba San Filippo LLP, to examine some of the most important health care questions businesses face this year.
How should businesses approach their health care coverage decisions?
It is critical for any company to evaluate health care coverage based on the anticipated impact it will have on the entire organization. That means considering both easily recognizable and potentially hidden costs associated with sponsoring or dropping coverage. Will dropping coverage negatively affect your ability to attract and retain talent? Will it result in a loss of valuable personnel, and if so, to what degree?
What are the benefits to providing health care coverage?
Depending on the nature of your business, employer-sponsored health care plans might already be expected. It’s possible to drop coverage and increase employee pay to allow them to choose their own plans on the health care exchange networks. However, continuing coverage can be a critical part of strategic planning.
Employer-sponsored plans provide control over the plan’s design and benefits available to employees. If you operate in an industry with heated competition for a limited talent pool, selecting and managing your plan could provide a competitive advantage. With current uncertainty regarding exchange health plans, employees may feel more comfortable knowing that your organization is selecting a plan that allows them access to the doctors and hospitals they want.
What can companies do to control rates?
If you decide to offer health care benefits, managing costs will be critical moving forward. Get as many quotes as possible. Insurance providers are always offering new plan designs and premium pricing.
Incentives can be offered to employees who participate in annual health risk assessments, biometric screenings or other wellness initiatives. Promoting health and well-being through education, exercise facilities and nutrition initiatives can have a long-term effect on the number of claims incurred, which will have a significant effect on your group rates.
What should a company consider when designing its plan?
Not all plans are created equal, and the organizational benefits of a well-designed and well-managed plan can be substantial. It’s important to look closely at the provider network.
Will your employees be covered by the primary care physicians they want? Will they have access to the best hospital facilities? Smart companies review residential locations and current providers of their employees before making any changes.
The structure of the plan can also be important. To balance costs and benefits, many companies are moving toward high deductible plans combined with health savings accounts (HSAs). The high deductible plans keep premiums under control, while HSAs allow employees to set aside money pretax to offset deductibles.
What’s the best advice you can provide regarding health care coverage decisions?
The health care decisions you make today will have a profound effect on the future of your organization. A happy and healthy workplace will be productive and profitable.
The right answer is unique to every company, but the best approach to finding that answer is consistent: Expand the scope of your analysis and conduct a broad investigation in order to discover how your health care decisions will affect your company moving forward. If you consider all of the ramifications of your decisions and align your strategy with your desired outcome, you will find the best solution for your employees and organization. ●
Insights Accounting is brought to you by Sensiba San Filippo LLP
The performance of the average mutual fund, exchange-traded fund (ETF) and hedge fund investor lags the performance of their funds.
“The average fund investor loses money by engaging in active investment timing,” says Marco Pagani, Ph.D., Associate Professor of Finance and Interim MBA Director of the Lucas College and Graduate School of Business at San José State University.
Smart Business spoke with Pagani to learn more about the ability of fund investors to time the market.
How is the timing ability of fund investors measured?
Fund performance is computed using time-weighted returns — the geometric mean — which measure the return of a buy-and-hold strategy. This is a strategy that holds a fixed quantity of fund shares without any contribution, known as shares purchase, or withdrawal, called shares sale, during the investment horizon. Such measure is ideal to compare the performance of similar funds over a common time period. The return realized by an investor depends on the performance of the investment selected and the ability to purchase or redeem shares at the most advantageous time during an investment period.
An investor’s performance is measured by dollar-weighted returns, referred to as an internal rate of return, which account for both the investment performance and the investor’s timing ability. By calculating the difference between the time-weighted return and the dollar-weighted return, one can isolate the portion of the overall return solely due to the ability to time investments.
To what extent are returns reduced by poor investment timing skills?
Financial research has shown that the penalty associated with poor timing decisions is significant and present among many categories of investors. Professors Geoffrey Friesen and Travis Sapp in their 2007 article published in the Journal of Banking and Finance show that the average equity mutual fund investment underperforms by 1.6 percent on an annual basis. Similarly, studies performed by Morningstar estimate the timing penalty at around 1.5 percent per year.
Consistent evidence has been found by studying the ETF universe. In a 2013 working paper I co-authored with Dr. Stoyu Ivanov, we estimate that ETF investors lag the performance of their investment by 2.4 percent per year.
In a 2011 article in the Journal of Financial Economics, Professors Ilia Dichev and Gwen Yu found that the average hedge fund investor displays a timing penalty in the order of 3.5 percent per year. The significant penalty associated with the timing decisions of hedge fund investors imply that, even though hedge funds have produced returns higher than the equity market, the returns of hedge fund investors have lagged the performance of the S&P 500 and have only fared marginally better than short-term Treasury securities.
What are the investor or fund characteristics associated with poor timing ability?
It does not appear that the performance of more sophisticated investors displays lower timing penalties. Hedge fund investors, comprising sophisticated individual investors or institutional investors, somehow display the worse timing ability.
With both mutual and hedge funds it seems that negative timing skills are especially concentrated in large funds where more dollars are at stake. Active fund investors show worse timing performance than index mutual funds. In a 2013 working paper I co-authored with Dr. Marco Navone, we found that load mutual funds are associated with larger timing penalties than no-load funds. This is particularly interesting since load funds are often bought or sold through investment professional and brokerage channels.
What should fund investors know?
Investors should not attempt to time the market because it is hazardous to their financial health. To avoid engaging in pernicious investment behavior, investors should follow a predetermined schedule of share purchases or sales motivated by cash flow availability and target portfolio allocation. Trades motivated by market forecasts or emotional reactions should be avoided at all costs. ●
Marco Pagani, Ph.D., is an Associate Professor of Finance and Interim MBA Director of the Lucas College and Graduate School of Business at San José State University. Reach him at (408) 924-3477 or firstname.lastname@example.org.
Insights Executive Education is brought to you by San José State University
The current market is making some investors question their allocation strategies amid concerns of volatile equity markets and where bonds might go.
Your portfolio strategy, however, needs to be about how you want to be positioned in the market for the long haul, taking into account your financial risk capacity and emotional risk tolerance, says Sabrina Lowell, CFP®, chief operating officer at Mosaic Financial Partners.
“If you’re investing with a sound, diversified strategy, the conversation shouldn’t be that much different if the market is up, down or flat,” Lowell says. “If you’re not trying to outguess things, you’re just making minor tweaks around the edges. Making big moves, if there’s a lot of upside or downside volatility, can be really expensive in the long run if you make the move at the wrong time.”
Smart Business spoke with Lowell about the current market conditions and setting up a sound investment strategy.
What are the biggest market questions?
When the market is doing really well, some people ask, ‘Should I be moving more into equities? Should I be doubling down?’ That, however, is exactly the wrong strategy.
With standard rebalancing, you typically employ a buy-low, sell-high strategy. So, that could mean taking money out of stocks and deploying it in bonds or other asset classes that aren’t necessarily as correlated with stocks or bonds. Putting more dollars in the stock market could increase your portfolio’s risk profile at just the wrong time.
Another concern is that when interest rates rise, the bond market will go down. Yes, that’s a concern, but it doesn’t mean you should get rid of all bonds. Instead, look at the type of bonds you’re investing in. Diversify with a balance of domestic, international and world strategy bonds for the short and intermediate term with an emphasis on shorter maturity, which is less subject to longer-term volatility.
How should your allocation strategy be set up? How does behavioral finance affect this?
Don’t put as much weight into what the market is currently doing. That doesn’t mean you should have your head in the sand. However, if you’ve employed a sound strategy, and came to a conclusion about how your portfolio should look before the market caught on fire, don’t switch strategies in light of what’s going on now.
Behavioral finance looks at how people react. Take the recency bias, for example. When investors see the market go up for multiple months, they think this pattern, which may not even be a pattern at all, will continue — and statistically that’s not the case. It’s important to set up a strategy you can stick with whether the market is up or down. When you take on too much risk, you set yourself up to take poor actions later, because you will be motivated to sell out when the market is down.
Take a careful look at how your experience, outlook or belief system impacts the investment choices you make. What assumptions are you making? Where are you getting your information? You need to understand your emotional risk tolerance — how much risk you are comfortable taking.
How can you discover your risk tolerance?
There are a number of ways to understand your emotional risk tolerance, including filling out a questionnaire to see where you fall on the risk spectrum.
Then, compare that against your investment strategy and financial risk capacity. Are you taking on more risk than you need to in order to achieve your goals? If you are more risk conservative, what other factors can you control, such as working longer, saving more or modifying expenses.
What happens if a couple’s emotional risk tolerances are different?
More often than not, couples have different emotional risk tolerances. You may already have an inclination of who falls where, but it’s important to get baseline, factual data. Then, you can explore the trade-offs with your financial adviser to find a medium balance. The more conservative person usually carries more weight; if you push him or her to be more aggressive, it can be problematic when things don’t go well.
However, now is a great time to assess risk tolerance because with a strong market you’re not in a high emotional state. In panic mode, it’s difficult to make good decisions. ●
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
Directors and officers liability: How to establish policies, procedures that will protect your companyWritten by Roger Vozar
While it is obvious that directors and officers shouldn’t steal from their company or commit other criminal acts, running a business can be very complex and it’s a good idea to set clear policies and procedures for what should and shouldn’t be done, says Nicole S. Healy, a partner with Ropers, Majeski, Kohn & Bentley PC.
“For public companies, there are rules like those in the Sarbanes-Oxley Act that require certain controls and seek to enhance the directors’ oversight. However, in addition to complying with legal and regulatory requirements, any time there is a significant scandal, lawsuit or regulatory change, companies often react by enhancing their policies and procedures,” Healy says.
Smart Business spoke with Healy about the duties of directors and officers and what companies should do to ensure those responsibilities are clearly established.
What is directors and officers liability?
Directors and officers have fiduciary obligations that are typically defined by state law. As a general rule there are two primary fiduciary duties — the duty of care and the duty of loyalty. Violations of those duties may create liability.
The duty of care requires that, before making a decision on behalf of the company, directors inform themselves of all material information that would affect that decision. The duty of loyalty requires directors to avoid conflicts of interest between themselves and the company. Typically, those involve financial conflicts — usually a transaction in which a director stands to benefit personally.
What policies and procedures should be set for directors?
Most companies, regardless of size, should have a code of conduct. A code of conduct explains the company’s mission statement and values, as well as policies and procedures governing how the company is run. It’s also a good place to address how people can report their concerns, whether to management or the legal or compliance departments.
In general, there’s been an evolution in corporate governance, from a very generic follow the law approach to providing employees with rules and guidelines that are much more detailed.
However, even if a company does not adopt a formal code of conduct, every company is well served by putting its principles in writing, which may include aspirational goals like providing excellent customer service, as well as requiring everyone acting for the company to comply with applicable laws and regulations.
If there is an internal investigation, when is outside assistance needed?
If credible allegations of wrongdoing come to light, companies need to investigate; whether they do that internally or bring in outside assistance is a function of a number of factors.
Those factors include things like the company’s resources and the sensitivity of the issue. If the allegation is that the CEO and the board of directors are complicit in wrongdoing, it may not be possible or appropriate to investigate internally and the company may need to bring in outsiders. What you can’t do is see a red flag and ignore it; that’s when companies get into trouble.
What are key steps to take to avoid liability issues?
It’s not enough to just set policies, procedures and controls — you have to evaluate and test them. For example, if you have a workforce overseas and your materials haven’t been translated into the local language, they aren’t going to be helpful to employees. It’s the job of directors and officers to ensure that policies, procedures and controls are in place and are effective. Larger companies may have compliance departments, but every company should assign someone to be in charge of compliance.
Particularly with startup companies, so much attention is focused on getting the business running. But the sooner you have a good compliance structure in place, the better off you are. Then the structure needs to grow and change as the company grows.
Finally, directors and officers should reach out to experts for assistance. Experienced counsel can give you tremendous guidance regarding compliance, and help companies to develop appropriate corporate governance policies and procedures. ●
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
Much of the country is still recovering from the recession, making it difficult for companies to secure financing. Northern California, however, is an exception.
“It’s definitely a bifurcated market right now. The environment for financing is very robust here in Silicon Valley and other tech hubs,” says Kelly Cook, senior vice president and market manager at Bridge Bank. “If you read the Wall Street Journal or the Economist, they say banks are still not really lending. That’s not the case here.”
Smart Business spoke with Cook about the financing environment and methods available for companies to get funding.
Why is the financing environment good locally? Is it the market or the technology industry that’s here?
In the Bay Area, the unemployment rate is low, even for nontech companies. There’s a ripple effect — a lot of nontech companies service the tech industry.
There is a large amount of new capital available from all different investment sources from corporate venture arms, to traditional venture capitalists, to the angel groups that are forming, as well as private equity and hedge funds getting back into the tech financing market. All of that is rippling through the local economy and job market.
When does equity financing make sense?
Equity financing is readily available for entrepreneurs and management teams that have a good track record and offer a new technology or new way to address a big problem in a big market. In the earliest stages of a company, equity financing is the way to go. The decision is about what type of equity to raise.
Options include sweat equity — using the founder’s money and/or knowledge, raising money from friends and family, or angel investors. If you are far enough along in terms of product and initial customers, you may attract institutional equity financing.
There are various theories/approaches on how much ownership stake to give up for that equity. Savvy entrepreneurs know how to raise just enough to reach the next value-creating milestone. Once a company generates annual revenues approaching several million dollars, more choices will open up on the debt financing side.
Do you have to show consistent profitability before banks will offer debt financing?
A lot of entrepreneurs, CEOs and CFOs don’t think they can raise bank debt financing when the company is still cash-flow negative, but that’s not the case. A true technology-focused lending group has a number of solutions including working capital lines of credit, which are underwritten based on the strength of a company’s accounts receivable. There also are invoice-specific financing structures, asset-based lines, and traditional, revolving, borrowing-based lines of credit.
How do you determine what form of debt financing is right for your business?
That’s a consultative discussion among a company and its finance partners. If a company has revenue and cash tied up in the accounts receivable cycle, it should consider a working capital line of credit such as a line tied to specific invoices or a collection of invoices. With regards to a more permanent source of debt financing, a potential lender will look at your business plan and determine whether it can support typical financial covenants and a term debt structure. If so, then typically that’s the least expensive form of term debt financing.
But if a company’s forecast won’t support covenants, or you don’t want to be burdened by managing covenants because there’s too much uncertainty, then a venture debt structure makes the most sense.
Banks also can be used in conjunction with other financing partners. Banks are regulated entities, and are limited in terms of providing venture debt. But they can participate with a venture debt provider and combine that with a working capital line of credit from the bank. That combination can be a powerful solution because it gives short-term financing at a low cost and flexible term debt that extends cash runway to allow a company to execute its business plan.
There are flexible, customized solutions for each company, but it takes some digging into the plan, market and financial history. A good lender will conduct a diligent underwriting process to determine pricing and structure that meets a client’s needs. ●
Insights Banking & Finance is brought to you by Bridge Bank
Being an entrepreneur is probably one of the hardest things you’ll ever do. There is very little room for error. Therefore, it is important to learn as much as possible from other people’s mistakes and try not to repeat them.
In the past three years as an entrepreneur, I have accumulated a long list of “lessons learned” from my own experiences as well as from what I’ve observed from other entrepreneurs. Here are my top five things to avoid when doing a startup:
1. Having team members with identical skill sets and backgrounds when your company has fewer than five people. Startups are hard and you need people with the most diverse skill sets to be able to drive your company towards a product/market fit.
2. Hiring anyone who is not a rock star. It’s often hard to judge whether someone is an “A” player or not, especially if you are a first-time entrepreneur. That is why you need experienced mentors and advisers to help you assess candidates and hire only the best.
3. Raising too much money too early or raising too little money too late. Both of those scenarios are deadly for a startup. It is critical to raise the right amount of money at the right time.
For every business, the “right time and amount” is different. So make sure to talk to your advisers who have done it before to figure out what’s right for you.
4. Being afraid to pivot/not listening to customers. The path to success is never linear, and it is important to be able to recognize if and when you need to pivot. This doesn’t always mean a big overhaul, but you need to keep your finger on your users’ pulse to know if you need to make adjustments.
5. Not firing fast enough. You are small, you don’t have a lot of funding or time. Every person on the team who is not a top-notch performer or a cultural misfit is having a negative impact on your company’s progress (directly or indirectly). You need to be able to identify that fast (have a review process in place) and address it right away.
Sometimes you can find ways to mitigate the process and not have to let someone go, but figure out fast whether it’s a salvageable situation or not.
If you keep mindful of these pitfalls, your venture has a better chance of succeeding. I am now lucky to be leading an incredible team that built a beautiful product and has a big vision for addressing a true pain point in the market. ●
Aigerim Shorman is founder and CEO of Wist, a personalized local discovery that recommends top five places for you on the go that you’d actually be interested in. Previously, she was a Teach For America corps member and investment banking analyst. For more information, visit www.getwist.com.
Link up with Aigerim Shorman at:
You know that you need to harness your data to stay competitive, but where will you find these data scientists? Before rushing to hire an army of computer science candidates with doctorates, understand what successful data science teams do.
Data scientists write code that applies complex algorithms to analyze and transform data into actionable insights, and help IT departments determine optimal structure for data storage. But transformation and storage are only pieces of the larger data life cycle.
Data science teams also need to do the following:
- Identify with business stakeholders what initiatives will solve a real need.
- Visualize and communicate the data intelligibly to business stakeholders.
- Design intuitive data products used by business stakeholders.
- Advise business stakeholders on the political and legal context for the data.
Finding an individual with expertise in everything is nearly impossible, but you can combine candidates that have the full breadth of knowledge with expertise in one or two of them. Diverse teams will yield the greatest return for your organization.
Recently, Booz Allen Hamilton hired a diverse group of experts to help synthesize a pharmaceutical client’s adverse-drug-reaction, social media, and lab and molecular data with research notes to reprioritize their drug research pipeline. For smaller companies lacking resources to hire or develop a team, use the questions you hope to answer to guide hiring. Sometimes the most challenging phase of the project has nothing to do with the computer programing.
Fit the team to the challenge
Stylitics, a startup that uses individuals’ closets to help designers and fashion houses predict fashion trends, wanted to answer the question: How can we learn the last 50 things you bought and the last 50 things you wore?
The company recognized that the most scalable way to capture this data was to provide immediate value back to users and create a digital closet that tracks what they wear, when they last wore it and so on.
The biggest challenge was data collection, not complex programming. In your business, the solutions you seek may not all require complicated engineering solutions, but rather a team or individual with the creativity and diversity to find it.
So what should you do to help your company deal with your own data challenges? Some next steps:
- Look internally — Often, it’s easier to provide training to someone already familiar with your business’ goals and data. You may discover that your next data scientist is not in tech.
- Develop a diagnostic — HR should develop internal diagnostics to identify appropriate candidates. Additional guidance can be found in reports from O’Reilly Media and Booz Allen Hamilton.
- Keep them sharp — The field of data science changes rapidly and you should provide opportunities to learn new techniques and skills when necessary. Master’s degrees, including a degree in information and data science, and other resources are increasingly available.
- Give them company — The best solutions come from teams with diverse experts. Starting off with one data scientist is fine, but try to have a plan to grow the team and listen closely to feedback from your initial hire(s). ●
AnnaLee Saxenian is dean and professor in the School of Information and professor in the Department of City and Regional Planning at the University of California, Berkeley. Her most recent book, “The New Argonauts: Regional Advantage in the Global Economy,” explores how the “brain circulation” by immigrant engineers from Silicon Valley has transferred technology entrepreneurship to emerging regions in China, India, Taiwan and Israel.
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Not long ago, I went to Wal-Mart with my daughter. The store had certainly changed from the days of Mr. Sam Walton. Piles of discarded clothes languished in shopping carts outside the dressing room. Items were in disarray aisle after aisle. It took several tries to get help from distracted associates.
Later that day, I went to Amazon.com to buy a book. Like Wal-Mart, the Amazon homepage was chock-full of products — everything from running shoes to watches to power tools. And yes, books. I did some searching, but still needed to wade through several listings to find what I wanted.
Wal-Mart and Amazon are two corporate behemoths, and I certainly expect that they will remain successful enterprises for years to come. But I believe Amazon, like Wal-Mart, is at risk of becoming increasingly irrelevant to shoppers. Why? Because Amazon has lost the essence of what it is as a company and what its brand represents. Someday, our kids will be amazed to learn that Amazon was once the world leader in books.
This, I realize, must sound like heresy. Amazon sells everything, at such a great price! It’s so convenient! I agree. But here’s the thing: Convenience applies to online shopping in general. And while Amazon’s efficient operations and scale will make it tough for competitors to beat it on price, its brand is so diluted it’s hard to know exactly what the company sells.
Provide focused convenience
The fact that Amazon feels more and more like Wal-Mart — a seemingly random selection of unrelated items — will make it increasingly easy for competitors to pick off pieces of its business by providing more convenient ways to shop for specialty items.
If that sounds crazy, ask yourself why Amazon couldn’t beat Zappos in online shoes. It wasn’t for lack of trying: Amazon pushed its own Endless.com fashion site for years.
But Zappos had figured out that people wanted an easy way to shop for footwear. They hired customer service representatives who were prepared to talk shoes and built a website tailored to help people find the perfect pair. Consumers came to think of Zappos not as a place to buy shoes but as the place to buy shoes — even without discount prices. Finally,
Amazon wrote an $850 million surrender check to buy Zappos.
There’s a lesson here for all of us. Brands are most powerful when they do a specific something for a specific someone in a specific way. Ideally, the brand comes to be associated tightly in customers’ minds with a unique combination of these three elements.
Identify your brand
Too bad, for instance, Amazon didn’t start a separate brand for e-books — and call the new brand “Kindle.” Imagine how focused such a website would be: A one-stop shop for readers to find the best electronically published books.
Marketed properly, e-books could have become known as “Kindles” in the same way that tissues are commonly called “Kleenex.” What a waste of a great brand opportunity!
Instead, the Amazon homepage has women’s clothing featured alongside Kindle devices. That approach may work for the world’s largest online retailer, but only by virtue of its sheer size. For the rest of us, Amazon’s experience should be a warning: Don’t spread your brand too thin. ●
Jerry McLaughlin is CEO of Branders.com, the world’s largest and lowest-priced online promotional products company.
Learn more about Branders.com at:
How to reach: JerryMcLaughlin@branders.com
While political battles and a glitch-prone website have dominated media coverage of health care reform, the Affordable Care Act also has brought about a major change in the way medical service is being delivered.
“We’re in this dramatic transformation where health care providers, hospitals and physicians are coming together in an integrated model,” says Greg A. Adams, executive vice president, group president and regional president of Kaiser Permanente’s Northern California Region, considered a model for the future of health care.
Adams, speaking in November at the EY Strategic Growth Forum® in Palm Springs, Calif., says the health care system is emulating what Kaiser Permanente has been doing.
“They are shifting from a volume-driven, fee-for-service system,” he says. “The shift that’s occurring is a move to a system that’s oriented toward value.”
That means not only focusing on high quality care, but on understanding the value of the care and the outcome.
“We’re shifting from episodic care to really defining a population, understanding that population’s health needs, and keeping them healthy through prevention, through organized technology and systems managing their chronic disease,” Adams says.
With health care approaching 19 percent of the gross national product, it is no longer affordable, Adams says. The average health insurance premium for a family of four is $16,000 annually, and people are paying $4,500 in out-of-pocket costs as well.
“When you look at someone making $50,000 or $75,000 a year, that’s a problem,” he says.
But the solution — the ACA — has encountered very notable setbacks.
Covering more people
Because of the ACA, 30 million people who previously did not have coverage, often because of pre-existing conditions, are now insured. But that was lost in the furor over President Barack Obama’s campaign statement that if you like your plan, you can keep it.
Adams says that promise wasn’t necessarily broken — you can still keep your insurance carrier, even though specifics of the plan may change.
“If people want Kaiser, they can keep it,” he says. “The issue really is the benefits, and the fact is that benefits are changing and the law requires that certain people were notified that plans were being canceled because they are to shift to a new plan.”
Out of Kaiser Permanente’s 7.1 million members in California, about 120,000 received cancellation notices. But those policies were terminated with the intent that members would go to the exchange and choose a coverage plan from among Kaiser and other carriers.
Of course, the national exchange website had many problems that made it difficult for people to purchase coverage. But that should be kept in perspective, Adams says. Kaiser probably has the largest electronic medical records system in the country, and it took three launches to get its website functioning properly.
“Certainly there are state exchanges where websites are working well. Covered California’s website is working,” he says. “In a very short period of time, they essentially are creating this national infrastructure for a health plan, and that’s a huge undertaking.”
Addressing the long term
Although Adams sees many benefits arising from the ACA, he cautions that short-term fixes like allowing people to keep plans that don’t meet ACA coverage standards could undermine the entire effort.
“The problem with that is the model is based on a large group of people — high risk and low risk — participating in the exchange,” Adams says. Allowing people to keep current plans has limited the group to people with high risk and created problems for health plans, hospitals and providers that based rates for 2014 on a diverse risk pool that was blended.
The ACA might not be perfect, but has steered health care in the right direction, according to Adams.
“We are the most developed country on this globe. Our health care costs are the highest of any industrialized nation. And our outcomes are not there,” Adams says. “This is absolutely changing. You can see us starting to move health care to a place where people are getting great care across the nation; it’s evidence-based; we’re doing the right thing. It’s an opportunity for costs to come down.”
Changing the model
A 2009 Kaiser Foundation study showed a slowing of the increasing cost of health care — to a rate of less than 4 percent. Some of that was due to the recession, but 25 to 30 percent of the improvement was due to fundamental changes in health care systems, Adams says.
“We are shifting from the mindset from ‘do’ to ‘how do we understand a population?’” Adams says. That involves managing health and prevention, and practicing evidence-based medicine that is clear about treatment and enables more predictable outcomes.
Previously, care was provided on a fee-for-service basis and volume dictated payments. The shift is to reward outcomes instead.
Precision medicine, using genetic makeup and markers to predict diseases and outcomes, will become more integrated into the care of medicine, Adams says.
“That’s another reason we need to embrace where we’re going with health care reform, because independent physicians or independent hospitals can’t bring us that. Our clinicians have to be integrated into the systems that allow them access to the kind of information that they need in order to provide us with real time, concurrent treatment,” Adams says.
Technology will allow physicians to bring acute hospital care into the home, he says. “How do we bring teams out and integrate technology so people aren’t coming to the hospital? That’s the vision for how we will evolve health care and keep people healthy. And we’re starting to see that now.”
Adams credits the ACA with providing entrepreneurs with opportunities to create new venues of care that will help drive down costs. He says a massive transformation of the health care system is well underway.
“It is a market-based, competitive model that is shifting the competition from episodic, individual, volume-driven care, which drives up costs, to entities coming together and focusing on population management and health management,” Adams says. “If entities are competing to provide evidence-based care, it brings down the cost of health care. That’s something I, and Kaiser Permanente, would advocate for.” ●
Learn more about Kaiser Permanente at:
How to reach: Kaiser Permanente Northern California Region, (800) 464-4000 or www.kaiserpermanente.org