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21 posts from March 2013

March 29, 2013

Supply Chain Transformation: Don't Look for Perfection

Back in the fall of 2011, Trevor Miles wrote, "What fascinates me is that [a] duality of 'simplicity' and 'complexity' plays itself out in supply chain management between those [who] believe if we could only create the perfect plan all would be OK, and those, like me, who believe the perfect plan is not achievable so you had best focus on what Hau Lee calls the 'Triple-A' supply chain – Agile, Aligned, Adaptable." ["Embrace Complexity," The 21st Century Supply Chain, 11 October 2011] Although Miles believes that the perfect supply chain management plan is unachievable, he stresses that he still believes in planning. He just believes that plans change as events occur and that not enough effort is being placed on building organizational capacity to deal with change. "If we accept that we all have limited budgets," he writes, "too much of that budget is focused on creating the perfect plan and too little of the budget is focused on developing the skills and capabilities to respond very quickly to real demand."

Pieter Nagel, a supply chain strategy consultant, believes that the very term "supply chain" has contributed to the perception that a perfect one-size-fits-all strategy can be achieved. He told Dustin Mattison, "I think the word supply chain should never have been coined. No company has a single supply chain that covers the whole business environment. It is just too simple." ["The Future of Supply Chain Strategy," Dustin Mattison's Blog, 10 October 2012] Like Miles, Nagel believes that companies should embrace complexity. "I see supply and demand structures and that [are] derived from much bigger things," he told Mattison. "I call these collaborative value networks. These are networks that are more appropriate to our dynamic global business environment as we function right now." People understand that networks are more complex (and less linear and sequential) than chains. Thinking about value networks instead of supply chains puts one in a different mindset as he or she approaches a challenge. For that reason, Nagel told Mattison, "Supply chains as such don't really have a future. By that I don’t mean they won't be there. I just think it is too simple of a concept to meet the challenges we are currently facing in global business. Supply chain in my view exists within complex networks."

Richard J. Sherman, president of Gold & Domas Research and author of a book entitled Supply Chain Transformation: A Practical Roadmap to Supply Chain Transformation, believes that change is another commonality that organizations must address when transforming their supply chains. "The greatest challenge to taking the first step in that journey is internal resistance to change," Sherman told the staff at SupplyChainBrain. "The status quo is very comfortable and so we develop cultures or rules that inhibit us from taking innovative steps. That's why I say 'change is inevitable, but growth is optional.'" ["A Practical Road Map to Supply Chain Transformation," SupplyChainBrain, 26 December 2012] The article concludes:

SWOT template"Sherman also emphasizes the importance of doing a 'swot' analysis, a process that evaluates strengths, weaknesses, opportunities and threats. 'The culture of a company drives company behavior and strategy and part of that culture is an understanding of your strengths, weaknesses, opportunities and threats,' he says. World-class leaders constantly are looking for opportunities in a changing marketplace and also are looking at the strengths and weaknesses of their organization to see where they are most able to capitalize on opportunities and where they are most vulnerable to threats, he says. 'If you understand the dynamics between these four factors, you can start building a culture based on maturity.' In Sherman’s view, the highest level of cultural maturity is self actualization, which corresponds to the Learning Organization described by Peter Senge. 'If you have created a Learning Organization and a culture of transformation and change, you will be able to adapt to threats and maintain your leadership in the marketplace,' he says."

Gordon Colborn, a partner with PwC Consulting, claims that his company has " identified six factors that set the leaders apart from the laggards." ["Six factors that separate supply chain leaders from laggards," Supply Chain Standard, 7 January 2013] Those six factors are:

* "Supply chain leaders deliver both better than average financial results and customer responsiveness. Leaders enjoy a 2X profitability advantage as compared to laggards, and a 17-point on-time delivery percentage advantage. It starts with recognition of the supply chain as a strategic asset, but less than half of survey respondents say their companies view the supply chain as a strategic asset.

* "83 per cent of leaders tailor their supply chains to meet the needs of different customer segments. Laggards are more apt to take a 'one-size-fits-all' approach with fewer supply chain configurations.

* "Leaders often outsource production and delivery, but retain global control over core strategic functions such as new product development, sales and operations planning (S&OP) and procurement.

* "Interest in next-generation technologies and sustainability is growing. More than half of survey respondents said they are implementing or plan to implement new tools for process automation or transparency. More than two-thirds think sustainability will play a more prominent role in supply chains in the future.

* "Supply chain leaders in both mature and emerging markets invest heavily in advanced capabilities that differentiate them from their competitors.

* "Leaders focus on best-in-class delivery, cost and flexibility to meet increasingly demanding customer requirements. The two factors that create the highest value are maximising delivery performance and minimizing supply chain cost."

In other words, the leaders do pretty much what Trevor Miles thought they should do -- that is, embrace complexity and create organizations that are agile, aligned, and adaptable. Jeffrey J. Karrenbauer, President of Insight Inc., offers ten steps that companies can follow that will help them create a plan of action for transforming their supply chains (or value networks). ["Ten Steps to Transforming the Supply Chain," SupplyChainBrain, 8 March 21013] The first step is to get a handle on what you want to accomplish.

"Step 1: Establish Project Scope. Consider a representative list of issues which may be addressed by a contemporary supply chain design tool, such as: System Structure Issues, Facility Ownership Issues, Facility Mission Issues, 'What If' Issues (i.e., Sourcing, S&OP, Sustainability, Flexibility, Capacity Planning, etc.). It is clear that the breadth of issues noted here is a far cry from the old 'warehouse locations models.'"

Karrenbauer, like the other thought leaders cited above, recognizes that complexity has become a permanent feature of the business landscape and must be embraced and addressed. Although it's important to take a holistic view of your value networks, you don't necessarily have address every issue simultaneously. Prioritization should be part of scoping your project. The next step explicitly recognizes the fact that supply chains are not "chains" at all -- they are networks.

"Step 2: Describe the Network. Network description consists of developing lists for the commodities, locations, channels and time periods … the building blocks of the model."

A number of thought leaders agree that it is important to map (or model) your supply chains. This activity not only helps you understand how your network can be improved it can help you understand your vulnerabilities as well. The third step is to get a handle on demand.

"Step 3: Obtain Customer Demand Data. Customer demands, measured in units of weight, cube or units must be obtained for each customer region/channel/finished product/time period."

Obviously, that is easier said than done. If obtaining demand data were easy, there wouldn't so much written about how difficult it is to do Sales & Operations Planning. The fourth step is getting a handle on costs.

"Step 4: Obtain Freight Costs. Possible sources include the firm's own rates, distance-based equations, and sophisticated simulations of proposed traffic management policies. Commercially available databases are available for less-than-truckload (LTL), truckload (TL), and parcel rates for most North American locations … but not elsewhere."

One of the reasons that many companies are now reshoring or near-shoring their manufacturing is because freight costs are continuing to rise. The face of transportation is constantly changing. For example, analysts predict that the U.S. could face a serious shortage of truck capacity and shortage of drivers in the future. That could force some companies to change how they get their products to market. Maersk recently announced that it was halting services that transported goods from Asia to the U.S. east coast using the Panama Canal. Shipping containers are now going to take a longer route through the Suez Canal. That could force some companies to keep more inventory in the pipeline. The fifth step involves facility infrastructure.

"Step 5: Obtain Facility Data. Facility data consist of procurement, manufacturing, distribution center, cross-dock, port, etc., costs and capacities, as well as bills of material at manufacturing locations."

All of the previous steps help provide information that is necessary to model supply networks with an acceptable robustness. You don't really know if you've achieved what you desired until you test it. That's the next step in Karrenbauer's 10-step process.

"Step 6: Validate the Model. At this point, the model structure and database are essentially complete. But before succumbing to the temptation to turn the optimization engine loose, it is essential that the database be validated by means of an historical cost/flow baseline. The model is 'locked down' to reflect historical facilities and flows and the results are compared with accounting data."

A good validated model will allow you to conduct "what if" experimentation. This kind of testing not only helps you find efficiencies it also, as noted above, can help you test vulnerabilities to risks.

"Step 7: Prepare Scenario Generation Data. Key to the success of a strategic supply chain design study is the rapid generation and solution of a wide range of scenarios. Real learning takes place as the team works its way through a well-structured series of 'what if' questions."

I like the fact that Karrenbauer stressed the importance "well-structured" questions. As I have routinely pointed out, good solutions always start with good questions.

"Step 8: Run Optimization Exercises. Each scenario defined in step 7 is done in conjunction with running a solver engine, a computer-based algorithm that takes a given set of data and finds the best (optimal) network configuration."

Today's technology permits organizations to run thousands of scenarios very cost effectively. The challenge, of course, is deciding what to do with results.

"Step 9: Analyze Solver Results. Contemporary supply chain design packages come with an extensive repertoire of results interpretation/presentation aids, including maps, business graphics, canned reports, and links to powerful graphics packages."

My one concern with Karrenbauer's approach is that he seems to stress "optimal" solutions. There is certainly nothing wrong with optimizing a network; however, the spate of supply chain disruptions that have occurred over the past several years makes it clear that networks can get too lean making companies less resilient. Finding the right balance between too lean and too resilient isn't an easy task.

"Step 10: Develop the Plan of Action. The desired result of a supply chain design study should be a plan of action, not simply a recommendation for more study."

Every business person can appreciate that last bit of advice. Studies don't provide any return on investment unless they lead to plan of action that can be implemented and measured. Just remember, the plan doesn't have to be perfect, but it does have to be responsive.

March 28, 2013

Perceptions Can Affect Supply Chain Risk Management

In an interview with SupplyChainBrain, John J. Brown, director of supply chain risk management at Coca-Cola, claimed that "psychology plays a much larger role in risk assessment and risk management than most people realize. After researching this topic for two years, Brown has come to understand that risk assessment depends on what we perceive as important and a whole host of experience factors play into that, including what we know, what we don't know and what we choose to remember." ["Psychological Factors in Risk Management," 21 December 2012] Fortunately, Caroline MacDonald reports that business executives recognize at least part of the problem. Reporting on a study entitled Executive Perspectives on Top Risks for 2013, she writes, "The top two risks identified by executives send the message that they are more concerned with what they don't know, regarding economic conditions and regulations, than with what they do know, even about significant operational risks." ["Top Risks Reflect Unsure Business Environment," 15 March 2013]

Dylan Evans, founder of Perception Point, agrees with Brown that other psychological issues can also compromise risk management programs. "A key aspect of risk intelligence is recognizing the limits to your knowledge," he writes. "People's judgment of risks is deeply compromised by psychological biases. ["Your judgment of risk is compromised," The Knowledge Exchange, 12 March 2013] Clearly, permitting personal perceptions to "deeply compromise" your organization's risk management process is not a good thing. The SupplyChainBrain interview with Brown next turns to the subject of perception.

Perceptions"Our perception of risk is highly influenced by choice – whether we are exposed to a risk by our own volition or because it is forced on us – and the degree of control we have over the risk. 'If we are in control of a situation, we feel much better about it, which is why a lot of people choose to drive rather than fly, even though statistics show they are much more likely to die in a car accident than from traveling via air,' says Brown."

Evans agrees that perception (or rather misperception) is a serious problem. Perceptions feed our biases and, according to Evans, "one of the most pervasive of these is a phenomenon called the favorite-longshot bias, first observed by the American psychologist Richard Griffith in 1949." He explains:

"Numerous studies have found evidence of the bias at racetracks and other sports betting markets all around the world. Indeed, it is probably the most discussed empirical regularity in sports gambling markets, and the literature documenting it now runs to well over a hundred scientific papers. Daniel Kahneman and Amos Tversky provide perhaps the best theoretical framework in which to understand the phenomenon. In the famous 1979 paper in which they presented their Prospect Theory, they noted that people's ability to perceive differences between extreme probabilities was far greater than their ability to notice differences between intermediate ones. The difference between 0 percent and 1 percent, for example, is much more salient than that between 10 percent and 11 percent, and the difference between 99 percent and 100 percent looms much larger than that between 89 percent and 90 percent. As a result, we tend to overreact to small changes in extreme probabilities and underreact to changes in intermediate probabilities. We will pay far more for a medical operation that increases our chance of surviving from 0 percent to 1 percent than one that increases it from 10 percent to 11 percent. We will also pay more for a lottery ticket that increases our chance of winning from 99 percent to 100 percent than one that increases it from 89 percent to 90 percent."

Personally, I'd like to know where I can buy that lottery ticket that "increases our chance of winning from 99 percent to 100 percent"! Even if such a ticket doesn't exist (and, trust me on this, it doesn't exist), Evans' point is well made. He continues:

"This oversensitivity to small changes in likelihood at both ends of the probability spectrum gives rise to an interesting phenomenon in gambling on horse racing; punters tend to value longshots more than they should, given how rarely they win, while valuing favorites too little, given how often they win. The result is that punters make bigger losses over the long run when they bet on longshots than they do when betting on favorites (they still make losses when betting on favorites, because the racetrack takes a percentage of each bet, but the losses are smaller). This is why bookies rejoice when a long shot wins; that's when they make their biggest profits. According to data published by Erik Snow berg and Justin Wolfers in their article 'Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions?' there's an oversensitivity to small changes in likelihood at both ends of the probability spectrum — for very short and very long odds. Betting on horses with odds between 4/1 and 9/1 has an approximately constant rate of return (at minus 18 percent), which implies that bettors are quite good at distinguishing between probabilities over this range. It is only when punters bet on favorites (with odds shorter than 4/1) or longshots (with odds longer than 9/1) that they get into difficulties."

So what does betting at a racetrack have to do with risk management in a business? Evans believes that the favorite-longshot bias is alive and well in the business world. To compensate for individual biases, an organization obviously needs to use objective, unbiased analysis. Or as Evans puts its, you need "to turn to mathematics." He explains:

"Remember: A key aspect of risk intelligence is recognizing the limits to your knowledge, and this includes recognizing the limits of risk intelligence itself. The financial crisis of 2007–2008 was partly due to an over reliance on mathematical models and a corresponding failure to exercise judgment. The opposite mistake — ignoring mathematical models and relying entirely on subjective estimates — can be equally dangerous when distinctions of less than 1 percent matter. Such distinctions are particularly important when it comes to extremely low probabilities of less than 1 percent. It is impossible to feel the difference between, say, a probability of 0.01 percent (one in 10,000) and 0.001 (one in 100,000), and yet the first is 10 times greater than the second. In this territory, you must therefore abandon all recourse to epistemic feelings and rely completely on your calculator."

In the age of big data, it is becoming easier to trust modeling to overcome biases because the size of the data help minimize skewing caused by outliers (that is, if the models are set up correctly). That's important because risk management processes, and the solutions they invoke, cost money. Organizations don't want to overpay to become resilient (which can happen if solutions are based on perceptions rather than realities). Brown agrees that organizations need to focus on the right risks and not merely perceived risks.

"'Another important thing to realize is that risks may exist, even though we don't know about them or fail to see them,' says Brown. This is the 'black swan' aspect of risk perception, which is based on a book by that name by Nassim Nicholas Taleb. The name refers to a time in Europe when no one believed that it was possible for swans to be anything but white, until explorers came across black swans in Australia. 'The term has come to mean a risk event that no one believed existed or was possible,' Brown says. The impact is that companies may be focusing on the wrong risks, he says. 'We end up managing the risks that we perceive to be of a higher likelihood or higher consequence, but those may not be the most important risks to our company. That is why it is important to understand the role of psychological factors on risk identification and risk assessment.'"

Brown reports that Coca-Cola holds "training sessions to help people calibrate their understanding of risk." "Because risk perception is memory based and experience based," he told the SupplyChainBrain staff, "we need to help people understand the way their minds work when it comes to perceiving risk." Brown also reports that Coca-Cola conducts "structured interviews to help bring depth and analysis to ... each risk." Bob Ferrari indicates that there are other things a business can do as well. He writes:

"The concepts of scenario based planning, advanced business intelligence, predictive analytics and supply chain control towers are gaining increased supply chain functional attention. They are an important extension of business continuity strategy and should come under the stewardship of a cross-functional, cross-business steering team tasked with the same." ["Validation of Increased Supply Chain Risk Should Equate to Investment in Resiliency," Supply Chain Matters, 2 June 2012]

The concept of scenario-based planning has been around for a long time. A research paper written back in 1977 by John H. Vanston, W. Parker Frisbie, Sally Cook Lopreato, and Dudley L. Poston provided a succinct explanation of why this method is useful. They wrote:

"In order to minimize the risk inherent in planning against a single, unforeseeable future and to be in a position to profit from different possible trends and events, many governmental agencies and private companies are finding it desirable to plan against, not one, but rather a range of possible futures. Obviously, for the technique to be used effectively a set of alternate scenarios which are relevant, reasonable, and logically interrelated needs to be developed." ["Alternative Scenario Planning," Technological Forecasting and Social Change, 1977]

For further discussion about what Vanston and his colleagues wrote, read "Alternative Scenario Planning," Supply Chain Risk Management, 2 July 2012] Fernando Hernandez, a consultant with Palisade Corporation, indicates that simulation modeling is also on the rise. He writes:

"More and more organizations around the world are turning their eyes away from decision making processes, based on single-point estimates and viewing their risks and opportunities with more sophisticated techniques. One such technique is Monte Carlo simulation (MCS). In a nutshell, MCS allows the examination of all the possible outcomes of decisions and assesses the impact of risk, allowing for better decision making under uncertainty. It is a computerized mathematical technique that allows the business modeler to account for risk in quantitative analysis and decision making. MCS furnishes the decision-maker with a range of possible outcomes and the probabilities they will occur for any choice of action."

My only quibble with Hernandez is that I don't believe that any simulation can provide "all the possible outcomes" of a scenario. The world is just too complex to model completely. Nevertheless, simulations are a good technique for overcoming biases and perceptions. Just being aware that you have biases that color your perceptions of the world is a good start to finding ways to overcome them.

March 27, 2013

Brainstorming: The Idea-generation Technique that Refuses to Die

After reading an article by Debra Kaye in Fast Company magazine entitled "Why Innovation By Brainstorming Doesn't Work," Jeffrey Phillips was prompted to ask, "Don't we have an article every three months telling us that brainstorming doesn't work? Can't we find a new punching bag?" ["Brainstorming: Innovation's punching bag," Innovate on Purpose, 1 March 2013] Phillips believes that brainstorming gets dissed because too often it is improperly used. He argues:

Brainstorm4"I don't hold a particular brief for or against brainstorming. But we should consider it in its context. Brainstorming is a tool for generating ideas. You can choose to like and enjoy brainstorming, or you can choose to generate ideas using hundreds of other creativity and idea generation tools. But that's all SCAMPER or brainwriting or mind mapping or any of hundreds of other potential aids are - just tools. And tools used with insufficient preparation or for the wrong application or by an inexperienced user are often blamed for the outcomes."

I agree with Phillips (and Kaye) that brainstorming, as commonly practiced, is a tool misused. As I've previously noted, brainstorming is normally considered a group creativity technique. Its designed purpose is to generate a significant number of ideas for solving a problem in a short amount of time. According to Wikipedia, the method was first popularized in 1953 "by Alex Faickney Osborn in a book called Applied Imagination. Osborn proposed that groups could double their creative output with brainstorming." ["Brainstorming"] As it turns out, Osborn was wrong. Brainstorming was first proven ineffective in 1958, "when Yale researchers found that the technique actually reduced a team's creative output." That research demonstrated that "the same number of people [could] generate more and better ideas separately than together." ["Forget Brainstorming," by Po Bronson and Ashley Merryman. Newsweek, 12 July 2010]. Bronson and Merryman continue:

"According to University of Oklahoma professor Michael Mumford, half of the commonly used techniques intended to spur creativity don't work, or even have a negative impact. As for most commercially available creativity training, Mumford doesn't mince words: it's 'garbage.' Whether for adults or kids, the worst of these programs focus solely on imagination exercises, expression of feelings, or imagery. They pander to an easy, unchallenging notion that all you have to do is let your natural creativity out of its shell."

The Wikipedia article confirms what Bronson and Merryman reported about the traditional brainstorming technique. It goes on to reveal:

"Although brainstorming has become a popular group technique, when applied in a traditional group setting, researchers have not found evidence of its effectiveness for enhancing either quantity or quality of ideas generated. Because of such problems as distraction, social loafing, evaluation apprehension, and production blocking, conventional brainstorming groups are little more effective than other types of groups, and they are actually less effective than individuals working independently."

In previous posts, I've noted several of the reasons mentioned above for the lack of brainstorming effectiveness. First, of course, is fear. People fear that others will think their ideas are stupid so they don't bring them up. "Research from scientists at the Virginia Tech Carilion Research Institute offers an explanation of why many people become, in effect, less intelligent in small group settings." ["Speaking Up Is Hard to Do: Researchers Explain Why," by Elizabeth Bernstein, Wall Street Journal, 7 February 2012] You might call this situational stupidity. Bernstein continues:

"If we think others in a group are smarter, we may become dumber, temporarily losing both our problem-solving ability and what the researchers call our 'expression of IQ.' The clamming-up phenomenon seems to be more common in women and in people with higher IQs, according to the report, published in January [2012] in the journal Philosophical Transactions of the Royal Society B."

Bernstein reports that in group settings, some people start to "overthink" and most of those thoughts are about what they are not saying. That leaves no room for thoughts about what they should be talking about. The "overthinking" phenomenon is a good segue to the second impediment to brainstorming; one that is even more significant than fear of speaking out -- mental multitasking. People have difficulty holding on to more than one thought. In most group brainstorming sessions, people are expected to hold on to a thought while waiting for their turn to bring it to the attention of the group, while they are also supposed to be stimulated by the thoughts of others. Research has proven, however, that only after they have let their thought go are they free to come up with other ideas or concentrate on the ideas of other participants. As a result, many people just ignore what's happening the in the group while waiting for the right moment to share their thought.

If a person has a lot of thoughts they want to share, they may completely tune out the conversation around them while they write down all of their ideas so they don't forget them before rejoining the discussion. In other words, they turn group brainstorming into individual brainstorming. Despite the fact that brainstorming has failed to live up to its billing, that doesn't mean it shouldn't have a place in your kit of tools. I think that individual brainstorming is a great idea as homework for a group setting. If used that way, people come to a meeting prepared to listen (since their own ideas are already down on paper) and contribute (either verbally or by submitting their written thoughts). This practice overcomes both of the drawbacks noted above. Kaye writes:

"Part of what we know about the brain makes it clear why the best new ideas don’t emerge from formal brainstorming. First, the brain doesn’t make connections in a rigid atmosphere. There is too much pressure and too much influence from others in the group. The 'free association' done in brainstorming sessions is often shackled by peer pressure and as a result generates obvious responses. In fact, psychologists have documented the predictability of free association."

I think that Phillips might agree with my preferred approach to brainstorming. He writes:

"Brainstorming has a bad reputation, there's no doubt about it. That's because brainstorming is typically a poorly administered meeting with little preparation, the wrong participants with the wrong scope, and often one or more individuals who have a personal agenda. ANY meeting that lacks good preparation, a consistent scope and goal and the right people is doomed for failure. ... As to the 'studies' that demonstrate that individuals can generate more or better ideas by themselves, I'm open to the theory, but I know that teams move ideas through companies, not individuals. It may be the case that we would all generate 'better' ideas, if we could establish a quantitative gauge for betterness, if we all generated ideas by ourselves. But that activity would be pointless, because just like it takes a village to raise a child, it takes a group to move a nascent idea from concept to product or service."

The hybrid approach (individual brainstorming coupled with group discussion) avoids many of the pitfalls associated with traditional brainstorming while embracing Phillips' notion that a group must own and advance ideas if they are going to be successful. When considering the use of individual brainstorming, the activity must obviously begin with a description of the problem that needs addressing. Chuck Frey, Senior Editor at InnovationManagement.se, believes that word lists are a powerful but "often overlooked ... tool for brainstorming." ["Random Word Brainstorming: A Simple, Powerful and Effective Ideation Technique," 26 December 2012] He explains:

"By exposing our minds to random words that are unconnected to our problem or challenge, they provoke new associations, much like the ripple that spreads outward in all directions after you drop a pebble into a pond. The mind loves to make connections, and will do so, no matter how different two concepts are from each other."

Frey goes on to offer four steps involved in this brainstorming technique. They are:

"1. Select a random word: This word must be completely random and unrelated to your problem or challenge. There are several ways to ensure this. First, you can use an existing list of random words, which may be found several places online here, here and here. [Michael] Michalko also provides a list of evocative words in his book, Thinkertoys. A second source of random words is a dictionary. Open it to any page, close your eyes and point your finger at the page. That's your random word. You can also do this with other types of books, magazines, newspapers – whatever is handy.

"2. Think of as many things as you can that are associated with the random word you have selected and write them down. An excellent way to do this is to break your word down into its characteristics. What is its function? What are its aesthetics? How is it used? What metaphors can be associated with it? What is the opposite of your word? Write down as many associated ideas and concepts as possible. If you get stuck, a thesaurus can help you find synonyms, antonyms and other related words. Another powerful tool is Visual Thesaurus, which displays a rich 3-D mind map of associated words and concepts.

"3. Force connections between your random word and your problem or challenge, using the characteristics you identified in the previous step.

"4. Write your ideas down. Failing to do so, Michalko points out, 'is like sitting in a shower of gold with nothing but a pitchfork.'"

Frey notes that many ideas that emerge will be toss-aways. "All it takes," he writes, "is one valuable idea to make your invest[ment] of time worthwhile." He concludes:

"The ultimate benefit of word lists is that they help you to appreciate your brain's awesome powers of association. As you cultivate this skill, you’ll come to realize that it can serve you any time, anywhere – not just when you're not sitting in your favorite brainstorming spot with a cup of coffee and a list of random words. Literally anything in your environment can become stimuli that you can use to make connections with your current problems and challenges. And that can open up a world of possibilities and new ideas that can help you to transform your world."

Given the fact that brainstorming can be a useful tool when used correctly, Phillips writes, "So, can we give brainstorming a rest? It's been the favorite punching bag for far too long." He concludes:

"Let's assert that many brainstorms aren't successful, but as I've written before, that's not a failure of the tools, but of the users. And if brainstorming doesn't work for you, use any other creativity or idea generation technique that does - there are plenty. Just realize that idea generation is simply one step in an innovation process, and without good context and the ability to manage and evaluate ideas successfully, the best idea generation techniques on the planet are useless. Good innovation relies on a complex system of knowledge, insights, tools and people. Blaming innovation failure on brainstorming is pointing the finger of blame at a tool that is just one small portion of the process, when other equally or perhaps better tools exist. ... As a friend used to say, good craftsmen never blame the tools for their problems."

If generating creative ideas and turning them into innovative products was easy, there wouldn't be so much written on the subject. There is no single tool or silver bullet approach to creativity and innovation. The kit of tools is large and every one of those tools needs to be used at the right time, in the right setting, with the right people if successful outcomes are to be achieved.

March 26, 2013

Robots Learn to Talk to Each Other

"As I gaze in the coming year's crystal ball," writes Miranda Mulligan, "I suspect that, at this time next year, we will be talking about 2013 being the rise of the robot." ["The Rise of the Robot," Harvard University's Nieman Journalism Lab, 19 December 2012] On the other hand, George Dvorsky reports that instead of us talking about robots, robots may be talking about us. ["Robots can now collaborate over their very own Internet," io9, 11 March 2013] He writes:

Robots talking"One of the more serious limitations facing the robotics industry today is that each bot it produces is an island unto itself. Worse, robots' primitive AI doesn't allow for intuitive thinking or problem solving — what's known as artificial general intelligence. Looking to overcome this problem, researchers from several different European universities have developed a cloud-computing platform for robots that will allow them to collaborate — and make each other smarter — over the Internet."

Machine-to-machine (M2M) communication is predicted to grow faster than human communication in the years ahead (see my post entitled Machine-to-Machine Communication). The new cloud-computing platform discussed by Dvorksy is "called Rapyuta: The RoboEarth Cloud Engine." It "is an open source repository of accumulated information for robots. Its name is taken from the movie Castle in the Sky by Hayao Miyazaki, in which Rapyuta is the castle inhabited by robots." Dvorsky included the following video as part of his article, which explains why cloud computing is essential if robots are going to get smarter.

Admittedly, most of us don't have a Robby the Robot waiting to serve us. We're lucky if we have a Roomba that relieves us of vacuuming. But researchers believe that more and more technologies are going to be developed that will allow robots to find their way into our daily lives. One reason this will occur is because, as the video show, much of the computational heavy lifting will be done in the cloud. Dvorsky reports, "The platform will allow robots who are connected to the Internet to directly access powerful computational, storage, and communications technologies, including those of modern data centers." A news release from the AlphaGalileo Foundation states, "By making enterprise-scale computing infrastructure available to any robot with a wireless connection, the researchers believe that the new computing platform will help pave the way towards lighter, cheaper, more intelligent robots." ["Cloud-computing platform for robots launched," 11 March 2013] In that release, Mohanarajah Gajamohan, researcher at the Swiss Federal Institute of Technology (ETH Zurich) and Technical Lead of the project, stated:

"The RoboEarth Cloud Engine is particularly useful for mobile robots, such as drones or autonomous cars, which require lots of computation for navigation. It also offers significant benefits for robot co-workers, such as factory robots working alongside humans, which require large knowledge databases, and for the deployment of robot teams."

Dvorsky admits this is exciting news, but he indicates "the concept is not without its problems." He writes that two things in particular concern him.

"First, anything that's connected to the Internet is inherently hackable. This system will need to be crazy secure, otherwise the robots could be controlled by a malicious source (either individually, or collectively). And second, the query response-and-match algorithms will need to be very strict to prevent a robot from getting the wrong instructions. For example, a robot could ask the cloud for instructions on how to perform task x, but the cloud-engine could misunderstand and provide it with instructions for task y. The robot, because it's stupid, will then execute task y. This could be dangerous, and even potentially catastrophic in some contexts."

A third concern is connectivity. We've all experienced dropped calls. It could be hazardous for a cloud-connected robot to lose connectivity during a critical activity. Although these concerns are genuine, smart people will discover ways to create failsafe systems and work-arounds. The fact of the matter is that, in the future, we are going to be working and living in much closer proximity to robots than we have in the past. Science fiction writers worry that M2M communication will result in robots talking behind our backs (or over our heads) to build their own society and eventually become the "Terminators" of movie fame. Moshe Y. Vardi, a professor of computational engineering at Rice University, notes that main villain in the Terminator movies was a cloud-like AI system called "Skynet, a self-aware artificial intelligence." ["The Consequences of Machine Intelligence," The Atlantic, 25 October 2012] Although Vardi doesn't see the rise of Terminators anytime soon, like Mulligan, he does see robots making an ever greater impact in our lives. He writes:

"It is in the context of the Great Recession that people started noticing that while machines have yet to exceed humans in intelligence, they are getting intelligent enough to have a major impact on the job market. ... While the loss of millions of jobs over the past few years has been attributed to the Great Recession, whose end is not yet in sight, it now seems that technology-driven productivity growth is at least a major factor. Such concerns have gone mainstream in the past year, with articles in newspapers and magazines carrying titles such as 'More Jobs Predicted for Machines, Not People,' 'Marathon Machine: Unskilled Workers Are Struggling to Keep Up With Technological Change,' 'It's a Man vs. Machine Recovery,' and 'The Robots Are Winning.'"

In light of the recent "rise of the robots," Vardi recalls an article written in 2000 for Wired magazine by Bill Joy, whom he calls "a very mainstream technologist as co-founder of Sun Microsystems." The article was entitled "Why the Future Doesn't Need Us." Vardi insists some 13 years on, Bill Joy's question deserves an answer. He writes:

"Does the future need us? By this I mean to ask, if machines are capable of doing almost any work humans can do, what will humans do? I have been getting various answers to this question, but I find none satisfying. A typical answer to my raising this question is to tell me that I am a Luddite. (Luddism is defined as distrust or fear of the inevitable changes brought about by new technology.) This is an ad hominem attack that does not deserve a serious answer. A more thoughtful answer is that technology has been destroying jobs since the start of the Industrial Revolution, yet new jobs are continually created. The AI Revolution, however, is different than the Industrial Revolution. In the 19th century machines competed with human brawn. Now machines are competing with human brain. Robots combine brain and brawn. We are facing the prospect of being completely out-competed by our own creations. Another typical answer is that if machines will do all of our work, then we will be free to pursue leisure activities. The economist John Maynard Keynes addressed this issue already in 1930, when he wrote, "The increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption." Keynes imagined 2030 as a time in which most people worked only 15 hours a week, and would occupy themselves mostly with leisure activities. I do not find this to be a promising future. First, if machines can do almost all of our work, then it is not clear that even 15 weekly hours of work will be required. Second, I do not find the prospect of leisure-filled life appealing. I believe that work is essential to human well-being. Third, our economic system would have to undergo a radical restructuring to enable billions of people to live lives of leisure. Unemployment rate in the US is currently under 9 percent and is considered to be a huge problem. Finally, people tell me that my concerns apply only to a future that is so far away that we need not worry about it. I find this answer to be unacceptable. 2045 is merely a generation away from us. We cannot shirk responsibility from concerns for the welfare of the next generation."

I agree with Vardi that a future filled with nothing but leisure activity doesn't sound very fulfilling (or likely). The much more likely scenario is that robots, as they learn to communicate better, will eventually become "Collaborators" with humans rather than their Terminators. Obviously, there is still much to be worked out. If robots and humans to do collaborate much more closely in the years ahead, then robots will need to learn how to interact better with their less robust colleagues. To that end, Alicia Clegg reports that some researchers are studying how to teach robots some much-needed manners. ["Robots take lessons in body language," Financial Times, 28 June 2012] Clegg writes:

"While her colleagues pore over algorithms, debug software codes and tinker with articulated arms and gripper hands, Leila Takayama has been teaching a new generation of robots some manners. A research scientist at Willow Garage, a Silicon Valley robot developer, her etiquette lessons are basic − move to the left of a corridor when someone is approaching from the right, don't hog the centre in an elevator when there are other passengers who want to get in. Nonetheless, how well her charges − known as personal robots − master such niceties could have a big bearing on the welcome that awaits them when they make it out of the laboratory and into wider society. Robots are already commonplace in factories, typically performing programmed tasks. Other specialised bots have been developed for hospital settings ranging from remote-controlled mobile robots, allowing doctors to examine patients over video-links, to delivery carts that ferry meals and medication around. Some homes boast robotic toys and robotic vacuum cleaners. But for robots to become more widespread, they need to be smart enough to cope with human idiosyncrasies whether in the living room or even out on the streets."

As I've pointed out in past posts, humans really haven't proven to be great prognosticators and so I'm not really expecting to walk the streets with robots any time soon. But AI systems will increasingly control the machines we use to make our lives safer, better, and more effective. M2M collaboration will play an important role in the future, even if machines only communicate directly with each other and not through a cloud-computing platform. So I say, let them talk.

March 25, 2013

Big Data and You

"Did you know," asks a blogger named Klaus, "that 90% of the data in the whole world today has just been created as of 2012?" ["Big Data – Its Importance and How It Affects our Everyday Lives," Tech Patio, 4 March 2013] The amount of data created each day is staggering. Klaus claims that each day "we create about 2.5 quintillion bytes of data!" You might be surprised to learn that you contribute to that ocean of data, knowingly and unknowingly. As Klaus points out, "This data actually comes from many sources including but not limited to: sensors utilized to collect climate information, digital pictures and videos, software logs, mobile phone GPS signals, purchase transaction records, and let's not forget, posts to social media sites. All of this is known as big data." Big data, however, is a lot like garbage piling in city streets during a sanitation workers' strike unless something is done to make it useful. But, as Klaus points out, big data is "so huge and complex that it becomes hard to process with the use of conventional data processing applications or on-hand database management tools."

Ignoring it, however, is really not an option since it contains valuable information that can change the course of businesses and individual lives. One of the ways that organizations use big data analytics to serve and protect us involves leveraging it "in order to improve ... existing procedures and processes." Klaus provides a few examples:

"Science and research companies – The decoding of the human genome originally took 10 years to process in the past, but now it can be achieved in just 1 week!

"Financial services companies – since these companies already execute fraud analysis, they can utilize big data from other sources, thus improving the process and even identify potential issues much faster than ever before.

"Police and other law enforcement agencies – big data technology aids law enforcement personnel to analyze streaming video footage in real time and specifically point out smaller chunks of video relevant for review, rather than relying on human eyes to look at each and every frame."

Klaus also points out that manufacturers and retailers use big data "to do something utterly special and/or unorthodox, offering 'fresh, out-of-the-box marketing opportunities' from already-existing, previously untapped data." Most marketing specialists agree that personalized or "targeted" marketing is next big thing. It offers the right product to the right consumer at the right time (and, if adopted widely, could spare consumers from receiving irrelevant offers for products or services in which they have no interest). For more on this subject, read my posts entitled Marketing to the Individual and The Importance of Location in Targeted Marketing. According to Klaus, another way that big data analytics affect your everyday lives involves making your transactions easier, especially purchasing transactions that involve something other than cash. He concludes, "No matter how you look at it, big data ... is something that aids in making one's business more agile and flexible, it helps in finding insights regarding new and emerging kinds of data and content, and it helps in making processes more efficient and faster than ever before."

Not everyone is as sanguine as Klaus about finding the gold buried in mountains of data. Richard Stacy calls it an "actionability" problem. ["Big Data: Gold Mine or Fool's Gold?" Social Media Architecture, 1 March 2013] He certainly doesn't dismiss the potential of big data analytics. He writes:

"In the world of Big Data it is theoretically possible to know as much about your consumers as they know about themselves: to be able to anticipate their every thought and desire and be there with an appropriate product or response. It is a world of ultimate targeting and profiling and this world is tantalisingly within reach because of the huge amount of real-time, personal information consumers are giving away about themselves via their usage of social media tools."

Regardless of the potential of big data analytics, Stacy writes, "The problem is that no matter how good we think we have become at this, we haven't actually been that good." From all that I've read on the subject, I think Stacy is correct. He also believes, "Even if we can now use Big Data to find exactly the right time, to talk to exactly the right person with exactly the right message – organisations are just not set-up to know how to handle this situation appropriately." That's a problem. He continues:

"The world of social media is the world of the individual, whereas the world of traditional marketing is the world of the audience. We have become very good at speaking to audiences with single messages, but we have no experience as to how to talk to individuals, where our behaviour has to be social and the information we give has to be highly specific and relevant and where we also have to recognise that the task is not simply to target conversations, but to create the permission to enter a conversation. In reality, there are very few consumer conversations that it is possible for a brand to enter. A consumer may be having a conversation about shoes with her friends, but this doesn’t mean that she has given permission to have this conversation interrupted by a shoe manufacturer or retailer. So no matter how precisely we may be able to use Big Data to identify the conversations we would like to join, it is likely that the majority of our attempts to enter these conversations and strike-up relationships will be rejected. ... So 'actionability' is the first big problem with Big Data – relevancy of response and the creation of permission to enter a conversation or create a relationship. And this question of permission brings us onto the next problem. As we have seen, brands need to create permission from consumers to enter their conversations – but brands also need to create permission to have the data about these conversations in the first instance. It is very easy for a consumer to see the collection of Big Data, once they know it is going on, as a form of digital spying. In fact it is very hard to portray Big Data as anything else."

The actionability challenges highlighted by Stacy (i.e., entering into a conversation with consumers and getting permission to collect personal data) are being addressed. Laurent Faracci, the U.S. chief strategy and marketing officer for packaged-goods giant Reckitt Benckiser, told Jack Neff, that if he had his way, "100% of our digital media would have a call to action." ["Years After Ditching the Click, CPG Marketers Embrace Web Ads With 'Calls to Action'," Ad Age, 25 February 2013] Although that sounds like Faracci wants consumers to back some kind of cause, his "call to action" refers to invitations that ask consumers to "click here" or "take the challenge" or "enter to win." In other words, he is recommending ads that can result in voluntary conversations with customers. He claims, "The return on investment is three times better when you do." Chris Pape, Executive Creative Director at Genuine Interactive, told Neff, "The key principle is: If people are taking action, they're retaining information better than if it's passive. We're big fans of adult-learning theory, which says if you're passively watching information, it's not really being sent to long-term memory." Neff continues:

"A 2010 study by WPP's DynamicLogic found no link overall between a call to action and effects on recall or brand favorability, but did find that call-to-action digital ads do better on purchase intent for CPG and travel advertisers. Across industries, ads asking people to 'send something' or share doubled brand favorability and purchase-intent scores compared with the average ad. ... Call to action is a big part of CPG digital advertising largely because much of the budget is coming out of promotional buckets, said Gian Fulgoni, chairman of ComScore. Accounting rules don't count such spending as marketing, but CPGs spend 67% of their all-inclusive marketing dollars on retailer trade promotion, he said, citing data from Kantar and SAP. Media advertising of various forms makes up only 22% of spending, while consumer promotion -- largely around distributing coupons -- makes up 11%. Almost half of digital ads in CPG have some kind of promotional message,' Mr. Fulgoni said, compared with 8% of TV ads."

The point is, call-to-action advertising is a good way to enter into conversations with consumers. These kinds of permission-based conversations help remove some of the negativity associated with big data collection. Chris Hornbeck, CEO of Resort Insiders, believes permission-based advertising will become more of the norm. ["Permission-based marketing leads the way," RCI Ventures, 4 March 2013] He writes:

"The basic concept of consent-based marketing is to gain a potential customer's attention in a way that a voluntary communication is created between the marketer and the customer. That communication can be either inbound (initiated by the customer), outbound (initiated at the request of the customer), or even face-to-face – but the keyword is voluntary. When a customer contacts a company out of interest in its value proposition, or leaves his number for a call back, they have effectively become a 'warm' lead. The beneficial marketing atmosphere created by this type of voluntary communication leads to lower labor costs, higher conversion rates, and overall higher sales efficiencies. Permission-based marketing methodology is based on looking for responders, people who see and are interested in a value proposition and give express permission to speak with them about it. This permission can be granted in many ways. ... To find these responders, companies can place value propositions in different advertising channels ... based on popular premiums or services. ... Value propositions can even be in the form of informational or educational content. ... The importance of an honest, high-quality value proposition cannot be understated. In this age of highly-educated consumers and comparison shopping, the value proposition must be competitive, well-considered, and beneficial to the end user to maximize conversion."

The bottom line is that consumers are gaining more control over their conversations and their data and that trend is expected to continue -- and that's not a bad thing.

March 22, 2013

Globalization's Bed of Nails, Part 3: The Transformationalists and Traditionalists

In the first two segments of this series, I looked at the optimistic and pessimistic sides of globalization. In both of those posts, as in this one, I used a post by an anonymous British blogger as the basis of each sides' various arguments. ["Theories of Globalisation," realsociology, 9 February 2013] In this post, I'll first look at what he (or she) calls the "the Transformationalist View of Globalisation." By that, I believe he means the views of those who believe that globalization has transformative qualities (both good and bad). I assume that transformationalists want to encourage good qualities and discourage bad ones.

The first argument that the blogger says is made by transformationalists is that "'Trade' has many complex formations. So it is difficult to say that it is either good or bad. Besides Free Trade, Fair Trade is expanding, and there is also illegal trade – in drugs for example." He goes on to note, "The Fairtrade Foundation has many examples of how trade can benefit people the world over in all sorts of different ways." On the other hand, he notes that all of the technologies that have fostered international trade can also be used by criminal and terrorist organizations to pursue their nefarious activities.

The second argument addresses the topic of transnational companies. The optimists saw TNCs as a force primarily for good and the pessimists saw them as primarily a force for exploitation. The blogger writes, "TNCs operate in dozens of countries. Clearly there are going to be winners and losers in different cases. Also governments the world over regulate international companies in different ways." I'm not exactly sure what transformationalist argument he is trying to make. I'm assuming the point is that global corporations are transformative because they operate somewhere on the globe 24 hours a day, 365 days of the year. They have their own cultures, policies, agendas, and so forth. They are also the source of many of the challenges associated with globalization, such as, pollution, working conditions, infrastructure stress, and so forth.

Transformationalists also point out that globalization has forever changed consumerism. Like trade, however, in and of itself "consumerism isn't just good or bad." The blogger claims that increased consumerism has affected global culture, which he says "is characterised by hybridity – new brands come into contact with local cultures and they are modified by those cultures, creating new products." He notes that some people refer to this as "glocalism" or "glocalization." As I noted Part 2 of this series, this is particularly true in the food and drink sector. Successful international companies learn to adapt to local cultures.

One of the strongest arguments that transformationalists make about the transformative powers of globalization is in the area of politics. "Globalisation is characterised by new political formations, not just the spread of democracy or the spread of American dominance." U.S. politicians have learned that you can encourage democracy, but you can't control the direction it will take. Elections in Egypt, for example, certainly didn't achieve the results that U.S. politicians had hoped for. Economics is another area in which globalization has a significant transformative affect. The blogger points to China and the fact that it has transformed from a closed, highly-centralized economy to a hybrid economy that now embraces capitalism.

The next transformative aspect of globalization involves technology. Africa surprised the world by leapfrogging over telephone landline infrastructures and embracing mobile phone technology. There are now more mobile devices in the world than there are people. Technology has also fostered activities like crowdsourcing, microfinance, mobile banking, and a myriad of social media outlets that have empowered many previously disenfranchised segments of society. With advances in alternative energy sources, like wind and solar, bringing down costs, it is not inconceivable that some developing countries will also be able to leapfrog large electrical grids and rely on smaller, more affordable, local or regional distribution systems.

The final transformative aspect of globalization that the author discusses involves the shattering of traditional ideas and behaviors. He writes, "Anthony Giddens argues that 'detraditionalisation' is part of Globalisation – People increasingly challenge traditions as they come into contact with new ideas." As with most other aspects of transformationalism, challenging traditions is not inherently good or bad. Some traditions need challenging and some deserve to be protected. The blogger concludes, "Read KT’s blog post on 'detraditionalisation' and summarise Gidden's view of what effect globalisation has on culture – Is this closer to the optimist or transformationalist view of globalisation?"

The final view of globalization that the blogger examines is the Traditionalist view. According to the author, adherents of this viewpoint believe that the effects of globalisation are exaggerated. In fact, some people refer to all the hype as "globaloney." ["The case against globaloney," The Economist, 20 April 2011] The Economist article notes that much of what journalists write involves simplification and/or exaggeration. It claims that assertion is certainly true when it comes to what has been written about globalization. It states:

"There is a lively discussion about whether it is good or bad. But everybody seems to agree that globalisation is a fait accompli: that the world is flat, if you are a (Tom) Friedmanite, or that the world is run by a handful of global corporations, if you are a (Naomi) Kleinian."

The staff at The Economist claims that at least one academic has managed to "keep his head" on the subject of globalization. He is Professor Pankaj Ghemawat of IESE Business School in Spain. It explains:

"For more than a decade he has subjected the simplifiers and exaggerators to a barrage of statistics. He has now set out his case—that we live in an era of semi-globalisation at most—in a single volume, 'World 3.0', that should be read by anyone who wants to understand the most important economic development of our time. Mr Ghemawat points out that many indicators of global integration are surprisingly low. Only 2% of students are at universities outside their home countries; and only 3% of people live outside their country of birth. Only 7% of rice is traded across borders. Only 7% of directors of S&P 500 companies are foreigners—and, according to a study a few years ago, less than 1% of all American companies have any foreign operations. Exports are equivalent to only 20% of global GDP. Some of the most vital arteries of globalisation are badly clogged: air travel is restricted by bilateral treaties and ocean shipping is dominated by cartels. Far from 'ripping through people's lives', as Arundhati Roy, an Indian writer, claims, globalisation is shaped by familiar things, such as distance and cultural ties. Mr Ghemawat argues that two otherwise identical countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past. ... Mr Ghemawat also explodes the myth that the world is being taken over by a handful of giant companies. The level of concentration in many vital industries has fallen dramatically since 1950 and remained roughly constant since 1980: 60 years ago two car companies accounted for half of the world's car production, compared with six companies today. He also refutes the idea that globalisation means homogenisation. The increasing uniformity of cities' skylines worldwide masks growing choice within them, to which even the most global of companies must adjust. McDonald's serves vegetarian burgers in India and spicy ones in Mexico, where Coca-Cola uses cane sugar rather than the corn syrup it uses in America."

The article concludes, "People seem to have a natural tendency to overestimate the distance-destroying quality of technology." If you are optimistic about globalization, there is a lot more that can be accomplished. If you're a pessimist, apparently there isn't too much you have try and undo. Considering those facts, it's remarkable that globalization has accomplished as much as it has over the past few decades.

Regardless of your point of view, there is a set of arguments that supports your position; and, there probably isn't a competing set of arguments that is going to convince you that another point of view is more correct. Pessimists only focus on the dark side of the subject (and, unfortunately, there is a lot to write about). Nevertheless, globalization's proponents have a good tale to tell (and the good that has been accomplished has far outweighed the bad). Can we do better? Of course we can. But we should face the future armed with a broad perspective of the benefits and pitfalls associated with globalization (or with whatever scheme eventually replaces it).

March 21, 2013

Globalization's Bed of Nails, Part 2: The Pessimists

In my last post, I looked at the optimistic side of globalization. I used a post by an anonymous British blogger as the basis of arguments presented in that post. ["Theories of Globalisation," realsociology, 9 February 2013] In that same post, he (or she) also presented the arguments raised by globalization pessimists, transformationalists, and transnationalists (the latter two categories will be discussed in the final segment of this series). This post will look at the arguments presented by individuals who are not so keen about the concept of globalization.

The first argument they make is that "increased trade has had unequal benefits." Even globalization optimists admit that globalization has been uneven and the result has created a spiky world. Optimists, however, would argue that dissing globalization because it hasn't benefited everyone equally would be throwing the baby out with the bathwater. Globalization's first beneficiaries were developed countries as multinational corporations moved into new markets; but, it has been Asian countries that have ultimately benefited most. Spreading the beneficial effects of globalization to the rest of the world certainly needs to be a priority.

The second argument raised by pessimists is that transnational corporations "pollute [and] extract resources from and exploit cheap labour in the developing world." Have there been abuses? Undeniably. Does that mean that developing countries will be better off if large corporations are forced to leave those countries? I believe that argument would be hard to make. That doesn't mean, however, that large corporations shouldn't be held to certain standards to ensure that they don't conduct activities that pollute and exploit resources (including human resources).

The third argument raised is that "culture may be increasingly global, but this mainly means Americanisation." Although there are concerns about local cultures being lost as a result of globalization, many large companies (especially those involved in the food and drink industry) have found that they must adapt to local tastes in order to succeed. Pessimists point out the ubiquity of McDonald's, Coca Cola, Walmart, and Starbucks as evidence of the Americanization of the world. Bhaskar Chakravorti, director of Tufts’ University's Institute for Business in the Global Context, paints quite a different picture. "He says all these examples represent 'the myth of American global market power' — they are outliers that disguise the real failing of American multinationals to succeed around the world, and especially in fast-growing emerging markets." ["Why Most American Companies Are Terrible At Globalization," by Tim Fernholz, Business Insider, 5 March 2013] Fernholz provides an excerpt from a forthcoming paper written by Chakravorti and his colleague Gita Raohas:

"In 2010, emerging markets represented 36% of global GDP; these markets already account for the majority of the world's oil and steel consumption, 46% of world retail sales, 52% of all purchases of motor vehicles and 82% of mobile phone subscriptions. With two-thirds of global growth coming from these markets, in a decade they will account for the majority of the world’s economic value. Yet U.S. companies derived less than 10% of their overall revenues from emerging markets: about as little as 7%, according to HSBC estimates for 2010. The 100 largest companies from the developed world overall made 17% of their revenues from emerging markets, according to a McKinsey report; in other words, the U.S. lags not only emerging market firms in capturing share in emerging markets, but it lags the developed world overall. By considering the difference between the 'absolute potential' represented by the 36% number or, to take a much more conservative benchmark, the global peer average of 17% and the U.S. share of 7%, we derive two measures of the gap – and the degree to which U.S. industry has not participated in global growth."

In other words, concerns about the Americanization of the world are probably exaggerated. Fernholz has a lot more to say about why U.S. companies haven't done better at globalizing, but that's a topic for another day.

Another argument raised by globalization pessimists is that, rather than spreading democracy like the optimists claim, it has spread "U.S Military power, as outlined by John Pilger in the War on Democracy," and has encouraged the U.S. to spend "almost $700 billion on its military every year." I would suggest that the fall of the Soviet Union had more to do with the spread of U.S. military power than the globalization. That event unleashed former clients to use the military hardware they had received from the Soviet Union (mostly in internecine civil wars) and the world became a much more dangerous place. At the same time, the U.S. found itself the sole remaining superpower capable of dealing with regional conflicts. The September 11, 2001, terrorist attacks on U.S. soil further convinced American politicians that it needed to engage its foes "over there" in order to protect citizens at home. This strategy has certainly been controversial, but laying that strategy at globalization's doorstep doesn't really advance the debate.

The next argument raised is interesting. It claims that "the spread of global media really means the spread of massive media firms such as Rupert Murdoch’s News Corp, with programmes such as Fox News presenting a pro-American view of the world. Also think of popular culture – X factor, and Hollywood and global advertising. The pessimist view on such aspects of the global media is that they lead to increasing cultural homogenisation." This is a companion argument to the Americanization argument raised earlier. What I find interesting about this argument is that it specifically refers to Fox News, a well-known conservative news outlet that is a source of much anti-globalization sentiment. In fact, I would place Fox News among the ranks of globalization pessimists. Unlike most pessimists, who believe that globalization is bad for the world, Fox News and supporters of its views, believe that globalization is bad for America.

The next argument raised by the pessimists involves urbanization. "Zygmunt Bauman argues that global cities are best described as 'fortress cities' – especially in the developing world cities are places of huge inequalities where the rich hide themselves away in exclusive gated communities and the poor are left to the slums." It would be hard to argue with the fact that cities are "places of huge inequalities." Most analysts argue, however, that cities are also places of huge opportunities. To read more about this view of cities, read my post entitled Will Cities Save Us? In that post, I cite an article by Charles Kenny. ["In Praise of Slums, Foreign Policy, 13 August 2012] Kenny doesn't sugarcoat conditions found in urban slums. He writes about "the stench of open sewers, the choking smoke of smoldering trash heaps, [and] the pools of fetid drinking water filmed with the rainbow color of chemical spills" that found in many slums. But he also argues that poor people living in slums are generally better off than poor people living in rural areas. He explains:

"Most people who've experienced both rural and urban poverty choose to stay in slums rather than move back to the countryside. That includes hundreds of millions of people in the developing world over the past few decades -- and 130 million migrant workers in China alone. ... For all the real horrors of slum existence today, it still usually beats staying in a village. Start with the simple reason that most people leave the countryside: money. Moving to cities makes economic sense -- rich countries are urbanized countries, and rich people are predominantly town and city dwellers. ... Slum dwellers may be at the bottom of the urban heap, but most are better off than their rural counterparts. Although about half the world's population is urban, only a quarter of those living on less than a dollar a day live in urban areas."

For a really pessimistic view of globalization, read what Gail Tverberg has to say. ["12 Reasons Why Globalization is a Huge Problem," The Energy Collective, 24 February 2013] In a nutshell, she says that globalization is a huge problem because it negatively affects the developed world -- especially the U.S. (i.e., globalization allows developing countries to use up resources too fast, raises energy prices too high, transfers jobs to lower cost countries, transfers consumption to emerging market countries, transfers investment spending to developing countries, and encourages global interdependence). It's good grist for a Fox News story.

On the whole, the pessimistic view of globalization certainly highlights its shortcomings, but it falls short of convincing me that globalization has been bad for the world. The fact that so many people have been raised out of poverty in the past half century convinces me otherwise. In my opinion, we should discuss globalization without praising or burying it. That also seems to be the view of those who see globalization as transformative. I'll discuss their arguments in the concluding segment of this series.

March 20, 2013

Globalization's Bed of Nails, Part 1: The Optimists

"The globalization paradigm," David Brooks wrote half a decade ago, "leads people to see economic development as a form of foreign policy, as a grand competition between nations and civilizations." ["The Cognitive Age," New York Times, 2 May 2008] Brooks believes such notions are destructive and counterproductive. He argued that we are entering "the cognitive age paradigm" which "emphasizes ... specific processes that foster learning. It emphasizes that different societies are being stressed in similar ways by increased demands on human capital." Brooks wants the people of the world to move beyond the globalization paradigm so that we can reason together to solve transnational challenges that affect us all. He explains:

"If you understand that you are living at the beginning of a cognitive age, you're focusing on the real source of prosperity and understand that your anxiety is not being caused by a foreigner. It's not that globalization and the skills revolution are contradictory processes. But which paradigm you embrace determines which facts and remedies you emphasize. ... It's time to move beyond [the globalization paradigm]."

In two recent posts (What Follows Globalization, Part 1 and Part 2), I discussed the concerns of a number of analysts and scholars who worry that it's going to be difficult to move beyond the globalization paradigm because no clear model has emerged to replace it. Brooks' cognitive age paradigm doesn't really fit the bill because it doesn't describe how people, organizations, and countries are going to interact in the decades ahead. It simply states that we should be smart enough to reason together. So, for a least a while, we're probably stuck with the globalization paradigm.

I do agree with Brooks that it is unfortunate that the very term "globalization" now stirs deep emotions in some people. While some pundits argue that globalization has been the catalyst that has brought more people out of poverty than ever before in history, other pundits argue that it has been the catalyst that started the developed world on the road to ruin. A British blogger, who posts anonymously, recently wrote an article that provides a pretty good overview of the arguments used by optimists, pessimists, transformationalists, and transnationalists regarding globalization. ["Theories of Globalisation," realsociology, 9 February 2013] He (or she) begins with an overview of the optimistic theories of globalization. The first argument used by globalization optimists, he writes, is that it has resulted in "more international trade" and, in increased "wealth, health, and education for most countries." He points to the following video as evidence that the optimistic view has lots to crow about.

The second argument that the British blogger claims is being made by the optimists is "that Transnational Corporations are a force for good. Companies such as Apple, Sony, etc. bring investment and jobs to developing countries." This argument is not quite as easy to defend as the one above. Ethical companies have indeed helped bring millions out of poverty; nevertheless, we have all heard the tales of sweatshop conditions in which some employees in developing countries are forced to work. Recent factory fires, in places like Bangladesh, only underscore the fact that we still have a ways to go before we can truly label transnational corporations "a force for good."

The third argument offered by globalization optimists relates to the fact that with improved health and wealth "patterns of consumption are becoming globalised. More people around the world are consumers rather than living subsistence lifestyles." As I'll note below and in the next segment, pessimists don't necessarily see this as a good thing. I would have stated the argument a little differently: Globalization has helped millions of people escape poverty and become part of the global middle class. Most economists believe that the future of the global economy will be determined by this global middle class. People in both the developing and developed world will benefit if this trend continues.

The fourth argument provided by the blogger is a bit frivolous. He writes, "Sporting events such as the world cup and the Olympics have become more popular." Globalization, especially the spread of technology, has certainly played a role in sporting events like the World Cup and Olympics being seen by more people; but, it hasn't necessarily increased global interest in sports that did not already have an international flavor.

The fifth argument that the blogger asserts is used by globalization optimists is that it has helped "spread ... Democracy and respect for human rights since the end of WW2." As evidence, he points to "the end of colonial rule in Africa, the collapse of communism and the Arab Spring." New technologies that have connected the world through satellites, cell phones, and the World Wide Web have clearly had an empowering effect. Whereas people used to talk about the course of history being changed primarily by military engagements, today we often read about super-empowered individuals who use social media to change the world. And that is a good segue to the sixth argument optimists offer, namely, "the growth of social media (Facebook and Twitter) have lead [to] more freedom around the world."

The seventh argument optimists use is that "globalistion increasingly means global cities [and] urban centres ... have highly educated, politically engaged middle classes." Whereas New York Times' columnist Tom Friedman argues that globalization has made the world flat, others argue it has made the world spiky -- making it look more like a bed of nails than a playing field. Thejas Jagganath explains it this way:

"Contrary to popular belief that globalisation is a worldwide phenomenon leading to a leveled world, Richard Florida in his book ‘Who’s Your City' argues that this is far from reality. He states that the world is 'spiky' with innovation and global ideologies largely spread across certain cities more than others. This concept of the world being uneven and spiky is in relation to Thomas Friedman’s concept of the world being flat. In his book, Friedman writes 'when the world is flat, you can innovate without having to emigrate.' Florida argues that this is not true, and rightly so." ["Globalisation in a Spiky World," Urban Times, 26 February 2013]

Just because globalization has been spiky doesn't mean it hasn't provided benefits. Globalization optimists argue that you should rejoice whenever you see people being raised out of poverty, even if it is accomplished unevenly. I would classify Bill Gates among the optimists. Since retiring from his day-to-day role with Microsoft, he has dedicated himself to help solving global problems ranging from food security to health to education. He believes that a combination of technology, big data, and measurement will help us solve the world's biggest problems. ["Bill Gates: My Plan to Fix The World's Biggest Problems," Wall Street Journal, 25 January 2013] In his article, Gates specifically focuses on the importance of measurement. He begins his article by citing a book entitled The Most Powerful Idea in the World, written by William Rosen. In that book, Rosen relates how new, precise measuring tools helped foster the industrial revolution. Gates continues:

"There's a larger lesson here: Without feedback from precise measurement, Mr. Rosen writes, invention is 'doomed to be rare and erratic.' With it, invention becomes 'commonplace.' In the past year, I have been struck by how important measurement is to improving the human condition. You can achieve incredible progress if you set a clear goal and find a measure that will drive progress toward that goal — in a feedback loop similar to the one Mr. Rosen describes. This may seem basic, but it is amazing how often it is not done and how hard it is to get right."

Gates provides a litany of anecdotal examples of how finding the right measure has resulted in significant gains. He continues:

"There are plenty of other areas where our ability to measure can improve people's lives in powerful ways — areas where we are falling short, unnecessarily. In poor countries, we still need better ways to measure the effectiveness of the many government workers providing health services. They are the crucial link bringing tools such as vaccines and education to the people who need them most. How well trained are they? Are they showing up to work? How can measurement enable them to perform their jobs better? In the U.S., we should be measuring the value being added by colleges. Currently, college rankings are focused on inputs — the scores and quality of students entering college — and on judgments and prejudices about a school's 'reputation.' Students would be better served by measures of which colleges were best preparing their graduates for the job market. They then could know where they would get the most for their tuition money. In agriculture, creating a global productivity target would help countries focus on a key but neglected area: the efficiency and output of hundreds of millions of small farmers who live in poverty. It would go a long way toward reducing poverty if we had public scorecards showing how developing-country governments, donors and others are helping those farmers."

Measurement and data go hand-in-hand. In an earlier post entitled Data Philanthropy and Global Resilience, I discussed how important is that policymakers have access to the right kind of information so that they can establish policies and programs that will make the world more resilient. Gates concludes:

"If I could wave a wand, I'd love to have a way to measure how exposure to risks like disease, infection, malnutrition and problem pregnancies impact children's potential — their ability to learn and contribute to society. Measuring that could help us quantify the broader impact of those risks and help us tackle them. The lives of the poorest have improved more rapidly in the past 15 years than ever before. And I am optimistic that we will do even better in the next 15 years. The process I have described — setting clear goals, choosing an approach, measuring results, and then using those measurements to continually refine our approach — helps us to deliver tools and services to everybody who will benefit, be they students in the U.S. or mothers in Africa. Following the path of the steam engine long ago, thanks to measurement, progress isn't 'doomed to be rare and erratic.' We can, in fact, make it commonplace."

If I had to choose a camp into which I must be placed, my first choice would probably be the optimists' camp. I do believe that international transactions provide more benefits than ill effects. As I noted earlier in this post, not everyone is an optimist when it comes to globalization. In the next segment of this series, I'll look at what the pessimists have to say.

March 19, 2013

The Importance of Location in Targeted Marketing

Walter Loeb recently reported that Macy's has done well merging its retail and eCommerce channels using a strategy it calls "MOM" (My Macy's localization, Omnichannel, and MAGIC selling strategy). Loeb reports that the strategy has resulted in more satisfied customers and increased sales. ["Macy's Loves MOM, And Consumers Do Too," Forbes, 27 February 2013] Loeb briefly explains the MOM strategy:

"For more than three years the company has worked on specific localization – 'My Macy's – which focuses on having each store feature merchandise that is relevant to customers who live and shop in that area. ... The customer has responded enthusiastically to the My Macy’s strategy. The Omnichannel strategy allows for extraordinary service to customers. In addition to warehouse fulfillment of purchases from in-store, on-line or mail order customers, Macy’s now has 292 stores that participate in the fulfillment of orders – to insure that the customer receives better service as purchases are delivered quicker than ever before. By the end of the year management expects to have about 500 stores participating in this program. Magic selling is the third key initiative. Through new training tools, associates are taught how to be more engaged with the customers and how to be more empowered so that they can make decisions on the selling floor. It is an important step ensuring more caring and responsive customer service."

Although every letter in MOM represents an important part of the strategy, in this post I'll focus on just one aspect of that strategy -- tailoring products by location. According to Loeb, Macy's uses big data to understand differences between customers in different locations. He writes, "Whether it is Latino or Asian customers, the selection of fashion merchandise, as well as the taste level and sizing of the clothing, is often very different from store to store, and requires a trained buying staff. In some cases this localization program requires special advertising and displays, and there is much less of a cookie-cutter approach to buying across the company." As noted above, both Macy's and its customers have been happy with the results.

A blogger, who calls herself Beans and writes for ContentsEqualMoney, believes that location is going to drive one of the next big things in advertising. She asks, "What if you could advertise to potential customers based on their vicinity to your product or service?" You don't have to imagine such a scenario, she writes, because "this is one of those 'the future is now moments." ["Location-Based Advertising: Data-Driven Marketing for 2013, CEM Blog, 15 February 2013] Location-tailored, in-store merchandise and location-based, targeted advertising are obviously highly complementary strategies. Beans asserts, "You can combine analytics and principles of personalization with mobile location services to get in on what might be the next transformative trend in mobile marketing." She continues:

"I discussed the recent convergence of technology with overwhelming amounts of information in my recent post on big data. We know that businesses have access to more and more demographic data and huge amounts of analytics, and that the sheer volume can sometimes lead to decision-making paralysis. The same is, in many respects, true for consumers, too. How many ads do you see in a day? How many product reviews do you check out before making a purchase or using a service? So many it's hard to keep track of them, right? Search Engine Watch recently predicted that one of the biggest challenges for 2013 is going to be breaking through all of that growing noise to make your business' voice heard over everyone else's. They also pointed out that consumer purchases continue to involve mobile devices at higher percentages with each new survey, from the research to the buying phase. So, the question is, how do you project the most salient image of your business while integrating mobile technology?"

The answer to breaking through the noise, she asserts, involves making your advertising more mobile, personal, and local. "Those three words," she writes, "hold one of the keys to maximizing your ROI in 2013." She explains:

"The 'mobile' is obvious, of course – ... the mobile market is booming both in terms of usage and consumers using various mobile devices to make purchases. But if you pair it with 'personal' and 'local,' you can ride the mobile reinvention train to a huge boost in sales. A recent Clickz article discussed the concept of 'personalization' in recent years, as we've shifted to integrate multiple devices and huge amounts of technology into our lives. The author suggested that recently, the idea of personalizing a consumer experience has started to shift from the 'if you liked this book, you’ll probably like this one' that we're all familiar with from sites like Amazon, to a model of a 'user experience' that creates a unique system for each individual. This system crosses over domains from one device to another, and in some ways even from the physical world to the digital and vice versa. And therein enters the 'local' aspect. Mobile technology like smartphones and to some extent tablets have already bridged the divide between the physical and digital worlds; we have the internet with us everywhere, safely in our pockets. For businesses, the trick is to now make a personalized digital experience based on a physical location."

The most personalized experience you can offer a customer is making them feel like they are your only customer -- a market of one. For more on that topic, read my post entitled Marketing to the Individual. Beans writes, "Conceptually, location-based advertising sounds great." Do you sense a "BUT" coming on? There is one, but it's not as deflating as you might think. Beans explains:

"Let's say you run a brick-and-mortar store. Your customer gets an alert for a sale at your store, or they receive an awesome coupon that will expire in half an hour, when they come within a mile of your physical location. They throw on the brakes, pay you a visit, make a purchase, and your location-based ad campaign is a resounding success. [A] Forbes’ article on whether or not location-based advertising is the future of mobile marketing complicates the matter a little bit. For the most part, consumers apparently will not stop what they're doing just because they get an alert on their phone saying that they're near one of their favorite stores. The vast majority of purchases are planned, say the authors, not impulsive, so you're not likely to catch that many customers who weren't already thinking about buying from you. And of course, there are myriad privacy concerns when it comes to tracking potential customers' locations. However, location-based advertising remains a very attractive next step in mobile advertising, and it’s already happening. The recent launch of Google Now offers a function to alert Android users to nearby attractions, events, and even photo opportunities. JiWire, a company that specializes in location-based ads, has already brought this kind of targeted advertising to multiple airport hubs in the United States, using WiFi hotspot locations rather than phone-based location services to advertise for nearby businesses."

Given the fact that shoppers on unlikely to stop what they're doing to respond to an advertising alert near them, it would be appear that location-based advertising may best be used in a mall-like setting (i.e., when consumers are already involved in a shopping environment). Nevertheless, Beans insists, "Now is the time to adopt a location-based advertising strategy. The key here is to make sure that your ads are not only relevant to your audience, but are hard-hitting enough to make potential customers stop in at your business as they're driving or walking past it." She offers "a couple of concrete ways that you can optimize your location-based ad campaign." They are:

  • Use predictive analytics. Physical location is a narrow field, sure, but you want to make sure you’re targeting the customers who really want to buy. Pay attention to behavioral data, and use it in conjunction with location data to direct your efforts to relevant consumers.
  • Make strong, short-term offers. Potential customers are more likely to turn into definite customers if they receive a location-based offer that requires them to act now, and provides an impetus to do so.
  • Optimize local SEO. Even if you decide to forego your own campaign, make sure your web presence carries all the necessary information about your location and hours, so that third party searches like Google Now will alert nearby potential customers to your existence.

I would add that you take a page from Macy's playbook and tailor your inventory to your location. It doesn't matter how close to your store a consumer approaches, he or she won't walk in if what you offer does not suit their tastes or preferences. The more tailored the inventory, the more likely it is that a consumer will become a customer. In the Forbes' article cited by Beans, Sense Networks CEO David Petersen, told its author, Steve Olenski, "Some of the early failures in mobile advertising are due to poor timing and sending irrelevant offers to consumers because they aren’t based on behavior and location data." Sending irrelevant offers to consumers is the opposite of what targeted marketing is all about.

March 18, 2013

Marketing to the Individual

"Last year marked a turning point in marketing," writes Liz Crawford, vice president of insights and strategy at Marketing Drive, "it was the moment when genuine, one-to-one marketing was finally realized." ["Market of One," The Hub Magazine, March/April 2013] You can't get much more personal or target your audience more completely than that. Crawford explains that the dream of one-on-one marketing is not new. She writes:

"In their 1996 book, The One to One Future, Don Peppers and Martha Rogers envisioned personalized marketing on an individual level for millions of buyers. In 2012, advances in mobile communications and big-data algorithms reached a tipping point, enabling marketers to personalize pricing and the shopping experience on a mass scale. While these developments are still in their infancy, they have opened the door to unprecedented opportunities, watch-outs and responsibilities."

Individualized pricing is high on her "watch-outs" list. She recalls the furor last year "when it was discovered that Orbitz.com was showcasing higher-priced hotel deals to Macintosh versus PC users."

"Hotel rooms were merchandised depending on the kind of computer the shopper was using, as well as the browsing and buying histories of the shopper. According to The Wall Street Journal, 'The sort of targeting undertaken by Orbitz is likely to become more commonplace as online retailers scramble to identify new ways in which people's browsing data can be used to boost online sales.'"

There is a difference between boosting online sales by offering the right person the right product at the right time and trying to gouge them. Companies that engage in the latter behavior are likely to suffer blowback as their nefarious practices are revealed. And in today's "always on" world, those kinds of practices will be discovered and revealed. One of the reasons that Crawford believes that 2012 marked a tipping point in targeted marketing is because "this past year ... such personalization found its way in-store." Crawford reports that individual pricing works a little differently once a shopper is walking down the aisles of store. In that circumstance, stores can use loyalty data to better understand the customer and offer them ever more tempting prices to get them to make a purchase. She explains:

"In July 2012, Safeway introduced its Just for U loyalty-card program. Based on the shoppers' buying history, this platform generates personalized coupons as well as individualized pricing. Shopper 'A' gets a different price than Shopper 'B,' on the same item. Promotional offers and pricing provide incentives to each shopper differently. The idea is that the offers are increasingly relevant and compelling to potential buyers. The advantages of this approach are worthwhile for the marketer. Individualized — or dynamic — pricing presents an opportunity for marketers to increase their 'share of shopper,' or as Peppers and Rogers would say, 'share-of-customer.' While early mass-marketing focused on getting share-of-market, personalized marketing focuses on gaining share-of-customer. The One to One Future claimed: 'The share-of-customer marketer will concentrate on one customer at a time, and try to sell that customer as many products as possible over the customer’s lifetime.' In fact, personalized pricing plays out this vision perfectly. In an interview with Drug Store News, Steve Burd, CEO of Safeway, explained that the Just for U program increases share-of-customer: 'We have countless examples of people who used to spend $50 with us now [spending] $150 with us. We want more of that.'"

Safeway's offering one customer a different price than another customer may sound like the same tactic being used by Orbitz, but it's really not. Orbitz priced their goods differently on the assumption that Mac users are willing to pay more for products than PC users. Safeway's program is based on a shared relationship with the consumer (its loyalty program) and actually rewards that loyalty by providing customers products they want at prices they can't pass up. It's a win-win. As Crawford writes, "Personalized pricing is based on the individual's habits and proclivities. This is price elasticity for a market of one." She goes on to raise the issue that last summer's Orbitz headlines raised -- fairness. "Is individual price elasticity fair?" Crawford continues:

"There are two sides to the issue. On the one hand, personalized marketing is fair insofar as the program is voluntary and ultimately benefits the shopper. On the other hand, which shopper gets the better deal, and how is that determined? Many shoppers see the advantages of personalized pricing and promotions. The convenience and efficiency of tailored marketing is especially appealing. One shopper on consumerist.com remarked: 'Kroger sends me coupon packs (two so far this month) tailored to my past purchases. I will use at least 80 percent of the coupons, compared to the near-zero percent from the random mailers that get put in my mailbox. I think it's a great deal.' In a similar vein, a shopper said: 'I love the new Safeway thing. I hope it gets very accurate after some use. I couldn’t even come close to caring if a supermarket tracks what I buy. So, for me, this is perfect ...' On the other hand, some shoppers are unsettled by individualized promotions. While most consumers are inured to the idea of giving up some privacy in return for discounts, the canny use of data mining still spooks a significant number. According to one consumer: 'I find something inherently creepy and unfair about targeting these "secret’ deals." I'd rather they were open to everyone, even if they're not advertised.' Another articulates her emotional reaction to customization as 'strangely manipulative and controlling.'"

Frankly, I side with those who find personalized marketing a good thing. The so-called "secret deal" for the targeted marketer was earned by bartering personal shopping data (through the loyalty program) for better prices. Every grocery chain that has a loyalty program makes it abundantly clear that program members are going to get a better deal than non-members. Personalized deals take that bargain one step further and make the bargain between retailer and customer just that much better. If customers want to make sure that purchases that aren't tracked, they simply don't use the loyalty card at check out. Customers have complete control over the data they share. Nevertheless, Crawford reports, some critics believe that individual pricing is not fair commerce. She explains:

"Beyond privacy concerns, the real crux of the individual pricing issue is fair commerce. Who is getting a good deal and why? 'There is a sense of fairness that's derailed here, 'Professor Joseph Turow of the Annenberg School of Communications told The New York Times. On blogs and feedback forums, consumers have voiced concerns about racial and income discrimination in connection with personalized pricing. The responsibility of owning consumer data, and customizing pricing, does provoke a certain demand for transparency. Recently, in the UK, personalized pricing has attracted the attention of the government. Today, British consumers can ask companies to release data about their energy consumption, and according to a BBC report, the government may eventually require supermarkets to release their data on shoppers. Calls for increased transparency are coming from shoppers, as well. Stores that advertise prices on shelves (such as Trader Joe’s), have been held up as examples of fairness in blogs and public discussion forums. Likewise, in describing the difference between personalized pricing and movie-ticket pricing, one consumer wrote, 'There is a crucial difference: the movie theater's prices are posted. You might not get the student discount or the matinee price but you know it exists.' In the court of public opinion, transparency is a key to fairness."

Most supermarket chains do advertise the difference between the member and non-member price of items. They would be silly not to. After all, they want people to join their loyalty program so they can gather better information about the preferences of their customers. As long as shoppers know that there is a possibility of even greater savings if they join the program, fairness really shouldn't be an issue. "As a practical matter," Crawford writes, "retailers may have an incentive to offer some public information, because pricing transparency may be discoverable as consumers can compare prices on social networks." Crawford does, however, raise a very interesting point about the potential downside of individual promotions. "At least theoretically," she notes, "a price differential opens the door to an arbitrage market and middlemen."

In the world of finance, arbitrage is the practice of taking advantage of a price difference between two or more markets. You buy low in one market and sell whatever you bought in a market that is paying a higher price. If you don't like the arbitrage analogy, Crawford writes that you could think about the potential middleman as a "reverse scalper." She explains:

"A traditional scalper sells at a price higher than a ticket’s face value. But reverse scalpers could advertise their ability to buy low. They could then sell to you at a price lower than you could buy on your own. This business model could be based on the margin differential, or on referral fees. While I had conceived of this phenomenon as only theoretically possible, The New York Times recently reported that a start-up named Hukkster.com had just launched such a business. Hukkster sends price alerts on specific items to subscribers, but is also considering working with retailers to offer shoppers personalized discounts."

It seems unlikely to me that much money is to be made by individual supermarket arbitrageurs. While it may seem that Hukkster is playing the role of an arbitrageur, it really is more of an alerting system. It also doesn't help retailers in their efforts to encourage shoppers to make impulse purchases. On Hukkster, people sign up, create a list of things they would like to buy, and then wait for the price of that item to drop. If you're looking for instant gratification, you'll be disappointed. On the hand, in-store personal promotions are aimed at getting a shopper to buy something they've shown a past interest in right then and there.

Crawford indicates that some retailers might not like the fact that savvy shoppers can "game the system." She notes that one "blogger who was experimenting with the Just for U program discovered that bagged coffee was cheaper if she periodically switched brands. ... Naturally, such behavior threatens to derail brand loyalty. Out-maneuvering the algorithm may become part of the shopping experience, unless marketers surrender some levers to the shopper." I suspect the vast majority of shoppers will never game the system and, even if they did, retailers would probably still benefit by gaining more "share-of-the-customer." Crawford concludes:

"The opportunities for personalized marketing are enticing, but must be pursued responsibly. The lessons of the last few years have shown that shoppers are calling for increased transparency, choice and control. Access to the same information and purchasing opportunities levels the playing field, and restores a sense of fairness. Ultimately, earning the shopper's trust is a fair price for winning in the market of one."

I couldn't agree more.