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Quantifying The Intagible: How LM3 Cuts Through The Haze Of Partisan Agendas (LM3 Profile)

Written by: Jon Hansen

Article Overview: On October 30th, 2006 Sir Nicholas Stern released his Review, The Economics of Climate Change. Stern described climate change as an economic externality which is an economic transaction that generates a positive or negative (re pollution, global warming etc.) effect for an uninvolved third-party such as the general public.

Quantifying The Intagible: How LM3 Cuts Through The Haze Of Partisan Agendas (LM3 Profile)

“On October 30th, 2006 Sir Nicholas Stern released his Review, The Economics of Climate Change.

Stern described climate change as an economic externality which is an economic transaction that generates a positive or negative (re pollution, global warming etc.) effect for an uninvolved third-party such as the general public.

Practically speaking, you could refer to the third-party as an innocent bystander, and therefore due to the negative impact of carbon emissions, Stern’s suggestion for addressing this externality was to “allow the market forces to develop low carbon technologies.” He concluded that addressing the issue immediately represented the optimum economic outcome.

While his Review received international attention, fellow economists such as Kenneth Arrow, Partha Dasgupta and Robert Mendelsohn to name just a few criticized his findings as being more of a political dissertation versus a sound analytical exercise. The main difficulty according to the dissenting economists was that the Review’s assumptions followed from the desired conclusions.

While none of the experts are suggesting that carbon emissions are good, the disagreement surrounding the Review’s findings can and likely do create uncertainty relative to the urgency of the timelines. This of course can influence the adoption and execution of sustainable programs within specific sectors such as the automotive industry.”

From the white paper, “The Greening of Procurement: How Social Consciousness is Re-Shaping Procurement Practices” (by Jon Hansen 2008)

I recently received a broadcast e-mail championing the virtues of investing in a fund that was centered on providing “early-to-mid-stage development capital for promising wind projects.”

While I am certain that the individual who was promoting the fund as “being very much needed in the Wind Industry at this time,” is a professional who truly believes in its merits, there was very little substance provided beyond a few personal anecdotes from a long-standing relationship with the executive from the fund company.

Even though I support the investigation and utilization of alternative fuel sources, wind power included, I had suggested in a return e-mail to the group that it would be a good idea to look at the “opportunity” through the more tangible lens of the Triple Bottom Line (TBL) model which takes into account People, Planet and Profit. Some refer to this as a sustainable capitalism model versus the traditional capitalism model which is heavily weighted towards the profit attribute.

Citing numerous case studies as a point of illustrating how the TBL model could be applied to a social enterprise investment, I find that I am still waiting for a response. A response which would indicate that the recommendation extended beyond “the right thing to do” imperative, to include being the smart or fiscally responsible thing to do. And herein lies the point, how many of us at one time or another form an opinion or make a decision based on a vague “they say” proclamation? Or fail to effectively challenge questionable policy due to an absence of data?

In the case of wind projects I really do want to know the reason why the Danish Government, long heralded as a “shining example” for their proactive wind development policy suddenly cancelled three offshore projects that were planned for 2008, and are scheduled to withdraw funding from existing projects. I would also like to have a better understanding of what Sir Nicholas referred to as economic externality in areas such as the impact on near location property prices and power availability fluctuations.

Even though we live in a world of increased access to information through the Internet, 7/24 media ect., it is not the volume but the substance that matters. Without meaningful substance we face a significant risk that “truth will be drowned in a sea of irrelevance.” Thank you Aldus Huxley.

Enter into the picture a little heard of company that is the epitome of the walk softly and carry a big stick admonishment. I am of course talking about today’s profile subject LM3.

Calculating Your Economic Impact

Like most children, growing up I learnt that there are definite consequences to your actions. For example, and despite being the “youngest” in the family, I discovered that challenging your older brother to a game of paper, scissors, rock usually resulted in a badly bruised left arm – the prize of being subjected to the losers gratuitous knuckle-punch to the upper shoulder. I am sure glad that I didn’t have to keep playing that game past 30.

Other nuggets of childhood (and teenaged) wisdom included the discovery that your tongue actually does stick to a metal fence on a cold day, and the best looking girl in school didn’t actually “wash her hair” every Saturday night.

Perhaps it is true that your parents actually do get smarter as you get older, or wisdom does come through age (nee experience). The “if I knew then what I know now refrain” comes to mind.

In a more serious light, the absence of a clear understanding of an organization’s impact on a regional or national economy can result in misguided policy decisions, the ramifications of which can be felt on both the domestic as well as the global stage. Certainly the current financial crisis that is gaining a strong grip on the world economy is testimony to the consequences of a poorly devised and executed policy.

I am not suggesting that LM3’s engagement would in some way have prevented this international financial meltdown. However the premise upon which their tagline is based “LM3 Online enables you to calculate your organisation’s economic contribution to its community,” offers a promise of much needed insight into strategic areas such as the economic impact of public procurement policy.

The Way Forward?

For many of you who have followed my series of articles on the Government of Canada’s (GoC) Way Forward initiative, first in publications such as Summit Magazine, and then on the Procurement Insights Blog, you know that I have had serious reservations regarding GoC procurement policy. This of course is not earth shattering news, nor do I stand alone in my conviction that the various incarnations of the original initiative is likely to irreparably harm the Small-Medium Enterprise (SME) community.

In fact similar to the example of the well-intentioned advocate for the wind program fund, I am also certain that the GoC policy champions are intelligent, well-meaning executives who for whatever reason sincerely believe that this is the best “way” to go.

That being said, the most problematic issues with the GoC initiative is the absence of any tangible data supporting the formation and relentess pursuit of the current policy.

As a point of reference, I have often referred to The Commonwealth of Virginia’s eVA initiative as a comparative benchmark since both programs began at roughly the same time in 2001, and were originally based on the same premise. A short time into the program however Virginia identified what senior bureaucrats considered to be insurmountable obstacles with the policy being pursued, and changed direction.

Rather than go into detail, send me an e-mail with “GoC” in the subject line and I will provide you with the links to read the corresponding articles at your own leisure.

The result of Virginia’s change in policy as well as their collective and collaborative approach to implementation is telling, especially given the continuing lack of data associated with what many consider to be the GoC’s struggling initiative.

Specifically, between 2001 and 2007, the number of registered suppliers in Virginia grew from 20,000 to more than 34,000. During the same period, and this is the telling statististic, the distribution of business over the entire supply base increased from 26% to more than 45%. This latter figure is a clear demonstration of a dynamically engaged supply base as close to 15,000 suppliers in 2007 were awarded contracts versus only 5,000 to 6,000 suppliers in 2001.

Even though we can reasonably assume that the Virginia program has had a positive impact on the economy both regionally as well as on a state-wide basis, LM3 would be able to assist them in quantifying the actual level of economic impact. It would likely be an easy decision to pursue this confirmation of performance as it is tantamount to taking a test for which you already know you are going to easily pass, but do not know the actual grade.

With the GoC program, the LM3 methodology and solution would be able to reliably calculate the economic impact of the current policies surrounding the Federal Government’s procurement practice, and either confirm that they are in fact moving in the right direction (which I would be more than happy to accept and share with the readership), or conversely that a change in direction is needed. Either way, and in the face of an increasingly challenging economy, getting it right is more important than being right.

Why LM3?

For those of you who are part of my regular readership, you already know that an important tenet of the Procurement Insights Sponsorship Program (which includes these profiles) is my total commitment to neutrality. And as such I will continue to leave the assessment surrounding the viability of the LM3 value proposition entirely in your hands, (as always, I will direct you to the Link To Our Sponsors section of the PI Blog to investigate the LM3 offering in greater detail, and at your own convenience).

Serving the public, private and non-profit sectors, the LM3 solution is a “government-recognized tool for measuring economic impact,” especially in the area of public procurement practice. Next to their technology, LM3’s greatest strength is based on the fact that the outcomes that are derived from their methodology and related processes are not influenced by partisan interests, nor are the results governed by a pre-determined objective that is designed to support a desired policy or potentially ill-conceived mandate. (For fans of Jim Collins’ book “Good To Great,” this is a perfect illustration of the Flywheel versus Doom Loop concept.)

Once again (and rarely do I repeat the same phase more than once in an article – in fact this may be the first time), it is more important to get it right versus being right. And this is the key tenet of the LM3 value proposition.

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Article Tags: carbon emissions, carbon technologies, climate change, e mail, economic outcome, economic transaction, externality, fellow economists, innocent bystander, jon hansen, kenneth arrow, partha dasgupta, personal anecdotes, procurement practices, sir nicholas stern, social consciousness, stage development, sustainable programs, wind industry, wind projects



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