Enterra Insights

Britain Embraces Entrepreneurism

I have repeatedly asserted that one of the best ways to promote economic growth and increase employment is to enact policies that foster entrepreneurism. British Prime Minister David Cameron apparently accepts that theory. He has announced that "angel investors are to be given more tax breaks to encourage investment in nascent businesses" in hopes of building "an enterprise culture based on the nation's 'doers and grafters'." ["Tax breaks aim to lure seed investors," by Jonathan Moules and Elizabeth Rigby, Financial Times, 28 March 2011] For those of us on the west side of the Atlantic, the use of the word grafter might seem a bit odd. According to most dictionaries, a grafter is someone who unscrupulously uses one's position to derive profit or advantages. I'm guessing that is not the kind of "grafter" to whom Moules and Rigby refer. I'm guessing they are using the agricultural definition of the term which refers to a person that performs grafts (i.e., joins things together). They continue:

"George Osborne, [Chancellor of the Exchequer], speaking alongside the prime minister, ... said he wanted to offer more incentives to those investing in start-ups, having already extended the Enterprise Investment Scheme, targeted tax breaks for investors. ... One idea being discussed in Whitehall is whether to introduce a new 50 per cent tax relief rate for sums of up to £500,000 invested in start-ups. The promise was welcomed by entrepreneurs and angel investors in the audience at the launch of StartUp Britain, a campaign organised by business founders to encourage more people to take the plunge and help new ventures grow bigger and faster."

In a post entitled Not All Small Businesses are Created Equal, I wrote: "The real entrepreneurial heroes are those that create high growth companies that provide employment for people beyond the entrepreneurs, their families, and a handful of others. These are the so-called small business superstars." Doug Richard, a US-born British entrepreneur, agrees with this assessment. He told Moules and Rigby, "It is not small business that supports economic growth, but young businesses that grow fast." Interestingly, Moules and Rigby report that StartUp Britain was "inspired by the Obama-backed StartUp America initiative." They continue:

"StartUp Britain, ... is based around a website offering tips and money-off offers to those seeking to start a business. It differs from previous UK enterprise initiatives in that it has sought no government funding, instead generating donations of time and money from other entrepreneurs and businesses."

Among those participating in the StartUp Britain conference were "Google, Microsoft and more than 50 other businesses" ["U.K. Launches StartUp Britain," by Angus Loten, The Wall Street Journal, 29 March 2011]. According to Moules and Rigby, participation by large, non-UK businesses caused some consternation among executives from UK-based businesses. Loten reports:

"The effort will see many of the world's leading businesses donating discounts and services to start-ups, such as free advertising, computer training, management mentoring and consulting, cheap insurance rates, and IT storage and processing deals. Together, the services are estimated to be worth over 1,500 pounds per start-up, or just under $2,400. Writing in The Daily Telegraph on Tuesday, Sir Richard Branson said 'firing up a new generation of entrepreneurs will be a crucial part of our recovery and essential for creating sustainable growth in Britain over the next decade and beyond.' Separately, a study of 160,000 small businesses in Britain, also released this week, found a 6.5% increase in the number of owners aged 25 to 34 over the past three years, the fastest growing age group among all small-business owners in the U.K. The second fastest growing age group was 18 to 25 year olds, according Simply Business, a U.K.-based small-business insurance broker that conducted the study."

In another effort to promote entrepreneurism, the English city of Liverpool will host a global conference on the subject next year ["Liverpool to host global start-up conference," by Andrew Bounds, Financial Times, 29 March 2011] Bounds reports:

"Liverpool, one of the British cities worst hit by public sector spending cuts, is to be the first European location for a worldwide conference aimed at helping start-up companies. The port’s bid to host the Global Entrepreneurship Congress, run by the US-based Kauffman Foundation, beat those from cities in the United Arab Emirates, Chile and Denmark, and follows events in Kansas City, Dubai and Shanghai. The congress attracts hundreds of entrepreneurs, economists and business gurus and Liverpool’s authorities hope it could help transform an economy still overly reliant on the public sector."

I have mentioned the Kauffman Foundation in several past posts. For readers not familiar with the organization, this is a description of its focus from its website:

"The Ewing Marion Kauffman Foundation was established in the mid-1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman. Based in Kansas City, Missouri, the Kauffman Foundation is among the thirty largest foundations in the United States with an asset base of approximately $2 billion. Our vision is to foster 'a society of economically independent individuals who are engaged citizens, contributing to the improvement of their communities.' In service of this vision, and in keeping with our founder's wishes, we focus our grant making and operations on two areas: advancing entrepreneurship and improving the education of children and youth. We carry out our mission through four programmatic areas: Entrepreneurship, Advancing Innovation, Education, and Research and Policy."

Speaking about next year's conference in Liverpool, "Carl Schramm, president and chief executive of the Kauffman Foundation, said: 'The power of the message put forward by Liverpool Vision about Liverpool's interest – and the many expansions of entrepreneurship that were pointed out in the application that characterised modern Liverpool as a city truly committed to entrepreneurship – were very decisive.' He continued: 'To start the economy in any country – and restart the economy in periods of recession – entrepreneurs will play the critical role.'" All of this attention on entrepreneurs follows on the heel of assertions that "the creation of a more entrepreneurial society in the UK is being held back by a number of myths about how difficult and risky it is to set up a new venture." ["Doom-laden myths appear to put off entrepreneurs," by Jonathan Moules and Jonathan Guthrie, Financial Times,15 November 2010] Moules and Guthrie continue:

"Deep-seated views, such as entrepreneurs are born, not made, and are only interested in making money, are just plain wrong according to Mark Hart, a professor at Aston Business School, who for the past 10 years has overseen one of the most comprehensive studies of entrepreneurship in the UK. His research, of 30,000 households, found that 65 per cent of those who had set up a business had done so primarily for independence and personal fulfilment. The results also pour cold water on the idea that setting up a business requires lots of capital, finding that half of start-ups begin life in the founder's home and the average capital requirement is less than £10,000."

Moules and Guthrie report that "Britain remains a long way behind countries such as the US in its enthusiasm for starting businesses," but nevertheless claim "that the level of start-up activity in the UK had held up well during the recession." In fact, Professor Hart told Moules and Guthrie that the recession might have spurred some individuals to start businesses. "What we are seeing," he told them, "is the recession releasing a lot of entrepreneurial energy." Having said that, "he questioned whether this would be enough to drive the kind of job creation the coalition government hopes to gain from the private sector." Moules and Guthrie continue:

"'We need to challenge the idea that you have to be an Alan Sugar or a Richard Branson to be an entrepreneur,' said Tom Bewick, chief executive of Enterprise UK. ... 'Our big message is that this will be the enterprise decade,' said Mr Bewick, whose charity has the support of business bodies such as the Federation of Small Businesses and the CBI."

Financial Times columnist Mike Southon also believes that myths and misperceptions are preventing too many people from improving their lives through entrepreneurship ["Resolving to build a strong business," 17 January 2011]. He writes:

"My focus will ... be on those who would like to make a better life for themselves but lack the confidence or connections to know where to start. They include the long-term unemployed and graduates burdened by debt from student loans. For them, there are just two simple options: get a job or become self-employed. Talking to people on a one-to-one basis allows me to judge which option is better for them. I have spoken to some Local Enterprise Partnerships (LEPs) on how to scale this process for larger numbers, using psychometric tests and other online tools. I think this is an important process as I often meet recession-beating companies that are planning to grow. Their only barriers to growth are securing the space to expand and finding the right people to employ."

Southon makes a point that is worth remembering: not everyone is suited to be an entrepreneur, but those unsuited for entrepreneurism can still become great employees if given the right skills. In these difficult and austere times, however, government help with training and re-skilling is unlikely to emerge -- even though Southon recommends that governments set aside money for such programs. StartUp Britain, which relies on no government funding, is the kind of program that is more likely to be found in the future. "For people who have both the aptitude and gumption to become self- employed," Southon writes that his "task is to de-mystify and de-skill the process for them." He continues:

"I have spoken with many people whose first contact with a business adviser has completely put them off the idea of starting a business. They got told about company formation, health and safety, accounting, taxation and legal issues. They left discouraged and disheartened by the bureaucracy involved. My advice is simpler. First, find a business area in which you have a genuine passion and knowledge, rather than something that you think might make money but for which you have no expertise. You should also have modest ambitions at first, ideally providing a local service rather than a product. So, if you are passionate about cooking, provide catering for a party rather than opening a restaurant. If you enjoy looking after children, provide a nanny service for friends rather than opening a daycare centre. The first test of the viability of your business idea will be whether your friends are willing to pay for your service, re-book you and recommend you to their friends. If you can also make a profit on the transaction, then you have the basis for a viable business. Finally, you need to find your niche. ... Even if this is a side venture to your current employment, it could be a useful fallback in these uncertain times."

I suspect that the next couple of years will continue to see governments around the world put forth policies that foster entrepreneurism. Both developed and developing countries need jobs and those jobs are more likely to be created by entrepreneurs than by established businesses.

"The Cloud" Continues to Gather

I posted my first blog about cloud computing in early 2008 [The Coming Age of Cloud Computing (Jan 2008)] and have occasionally followed the subject since [The AIR is getting Blurry with Clouds -- Computing that is (Mar 2008), IBM Heads into the Clouds (May 2008), Google brings Cloud Computing to the Masses (Sep 2008) and Update on Cloud Computing (July 2009)]. This week Amazon announced a cloud-based music service that has created quite a stir. Jonathan Zittrain, a law professor at Harvard, notes that an increasing number of applications are being designed that take "us further away from running code and storing our information on our own PCs toward doing everything online — also known as in 'the cloud' — using whatever device is at hand." ["Lost in the Cloud," New York Times, 19 July 2009] He continues:

"Many people consider this development to be as sensible and inevitable as the move from answering machines to voicemail. With your stuff in the cloud, it's not a catastrophe to lose your laptop, any more than losing your glasses would permanently destroy your vision."

Zittrain, however, is not about to jump on the cloud's bandwagon. He explains why:

"The cloud ... comes with real dangers. Some are in plain view. If you entrust your data to others, they can let you down or outright betray you. ... Worse, data stored online has less privacy protection both in practice and under the law. A hacker recently guessed the password to the personal e-mail account of a Twitter employee, and was thus able to extract the employee's Google password. That in turn compromised a trove of Twitter's corporate documents stored too conveniently in the cloud. Before, the bad guys usually needed to get their hands on people’s computers to see their secrets; in today's cloud all you need is a password. Thanks in part to the Patriot Act, the federal government has been able to demand some details of your online activities from service providers — and not to tell you about it. There have been thousands of such requests lodged since the law was passed, and the F.B.I.'s own audits have shown that there can be plenty of overreach — perhaps wholly inadvertent — in requests like these. The cloud can be even more dangerous abroad, as it makes it much easier for authoritarian regimes to spy on their citizens."

Despite such concerns, it looks like cloud computing is here to stay. "Cloud computing," writes Philip Delves Broughton, "is one of those technological phenomena that has sneaked up on the wider world of business and now has people on either side of a generational divide bickering over its value." ["Cloud computing is not a passing shower," Financial Times, 6 December 2010]. He continues:

"The idea is that we can now use computer services as if they were a utility, like electricity, drawing on software and hardware when we need them, rather than each of us owning our own generators and distribution networks. For digital natives, the cloud is as natural to computing as the keyboard. The cloud is Facebook, Zynga and Gmail. To an older generation, the cloud is WikiLeaks and data breaches. For managers trying to weigh up whether this is a fad or here to stay, where you stand may just be a function of your age."

I'm glad that Broughton insists that one's view of the cloud depends more on one's age than one's intelligence -- because there are intelligent arguments both for and against cloud computing. Zittrain, according to Broughton, would fall under the "older" category of people who believe that "the cloud represent(s) a fatal loss of control over your data." Younger people, he insists, can't imagine how "anyone could doubt a technological shift with such gobsmackingly obvious advantages." Let's be honest -- both sides have good points to make. Broughton continues:

"Cloud computing means dispensing with much of your own software and hardware and accessing it virtually as and when you need it. Rather than owning your own servers, you rent whatever server space you need for a monthly fee. Instead of installing a CD into your computer loaded with software, you access whatever software you need through your browser. Instead of storing your data on your computer or phone, you store it virtually and access it with a password. The likely benefits are extraordinary flexibility and access to far greater resources of people and information."

Broughton seems to dismiss concerns like those raised by Zittrain. He thinks that the problem that the "older" generation has with the cloud is "loss of control." He explains:

"A manager who controls sensitive data on customers and pricing, for example, may be loath to remove that from his own hard drive and place it in the cloud. A chief executive discussing the possibility of moving to cloud services with his head of IT will almost certainly be told it's a terrible idea. Far better to have one's own servers and one's own people maintaining them than relying on some abstraction like 'cloud services'. Whom do you call in the cloud when your system fails?"

Broughton claims that the older generation can raise all the objections they want, but he insists that they "are merely delaying the inevitable." He continues:

"Of course there are security issues to be overcome and technical fears to be allayed, but the basic ideas behind cloud computing seem irresistible: pooling resources to drive down cost and accelerate innovation and liberating people from the tether of physical software. Pat Toole, chief information officer of IBM and an evangelist for cloud computing, likes to say of the cloud 'it isn't rocket science but it is computer science'. By this he means that the challenges of cloud computing for business have existed in every phase of computing, challenges around cost, utility and security. For now, Mr Toole says, some workloads are evidently better suited for the cloud than others. Work that requires collaboration, for example, can be made much easier through the use of virtual desktops and web-based services. More data sensitive areas, such as enterprise resource planning and transaction processing, may not yet be ready for prime-time on the cloud. But these are problems that companies will eventually make fortunes by solving. Until then, managers should pick and choose which aspects of their business will benefit from moving to the cloud, and which will not."

Michelle Price agrees with Broughton that "cloud computing is one technology phenomenon not to be dismissed" ["Pinning Down the Cloud," Wall Street Journal, 15 February 2011]. She continues:

"Likened by some technophiles to the Industrial Revolution, cloud computing is already transforming the world around us and it promises to shape our future world too. Despite its growing importance, however, many companies are struggling to pin down exactly how this technological miracle can truly benefit their balance sheets. The practice of cloud computing is something with which consumers all over the world are already relatively familiar, even if the term itself leaves the lay technophobe scratching their head. Sending an email using a third-party Web-based email service provider, such as Google Mail, for example, is a basic form of cloud computing."

To help the technologically-challenged among us, Walter S. Mossberg provides "a very basic explainer." ["Learning About Everything Under The 'Cloud'," Wall Street Journal, 6 May 2010]. He writes:

"At its most basic level, the 'cloud' is simply the Internet, or the vast array of servers around the world that comprise it. When people say a digital document is stored, or a digital task is being performed in the cloud, they mean that the file or application lives on a server you access over an Internet connection, via a Web browser or app, rather than on "local" devices, like your computer or smartphone."

Okay -- most of us knew that much already. Mossberg notes that doing things on the Internet isn't anything new. There have been companies around for years that have been willing to provide backup services for your computers. So what makes cloud computing different? He explains:

"What's changed is that, in recent years, large-scale Internet-based storage has gotten cheaper, so it's possible for programmers to create more-sophisticated remote software, and the speed and ubiquity of Internet connections have improved. Also, some users have expressed a desire to share and collaborate in easier and richer ways than emailing files. Cloud-based services let many users view, comment on, and edit the same material. All this has given a boost to cloud computing. On top of that, computers are changing in ways that make cloud services more desirable. Your little netbook may lack the huge hard disk needed to hold all your music or photos, but there are ways to keep this material in the cloud and access it at will. Your smartphone can't run all the sophisticated programs, or store all the files, that your PC can. But, if it's connected to cloud storage and cloud-based apps, it can do much more than its hardware specs suggest. And, with cloud file storage and apps that run on remote servers, you could conceivably travel without any computer. A borrowed PC, tablet or smartphone might be all you need to log in and do real work. So, in recent years, a flood of cloud-based products and services have appeared to store and share files; to keep information on all your devices synchronized; and even to perform tasks like editing photos, or creating and editing long documents or large spreadsheets."

By the way, Mossberg agrees with Broughton and Price that "cloud computing is here, and growing, and quite useful. It will only get better and better." As the benefits of cloud computing become more obvious, more companies are migrating towards its services ["Companies Slowly Join Cloud-Computing," by Brad Stone and Ashlee Vance, New York Times, 18 April 2010]. Stone and Vance report:

"Ah, the cloud — these days, Silicon Valley can't seem to get its head out of it. The idea, though typically expressed in ways larded with jargon, is actually rather simple. Cloud providers, large ones like Amazon, Microsoft, Google and AT&T, and smaller ones like Rackspace and Terremark, aim to convince other companies to give up building and managing their own data centers and to use their computer capacity instead. ... Almost every big company is cautiously testing the waters these days. ... But most big organizations say they are wary of placing more critical software and business operations on another company’s computers."

With most analysts predicting that cloud computing will eventually dominate the IT space, you can understand that a war is being waged to carve out territory and win market share among those offering cloud services ["Battle of the clouds," The Economist, 15 October 2009]. The Economist reports:

"There is nothing the computer industry likes better than a big new idea—followed by a big fight, as different firms compete to exploit it. 'Cloud computing' is the latest example, and companies large and small are already joining the fray."

The article goes on to note that there are concerns that one company might become the dominant player in cloud computing. As a result, the article reports that "there are three areas where users of cloud services should be vigilant, and providers must be responsive, or regulators may yet step in." They are:

"First is the familiar risk of technological lock-in, as rival companies promote their own, mutually incompatible, standards and formats, as they have done in the past. Moving data from one cloud-based storage system to another, for example, is not always easy. Buyers of cloud services must take account of the dangers of lock-in, and favour service providers who allow them to switch between services without too much hassle.

"Second, storing so much personal information, and using it to target advertising, has privacy implications. Consumers who are unwilling to pay for cloud-based services will have to put up with some advertising based on their online activities, since it pays the bills. Most users will be happy to trade some privacy for free services, but they should have control over their personal data, and be able to amend the profiles which service-providers compile and use to target advertising.

"Third, data stored in the cloud may not be safe. This month tens of thousands of people with Sidekick smart-phones, for example, lost their address books, calendars, photo albums and other personal data, all of which were being stored in the cloud by Danger, an aptly named subsidiary of Microsoft. But a disaster on this scale is unusual: occasional outages are more common. Ensuring that cloud-based systems become more reliable is in the best interests of the firms that provide them, if they want to attract and retain customers."

Those all are legitimate concerns. Fortunately, The Economist doesn't see them as an "older versus younger generation" matter of perspective. The article concludes:

"Prodded by users and regulators, providers of cloud services are gradually moving towards new standards and greater transparency and reliability. If they do not move fast enough, regulators may yet have to intervene more forcefully. But cloud computing's advantages already outweigh its drawbacks for many consumers and business users. In contrast with previous computer-industry battles, a single victor seems unlikely this time around. May the best clouds win."

I agree with the magazine that a single cloud behemoth is unlikely to emerge. There are already a number of large cloud service providers (e.g., Google, Amazon, Microsoft, and IBM) as well as a number of niche providers. In addition to efficiencies and cost savings, there may actually be an environmental benefit to the cloud. "It is estimated that half of the energy consumed by data centers goes toward cooling computer processors, with most of the removed hot air simply being blown into the atmosphere. Instead, IBM sees that heat being captured to warm the air in other areas of the building, to heat water, or to be converted into electricity." ["IBM's annual list of five innovations set to change our lives in the next five years," by Ben Coxworth, Gizmag, 28 December 2010]. To learn more, watch the video in yesterday's post entitled No End to Innovation. See you in the cloud.

No End to Innovation

Almost everyone has heard about or read an alleged 1899 statement by U.S. Patent Office Commissioner Charles H. Duell that goes: "Everything that can be invented has been invented." No credible source for that statement can be found. A man named Samuel Sass, while working as a librarian for General Electric, was asked by a company scientist to investigate the quote. His research turned up a 1940 paper written by Dr. Eber Jeffery. In that paper, Jeffery reported the closest thing he could find was an 1843 statement by Henry L. Ellsworth, who as commissioner of the Patent Office, wrote in his annual report to Congress: "The advancement of the arts, from year to year, taxes our credulity and seems to presage the arrival of that period when human improvement must end." Bill Buxton, Principal Scientist at Microsoft Research, doesn't believe that mankind will ever arrive at a "period when human improvement must end." ["The Problem with Great Ideas," Bloomberg BusinessWeek, 9 June 2010]. He explains why:

"Everything reaches its past-due date. ... You might think that your great new product and innovation will be different, will have longevity, and that the associated business will continue to grow. But, quite apart from the fact that your product or process will inevitably provoke innovation from your competitors, expectations always grow faster than the ability to deliver. In his 1980 book, Unpopular Essays on Technological Progress, Nicholas Rescher persuasively argues that the faster expectations are met, the faster they escalate. In fact, he wrote, 'progress produces dissatisfaction because it inflates expectations faster than it can actually meet them.' So the bad news is that our great new idea will satisfy neither customers nor society in the long term. The good news is that no matter how well we do, there is a constant and ongoing need for design and innovation."

Buxton recommends that we accept the sobering fact that all innovations eventually must be replaced and move quickly from one great idea to the next. He continues:

"Here's what to do when an idea or product gets traction and starts generating a bunch of revenue. First, show restraint on the self-congratulation front. Next, invest a significant proportion of your resulting windfall into sussing out your next great idea. Keep moving and don't count on the continued success of your original one."

If you don't keep moving, Buxton warns that "there are many smart, determined, hungry creative entrepreneurs out there, and they want to eat your lunch." His bottom line: "Great ideas need to be displaced, even when they still have the allure of the cash cow." The problem, according to Buxton, is that innovators seem to have a difficult time being the disruptive innovators in areas they helped create. He provides examples of this conundrum from the computer industry:

"IBM was one of the only companies to innovate over successive generations of technology. As the mainframe market started to dwindle, it moved to workstations, to PCs, and along the way extended its innovations to the disk drive industry and services. Hence it remains an important player in the industry. As for the other early pioneers? Digital Equipment Corp. pretty much invented the mini-computer market in the 1960s and dominated through the 1970s, yet it wasn't able to bridge the transition to workstations. Apollo Computer, founded in 1980, was the largest manufacturer of networked workstations; its importance faded with the rise of ever-more-more powerful networked PCs. Neither company was able to make category-changing transitions—that is, the kind of innovation to which they owed their initial success. Shadows of their former selves, both finished their lives as acquisitions (by Compaq and HP, respectively)."

Killing a cash cow seems counterintuitive, but Buxton says that even cash cows eventually run out milk. He writes:

"Here's the sentence that should immediately set off alarm bells for those who don't want to head to the cemetery of one-category wonders: 'We can't pursue that idea, because doing so will cannibalize our existing revenue stream.' If you hear this phrase, stop whatever you are doing and give what lies behind these words your undivided attention. In general, here is my advice: If you can't change the minds of those uttering it, you should head for the door. The reason is simple: If you can see a way to shoot yourself in the foot, so can the competition. So the only course of action is to do it yourself. At least that way you get to choose when to pull the trigger and which toe you can live without. Rather the toe than the business."

Normally, self-inflicted wounds are a bad thing; but Buxton makes a great point. Although he doesn't claim to be a fortune teller, Buxton claims that you don't need a crystal ball to see how the future will unfold if you don't innovate. He writes:

"The ambitious, smart young team that developed the new concept leaves the company and joins a startup. They develop the concept and within a few years put their previous company out of business. This story plays out year in and year out. ... The moral of the story: Design and innovation are as important in the strategies and tactics of the boardroom and the executive suite as in the engineering and design divisions. While they are no substitute for strong and enlightened leadership, they sure can help."

One of the reasons that companies invest large sums in basic research and development is that R&D helps shape the future in which they must operate. There is a caveat here. In a post entitled First to Market vs. Late to the Game, I noted that a growing body of research suggests that being first to market with something doesn't necessarily translate to long-term success. But Apple, which has recently been at the top of the list of the world's most innovative companies, has shown that a company can keep reinventing itself through innovation.

As a side note, governments have good reasons to invest in research and development as well as companies -- even in economically stressful times. "Michael Faraday, who, when asked what good was electricity, told a government minister that he didn't know but that 'one day you will tax it.'" ["The Joy of Physics Isn’t in the Results, but in the Search Itself," by Dennis Overbye, New York Times, 28 December 2009]. I suspect that future sources of government revenue are currently being discovered by scientists working in obscure labs on subjects that have little to do with the struggles of daily life.

Returning to the subject of innovation, George Coulston, vice president of global research, development and engineering for tooling producer Kennametal, agrees with Buxton that a continuing flow of new ideas is important; but, he says, they are not enough. In an interview with Jill Jusko, Coulston said, "It is easy to have ideas; there's no shortage of them out there. It's much more difficult to define an opportunity, build a business case around that opportunity, really vet out customer requirements and then work your way through all the commercialization issues." ["Good Ideas Aren't Enough," Industry Week, 17 November 2010] Jusko continues:

"Successfully introducing new products into the marketplace is a notoriously challenging endeavor for most manufacturers even as they promote the importance of innovation to their companies' growth. And simply having a good idea is not enough. ... Indeed, opportunities to misplay innovation extend well beyond the ideation phase, but so, too, do opportunities for improvement. The challenge, then, is to translate those opportunities to misplay innovation into opportunities to improve the business side of innovation."

At the end last year, IBM published a list of five innovations that the company believes will change the world ["IBM's annual list of five innovations set to change our lives in the next five years," by Ben Coxworth, Gizmag, 28 December 2010]. Coxworth reports, "While there are no flying cars or robot servants on the list, there are holographic friends, air-powered batteries, personal environmental sensors, customized commutes and building-heating computers." Frankly, some of these technologies seem to be too immature to "change our lives" in as little as five years -- specifically, holographic technology. One reason I say this is that consumers have not embraced 3D televisions the way that manufacturers had hoped. Below is a short video that discusses the technologies.

The one thing that the video does highlight is Buxton's and Rescher's point that "progress produces dissatisfaction because it inflates expectations faster than it can actually meet them." In doing so, it ensures "that no matter how well we do, there is a constant and ongoing need for design and innovation." In other words, there is no end to innovation.

Transforming Global Supply Chains

Supply chains have been around since villages began trading goods with each other tens of thousands of years ago. Over the course of those millennia, the complexity of supply chains has increased dramatically. The first supply chains probably involved villagers carrying agricultural products and tools along dirt trails to trade with residents of other villages. Today, supply chains can span the world. Supply chain analysts and consultants not only believe that supply chains will continue to transform, most of them believe they must. I began discussion on this topic with a post entitled Building the Supply Chain of the Future. I continue that discussion in a column I co-wrote with colleague Thomas Barnett that was published today by World Politics Review entitled "The New Rules: Managing Global Supply Chains a Key U.S. Advantage." The first paragraph of that column reads:

"While many in the West fret over the challenge of 'rebalancing' the global economy after the recent global financial crisis, several trends suggest that the field of supply chain management could offer a key advantage for an America eager to double its exports by 2014. On the surface, supply chain management might not sound too sexy, but understand this: In today's globalization, neither companies nor countries compete -- supply chains do. Companies like Wal-Mart have known this for some time. Thus, positioning America to be the world's pre-eminent provider of secure, transparent and efficient supply chains will ensure that our economy masters globalization's competitive landscape in the fullest sense."

Adrian Gonzalez believes the "secret to supply chain transformation [is] asking why, then taking action" ["Logistics Viewpoints," 29 July 2010]. I believe that good solutions begin with good questions. But Gonzalez rightly states that asking good questions is not enough. He continues, "Asking 'Why?' and coming up with a PowerPoint solution is not new; taking some committed action would be." If you are not sure what kinds of questions to ask or how to begin framing them, look at supply chains that have been recognized for their excellence and ask: Why are they better than others? What are they doing differently than you? Kantar Retail annually publishes its list of consumer packaged goods manufacturers and retailers that have been identified as having the best supply chains ["Top Consumer Packaged Goods Supply Chains for 2010," Supply Chain Digest, 1 December 2010]. Lists like the one published by Kantar might be a good place to start.

In another article, Dan Gilmore, editor in chief of Supply Chain Digest, writes that he has a "sense that there are some new supply chain paradigms starting to coalesce" ["Time for more Dynamic Supply Chains?", 28 January 2011]. He continues:

"Most of us supply chainers believe that SCM [supply chain management] has taken on new importance in the executive suite and the corporate boardroom, as indeed in many companies it surely has. Yet [Dr. John Gattorna, author of Dynamic Supply Chains], in the introduction to the book, says he recently attended a CEO meeting in his native Australia, where the predominant theme when it came to supply chain was still all about using it as a lever (hammer?) to reduce costs. While as always cost reduction is important, the real opportunity in supply chain is to get it better aligned with trading partners to meet real customer needs and thus increase market share and revenues, while probably also reducing costs along the way, Gattorna says."

"Alignment" is just one of the terms you hear mentioned in connection with supply chain transformation. Other oft-heard terms include: visibility, collaboration, and flexibility. And, of course, there is that word "complexity." Gilmore addresses that complexity when he writes, "With globalization, outsourcing, etc., what a supply chain even is any more for a given company is hard to get your arms around." For more on that topic, read my post entitled Defining the Supply Chain as well as the post mentioned earlier (Building the Supply Chain of the Future). In the latter post, a number of analysts recommend building the supply chain of the future from "the outside in" (i.e., starting with the requirements of the customer's customer and working backwards translating the requirements to the suppliers’ supplier). Some of them also recommend splintering supply chains to help reduce complexity. Gilmore writes that he agrees with Gattorna that "it is better to think about [the supply chain as] a 'network of networks." He continues:

"Gattorna himself thinks we should change the term supply chain to 'value networks' to better describe what the real concept is now, and he is probably right, though the term supply chain is so embedded in our consciousness that I doubt such a change will occur anytime soon. ... Gattorna, in fact, says that most current approaches to supply chain design are 'fundamentally flawed,' but that we have been working on the traditional models and principles for so long that 'we have convinced ourselves we are on the right track.' Instead, companies need to 'set about developing a new business model for enterprise chains and networks of those chains.' That's a pretty provocative set of statements."

Like analysts quoted in the post on building future supply chains noted above, Gattorna believes that one of the problems is "that companies 'have been working from the inside out, largely ignoring particular customers' special needs and wants, and feeding them a diet that meets [the company's] own special interests.'" Gattorna indicates that another problem plaguing many supply chains is an obsessive focus on cost reduction. Gilmore explains:

"Back again to the subject of obsessive focus on cost reduction, you have to love this line: Companies obsessed with reducing supply chain costs, Gattorna says, often find 'it brings on a bout of anorexia industrialosa, the excessive desire to be leaner and fitter, leading to total emaciation and death.'"

Supply chain analyst Bob Ferrari agrees with Gattorna that an obsessive focus on cost reduction can be detrimental to a company. He writes, "Additional pressures for cost reductions could risk cutting into the muscle of supply chain capabilities at a time when agility and flexibility to changing business requirements places emphasis on the ability to quickly respond to market uptakes." ["Supply Chain Storm Clouds Ahead in Overcoming Cost Reduction Needs," Supply Chain Matters, 29 October 2010] Returning to Gilmore's article, he notes that supply chain personnel are finally receiving some long overdue attention. Yet, he writes, this new attention may not be enough. He writes:

"Gattorna related the story of an elite gathering of business executives sponsored by the Harvard Business Review a few years ago, where one CEO made this statement: 'Despite years of process breakthroughs and elegant technology solutions, an agile, adaptive supply chain remains an elusive goal. Maybe it's the people who are getting in the way.' Geez, you think? What is more importance for supply chain success (and agility): the trucks and the software, or the people who design and run them? To ask the question is to answer it, of course, but it is amazing how easy it is to lose sight of that. 'Supply chains may seem like uncontrollable, inanimate beasts, but they are in fact living systems propelled by humans and their behavior,' Gattorna says. We can probably agree that the 'people, process and technology' model makes sense, but to say it seems to imply about a 33% share for each, doesn't it? Is that right? This isn't obviously an exact parallel, since it leaves out 'process,' but Gattorna says we should start thinking about a '45/45/10' mix of human behavior, systems/technology, and lastly hard assets and infrastructure when it comes to determining supply chain performance."

Gilmore concludes his column with a description of "the essence of what Gattorna means by a dynamic supply chain." He writes:

"It starts with the fact that customers/markets must be segmented not by product characteristics, as is most often done, but rather by the supply chain needs of customers. ... For example, some [customers] need very predictable but cost efficient flow of goods based on largely stable demand. Others require rapid response to very unpredictable demand, etc. Gattorna has broken this down into four main segments. It is different because it looks from the customer back, not the company and its products out, and because it recognizes a given customer will almost always have different needs both generally across the different products it is buying from us, and even for a given set of products across different periods of time. He makes this absolutely compelling point: What looks like supply chain complexity to us is often really a manifestation of the fact a company has highly tuned its supply chain to focus on a particular model, while in reality it is trying to serve multiple models. The company is not aligned with its customers' buying needs generally and on a particular day."

Gilmore writes that Gattorna and Dr. David Simchi-Levi have "highly complementary views of supply chain strategy and flexibility." Simchi-Levi presents his views in a book entitled Operations Rules. I could add that the academics seem to agree with the analysts such as Lora Cecere, Yogesh Malik, Alex Niemeyer, and Brian Ruwadi. You can read more about Simchi-Levi's book in the first post I mention above and read an excerpt from the first chapter of his book in an article entitled "Understanding the 'Operations Rules'" [Supply Chain Digest, 16 February 2011].

After reading a number of posts and articles about how supply chains are transforming, I would have to agree with Dan Gilmore there is a "sense that there are some new supply chain paradigms starting to coalesce." As our World Politics Review column stresses, "the private sector will drive this expansion/upgrade process far more than the public sector."

3D Printing and the Supply Chain

The editorial staff at Supply Chain Digest asks an interesting question: "How Soon will 'Printed' Parts Revolutionize Supply Chains - and the World?" [22 February 2011] I first posted a blog that mentioned 3D printers back in November 2006. I discussed the subject at more length the next year in a post entitled Where is My Replicator? At that time, 3D printers were still pretty much an expensive novelty item. Staffers at Supply Chain Digest write, "The world of digitally 'printed' components and finished goods is (somewhat under the radar screen) achieving enormous technical improvements and has moved rapidly from vision to reality, with enormous potential implications for supply chains and business." To give you some idea about 3D printing, watch the video as a 3D printer creates ball bearings.

Obviously, ball bearings made from a plastic powder have limited use. But how about something "printed" out of titanium? That is exactly what is happening over in the UK ["The printed world," The Economist, 10 February 2011] The article reports:

"Filton, just outside Bristol, is where Britain's fleet of Concorde supersonic airliners was built. In a building near a wind tunnel on the same sprawling site, something even more remarkable is being created. Little by little a machine is 'printing' a complex titanium landing-gear bracket, about the size of a shoe, which normally would have to be laboriously hewn from a solid block of metal. Brackets are only the beginning. The researchers at Filton have a much bigger ambition: to print the entire wing of an airliner."

Now there's a print job! The article admits that this may seem "far-fetched"; but it reports that "people are using three-dimensional printing technology to create similarly remarkable things. These include medical implants, jewellery, football boots designed for individual feet, lampshades, racing-car parts, solid-state batteries and customised mobile phones. Some are even making mechanical devices." It continues:

"Engineers and designers have been using 3D printers for more than a decade, but mostly to make prototypes quickly and cheaply before they embark on the expensive business of tooling up a factory to produce the real thing. As 3D printers have become more capable and able to work with a broader range of materials, including production-grade plastics and metals, the machines are increasingly being used to make final products too. More than 20% of the output of 3D printers is now final products rather than prototypes, according to Terry Wohlers, who runs a research firm specialising in the field. He predicts that this will rise to 50% by 2020."

The staff at Supply Chain Digest refers to this process as "digital manufacturing" and it first discussed the topic back in January 2009 ["Will Digital Manufacturing Transform Production Processes and the Supply Chain?]. In that article, the staff defined digital manufacturing this way:

"The basic idea is to use digital information and specialized equipment to create parts, components or complete products on-demand, generally in low volumes, in a way that makes economic sense. In Europe, the technique is generally known as 'rapid manufacturing,' while direct digital manufacturing, or 'DDM,' is the more popular term in the US."

The Supply Chain Digest article with which I began this post asserts that "company executive personnel need to get more in front of this technology wave." The article continues:

"The ultimate impact on the supply chain from digital printing could be enormous. For starters, more rapid prototyping can shrink product development cycles and development costs, and therefore lead to even more rapid innovation cycles. Similarly, more new product concepts likely will be pursued because the cost and time to prototype those ideas will be less. A new era of true 'mass customization' could be ignited, making the vision of such a world first hyped in the dot com era of the late 1990s a reality at last. From tennis shoes that are built precisely to the shape of a consumer's foot (left one a little longer, you say?) to precisely designed medical devices, the potential is almost endless."

There are also environmental benefits to direct digital manufacturing. As the earlier Supply Chain Digest article notes, "parts can be made in a distributed way geographically, close to the actual need." With many of us suffering from gasoline price shock at the moment, being able to manufacture products near where they are actually needed could dramatically reduce transportation costs (and the carbon footprint associated with that transportation). DDM also reduces waste since the powders used in the process can are used precisely and extra material can be made immediately available for the next job. The staff at Supply Chain Digest states that all of that means that "the quality and/or cost of some products could also come down." Another benefit of DDM, is that it can produce "designs that simply can't be replicated well by traditional production." As a result, the authors conclude:

"Jewelry, furniture and many other consumer product areas could be revolutionized by the approach, and has some people wondering if the dynamics will in some cases lead to domestic digital production of some items versus offshore manufacturing in low costs countries. While for some time at least the actual unit cost is likely to be higher for the printed product, consumers in some categories may be willing to pay more to get exactly what they want. This in turn may lead to regional or local digital printing facilities where consumers or business can go to pick up the products they may even have designed themselves. Today, Nike produces its customer-designed 'Nike ID' shoes in Asia and ships them to the US. In the future, the shoes may be printed quite close to that consumer's home, and be available in days rather than weeks as is now the case."

To give you some example of how intricate 3D printer designs can be, The Economist article included the attached image of a chain mail glove. In year's past, an artisan would have to obtain wire, bend it, and then individually secure each piece of "chain" into the desired shape -- obviously, the traditional process is costly and time consuming. The article reports:

"Using 3D printers as production tools has become known in industry as 'additive' manufacturing (as opposed to the old, 'subtractive' business of cutting, drilling and bashing metal). The additive process requires less raw material and, because software drives 3D printers, each item can be made differently without costly retooling. The printers can also produce ready-made objects that require less assembly and things that traditional methods would struggle with—such as the glove pictured above, made by Within Technologies, a London company. It can be printed in nylon, stainless steel or titanium."

Reporters from The Economist agree with those from Supply Chain Digest that direct digital manufacturing could revolutionize how things are made. They conclude:

"The printing of parts and products has the potential to transform manufacturing because it lowers the costs and risks. No longer does a producer have to make thousands, or hundreds of thousands, of items to recover his fixed costs. In a world where economies of scale do not matter any more, mass-manufacturing identical items may not be necessary or appropriate, especially as 3D printing allows for a great deal of customisation. Indeed, in the future some see consumers downloading products as they do digital music and printing them out at home, or at a local 3D production centre, having tweaked the designs to their own tastes. That is probably a faraway dream. Nevertheless, a new industrial revolution may be on the way."

The folks at Supply Chain Digest believe that "tool and die shops which currently produce molds for manufacturers" should be particularly concerned with this new technology. It could be as disruptive for them as digital calculators were for companies that made slide rules. Engineers from the European Aeronautic Defence and Space Company (EADS) recently announced that they had manufactured a bicycle by "growing" its "components from a fine nylon powder, similar in concept to 3D printing." ["EADS Airbike made of steel-strength nylon," by Paul Ridden, 9 March 2011]. Ridden continues:

"Said to be as strong as steel, the end product is claimed to contain only a fraction of the source material used by traditional machining, and the process results in much less waste. It also has the potential to take manufacture to precisely where the component or product is needed, instead of being confined to factories often located a great distance away."

EADS calls its process Additive Layer Manufacturing. By now you should be able to see why the folks at Supply Chain Digest conclude that direct digital manufacturing "has moved rapidly from vision to reality."

If you think that printing large items, such as airplane wings, is far-fetched. How do you feel about body parts? Last year I wrote a post that discussed just that possibility [The Wild World of Medical Science]. In that post, I wrote:

"A story in The Economist claims "a machine that prints organs is coming to market" ["Making a bit of me," 18 February 2010]. The article reports:

'The great hope of transplant surgeons is that they will, one day, be able to order replacement body parts on demand. At the moment, a patient may wait months, sometimes years, for an organ from a suitable donor. During that time his condition may worsen. He may even die. The ability to make organs as they are needed would not only relieve suffering but also save lives. And that possibility may be closer with the arrival of the first commercial 3D bio-printer for manufacturing human tissue and organs. The new machine, which costs around $200,000, has been developed by Organovo, a company in San Diego that specialises in regenerative medicine, and Invetech, an engineering and automation firm in Melbourne, Australia. One of Organovo’s founders, Gabor Forgacs of the University of Missouri, developed the prototype on which the new 3D bio-printer is based. The first production models will soon be delivered to research groups which, like Dr Forgacs's, are studying ways to produce tissue and organs for repair and replacement. At present much of this work is done by hand or by adapting existing instruments and devices. To start with, only simple tissues, such as skin, muscle and short stretches of blood vessels, will be made, says Keith Murphy, Organovo’s chief executive, and these will be for research purposes. Mr Murphy says, however, that the company expects that within five years, once clinical trials are complete, the printers will produce blood vessels for use as grafts in bypass surgery. With more research it should be possible to produce bigger, more complex body parts. Because the machines have the ability to make branched tubes, the technology could, for example, be used to create the networks of blood vessels needed to sustain larger printed organs, like kidneys, livers and hearts.'

"The article states that the '3D bio-printer works in a similar way to some rapid-prototyping machines used in industry to make parts and mechanically functioning models."

I'm still a bit of skeptic when it comes to printing body parts; but, I'm a believer when it comes to direct digital manufacturing. I'm also a believer in "what if" scenario planning. If I were in the manufacturing or transportation sector, I might just want to run a "what if" workshop that includes a future in which extensive direct digital manufacturing is present. If the idea proves itself viable, it is likely to be a game changer. If you do decide to run a risk analysis workshop, I recommend that you begin by reading a post by Daniel Stengel entitled Personalized Products and their Impact on Supply Chain Design [Supply Chain Risk Management, 8 December 2010]. Stengel concludes, "Personalized products are going to be the order winners of the future." He may just be right.

Just-in-Time Logistics Scrutinized Anew

As a result of the combination earthquake/tsunami in Japan, "manufacturing executives from San Mateo to Stuttgart are scrutinizing production schedules, searching for backup suppliers, and figuring out how to cope with rising component prices." ["Now, a Weak Link in The Global Supply Chain," by Bruce Einhorn, Tim Culpan, and Alan Ohnsman, Bloomberg BusinessWeek, 17 March 2011] Einhorn, Culpan, and Ohnsman report that this particularly true for electronics manufacturers. They explain why:

"Japanese factories produce about one-fifth of the world's semiconductors and 40 percent of electronic components, according to CLSA Asia-Pacific Markets. Sony makes 10 percent of the world's laptop computer batteries, and other Japanese companies are the dominant suppliers of chemicals that manufacturers need to make chips. 'Japan has higher and higher market share of specialty materials as you go up the supply chain,' says Tony Tseng, an analyst in Taipei with Bank of America Merrill Lynch."

For companies that maintain substantial levels of inventory, sporadic, short-term supply interruptions are not a big deal. For example, Einhorn, Culpan, and Ohnsman report that "big players such as TSM [Taiwan Semiconductor Manufacturing] keep a four- to six-week stock of chemical products used to make chips, so uncertainty about maintaining supply from Japan is not a problem for now." But maintaining inventory raises costs and so for years many companies have used a "just-in-time" (JIT) supply chain strategy. The logic behind JIT is undeniable. As Michael Hugos explains in his book Essentials of Supply Chain Management, "The idea is to minimize the assets and cash tied up in inventory." An article from the web site Accounting for Management provides a more detailed explanation:

"Under ideal conditions a company operating a JIT manufacturing system would purchase only enough materials each day to meet that day's needs. Moreover, the company would have no goods still in process at the end of the day, and all goods completed during the day would have been shipped immediately to customers. As this sequence suggests, 'just-in-time' means that raw materials are received just in time to go into production, manufacturing parts are completed just in time to be assembled into products, and products are completed just in time to be shipped to customers. Although few companies have been able to reach this ideal, many companies have been able to reduce inventories only to a fraction of their previous level. The result has been a substantial reduction in ordering and warehousing costs, and much more efficient and effective operations. In a just in time environment, the flow of goods is controlled by a pull approach. The pull approach can be explained as follows. At the final assembly stage a signal is sent to the preceding work station as to the exact amount of parts and materials that would be needed over the next few hours to assemble products to fill customer orders, and only that amount of materials and parts is provided. The same signal is sent back to each preceding workstation so a smooth flow of parts and materials is maintained with no appreciable inventory buildup at any point. Thus all workstations respond to the pull exerted by the final assembly stage, which in turn respond to customer orders. As one worker explained, 'Under just in time system you don't produce anything, anywhere, for anybody unless they ask for it somewhere downstream. Inventories are evil that we are taught to avoid'. The pull approach described above can be contrasted to the push approach used in conventional manufacturing system. In conventional system, when a workstation completes its work, the partially completed goods are pushed forward to the next work station regardless of whether that workstation is ready to receive them. The result is an unintentional stockpiling of partially completed goods that may not be completed for days or even weeks. This ties up funds and also results in operating inefficiencies." ["Just in Time (JIT) Manufacturing and Inventory Control System"]

Up to this point, the benefits of JIT have been extolled and none of the risks revealed. The article just cited does eventually expose JIT's Achilles' heel. It explains:

"JIT manufacturing also opens businesses to a number of risks, notably those associated with your supply chain. With no stocks to fall back on, a minor disruption in supplies to your business from just one supplier could force production to cease at very short notice."

In other words, JIT supply chains are efficient but brittle. As a result, "from the Birmingham Post to the Christian Science Monitor via the Korea Herald, the severe impact of the earthquake and tsunami in Japan on global companies is making observers question the risks implicit in the country's 'vaunted "just-in-time" approach to business' (as the New York Times put it)." ["Just-in-time is not past its sell-by date," by Andrew Hill, Financial Times, 21 March 2011] As the headline states, however, Hill doesn't believe that JIT's time has come and gone. He continues:

"This veiled indictment of modern supply chain management implies that companies were irresponsible to expose themselves to the aftermath of a once-in-a-generation earthquake. Like the French with their Maginot Line, they should have been building rigid and expensive fortifications to see off future threats. But I predict few businesses will have their profits eviscerated, most will suffer no lasting impact, and all will continue to favour the leanest possible supply chain in future. No one outside business (and possibly few within) takes much interest in the chains that link supplier, manufacturer, distributor and end-customer – until they break. Everybody remembers high-profile product shortages."

I'm a little more sanguine than Hill when it comes to the level of interest that businesses take in supply chain operations. Companies from Cargill to IBM to FedEx to UPS have heavily advertised the benefits of better supply chains and efficient logistics. Hill believes that just-in-time logistics will ride out the current disaster because parts shortages, he believes, are generally less costly than "product or inventory gluts." He provides one costly example of such a glut:

"In 2001, Cisco – the technology company that touted itself as a model of inventory management, able to monitor revenues by the hour – misread the post-bubble collapse in demand for its products. It had to write off $2.5bn in unsold stock and lay off thousands of workers. John Chambers, chief executive, called the slump a '100-year flood'. If only such crises were that infrequent."

Hill believes that companies should count on disruptions and have plans in place to mitigate them. He writes:

"When a natural disaster occurs, it disrupts supply in obvious ways – a gap in the shipping of Japanese-built products to North America – and less obvious ones. One Taiwanese chipmaker, with no direct supply chain link to Japan, had to re-route its data feed after a subsea cable was unexpectedly cut by this month’s earthquake. This is what business continuity plans are made for. ... The wider point, however, is that the short-term disruption should force companies to reassess just how resilient their supply chains are – and to integrate continuity planning and risk management into the apparently simple task of getting component to customer promptly."

To learn more about supply chain risk management, read my four-part series on "Supply Chain Risk Management and Disaster Mitigation" [Part 1, Part 2, Part 3, Part 4]. Hill continues:

"As my colleague Gillian Tett pointed out, ... companies may have inadvertently increased their exposure to potential supply bottlenecks. More companies now source more goods and components from the same faraway markets, using the same routes. But supply chains have also evolved in other ways for the better. Some have become shorter. Local supply of components to, say, Japanese carmakers in France helps cement community acceptance of inward investors, as well as reducing environmental impact. By sourcing clothes from Turkey or eastern Europe rather than Asian markets, retailers such as Zara of Spain or Marks and Spencer in the UK offset the higher unit cost with lower transport bills and can boast about a greener supply chain, while reacting more quickly to fashion trends."

If you have been following my posts about challenges created by events in Japan, you know that I agree with Hill that regionalization of supply chains (i.e., making supply chains shorter) is likely to occur at an increasing pace. Hill continues:

"At the same time, the technology that companies use to keep tabs on their inventory has improved. Supply chain managers have learnt how to track goods more accurately by copying techniques used by armies or charities in the very emergencies that mess with companies' business continuity: wars (the delivery of munitions) and disaster areas (the supply of medicine and food). In the process, managers operating the tightest chains have fostered relationships with suppliers and customers that equip them to react more flexibly to any disruption. 'They respond in a very creative way to threats,' says Dominic Elliott of the University of Liverpool."

Flexibility and adaptability are two terms liberally used in discussions about future supply chains. Building flexibility into a JIT system that favors brittleness (i.e., the leanest possible system) is not as easy as it sounds. Hill concludes:

"Jin Whang at Stanford's Graduate School of Business says the ideal supply chain will be both agile and robust – a hard balancing act to achieve. But once companies have been able to assess the impact of the Japanese disaster, they won't start fattening up supply chains. Dread of a Cisco-style inventory glut and global competition mean they simply cannot build expensive buffers. In other words, not only is it wrong to scapegoat the just-in-time model, it is pointless: supply chains will emerge from this crisis – as they have from past crises – older, wiser and, undoubtedly, leaner."

I agree with Hill that supply chains will probably emerge from this latest crisis both "older and wiser." I'm not so sure that they will be "leaner." Both robustness and flexibility require some redundancy. A robust and flexible supply chain can't be leaner and incorporate a calculated amount of redundancy. Does that mean that I disagree with Hill's assessment that "just-in-time is not past its sell-by date"? It doesn't. In fact, on that point, I believe that Hill is dead on. Business executives understand that global competition requires them to operate their companies as efficiently as possible. Companies that manage to create agile supply chains and have solid business continuity and disaster mitigation plans in place are the ones you will still be reading about fifty years from now.

More Predictions about the Supply Chain

Before we get too much further into 2011, I thought I'd share a few more "expert" predictions about the supply chain. It's clear from events in Japan that only the broadest of predictions can be taken seriously. No one predicted, for example, that Japan was going to become a weak link in the supply chain ["Now, a Weak Link in The Global Supply Chain," by Bruce Einhorn, Tim Culpan, and Alan Ohnsman, Bloomberg BusinessWeek, 17 March 2011]. For more on the Japanese disaster and its effect on the supply chain, read yesterday's post entitled The Impact of the Japanese Tsunami on the Supply Chain.

I discussed some of the trends and predictions being made concerning the future of the supply chain in two previous posts [Supply Chain Management Trends and Predictions Concerning the Future of Supply Chains]. In the first post, five trends, identified by the staff of Supply Chain Digest, were discussed. They were:

1. Supply Chain Volatility and Uncertainty Have Permanently Increased.
2. Securing Growth Requires Truly Global Customer and Supplier Networks: Future market growth depends on international customers and customized products.
3. Market Dynamics Demand Regional, Cost-Optimized Supply Chain Configurations: Customer requirements and competitors necessitate regionally tailored supply chains and product offerings.
4. Risk Management Involves the End-to-End Supply Chain: Risk and opportunity management should span the entire supply chain—from demand planning to expansion of manufacturing capacity—and should include the supply chains of key partners.
5. Existing Supply Chain Organizations Are Not Truly Integrated and Empowered: The supply chain organization needs to be treated as a single integrated organization.

In the second post, I discussed predictions offered by Robert J. Bowman, that included: cloud computing will dominate the supply chain; companies that outsourced manufacturing will start bringing some of that capability back to the U.S.; most software will be delivered electronically; China will acquire a top ten global third-party logistics provider; balance between supply and demand will return in the semiconductor industry; and large-scale fleet operators will begin switching to electric vehicles. Noted supply chain analyst Bob Ferrari predicts that The Most Troublesome Supply Chain Challenge in 2011[will be] Rising Inbound Material Costs [Supply Chain Matters, 25 January 2011]. He specifically mentions agricultural products, precious metals, rare earths, and, of course, oil. In a previous post, he provided his own top ten predictions for 2011 [Supply Chain Matters Top Ten Predictions for Global Supply Chains in 2011, Supply Chain Matters, 17 December 2010]. His list follows:

1. Business recovery will remain sluggish, but the second-half of 2011 should provide some uptick in product demand and supply chain fulfillment needs.
2. The year 2011 will provide more supply chain cost reduction pressures and the challenges may be tough to overcome. This may be a year where supply chains will not be able to deliver aggressive cost reduction objectives.
3. As in 2010, incidents of supply chain risk, disruption, and breakdowns in quality will unfortunately continue.
4. Supply chain technology deployment will remain tactically focused and buyers will remain in a favored position for negotiating technology acquisitions.
5. The year will bring a new wave of turmoil, acquisition and market consolidation in certain supply chain and enterprise technology areas.
6. Cloud computing options directed at supply chain business process enhancement will explode in popularity and adoption.
7. Wider scale leverage and adoption of in-memory computing, coupled with broader application of information discovery platforms, could be game changing influences on supply chain wide business analytics.
8. Two industry sectors, B2C and healthcare, will be especially effected by significant supply chain process impacts in 2011.
9. The landscape for the global outsourcing of components and finished goods production will shift again in 2011.
10. Supply chain related green and sustainability programs will continue in 2011 and beyond, but at a slower pace.

Simon Ellis and Kimberly Knickle, from IDC Manufacturing Insights, provide another "Top 10" list of predictions about the supply chain ["Top 10 Predictions for the Worldwide Supply Chain," Consumer Goods Technology, 17 January 2011]. Here's what is on their list:

"Prediction #1: Manufacturing supply chain organizations, recognizing the inherent complexity in their global supply chains, will look for ways to drive out unnecessary complication through segmentation, simplification, and the use of more practical analytics.

"Prediction #2: IT vendors will continue to develop business intelligence and analytics tools that enable manufacturers to improve decision making at the strategic, tactical, and operational levels.

"Prediction #3: Although demand forecasting continues to be important, supply chain organizations will begin to recognize the critical role of supply-side responsiveness.

"Prediction #4: Supply chain visibility will climb on the IT application priority list as manufacturing companies increasingly identify critical use cases to drive both cost savings and improved service levels.

"Prediction #5: In the context of taking a broader view of total cost, supply chain organizations will gain a new appreciation for shortening lead times through profitable proximity sourcing strategies.

"Prediction #6: Cost containment, and the desire for variable supply chain structures, will continue to drive outsourcing of operations, but will also bring a more enlightened perspective to SaaS and 'skills resourcing.'

"Prediction #7: Supply chain modernization will pick up speed again as manufacturing companies look to drive fulfillment excellence through transportation, warehouse, and labor management tools.

"Prediction #8: As manufacturers increasingly outsource manufacturing and expand in emerging regions, they will search for ways to improve information sharing and support more organic collaborative processes across the extended supply chain.

"Prediction #9: Value chain captains will put a stake in the cloud to level-set technology capabilities, with focus on aligning with the 'clock speed' of the supply chain.

"Prediction #10: Manufacturers will invest in learning how to incorporate mobility applications and smart devices into the supply chain while balancing IT management concerns with employee enthusiasm."

Gartner published two sets of predictions: "one for overall supply chain management, another for global logistics." ["Full 2011 Supply Chain Predictions from the Analysts at Gartner," Supply Chain Digest, 2 February 2011]. Read the article to learn about the assumptions that Gartner analysts used to make their predictions. The first set of predictions (about supply chain management) were compiled by analysts Tim Payne, Mickey North Rizza, Noha Tohamy, Dwight Klappich, William McNeill, and Chad Eschinger. They include:

• "Supply chain leaders will focus on redesigning their demand management processes and technology to help drive stronger market insights.
• "Determining how to manage supplier risk will become a key requirement for leading organizations.
• "Supply chain management (SCM) technologies based on software as a service (SaaS) and the cloud will continue to gain traction, but mainly in process areas, with strong alignment to the unique characteristics of these delivery models.
• "Although in the last couple years the pendulum has swung back to favoring best-of-breed (BOB) SCM applications over ERP, supply chain leaders have identified a successful hybrid model that leverages the power of both.
• "Supply chain segmentation is gaining traction in the business, and leading companies are figuring out how to formalize the process to make it consistent and repeatable."

The second set of Gartner predictions (about global logistics) were assembled by Dwight Klappich, Greg Aimi, Jeff Taylor, and William McNeill. They include:

• "Supply chain security has taken a back seat to cost reduction during the last three years. A major port disruption is likely within the next five years, however, which will force SCM organizations to formalize risk management.
• "'Co-opetition' — notably, partnering with potential competitors — will become a transformational SCM strategy, allowing early adopters to move beyond incremental performance improvements.
• "In media and related businesses, the move to digital SCM will reshape SCM strategies and practices in over half the companies in these industries during the next five years.
• "Growth in consumer classes in emerging markets will reshape supply chain networks, forcing multinational organizations to overhaul their supply chain networks.
• "Supply chain process outsourcing will become a strategic mandate as leading practitioners move toward lead logistics provider (LLP) relationships."

You will note some similarities and some differences with predictions mentioned earlier in this post. For example, there appears to be a growing consensus that cloud computing and software as a service (SaaS) will play major roles in future supply chain management. On the other hand, there doesn't seem to be a lot of agreement on the outsourcing of manufacturing. Some analysts predict that a portion of outsourced manufacturing will return home while others predict that even more will be outsourced. Analysts at McKinsey & Company asked 639 business executives to predict the most serious challenges they would face over the next five years ["The challenges ahead for supply chains: McKinsey Global Survey results," McKinsey Quarterly, November 2010]. The analysts report, "Looking at challenges over the next five years ... respondents most frequently cite increasing pressure from global competition." The figure below accompanied the article and provides some perspective about how business executives view the future.

It is interesting to note that "geopolitical instability" ranked last in their concerns; yet geopolitical unrest throughout the Maghreb and Middle East have had a significant impact on rising oil prices which, in turn, have had a dramatic effect on supply chain costs. Every economic sector will have its own set of supply chain challenges and opportunities. Nevertheless, parsing lists of predictions for commonalities is a good way to discover broad-based trends that are likely to impact all sectors. Cloud computing, software as a service, the rising global middle class, and increasing commodity prices are just a few of those trends. Predictions, however, are just best guess prognostications. They are not fact. They help alert us to potential challenges and opportunities but don't they don't excuse us from doing further research and analysis. Milton Friedman once said, "The only relevant test of the validity of a hypothesis is comparison of prediction with experience."

The Impact of the Japanese Tsunami on the Supply Chain

As the situation in Japan becomes clearer, some companies are beginning to reassess the future of their supply chains. The devastation in Japan, as we all know, was enormous. Current estimates are that losses will approach a quarter of a trillion dollars. Supply chain analyst Bob Ferrari has posted three blogs focused on the near-term impact of the double blow resulting from the earthquake and the tsunami on supply chains. In the first of his posts, Ferrari notes that supply chains could be affected in many ways ["Devastating Earthquake Hits Japan: Global Supply Chains Will Be Impacted," Supply Chain Matters, 11 March 2011]. First, of course, some goods and services originating in Japan will undoubtedly be seriously disrupted. Disruptions of supply chain flows into Japan could also be disrupted as massive amounts of relief supplies vie for available transportation space. In that initial post, Ferrari wrote:

"There are numerous reports concerning supply chain impacts:

• "Cellular phone networks are literally overwhelmed with traffic, hindering service
• "Massive fires are reported in over 80 locations which include petrochemical, refinery and utility plants.
• "Air and surface transportation has been disrupted. There are reports that Sensei airport is underwater, and Tokyo's Narita airport had suspended all flights. U.S. military airbases were allowing airlines to utilize their runways for landing purposes. High speed rail, commuter and subway lines across all northern regions were shutdown due to safety concerns.
• "Japan's governmental agencies currently have special concerns around Nuclear power plants that have been impacted by the quake, with reports that at least one plant has had its cooling system fail.
• "There are reports that Sony halted and evacuated 6 factories, Toyota has closed 3 factories, while Nissan has closed 4 factories. Other firms such as Panasonic are still assessing impacts. We located two articles, one from Bloomberg News, the other from the New York Times that provides initial business and supply chain impacts."

Ferrari went on to note that "there are few global countries more well prepared than Japan ... to deal with the effects of a massive earthquake" and, fortunately for the country, "the northern region impacted, while certainly populated with industry, is not where the highest concentration of industrial activity lies in Japan." He concluded, "The effects or vulnerabilities to today's very lean supply chain and our global community is about to be once again tested." As the days have unfolded and the waters receded, the picture on the ground has become increasingly clear. The Australian Broadcasting Corporation (ABC) provided some interactive "aerial photos taken over Japan [that reveal] the scale of devastation across dozens of suburbs and tens of thousands of homes and businesses." The photos can be accessed by clicking this link. They really drive home the devastation caused by the tsunami.

In his second post on the Japanese disaster, Ferrari suggested that "industries that could be impacted are high tech and electronics, automotive, aerospace and specialty instruments. There could also be some near-term agricultural commodity impacts since the impacted area was a major agricultural area for rice production." ["Japan’s Devastating Earthquake: Supply Chain Matters Advisory Two," Supply Chain Matters, 12 March 2011] We know from recent reports that radiation leaking from the stricken Fukushima Daiichi nuclear plant has, in fact, started to impact the food chain ["Radiation in Food Rises," by Megumi Fujikawa and Juro Osawa, Wall Street Journal, 21 March 2011, and "Japan extends ban on contaminated food," by Jonathan Soble, Financial Times, 21 March 2011].

There has also been some good news, however, such as the fact that Nissan Motor Co. announced that it "will start parts production and vehicle assembly operations this week in Japan ["Nissan to Resume Production in Japan," by Yoshio Takahashi, Wall Street Journal, 21 March 2011]. Honda and Toyota are also planning to ramp up production. In the electronics sector, "the Sony Corporation, Japan's largest exporter of consumer electronics, said Sunday that it was preparing in days to reopen a plant that makes rechargeable batteries in Northern Japan." ["Japan Factories Take Steps to Resume Production," by Nick Bunkley and David Kocieniewski, New York Times, 21 March 2011] Ferrari concluded his second post this way:

"The coming days and weeks are going to be intense for supply management professionals. There will be a need for continuous assessments and communications with key suppliers and partners. It may take time to gain a full assessment of the situation at the source, so take the time to establish a strong communication link, and be sensitive to the fact that this tragedy effects humans as well as businesses. Now is not the time to be issuing impersonal requests for information or key performance indicators. This is a time for reaching out, assessment, and preparing all forms of contingency planning."

Ferrari begins his third update with this assessment: "The two most impacted industries initially appear to be automotive and high tech/consumer electronics, with some added concern for aerospace component suppliers. While supply chains currently have some buffer inventories to get through these next couple weeks, we believe it is still uncertain to ascertain any specific issues. Initial signs however are pointing to the potential for key component part shortages and/or price inflation for lower-tiered value-chain items." ["Japan's Devastating Earthquake: Supply Chain Matters Advisory Three," Supply Chain Matters, 20 March 2011]. As noted above, the automotive industry is beginning its recovery; but Ferrari reports that recovery in the electronics sector could be mixed. He writes:

"While Qualcomm and Intel have issued statements indicating that global operations will be not be impacted by events in Japan, others remain in either a wait or see, or scramble mode to develop scenarios and plans to mitigate potential component shortages or severe price spikes. Texas Instruments as already stated that its two impacted plants in the region would not return to full operations until July. Much of the current concern is reflected on specific components related to NAND flash memory, DRAM memory, microcontrollers, LCD displays and electronic components. Many of the value-chains of these components incorporate some or significant sourcing from Japan. An analyst with Yuanta Investment Consulting in Taipei noted that 80 to 90 percent of the products that bond integrated circuits to glass panels for electronics displays come from Hitachi Chemical and Sony Chemical. Within the semiconductor value-chain, bismaleimide thiazine or BT resins utilized to bond chipset packages, and an analyst for FBR Capital Markets noted that major supplier Mitsubishi Gas Chemicals has its plant located close to the site of the nuclear reactor incident."

Even before disruptions in the supply chain were created by the Japanese earthquake and tsunami, an Accenture report claimed that "most big US manufacturing companies are considering relocating factories from low-cost Asian countries to the US or Latin America as they face rising logistics and transport costs ["US groups weigh Asia exit as costs rise," by Hal Weitzman, Financial Times, 20 March 2011]. Weitzman continues:

"The earthquake and tsunami in Japan, which have wreaked havoc on global supply chains, have underlined how multinational manufacturers can find themselves stranded without critical components. For example, General Motors, the US carmaker, plans to stop production ... at a factory in Louisiana that makes pick-up trucks, due to lack of parts normally supplied from Japan. Boeing, the aircraft-maker whose 787 Dreamliner relies on Japanese manufacturers for more than a third of its parts, said it had enough inventory of components for the next few weeks, but was unsure of supplies beyond that. Jamco, the Japanese company that makes the 787’s galleys, warned that deliveries could be affected by fuel shortages. Caterpillar, the world’s largest manufacturer of earthmoving equipment by revenues, said its factories around the world could be 'sporadically impacted' by the disruption to its Japanese supply chain. The company has already located alternative sources for components produced by its Japanese suppliers. The problems in Japan could prompt big manufacturers to reassess the risks in their global supply chains."

To learn more about supply chain risk management, read my four-part series on "Supply Chain Risk Management and Disaster Mitigation" [Part 1, Part 2, Part 3, Part 4]. Weitzman continues:

"The Accenture report suggests that, long before the earthquake, such companies were already looking at simplifying supply chains by bringing them closer to end-markets. Some 61 per cent of manufacturing executives surveyed by the consultancy said they were considering more closely matching supply location with demand location by onshoring or 'nearshoring' manufacturing and supply. Matt Reilly, Accenture's managing director of process and innovation performance, said that this could lead to a wave of factory relocations in the next three years as big US manufacturers move production from Asia to the US and Latin America. 'In the past five years, companies were driving at labour cost arbitrage and lower material costs,' Mr Reilly said. 'But now that oil and transportation prices have gone up, productivity gains are not as big as they were, and there are issues around risk in supply chains, companies are starting to go where the customers are, instead of where the raw materials are.' He said the shift was also being driven by customer demands for quicker supply times and greater customisation. 'A lot of what's going on in manufacturing innovation is about trying to get customer feedback quickly and injecting that back into the supply chain, so that features and functions can be changed quickly,' he said. 'It's tough to do that when you've got stuff going on in Thailand or Japan.'"

In a number of past posts on globalization, I have predicted that we will see more regionalization for many of the reasons noted above. Rising transportation costs could make greater regionalization a reality sooner rather than later. One sign that manufacturing may be returning closer to home is the fact that "Procter & Gamble has opened a new manufacturing plant in Utah, its first new plant in the U.S. in 40 years." ["P&G opens Utah plant," by David Holthaus, Cincinnati.com, 16 March 2011]. I'll have more to write on the topic of consumer customization, another topic raised by Weitzman, in a future post. He concludes:

"A string of other international companies have ... cautioned that their supply chains could be disrupted by the Japan quake, including Sony Ericsson, Volkswagen, Volvo and GKN, the UK car and aerospace components manufacturer. Japanese companies are racing to reopen their plants at home, but they need all of their suppliers to reopen too. Nissan said it would restart five plants [this week], but only to make parts rather than assemble cars. Its output will depend on the supply of components and a sixth plant in Fukushima prefecture, near the stricken Daiichi nuclear plant. For its study, Accenture surveyed executives at 287 manufacturing companies, most with headquarters in the US."

I agree with Bob Ferrari, who, in his initial post, wrote, "First and foremost, our thoughts and prayers go out to all of the people and associated families within Japan that have all been impacted by this tragic event." If you wish to help victims in Japan, you can click on this link for a list of reputable organizations that are accepting donations.

Entrepreneurism: Learning from Others' Mistakes

An old Norwegian proverb states, "Experience is the best teacher, but the tuition is high." Archibald MacLeish adds, "There is only one thing more painful than learning from experience and that is not learning from experience." The least painful way to learn, of course, is to learn from the mistakes of others. Unfortunately, many entrepreneurs head out on their business journey without the benefit of knowing what mistakes other entrepreneurs have made in the past. For example, Angus Loten asks, "Who knew running a small business was so expensive?" His answer: "Not many new small-business owners, it turns out." ["Start-up Survey: Mistakes Were Made," Wall Street Journal, 23 February 2011]. He continues:

"In a recent survey by Bermuda-based insurer Hiscox, one third of 500 U.S. business owners with fewer than 100 employees said higher-than-expected costs was their single biggest start-up mistake, followed by hiring the wrong people, not knowing how to market and sell products, and not securing enough financing. Owners also said they lacked a sufficient understanding of taxes, financing and credit, and hiring and firing before launching their business, the survey found. According to Hiscox Director Kevin Kerridge, new business owners often have energy and passion for their products and services, but tend to neglect basic business skills."

I previously wrote about this topic in a post entitled Avoiding Mistakes that Lead to Failure. In that post, I discussed a list of ten common mistakes that Rosalind Resnick believes many entrepreneurs make. The list, without discussion, is presented below.

1. Going it alone.
2. Asking too many people for advice.
3. Spending too much time on product development, not enough on sales.
4. Targeting too small a market.
5. Entering a market with no distribution partner.
6. Overpaying for customers.
7. Raising too little capital.
8. Raising too much capital.
9. Not having a business plan.
10. Over-thinking your business plan.

Reading Resnick's thoughts on each of these topics is worth your time. As she writes in her article, "When it comes to starting a successful business, there's no surefire playbook that contains the winning game plan. On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them." ["10 Mistakes That Start-Up Entrepreneurs Make," Wall Street Journal, 1 September 2010] Entrepreneurs make a lot of business mistakes out of ignorance; which is why articles like Resnick's can help them identify areas in which they need to get smart. Sarah Needleman points out that entrepreneurs can make mistakes because they lack leadership skills. Ironically, she notes that without the proper skills entrepreneurs can become the type of bosses that motivated them to become entrepreneurs in the first place. ["Management Flubs Made by Rookie Bosses," Wall Street Journal, 3 January 2011] She writes:

"Some people start their own business to escape a bad boss. Albert Ko became one after launching his. The owner of DealPerk LLC, a year-old coupon website in Irvine, Calif., Mr. Ko admits that he developed a habit of shouting at his three employees whenever they made mistakes, which created a toxic work environment. 'They were scared,' says the first-time entrepreneur, who's since changed his approach to discipline. He now pulls offenders aside to discuss what went wrong and offers suggestions on how they can improve. 'I could see that it hurt morale.' Being the boss is a difficult job for many business owners to master. Their expertise is typically in the products or services that they sell and not supervising others. As a result, entrepreneurs are often guilty of handling employee mishaps poorly—or for allowing such blunders to occur in the first place."

When Rod Means, a district director in San Diego for SCORE, a nonprofit small-business mentoring and training organization, was asked for his views about entrepreneurs as leaders, he told Needleman, "They're in business because they have talent in their field, but it doesn't mean they're capable managers." Another expert, Wayne A. Hochwarter, a professor of management at the College of Business at Florida State University, told Needleman, "When you're running your own place, you've got everything vested in it. It's an emotional thing." But for the average employee, he says, "it's just a job, and sometimes not a well-paying job." Needleman goes on to provide a list of "other management mistakes entrepreneurs confess to having made—and how to avoid them":

"Failing to check for competence. Jimmy Tomczak, founder of Paper-Feet, a sandal manufacturer and retailer in Ann Arbor, Mich., says an intern once incorrectly assembled 25 of his company's products, costing the business $500 in retail sales. He had showed her what needed to be done but failed to check if his instructions registered clearly. 'Now I make sure that new hires can demonstrate competence before letting them go on their own,' he says. A simple way to prevent costly errors is to take the time to patiently teach employees how a job should be done, says Dr. Hochwarter. Too often entrepreneurs hire people without providing clear job descriptions or training, and instead leave workers to their own devices, which can lead to confusion and conflict, he says."

Competence is clearly an issue. But even if an employee is competent, he or she may still need to be trained to do things the way you want them done. If the ability to train others is a skill you lack, you may have a trusted employee who does possess that skill. Make him or her your trainer and quality control person. If you don't have someone like that in your organization, you might want to consider hiring a skilled trainer to teach your employees how you need things done. Needleman continues:

"Lying to avoid hurt feelings. Ethan Fieldman, co-founder of Group Interactive Networks Inc., a software company in Gainesville, Fla., says he once severed ties with a contractor whose job performance wasn't up to par by telling him that the firm didn't have any more assignments available. But afterward, Mr. Fieldman says he and several employees at the company began regularly receiving emails from the laid-off contractor asking if any new jobs had opened up. It's been six years and Mr. Fieldman says the emails continue to spam their inboxes. Though it can be awkward to deliver bad news, managers should be honest about why they're dismissing someone, says Daniel M. Murphy, co-founder of the Growth Coach, a small-business-coaching franchise in Cincinnati. 'Giving the truth is good for the business and for the development of that person,' he says. Any sort of lie 'could spill down throughout the organization,' resulting in the spread of false rumors."

Sparing feelings may seem compassionate, but in the dog-eat-dog business world a person needs to know when they are failing to live up to expected standards. If an employee isn't doing a good job for you, he or she is likely to continue to perform poorly elsewhere. In the long run, employees are better off knowing their shortcomings even if their feelings get hurt. Additionally, you never know when a lie will come back to bite you. For example, you may let an employee go for incompetence but offer them another reason for the lay-off to spare their feelings. If they later bring legal action against you, raising the issue of incompetency at that time may hurt rather than help your case. When it comes to business dealings, honesty is best the policy. Needleman moves on the touchy subject of trust.

"Blindly trusting workers. When Wendy Maynard co-launched Kinesis Inc., a Portland, Ore., Web-design and marketing firm, in 2000, she says she and her business partner didn't create an employee handbook or even verbally express how they expected their staff to behave. 'We made a big assumption that our professional norms were other people's professional norms,' she says. Yet some of their first hires came to the office wearing low-cut jeans with underwear and tattoos showing. One staffer worked on freelance assignments for other companies while on the clock. 'We quickly had to change things,' Ms. Maynard says. Entrepreneurs should define in writing what kind of behavior is allowed and what isn't in the workplace, says Janice Brown, founder of Brown Law Group, a San Diego law firm that specializes in employment litigation. The effort will not only deter employee misconduct, but also help a company fight wrongful termination lawsuits or false unemployment claims by former employees, she says."

My personal recommendation is that you publish and distribute an employee handbook that lays out company policies and procedures. Handshakes are nice, but, if you ever have to go to court, having something in writing matters a lot more. A good human resources professional can help you put together an employee handbook that details everything your workers need to know. Needleman's final topic -- giving mixed signals -- can lead to ambiguity, confusion, and eventually anger.

"Giving mixed signals. Hajo Engelke, founder of Custom Choice Cereal LLC, an online retailer in Durham, N.C., normally wears a t-shirt, shorts and flip-flops to work. Last summer, he teased a new recruit for showing up in a suit and dripping with sweat. Yet the very next day, Mr. Engelke walked into the office dressed in just the kind of formal outfit he criticized his employee for wearing the day before. (The reason: Mr. Engelke had a meeting with a potential investor, which he neglected to mention to the new recruit.) Upon seeing Mr. Engelke dressed this way, the employee's 'jaw dropped,' recalls the entrepreneur. 'Every day after [the employee] would ask what he should wear to work.' Entrepreneurs need to remember that workers look to them for cues on to how to behave, warns Mr. Murphy. 'As the owner, you are in charge of setting the tone for the environment and the culture,' he says. 'What employees want more than anything is clarity of what are the rules and expectations.'"

In another Wall Street Journal article, Diana Middleton offers five indicators of the fact that you may be less than the idea boss ["Five Signs You're a Bad Boss," 14 February 2011]. She writes:

"1. Most of your emails are one-word long -- It may be efficient, but many bosses don't realize how curt a one-word email—even a simple 'yes' or 'no'—can be, says Barbara Pachter, a management coach and author of several workplace etiquette books. She calls it the 'BlackBerry effect.' 'Managers have a tendency to be abrupt, especially when they're answering emails on the go,' Ms. Pachter says. 'It comes off as an invitation for conflict. A simple addition of "thanks" goes a long way.' Some managers craft even shorter emails. When Christina Marcus emailed an idea for a project to a former boss, he responded 'Y.' Thinking he was questioning her idea, she spent 20 minutes crafting a response. Turns out, the 'Y' meant 'yes,' not 'why.' Ms. Marcus eventually left the firm."

I agree that short emails can be a problem if they are your only means of communicating with your employees. Since many bosses, especially entrepreneurs, are on the go, they do a lot of their business on smartphones. Constantly texting long messages can become tedious -- even dangerous (if you're driving or walking and failing to pay attention where you're going). To me the bottom line is that short texts are okay if you also use other methods to communicate with your employees. That leads to Middleton's second warning sign:

"2. You Rarely Talk to Your Employees Face-to-Face -- Relying on email may be convenient, but bosses are increasingly using technology to avoid having tough discussions, says Robert Sutton, professor at Stanford University and author of 'Good Boss, Bad Boss.' 'No one wants to do the dirty work, but it's a boss' lot in life to deal with difficult issues,' Mr. Sutton says. Face-time engenders trust with employees, adds Ms. Pachter."

This complements what Needleman suggested earlier -- don't lie to protect feelings. Being honest in face-to-face discussions with employees is important. If you need to criticize them, private rather than public ostracism is generally the best method. Middleton continues:

"3. Your employees are out sick–a lot -- Employees will fake sickness to avoid a bad boss, says Mr. Sutton. But there's evidence that a bad boss may be bad for your health. A 2008 Swedish study that tracked more than 3,000 men over 10 years found that the men who said they were poorly managed at work were 20%-40% more likely to have a heart attack."

Employees who are not at work are, obviously, not productive. The last thing a boss wants is for his or her actions to make employees less productive.

"4. Your team's working overtime, but still missing deadlines -- New bosses are particularly prone to giving unmanageable deadlines to staffers, says Gini Graham Scott, author of 'A Survival Guide for Working with Bad Bosses.' A human resources executive at a New York firm who declined to be named because she's currently looking for a new position, says that she began working 15-hour days after her new boss came on board. Her boss' first order of business: Promising more aggressive deadlines to clients. 'She would tell the client, "We can have this for you in three days," which was impossible,' says this woman."

Not only do unrealistic deadlines affect the morale of employees, when they are unmet, they affect your credibility with customers. I think that there is a difference between aggressive and unrealistic deadlines. Entrepreneurs have to be aggressive in the pursuit of customers. Middleton's final warning sign is an obvious one.

"5. You yell -- Even if you aren't screaming angrily at your employees, speaking loudly can damage workplace morale, says Ms. Pachter, the management coach. 'Employees will constantly feel like they're being reprimanded, and they'll avoid you if there's ever a problem,' she says. At one of Ms. Marcus' former jobs every debate was a public forum, she says. 'My bosses would shout freely across the office, even when they weren't necessarily angry,' she says. 'It charged the atmosphere and really killed productivity, especially when you were trying to figure out who you should be listening to.'"

There is no "perfect boss." Different types of businesses require different leadership styles to be successful. All good leaders, however, provide a vision of where they want the company to go. They motivate people to join them in achieving their vision. They ensure that their employees know what their part is in making the company a success. There are obviously more than the four kinds of mistakes listed by Needleman that entrepreneurs can make as bosses. You're bound to make mistakes yourself. If you are concerned about your role as "boss," pick up a few books on the subject of leadership and get a few tips. Eleanor Roosevelt once stated, "Learn from the mistakes of others. You can't live long enough to make them all yourself."

Floating Cities

Whether one believes that climate change is accelerated by human activity or not, the fact that the earth's climate has changed (and continues to change) is undeniable. Some of the more dire predictions related to climate change have to do rising ocean levels. "In 1995 a report from the International Panel on Climate Change estimated that the sea will rise 50 centimeters (20 inches) with lowest range at 15 centimeters (6 inches) and high range at 95 centimeters (37 inches) by 2100, and NASA's take is supported with lots of evidence the warming is accelerating (temperature trends, sea level trends ) might come at us in a rush. If you go here, you can dial in the rise in water levels and see which properties will be waterfront if that occurs." ["How far below sea level will your home be if …," Gizmag, 25 August 2006]. Before you start thinking that this post is about climate change, I'll tell you that it's not. Climate change (and the predictions about rising sea levels) simply provided the inspiration for some clever individuals and companies who asked: What if sea levels do rise dramatically? Can a different kind of coastal living experience be created?

These are important questions because two historical trends (urbanization and coastal living) are on a collision course with rising sea levels. It has been estimated that as of last year 80 per cent of people on earth live within 60 miles of the coast. To cope with rising sea levels, some designers have suggested that we build floating cities that are ambivalent to sea level data. Will "floating cities" ever be built? I don't know -- but I never say never. I suspect that the devastating tidal waves that struck Japan and Southeast Asia over the past few years will make a lot of people pause. Even if they aren't built, however, the thinking that has gone into some of the creative designs for floating cities could prove valuable in the future. So let's look at a few designs that have been uncovered by the staff at Gizmag.

Green Float

The first concept, called Green Float, comes from Japan's Shimizu Corporation ["Green Float concept: a carbon negative city on the ocean," by Darren Quick, Gizmag, 23 November 2010]. Quick reports, "The concept would comprise individual floating cells or districts resembling water lilies with a radius of 1km (0.62 miles) that would form a compact village that could house 10,000 to 50,000 people." Below is a side view of one of proposed cells (click to enlarge).

Individual cells, according to Quick, would be linked together to form larger entities. The tower in the center of the cell is the highrise city where the majority of inhabitants live. Quick explains:

"The majority of the inhabitants would live in 1km high 'City in the Sky' towers located at the center of the circular cells, while additional 'Waterside' residential zones comprising low-rise townhouses would be located on the outer edge of the structure's outer circumference. To take advantage of the cooler temperatures, the tower residences and services would be located at the top of the tower at an elevation of 700 m (2,296 ft), providing year-round temperatures of 26-28 °C (79-82 °F). As the population of the cities grow, additional cells could be added, spreading out like the water lilies they resemble. The central tower would be surrounded by grassland and forests, while the outer circumference would adjoin marine forests, lagoons and beach resorts. The cells are designed to be completely self-sufficient in terms of food with the 1 km high towers containing a plant factory, while livestock and other farming would take place in 'plains' also surrounding the tower. Seafood lovers would obviously also be well catered for through fishing the surrounding ocean and the marine forests."

There is a catch. Like me, you might be wondering how this kind of floating city would weather severe storms, like hurricanes. It turns out that avoiding that kind of weather is critical to the plan. Quick indicates that if you were planning on parking your floating city off of Tokyo or New York, you should forget about it. He explains:

"The islands would be located at the equator as it isn't prone to typhoons and the climate is stable. However, in the event of large waves, strong elastic membranes would be attached to the lagoons around the outer circumference of the cells, with the shallows above the membranes standing 10m (32.8 ft) above sea level. The water pressure difference between the lagoons and the ocean would limit the movement of the membranes and buffer the force of the open sea waves. Additionally, 20-30m (66-98 ft) high seawalls would be constructed to handle a worst-case scenario."

Quick reports that the Shimizu Corporation is not the only group that took its inspiration from the lilypad. Architect Vincent Callebaut also drew inspiration from the lilypad for the next concept.

Lilypad

According to Quick, "the 'Lilypad' concept [is] a completely self-sufficient floating city that would accommodate up to 50,000." ["Lilypad floating city concept," Gizmag, 26 January 2011]. Callebaut apparently foresees his floating city as a place to live for people who have lost their homes due to rising sea levels. Unlike Green Float, which is intended to be located near the equator, renderings of the Lilypad show it just offshore a major city.

Quick reports, "The Lilypads could be located close to land or set free to follow the ocean currents wherever they may lead." Considering the rise in piracy, my bet is that if the Lilypad were ever built it wouldn't be "set free to follow the ocean currents." Quick continues:

"With a shape inspired by the highly ribbed leaf of Victoria water lilies, the double skin of the floating 'ecopolis' would be made of polyester fibers covered by a layer of titanium dioxide (TiO2), which would react with ultraviolet rays and absorb atmospheric pollution via a photocatalytic effect."

Although both Green Float and Lilypad draw inspiration from the lowly lilypad, they look dramatically different. The Lilypad boasts "three marinas and three mountains [which] surround a centrally located artificial lagoon that is totally immersed below the water line to act as ballast for the city."

According to Quick, "The three mountains and marinas would be dedicated to work, shopping and entertainment, respectively, while suspended gardens and aquaculture farms located below the water line would be used to grow food and biomass. The floating city would also include the full complement of renewable energy technologies, including solar, thermal, wind, tidal, and biomass to produce more energy than it consumes." Callebaut would like to see his Lilypad concept become a reality by 2100, but Quick reports that may be too late to help populations displaced by rising sea levels. Quick concludes:

"While Callebaut's Lilypad concept is admirable in its aim of providing a home for displaced climate change refugees, it seems that these same people would be the last ones to be able to afford a place on what would likely be an enormously expensive piece of real estate."

The next concept also draws it inspiration from nature and comes from the Russian architectural firm Remistudio.

The Ark

The Ark is more of a floating hotel than a floating city; although it "would float and function independently on the surface of a body of water, providing a green, self-sustaining environment for guests who presumably, would never have to leave" ["Oasis at sea: The Ark hotel concept," by Bridget Borgobello, Gizmag, 30 December 2010]. The outer design of The Ark draws inspiration from seashells rather than from the lilypad.

Borgobello reports that The Ark is "designed to withstand floods, tidal waves and rising ocean levels as well as earthquakes and other natural disasters." She continues:

"The shell-inspired Ark design has a load-bearing system of arches and cables which maintain an even weight distribution to withstand earthquakes, whilst the prefabricated frame allows for a fast and easy construction. The internal garden provides a lush escape for guests by acting as a greenhouse and enough daylight is filtered throughout the internal rooms to reduce the need for lighting. The design also integrates photovoltaic solar cells, a rainwater collection system and a frame that is protected with layer of self-cleaning and recyclable ethyltetrafluoroethylene (ETFE). ... Aside from the eco-credentials, it's a stunning design that seems to jump straight out of a science-fiction film. We can only hope that the worst global warming predictions prove inaccurate and it doesn't become the 22nd Century's holiday destination of choice."

The final two concepts move inshore and are intended for use on the world's rivers rather than its seas.

The New Orleans Arcology Habitat (NOAH)

"Arcologies ... are essentially entire cities crammed into a single high population density megastructure" ["Floating megacity designed for the banks of the Mississippi," by Darren Quick, Gizmag, 3 February 2011]. The inspiration for NOAH came "with the rebuilding of New Orleans after Hurricane Katrina." According to Quick, "A group of designers ... [conceived a] structure would house 40,000 residents along with all services and amenities that would allow them to live their entire lives within its walls if they so desired." He continues:

"With much of New Orleans built below sea level and the city prone to extreme winds, NOAH's designers chose to go with the concept of a floating structure whose open triangular frame shape is designed to dissipate severe winds by allowing weather to blow through the structure in any direction with a minimum of massing interference. The structure's outer edges are also curved and tilted to further dissipate wind loads, while both curved and flat surfaces would be outfitted with secured sliding hurricane panels to form a protective exterior barrier. While the 1,200 ft (366 m) structure is actually designed to float, it wouldn't be set adrift on the Mississippi. Instead a water filled basin around 1,200 ft (366 m) in diameter and 250 ft (76 m) deep would be constructed on the bank of the Mississippi. The basin would partially be carved out of the existing land and also extended out into the river. The actual foundation of the NOAH superstructure would then float within the basin thanks to its multi-cavity 'hull' consisting of high strength concrete cells that form a matrix of approximately 40 x 40 cells. This matrix is designed to give the structure buoyancy and form the frame for the steel framed superstructure. The designers estimate that structure will draft 180 ft (55 m) within the water-filled basin, allowing for a minimum 50 ft (15 m) space between the floor of the basin and the floor of NOAH’s foundations."

The video found below provides a good overview of NOAH's dimensions and function.

Quick explains that "the NOAH design team sees the structure as a viable plan, not only for New Orleans but for any coastal urban area. And while there are many advantages to the concept of arcologies, they remain very much on the drawing-board at this stage." The final concept is a departure from the concepts discussed above in that it is more of a garden than a city.

Physalia

Physalia is a floating amphibious garden designed by Vincent Callebaut, who also designed the Lilypad discussed earlier. The idea is that the Physalia "can clean ... rivers as it travels the waterways of Europe." ["Amphibious floating garden concept would clean rivers across Europe," by Paul Ridden, Gizmag, 15 February 2011]. Presumably the floating garden could be used on any river not just Europe's. Ridden continues:

"Callebaut ... says that the vessel's structural design was inspired by the physalia physalis (commonly known as the jellyfish-like Portuguese man o' war), from the Greek for bladder or water bubble. As the craft wanders the waterways between the Danube and Volga, the Rhine and Guadalquivir, or the Euphrates and Tiger, a hydraulic network in its aluminum-covered, double hull will enable it to filter river water through to the planted roof for some natural purification."

These are not the only concepts for amphibious cities floating around. For example, there's the Freedom Ship, a massive ship that would be close to a mile long, with a full scale airstrip on the roof and 50,000 people aboard. ["New Freedom Ship design unveiled," by Mike Hanlon, Gizmag, 29 June 2003]. Although none of these concepts may ever come to fruition, the ideas behind them and technologies they might inspire could have an impact on the future.