Gartner Hype Cycle 2019: What trends should CPAs care about?

Less than a month ago, Gartner released it's latest Hype Cycle for 2019.

But for we get to that, what is the Hype Cycle?

If you have heard terms like "peak of inflated expectations" or "trough of disillusionment" - you're already familiar with it. But if not check it out here on Gartner's site. As described in the link, it looks at technology going through a "bubblistic" growth curve, dividing the ascent of an innovation or technology into the following phases:





The Hype Cycle essentially captures the "herd mentality" that causes Bubbles to form in the Capitalist economic system. Efrim Boritz and I wrote a paper, "A Brief Review of Investment Bubbles throughout History", over a decade ago that analyzes the history of Bubbles going back to Tulipmania back in 1600s to the DotCom Bubble in 2000. In the paper we reference, John Cassidy's "Dot.con: The Greatest Story Ever Sold", as follows:

"According to Cassidy (2002) all speculative bubbles go through four stages: 1) displacement, when something changes people’s expectations about the future; 2) boom, when prices rise sharply and skepticism gives way to greed; 3) euphoria, when people realize the bubble can’t last but they want to cash in on it before it bursts; and 4) bust, when prices plummet and speculators incur great losses. "

This illustrates that it's not just Gartner that has understood this phenomenon, but it is something broadly understood about the maturity of a given technology within the context of a Capitalist economy.

Why should CPAs care about the Hype Cycle? 

CPAs working for companies that approve investments or provide strategic advice to business leaders will want to understand where a technology trend is before approving an investment in that solution. For example, a company who is not threatened by competition or other trends may want to wait till the technology hits the Slope of Enlightenment or later. For example, chiropractors and other health care professionals can benefit from calender and website building/hosting services that are commercially available instead of having to develop their own. Conversely, someone in a highly competitive space may want to get in much earlier to head-off the competition. For example, Blackberry was too late when it came to having an app ecosystem to compete with Andriod or iOS.

Delving into the 2019 Trends: What's new in AI & Analytics? 

In terms of the overall 2019 Hype Cycle, we see that AI is still hasn't surpassed the Peak of Inflated Expectations. This illustrates that the technology is in a Hype mode; meaning a lot has to be proven out before the full ROI of AI can be understood



In the article, the following 5 trends were highlighted:

Sensing and mobility

Augmented human

Postclassical compute and comms

Digital ecosystems

Advanced AI and analytics

In terms of the trend that arguably has the most relevance to CPAs is advanced AI and analytics.

In a supplementary link, Gartner highlights the importance of data literacy equating to speaking the same language in the organization:

"Imagine an organization where the marketing department speaks French, the product designers speak German, the analytics team speaks Spanish and no one speaks a second language. Even if the organization was designed with digital in mind, communicating business value and why specific technologies matter would be impossible.

That’s essentially how a data-driven business functions when there is no data literacy. If no one outside the department understands what is being said, it doesn’t matter if data and analytics offers immense business value and is a required component of digital business."

They go on to state that there is an essentially a looming crisis with respect to this stating that by "2020, 50% of organizations will lack sufficient AI and data literacy skills to achieve business value". 

This trend is important for two reasons. 

Firstly, one of the continuing challenges for CPAs in the world of audit is to get their arms around the data. So such a stat testifies to the continuing challenge that auditors will face when designing and executing audit data analytics (ADAs). 

Second, the decision of CPA Canada to go with Data Governance as a strategic area seems to be a good choice given this trend being highlighted by Gartner.

Such trends highlights the need for CPAs to be proficient in data wrangling, extract/transact/load (ETL) and analytics. As the Gartner article notes:

"Poor data literacy is ranked as the second-biggest internal roadblock to the success of the office of the chief data officer, according to the Gartner Annual Chief Data Officer Survey. Gartner expects that, by 2020, 80% of organizations will initiate deliberate competency development in the field of data literacy to overcome extreme deficiencies."

It won't be easy to prove value with data governance because of the indirect link to cost savings or revenue enhancement. But when reputable analyst firms, such as Gartner, identify this as an important trend it makes it easier to convince the business that such investments are warranted. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.

China’s Bitcoin Ban: A boon for Canada or are we waiting for the bubble to burst?

China’s continued clampdown on bitcoin has provided an impetus for miners to relocate to USA and Canada. In this article, Forbes noted that China’s, National Development Reform Commission (NRDC) might identify bitcoin mining as an activity that is causing harm to the environment. The article also cited that problem of the ability for the rich to evade the country’s capital controls, which I raised in this post. The NRDC has put May 7th as the deadline when it will ban bitcoin. As a result, Bitmain Technologies is looking to relocate in Canada (and the US) and BTC.Top is “opening facilities in Canada.”

Will this relocation to Canada prove to be a boon or is it a prelude to the inevitable bursting of the Bitcoin bubble?

The valuation for cryptocurrencies and crypto-assets ultimately depends on the underlying asset that backs the digital token held by management. That is, certain crypto-assets represent a service or delivery of future assets. For example, State of Wyoming has “ cleared a bill that would exempt certain types of crypto assets from securities laws…so-called “utility tokens” that are “exchangeable for goods and services.” For such tokens, valuations specialists would be needed to understand the underlying value of the service or goods to assess the value.

Cryptocurrencies, on the other hand, are highly volatile. Some companies use the spot price to determine their value and report it on their financial statements. Hive Blockchain notes on financial statements that:

“Digital currencies consist of cryptocurrency denominated assets (Note 8) and are included in current assets. Digital currencies are carried at their fair value determined by the spot rate based on the hourly volume weighted average from www.cryptocompare.com. The digital currency market is still a new market and is highly volatile; historical prices are not necessarily indicative of future value; a significant change in the market prices for digital currencies would have a significant impact on the Company’s earnings and financial position”.

With that in mind, it is essential to remember that the onset of any innovation is accompanied with an investment bubble and cryptocurrencies are no exception. For example, during the DotCom Bubble, 457 companies had an initial public opinion in the final year of the boom. According to Wired, “[m]any of the most promising companies filed for bankruptcy including Pets.com, WorldCom and FreeInternet.com.” This is the reality of how investment has worked within Capitalist economics. We see a similar pattern in the British Railway Mania of the 1840s, where “[p]rices of railway shares rose by an average of 106% between 1843 and 1845, but the market then crashed, and during a prolonged decline, railway shares fell back below their original value”. With the Dot Com Bubble, Wired article notes that:

“While this boom and crash was unfortunate for investors, it actually produced some of the most innovative ideas that were simply just ahead of their time. Concepts developed by many companies that went under, including VoIP, eCommerce, big data and the web experience, still live on today, in many cases as the fundamental concepts driving success in large corporations.”

The railway investment mania led to the development of railways in the UK. The other innovation? Accounting. According to an academic paper published by Professor Andrew M. Odlyzko:

“The 1840s were a period of dramatic growth and change for British accountants. Many of today’s big accounting firms trace some of their roots to that period. As just one example, the accounting firms around the world that use the name “Deloitte” derive it from William Welch Deloitte, who set up his own practice in London in 1845. There is rare unanimity among experts on this period in attributing the growth in the ranks and prosperity of accountants to the rising demand for accounting services from the railway industry.”

When applying these lesson to crypto-currencies (that use the proof-of-work algorithm), the reality is that there is no underlying asset or service – other than a digital token that cannot be double spent. Therefore, unlike the Dot Com companies – who could at least feign a business model – cryptocurrencies have no mechanism of delivering value to its holders or purchasers. Consequently, the best way to mitigate against valuation shocks is to avoid investing in such speculative investments.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.