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22 posts from November 2012

November 30, 2012

Causes of Major Supply Chain Disruption

In a post about the causes of major supply chain disruptions, analyst Bob Ferrari discusses insights gained from an E2open-sponsored survey conducted by Gatepoint Research. ["New Survey Data Reflecting on Causes of Major Supply Chain Disruption," Supply Chain Matters, 7 November 2012] Ferrari reports that the research group "contacted over 200 supply chain executives, the vast majority of which had responsibilities of Director level and above, with 29 percent at Vice President or CxO level. Respondents for the most part residing in firms with revenues in excess of $1 billion. According to study authors, all the respondents participated voluntarily and none were engaged using telemarketing. Thus this study is a good representation of senior level perceptions and priorities concerning the managing of supply chain disruption."

The topic of supply chain disruptions has gained prominence over the past decade as major disruptions have increased. They have been caused by everything from volcanic eruptions to floods to tsunamis to earthquakes. Surprisingly, however, natural disasters were not the causes of disruptions most mentioned by business executives. That spot went to unplanned demand. As can be seen from the following chart, natural disasters came in third.

Ferrari indicates that his own small sampling of executives agrees with the conclusions of the report. He writes:

"[During a live] webinar, I conducted an online, real-time interactive polling with a similar type of question. Listeners also ranked 'unplanned demand' and 'supplier failure' ... as the highest categor[ies] of current disruption. In essence, supply chain executives and their respective teams are communicating that despite their best efforts at forecasting, planning or sensing customer product demand, unplanned demand remains as a challenge for coordinated and timely response. That is significant because it represents last-minute added business opportunities that supply chains are struggling to fulfill. Customers are indeed more demanding, and expect their suppliers to have adequate supply chain response management capabilities to fulfill last-minute needs. Similarly, despite the best efforts directed at monitoring suppliers, important information related to operational and financial conditions are apparently not being shared or a sugar-coated."

Ferrari's comments underscore why so many analysts stress the importance of supply chain visibility and collaboration. Without good visibility and collaboration, customers are getting blind-sided downstream by consumers and upstream by suppliers. Since unplanned demand was the number one source of disruptions, it should come as no surprise that surveyed executives said that disruptions most often occurred on the demand side of their supply chains.

Ferrari notes that even though the demand side beat out the supply side as the primary location for disruptions, it was a tight race. If you add tier 1 and tier suppliers together, however, the supply side takes a substantial lead (54% to 33%) as to where disruptions occur. Ferrari continues:

"Another set of questions probed on both awareness of a supply chain disruption and perceived actual response to the disruption. Nearly 34 percent of responders indicate that they were not aware of the disruption until more than a day after occurrence."

In a business world where clock speed is increasing and decision time diminishing, a day's delay in receiving pertinent information could prove disastrous. Most analysts believe that businesses need near real-time information to meet the challenges of today's business environment. Ferrari mentions, that a follow-up question was asked on this subject, it was: "After awareness of the supply chain disruption, how quickly can you respond to most supply chain disruptions?" The following chart depicts participant responses.

After Ferrari reviewed the data, he concluded that it demonstrated a "need for improved sense and response capabilities." In my discussions with large companies having global supply chains, I've learned that implementing improved sense and response systems is often seen as a challenge too difficult to tackle. They don't know exactly what data they need or how to obtain it. Because the task is daunting, they assume the cost of such a system would also be daunting and the return on investment questionable. Few, if any, analysts would agree with that assessment. The risks are too great to simply rely on reactive strategy. Ferrari continues:

"When asked to prioritize needed improvements to address disruption over the next 12 months, a good indicator of highest priorities, the responses indicated a generally equal balancing among capabilities for increased visibility into tier one supplier inventories (38 percent), deeper partner connectivity and collaboration tools (30 percent and 36 percent respectively), along with the ability to invest in what-if scenario tools (30 percent)."

I agree that all of those corrective actions are advisable. Ferrari's bottom line was this: "Supply chain disruption remains a key executive level concern, and disruption takes on many dimensions, including lost business and industry competitive dimensions."

"In theory," writes Paul E. Teague, "risk management seems such a simple concept." ["The value of SRM in risk management," Procurement Leaders, 12 November 2012] Obviously, Teague believes risk management is easier to discuss than to implement. He continues:

"When discussed in the abstract, it lends itself to all sorts of platitudinal phrases, like 'pre-planning,' whatever that means. But when a risk turns into an actual event, the platitudes become imperatives, and how well you and your suppliers planned beforehand and respond can determine the survival of your business."

To strengthen his point, Teague provides an example of good "pre-planning" and preparation. He writes:

"American Airlines' actions before and during the recent Hurricane Sandy provide a great role model for how exceptional supplier relationship management can turn risk-management theory into practice. The hurricane, which smacked the US East Coast in late October and moved swiftly inland, was the largest Atlantic hurricane on record. Encouraged by American's procurement team, many of the airlines' suppliers started taking action before the storm hit. For example, some suppliers of maintenance and aircraft parts were able to coordinate shipments to originate from alternate facilities and warehouses not affected by the storm. In another action, American worked with a third-party maintenance provider to suspend operations for two days leading up to the hurricane to assess on-going operations based on the aftermath. Planes were also routed away from the facility prior to the storm. The result was a drawn-out maintenance schedule, but the tactic kept the airline’s equipment and team safe. American's catering suppliers already had disaster plans in place. The airline wrote that requirement into their contracts. The plans include provisions for backup generators, emergency contacts, and backup protocol for food safety if power fails. Additionally, American had a plan to put double the provisions on flights going into the Northeast so there would be food for return flights. One gate supplier even arranged to pick up employees across the New York City area who couldn’t get to work because public transit was down. For the crucial area of jet-fuel supply, American's procurement team worked with the New York Port Authority, jet-fuel suppliers, pipelines, airport jet-fuel facilities, and other airlines to ensure there was enough fuel to fly for everyone. American also made sure there was enough fuel in places like Chicago for aircraft that left New York before the storm struck. In short, procurement analyzed the entire jet-fuel network to make sure planes could fly."

Of course, each industry sector's supply chains and supporting infrastructure are different. But Teague's example is a good one. He writes, "None of that risk-management planning is easy. But American’s procurement team, including Sam Maher, who manages aircraft maintenance suppliers; Kyle Hansen, who manages caterers and food suppliers; Robert Lacy, who manages jet-fuel and gasoline suppliers; and John MacLean, vice president of procurement and supply chain, handled the disaster exceptionally well. Hats off to the entire team." Teague's colleague at Procurement Leaders, Steve Hall, writes, "Thinking about the cocktail of disruptive events that have been served in recent years might leave you short of breath." ["The risks behind risk management," 15 November 2012] He continues:

"Risk is one of those ideas that often isn’t relevant until you've experienced the consequences of a disruption, at which point you know exactly what steps you should have taken. Perhaps then the question for businesses should be whether they've used these events as a kicking off point to create a suitably effective strategy or whether they'll always be trying to put out the latest fire."

Hall goes on to suggest ways to create a "new mindset when it comes to thinking about supply chains" and the risks that could create major disruptions. His first point is that planning for large-scale disasters often draws attention away from smaller disasters that can have equally devastating effects. He writes:

"One point that my colleague Jonathan Webb is fond of underlining is that businesses spend a proportionally large amount of time preparing for events that might never occur and have relatively low impact. Consider a business that has a bunker network in case of terrorist activity, but no backup or maintenance on an IT system which, if it crashes, would mean the inventory management grinding to a halt. No suggestion here that preparing for larger events isn't important, but the instance of smaller failures, perhaps more easily prevented or mitigated, but still disruptive and expensive, are frequently overlooked."

Hall's second point is that "keeping risk management to yourself" can sometimes become "a risk itself." He explains:

"[Nick Wildgoose, Zurich Financial Services' global supply chain product manager], related that in his work with the World Economic Forum and with Zurich he's come across companies that 'get it' and have advanced risk management plans in place. However, he pointed out, whether they're willing to share those ideas with others is another matter. Strong risk management is a competitive advantage and, so the thinking in some organisations goes, you're best off guarding that knowledge. However, one reason that many, like Wildgoose, are keen to suggest that collaboration and sharing may be a valuable route is the potential for a better educated community. If businesses are going to embed risk management strategies deeper in supply chains they need to work with suppliers and share ideas that will help them, in turn, manage their suppliers."

Hall's final point is that companies need to look at both the supply and demand side when assessing and addressing risk. He writes:

"Supply chain disruption frequently comes from levels of the supply chain below the immediate supplier, which is a problem – you can imagine some of the panicked phonecalls during the Japan earthquake as purchasers tried to work out if they had suppliers in those regions. Supply chain visibility holds huge benefits for procurement, not least in better understanding the vulnerabilities it has on the supply side. On the flip side, the top procurement organisations have looked to align towards the customer side of the business and develop purchasing capabilities to help them anticipate and react to shifts in the market. A combination of alignment and intelligence from both sides of the business form the core of a value chain engineering strategy, but it also gives procurement the tools to be an effective manager of risk."

Hall believes that a siloed approach to risk management by various corporate departments is a stillborn notion. He concludes, "The idea that procurement can act in a silo apart from risk management or that procurement can develop a risk management strategy that doesn't factor in their own stakeholders is looking more and more redundant." Since I'm one of those believers that the supply chain "is the business" and not peripheral to it, I agree with Hall that non-holistic approaches to supply chain risk management won't be effective.

November 29, 2012

Handling Big Data

"Raw data are like raw sewage," writes Andrew Hill, "toxic if not handled properly." ["Less is more when it comes to ‘big data’, Financial Times, 12 November 2012] He warns, "The lure of 'big data' is perfect bait for fee-hungry experts hunting new business. It also poses untold risks to companies that fail to read the trend, or the data, correctly." Turning data into actionable intelligence (i.e., knowledge that is useful for making business decisions) sounds easier than it is; but, Hill claims getting big data analytics right doesn't necessarily mean "a big initiative, run by a big team, and backed by a big investment." Of course, "big" is a relative term. A "big" investment for a small- to medium-sized business isn't necessarily a big investment for a large business. Hill continues:

"Big data are daunting. Even if companies realise they can no longer merely mine static customer lists, they should not underestimate the technical difficulties of marrying large proprietary databases with the more valuable unstructured, dynamic information that comes from open sources, such as social media or mapping applications. The guidelines for chief executives, on the other hand, are relatively straightforward: verify, purify, simplify."

Thor Olavsrud agrees with Hill that "Big Data [has] a powerful lure, promising to turn the massive and ever-increasing volumes of data inside an organization into a pool of intelligence that promises deep, actionable insight into every aspect of a business." He also agrees that "that lure can lead you into an expensive trap if you don't plan carefully." ["How to Avoid Big Data Spending Pitfalls," CIO, 8 May 2012] He continues:

"That's not to say that harnessing the power of Big Data is a mistake, [explains Jeff Muscarella, IT spend management consultant with NPI Financial.] But it does mean that organizations seeking to base their decisions on data need to start by gathering real data on how a Big Data project will benefit the business. ... When you're exploring a Big Data project, don't dive in head first, Muscarella warns. Start with open source tools like Apache Hadoop and build a test case. 'You want to really pilot these things,' Muscarella says. 'Pick something that's manageable. Start on a small scale to prove your hypothesis. For instance, if we could mine this sensor data or these Web clicks or these purchasing habits, would what we do with these results improve our business. ... Don't get trapped into building the infrastructure yet,' he adds. 'Prove it first and then go back and architect your solution. Assume that however you solve the problem, you're probably going to throw it away and start over. That's OK because at least you proved the business need before you spent a lot of money.' Once you proven the business need, it's time to look at the infrastructure required to manage Big Data. Big Data projects scale to petabytes and potentially exabytes of data, so making sure you get your storage infrastructure right is essential."

Hill goes on to recommend three things that CEOs need to do to make sure their investments in big data analytics aren't wasted. He writes:

"First, they need to identify the information they hold and ensure it is consistent and comparable. ... Sean Carney, chief design officer of Philips, says, data are 'like crude oil: it isn’t much use until you start to synthesise it'. Your company may have access to lots of data, but only some of it will be relevant. The second step is to know what you are searching for, and why. ... Finally, go ahead and put the data to use. ... Once the data have been properly marshalled, chief executives can test ideas cheaply and repeatedly. Innovations can flourish – or be allowed to perish without having wasted too much time or money."

In the end, Hill recognizes that the benefits of big data analytics can far outweigh the costs involved -- but only if the analysis is done correctly. Hill asks, "Are strategists redundant, then?" His answer is, "Not yet." He explains:

"Unlike intelligent fridges that can buy their own groceries online, large data-driven companies can’t order their own strategic direction. Even if they could, they would need someone sitting in front of a dashboard to decide, on the basis of abundant data, which innovation to bless with scarce capital. That, at least, will come as a relief to CEOs, as they struggle to keep their heads above water."

I agree with Hill. As I pointed out in a previous post, one of the benefits of the insights provided by big data analytics is that it better positions CEOs to think -- those insights don't do all the thinking for them. Travis Hessman agrees with Hill that, if not handled properly, big data can cost you money. He also agrees with Hill that big data is a subject in which CEOs need to be fully immersed. ["The Cost of Big Data," Industry Week, 22 August 2012] Rod Johnson, vice president of Industry Strategy at Oracle, told Hessman, "Big data equals big revenue and big dollars. Dealing with it is not an IT strategy -- it needs to be enabled by IT, but it is really a business strategy that should be on every CEO's agenda."

"Everywhere you look today," writes Mike Smith, "the impact of data analytics is becoming more apparent. ... Analytics are changing the way we live." ["Harnessing 'Big Data' for business value," Intelligent Utility, 11 January 2012] He continues:

"The Wall Street Journal, one of the best gauges of where business is today and where it is headed, has recently been featuring more analytics in its coverage. For example, the Journal recently reported that XO Communications experienced a cost savings of between $9 million and $13 million from a single analytics application geared toward reducing customer turnover. And in a recent article titled, "So, What's Your Algorithm?", the newspaper cited how The Schwan Food Company, ubiquitous in my northern California hometown with their colorful delivery trucks, increased revenues by 4 percent after four straight years of flat sales by applying analytics to customer spending patterns."

Like Hill, Smith insists that CEOs need to understand big data if it is going to be useful to a company. "Nuances abound," he writes. "Analytics include leveraging real-time data sources, bringing together multiple data sources, predicting (not just reporting) and merging new and existing data sources. The ability to predict the future with a degree of certainty is perhaps the most game-changing aspect of analytics." McKinsey analysts Jacques Bughin, John Livingston, and Sam Marwaha agree that harnessing the power of big data is essential for most large companies. They write:

"Large-scale data gathering and analytics are quickly becoming a new frontier of competitive differentiation. While the moves of companies such as Amazon.com, Google, and Netflix grab the headlines in this space, other companies are quietly making progress. In fact, companies in industries ranging from pharmaceuticals to retailing to telecommunications to insurance have begun moving forward with big data strategies in recent months. Together, the activities of those companies illustrate novel strategic approaches to big data and shed light on the challenges CEOs and other senior executives face as they work to shatter the organizational inertia that can prevent big data initiatives from taking root. From these experiences, we have distilled four principles that we hope will help CEOs and other corporate leaders as they try to seize the potential of big data."

Bughin, Livingston, and Marwaha assert that "too few leaders fully understand big data’s potential in their businesses, the data assets and liabilities of those businesses, or the strategic choices they must make to start exploiting big data." As noted above, they make four recommendations to ensure that business leaders understand how big data can help them grow. The first recommendation involves big picture awareness. They write:

"1. Size the opportunities and threats -- Many big data strategies arise when executives feel an urgent need to respond to a threat or see a chance to attack and disrupt an industry’s value pools."

The second recommendation involves understanding available resources.

"2. Identify big data resources ... and gaps -- Framing the basics of a big data strategy naturally leads to discussions about the kinds of information and capabilities required. At this point, executives should conduct a thorough review of all relevant internal and external data. The audit should also consider access to analytical talent as well as potential partnerships that might help fill gaps. Such an audit will not only create a more realistic view of a company's capabilities and needs but can also spark 'aha' moments—for example, as executives identify 'data gems' cloistered inside their business units or recognize the value of creating the right kind of partnership."

Their third recommendation involves corporate alignment.

"3. Align on strategic choices -- Once companies identify an opportunity and the resources needed to capitalize on it, many rush immediately into action-planning mode. This is a mistake. Data strategies are likely to be deeply intertwined with overall strategy and therefore require thoughtful planning when a company decides how its resources should be concentrated to achieve the desired results. In some cases, that could mean putting powerful data analysis tools in the hands of frontline workers. In others, it might mean amassing data and ramping up analytical talent to create a first-mover advantage."

Finally, like Hill, they recommend that CEOs be deeply involved in big data decisions. They write:

"4. Understand the organizational implications -- Because the means of securing competitive advantage from big data are still evolving, some CEOs believe that big data initiatives should be the sole responsibility of a company's IT or marketing departments—the functional groups where large-scale data sets are most often gathered, analyzed, and applied. Bad idea. In our experience, big data projects need concerted senior-management attention to succeed."

When big data collection and analysis is done correctly, the benefits can be game changing. Done poorly, it can turn into a money pit. I agree with the analysts cited above that CEOs have too much at stake to leave decisions about big data to others. They also need to appreciate how the insights that can be gained from big data analytics can help position themselves to make better decisions.

November 28, 2012

Multi-channel Marketing Hits Its Stride

If this past week has demonstrated anything, it's that many shoppers are now fully embracing multi-channel shopping. According to Kara Swisher, it all started on Thanksgiving Day (aka Mobile Thursday). ["Mobile Thursday? Smartphone Shopping Is Still Tiny, But It's This Year’s Big Online Buzzword." Wall Street Journal, 23 November 2012] She reports:

"In what has become an annual holiday tradition, those who keep track of these things have started in on touting just how digital the holiday shopper has become, whipping out all manner of buzzwords to do so. Last year, it was Cyber Monday — this year, it’s turned out to be Mobile Thursday. What’s next? Social Network Saturday? ... And, indeed, the Mobile Thursday phrase got some big laps around the track, with numerous online shopping surveys — coming out faster than you can buy that new tablet — using it in their flash reports."

Swisher declares that "Apple iPads go well with pumpkin pie." Since she's talking about Mobile Thursday, she might well have substituted iPhones for iPads. Traditionalists (and some employees) are already lamenting the fact that retailers like Walmart started Black Friday on Thursday evening. Traditionalists certainly can't be happy that retailers are suggesting that people push themselves away from the Thanksgiving table and start shopping by phone. Swisher calls this "couch commerce." Traditionalists might be encouraged by the fact that the number of people participating in Mobile Thursday turned out to be "a very small number." Swisher, however, reports that the number of participants is "fast-growing ... with overall sales reaching $500 million for Thursday." She continues:

"Still, for now, no one seems to break out actual mobile sales figures, which are clearly still a fraction of the totals. ... According to IBM’s Benchmark report, for example, online sales were up 17.4 percent over 2011 on Thanksgiving Day, noting that 'big winners were retailers who connected customers with personalized deals across multiple screens including PCs, smartphones and tablets.'"

Retailers don't really care whether an order is placed on a mobile device (like a smartphone or tablet) or on a more traditional device (like a laptop or desktop computer); which makes the distinction between Mobile Thursday and Cyber Monday meaningless. Swisher goes on to report some statistics about Mobile Thursday provided by IBM (more on IBM below). Those statistics include:

"Mobile Traffic: The number of consumers using a mobile device to visit a retailer's site reached 25.3 percent, up from 66.2 percent over 2011.

"Mobile Shopping: The number of consumers using their mobile device to make a
purchase increased to 18.3 percent, up 65.3 percent from 2011.

"Mobile Email: Smartphone and tablet shoppers responded to email deals from retailers, with emails opened on mobile devices jumping 23 percent on Thanksgiving Day over 2011.

"Couch Commerce: In the evening hours, consumers shifted from shopping through their smartphones at the dinner table to buying through their iPad on the couch. At the end of the day the iPad drove more retail traffic than any other device with traffic reaching 10.7 percent versus the iPhone at 9.1 percent and Android at 5.8 percent.

"Social Shopping: Shoppers referred from Social Networks such as Facebook and Twitter increased in evening hours generating .63 percent of all online sales on Thanksgiving."

Swisher reports that mobile devices also played a large role on Black Friday as shoppers brought their smartphones with them into stores -- "presumably irritating sales clerks everywhere." The irritation came from the fact that many shoppers were using brick-and-mortar stores as showrooms for products they would later purchase online. For the most part, shoppers involved in showrooming were young. In previous posts, I've pointed out the fact that there is a growing bifurcation in shopper demographics. Older shoppers and younger shoppers have very different tastes and are more likely to shop differently as well. Shelly Banjo writes about a family named Ultican that demonstrates how shopper bifurcation is affecting the retail landscape. ["Shopping's Great Age Divide," Wall Street Journal, 26 November 2012] The parents in the family have never made a purchase using their phone, they do, however, make purchases online; but, during the holidays, the parents prefer walking through the mall "sipping caramel frappuccinos and admiring the festive" decorations. "Their children," Banjo reports, "are a different matter. Ranging from age 10 to 27, the offspring mostly ignore the holiday décor, and instead peer into their smartphones, comparing prices, looking for deals and seeking friends' advice about potential purchases." Banjo continues:

"Retail chains are struggling with how to respond to families like the Ulticans, hoping to capture the attention of the so-called Millennial generation, ages 16 to 34, but fearful that moving too fast will alienate baby boomers. The 79 million people who make up the Millennial generation wield $200 billion in annual spending power. While that is only a sliver of the $3.4 trillion that baby boomers spend each year, analysts say, retailers need to try to nab those younger shoppers now, because their spending is likely to rival the boomers' as early as 2020 and they already exert a disproportionate influence on their parents' spending decisions. Moreover, during the holidays, shoppers age 25 to 44 plan to spend the most of any age group, about $820, according to the NRF. But shoppers aged 45 to 64 are also heavy spenders, planning to spend about $760."

It is not difficult to understand why manufacturers and retailers want to understand the differences between the age groups so that they can plan accordingly. The best method they have for gaining that understanding is analyzing big data. That's where IBM is trying to help retailers. "So, you might be wondering," writes Arik Hesseldahl, "how IBM gets all this info." ["How IBM Is Watching How You Shop Online," Wall Street Journal, 23 November 2012] Certainly it comes as no secret that our movements through the World Wide Web are being closely monitored by companies like IBM. It's really not a sinister plot to destroy your privacy; it's an attempt to influence your purchases. As Hesseldahl writes, "It's all part of [IBM's] strategic play in the world of big data, essentially helping companies make more sense of the huge troves of data they've gathered that were previously being ignored." He continues:

"Smarter Commerce is the area of IBM devoted to helping retailers better understand that data so they can come up with improved ideas concerning how to sell more stuff. Where they gather that data is the IBM Benchmark. It's a cloud-based digital analytics platform that soaks up digital information about how consumers respond to different ways of selling things online, 24 hours a day, seven days a week, all year long, from 500 different online retailers. IBM won't name them — they joined the network under condition of anonymity — but Big Blue says the companies that participate include about half of the companies named on the Internet Retailer Top 100 list. A lot of the technology comes from Coremetrics and Unica, acquisitions IBM made in 2010."

As I've pointed out in past posts, manufacturers and retailers spend a lot of money on marketing and much of it is wasted because those receiving the information aren't really very interested in what is being offered. That is why targeted marketing is gaining traction. Targeted marketing allows manufacturers and retailers to get more bang for their buck and it helps consumers because they receive marketing material that is better suited to their lifestyles and tastes. Hesseldahl concludes:

"Last year, I talked about all this with Craig Hayman, IBM's VP of the WebSphere, Application and Integration Middleware Software Division of the IBM Software Group. One quote from that conversation sticks out in my memory; it bears repeating here:

'If you think about consumers, and you think about the amount of technology that they have at their hands, to reach out to read reviews and talk to friends and families, they're incredibly empowered. There's not one purchase decision that they make that is not impacted by some element of social networks. What does that do to the companies that have to deal with that by offering the best products and services, and you see companies are struggling to do that: To make the right offer at the right time with the right price. When they do it well, we all talk about how it went well; and when they do it badly, we talk about how annoying it was.'

"Now you know. Not only are retailers and your credit card companies watching you shop, so is IBM."

Clearly, what Hayman was describing was targeted marketing (i.e., making the right offer at the right time with the right price). Banjo's article makes it crystal clear that Baby Boomer's don't want to see the same offers as Millennials. In fact, they won't even be looking for offers in same places or in the same way. That's why multi-channel marketing and fulfillment have become such hot topics in retailing. Swisher concludes, "We’ll see if Mobile Thursday becomes Mobile Holiday Season, which would be a big deal — but it's winning so far in the pundit stakes. Until we get actual numbers, here's a chart about the whole thing from eBay:"

Banjo agrees that "technology plays an increasing role in the generational shopping split." Christine Barton, a partner at Boston Consulting Group, told Banjo that "Millennials are 2½ times more likely to be early adopters of technology than older generations, serving as a leading indicator for retailers of what is likely to become mainstream. Millennials are more likely than older shoppers to check out brands on social networks (53% versus 37%) and use mobile devices to read reviews, research products and compare prices while shopping (50% versus 21%), according to a recent BCG/Barkley report." Banjo goes on to report how some companies, like Macy's, are adapting to this changing business landscape of bifurcated shoppers and multi-channel sales. This year may very well prove to be the year that manufacturers and retailers realize that they need to adapt or they will likely lose market share go out of business.

November 27, 2012

Fostering an Innovative Environment, Part 2

In Part 1 of this two-part series, I discussed an interview conducted by Gwen Moran with Jeffrey Phillips, co-founder of OVO. ["How to Develop a Culture of Innovation," Entrepreneur, 11 October 2012] In that interview, Phillips asserted that innovative companies have an "offensive" mindset (i.e., they are always looking for ways "to deliver a new product or service or feature into the market") whereas less innovative companies have a "defensive" mindset (i.e., they simply try to defend their market share or customer base). Scott Edinger, founder of Edinger Consulting Group, agrees with Phillips that corporate mindset is where innovation begins. "While many organizations focus on addressing problems," he writes, "the most successful focus on raising the bar. One of the ways they do this is by creating a culture where innovation thrives. When this organizational strength is magnified, it can become a source of competitive advantage." ["Don't Innovate. Create a Culture of Innovation," Forbes, 20 November 2012]

In Part 1, I also cited an article by Nilofer Merchant in which she insists that organizational size doesn't matter when talking about fostering an innovative environment. ["Innovation Isn't Tied to Size, but to Operating Rules," Harvard Business Review Blog Network, 31 October 2012] Ravi Mattu agrees with Merchant that old arguments about size discouraging innovation (i.e., big companies can't innovate) have been debunked. He also agrees with Merchant that open innovation is one way to keep large organizations adaptive. ["Collaborate to innovate – size matters," Financial Times, 31 October 2012] He reports that start-ups and large companies are trying "to work out ways of tapping into the power of the other." His article is accompanied by the following video.

Mattu concludes, "Everyone wants to be able to tap into creativity, but it could be that the process of innovation itself is undergoing the biggest bout of creative destruction." Many analysts believe that culture is even more important than process. Edinger, for example, writes, "Excellence in leading innovation has far less to do with the leader having innovative ideas; it has everything to do with how that leader creates a culture where innovation and creativity thrives in every corner." He then asks, "So if that is the conclusion, then what are the things that leaders must do to foster innovation?" He offers several strategies that he believes "make a profound difference"; but he is not alone in offering suggestions about how to create a culture of innovation. Josh Linkner offers seven steps that lead to an innovative culture ["7 Steps to a Culture of Innovation," Inc., 16 June 2011] and Tony Schwartz claims to reveal "Six Secrets to Creating a Culture of Innovation." [Harvard Business Review, 10 August 2010] As you might suspect, there is some overlap between the ideas presented by these analysts.

Make Work Meaningful

For example, Edinger encourages business leaders to "focus on outcomes" while Schwartz encourages them to "make the work matter." Edinger writes that leaders "put a great deal of effort into clearly envisioning and talking about the outcomes in a given scenario, rather than directing how those outcomes would be achieved." Schwartz writes, "Human beings are meaning-making animals. Money pays the bills but it's a thin source of meaning. We feel better about ourselves when we we're making a positive contribution to something beyond ourselves." He continues:

"To feel truly motivated, we have to believe what we're doing really matters. When leaders can define a compelling mission that transcends each individual's self-interest, it's a source of fuel not just for higher performance, but also for thinking more creatively about how to overcome obstacles and generate new solutions."

Edinger insists that leaders must paint "a picture of the future and [hold] their teams accountable for how to get there. Clearly, one of the ways that innovation is cultivated is by having leaders who make sure everyone involved knows the outcome and strategic goals of any objective. By focusing on outcomes and results, these leaders free up a lot of energy for the creative process of making it happen." In other words, innovative leaders ensure that the work matters.

Inspire Passion

All of the analysts agree that leaders must be inspirational. Edinger writes:

"When people feel inspired by a leader they are more inclined to give more effort and go the extra mile on a project. That extra effort and commitment is often what produces innovation. If the goal is easy to achieve, there is not much need to innovate. A trend that I observed [is] that ... leaders set stretch goals that [are] very difficult to achieve. Moreover, they [are] able to get members of their team bought in to the power of achieving those goals."

Linkner and Schwartz assert that inspirational leaders foster passion in their colleagues. Linkner writes:

"'The most powerful weapon on earth is the human soul on fire,' says Ferdinand Foch, the early 20th century French military theorist. Passion is the first—and most essential—ingredient for building a creative culture. Every great invention, every medical breakthrough, and every advance of humankind began with passion. A passion for change—for making the world a better place. A passion to contribute—to make a difference. A passion to discover something new. With a team full of passion, you can accomplish just about anything. Without it, your employees become mere clock-punching automatons. One key is to realize that passion alone isn't quite enough: You must also focus that passion into a sense of purpose."

Schwartz adds:

"The quickest way to kill creativity is to put people in roles that don't excite their imagination. This begins at an early age. Kids who are encouraged to follow their passion develop better discipline, deeper knowledge, and are more persevering and more resilient in the face of setbacks. Look for small ways to give employees, at every level, the opportunity and encouragement to follow their interests and express their unique talents."

Encourage Boldness and Tolerate Risks

Edinger indicates that the innovative people he's met aren't "rebels, but they were also not afraid to challenge people higher up in the management chain." He notes that such people are "fearless” and "that they possess a willingness to take on difficult issues, even when it means expressing disagreement with higher levels in the organization." He continues:

"They separate issues from people and are able to disagree, without being disagreeable. Doing so cultivates tremendous respect from their colleagues. One peer in particular used the term 'healthy creative tension' when describing the atmosphere of meetings led by the innovator."

Linkner recommends "encouraging courage." He reports that Netflix tells its employees, "Make tough decisions without agonizing excessively. Take smart risks. Question actions inconsistent with our values." Another company, a software company in Boston, "gives each team member two 'corporate get-out-of-jail-free' cards each year. The cards allow the holder to take risks and suffer no repercussions for mistakes associated with them. At annual reviews, leaders question their team members if the cards are not used. It is a great way to encourage risk taking and experimentation. Risky? Perhaps. Think this company comes up with amazing ideas? Absolutely."

Of course, taking risks just to demonstrate that you have a high tolerance for failure isn't smart. If a risk does result in a failure, some value needs to have accrued from that failure -- even if it's just the realization that the path taken was a dead end. Linkner writes:

"The great innovators and achievers weren't necessarily smarter or inherently more talented. They simply released their fear of failure and kept trying. They didn't let setbacks or misfires extinguish their curiosity and imagination. Failing forward means taking risks and increasing the rate of experimentation. Some bets will pay off; some will fail. The key is to fail quickly. The speed of business has increased dramatically and every minute counts. The best businesses try lots of ideas and let the losers go quickly and with no remorse."

Focus on Ideas

All innovation begins with good ideas. Linkner writes:

"Celebrating creativity is not only about handing out bonus checks for great ideas—although that is a good start. It should also be celebrated with praise (both public and private), career opportunities, and perks. In short, if you want your team to be creative, you need to establish an environment that rewards them for doing so."

Schwartz goes even further. He recommends that creativity techniques be taught so that employees have the tools to generate new ideas. "[Creativity] isn't magical," he writes, "and it can be developed." He continues:

"There are five well-defined, widely accepted stages of creative thinking: first insight, saturation, incubation, illumination, and verification. They don't always unfold predictably, but they do provide a roadmap for enlisting the whole brain, moving back and forth between analytic, deductive left hemisphere thinking, and more pattern-seeking, big-picture, right hemisphere thinking. The best description of the stages I've come across is in Betty Edward's book Drawing on the Artist Within. The best understanding of the role of the right hemisphere, and how to cultivate it, is in Edwards' first book, Drawing on the Right Side of the Brain."

Unleash the Hounds of Innovation

Keeping tight control over the innovative process can be counterproductive. On the other hand, letting go can be difficult for leaders. It involves trust. "Not the garden varieties of trust," writes Edinger, "but complete and shared confidence in one another." Linkner asserts that this kind of trust results in giving employees greater autonomy. He writes:

"We all want control over our own environments. According to a 2008 study by Harvard University, there is a direct correlation between people who have the ability to call their own shots, and the value of their creative output. An employee who has to run every tiny detail by her boss for approval will quickly become numb to the creative process. The act of creativity is one of self-expression. ... Granting autonomy also involves extending trust. By definition, your team may make decisions you would have made differently. The key is to provide a clear message of what results you are looking for or what problem you want the team to solve. From there, you need to extend trust and let them do their best work. Let them know you are behind them and value their judgment and creativity. If you show your belief in them, you will likely enjoy both the results you were seeking as well as a highly motivated and more confident team."

Schwartz adds that employees need personal time as well as personal space. He writes:

"Creative thinking requires relatively open-ended, uninterrupted time, free of pressure for immediate answers and instant solutions. Time is a scarce, overburdened commodity in organizations that live by the ethic of 'more, bigger, faster.' Ironically, the best way to insure that innovation gets attention is to schedule sacrosanct time for it, on a regular basis."

Celebrate and Foster Diversity

I'm a fan of diversity. I have repeatedly lauded the benefits of using cross-functional teams when addressing a challenge. New perspectives always provide better solutions. Linkner writes:

"Diversity in all its shapes, colors, and flavors helps build creative cultures. Diversity of people and thought; diversity of work experiences, religions, nationalities, hobbies, political beliefs, races, sexual preference, age, musical tastes, and even favorite sports teams. The magic really happens when diverse perspectives and experiences come together to form something entirely new. ... This melting pot approach can drive some of the most creative cultures, thinking, and ultimately business results."

Empower People

Innovation is mostly about people. Creating an innovative environment isn't primarily about processes, infrastructure, or technology; it's about equipping people with the tools they need to succeed. Linkner writes, "Unfortunately, most companies fail to unleash their most valuable resources: human creativity, imagination, and original thinking." Schwartz adds:

"How well are their core needs — physical, emotional, mental, and spiritual — being met in the workplace? The more people are preoccupied by unmet needs, the less energy and engagement they bring to their work. Begin by asking employees, one at a time, what they need to perform at their best. Next, define what success looks like and hold people accountable to specific metrics, but as much as possible, let them design their days as they see fit to achieve those outcomes."

Edinger concludes, "A culture where innovation thrives in every corner is exponentially more valuable than a culture which anoints one or even a few people as 'the innovative ones.' If you create an environment of innovation, who knows where your next great idea will come from?"

November 26, 2012

Fostering an Innovative Environment, Part 1

Gwen Moran reports that results from a survey conducted earlier this year by CapGemini Consulting, indicated that "two-thirds of respondents said they are working on developing a culture of innovation, and the percentage of leading businesses with a formal innovation role jumped 10 percent." ["How to Develop a Culture of Innovation," Entrepreneur, 11 October 2012] Those results beg the question: What constitutes an innovative culture or environment? From my studies of innovation, there is no single answer to that question. There are, however, characteristics that must be present in an innovative environment. There must, for example, be a high tolerance for risk, a certain amount of freedom for employees to explore ideas, and support from the top. Developing a culture of innovation seems straight forward, but, as Moran admits, "Developing a culture of innovation is a coveted, yet sometimes elusive goal."

Jeffrey Phillips, co-founder of OVO, expressed to Moran his belief that an innovative environment is "a discipline that's possible to develop, ... but it takes time and attention. Moran's article draws on an interview she conducted with Phillips about "how any company can create a more innovative environment." An innovative culture, Phillips told her, begins with the right mindset. Innovative firms are always looking for ways "to deliver a new product or service or feature into the market" whereas less innovative firms simply try to defend their market or customer base. As Phillips puts it, less innovative firms "play defense rather than offense." He told Moran that companies should ask themselves, "How much are we willing to embrace new ideas to continue expansive, engaged thinking? ... Am I willing to allow the sort of conceptual structure of the business to change and to adapt as new people and new ideas or new demands emerge?"

Philips' insistence that organizations need to embrace the idea of structural change to adapt to new situations is a non-trivial matter. After all, organizations are established to support the status quo (i.e., create stability and resist changes that could disrupt efficiency). Change can be both difficult and expensive. Phillips states that a lot of organizations are "afraid of change." Phillips offered a couple of examples where traditional companies in "heating-and-cooling equipment" have changed from a business model directed at selling a system to a business to one where they maintain "ownership of those systems and selling them as a service." He told Moran, "They didn't change the product, but they changed the entire business model. That's the kind of innovation that can change an entire industry, but it wouldn't have happened if leaders weren't open to change." As a side note, what Phillips described is part of what is being called the circular economy. To learn more about that concept, read my post entitled Supply Chain Sustainability and the Move towards a Circular Economy.

Unfortunately, Phillips really doesn't go into any more detail about how one can foster an innovative environment. He did tell Moran, however, that to develop such an environment you have to work at it. "If you want a certain portion of your revenue stream to come from new products," he told her, "you'd better always be working on developing those ideas. You can't simply break the glass in case of emergency and suddenly be good at innovating." He did tell Moran that one way to kill innovation is "ignoring what the market tells you. Another is relying on secondary market research instead of doing your own research with your own customers. And a third is failing to spot the trends. Trends don't just come from competitors but also from places like the government or society." My only caveat here is drawn from the work of Harvard professor Clayton Christensen who has argued that "listening to customers" can result in a company getting blindsided. In his best seller The Innovator's Dilemma, Christensen noted that customers will tell you they want what you are selling right up until the moment that something better (or good enough and cheaper) comes along.

Nilofer Merchant believes that organizational size shouldn't be a concern when talking about fostering an innovative environment. "You can find plenty of people who disregard bigger enterprises, stating they are not the future," she writes. "Plenty of people ... espouse the theory that big companies can't innovate. This argument is both old and wrong. ... The key for every firm — regardless of size — is to figure out how to consistently create value in a demanding, ever-changing market. That is hard no matter what size you are, no matter what industry you're in." ["Innovation Isn't Tied to Size, but to Operating Rules," Harvard Business Review Blog Network, 31 October 2012] Merchant believes "if we're to actually get better at innovation, we need to understand the operating conditions that lead to it and move past the bigotry and biases." As the title of her post states, Merchant believes that operating rules can play a significant role in fostering innovation.

To strengthen her argument, Merchant compares two well-known tech companies, IBM and HP, both which are led by high profile, female CEOs. She writes, "IBM and HP are two amazing companies with long and meaningful histories. Both CEOs are notable in what they have done, and are doing to lead their companies and both companies rank highly on the Fortune 500 List. HP is #10 on the 2012 list, and IBM is number 19." Merchant points out that both companies have gone through some turmoil and HP is still in the midst of its troubles. Merchant asserts, however, that the mindsets demonstrated by HP's Meg Whitman and IBM's Ginny Rometty are very different and have led to very different innovative environments.

Despite the fact that most people believe that the HP CEOs who preceded Whitman were taking the company "in the wrong direction," Whitman's "first decision when she returned was to 'stay the course'; that involved keeping its PC-making personal systems group because that 'product line allowed better supplier cost negotiation with Intel, Seagate and others.' The logic was 'together we are stronger'. ... She shared plans for revenues and profits to decline for another year to then return to growth in three years, with the key to the turnaround being 'stability'." To use Phillips' analogy, Whitman is playing defense. Rometty brought an entirely different mindset to IBM. Merchant reports:

"The new CEO, Ginny Rometty has been quoted as saying that IBM believes it needs to persistently reinvent the value proposition and 'take new things on.' And the CEO sees enabling a culture of collaborative innovation as key. 'Culture,' Rometty has also said, has 'become the defining issue that will distinguish the most successful businesses from the rest of the pack.' And 'strategic beliefs may be more important than strategic planning when thinking about how you keep the long view,' she said. 'Clients say, "What's your strategy?", and I say, "Ask me what I believe, first." That's a far more enduring answer.'"

Rometty is playing offense. Obviously, Merchant believes that IBM will be more successful in the coming years creating and marketing innovative products. "Innovations are not a function of size or even industry-specific strategies," she writes, "but an embodiment of a set of ideas." She then offers three stark comparisons between how HP's ideas and IBM's idea will play out. The first comparison sounds a lot like what Phillips discussed earlier, namely: Trying to Preserve Market Position vs. Cultivating the Ability to Adapt. Merchant writes:

"Instead of worrying about power over their suppliers, HP needs to be focused on leaping to their next opportunity, which is what IBM persistently does. Organizations must acknowledge that any advantages are short-lived, and the thriving business is one that figures out how to persistently reinvent their product lines, and business models."

Merchant's second comparison involves people, namely: "Seeing People as 'Production Units' vs. Essential to the Success Equation. She writes:

"As HP continues to burn-n-churn people, they are signaling that people are cogs in the machine — dispensable and easily replaced. Imagine what that does to recruitment, let alone energetically to the people who work there? In the Social Era, the greatest asset isn't the stuff you lock up — like the building or manufacturing capabilities — but the people who walk out the door each night still thinking of creative solutions and ideas that will make a difference. The role of leadership is to unlock that talent, just as IBM has done when they jointly built a shared understanding of 'why we're here' and connecting people through purpose. Culture, Talent, and Purpose matter crucially when what you are making is a function of creativity and ideas. Who we are is what we make, and if we treat talent like Kleenex, innovation doesn't happen."

Merchant makes a profound point about innovation. Innovation is mostly about people, creating an innovative environment isn't primarily about processes, infrastructure, or technology; it's about equipping people with the tools they need to succeed. Her final comparison is about organization culture, namely: Organizations are Open to New Ideas vs. Closed. She writes:

"A vast portion of our economy is now freelance (the US range is between 45-50%), which shows that 'work is freed from jobs.' In all the examples I give about Social Era, it's clear that value can be created independent of 'a job' and by the very way we structure innovation, we can pull in ideas from anywhere. By engaging with others — regardless of whether they work for or in our firms — we engage new ideas. ... The crux of the issue is that organizations need to stop thinking of who creates value as the people who work 'for us.' Often new ideas and innovations can and do come from outside the perimeter of an organization — especially from people who, without vetting or permission, create unexpected value. Open is more than a way of thinking about crowdsourcing or open innovation, it's a way of thinking about who is allowed to create value. IBM embodies this as their Smart Planet, Watson, and digital initiatives show (comprising about 20% of their revenue stream); HP continues to limit who is allowed to create value for the firm."

Merchant insists that, if you don't think that the things she writes about matter, you are wrong. "IBM has recently reached the highest stock valuation in its 100+ year history. HP, on the other hand has lost 35% of its value since its new CEO and over 70% since 2010 — over $90 billion of value from its peak." She concludes, "If an organization knows what principles of innovation work, then innovation follows — regardless of size."

As I stated at the beginning of this post, there is no single answer to what constitutes an innovative environment or a single course of action that guarantees you'll achieve it. I believe, however, that Phillips and Merchant provide some excellent food for thought on the subject. The final part of this two-part series will focus on some suggestions for creating a culture of innovation provided by Scott Edinger, Josh Linkner, and Tony Schwartz



Jun 16, 2011
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November 23, 2012

Ray Kurzweil Heats Up Artificial Intelligence Discussions

Ray Kurzweil is a very bright and entertaining individual. He is also, at times, controversial. His new book, How to Create a Mind, has created a bit of stir in the artificial intelligence world. His genius isn't being questioned; but, some of his conclusions are. Gary Marcus writes, "Ray Kurzweil is, by all accounts, a genius. He holds nineteen honorary doctorates, has founded a half-dozen successful companies, and was a major contributor to the field of artificial intelligence. ... Time magazine recently featured Kurzweil on its cover, and Fortune described him as 'a legendary inventor with a history of mind-blowing ideas.' And now he has a new book, with a subtitle that suggests he has found another such idea: 'How to Create a Mind: The Secret of Human Thought Revealed.'" ["Ray Kurzweil’s Dubious New Theory of Mind," The New Yorker, 15 November 2012] It didn't take long for people to react to Kurzweil's latest ideas. Marcus, a professor of psychology at NYU, obviously has a few concerns about what Kurzweil writes. He continues:

"In the preface to the book Kurzweil argues, with good reason, that 'reverse-engineering the human brain may be regarded as the most important project in the universe.' He then presents a theory he calls 'the pattern recognition theory of mind (PRTM)' which he claims 'describes the basic algorithm of the neocortex (the region of the brain responsible for perception, memory, and critical thinking).' Kurzweil suggests that his conclusions are 'inescapable' and that the principles he espouses can be used 'to vastly extend the power of our own intelligence.' That would be big news. But does the book deliver? Kurzweil’s critics have not always been kind; the biologist PZ Myers once wrote, 'Ray Kurzweil is a genius. One of the greatest hucksters of the age.' Doug Hofstadter, the Pulitzer Prize winning author of 'Gödel, Escher, Bach' has been even harsher, saying once in an interview that 'if you read Ray Kurzweil's books … what I find is that it's a very bizarre mixture of ideas that are solid and good with ideas that are crazy. It's as if you took a lot of very good food and some dog excrement and blended it all up so that you can't possibly figure out what's good or bad.'"

From the headline of Marcus' article, it's clear that he believes there are more feces than findings in Kurzweil's latest book. Marcus's biggest objection is that Kurzweil writes more as a new-age sage than as a neuroscientist. Marcus reports, for example, that Kurzweil begins his discussion by offering "vague gestures toward an unusual kind of neuron called spindle cells, ... but offers no references and very little direct evidence." Marcus also takes umbrage with Kurzweil's belief that the mind is machine-like. He writes:

"Kurzweil returns to the business of explicating and defending his main thesis—according to which the part of the brain that is most associated with reasoning and conscious thought, the neocortex, is seen as a hierarchical set of pattern-recognition devices, in which complex entities are recognized as a statistical function of their constituent parts. Kurzweil illustrates this thesis in the context of a system for reading words. At the lowest level, a set of pattern recognizers search for properties like horizontal lines, diagonal lines, curves, and so forth; at the next level up, a set of pattern recognizers hunt for letters (A, B, C, and so forth) that are built out of conjunctions of lines and curves; and at still a higher level, individual pattern recognizers look for particular words (like APPLE, PEAR, and  so on that are built out of conjunctions of letters). The acronym P.R.T.M., for Pattern Recognition Theory of Mind, is new, but to scientists in the field, the basic idea is significantly less new than Kurzweil's subtitle ('The Secret of Human Thought Revealed') lets on. Anyone who knows the history of A.I. will recognize that the basic theory (and even the diagrams that are used to illustrate it) is very much in the spirit of a textbook model of vision that was introduced in 1980, known as neocognition."

Marcus believes that the inescapability of Kurzweil's concepts is undermined by the fact that Kurzweil didn't bother "to build a computer model that instantiated his theory, and then compare the predictions of the model with real human behavior." Ronald Bailey, the science correspondent for Reason Magazine, isn't as offended as Marcus with Kurzweil's arguments. He writes a rather favorable review of the book. ["Head in the Cloud," Wall Street Journal, 16 November 2012] Bailey lays out Kurzweil's argument for pattern recognition theory of mind, as did Marcus, but accepts it much more readily than Marcus did. He writes:

"The insight that brains are built of pattern-recognition modules leads Mr. Kurzweil to argue that it will be possible to design artificial intelligence in the much same way. 'The next step, of course, will be to expand the neocortex itself with its nonbiological equivalent,' he writes. These synthetic neocortexes, he says, will consist of vast parallel sets of pattern-recognition modules. Already by using online resources, Mr. Kurzweil notes, people are migrating their thinking and memories to the computational 'cloud.' And computation is getting ever cheaper and more pervasive; Mr. Kurzweil calculates that, later in this century, 'a thousand dollars worth of computation will be trillions of times more powerful than the human brain.' He foresees our augmenting our biological neocortexes by hooking them up wirelessly to cloud-based synthetic ones. These synthetic add-ons might be composed of trillions of pattern-recognition modules—a sort of transcendent iPhone. By around 2040, Mr. Kurzweil says, we will be able to replicate and upload the entire information content of our brains into the cloud."

Marcus counters, "Does the P.R.T.M. predict anything about human behavior that no other theory has predicted before? Does it give novel insight into any long-standing puzzles in human nature? Kurzweil never tries to find out." He continues:

"Kurzweil compares his theory with the physical structure of the brain, hurling a huge amount of neuroanatomy at the reader, and asserting, without a lot of reflection, that it all fits his theory. A recent paper (more controversial than Kurzweil may have realized) claims that the brain is neatly organized into a kind of three-dimensional grid system. Kurzweil happily takes this as evidence that he was right all along, but the fact that the brain is organized doesn’t mean it is organized as Kurzweil suggests. We already knew that the brain is structured, but the real question is what all that structure does, in technical terms. How do the neural mechanisms in the brain map onto the brain's cognitive mechanisms? Without an understanding of that, Kurzweil's pointers to neuroanatomy serve more as razzle-dazzle than real evidence for his theory."

For his part, Bailey appears to accept Kurzweil's arguments as well as the conclusions he draws from them. He writes:

"Mr. Kurzweil thinks that we will not only augment our own minds but also create conscious, independent artificial intelligences. We will know that they are conscious because they will tell us so in a convincing way. And the super-intelligent machines we create will not replace us. 'This is not an alien invasion from Mars—we are creating these tools to make ourselves smarter,' he says. 'We build these tools to extend our own reach.' Just how far will our reach extend? Exponentially expanding intelligence, Mr. Kurzweil says, will quickly solve minor problems like war, death and material scarcity and then head out to colonize the rest of the universe. He modestly concludes: 'Waking up the universe, and then intelligently deciding its fate by infusing it with our human intelligence in its nonbiological form, is our destiny.' Sounds good to me."

Well it doesn't sound good to Marcus. He writes, "The deepest problem is that Kurzweil wants badly to provide a theory of the mind and not just the brain. Of course, the mind is a product of the brain, as Kurzweil well knows, but any theory that seriously engages with what the mind is has to reckon with human psychology—with human behavior and the mental operations that underlie it. Here, Kurzweil seems completely out of his depth." He explains:

"Not a single cognitive psychologist or study is referred to, and he scarcely engages the phenomena that make the human mind so distinctive. There's no mention, for example, of Daniel Kahneman's Nobel Prize winning work on human irrationality, Chomsky's arguments about innate knowledge that sparked the cognitive revolution, or Elizabeth Spelke's work on cognitive development demonstrating the highly nuanced structure that is present within the mind even from an extremely early age. Similarly absent is any reference to the vast literature on anthropology, and what is and isn't culturally universal."

Marcus concludes that Kurzweil's "secret of human thought" is little more than a generic theory that "has been around since the late nineteen-fifties." He argues that there are too many questions left unanswered for anyone, including Kurzweil, to claim any certitude. He writes:

"What Kurzweil doesn't seem to realize is that a whole slew of machines have been programmed to be hierarchical-pattern recognizers, and none of them works all that well, save for very narrow domains like postal computers that recognize digits in handwritten zip codes. This summer, Google built the largest pattern recognizer of them all, a system running on sixteen thousand processor cores that analyzed ten million YouTube videos and managed to learn, all by itself, to recognize cats and faces—which initially sounds impressive, but only until you realize that in a larger sample (of twenty thousand categories), the system's overall score fell to a dismal 15.8 per cent. The real lesson from Google's 'cat detector' is that, even with the vast expanses of data and computing power available to Google, hierarchical-pattern recognizers still stink. They cannot come close to actually understanding natural language, or anything else for which complex inference is required."

Marcus argues, "The kind of one-size-fits-all principle of hierarchical-pattern learning that Kurzweil advocates doesn't work on its own in artificial intelligence, and it doesn't provide an adequate explanation of the brain, either." Marcus accepts the fact that Kurzweil "knows artificial intelligence," but he asserts that "Kurzweil doesn’t know neuroscience" or "understand psychology." He concludes:

"To truly reverse-engineer the human mind, we may need a real consilience, to borrow a word from the Harvard biologist E. O. Wilson, a coming together of workers in A.I. with researchers who study the human mind from a wide range of perspectives — neuroscientists and cognitive psychologists, and maybe even artists, musicians, and writers, too. The challenge of figuring out how the mind works is too complicated for even the smartest of entrepreneurs to solve on their own."

Having not read the book, I'll leave final judgment of its value to those who have. My suspicion, however, is that the book will be more entertaining than enlightening if all it does is rehash ideas that have presented previously. I agree with Marcus that we have much yet to learn about the mind (as opposed to the brain). IBM just announced that it had created the world's fastest supercomputer that contains 530 billion simulated neurons and 100 trillion simulated synapses, which equals the number of neurons and synapses in the human brain. That computer might help determine whether or not Kurzweil is correct -- but that's topic for a later date.

November 22, 2012

Happy Thanksgiving 2012

The Thanksgiving holiday in America traces its origins back to 1621 when Plymouth colonists broke bread with Wampanoag Indians in an autumn harvest feast. It would take nearly 250 years before that first harvest feast was recognized as an official holiday. In 1863, in the midst of the Civil War, President Abraham Lincoln proclaimed a national Thanksgiving Day to be held each November. ["Thanksgiving," History Channel] The History Channel site continues:

"In November 1621, after the Pilgrims' first corn harvest proved successful, Governor William Bradford organized a celebratory feast and invited a group of the fledgling colony’s Native American allies, including the Wampanoag chief Massasoit. Now remembered as American's 'first Thanksgiving'—although the Pilgrims themselves may not have used the term at the time—the festival lasted for three days. While no Thanksgivingrecord exists of the historic banquet’s exact menu, the Pilgrim chronicler Edward Winslow wrote in his journal that Governor Bradford sent four men on a 'fowling' mission in preparation for the event, and that the Wampanoag guests arrived bearing five deer. Historians have suggested that many of the dishes were likely prepared using traditional Native American spices and cooking methods. Because the Pilgrims had no oven and the Mayflower’s sugar supply had dwindled by the fall of 1621, the meal did not feature pies, cakes or other desserts, which have become a hallmark of contemporary celebrations."

I suspect that many of those dishes might not suit today's palate. If you want some recipes for dishes that may be more fitting for today's Thanksgiving feast, check out McCormick's recipe suggestions. Logistics for that first autumn feast were fairly simple. In most cases, the person that raised the vegetables or shot the game also transported the goods directly to the homes of consumers. Things have changed considerably over the past 4 centuries. Keisha A. Simmons writes, "By now, you’ve probably thought about all the logistical details like: what items are required to bring the meal together; who’s responsible for bringing each dish; what time guests should arrive; and where dinner should be served so there’s enough room for everyone." ["Thanksgiving Dinner and Your Supply Chain? It’s All About Logistics," Welcome to upside, 13 November 2012] Simmons admits that you probably don't have "full knowledge and control over many of these elements, you can only trust that everyone involved will come through – on time and as promised." She notes that UPS can't be quite so trusting when it comes to helping clients get their goods. Her point is well made. The logistics behind getting all of the ingredients from producers and manufacturers into the stores and eventually to your table is far more complex today than it was several hundred years ago.

Fortunately, most of us don't have to worry about whether our will be food on store shelves for us to buy. That's just one of things for which we should be grateful on this holiday. Simran Khurana writes, "The tradition of Thanksgiving dinner teaches us to appreciate the finer things in life. If you want this tradition to continue, you must invest positive energy into the Thanksgiving dinner, and make it a joyous affair. Let your enthusiasm and energy revitalize everyone. Prepare a great Thanksgiving toast and inspire others with your positive words. Make this your best Thanksgiving dinner." ["Best Thanksgiving Quotes"] One of the quotes that Khurana suggests we remember is from Frederick Keonig, "We tend to forget that happiness doesn't come as a result of getting something we don't have, but rather of recognizing and appreciating what we do have."

I hope you have a wonderful day and find time to express thanks for what you have.

November 21, 2012

Geography and a Sense of Place

I first wrote about the importance of geography back in 2009 in a post entitled The Importance of Geography. The focus of that post was a book entitled Europe Between the Oceans by Barry Cunliffe. In his book, Cunliffe insisted that geography still matters and, in fact, may have been the most important thing that mattered in the past. Benjamin Schwarz wrote a glowing review of Cunliffe's book in The Atlantic ["Geography is Destiny," December 2008]. In that review, Schwarz wrote:

"Geography forms the essential basis of Cunliffe’s history. The waters encircling Europe, the transpeninsular rivers that penetrated it, and its topography, currents, tides, and seasonal wind patterns all determined millennia-old sailing routes, and thus the goods and beliefs transported along them. From Cunliffe’s perspective, even the Roman Empire was just an interlude, and perhaps its main achievement was to institutionalize through its ports, roads, and market centers Europe-wide networks of exchange that had been operating since the Middle Stone Age."

In a subsequent post on the importance of geography published earlier this year (The Importance of Geography and Place), I wrote:

"Both mariners and real estate agents have an appreciation and respect for geography, but for very different reasons. Let's begin with the mariners' perspective. Those who go to sea understand that the world remains a very big place and getting from here to there takes time (i.e., you can't load goods on a ship in Amsterdam and deliver them to Shanghai the next day). ... Real estate agents, on the other hand, aren't so much concerned about distance as they are about location, location, location. Where specifically a home or business is located makes a huge difference in the value of a piece of property and the buildings that are on it. That's why land in Manhattan is worth so much more than a land in Mesquite. Business leaders have to understand and embrace both perceptions of geography if they are to do well."

In a special report on technology and geography, Patrick Lane agrees that "geography matters as much as ever, despite the digital revolution." ["A Sense of Place," The Economist, 27 October 2012] Lane insists that, even though geography still matters, some people don't find that observation to be an obvious truth. The reason for that ambivalence is the internet and World Wide Web. He writes:

"In the couple of decades since the internet began to expand from academic to widespread public use, there have been three main ways of thinking about its relationship with the physical realm. The first, which reached its peak in the late 1990s, emphasised how the digital world would reshape the real one. People everywhere would have access to the same electronic libraries of information, news and comment. Many companies would be freer to choose their location, as better communications meant they would no longer need to be near their suppliers or customers. Setting up businesses would become easier, as would the outsourcing of services that could be supplied electronically. Staff could work just as well at home as in expensive and noisy offices, communicating with colleagues by e-mail or video link."

Although many of the predictions about how connectivity would bring the world closer together and diminish the importance of geography came true, people have come to appreciate the fact that the world remains a big place. Lane explains:

"Reports of the 'death of distance' (the title of a 1995 special report in [The Economist]) have been much exaggerated. As this report will explain, many internet start-ups head for San Francisco, New York, Berlin, London or other hubs to be close to like-minded people. Talk of the 'end of geography' (another phrase from the mid-1990s) is about as convincing as the 'end of history' when the digital presence of different places varies so much. Forecasts of the 'death of cities' have turned out to be even wider of the mark: over the next two decades the United Nations expects the world’s urban population to grow by 195,000 a day."

To learn more about why cities are becoming more (not less) important, read my posts entitled Will Cities Save Us? and Tapping the Economic Power of Mega-Cities. Lane goes on to note "that the physical realm also shapes the digital one." Since so many people are now connected virtually around the clock wherever they go, Lane believes that "local information (where the nearest chemist is; whether there is a taxi nearby) is more valuable to people when they are on the move than when they are sitting at a desk." As a result, he writes, "maps are an essential foundation" for any organization that wants "to provide local services over the internet." He continues:

"In recent years there has been an explosion of investment in creating online representations of the real world: maps in two dimensions and in three, indoors as well as out, and in ever finer detail. It is possible, once your fingers get the hang of the controls, to 'fly' around New York, San Francisco and several other cities, noting the street names and the landmarks and stopping off to learn about places as you go. Giant technology companies—notably Google and Apple, which has just dropped its arch-rival's maps from its mobile operating system—are locked in a struggle to create the best maps and embed the best information into them."

If you don't believe that maps matter, ask Scott Forstall, a senior software executive at Apple, who was let go "in the wake of the fiasco over its maps service." ["Apple shake-up at top after maps fiasco," by Richard Waters, Financial Times, 30 October 2012] Waters reports:

"The departure of Mr Forstall, who had been seen as one of the candidates to eventually succeed Mr Cook, follows the company's most embarrassing product glitch in years. Mr Cook was forced to apologise for errors contained in the maps service which Mr Forstall's group released as part of the September update to the iOS software used in iPhones, iPads and the iPod Touch. Apple refused to comment on whether Mr Forstall’s departure had been prompted by the problems with maps."

The most ubiquitous personal device that connects virtual and real worlds for individuals is the smartphone. Lane reports, however, that "smartphones are only part of the story." He explains:

"By 2020, reckons Cisco ... 50 billion devices of various kinds will be connected. According to Wim Elfrink, Cisco's head of globalisation, at present only 0.2% of such devices are. The Earth is beginning to be electronically mapped in many dimensions. John Manley of HP Labs in Bristol envisages a 'central nervous system for the Earth', a planet-wide network of tiny, cheap, tough detectors that will see, hear, feel (by detecting vibrations), even smell and taste (by analysing the chemistry of their surroundings), and report back."

I suspect the Earth's "central nervous system," as described by Lane, won't emerge in the near-term, but other networks (including machine-to-machine networks) are coming fast. In the future, even machines will likely have a sense of place. Lane continues:

"All this will be especially good for the growing numbers of city-dwellers. Even the devices in use today are already producing huge amounts of data. Most of these data are, and will continue to be, generated in cities, because that is where the phones, cars, buildings and infrastructure to which they relate are concentrated. If those data are combined and analysed, they will make cities better places to live. Cities are already 'smart', in that people are more productive when they live in close proximity than far apart. Big data can make cities smarter still."

The fact that so much data is (and will be) generated in cities is why I believe that targeted marketing will be so important to manufacturers and retailers in the decades ahead. Because of the massive amounts of data available, mini-demographics can be used to understand the sense of place neighborhood by neighborhood. In fact, maps are going inside stores and getting super-local. In one of the articles in The Economist's special report ["The world in your pocket," 27 October 2012], it was noted:

"Late last year both Google and Nokia said they would be helping people find their way around places like shopping malls and airports. Nokia has indoor maps of 5,100 venues in 40 countries. One of Google's first projects was to cover Tokyo's metro, which to strangers can be a bewildering warren, and the city’s two airports. Google says that more than 10,000 floor plans are available to users of its Android mobile operating system. IMS Research, a consultancy, forecasts that by 2016 almost 120,000 maps of indoor venues will be available to consumers."

The bottom line is: geography, location, and a sense of place in the physical world are going to matter regardless of how technologically advanced the world becomes. Lane concludes: "The digital and the physical world are interacting ever more closely. The rapidly declining cost of communications and computing power has already wrought huge changes in the way people go about their daily lives. Digital maps and guides will affect the way people behave in the physical world and bring about yet more changes. The digital and the physical are becoming one."

November 20, 2012

Supply Chain Risk Management: Prevention is Better than Cure

Some adages contain only situational verity. There are times, for example, that it makes sense that "if at first you don't succeed, you should try, try again," while at other times "there's no point in beating a dead horse." One adage that seems to have eternal verity is: "Prevention is better than cure." We know that holds true for our health, but it also holds true for supply chain risks. Unfortunately, adages are often easier to repeat than implement.

Jonathan Webb, a research manager at the Procurement Intelligence Unit, told Dustin Mattison that too often supply chain risk management is conducted haphazardly or even worse is determined by stories in the news. To make his point, Webb noted, "Last year ... we found that risks relating to corruption and bribery were one of the leading risks [mentioned by Chief Procurement Officers]. However, not a single participant to our current research mentioned this as an issue." Why the sudden turnaround? Webb explained that in 2011 the United Kingdom passed the "UK Bribery Act," which "applied to any instances of malfeasance throughout the world [for] any company with any sort of presence within the UK (including a single office)." ["Forecasting and Preventing Supply Chain Risk," Dustin Mattison's Blog, 24 October 2012] Webb told Mattison, "The response by the business press wasn't far from hysterical -– whipping many businessmen into a state of panic over their exposure to risk." Once the news story died down, so did interest in corruption and bribery as a major business risk. Webb concludes that this shows "that CPOs are not risk-focused, but take their agenda [from] the press." The humanitarian assistance sector calls this the "CNN Effect": The story that makes the news gets all of the attention. Important, but less covered issues, suffer from living in the shadows.

Webb's point is that determining which supply chain risks to concentrate on by seeing what makes the news is not a good idea. After all, by the time a risk makes the news it is generally too late to respond appropriately. Mattison then asked Webb about the value of predicting future supply chain disruptions. Webb responded:

"Intelligence about your suppliers and the general risk environment is vital to protecting us from risk. There have been many developments in risk mapping and prediction software launched in recent years. New products on the market claim the ability of 'predicting' such events and mapping the consequences for particular supply chains. Only recently, the PIU spoke to a third-party risk provider which offered software that compares various scenarios from earthquakes to hurricanes in a range of different geographies. This is possibly useful, but it is perhaps not the best approach, given that all the potential events in all possible locations are practically infinite. All such scenarios yield the same output: bad."

Webb's last point is the most profound. Potential disruptive events are so numerous that actually predicting them is a fool's errand. Does that mean that analysis and technology has no role to play. Absolutely not. Ignoring data and analytic tools would be equally unwise. Trends and interrelationships are important even if prophetic insight remains elusive. Webb provides one example of how new technologies can provide insight. He told Mattison:

"New products make heavy use of the immediacy and specificity of micro-blogging sites such as Twitter, which may reveal crucial insights from a casual blogger. For instance, the PIU spoke to a company which was able to forecast a supplier entering bankruptcy, based on the tweets of a worker from a neighbouring firm, who simply observed how empty the company car park was looking. This intelligence anticipated by months changes in credit rating scores."

Nevertheless, Webb warns, "The novelty of the newly found 'scientific' packages, plus the urgency of senior management to prevent the impact of another earthquake, may force buyers into a naïve purchase." So what does Webb recommend? He told Mattison:

"It is better to rely on more practical measures of risk mitigation, which aim to build resilience in the supply chain. We cannot predict natural disasters in the future, but we can possibly contain their impact. Knowing our own supply chain is key in this process. We must appreciate our own exposure to generalised risk and implement continuity arrangements accordingly."

Webb might have added that "knowing your own supply chain" relies on having access to the right data and the right technology. When it comes to supply chain risk management, ignorance is not bliss. This is a point he makes later in his interview. Mattison then asked Webb, "So, how can we prevent risk affecting our supply chains?" Webb replied:

"Perversely, in many cases, procurement must build-in 'inefficiency' into the system in order to shield the supply chain from future shocks. This redundancy of capacity allows companies to switch sourcing away from a stricken supplier. The quickest way to ensure this is through geographical spread. ... By spreading risk by multi-sourcing, organisations do not prepare for specific events, but build in resilience to multiple threats within their supply chain, be that flood, earthquakes or man-made disasters. Another, perhaps 'inefficient' aspect to include in supply chains is supply velocity. By reducing the end-to-end time of delivery, procurement can ensure it has steady access to alternative sources, should it require it. For items requiring a longer lead-time, the only possible means of protecting the organisation may simply lie in stock-piling of excess products or sourcing from multiple vendors. Arguably, this does not sit well with modern ideas of 'just-in time' manufacturing. However, engaging in these debates within the company helps establish its priorities and qualifies its own attitude to risk."

Webb goes on to note that manufacturers must collaborate more closely with suppliers, even engaging in what he calls "supplier development." He states:

"Within this process of supplier development, procurement may consider aligning the two organisations' own continuity planning arrangements. This may involve contributing to the suppliers' own business continuity plans, or including the supplier in the category management continuity arrangements. The objective in this regard, however, is to ensure strong over-sight."

Webb eventually agrees that companies must have "the most accurate and relevant information" so that they can analyze the risks and implement "control measures that mitigate against these risks" in order to ensure "greater resilience." He concludes:

"Arguably, this is the fundamental feature of all resilient supply chains. The lesson for all those in the supply chain is that you cannot anticipate risk, but you can build a resilient supply chain that can cope with a variety of different event types. However, the cost of this is redundancy."

Webb is not alone in the belief that companies have to question themselves about how much risk they are willing to assume. "The topic of supply-chain risk management is fraught with agonizing questions," writes Robert J. Bowman, managing editor of SupplyChainBrain. "Should global businesses emphasize risk prevention, or steel themselves to respond to whatever disaster might occur? Should they seek to transfer risk, or concentrate on achieving better risk-management up front? Should they attempt to do all of the above? The wrong answer can mean the death of an organization." ["Risk Management: Making the Right Choices," 29 October 2012] Although that warning may sound a bit hyperbolic, Bowman backs it up. He writes:

"Thirty percent of all companies that experience a catastrophic loss fail within the first two years, and another 29 percent go down after that, according to John J. Brown, director of risk management, supply chain and technical development with The Coca-Cola Company. And with supply lines getting longer due to off-shoring and the multiplication of partners, the chances of something going seriously wrong are greater than ever."

Bowman then asks the big question, "So where should the emphasis be – on responsiveness or risk prevention?" Brown's answer is that prevention is better than cure. Bowman continues:

"The problem is that most companies don't do a very good job in this difficult area. 'We're wired as humans to react and respond, not prevent something from happening,' he said on a panel at the annual conference of the Council of Supply Chain Management Professionals in Atlanta. 'And company reward structures are the same way.' The question is, reward for what? How does a company quantify the value of something that didn't happen? When all goes well, no one spends a lot of time dwelling on 'what-ifs.' A good risk manager tends to be a quiet – and unappreciated – hero."

Bowman is a realist and writes, "Of course, it's ludicrous to believe that one can stave off all disasters." He agrees with Webb that "no one knows when and where the next earthquake or flood will strike. A good risk-management strategy might assign probabilities to various scenarios, but it can't focus too much on any one of them." He reports that "at CSCMP, Brown laid out the essentials of an effective program."

"From the start, he said, it needs to be multifaceted. Must-have elements include the capacity for emergency planning and response, incident management and crisis resolution, business-continuity planning and execution, and disaster recovery (especially with regard to IT systems). Coca-Cola has defined a number of discrete steps in its risk-management effort. First is basic deployment of the process. The company identifies significant risks, analyzes them, devises procedures for mitigating them, and creates a local 'risk register.' This document, which it maintains for every business unit, group, bottler and corporate entity, tracks the status of risk and corresponding treatment plans at ground level. Brown described it as 'your living playbook.' A valuable framework for setting up a workable program is the International Organization for Standardization’s 31000:2009 set of guidelines and standards."

Bowman notes that setting up a risk management program is only beneficial if it can be sustained. He continues:

"Coca-Cola employs a three-pronged approach, said Brown. It reviews the risks that are currently being managed, preferably on a monthly basis, and no less frequently than once a quarter. It also identifies new and emerging risks, adding them to the risk register as necessary. Finally, it factors those key risks into the planning process, covering both strategic and annual business plans. Brown also described Coca-Cola's 'bow-tie' process, so-called because of its two-sided nature. On one side are the factors that could cause a risk event to occur. On the other are its consequences. Then the company delves into what must be done to prevent a particular crisis from happening, or at least to mitigate its effects."

Bowman also points out emphatically that "every organization needs to appoint a skilled risk manager." Bowman goes on to discuss the risk management process implemented by Cisco. To learn more about what Cisco is doing, read my post entitled SCRM: Preparedness and Resiliency. Bowman concludes, "Unexpected consequences should be, well, expected. ... It behooves companies to do a better job of preparing themselves for disasters and disruptions. Quick-response strategies, regardless of the nature of the event, are especially vital to have in place. Regardless of your size, if you're not actively engaged in a program similar to that of Coca-Cola and Cisco, you need to wake up."

November 19, 2012

Are We in the Midst of the Century of Software?

While reporting on topics covered at the October 2012 World Resources Forum in Beijing, student Anna Leijonhufvud wrote about a talk given by Dr. Bradfield Moody, co-author of a book entitled The Sixth Wave: How to succeed in a Resource limited world. She writes, "He describes how, during the last century, we have seen five waves of innovation transform society, economies and industries. This started with industrial revolution, leading to the current and fifth wave of information and communications technology. Nevertheless, Dr. Bradfield Moody argues that the current wave has reached its peak and that a new wave of innovation is slowly emerging." ["From the Industrial Revolution to Communication Technologies – What is the Next Wave of Innovation?" student reporter, 28 October 2012] She includes the following graphic in her post to demonstrate the five waves discussed by Moody.

Five Waves of Innovation

The discussion of The Sixth Wave found on the book's website, states:

"THE SIXTH WAVE examines the big things, such as rising energy and food prices and the debate about climate change, and the way these factors are shaping investments in clean technologies, now accounting for the most venture-capital investment of any sector in the United States. And smaller things, such as the race between Google and Microsoft to take millions of photos of some of the largest cities in the world and create 3D images from these photographs. And then there are the very little things that happen on a big scale. For example, if you have a phone equipped with the technology called Bluetooth, you can use your phone to search for other Bluetooth devices. You will find a large number of other phones, each emitting its identification number. Now, imagine that it wasn’t just telephones you could see, but every product and every item around you. What do all these things have in common? They are all part of the same trend – a trend that will fundamentally transform human society: The sixth wave of innovation."

One of the common threads in that paragraph that weaves its way through both the big and the small things is data -- big data. But big data is only useful if it can be analyzed and the resulting insights acted upon. Although that is not the "trend" to which Moody refers, big data will help drive the sixth wave of innovation. What Moody believes will be the primary driver of innovation is resource scarcity, which he believes will require a new way doing things in the future. Leijonhufvud reports that Moody's "research predicts this sixth wave to be driven by resources efficiency, incorporating numerous changes in production and consumption patterns." She continues:

"One example is the movement from a consumption of products to a consumption of services. Currently, there are distorted incentives between buyers and sellers, for instance, if you buy a new washing machine. You, as a consumer, want it to last as long as possible but the company selling the washing machine to you, has the incentive for the machine to last but a few months after the warranty runs out. However, if a business offers you a service of clothing washing, the company would then have the incentive to produce washing machines that last longer."

This idea is explained more fully in a short interview that Leijonhufvud conducted with Moody that can be viewed in the below video.

To learn more about this topic, read my post entitled Supply Chain Sustainability and the Move towards a Circular Economy. Although Moody may be correct that resource scarcity will be a principal driver of innovation in the future, Greg Twemlow believes that this century will be known as the "Software Century." ["Why the 21st century will be remembered as the 'Software Century'," Australian Anthill, 26 October 2012] He writes:

"The 20th century could be aptly named 'the device century.' From the early 1900s onward life changed quickly and dramatically thanks to the building of a network, the electricity network (EN). That network facilitated all manner of dramatic changes to society and enabled all kinds of useful devices to be developed, not least of which was the computer. The establishment of the EN created a market, an appetite for things to attach to the network. So, if the 20th century was all about the electricity network and the devices that attached to that network, then surely the 21st century is all about the Data Network (DN) and the software that runs on that network – making this 'The Software Century'."

Twemlow's ideas aren't too different than Moody's. After all, Moody's third wave of innovation began around the turn of the last century and involved widespread electrification. Twemlow insists that "we are experiencing the same opportunities that our forebears experienced in the early 20th century. Our 21st century enabling network provides a platform for amazing changes to our society and even more amazing business opportunities." I tend to agree with him, which is why I believe that big data, analytic technologies, and artificial intelligence will combine to make this the Software Century. Twemlow continues:

"The DN has been enabled by the Electricity Network (EN) and now The Cloud is adding tremendous value to the DN. What we are calling The Cloud today is, in essence, functionality available on the DN. The Cloud is software (functionality) that sits directly on the Data Network and all of that functionality is instantly accessible globally. The Cloud is giving the DN increasing capabilities and is able to deliver knowledge and insight to whoever has access, and these days that means over 2.5 billion people. That adds up to over two billion people directly empowered by the most amazing enabling technology the world has ever created."

Twemlow goes on to discuss how The Cloud's primary benefit rests upon the foundation of big data. He continues:

"The major piece of the puzzle that is being incorporated into The Cloud is the functionality to rapidly gain insights into the enormous data repositories and the huge volume of transactions moving across the network. This piece of the puzzle is what we today call 'Big Data.' Watch out for Big Data subscription services that will enable all application owners to enjoy amazing insights into the behaviour of their users. A final piece of Cloud functionality that will then be added is Artificial Intelligence; the means for the DN to use the insights from Big Data to make decisions autonomously based on a clear base of rules (remember Isaac Asimov's three rules of robotics). Big Data apps have the capability to glean meaning and trends from the petabytes of data that flow across the DN every hour and feed that analysis into Artificial Intelligence systems that are empowered to take action. Ultimately Artificial Intelligence functionality will be available on a subscription basis too."

Since my company, Enterra Solutions, defines itself as a cognitive Big Data Analytic/Insights and Supply Chain Technology firm that delivers its technologies through Solution-as-a-Service (SaaS) offerings specializing in the application of artificial intelligence and a rules-based ontology to solve complex business problems, I believe the future is arriving faster than even Twemlow might have thought. He notes that "the speed of the DN is being dramatically improved which will only increase the volume and value of the information being carried and give even greater importance to the use of Big Data." Like Moody, Twemlow believes that historical patterns repeat themselves which is why, he insists, the 21st century is repeating the 20th century which repeated the 19th century. He explains:

"Historians will no doubt point to other enabling networks in previous centuries that created incredible business opportunities. Think about the rail network of the 19th century and the shipping network of the 18th century. I imagine if we studied the business models of those prior centuries we may well glean a few insights into how we might make the best use of our century's enabling network. So, if this is the Software Century, I wonder what the network enabler of the 22nd century will be?"

If Twemlow is correct and the 21st century is the Software Century thanks to data networks, then I suspect that the 22nd century will see machine networks as the next enabler of innovation and progress. There is already a tremendous amount of machine-to-machine communication taking place (see my post entitled Machine-to-Machine Communication). Whatever the future holds, the next wave of innovation will come and the pattern of progress will go on repeating itself. It might be hard to see the dawn of a brighter future during the dark night of global recession, but it's approaching. I don't know whether it burst forth like a sunrise on the ocean or slowly brighten the economic landscape like the sun climbing the backside of a mountain range, but I do know that when the next wave of innovation comes the results will be brilliant.