Enterra Insights

Supply Chain Risk Management and Climate Change

Munich Re, one of the world's largest reinsurers, is paying an increasing amount of attention to climate change. ["How Munich Re Assesses Risk," by Carol Matlack, Bloomberg BusinessWeek, 2 December 2010] Matlack reports:

"The company has the world's most comprehensive database on natural disasters, with information going back centuries. It shows that the frequency of serious floods worldwide has more than tripled since 1980, while hurricanes and other severe windstorms have doubled. 'Global warming is real, and it affects our business,' says Peter Hoppe, who heads the company's climate-change research. Munich Re has become a leading advocate for renewable-energy development, even joining a venture that plans to generate solar power in the Sahara and ship it under the Mediterranean to Europe."

Munich Re obviously has no ideological position when it comes to climate change -- it only has the bottom line to worry about. And the bottom line doesn't look too good when it comes to paying out claims for weather-related damages caused by climate change. I've read that most multi-national corporations admit that they have suffered some kind of supply chain disruption due to weather events in the recent past. The staff at SupplyChainBrain writes, "Amid growing evidence that climate change is impacting the global environment and the global economy, the Ceres investor coalition announced a new report aimed at improving corporate disclosure of climate-related risks and opportunities they face." ["Report Outlines What Companies Should Disclose on Climate-Change Risks and Opportunities," 2 March 2011] The article continues:

"The Ceres report, developed with input from its 90-plus member Investor Network on Climate Risk, outlines generally weak climate disclosure to date by businesses and steps for improving such disclosure, especially in annual 10-K financial filings. ... It comes just a week after the consulting firm Mercer issued a new study warning that climate change could increase investment portfolio risk by 10 percent over the next 20 years."

Corporations are already starting to feel the heat of increased investor activism and the lack of disclosure about potential risks associated with climate change opens companies up to even more criticism. The article continues:

"'Adjusting to a world profoundly shaped by climate change is a key challenge for all leading companies,' said Ceres president Mindy S. Lubber. 'Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is essential. This report sets the bar on what investors expect on climate disclosure so that they better understand which companies are well positioned for the future and which are not.'"

Like Munich Re, Ceres doesn't take an ideological view of climate change or its causes. It simply accepts the same reality that Munich Re sees and believes that corporations that don't adapt to emerging challenges are setting themselves up for supply chain disruptions and adverse investor reactions in the future. The article states that "the report, Disclosing Climate Risks & Opportunities in SEC Filings: A Guide for Corporate Executives, Attorneys & Directors, is available at www.ceres.org." A year before the Ceres report was released, the Securities and Exchange Commission had issued "formal interpretive guidance for companies on climate-related information they should be disclosing to investors in their 10-Ks or 20-Fs, as well as quarterly filings." The article continues:

"The guidance, issued [in February 2010], capped a multi-year effort by leading investors, state law enforcement officials and others to boost corporate attention to the quality of their climate-related disclosure. The report makes clear that while many more companies are disclosing climate-related information in voluntary reports – such as annual reports, sustainability reports and Carbon Disclosure Project responses – the quality of overall disclosure is still less than satisfactory. 'Assessments of corporate disclosure practices on climate change show significant improvements in recent years, particularly in voluntary disclosures,' the report concludes. 'However, overall disclosure continues to be highly inconsistent and often inadequate, particularly in mandatory filings, and frequently fails to meet the needs of investors.' Still, the report includes a half-dozen concrete examples of 'good quality disclosure' in financial filings by companies such as Chiquita Brands International, Siemens, Rio Tinto, AES and Xcel Energy. It also lists examples of 'poor' and 'weak' disclosure."

Clearly some industrial sectors, like agricultural and tourism, have greater exposure to climate-related risks than other sectors. But even sectors that aren't directly affected by climate change, like electronics, could find themselves impacted when severe weather events disrupt supply chains. The most recent such event was the flooding in Thailand that is likely to cause a significant shortage of harddrives over the coming months. The article continues:

"Following many of the topics outlined in the SEC guidance, the report identifies five key categories of climate disclosure expected from companies, including:

* Regulatory risks and opportunities: Quality disclosure should include specific details and quantification of impacts from proposed or enacted carbon-reducing regulations on a company's direct and indirect operations, such as impacts in costs or profits from operating power plants, fossil fuel extraction or selling emission credits.

* Physical impacts: Quality disclosure should include detailed information about significant physical effects of climate change, such as increased incidence of severe weather, rising sea levels, reduced arability of farmland and reduced water availability, that may materially affect a company's operations, competitiveness and bottom-line results.

* Indirect Consequences/Business Trends: Quality disclosure should include a thoughtful and candid discussion of management's understanding of how climate change may effect its business, whether from new opportunities or risks from decreasing demand for high carbon-intensive products or rising demand for cleaner, more energy-efficient products.

* Greenhouse Gas Emissions: Quality disclosure should set forth current direct and indirect GHG emissions from their operations, methodology used to produce such data, and estimated future direct and indirect emissions from their operations, purchased electricity and product/services.

* Strategic Analysis of Climate Risks and Emissions Management: Quality disclosure should include a strategic assessment that includes a statement of the company's current position on climate change, an explanation of significant actions being taken to minimize risks and seize opportunities, and corporate governance actions relating to climate change, such as establishment of any management or board of director committees to address the topic.

I suspect that, when someone hears about corporate risks associated with climate change, government regulations are not the first thing they think about. As the article notes, however, that government regulations can have a significant impact on how a company operates and its bottom line profits. One good example of this involves how UPS is responding to the European Union's efforts "reduce carbon-dioxide emissions from the world's jetliners." ["UPS Charts Possible EU Flyaround," by Doug Cameron and Daniel Michaels, Wall Street Journal, 21 December 2011] According to the article, "The U.S. air-cargo giant may reroute flights to cut the cost of the European plan, which will require carriers to buy permits for emissions generated on flights to, from and within the European Union." The SupplyChainBrain article continues:

"The report also includes an 11-point checklist to help companies to improve the quality of their disclosure and position themselves to respond more effectively. 'This document will be an important catalyst in the major shift in attitudes towards climate change that is now taking place in the investment industry,' said Kevin Parker, global head of Deutsche Asset Management. 'Institutional investors everywhere are recognizing that climate change is a risk they must take full account of in their overall portfolios. As DB Climate Change Advisors demonstrated in its own recent report on this issue, Investing in Climate Change 2011, greater transparency and better information from companies is essential to enable them to assess the risk effectively. Ceres' report is critical in defining what investors need to know in setting the standard of information companies must aim at.'"

This last point is an important one. Although the report is focused on getting companies to provide better information so that investors can make more informed decisions, it can help companies examine risks associated with climate change that they might have ignored or overlooked until they were negatively impacted by them. The article concludes:

"'This report from Ceres is an important addition in illuminating not only what to report, but insight into the quality of corporate reporting of the risks and opportunities of climate change,' said Julie Gorte, senior vice president for sustainable investing at Pax World Management, a sustainable investing firm. 'Five years ago, it was unusual for any company to mention climate change in a financial filing, and few provided much more than a boilerplate acknowledgment that regulation of greenhouse gas emissions might at some point have a material impact on the company. Now, with expanded investor awareness of the financial impacts of climate change, investors are looking for more, and this report gives companies critical information on what "more" should look like.'"

Supply Chain Standard reports, "Over half of global supply chains were disrupted by bad weather [in 2011], according to a survey of over 500 multinational companies sponsored by DHL Supply Chain." ["51pc of supply chains disrupted by weather," 12 December 2011] These disruptions are not only aggravating they are costly. The article reports, "49 per cent of businesses reported a loss of productivity from such disruption, while the cost of business was raised for 38 per cent, and 32 per cent lost revenue." If your company hasn't started assessing the risks associated with climate change, perhaps that is a New Year resolution worth considering.

Supply Chains: Lean, Mean, or In Between

As last year was ending and the new one beginning, the folks at SupplyChainBrain featured a number of articles about lean business practices. Since several supply chain analysts continue to point out that there is a natural tension between proponents of lean supply chains and proponents of resilient supply chains, I thought a post on the subject of "lean practices" was in order. In a previous post, I wrote:

"Time and again the issue of balance between "lean" and "resilient" supply chains is raised by risk management experts. In his doctoral dissertation entitled Supply Chain Resilience: Development of a Conceptual Framework, an Assessment Tool and an Implementation Process, Timothy J. Pettit, included a graphic that, in a very general way, illustrates why balance is the key.

"Pettit's point is that resiliency does come with a price that can erode profits. A lack of resiliency, however, can also affect profits and even expose a company to total failure. Hence, finding what Pettit calls the 'Zone of Balanced Resilience' is essential. In his abstract, Pettit writes, 'The business environment is always changing and change creates risk. Managing the risk of the uncertain future is a challenge that requires resilience – the ability to survive, adapt and grow in the face of turbulent change. ... Findings suggest that supply chain resilience can be assessed in terms of two dimensions: vulnerabilities and capabilities.'"

Lean practices are aimed at maximizing profits while resilient practices are aimed at mitigating potential supply chain disruptions. With that background in mind, let's look at the first short article published by SupplyChainBrain ["Does Lean Make a Good Company Great?" 29 December 2011] The editorial staff writes:

"Simply stated, Lean alone won't make a company successful, but even a successful company could improve immensely if it adopted a number of Lean practices, says Kenneth McGuire, a management consultant with Management Excellence Action Coalition. For the last 30 years, MEAC has helped companies in manufacturing improve so they can boost productivity. Lean is one of the ways to do that because it is among the competitive norms against which companies will be measured. After all, there's an immediacy in delivery that's required by most customers now, a perfection in product quality that most consumers expect now, and there's a very high service level demanded now. These are goals that Lean practices enable if not necessarily guarantee."

I think we can all agree that increased productivity, high quality, and improved customer service are laudable goals. Lean practices can indeed foster those objectives when things are running normally. Analysts who believe that companies can go "too lean," are more worried about how lean practices adversely affect companies during crisis. McGuire, however, is talking about normal operating procedures. The article continues:

"So what's the first step? Start with the people. You must have a 'deep and honorable respect for your people,' says McGuire. If not, they will drive the whole process – just not where you want it to go. Leadership is important. McGuire says the process can be so difficult that many companies may get a year or two into their project and then fail because they don't have adequate leadership stature."

I'm glad that McGuire started his discussion with people. Too often people are discussed after processes and technology; but, it is people that ultimately make processes and technologies work. The SCB staff next asked McGuire, "What's the relevance of Lean programs in supply chain and logistics?"

"McGuire says Lean 'looks' at the value stream from the point of view of the customer. 'It says that during the period between the decision to buy and the delivery of any goods, every activity either adds value to that value proposition or it doesn't, and if not, it's waste by definition and should probably be eliminated. Customers for the most part will look at the high cost of their transportation or logistics bill and will say that no longer is labor the difference between competitive and noncompetitive companies, it's the approach to logistics. They favor those who can do it with few stops and delays, the best quality, and the best communications.'"

That's where the tension arises and the Zone of Balanced Resilience comes into play. When natural or manmade disasters create disruptions in supply chains, lean supply chains can become brittle and customer service can be impacted. Resilient supply chains are optimized for disruptions so that customer service is much less affected. Customers will favor lean supply chains until disruptions occur (as happened a lot this past year) and then they elsewhere for more reliable goods or services. The article concludes:

"McGuire says over the past 10 years or so, the manufacturing companies that seem to be the best have three times the quality that the average ones possess, they are two to three times faster, they have communications skills that are double those of average competitors, and their people are more engaged. 'So do they deserve the title of greatness?' McGuire asks. 'Perhaps not, but they certainly are better.'"

Better quality, faster service, and exceptional communications are not all necessarily traits associated with lean practices. All of them are traits associated with good supply chain visibility. That is why visibility is a much-discussed topic in supply chain circles. The next SupplyChainBrain article highlights a discussion the editorial staff had with Margo Ugarte of The Sustainability Consortium. ["Lean Concepts and Corporate Sustainability," 3 January 2012] The article begins:

"Lean management is focused on reducing waste and sustainability is focused on lowering the use of resources, so the two concepts have a natural alignment, says Margo Ugarte of The Sustainability Consortium. Both of these movements draw from former initiatives, he says. 'The quality movement in the 1980s established concepts from process quality to environmental impacts. Then with the lean movement, first in manufacturing and later in logistics, companies addressed the economic dimension of sustainability,' he says."

Lean practices do seem to be a natural partner for sustainability efforts since the only sustainability activities that will have lasting impacts are those for which a business case can be made. Ugarte, however, says that occasionally the objectives of lean and sustainability activities do come into conflict. The article continues:

"While both these initiatives deliver benefits, the benefits are not always straightforward, Ugarte says. For example, he notes that lean systems are, by design, meant to require less in the way of materials and resources. When applied to logistics, however, a lean program like just-in-time may require more intensive use of transportation. 'To have a better customer service experience at the retail level, companies may need to devote more resources to distribution and infrastructure,' he says. 'It is a trade-off.'"

With transportation costs and disruptions caused by natural disasters apparently on the rise, some companies are reconsidering the value of just-in-time practices. Supply chain realignments may result in fewer conflicts between proponents of lean and sustainability principles. The article concludes:

"Ugarte disputes the idea that doing what is good for the environment is necessarily more expensive. He notes that manufacturers of laundry detergent have introduced products that are more environmentally friendly without increasing the cost to consumers. 'It is possible to take costs out of the equation while producing products with better environmental characteristics,' he says."

I'm surprised that the cost of sustainability efforts remains a big issue. Most companies find that reducing waste, using less energy, and other such sustainable practices actually save them money as well as polish their public image. The final SCB article is drawn from an interview with Mike Loughrin of Transformance Advisors and focuses on implementing lean practices. ["Blueprint for Successful Lean Implementations," 3 January 2012]

"Successfully implementing lean principles within a corporation requires distinct contributions from top-level, middle-level and front-line employees, says Mike Loughrin of Transformance Advisors. The challenge at the executive level is to know when to step in and help and when to stay out and let small teams work through the lean process and resulting cultural change, Loughrin says. An executive sponsor should make sure the project is defined correctly in terms of scope and goals and ensure that adequate resources are devoted to training and tools. Support should be demonstrated by having an executive at the kick-off and at occasional kaizen events."

On that point, Loughrin and McGuire appear to be in total agreement. For those not familiar with the term "kaizen," it is a Japanese business philosophy that involves continuous improvement of working practices, personal efficiency, and so forth. Any time that someone tries to change a corporate culture or business practice, good leadership is required. Niccolò Machiavelli, writing in The Prince, stated that change is difficult. He wrote:

"The reason is that all those who profit from the old order will be opposed to the innovator, whereas all those who might benefit from the new order are, at best, tepid supporters of him. This lukewarmness arises partly from the skeptical temper of men, who do not really believe in new things unless they have been seen to work well."

To overcome this natural reluctance to change, "Loughrin says, executives should focus on the ... milestones laid out in lean principles."

"'These milestones are a good time for the executive team to sit down and review what has been accomplished and to ask a lot of questions,' he says. Middle management must deal with the skepticism of co-workers who may have gone through several similar strategies in the past, Loughrin says. Middle management has to get on board and then persuade others, 'moving from a command-and-control mentality to more of a coaching mentality,' says Loughrin. Middle managers also help prioritize areas of focus for the project. 'Lean projects are not simply turning everybody loose in an organization to do some sort of process improvement. It is typically a structured approach, where teams are pulled together to work on priority items. Identifying those areas for improvement is where middle management can help,' he says."

It is a little ironic that middle management is seen as playing such a vital role when so many middle managers lost their jobs during this latest economic downturn. This is not the first time that I've read about the importance of middle managers and their importance in change leadership. Loughrin then moves down the organizational hierarchy to talk about front-line employees.

"For the front-line employee, the biggest challenge is deciding to invest in the program, says Loughrin. 'Employees hear this big announcement and they wonder if it is real or just a cost and headcount reduction, especially if the company has a history of such programs.' If they are convinced it is real, then they need to ask where they can help within their area of control, he says. The other challenge for front-line employees is in following through. 'There typically are a lot of activities that can be done quickly and with great benefits. Front-line people tend to get excited about these but lose interest in the follow-through,' says Loughrin. This phase is critical to long-term success because it is where workers tie up loose ends, document new procedures and put an audit program in place so that the gains are not lost, he says."

If you follow McGuire's advice and put people first, implementing lean practices will be much easier. Too often employees perceive change as either a criticism of their past performance or a threat to their future employment. By emphasizing people ahead of process, employees are more likely to become proponents of rather than obstacles to change.

Showrooming and Product Customization

Radio and television personality Clark Howard writes, "A new trend called 'showrooming' can hurt brick-and-mortar retailers in an age when smartphones and other mobile devices allow anyone to comparison shop prices for anything anywhere at any time." ["‘Showrooming’ helps buyers, hurts retailers," Dayton Daily News, 9 January 2012] The trend gets it name from the fact that consumers are using brick-and-mortar stores as showrooms for products they eventually buy online. Howard explains:

"A recent Codex Group survey found that roughly four in 10 book buyers will go to a store and thumb through a book, decide they like it and then buy it cheaper on Amazon, according to what I read in The New York Times. But that trend has dangerous consequences for retailers of all kinds."

Howard notes that new technology is making it easier to comparison shop and turn traditional retail stores into showrooms. He explains:

"I have an app on my smartphone called ShopSavvy that allows me to scan a bar code at a store and instantly get a list of retailers both online and local offering the same item for a cheaper price. If you want to check it out, go to Market.Android.com and search keyword 'shopsavvy.'"

Obviously, retail stores are not happy with this trend, or with people who recommend it. Howard reports that on his "Clark Stinks" online message board, he recently heard from a female store owner who called him a freeloader and expressed a great deal of anger about showrooming. "And you know what," Howard writes. "She’s right." He explains:

"She has the cost of overhead and paying employees and can’t compete with a low-overhead retailer. It’s a very valid point. Will there be showrooms in the future, or will they go bust because everybody is showrooming? For example, Best Buy was expected to be king of the world when Circuit City collapsed. But it didn’t work out that way at all. In fact, Best Buy has had to morph its business to avoid dying a showroomer’s death."

Does anyone really think that the death of traditional brick-and-mortar stores is a good thing? Local businesses provide jobs and bring in tax revenue that is lost through online sales. Money spent online doesn't generally stay in the community. Little league teams and charities that rely on local business support also suffer when local businesses fold. When mega-malls were first developed, people lamented the fact that traditional downtown areas were turned into ghost towns. Today, many malls are suffering that same fate. Showrooming is an even greater threat to traditional stores than were the megamalls. Howard continues:

"If you own your business, people are showrooming. You need a compelling strategy for your business that when those customers come in, they will buy from you even if your price is higher than the low-overhead online seller."

That is easy advice to give, but such a strategy is not easy to develop. Pleas to support local businesses continue to fall on deaf ears. Howard doesn't offer any strategies that could be used. The first major retailer to strike a blow against showrooming is Target. ["Showdown Over 'Showrooming'," by Ann Zimmerman, Wall Street Journal, 23 January 2012] Zimmerman reports:

"Target Corp. is tired of being used. In one of the starkest signs yet that chain stores fear a new twist in shopping, Target is asking suppliers for help in thwarting 'showrooming'—that is, when shoppers come into a store to see a product in person, only to buy it from a rival online, frequently at a lower price. ... In an urgent letter to vendors, the Minneapolis-based chain suggested that suppliers create special products that would set it apart from competitors and shield it from the price comparisons that have become so easy for shoppers to perform on their computers and smartphones."

Targets plea to its suppliers adds a new twist to product customization and will inevitably add to supply chain complexity. In a previous post [Customization and the Supply Chain], I wrote:

"Trevor Miles asserts that supply chain portfolio complexity is increasing "due to mass customization and shortening product life cycles." ["Visibility, the antidote to supply chain opacity," The 21st Century Supply Chain, 2 May 2011]. Analysts at McKinsey and Company claim, "Executives expect that the most powerful effects on their companies will be increased innovation, greater consumer awareness and knowledge, and increased product and service customization." ["Five forces reshaping the global economy: McKinsey Global Survey results," McKinsey Quarterly, May 2010]. Researchers from Supply Chain Digest's research organization, Chief Supply Chain Officer (CSCO) Insights, insist that "'build to stock' will ultimately give way to 'build or customize to demand'" in most industry sectors ["Building Sense and Respond Supply Chain Networks," by Editorial Staff, Supply Chain Digest, 17 June 2010]."

While most those analysts had consumers in mind when they discussed product customization, Target offers one of the first strategies that could put a dent in the showrooming trend -- customizing products for specific retailers. To make this strategy work, retailers and suppliers will have to collaborate even more closely than they have in the past. That is probably a good thing. On the other hand, having to create customized products for various channels of commerce could strain some relations. Zimmerman continues:

"Where special products aren't possible, Target asked the suppliers to help it match rivals' prices. It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise. 'What we aren't willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands,' according to the letter, which was signed by Target Chief Executive Gregg Steinhafel and Kathee Tesija, Target's executive vice president of merchandising."

Target surely realizes that it is asking a lot from suppliers. For their part, suppliers should take this opportunity to open a dialog about things they would like to see retailers change in a quid pro quo effort to combat showrooming. Frank and open discussions could usher in a new era of supplier/retailer collaboration. Zimmerman continues:

"Showrooming is an increasing problem for chains ranging from Best Buy Co. to Barnes & Noble Inc., at the same time that it's a boon for Amazon.com Inc. and other online retailers. This year store sales overall edged up 4.1% during the holiday shopping season, while online sales jumped 15%. And while online sales represent only 8% of total sales, that is up from just 2% in 2000. Other retailers also are likely to take steps similar to Target's plan, according to Deborah Weinswig, Citigroup retail analyst, who ... said [Target's letter] was likely to have gone to suppliers of consumer electronics, health and beauty products and food."

Zimmerman claims that "vendors are likely to have little choice but to play ball with Target because of its clout as the second-largest discount chain." On the other hand, Target only makes money if it has products to sell. In this situation, neither the vendor nor the retailer holds all the cards. Zimmerman reports that she had a difficult time determining exactly which of Target's vendors received the letter. "Major suppliers, including Kraft Inc., TV maker Vizio and Procter & Gamble Inc., either wouldn't confirm they received the letter or didn't return calls seeking comment," she writes. She continues:

"Target declined to comment other than to issue a statement saying that it 'has long prided itself on having truly collaborative vendor partnerships and we continually work with our vendors to remain competitive in the ever-evolving retail environment.' Some analysts said Target's new tactics are unlikely to reverse the showrooming trend, because they fail to address the root problems traditional retailers face. Online-only retailers have significantly lower labor costs and, at least, for the time being don't collect sales tax in most states."

Although there will be a roar from the madding crowd if governments try to collect taxes for online purchases, I suspect that day will eventually come. It seems like a small price to pay to help keep local businesses profitable and available. I don't really believe that people want to see empty malls and ghostly main streets, but that is vision of the future that is most likely to unfold if a successfully strategy to counter showrooming is not found. The more difficult nut to crack will be offsetting overhead costs that are borne by online merchants. Zimmerman continues:

"More important, the growing competition from Amazon is based on a different business model entirely: Amazon can sell products so cheaply because it uses its other profitable units—such as cloud data storage and fees it charges others to sell on its website — to subsidize the rest of its business. 'The traditional retailers are still doing business the old way while Amazon has reinvented the model,' says Sucharita Mulpuru, retail analyst at Forrester Research. 'Wal-Mart and Target are willing to sell a few things at a loss. Amazon's whole business is a loss leader.'"

The bottom line is that no single strategy is likely to emerge that, if followed, will save traditional retailers from the onslaught of online merchants. Offering customized products (i.e., slightly different merchandise than can be found online) is only part of the solution. Zimmerman continues:

"Consumer preferences are also moving to online. 'That is where we're heading,' said Adrianne Shapira, retail analyst at Goldman Sachs. 'You can try and dance around it, but it's a fact.' Retailers like Target and industry giant Wal-Mart Stores Inc. have a lot of catching up to do, as analysts estimate their websites account for only 1% to 2% of their annual sales. Target had a tough Christmas season, with sales at stores open at least a year rising just 1.7%, about half of what the company expected. ... This fall Target relaunched and upgraded its website, which had been operated by Amazon for the last decade. But the site crashed several times, most notably when shoppers rushed to buy a special line of items made by Italian fashion house Missoni."

Will Target be successful in getting suppliers to work it to develop a anti-showrooming strategy? Zimmerman believes there is a chance. She writes:

"Target has a long tradition of getting suppliers to provide exclusive products. It has teamed up for years with fashion designers to offer time-limited discount clothing collections, and it recently announced it will open a series of temporary boutiques featuring clothes, food and home furnishings from popular regional stores. These programs set Target apart from less fashionable rivals such as Wal-Mart, but 'they are completely immaterial' to the company's bottom line, said Colin McGranahan, retail analyst at Sanford C. Bernstein."

Traditional brick-and-mortar stores still appeal to people who want instant gratification from making a purchase. Unfortunately, people are getting used to waiting or paying a premium for overnight shipping. This storyline is just beginning and it will be a story worth following.

Building Sustainability into Your Supply Chain

Summer Rayne Oakes, co-founder and CEO of Source4Style, a New York-based online fabric marketplace, told Gabrielle M. Blue that "it's an increasing liability" for a company not to build sustainability into its supply chain. ["How to Build Sustainability Into Your Supply Chain," Inc., 23 March 2011] Based on the number of articles that discuss sustainable supply chains, I'm guessing that Oakes is not alone in her feelings. "There are a lot of companies out there, that understand that they won't be leaders within the field," Oakes told Blue, "but they don't want to be laggers either." Blue continues:

"Today's global marketplace is forcing many companies to reevaluate, reconstruct, and even collaborate their efforts just to keep up with demands of the industry. While many leading supply chains have already dedicated years of research and figures to develop data, initiatives and solutions to the movement that seems to be steering the industry, some are still trying to decide why they should."

As Blue states, some industry sectors have discovered benefits relating to sustainability while others are still searching for a business case to me made. Paul Anastas, assistant administrator for Environmental Protection Agency's Office of Research and Development, told Blue that he believed that eventually all industry sectors would "understand the imperativeness of sustainability." He explained:

"The opposite of sustainability is being unsustainable, vulnerable. Too often companies have fallen, or been greatly damaged, because of events that have taken place in other parts of their supply chain, not necessarily things in their traditional sphere of control. These events have run the range of environmental (products or materials tainted with toxic chemicals), economic (cost spikes of a feedstock), or social (poor or illegal labor practices by a supplier). Without designing sustainability into the supply chain of the company, the risk of significant adverse impact is high."

Anastas actually provides a good framework for companies to think about sustainability. Too often the topic is approached idealistically and the result is more about PR (so-called greenwashing) than it is about becoming more resilient. This broader view of sustainability opens up many more opportunities for companies to embed good practices in their supply chains. Blue claims that IBM, which "has one of the country's top supply chains, conducts a study every year to address just this matter." Karen Butner, the global supply chain management leader for the IBM Institute for Business Value, told Blue, "We're looking to uncover what's top of mind with executives around the world and how they're preparing their strategies as companies are forced with all of the continued challenges of globalization." Butner's comment about companies being "forced" to adopt sustainable practices reflects why sustainability is often spoken about in a pejorative way. That needn't be the case. Blue explains:

"For the majority of large top supply chains, the question is not whether there's a shortage of sustainability efforts and programs, but what are the more efficient ways to successfully execute those initiatives. Cutting out travel distance of goods or eliminating a middle-man might make the supply chain more cost-efficient for the business, and also reduces it footprint from shipping. However, other companies and smaller supply chains that don't have the financial means to make such an aggressive push towards sustainability can still make gradual steps to take to be more socially, economically, and environmentally responsible. Building a sustainable company is a task that must be taken on from all sides. The collective and collaborative efforts of the supply chain industry, with the support from the government, is crucial. Combining the innovative alternatives from chains taking a grassroots approach with the advanced research collected by leaders in the field can help you better understand what you can do to improve your company."

Blue reports that starting small is often the best way to begin. Although companies would like to get PR credit for efforts they are making, big sustainability efforts are generally beyond the means of most companies. Blue writes, "Decreasing your company's global footprint won't happen overnight—so don't fret if your company doesn't show great improvement the next day.

"'When you take on sustainability, it encompasses so many different issues,' Oakes says. So she suggests tackling the smaller issues first. 'Some of the low-hanging fruits for a lot companies has always been transportation and sourcing efficiency. If you're able to actually manage that, you're able to manage sustainability in a more aggressive way within the company itself.' The way to identify what your smaller issues might be is to take an inventory of everything that you produce. From product design to costs to recycling, in most cases there's always room for your company to be quicker, cleaner, and better."

Assessing where you are is always a good place to start. IBM's Butner told Blue that a company should "step back and look at [its] overall business strategy." I'm not sure that "business strategy" is the right (or only) thing that needs to be assessed. Everything (people, processes, and technology) needs to be included in a good assessment. Blue continues:

"Really holding a microscope to your company's infrastructure will force you to identify and address some nuance problems that perhaps you've been too busy to correct. It's common for companies to hire an outside consulting company to do this task for them, because it's easier for an outsider to take a critical eye to your business than you and pinpoint problem areas. ... Once you've determined which parts of your business need the most attention, Butner suggests prioritizing which one you'll tackle first."

Blue asserts that even this step can appear to be a daunting task for some businesses. Her advice is not to stress over this because "there are places to find help." The government is a good place to start. Anastas told Blue, "The EPA has state-of-the-art analytical tools that are useful in integrating sustainability into corporate operations. In addition, there is now a growing industry of technical and strategy-based companies devoted to helping businesses, large and small, adopt sustainability into their business operations." Often "people" are considered in sustainability assessments; but, as Blue notes, "All the ideas in the world won't mean a thing without someone there to implement them." She continues:

"This is the perfect opportunity for you to see which of your employees are ready to take on a more prominent position within the company. But be careful! Make sure that you're green team is comprised from varying departments of the company, so as not to leave any department short-staffed."

Another supply chain professional who believes that sustainability can be built into a corporate supply chain is Cynthia Wilkinson, director, supply chain sustainability, Staples Inc. She told the staff at SupplyChainBrain that "sustainable business is about driving better business value at the same time as you're driving improvements for the planet." ["Embedding Sustainability in a Supply Chain Organization," 20 December 2011] The article continues:

"That means energy efficiency and reduced packaging, among other things. But none of that will happen unless the culture of your business is aligned with the 'green' vision."

For Wilkinson, "the 'green' vision" isn't just about being environmentally friendly. She claims, "Sustainability initiatives save money." She claims, however, that saving money "alone won't [make] such programs a success."

"She says it's important to make things easy, for the customer and for the company. 'For example, we have ways on our web site for customers to easily identify sustainable products. Our customers want to understand what's important and relevant for them.' Additionally, companies collaborate both internally and externally, and it's important for all employees to recognize and be supportive of green goals. It's equally important for suppliers to know what's expected of them from an environmental standpoint."

Frankly, I'm not convinced that a majority of customers base their purchases on the "greenness" products. Price seems to be a much more important factor. Nevertheless, I agree with Wilkinson's point that the only sustainability programs that will have legs are those that are easy for stakeholders to use. The article continues:

"Things are always fluid, Wilkinson says, because new information seems to come out daily. 'We want to understand that and know how to make that work for us.' Staples has been quite successful in its goals, she says. 'I think we've done a great job, particularly within the supply chain, on energy. We've had significant reductions in our energy intensity per square foot. We've saved lots of money in that way. We also have done a lot with recycling. So in our own operations, we're looking to move to zero waste. 'We recycle pallets and stretch wrap, corrugate and other materials, and we're continuing to drive that even further. Also, we have done tremendous work on our fleet, and our fuel efficiency has improved over 30 percent.'"

Wilkinson's point about the criticality of information in supporting sustainable programs is important to note. Without good data, it is nearly impossible to make a business case for sustainability initiatives. When asked about hurdles that must be faced, Wilkinson told the SupplyChainBrain staff, "The first thing is economics, making it financially a win as well as a sustainability win. That's a large challenge." I agree with her on that point. If you can't make an economic case, you're probably wasting both time and money. The article continues:

"When you ask people if they think green is more expensive, a lot of people think so, but it doesn't need to be. 'We have not changed our hurdle rate for our financial decisions. We make these projects fit our hurdle rate. You can definitely drive the economic benefits with the sustainable benefits.' Wishing doesn't make it so. A solid strategy needs to be in place, especially once the low-hanging fruit has been accounted for, Wilkinson says. Staples wanted to save on energy, and it did. But that was an easily achievable goal. 'It gets harder when you dig in deeper, so that's when you want to probably establish a strategy for your company in terms of how to drive sustainability within the organization.' Be creative and look at things on a portfolio basis. Initiatives that work in one area should be applied across the board and throughout the company network."

In conclusion, Wilkinson again reiterates the importance of good data and proper analysis in order to make informed decisions.

"Analysis can reveal some surprising things, Wilkinson says. 'As we looked deeper, we recognized that we'd been spending a lot of effort on our own operations – on energy, fleet efficiency, etc. – and what we found is that the largest share of our greenhouse gas was coming from products that we sell. So we've shifted focus a little bit. We're still making energy improvements and recycling, but we're also looking to drive improvements in our packaging and in our products because that's where the impact is.' Moreover, you need to make customers understand the impact of the products they buy."

Educating customers may be important, but educating suppliers is probably more important. That is especially true for companies like Staples, where the largest share of greenhouse gas is generated during the manufacturing processes of the products they sell. The bottom line is that one-off initiatives probably won't last, and certainly won't transform, a supply chain. Real change comes from embedding initiatives within the supply chain and those initiatives will only have legs if a business case can be made for them.

S&OP: Gaining a Competitive Edge

Donald Sheldon, president of D.H. Sheldon and Associates, told the staff at SupplyChainBrain that "competing successfully is all about providing the highest possible customer service with the least amount of resources." ["Enhancing Competitiveness with S&OP," 20 December 2011] Every company wants to compete successfully in the marketplace. Not every company, however, has a good sales and operations planning (S&OP) system in place. Sheldon claims that is a mistake.

"Sales and operations planning helps achieve that goal by bringing the best minds in a company to consensus on these two issues, he says. The whole idea behind S&OP is to align to demand as closely as possible with supply, says Sheldon. 'A lot of companies feel that forecast accuracy is the whole point of S&OP, but it is not. The point is understanding the risks around the forecast going forward.' Sheldon notes that companies that are 'rocking and rolling' in the market with high demand and a lot of new product introductions are the ones that have the hardest time with forecast accuracy – and yet they are also the most successful. 'So the important thing is not absolute accuracy, but acknowledging the risks, or in the language of Six Sigma, to know the process variation.' In fact, Sheldon says that 'risk management' is the best two-word description of S&OP. 'If you think about critical risks, especially for manufacturers, things that come to mind are supplier failures, new product introductions and having to shut down a plant and move products to another area,' says Sheldon. The best way to deal with these and, at the same time, keep shipments moving to customers is to focus on a 12-month rolling process that also has to align with a strategic plan that goes out two to three years.'"

Did you notice how often Sheldon talked about corporate alignment in that short discussion of S&OP? The importance of corporate alignment is one reason that some analysts would prefer to see S&OP called Integrated Business Planning (IBP). To read more about the on-going debate over what to call S&OP, see my post entitled Is S&OP a Guiding Light or a New Religion? Last year, Duncan Klett, vice president, analytics research, at Kinaxis, penned some thoughts about an article he read in Supply Chain Digest that posed the "question as to where Sales and Operations Planning (S&OP) might be going and do we need to move on to a more comprehensive concept called Integrated Business Planning (IBP)?" ["From S&OP to IBP -- The Discussion Continues," The 21st Century Supply Chain, 30 June 2011] Referring to a Gartner graphic used in the SCD article, Klett wrote:

"What I find most interesting in the Next Generation S&OP is implied, but not stated explicitly. That is that Integrated scenario analysis, Supply 'what-if' and Base supply plan (in nine-step S&OP) are replaced with Supply 'what-If', Financial 'what-if', base supply plan and base financial plans. What I believe is implied is that:

• "Integrated scenario analysis, which was looking at just the supply plan, is extended to include a financial plan.


• "The next generation approach will be much more interactive and integrated so that the financial and operational impacts from alternative demand or supply plans can all be considered (easily) in the S&OP process."

Klett refines the Gartner graphic (shown below) to reflect his thinking about "the evolution of the development of an integrated consensus plan which addresses and balances the interests of demand, supply, and finance."

Klett's "Next-Generation S&OP" process is contained within the large blue-shaded box. It's important to note that you can't get good outcomes on the far side of the S&OP process if don't have good inputs on the near side. This is especially true in the era of big data. Klett concludes:

"In the 'new world', managers can see supply, demand and financial projections based on the current or potential supply and demand plans. By seeing the impact of change, they can develop a new 'consensus plan' which represents the best balance between competing objectives."

I would insert the word "alignment" in place of the word "consensus." Getting people to agree on a plan doesn't necessarily mean that a company's resources are aligned to implement it. Unless alignment is achieved, the plan won't succeed. John Westerveld, a demo architect for Kinaxis, seems to agree with me on this point. He writes, "Sales and operations planning is all about alignment. It's about getting the entire company pulling in the same direction." ["Increase the effectiveness of the executive S&OP meeting – Part 1," The 21st Century Supply Chain, 30 August 2011] He continues:

"To achieve [alignment], the executive team needs to:

• Clearly understand the current status of the company and have visibility into the issues and opportunities.
• Review alternative possible resolutions and be clear about the costs and benefits of each solution.
• Gain agreement on which plan is the best (typically the best plan is proposed by the pre-S&OP team).
• Approve and publish the plan.

"It is critical that the stakeholders are present for the executive S&OP meetings. At a minimum, the following are necessary for a successful executive S&OP meeting: CEO/general manager, Marketing, Sales, Operations, Finance. Depending on the company, you may also have need Engineering and HR. Many S&OP processes fail to get off the ground because the executives stop attending the meetings. This occurs for various reasons, but one of the key reasons is that the executive feels they aren't getting value out of the process."

Unless Westerveld believes that supply chain executives fall under one of the listed headings, I would assert that you need a supply expert in S&OP meetings as well. If, as more and more supply chain analysts insist, supply chains, not companies, compete, then a critical part of the puzzle is missing if a supply chain executive is not in the room. I agree with Westerveld that having all stakeholders present in such meetings is critical. This is especially true if analysts are correct in their assessment that a good S&OP process can provide a company a competitive edge. Westerveld goes on to offer some suggestions about how to make S&OP meetings more effective and valuable. In a second post on this topic , Westerveld writes, "The effectiveness of the executive S&OP meeting is limited by the capabilities of the tool used to present the plan. Many companies use Excel to drive the S&OP meeting, but is that the best tool?" ["Increase the effectiveness of the executive S&OP meeting – Part 2," 31 August 2011] Westerveld isn't the first analyst to lament the fact that many S&OP processes are still Excel based. That's not a rap against Excel, which is a fine product; it's simply an indication that analysts believe that S&OP needs more refined tools to enrich the program so that it can reach its full potential. Westerveld offers "a quick look at what is needed to effectively present the S&OP plan to the executive team."

"1) If there is one thing to remember it's that the executive team is very busy and [doesn't] have the patience or the time to try to understand mounds of data. [Team members] need the issues and resolutions laid out clearly and visually, with supporting data at hand if necessary. As we've all seen, a picture is worth a thousand words (or a thousand columns of numbers) so make sure that the presentation software supports multiple charting modes.

"2) When we change the demand plan, make supply changes, set constraint levels, we base these changes on a set of assumptions. These assumptions must be captured and presented to the executive S&OP team so that they understand the assumptions that these plans are based on. Hopefully, the executives will confirm the assumptions made, but it is possible that the executive team may disagree with an assumption (or simply have better information). It's much better to make this discovery before you execute the plan.

"3) Often, an executive will need to look at the next level of detail in order to better understand an issue or opportunity. If the information isn't at hand, the team may not be able to make a decision, or if [it does, it] may be making the decision based on incomplete data. Neither situation is good. Make sure that the tool you use to present the S&OP meeting includes the ability to drill down through multiple levels of detail, so that you have the answers when your executive team asks.

"4) In many cases, the pre-S&OP team will present a recommended S&OP plan, but may have alternative resolutions for discussions. This means that the executive team needs to be able to clearly see the differences between the various resolution alternatives against the key corporate metrics so that they can make an informed decision."

I would recommend that a pre-S&OP team always prepare a draft S&OP plan. Not only does this give the executive team a head start on the process, it focuses discussions in a meaningful way. Without a plan, there is always a chance that turf wars can break out. You don't want departments criticizing each other. By having a plan on the table, constructive criticism can be aimed at the plan instead of at each other. The better the information, the tools, and the plan, the more effective the process will be. The more effective the process the greater the competitive edge it can provide.

Order Fulfillment: Potential Source of Embarrassment

Just before Christmas, Best Buy told some of its customers that it was canceling their online orders because they wouldn't be able to fill them. ["Uh oh: Best Buy cancels some online orders before Christmas," by Mae Anderson, USA Today, 23 December 2011] Anderson reported:

"The largest U.S. specialty electronics retailer said ... that overwhelming demand for some products from Bestbuy.com has led to a problem redeeming online orders made in November and December. The Minneapolis company declined ... to specify how many orders are affected or which products are out of stock. The shortages are a black eye for Best Buy, which has beefed up its online campaign to fight off intense competition from online retailers and discount stores. ... Some glitches should not be a surprise with such a massive surge in online shopping this year, analysts said, but there is a risk of a backlash. 'It is a hiccup for the company, said Morningstar analyst R.J. Hottovy. 'They were kind of behind the curve building out their online channel. They've done a good job investing in it, but if you make a lot of rapid changes, inevitably there are going to be growing pains.'"

Best Buy may have been surprised by its online sales, but it wasn't alone. Stu Woo reported that online sales were "up 15% compared with a similar period a year earlier, according to data from research-firm comScore Inc. That greatly outpaced overall U.S. retail sales, which grew 3.8%, according to the International Council of Shopping Centers." ["U.S. Web Sales Sparkled for Holiday Season," Wall Street Journal, 30 December 2011] However, Best Buy was singled out for its embarrassing situation over the holidays. According to Kim Bhasin, "Customers are livid." ["Best Buy Is Getting Slammed By Angry Customers For Canceling Their Orders Right Before Christmas," Business Insider, 22 December 2011] Bhasin continues:

"They've gone to the Best Buy forums to bash the company for ruining Christmas, and the atmosphere there is so hostile it's probably tough for a Best Buy PR person to read. Words like 'thieves,' 'boycott' and 'scam' and being used pretty commonplace. Elsewhere on the web, commenters are lighting up Best Buy for its failure too."

Best Buy tried to conduct some after-disaster mitigation by giving electronic gift cards to affected customers, but the harm was already done. Best Buy spokesperson Susan Busch, senior director of Best Buy’s public relations, stated, "What was wrong is that there was an unacceptable delay between order confirmations and cancellations, and for that we are very sorry. It's important to note that this was a rare situation based on a high volume of orders over a short period of time." ["Best Buy issues statement regarding online order cancellations," by Katherine Field Boccaccio, Chain Store Age, 28 December 2011]

Busch's explanation was interesting. She basically admitted that Best Buy's supply chain visibility wasn't good enough to detect order fulfillment problems before they became a crisis. Jesse Langley warned that such fulfillment crises could occur, she wrote, "Successful order fulfillment and strong branding are inextricably linked, and the hectic holiday season presents greater challenges than some retailers can manage." ["Fulfillment Outsourcing Can Overcome Holiday Challenges to Improve Your Brand," republished in Who said supply chains are boring?, 21 December 2011] Langley continues:

"Veteran retailers understand that outstanding order fulfillment services involve much more than simply wrapping up a product and shipping it. This is a wonderful opportunity to strengthen your brand and build customer loyalty. In the longer term, this target is much more important to your consistent profitability than just timely product receipt."

Best Buy learned that the opposite can be true as well -- poor order fulfillment can hurt a company's reputation and disaffect customers. On the positive side, Langley writes, "Forward thinking companies ... realize that this opportunity to engage their customers helps their brand reinforcement and identifies the organization as one that stands above the madding crowd." On the negative side, poor order fulfillment simply makes the crowds mad! Langley continues:

"Use that shipping container and its contents to further emphasize your specific brand and your company's winning biography. Understand that branding is not a marketing campaign with an end date. Your evergreen branding efforts must first promise superior products and outstanding customer service. Then you must deliver on those promises."

Amazon.com has obviously done very well with order fulfillment service. Despite its enormous volume, Amazon has a reputation for providing products on time. That's why it proudly puts its name on boxes it ships. Langley continues:

"Should you ... not deliver on those promises, ... [the] result may be more damaging than ignoring branding efforts. However, making promises your customers want--and delivering that which you promise--will engage your customer base much more than millions of dollars of media or mail advertising ever could. The level of credibility your company will enjoy will be as strong as positive word-of-mouth recommendations from friends and family. You simply cannot buy this wonderful level of customer confidence."

Langley apparently wrote her article as a freelancer for Fifth Gear. Fifth Gear advertises itself as a company that "provides outsourced order fulfillment, contact center services, ecommerce technology, and marketing services to specialty retailers and manufacturers of consumer products." Her article, as expected, is supportive of companies that provide such services. She continues:

"As e-commerce explodes, using order fulfillment as a branding tool can also become more popular and effective. Of the almost 180 million consumers that research products online, 83 percent will make an Internet purchase of goods or services. Using order fulfillment as a branding strategy component should be self-evident. Whether you employ in-house order shipping or choose fulfillment outsourcing, use this function as a valuable marketing tool. ... Getting an order to the right customer at the right time with brand-enhancing materials and packaging will generate a return on investment (ROI) that will excite owners, management and shareholders."

Amit Ambekar reports that to accomplish getting an order to the right customer at the right time retailers are expanding their fulfillment options. ["Fulfillment Options - Recent Trends," Supply Chain Management, 23 December 2011] He continues:

"Typically, retailers have provided their customers a standard set of fulfillment options i.e. the different ways in which the order could be delivered to the customer. E.g.: Standard Delivery (2-5 day delivery), Expedited (Next day delivery), Store Pickup etc. Increased competition has compelled these retailers to provide services that differentiate them from the rest of the pack. And fulfillment options are one area where they are pulling out all stops to woo the customer. An interesting battle is on among retailers that have an online presence in addition to traditional brick & mortar stores pitted against those that have an online presence only."

I agree with Ambekar that multi-channel commerce is gaining momentum. To read more on this topic, see my posts entitled Multi-Channel Commerce: The Rise of E-Commerce and Multi-channel Commerce Gaining Ground. Ambekar continues:

"For the holiday season of 2011, Toys 'R' Us offered an interesting variation to the store pick up service. The ability for the customer to designate a person (other than himself) who would collect the order at the store once it is ready to be picked up. Clearly, the retailer does not want to lose a sale where the customer may not be able to pick up the item and hence does not order. Similarly, amazon.com, which has no store presence, is currently doing a pilot project where store pickup would be offered as a fulfillment option. Which store, you ask? A neighborhood store such as 7-11 or Rite-Aid. Amazon has setup lockers at a few stores in select cities in the US and in London, England. Customers choosing this method of delivery receive an email that contains a code that unlocks the locker holding the package. (The customer can choose a locker during checkout.) Of course, the email is sent only after the package has been delivered to the locker by the carrier."

For someone traveling, the option of buying an item online then having it delivered to a locker is intriguing and useful. Ambekar concludes:

"Interestingly, it is not just the retailers who seem to be feeling the need to differentiate. Carriers, used by online retailers for deliveries, are also innovating and offering newer services. UPS recently announced that it was collaborating with a few retailers to offer a MyChoice program which lets consumers, for a fee, subscribe to alerts (emails, text messages) on their package progress OR choose a two hour delivery window within which they would want their package to be delivered. The two hour delivery slot has been offered by retailers (typically grocery retailers) that run their own delivery fleet; it is interesting that a carrier such as UPS also now offers this choice."

The fact that customers are willing to pay for improved supply chain visibility underscores the importance that all stakeholders should place on that capability. Without good upstream and downstream visibility, companies simply can't hope to achieve the benefits from order fulfillment discussed by Langley. The ability to predict potential delivery delays in time to do something about them is of particular value. Enterra's Pre-Inventory Prediction System (PIPS) mitigates Product Not Available issues by tracking global shipments of products produced by manufacturers and their supplier network from factory, to ocean, rail and truck carriers, to the distribution centers of manufacturers and retailers, all the way to brick-and-mortar stores. The system predicts the perturbative effect of shipping delays on customer orders. The system also suggests remedies to minimize the impact of delivery delays, and can suggest optimized container unpacking priorities. The system monitors shipping vessels, trucks, and rails to detect shipping issues and notify the supplier immediately of a problem. This kind of capability can go a long way towards helping companies avoid the kind of embarrassing situation in which Best Buy found itself this past holiday season.

Technologies for Tomorrow: CES 2012

For the past two posts, I've looked at technologies and innovations that were recognized for their significance and impacts last year. Rather than looking back, this post looks forward at a few technologies highlighted at this year's International Consumer Electronics Show (CES) held earlier this month in Las Vegas. The International Consumer Electronics Show is the largest such venue in the world. Although Apple and, going forward, Microsoft have opted out of the conference, it remains the premier showcase for new consumer electronics products. The event attracts companies both large and small as well as a large contingent of the world's geeks eager to report what they find. This year's show contained the expected array of tablets, smartphones, and gaming devices. Also unveiled were devices that could have potential impacts on some supply chains.

One example of such technology is 3D printers. I first discussed the potential impact of 3D printers on supply chains in a post entitled 3D Printing and the Supply Chain. There were at least two 3D printers featured at this year's CES: MakerBot's "Replicator" and 3D Systems' "Cube." Paul Ridden reports that MakerBot introduced a 3D printer called the Thing-o-Matic at last year's CES that made quite a splash. He writes, "The folks at MakerBot Industries have not exactly been resting on their laurels since causing a stir at CES last year with the Thing-o-Matic 3D printer. Even though the original small object creation device would still see the jaws of most people dropping in wonder, the company has now unveiled a new model at CES 2012 called the Replicator that is not only capable of fabricating much bigger objects than its predecessor, but can also do so in two colors at the same time." ["MakerBot unveils its new 3D printer, the Replicator," Gizmag, 12 January 2012] He continues:

"Rather than having some fabrication company on the other side of the world mass-produce millions of plastic shower curtain hooks, door knobs, or even chess pieces and then ship them to your local store for you to buy, desktop-friendly 3D printers like MakerBot's Thing-o-Matic allow users to create every day objects in the home, only when they are needed. Revolutionary! ... With the next generation of MakerBot 3D printer, users will be offered the chance to increase the print volume from objects about the size of a cupcake in the Thing-o-Matic up to roughly the same size as a loaf of bread in the Replicator. ... The company is also now making it possible to simultaneously print objects in two colors via dual extruder heads. ... Unlike its kit-based predecessor, the new beast is pre-assembled by hand by MakerBot's engineers in Brooklyn, New York and tested before being shipped out, making it ready for action as soon as it arrives."

If you're thinking about getting one to make a replacement plastic shower curtain hook, you should know that the machine costs "US$1,749, with a further US$250 securing the purchase of the model featuring MakerBot's dual extruder." Even so, I believe that there are companies that could benefit from such a product. The other ready-to-use 3D printer introduced at this year's CES was the Cube. ["No assembly required for Cubify 3D printer," by Jonathan Fincher, Gizmag, 12 January 2012] Fincher reports:

"Since becoming more widely available to the public, people have found a myriad of uses for 3D printers, whether it's recreating bone, constructing replacement shells for hermit crabs, or simply customizing mini robot figurines. Unfortunately, most 3D printers still have one drawback over other types of printers, in that they typically need to be put together like a hobby kit. Seeing as most electronics are purchased fully intact, the idea of having to build a device piece by piece can be off-putting to consumers. 3D Systems is hoping to rectify the problem with its own 3D printer that actually works right out of the box, along with a new Cubify platform for designing and distributing printed creations. The 3D printer, called simply The Cube, offers an alternative to other printers on the market like the MakerBot Thing-O-Matic, which need to be pieced together like an Erector Set before they can start churning out your creations. The device was designed by 3D Systems to be ready to print the moment it's unpacked and connected to the Cubify platform."

The Cube can be purchased for US$1,299. Still, that is a pretty steep price if all you want to do is replace plastic shower current hooks. Another technology that continues to evolve and improve is associated with smart eyewear that supports the field of augmented reality. ["Vuzix SMART glasses bring Augmented Reality into focus at CES," by Jan Belezina, Gizmag, 10 January 2012] Belezina reports:

"Vuzix Corporation came to CES 2012 armed with a video eyewear technology that, as they put it in the press release, 'breaks the boundaries of conventional optics and display solutions'. SMART Glasses Technology is based on integrated HD display engines and waveguide optics, as opposed to refractive and/or reflective optics used so far. What does that actually mean and is this technology really going to make Head Mounted Displays lose their association with bulkiness and strange looks?"

As the attached image shows, the SMART glasses are light and rather stylish. Belezina continues:

"The SMART Glasses Technology relies on a compact HD display engine churning out images with brightness and contrast good enough for outdoor use. ... Since the projected images are merged with the real world information, you can safely watch a movie on the go without bumping into things. But the company sees the technology as much more than just wearable TV. The glasses are meant to work in unison with Internet connected mobile devices, which leaves the door wide open to augmented reality (AR) based applications. Whatever AR magic the glasses are set to perform, the software will have a lot of hardware to rely upon. SMART Glasses, or at least some varieties of them, will be able to record and transmit everything that the user sees. They will also be capable of recognizing their environment and their position in the real word. Throw in some integrated head tracking and options for multiple camera technologies that 'broaden the users' sensory perception across a greatly expanded light spectrum' and you can see why, apart from the consumer markets, Vuzix is also eyeing the commercial and industrial markets."

For industrial purposes, SMART glasses can be mounted on hard hats. Belezina reports that SMART glasses could prove useful to first responders and could include night-vision capabilities. It struck me that SMART glasses could prove useful in warehouses and distribution centers as well. According to Belezina, "a variety of SMART Glasses is slated to appear on the market as early as summer 2012."

Reporter Brier Dudley claims that "the bigger companies were holding back this year, making it hard to find radically new products" at CES2012. ["CES 2012: Powering gadgets with body heat," The Seattle Times, 17 January 2012] He continues:

"Still, there were plenty of exciting new products and some far-out creations that left me excited about what's still around the corner. Like Perpetua's technology for powering gadgets with body heat instead of batteries. Drawing on research from the Pacific Northwest National Laboratory in Richland, Perpetua developed thermoelectric devices that convert temperature differences in dissimilar metals into electricity. Since 2005 the company has been selling these energy-harvesting systems for industrial use, where they may be attached to warm pipes to power sensor systems, for instance. A number of employees came to the company from Hewlett-Packard's Corvallis printer operation, and Perpetua's devices are built in a way similar to HP's inkjet hardware. Now Perpetua is working on smaller, wearable versions that generate electricity just from a person's body heat. The National Science Foundation and Department of Homeland Security are helping fund the research. The company also partnered with Texas Instruments to add wireless connectivity to the devices. Within a few years, Perpetua's wearable devices could be used to power consumer gadgets, starting with fitness sensors and medical devices."

No one really knows where this kind of technology will eventually end up powering devices, but military and law enforcement uses seem obvious. Although this year's show attracted over 3100 exhibitors and 153,000 attendees, Devin Coldewey agrees with Dudley that this year's show was somewhat disappointing. "Overall the show was more promising than impressive," he writes. ["The Winners And Losers Of CES 2012," TechCrunch, 15 January 2012]. He concludes, "Products like the gesture-based TVs, the Galaxy Note, and numerous other devices and services aren't anything I would recommend, and their benefits aren't really obvious to anyone who isn't deeply interested. The offspring of these products, however, will be very interesting. Unfortunately, they won't be around for a while." For other takes on what was learned at the show, read Charles Arthur's article in The Observer entitled CES 2012: 10 things we learned about the gadgets of the future and Kelli B. Grant's article in The Wall Street Journal entitled CES: 10 Future-Forward Gadgets.

Innovation and Technology Review 2011 continued

Before looking ahead at technologies that could emerge this coming year, I'd like to continue my look back at this past year. In yesterday's blog, I looked at some technologies that were singled out by the staff at Gizmag as "some of the most significant and far-reaching breakthroughs" of 2011. In this post, I'll look at innovations and technologies singled out by two other publications, The Wall Street Journal and Consumer Goods Technology (CGT). The Journal let some its writers select their favorite innovations of the year. There No guidelines were established for making the selections and the paper admits the article is about just "a handful of some of the year's most impressive inventions." ["Bright Ideas: Innovation in 2011," 30 December 2011] The first reporter to select a favorite technology was Spencer E. Ante. He selected IBM's Watson Computer specifically, but also paid homage to advances in artificial intelligence generally. He wrote:

"Reality caught up with fiction when International Business Machines Corp.'s Watson computer system thumped two 'Jeopardy!' champions in a nationally televised competition [in] February. The victory marked a milestone for the field of artificial intelligence, conjuring memories of the HAL 9000 computer from the classic science-fiction flick '2001: A Space Odyssey.' Watson—a group of technologies designed to understand the complex domain of words, language and human knowledge—is more than a cool R&D project. Health-plan company WellPoint Inc. plans to use Watson to help suggest treatment options and diagnoses to doctors. IBM executives believe Watson has the potential to grow into a billion-dollar business in three to five years as it is applied to other fields, such as call centers and engineering. Watson shared the spotlight this year with one other disembodied assistant: Apple Inc.'s Siri voice-recognition software for its iPhone. While limited, Siri is a precursor for a range of new voice-activated consumer products, and could be followed with variants that make decisions for users, too, based on their past behavior and preferences."

To learn a little more about Watson and Siri respectively, read my posts entitled Artificial Intelligence and the Future and Artificial Intelligence and the Era of Big Data. Although Ante makes it sound like Watson is omniscient, others have pointed out the computer still can't compete with humans when questions are ambiguous or nuanced.

The next Journal reporter to select a favorite 2011 innovation was Nathan Hodge. He selected Northrop's X-47B Drone. He wrote:

"In February, an unmanned, bat-winged fighter jet soared over a desert north of Los Angeles in a 29-minute test flight that signaled a new age in naval aviation. This isn't your average drone, piloted remotely with a joystick by someone with extensive flying experience. A computer takes care of the X-47B's flight mission, while an operator can simply click a mouse to start the engines and send it on its way. Northrop Grumman Corp.'s X-47B, which can carry up to 4,500 pounds of weapons in its two internal bays, will also be the first drone that can take off and land on the moving deck of an aircraft carrier. Drone technology has made enormous strides over the past decade, but its limits were demonstrated late in 2011, when Iran claimed to have downed an RQ-170, a pilotless stealth aircraft operated by the U.S. military. Carrier-launched drones, set to enter service later in the decade, will be near-invisible to enemy radars."

Drones are a controversial subject. My friend Thomas Barnett has written that drones don't "obviate the boots-on-the-ground effort"; rather, they "'create' some of the resistance while simultaneously reducing [an adversary's] best players on a consistent basis." ["When the Machine World Attacks," Battleland (Time Magazine), 20 September 2011] Tom continued:

"And yes, all the usual concerns about legality and rules will apply. But this will work, and we will use it pervasively. ... The 'occidentalism' of our opponents (the belief that Westerners are weak and have no stomach for 'real war') sustains them. This technological path will supercharge that claim ('You don’t fight like real warriors!'), but – again – it will create real despair long term. The off-grid places are disappearing, and the Terminators are coming – just for you."

The next Journal reporter to choose a favorite 2001 technology was Don Clark, who selected Lytro's "Living Pictures." He wrote:

"Many technological breakthroughs come from labs at big companies, but it was little Lytro Inc. that generated big buzz in the photography world. Billed as a revolutionary development in digital photography, the Silicon Valley start-up's still cameras create what it calls 'living pictures,' which can be refocused after they are taken. When viewed through a Web browser, users can click on different spots to bring objects into focus. Lytro says it updated a century-old invention called light-field cameras, which capture much more information than conventional digital cameras."

I've seen this technology on the web and it is amazing to click to on different parts of a picture and bring them into focus. The next reporter to select a technology was Scott Austin who chose the Leveraged Freedom Chair. He wrote:

"Rolling around a city in a wheelchair is difficult enough without ramps and elevators. Toss in unpaved roads full of rocks and mud, as found throughout the developing world, and it becomes impracticable. A new wheelchair created at the Massachusetts Institute of Technology Mobility Lab could be the solution for millions of disabled people in these countries, a large share of whom live in rural areas and travel upwards of two to three miles to get to work or school, or simply stay at home. Built with bicycle parts found cheaply and abundantly in developing countries, the Leveraged Freedom Chair costs only about $100 to make—compared with a few thousand dollars for conventional push-rim wheelchairs—and is designed with a special lever system that enables the user to muscle over rough terrain and up steep hills. After several years of testing, the chair will begin production [in] early [2012] in India, with other countries likely following."

In past posts about innovations and development, I've noted that many universities have taken a leading role in developing innovative solutions to problems faced by poverty-stricken people in the developing world. I'm pleased that at least one reporter recognized the work that students and professors are doing to make the world a better place to live.

The Journal's Ron Winslow selected the Sapien Transcatheter Heart Valve as his standout technology. He wrote:

"The Sapien, made by Edwards Lifesciences Corp., does for diseased aortic valves what the stent did for clogged arteries: It enables treatment without open-heart surgery. Made partly of cow tissue and polyester and approved by the Food and Drug Administration on Nov. 2, it's the first replacement heart valve delivered via catheter, through either a leg artery or a minor chest incision, rather than open-heart surgery. The rise of stents, which are implanted only by cardiologists, meant a big reduction in cases for heart surgeons, rupturing relations between the fields. The new valve was developed collaboratively and can be deployed by both groups. If the device is widely adopted, Sapien's true innovation may be in healing the rift between the specialties."

I'm still looking for the day when stem cells can be injected into defective parts of the body and they repair or replace damaged tissue. Until that day arrives, the less invasive we can make surgery the better. Staying in the medical field, Scott Austin was fortunate enough to select a second technology. His choice was Diagnostics for All. He wrote:

"Postage stamp-sized paper could be a key to diagnosing some of the world's troubling illnesses—all for less than a penny. Diagnostics for All, a Boston-based non-profit organization created by biotechnology executive Una Ryan and funded by the Bill and Melinda Gates Foundation, has developed a blood test using specially treated paper that channels a single drop of blood or urine and in minutes will change color if a problem is found. Its first target is African AIDS patients with tuberculosis who often die of liver failure because of the highly potent drugs they take. This liver function test, which detects toxicity in blood, will cost 0.10 cents or less and work without external power or equipment, the group says."

With healthcare costs continuing to skyrocket, anything that can be done to bring costs into check (whether in developed or developing worlds) should be applauded. The final technology selected was a technology discussed in yesterday's post, Intel's Tri-Gate Transistors. It was selected by Don Clark, who earlier singled out Lytro's "Living Pictures" for recognition.

Turning to Consumer Goods Technology, its Editorial and Research Advisory Boards selected three organizations for their Most Innovative Company Award and three products for their Most Innovative Product Award. ["2011 Innovation, Business & Technology Awards," by Alliston Ackerman, 15 December 2011]. The overall winner of the Most Innovative Company Award was Newell Rubbermaid. Coty Inc. and Dyson were awarded Outstanding Achievement recognition. Concerning Newell Rubbermaid, Ackerman wrote:

"Over the past five years, Newell Rubbermaid successfully transformed its business model from a manufacturing and product focus to one that is consumer-centric and built on marketing, branding and consumer-driven innovation. The company implemented a strategic, company-wide approach to uncovering insights and unmet consumer needs to drive new product innovations and put the consumer at the heart of the business. Today, Newell Rubbermaid delivers products that lead their categories because they were designed by listening to the needs of consumers and professional end-users, like the Calphalon Unison Nonstick Egg Poacher, the Parker Ingenuity pen and Lenox Bi-Metal Speed Slot Hole Saw."

The overall winner of the Most Innovative Product Award was Neutrogena Wet Skin Sunblock Spray from Johnson & Johnson. Purex Complete Crystals from Henkel and Sensodyne Repair & Protect from GSK Consumer Healthcare received Outstanding Achievement recognition. Concerning Neutrogena's Wet Skin Sunblock Spray, Ackerman wrote:

"Johnson & Johnson's Neutrogena skincare has a long-standing heritage in providing innovative products that offer real benefits. Launched in early 2011, Neutrogena Wet Skin Sunblock Spray with Helioplex was the first sunscreen specially formulated to be applied to wet skin. When applied to wet skin, ordinary sunblock can whiten and slide off. Neutrogena Wet Skin Sunblock Spray instantly cuts through water to form a protective barrier. Trust us, it really works. We’ve tried it! Plus, the product has been praised by 10 beauty publications, including Allure magazine, which named it one of the Best Beauty Breakthroughs of 2011."

As I noted yesterday, there are obviously many more technologies and products that could be singled out for recognition. Nevertheless, the companies, technologies, and products that have been given special attention should be congratulated. Innovation is what is going to keep the global economy expanding and make the world a more prosperous and productive place.

Technology Review 2011

Gizmag is an online magazine that "covers invention, innovation, and emerging technologies in all fields of human endeavor – everything from computing, communication and automation, through social innovation, new ideas, inventions, and services to enhance life, work and play for people of all ages." Since it casts such a wide net, it is an interesting source of ideas as well as a technology barometer that helps indicate where things might be heading. Despite the fact that Gizmag reporters cover a broad range of topics, Noel McKeegan singled-out six areas for special attention in his review of 2011 technological advances: transistors, synthetic fuels, search for extra-terrestrial life, artificial intelligence, solar polar, and materials engineering. ["A year in technology," 3 January 2012] McKeegan writes:

"We cast a wide net over all types of new and emerging technologies here at Gizmag.com - some save us time, some keep us connected, some help us stay healthy and some are just plain fun, but at the core of what we cover are those discoveries and innovations which have the potential to impact the fortunes of the human race as a whole and make a difference to the future of our planet. So with the calendar having rolled over into another year, it's an ideal time to take a look back at some of the most significant and far-reaching breakthroughs that we saw during 2011."

The first area he discusses is transistors, the small devices that "form the foundation of a world awash with electronic devices." He continues:

"Although [transistors] have shrunk dramatically, their design has not changed radically since they were first introduced decades ago. That all changed in 2011 with Intel announcing the mass production of its revolutionary Tri-Gate 3-D transistor. Intel says that adding a third dimension to the design will result in transistors that are up to 37 percent faster than those used in the current 32 nm process, use half the active power and add only around 3 percent to production costs. In contrast, Intel's first processor - the 4004 - which was introduced in 1971, ran 4,000 times slower and used 5,000 times more energy."

I believe you can call Intel's design a breakthrough. Simultaneously increasing speed by a third and reducing power usage by half at minimal cost is very impressive. In the era of Big Data, some analysts have expressed concern about the power necessary to maintain the data centers that are necessary to store and analyze all of the data that we are now creating. Breakthrough's like this one will go a long way towards keeping those concerns in check. The next area McKeegan discusses is synthetic fuels. He writes:

"A huge number of renewable energy breakthroughs caught our attention throughout the year and notable among those are developments that could lead to a viable alternative to petroleum-based fuels. Early in the year Cella Energy announced that it has developed hydrogen-based micro-beads that can be used to run existing vehicles without engine modification and could ultimately lead to a synthetic fuel that costs as little as US$1.50 per gallon. Notable announcements were also made by researchers from the University of Minnesota who are using two types of bacteria to create hydrocarbons from sunlight and carbon dioxide, and University of Michigan scientists who have developed a new process for extracting biofuel from algae."

I have noted repeatedly in the past that two types of energy sources have defined development and economic progress in the post-steam era: oil and electricity. Electricity is a sine qua non for development while oil has been the foundation of transportation systems. I'll discuss more about the generation of electricity below. Although the synthetic fuel research discussed above will have an impact on individuals, it will have an even greater impact on industry and supply chains. Resources and products will still have to be transported in a post-oil world that could emerge as early as next century. Having alternatives to oil available so that the global economy can continue to grow will be critical. It is not too early to begin perfecting those alternatives. The next technology discussed by McKeegan is the search for extra-terrestrial life. Although that is a fascinating subject, it's a bit far afield from the technologies I cover in this blog. The fourth subject he covers is artificial intelligence. He writes:

"Androids, cyborgs, thinking machines - whatever they end up being called or form they take, non-human entities that are capable of human-like thought are on the way, and artificial intelligence will have a profound impact on our lives in coming decades. During the past year we have seen several discoveries that advance the goal of reverse engineering the human brain - researchers from the University of Southern California announced the creation of a functioning synapse circuit using carbon nanotubes that could someday be one component of a synthetic brain, while over at Caltech, scientists unveiled a DNA-based artificial neural network that could have huge implications for the development of true artificial intelligence. Working with more conventional computing hardware, researchers at MIT have developed a computer chip that mimics the 'plasticity' of the brain's neural function and IBM has been experimenting with a computer chip designed to emulate the human brain's abilities for perception, action and cognition. Finally - and this one gets our vote for the most sci-fi AI breakthrough of the year - scientists from Israel's Tel Aviv University have restored brain function to a rat by replacing its disabled cerebellum with a synthetic one."

Advances in artificial intelligence are critical for helping us make sense of the mountains of data that we are now accumulating. AI systems will be able to learn and adapt and cooperate. They will provide both scientists and businesses with new insights. To read more about this topic, see my post entitled Artificial Intelligence and the Era of Big Data. McKeegan next discusses the area of solar power. He writes:

"The search for viable alternatives to fossil fuels that can satisfy growing worldwide energy demand is a constant feature in these pages, and 2011 has again thrown up an array of new developments in this area. In particular we've seen some significant breakthroughs in the solar field that have put this technology on the cusp of becoming mainstream. ... We've ... witnessed an increasing focus on large scale solar power generation with, for example, the 19.9 MW Gemasolar Concentrated Solar Power plant in Spain achieving a full 24 hours of solar power production, Enviromission detailing plans for a massive solar energy generator in Arizona and internet giant Google investing US$168 million in the world's largest solar power tower plant that is to be built in the Mojave Desert in California. Finally, in a taste of more to come, scientists have made breakthroughs in CIGS solar cell efficiency, crept closer to cost effective full spectrum solar cells, developed virus-boosted photovoltaics and made big advances in spray on solar technology ... and these developments are just a small sample of the progress being made in the solar cell field."

Unfortunately, this past year was better known for the bad news in the solar power sector than for the breakthroughs. For example, the failure of Solyndra, a California solar company backed by 500 million dollars in U.S. government loan guarantees, probably made the most news.

The final technology sector discussed by McKeegan is materials engineering -- specifically breakthroughs in materials that be used makes things appear invisible. He writes:

"Invisibility is a notion that's been with us for a very long time ... Harry Potter and Bilbo Baggins weren't even close to the first fictional characters to pull off a disappearing act. Plato made reference to the Ring of Gyges in his Republic almost two and a half thousand years ago and ever since then writers have been fascinated by magical objects that can make the wearer disappear from sight. Although personal invisibility cloaks remain in the realm of science-fiction, real science is catching up with advances in the application of metamaterials. This class of artificially engineered materials has a weird light bending property called a negative refractive index that makes it possible for objects (on a microscopic scale) to become invisible in specific wavelengths of light, but as we discovered in 2011, it's not just invisibility cloaking that stands to benefit from this field of research. These new frontiers for the application of metamaterials include wireless charging, optical transmission of information and the reduction of drag on ships' hulls. Rather than cloaking objects, metamaterials could also be used to hide a singular event in time. This 'temporal cloaking' has been demonstrated by researchers at Cornell University who were able to conceal a burst of light as if it had never occurred. Scientists from the California Institute of Technology have also developed a new type of negative-index metamaterial that can handle light of any polarity, from any angle, and works in the blue part of the visible spectrum, which could lead to more efficient solar cell designs."

One of the wonderful things about science and innovation is that no one really knows how a specific technology is going to be put to use once it has been developed. Creative people, having different perspectives and needs from those who produced a technology, will always find new uses for technologies beyond those imagined by inventors.

McKeegan admits that his short list of technologies "doesn't even begin to scratch the surface when it comes to the vast array of research that's going on in different scientific fields around the world." He concludes:

"Significant advances are constantly being made in battery technology, medicine, telecommunications and construction, not to mention two of the biggies - genetics and nanotechnology - which will no doubt affect our lives in coming years."

He's right, of course. His short list of technologies that could affect our daily lives gives us only a taste of the remarkable things being explored and discovered by global researchers and innovators. At a time when the world seems to be caught in an economic morass, it's good to remind ourselves that a better world is coming and that we should be a lot more optimistic about the future than we are right now.

Martin Luther King, Jr. Day 2012

Today America celebrates Martin Luther King, Jr. Day. It is always observed on the third Monday of January each year, which is around the time of King's birthday, January 15. Although the holiday is named in honor of the man who gave up his life promoting civil rights, its observance recognizes the importance of human rights and dignity -- causes about which Dr. King was passionate. In his famous "I have a dream" speech, delivered from the steps of the Lincoln Memorial in 1963, Dr. King said:

"In a sense we have come to our nation's capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness."

The struggle for equality, be it racial or gender equality, is one that must be continually pursued. Human capital is too precious to squander and diversity not only adds spice to life, but, as Alaina Love, President of Purpose Linked Consulting, argues, it can be a strategic advantage for businesses as well. ["Diversity as a Strategic Advantage," Bloomberg BusinessWeek, 10 May 2010] She wrote:

"Since the establishment of affirmative action in the early 1960s, organizations have struggled with shifting their focus on diversity from a numbers exercise of quota achievement to leveraging the benefits that can be derived from employees with different backgrounds and perspectives in a way that provides a commercial advantage. While we've seen startling advances in technology and radical shifts on the political, cultural, and demographic fronts over the past 50 years, the utilization of diverse talent in organizations has not kept pace. Leaders often intuitively understand the advantage of a diverse workforce, especially in today's global economy, yet many organizations grapple with how to develop and apply diversity principles in a way that will affect revenue and market position, as well as reputation."

Love believes that companies should consciously seek diversity rather than leave it to chance. That's an argument that still has its critics; most of whom believe that workplace qualifications and skills are the only fair metrics that should be used in hiring. Love continued:

"For companies to capitalize successfully on diversity, they must develop a robust and comprehensive strategic framework that not only considers how to attract and retain diverse employees but also is anchored in a culture of inclusion. In the 16 years I have consulted to multinational companies on issues of leadership, including diversity, some common characteristics have emerged among companies that utilize diversity as a strategic lever for growth and innovation."

In previous posts on innovation and creativity, I have stressed the importance of teams that include participants from varied backgrounds and disciplines. The more perspectives from which a challenge can be viewed the better the chances of coming up with an innovative solution. Love's diversity argument is an extension of Frans Johansson calls the "Medici Effect." Love has identified five characteristics that she believes distinguishes companies that have made diversity a strategic advantage. The first characteristic deals with leadership:

"1. A Prepared Leadership and Workforce -- Leaders and managers of cutting-edge companies are exposed to training and development that enhance their understanding and valuing of differences and allows them to examine the tenets of race and ethnicity that have shaped their perspectives on diverse groups. Accountability is key in these organizations, so diversity goals are built into annual objectives and progress is measured."

The second characteristic deals with recruitment and retention.

"2. Sophisticated Programs to Attract, Engage, Develop, and Retain Diverse Talent -- The best companies actively seek diverse talent and foster relationships with potential recruits at an early stage through internships and, after hiring, through talent-development programs. The road to career success is clear and unambiguous, with required competencies and skills for every position widely communicated across the organization. Management invests in nurturing relationships with diverse individuals who might be recruited to their organization. Also, top companies require that the composition of their boards and management committees reflect their goals, which provides added credibility with potential new hires."

Love makes two really important points. The first point is that a company's standards (i.e., its required competencies and skills) don't need to be compromised in order to have diverse workforce. The second point is that companies should be willing to test and train their employees to ensure that each employee has fair playing field. Love's third characteristic involves analysis and follow through.

"3. Measuring and Demanding Inclusion -- In companies that leverage diversity, the process does not end with recruitment; it shifts to including diverse views and perspectives in developing business strategy and meeting challenges. How well diverse groups are included across the organization in both formal and informal networks is examined and efforts are made to enhance those opportunities."

Love's next characteristic is also very important. It's about giving everyone an opportunity to be heard.

"4. Giving Everyone a Voice -- The best organizations recognize that beyond race, gender, ethnicity, and sexual orientation, diversity also applies to thought, skill, and passions. Differences are appreciated, but the corporate culture provides space for challenging differences in search of the best business solutions. In this environment, people are able to advocate their point of view passionately, even if it differs from the status quo. Ultimately, diversity includes everyone, regardless of background."

It does a company no good to assemble a diverse team if that diversity is not exploited in some meaningful way. People need to know that their opinions will be heard and respected; but, they should also know that their opinions and ideas must compete with those of others before they are implemented. Love's final characteristic involves corporate culture.

"5. Diversity Is a Core Operating Principle -- With the realization that diversity can bring about competitive advantage, partnering occurs among diverse groups across all functional areas and is anchored by common goals. This reduces silo mentality and allows for increased creativity and innovation. Beyond being a moral imperative, diversity in top companies is a key plank in the platform for business success."

Long-time readers of this blog know that I'm a firm believer that corporate silos need to be reduced if a company is going to achieve greatness. Breaking down barriers and fostering communication can only result in more and better solutions to emerging challenges. Love notes that "IBM is leveraging diversity through affinity channels as a mechanism to encourage innovation at every level." She explained:

"When Systems Management Specialist Pam Nesbitt filed her first patent in 2003, she became acutely aware of how few women at IBM were patenting their work. 'The company has Invention Development Teams [composed] of volunteers who help individual inventors navigate the patent disclosure process,' Nesbitt explains. 'I noticed that there were almost no women on these teams and none submitting patents.' Sure that she could change this trend, Nesbitt contacted 20 female co-workers who were in technical roles and founded IBM's Women Inventor's Community. The group, which was formed in late 2006, now has more than 1,000 women worldwide. Collectively, these women have submitted nearly 900 patent disclosures internally and have been granted almost 300 patents."

By any measure, those are impressive numbers. Love wrote, "Not all large companies are as advanced in their strategic application of diversity, but some are recognizing the advantage that a shift in focus might provide." Love concluded:

"As organizations embrace the power of diversity to drive business results, it clearly positions them for growth in a flatter world economy, where the composition and complexion of the workforce and customer base is increasingly shifting. Changing the lens through which diversity is viewed moves leadership perspectives on the issue from tacit compliance with government mandates to true recognition that diversity is a partner in business success. Organizations that are not making the most of their diverse talent will find themselves in the unenviable position of watching competitors take the lead."

Near the end of Dr. King's "I have dream" speech, he said, "I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character." He was not asking for favors but for fairness. Had he been alive to celebrate his 82nd birthday this year, I suspect that he would agree with most of what Ms. Love wrote last year. He believed in diversity. He believed the country would be stronger and better once men and women of every race, creed, and color started working together towards the same goals. Business leaders need to understand that their businesses will be stronger and better if they break down barriers, embrace diversity, and foster better communication.