Enterra Insights

Healthcare is Forecast to Get Even More Personal

Current debates about healthcare cover topics ranging from how to rein in costs to how to make it more personalized. With the emergence of Big Data analytic tools that can rapidly sequence DNA, test hypotheses, discover new relations, uncover fraud, and so forth, the healthcare sector sits on the cusp of a new era. Exactly where the road will lead remains unclear. What is clear, however, is that Big Data analytics hold the potential of making healthcare much more personal. This is particularly true when it comes to developing treatments for disease. Before this can happen, however, there needs to be more secure data sharing.

In an earlier post entitled Big Data and Better Health, I cited an article by Becky Graebe in which she notes that "four distinct big data pools exist in the US health care domain." Those pools are:

• Pharmaceutical R&D data
• Clinical data
• Activity (claims) and cost data
• Patient behavior and sentiment data

Graebe reports "there is very little overlap in ownership and integration of these pools, though that will be critical in making big strides with big data in health care. ["What is the future of big data in health care?," SAS Voices, 6 May 2013] Even if data integration occurs slowly, Hellmuth Broda believes that strides will be made in personalized medicines and treatments. ["Personalized Medicine and Big Data," Pondering Technology, 30 July 2013] He writes:

"While many doomsayers describe the Pharmaceutical industry as one where the golden days are over and where more and more enterprises are bound to be falling off the 'Patent Cliff' or get lost in space, many rather visionary companies have ignited their rocket boosters and are catapulting themselves onto firm ground again. This rocket booster consists of treatments for rare diseases and Personalized Medicine. The two chambered booster combines especially targeted diagnostics with targeted therapies and utilises cloud services alongside with Big Data analytics. This new method of transport brings with it new demands on research, clinical trials, production, logistics, information systems and the overall business model."

To achieve maximum benefit from Big Data analytics, Broda agrees with Graebe that more integration and cooperation needs to occur. He also lists a number of challenges facing the pharmaceutical industry. He continues:

"These challenges and more importantly how Pharma companies tackle them, are shaping the future of the industry, with some key trends already emerging:

• To solve complex tasks, 'coopetition' with other companies will become the norm
• The journey towards Personalized Medicine
• Race to Biologics
• Pairing of drugs with their accompanying diagnostics
• Stricter regulations on compliance
• New demands on privacy and security
• Big Data approaches yielding new insight into drug action correlations

"These challenges put new demands on governance, processes, business models and the information systems, which will build the foundation for these new endeavours. New trends in technology adaptation will support and enable these objectives."

The ability to gather and analyze Big Data is the common thread that weaves it way through all of the trends identified by Broda. One of the dilemmas that will confront the healthcare sector regarding personalized medicines will be cost. Broda explains:

"Drugs will become less generic (and low-cost) and more tailored for specific demographics in the future (and more high value/high cost). There are huge benefits to this, including the fact that these drugs are harder to copy so they retain their value better for the producer and they are also more effective as they can meet more specialist needs. While the current trend is looking at groups of people, maybe based on age or ethnicity, this will evolve in the 21st Century into truly personalised drugs on an individual basis reflecting the patient's genetic predisposition."

There are good reasons why doctors and patients alike would like to see more personalized medicines. As Broda explains, "This increasing personalisation of therapy will significantly benefit patients, by both raising efficacy and reducing side-effects." While drug companies may relish the thought of developing high value/high cost drugs, that's probably not good news for the masses. If Big Data analytics can be used to bring the cost of drug development down, a win-win situation could develop. It has been proven that profits can still be made by selling products to the so-called "bottom billion" consumers if products can be produced at the right price point in the right amount. Big Data analytics should be able to help pharmaceutical companies with that challenge as well. No one benefits when pharmaceutical companies go out of business or when medicines are manufactured in unsafe conditions in poorly regulated plants. For the immediate future, however, it looks like personalized medicines are going to benefit the rich more than the poor.

Broda makes the point that "drugs and their diagnostics walk hand-in-hand." As I pointed out in my earlier post (mentioned above), Big Data and cognitive reasoning systems are playing a role in diagnostics as well as drug development. A paper from the Institute of Medicine, entitled Making the Case for Continuous Learning from Routinely Collected Data, asserts that a "a learning health system" will be beneficial in a number of ways.

"The availability and reliability of large volumes of relevant longitudinal digital data from a variety of clinical and nonclinical sources are core features of a system that learns from each care experience, a learning health system. Common clinical repositories include data from electronic health record (EHR) systems used to manage patient care and claims data necessary for billing purposes. In some cases, data sources can be linked, using either institution-specific identifiers or matching algorithms, to create disease-specific patient registries that enable research. Integration of large pools of disparate clinical data from EHRs and claims is a major function of health information exchanges, which will be increasingly important to ensure seamless management of health information across institutions. Nonclinical sources of patient information may also include data from retail sales of over-the-counter medications, dietary supplements, walking and running shoes, and personal preferences and behaviors."

Although technology is important in the healthcare sector, professionals in that field can't afford to concentrate only on technology if things are going to get better. Like other business sectors, the healthcare sector needs to keep technology, people, and processes in balance. Deanna Pogorelc reports that Dr. Kevin Fickenscher, president and CEO of the American Medical Informatics Association, made that point at a conference earlier this year. ["The problem with big data in health? Too much focus on technology instead of people/process," MedCity News, 7 May 2013] Pogorelc reports that Fickenscher told conference participants, "One of the things that has been a problem in healthcare is that we tend to spend too much time talking about the technology and not enough time talking about the people and the process. So my personal bias is that while technology is important [...] if we don't deal with the people and process, we will not solve these other issues; we won't have good change management, and we won't have good implementation, which is where the value gets created from large data."

One of the newest fields being developed that will make healthcare even more personal is nanomedicine. "Nanomedicine, refers to highly specific medical intervention at the molecular level for curing disease or repairing damaged tissues." ["Nanomedicine," Associates Degree in Nursing] The article states, "Though in its infancy, could we be looking at the future of medicine? Early clinical trials certainly look promising." The article was accompanied by the following infographic.

Source: Nanomedicine: The Future of Medicine

It should be abundantly clear that both diagnoses and treatments for diseases are going to be more personal in the future. That should be a good thing; especially if costs can be held in check.

Packaging and Sustainability

Manufacturers and retailers know that packaging serves a number of functions. Good packaging protects the products they contain, attracts the eye of potential buyers, and optimizes retail shelf space. More and more, however, you read about the importance of so-called "green" packaging. The challenge for designers and engineers is to develop packaging that provides all of packaging's traditional functions while being environmentally friendly. Each type of packaging material (e.g., metal, glass, plastic, and paper) comes with its own set of unique challenges. Most consumers don't really give much thought to packaging. Fortunately, professionals involved with packaging do. That's because billions of dollars are spent packaging consumer goods each year. Nevertheless, Dennis Salazar, President & Co-founder of Salazar Packaging, believes there is plenty of room for innovation in the packaging sector. After attending a couple of recent packaging conventions, he concluded that, "not a whole lot" was taking place "in terms of innovation." On the other hand, he asserts that there is a lot of activity "in terms of approach." ["What’s New in Green Packaging?," Environmental Leader, 16 May 2013] I'll discuss those approaches later.

Rory Christian, a Consultant with Cambashi, points out that the "perfect package," if there is such a thing, isn't the work of a lone genius sitting at a design table. He asserts that it requires "input from an array of geographically-dispersed stakeholders, including: multi-disciplinary design teams, packaging manufacturers, logistics operators, retailers and, of course, the consumers themselves." ["The Promise of Great Packaging at Retail," Consumer Goods Technology, 7 May 2013] Each of those stakeholders views packaging from a different perspective and, therefore, each stakeholder provides valuable insight about its development. Christian believes, however, that too often valuable inputs from stakeholders are received sequentially and the result is less than optimum packaging. He explains:

"Companies have tended to operate a sequential process for packaging design, with each team impressing their input onto the product one stage after another. The issues that arise when, for example, space needed for labeling is cannibalized by the brand logo during a preceding process, often lead to conflict, unexpected re-work, extra cost and wasted opportunity."

When sustainability factors are added in, the complexity of the packaging challenge increases. Paul Tasner, Chief Operating Officer and Co-Founder of PulpWorks, Inc., believes that sustainable packaging refers to "packaging that does more good than harm. It is packaging that will not be a burden on our planet or for future generations, as opposed to the packaging that continues to be such a burden on the environment." ["Sustainable Packaging," Dustin Mattison's Blog, 14 August 2012] Tasner adds that one of the challenges associated with sustainable packages is cost. He explains:

"In many cases the sustainable packaging choice is not the economical choice. There may be a cost difference. It is obviously pennies, but pennies are important to many companies. They don't consider sustainable packaging to be an important factor in their supply chains. In fact, many companies see the cost barriers as an issue."

Salazar notes that there have been some attempts to adopt innovative materials ( such as, "seaweed, mushrooms or concepts that make new packaging out of waste such as marine plastic:); but, he laments, these products have not proven to be "game changers" that are "capable of being produced, economically for large volume, commercial use." Ron Romanik, Contributing Editor at Packaging World, believes that even during economically challenging times that manufacturers should pursue innovative packaging solutions. ["How packaging innovators tear down walls while planning ahead," 26 April 2013] He provides ten "tips to help jump-start—or rejuvenate—your leadership in managing a new package innovation."

1. "Break down walls. You don’t need X-ray spectacles to see that information shouldn't be hidden behind departmental barriers or organizational 'walls.' ...
2. "Work hard to work together. ... Engineers and technical R&D professionals may suspect that marketing doesn't understand what is or isn't possible, while marketing pros may feel that tech teams are stuck in the proverbial mud.
3. "Define the common goal. ... Packaging innovation design doesn't happen in a vacuum.
4. "Empower engineers. ... Don't be afraid to empower engineers and make available to them packaging-specific data to drive to the right solution. ... Consumer behaviors, wants, and needs influence the solution. But engineers need the data to justify the solutions they offer.
5. "Plan for the good and the bad. ... Companies must remain flexible—from the business processes to packaging line designs and layouts.
6. "Anticipate the future, systematically. ... Continually research new package ideas to meet present and future needs. ...
7. "Be a true believer. Leading packaging professionals believe that innovative packaging is good for the company as well as society at large. ...
8. "Retain educated leaders. The best packaging R&D groups include leaders who are experienced and educated specifically in packaging. ...
9. "Roll up your sleeves. Even managers should have the experience and capability to execute in order to lead a packaging project from concept to market, to work with engineering, manufacturing, and external material and machinery suppliers.
10. "Measure to improve. Measure brand performance with consumers. ..."

Deciding what metrics to use is important. As noted earlier, if cost is the most important metric for a company, then some innovative sustainable solutions may never be considered. Additionally, a focus on cost may result in corporate myopia that prohibits a company from looking at the broader picture. That brings us back to the point that Salazar made earlier about new approaches to green packaging. He writes:

"What I find most encouraging is the change of attitude that is more back to basics; packaging design that is green by default. Don't misunderstand, I am not at all critical of this approach, in fact I am convinced it is the only way we can drive positive, long term change. It will be successful because it is based in economics, not guilt and because in most cases the savings they produce are immediate with minimal upfront investment. Even though this economically driven change may not have the green banner on it, the results happen to be basic in regards to sustainability. Many of the products I now see being promoted can easily and accurately be categorized in the three basics R's of sustainability."

The three R's to which Salazar refers are: Reduce, Reuse, and Recycle. None of these R's requires the use of new innovative materials — and that's Salazar's point. Concerning reducing packaging material, he writes:

"The new focus is on thinner, stronger materials able to do the same job with less material. This is consistent not only in paper products but especially in plastics after another turbulent year of resin prices, negatively impacting all forms of transparent, flexible packaging, and non-film products like plastic strapping, and carton sealing tapes. We are most definitely using less, not necessarily for the sake of the planet but for the sake of the bottom line."

Anyone who drinks a lot of bottled water has noticed how caps have gotten smaller and bottles have become thinner over the past few years. Thinner material is good for some purposes (like holding water), but thinner material also offers less protection for more vulnerable products. Concerning the reuse of packaging material, Salazar writes:

"I see a lot more products that permit or encourage their reuse. Paper products such as boxes with specialty coatings designed to extend life and the increased popularity of returnable, reusable packaging such as totes, mailers, and other containers designed for multiple reuse. Companies love the economics of packaging that is not designed to be used and tossed, and they are taking full advantage of closed loop or internal return/reuse capabilities."

Somewhere between the topics of Reuse and recycle is the topic of repurposing. Repurposing involves finding a new use for an old product without having to modify it significantly. Unfortunately, for most manufacturers, repurposing really isn't an option. Finally, on the topic of recycling, Salazar writes:

"If there is a long term positive impact to what appears to be for many companies a short term interest in sustainability, it is in this most important area. More products than ever before are being made with a large percentage of recycled content and even more are able to be easily recycled and are labeled as such. I would also say that most of the manufacturers I know use recycled materials because it saves them money and allows them to minimize the impact of multiple price increases on new or virgin materials."

In past posts concerning sustainability, I have stressed that the only sustainability initiatives that will have legs are those for which a business case can be made. Salazar agrees. He concludes:

"The other really positive, long lasting change I see is an increased interest in sustainable design incorporating the three techniques above. The end result of an application audit is almost always an immediate savings because so often companies are basically using the wrong product, or in some cases the product design they are using is simply outdated. Imagine being able to use less packaging, that is 50% recycled content and is 100% recyclable after many repeated uses? Those types of goals are being met every day and that is good for the bottom line and for the environment. The best eco friendly packaging solutions are those that are appealing to the company or consumer using them and also make economic sense."

The topic of sustainable packaging is only going to gain more attention in the years ahead. It will be interesting to see what kinds of innovative solutions companies come up with to meet the myriad functions that packaging involves.

What Makes a Smart City Smart?

The staff at ITBusiness writes, "We hear the term 'smart city' a lot these days, and it can mean different things according to the context." ["Five things that make a smart city smart," 15 November 2012] Aaron M. Renn, an urbanist, agrees that each city has to decide what is "smart" for it. In making those decisions, he notes, there are some "tensions" with which decision makers need to deal. ["Regarding Smart Cities," Urbanophile, 27 November 2012] They include:

• Centralized vs. decentralized systems.
• Proprietary vs. open technology.
• Technology driven by government (e.g., efficiency) or society as a whole (e.g., environmental) goals versus value delivery or life enhancements for citizens and consumers.

He continues: "These are definitely items that should be thought about when trying to get a handle around all the things that go into what we think of as 'smart cities.' I think a lot of what we conceive of as smart cities today consists in vendor led automation/efficiency solutions. These are important, particularly in an era of fiscal constraints in which business as usual is no longer tenable." Lauren Brousell agrees with Renn that working with vendors is a good idea if it makes operations more effective and cost efficient. "Smart technologies produce a flood of data," she writes, "so cities should look for software as a service (SaaS) and other cloud offerings to save on workload and cost. For example, the city of South Bend, Ind., is the first in the world to manage its water systems in the cloud, according to IBM, the city's SaaS vendor. The system has reduced wet weather overflows by 23 percent and avoided $120 million in infrastructure costs, IBM says in a statement." ["Five Things You Need to Know About Smart Cities," ComputerWorld, 15 November 2012] Nevertheless, she reminds us, "It's not all cool technology." She explains:

"Though the definition of the term 'smart city' is still fuzzy, it suggests using advances in transportation, technology, infrastructure, sustainability and governance to improve the quality of urban life. But smart cities don't actually need the latest and greatest tech. 'Being smart is about redefining processes and engaging citizens,' says Jennifer Belissent, an analyst at Forrester Research. For example, Dubai Electricity and Water Authority created an app that citizens can use to pay electricity, water and sewer bills. Vancouver set up a website called Recollect.net where recycling schedules are posted and alerts are sent via tweet, text or phone call."

Her next point is that communication is as important as technology. "Many steps to becoming a smart city fall on the shoulders of IT, but IT should share the workload and communicate with other departments." Jesse Berst, chief analyst at Smart Grid News and chairman of the Smart Cities Council told Brousell, "If our departments never talk to each other, we will dig the same street up five times." Perhaps Brousell's most important point is that cities will never get smart if constituents don't get involved. She believes that they not only need to get involved but, more importantly, that they want to get involved. She writes:

"Citizens expect to be able get government information on their PCs, smartphones and tablets whenever they want. Cities will need to be able to deliver that and communicate with the public using social media, Berst says. 'You can't just send out paper reports once a year.' Forrester Research says 53 percent of local government organizations rank improving citizen access to government information and services as their top priority. Residents also want a way to weigh in. Rio de Janeiro asked citizens for input on open data and apps initiatives – and got 1,876 ideas."

Renn agrees that getting all stakeholders involved is essential. "While the centralized model is important," he writes, "we will only see an explosion in value to the extent that we are able to create platforms on which the public and entrepreneurs can themselves innovate." It should be clear by now that, although other things do come into play, technology plays a central role in helping make a city smart. Renn believes that it's time to create an open source, cloud-based platform to bring all the technology together. He explains:

"Today, we've reached a place where a very new paradigm exists. The emergence of two things – open source development frameworks and the cloud – has created an environment on which even lone developers can innovate. Everyone with a certain basic knowledge of development is now capable of creating and releasing applications, and even starting companies, with next to no money. You can literally do it from your bedroom. Yet, most apps may end up as junk, but so much amazing stuff is being created too. We now have an incredible environment for technical creativity out there. I think this is where cities should be aiming for: to build 'the open source cloud' for smart cities, whereby it isn't up to only the city or high priced contractors to deliver value, but the marketplace and even citizens will have that ability to innovate on top of the platform such that they’ll generate value we never imagined possible – and at no cost to the public. And it will generate amazing positive side effects like improved urban resiliency. I won’t pretend to know what this will look like, just as I couldn't have predicted our current environment even five years ago. But to me the future is in marketplace and citizen innovation, with vendors and cities providing a big part of the critical platform infrastructure to enable it."

Lauren Drell bolsters Renn's arguments by providing a list of "25 Technologies Every Smart City Should Have," [Mashable, 27 December 2012] She writes:

"You think cities are crowded now? By 2030, more than 5 billion people will live in urban settings. But before we get to that kind of population density, we have to optimize our cities. We need to make them smarter and better; technology can help. Cities all around the world work with developers and contractors to make city living better, whether it's improving the timing of traffic lights or creating a useful app, which becomes more powerful as smartphone penetration continues to increase. Apps and well-implemented technology can help cash-strapped governments save money and, be more efficient. We put together a list of the technology that we want to see in every major city."

Her list includes:

1. Open-data initiatives
2. Parking apps
3. Apps that let citizens "adopt" city property to maintain
4. High-tech waste management systems
5. Parking payment systems
6. City guide apps
7. User-friendly touchscreens
8. Wi-fi in public transportation
9. Sustainable and energy efficient real estate
10. Dynamic informational kiosks
11. Social-media based crisis response systems
12. Police forces that use real-time data to monitor and prevent crime
13. More public transit
14. OLED lighting and surveillance in high-crime zones
15. Charging stations
16. Solar panels
17. Bike-sharing programs
18. Encouraging a "sharing economy" instead of a buying economy
19. Smart climate control systems
20. Traffic re-routing apps
21. Water-recycling systems
22. Crowdsourced urban planning
23. Broadband Internet access
24. Mobile payments
25. Ride sharing programs

Drell admits that her list is not exhaustive; but, it provides some understanding of the types of technologies currently available to help make cities smarter. Andrea Di Maio, a Gartner analyst, asserts that cities need to be astute as well as smart. "Being astute means to be able to make the best possible use of scarce (and declining) resources," he writes. "It means to effectively leverage available funding. It means to reuse as much as possible of what exists. It means to realize that sustainability requires collaboration within and across traditional boundaries." ["Smart Cities Are Not Intelligent: They Are Astute," Gartner, 14 December 2012] I like Di Maio's perspective because it doesn't allow stakeholders to lay off all their decision making onto to technology. It will take great minds, sound policies, and good technology to make cities smart.

Preparing for Supply Chain Disruptions

"After tsunamis, protests, wildfires, and riots — to name just a few recent major disruptions — few managers can be unaware of companies' vulnerability to the vagaries of politics and extreme weather," writes Mary Driscoll. She editorially adds, "You'd think." ["Research: Why Companies Keep Getting Blind-Sided by Risk," Harvard Business Review Blog Network, 18 July 2013] "Yet," she reports, "three quarters of the 195 large companies surveyed recently by APQC got hit by an unexpected major supply chain disruption in the last 24 months." Driscoll's question is: Why are these disruptions unexpected in light of recent history? In many cases, she notes, "C-suite executives had to get involved in the fix-it process for a sustained period of time." She finds it even more puzzling that these disruptions were "unforeseen" considering that "these are the same senior executives and middle managers that have supposedly been embracing formal enterprise risk management (ERM) for some time." Which raises another question: "Why did these systems fail so spectacularly?" The quick answer is: Shortsightedness. Driscoll explains:

"Part of the problem stems from the familiar gap between the talk and the walk. Survey findings indicate that most organizations' leaders did indeed express concern about the impact of political turmoil, natural disasters, or extreme weather. But the findings also show that the people at the front lines of the business were hamstrung by a lack of visibility into risk. Nearly half said they lacked the resources needed to adequately assess business continuity programs at supplier sites. Many relied on the suppliers filling out perfunctory, unreliable checklists. It's likely that the push to protect profits during the recession made matters even more difficult for supply chain operators. Seventy percent of the respondents to the APQC survey say their organizations pruned their lists of suppliers over the past five years, with the intent to reduce costs. Moreover, nearly three-quarters (74%) of the companies over the period added suppliers physically distant from their facilities, with 63% acknowledging that their suppliers are located in areas of the world known for high-impact natural disasters, extreme-weather events or political turmoil. It appears the urge to source in low-cost regions clouded the cost-versus-risk calculus for some."

In several previous posts on the subject of supply chain risk management, I've noted that the "push for profit" can have a negative impact on supply chain resiliency. For example, in one previous post, I wrote:

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

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

Analysts at the Strategic Sourceror state the problem this way:

"As a business attempts to become more efficient, it may make its supply chain increasingly vulnerable to risk. Businesses use strategies such as outsourcing, supplier consolidation and low cost sourcing to improve efficiency, but these practices can add risk and a supply chain is only as strong as its weakest link, [David Oxland and Richard Kettle from] Supply Management stated. Risk analysis in strategic sourcing is crucial, and failure to identify and minimize risks can lead to profit loss." ["Supply chain risk management important to business success," 30 April 2013]

Driscoll calls this the triple whammy: Lengthened supply chains; pruned supplier lists; and doing business in risky areas. The Strategic Sourceror article goes on to state that most companies enter outsourcing arrangements with their eyes wide shut. "Ninety percent of firms fail to perform a risk assessment before outsourcing, Supply Management found." Catherine Bolgar agrees with Driscoll that companies really have few excuses for being blind-sided by risks. "Keeping tabs on supply-chain risks sometimes seems like removing weeds in your garden," she writes, "every time you get one area under control, a new risk pops up." ["Emerging Risks," Supply Chain Risk Insights, 8 April 2013] Bolgar continues:

"Some companies still take a reactionary approach to supply-chain disruptions; more mature companies take a proactive approach. The best companies look farther out, toward emerging risks, for full resilience, says Nick Wildgoose, global supply chain product leader at Zurich Global Corporate, based in London. 'You're looking at future threats — or future opportunities. If you can cope better as an organization, you can perform better.' The more effective organizations carry out analysis with a long horizon."

Let's be clear, even with great analysis, no company can make itself immune to risks and supply chain disruptions. The best companies can do is make themselves more resilient. Last year Dr. David Simchi-Levi, a professor at MIT and founder of the consulting firm OPSrules, introduced something he calls the Risk Exposure Index. Simchi-Levi's methodology helps companies calculate the financial impact of supply chain disruptions as well as the estimated time to recovery or TTR. ["Risk Exposure Index Starting to Gain Traction, Change Supply Chain Thinking, David Simchi-Levi Says," Supply Chain Digest, 24 April 2013] Simchi-Levi told Supply Chain Digest editor-in-chief Dan Gilmore that "the effort to collect information on TTR across the supply chain changes a company's approach to risk management. First, such companies realize they don't have this data, and when they do collect the information there are usually some surprises. Second, the approach then often spurs companies to find ways to reduce TTR, and thus the financial impact."

Lloyd's, the world's largest specialty insurance market, notes, "As production networks and supply chains become increasingly globalised, localised incidents can have a number of major effects on every level of business at home and abroad – from manufacture to distribution to sales." ["Building Supply Chain Resilience," 8 May 2013] Tom Teixeira, a partner in the global solutions consulting group at Willis, told Lloyd's, "What people forget is the supply chain now is a global network and that’s why there really is a need to get into quite a lot of analytics to understand what the pinch points are." In other words, doing their homework should be an essential task for any company that relies on a global supply chain. Driscoll agrees. She writes:

"Supply chain disruption risks often [get] painted as ... operations-level risks and for that reason never [make] it onto the list of 15 or so major strategic/enterprise risks assessed and managed by the Chief Risk Officer's formal ERM process. Many ERM assessments focus on risks related to competitive strategy or the customer experience. The result is that too many boards don't think to ask about — and are not briefed on — the risks of, say, sourcing key components in risky regions of the world. They wind up blind, therefore, to many crucial strategic risks. 'The important thing is to figure out what might be a severe disruption and to do this you have to look down into the different tiers of supply. People at the top need to ask: "What might be out there that we are not currently aware of,"' says Dr. Paul Walker, an expert in ERM at St. John's University in New York."

There are no silver bullet solutions for assessing and mitigating supply chain risk. I like Bolgar's weed analogy: "Every time you get one area under control, a new risk pops up." Vigilance, analysis, and awareness are the keys to addressing the challenge.

Nasdaq Technical Glitch Highlights System Vulnerabilities

Trading today came to a sudden halt on the Nasdaq exchange as the result of a technical glitch. Jacob Bunge, Kaitlyn Kiernan, and Tomi Kilgore, reported that the"unexplained technical issue paralyz[ed] the market for thousands of securities and rais[ed] new questions about the robustness of U.S. trading systems following a series of high-profile glitches." ["Nasdaq Market Halts Trading," Wall Street Journal, 22 August 2013] They continue:

"The outage saw a large chunk of the U.S. stock market effectively come to a standstill at midday, freezing prices in stocks, exchange-traded funds and options listed on Nasdaq and prompting other trading venues to stop trading those securities. Dark pools and other electronic trading platforms were also forced to suspend trading in Nasdaq-listed stocks, since there were no publicly quoted prices on those securities, traders said. Traders said there was confusion about what stocks were affected, and that phones were lighting up across trading desks as investors tried to figure out what was happening."

The halt to trading lasted over three hours and Nasdaq shares dropped more than 3 percent. Bunge, Kiernan, and Kilgore concluded their article by noting that this "problem is the latest in a string of technology-related mishaps affecting exchanges and brokers as markets over the past two decades have migrated to electronic systems." As the following Bain & Company graphic shows, the financial services sector is enormous in terms of the amount of data it involves.

Since the global economy took a nosedive in 2009, there has been a lot of chatter about organizations that are "too big to fail" without dire consequences. If ever there is a sector that is too big to fail without such consequences, the financial services sector is the poster child. Nowadays it is impossible to isolate the effects of financial failure. Regulators should use this latest wake-up call to force financial services organizations to conduct a vulnerability assessment and take measures to close vulnerability gaps. Enterra Solutions has developed a perfect methodology for such a task — patented Enterprise Resilience Management Methodology (ERMM)^TM..

Today’s typical business organization operates in an environment of extreme complexity and enterprise stress. This is certainly true in financial services sector. Generally, companies continually face: Ongoing demands of new requirements, competition and operational performance; compliance pressures (e.g., regulations, directives, and policies); security threats (e.g., corporate espionage, cyber-intrusions, internal criminal activity, and natural disasters; and other business issues associated with investors, industry partners and all levels of domestic and international government organizations. Meeting these demands requires organizational systems that provide them with a high degree of visibility, insight, control, and responsiveness. These systems must also provide real-time information about external events and about internal processes; the ability to effectively intervene in those events and processes to minimize negative impacts; efficiently marshal information from any point in an organization and direct it to any other point; and redirect and adapt an organization's resources as needed when a threat arises or an opportunity emerges.

Most organizational systems fall short of this ideal and typically only provide static solutions to dynamic challenges. Enterra’s ERM Methodology takes a holistic approach so that an organization can identify and protect its most valuable assets. In addition, the enterprises’ existing legacy environments do not readily interface nor is their data easy to integrate (from a technical or security standpoint). These systems are often built around outdated policies that are continuously re-written and updated with the expectation that the technology will be able to immediately exploit them − nothing could not be further from reality.

The ERM Methodology diagnoses the security, compliance and performance requirements, and risks of organizations and determines how to make them resilient to those risks. Enterra’s approach to accomplish the goals for a strategic risk management program follows a four-step phased approach. Phase involves the initial assessment. During this phase, assets or nodes within an organization or a network that are critical for competitiveness and sustainability are identified along with the critical processes and functions that enable the critical assets. Additionally, security, compliance, and requirements that apply to each of the processes and functions are analyzed; along with business opportunities and prioritized business objectives. The analysis is performed at a level of detail such that the rules and processes may be later codified as needed into an automated SaaS solution.

The next phase is a design and build phase. During this phase, a design is developed for migrating information and converting business policies into rules sets and workflow logic that operate across systems and functional organization. The third stage involves solution delivery and the final phase is the operational phase. When fully implemented, the Enterprise Resilience Management Methodology integrates performance optimization, compliance, and security into a truly seamless and enduring solution that is embedded in advanced cloud service delivery.

Supply Chain Management and the Future

"Supply chain management, as a practice in commercial operations," writes Lora Cecere, "is now thirty years old." ["Why?" Supply Chain Shaman, 19 June 2013] As she looks back over the past three decades, she finds the following:

• "We have made Improvements in Productivity. Due to improvements in connectivity, 90% of industries have made improvements in productivity (revenue/employee). The chemical and consumer electronics industries have made the most progress.


• "Balance Remains an Issue. Companies are stalled on improving customer service and forecast accuracy.


• "Complexity has Grown. It comes in many flavors – increase in inventory, changes in sales policies, new product lines – all add to the complexity. Supply chains have not morphed to manage the complexity at the same cost, quality and level of customer service.


• "Cycle Management is Stalled. The only industry that has made progress in inventory management is consumer electronics."

Fifteen years ago, Andrew Cox and Richard Lamming also noted that some aspects of the supply chain (like purchasing) had changed very little over the decades even though manufacturing had seen a number of dramatic changes. ["Managing supply in the firm of the future," European Journal of Purchasing & Supply Management, June 1997] The abstract for their article noted:

"A fundamental, imminent change is taking place in the way firms approach the management of relationships with other firms and within themselves, and that this challenge is being faced by managers with one hand tied behind the back—there appears to be a lack of conceptual understanding. Building this understanding into practice requires the dismantling of traditional and existing perspectives about managing supply."

Daniel Dumke reports that in Cox's and Lamming's paper, "four key themes emerged in the conceptual development of the management of 'supply chains'." ["Managing supply in the firm of the future," Supply Chain Risk Management, 27 August 2012] Those themes were: It is necessary to take a total supply chain view; the chain is an unsatisfactory metaphor: the firm is part of a network; the firm concentrates on its core competencies and outsources everything else; and the firm is an unsatisfactory unit of analysis. Dumke goes on to provide key insights he was able to draw about the first theme (i.e., it is necessary to take a total supply chain view). They were:

• "'The consumer is perceived to be at the end of a supply chain—a series of value-adding events and activities that leads to the provision of a desirable—valuable—product or service.'


• "'Supply chain management is […] a process of realignment of activities, from each firm's point of view, in order to reduce value losses, so that the output from the total chain satisfies the consumer and results in the success of all parties to the chain.'


• "'Within the [value] stream are barriers—interfaces between companies. The management imperative is thus to design those interfaces with minimum impediment, to allow value to flow.'"

Fifteen years on analysts like Cecere believe that an even broader view of the supply chain needs to be taken — one that encompasses a company's supplier's supplier to its customer's customer. Analysts with this broader view of the supply chain also recommend that the best way to break down barriers between companies is to foster collaboration.

Next, Dumke identifies the key insights from the second theme (i.e., the chain is an unsatisfactory metaphor: the firm is part of a network). They were:

• "'The so-called "chains" often contain looped relationships (where the customer is also a supplier to the supplier), lateral links (where the supplier is a supplier to both the customer and another supplier), dependencies (where the performance of one supplier is intrinsically linked to that of another) and other non-linear facets which deny the convenience of thinking in simple terms.'


• "'Adopting a network perspective can lead to perceiving supplier relationships as indistinguishable from customer relationships.'


• "The contribution of the network metaphor to understanding the matter to managing value comes from its method of grappling with complexity.'

As noted above, supply chains have grown even more complex over the past decade and a half and it is no longer necessary to point out to most people that supply chains are really networks. Although the metaphor of a chain has survived, analysts have tried to stress the importance of supply chain management by talking more about value chains rather than supply chains. For example, Cecere writes:

"My definition [of supply chain management] is wide. In my mind, the processes of supply chain cross over and overlap at the ends of the supply chain. Yes, I believe that supply chain overlays on top of the sales and marketing organizations and the procurement function. I feel that these organizations have defined their roles too narrowly. Too few are focused on the role of the organization in driving value networks to improve value-based outcomes. Most lack the understanding and they are just not incented to build value networks. The focus has to be market to market. I believe that the supply chain team can make a difference, but it requires reschooling. It is about much more than trucks and sheds. Or pumps and valves. Or contracts and negotiations. In my mind, it is the end-to-end process: from the customer's customer to the supplier's supplier. ["Yes, I Am a Zealot. I Sill Believe. Do You?" Supply Chain Shaman, 28 September 2012]

Key insights that Dumke drew from Cox's and Lamming's paper about their third theme (i.e., the firm concentrates on its core competencies and outsources everything else) are:

• "'Managers have, for some time, been encouraged to view their firms as a combination of "core" competencies – those which it is deemed essential to own in order to compete in a market – and, by process of elimination, "non-core" competencies.'


• "'[…] the issue of whether to "make or buy" is not straightforward; it is always a problematic issue for the firm which may be resolved either through vertical integration or through outsourcing. The key strategic decision for the firm is to decide what the boundaries should be between the two extremes of internal or external contract.'"

I daresay that the jury remains out on this topic. The debate about what is a "core competency" and what can be outsourced remains active.

Finally, Dumke draws insights from Cox's and Lamming's paper on their final theme (i.e., the firm is an unsatisfactory unit of analysis: the flow of value takes place in a loosely aligned array of assets and competencies over which no one commercial organization has ultimate control). They are:

• "'The further away from the core competencies of the firm, the less there is a need for medium asset specific skills to be vertically integrated, and thus the more support may be expected for outsourcing the activity.'


• "'[…] firms are best viewed as a "nexus of contracts". The importance of this interpretation is that it forces us to see firms not as fixed entities, existing as objects within a static market structure, but as potentially fluid and flexible constructs whose internal structures and external boundaries may change as circumstances dictate and opportunities require.'"

Although Cox and Lamming may have been correct that the firm is an unsatisfactory unit of analysis, today most analysts discuss the importance of corporate alignment. For example, Cecere writes:

"Companies have focused on vertical processes. There is a need for cross-functional alignment through horizontal processes. Companies with strong horizontal processes of revenue management, new product launch, Sales and Operations Planning (S&OP), Supplier Development and Corporate Social Responsibility have higher performance. ... By and large, organizations are not aligned to drive cross-functional performance. Based on recent research, we find that companies that have invested in Supply Chain Centers of Excellence ... rate themselves higher on cross-functional alignment. The presence of these centers is relatively new. Without them, the gaps are large."

In other words, even though there are numerous parts of the supply chain that may need to be measured, the disparate parts of corporation must be aligned to achieve maximum performance and profitability. Rich Sherman and Bob Sabath, discipline experts in supply chain management with Trissential, believe that in order to make quicker progress in the field of supply chain management rules must be broken. ["Breaking the Rules of Supply-Chain Management," SupplyChainBrain, 25 July 2013] The article explains:

"Sherman says innovation isn't possible without a certain amount of rule-breaking. 'It’s all about doing things differently – creating new and disruptive technology, processes and ways of doing business.' ... How can companies determine which rules need breaking? 'If it's something that everybody does, and people can move from company to company and plug in how it's done, often it's worthwhile to sit back and say, "Do we ever have to do that?"' says Sabath. Every procedure should be subjected to a rigorous cost-benefit analysis, he adds."

Cecere agrees that each company must look at its circumstances, its value chain, and it practices and determine how policies, procedures, processes, and practices should be adapted to fit. "I strongly feel that we have evolving practices," she writes. "I have seen too many companies adopt practices that were not a good fit because they were recommended as best practices." The bottom line is that the topic of supply chain management is large and there is plenty of room under the tent for adaptation and experimentation.

The "Person" is the Most Important Part of Personalization Marketing

"If there is one thing you can learn about marketing," writes Sari Gabbay, "it's that just because you create a service or product, and it came from your vision this does not mean that you are your target audience." ["You are not your target audience," Huffinton Post The Blog, 10 July 2013] She continues:

"Knowing who you are marketing to is CRUCIAL to your business's success. What you may perceive as innovative and cool, or what you may respond to in terms of communication may never be what resonates with your potential clients or buyers. So many times business owners make the HUGE mistake of thinking that how they perceive the world is exactly how their audience will perceive it; and 9 times out of 10 they couldn't be further from the truth."

Shelly Kramer agrees with Gabbay. In a post entitled "B2B and Data Driven Marketing: About Them, Not You," she writes, "Data driven marketing is changing the face of marketing today, in both the B2C and the B2B space. Personalization, segmentation and customization of messages designed to suit the customers' needs, as well as utilization of marketing automation tactics, are critical components of success. And while many marketers understand this on a fundamental level, there are many who aren’t yet adopting these tactics as part of their marketing strategies." [V3 Integrated Marketing, 17 July 2013] Kramer continues:

"Smart marketers are serving up customized website experiences and remarketing campaigns that rely on browser history, on-site behavior, location, purchase history and so many other things. Email campaigns can be highly personalized based on prior purchase history, segmentation, time of day purchases and so many other things it makes me giddy just to think about it. ... Personalization abounds."

Gabbay reminds us, however, that message personalization isn't as easy as one may think. "You may think it is obvious that you wouldn't sell shoes to a snail," she writes, "but sometimes the target audience you are trying to market to is not that transparent. In many cases you may have multiple streams of potential buyers but you also have to be careful not to be everything to everyone. People resonate to marketing communications on an emotional level and one set of demographic will likely not respond the same way as another." That's why Billie Ginther insists that companies need "to develop a solid audience-centric content strategy for the digital age." ["Development and Audience-centric Content Strategy," Optimize This, 29 April 2013]

Before continuing the discussion on the positive effects of personalization, I should remind you that some types of personalization are not customer-centric and, when discovered, are likely to hurt your business rather than help it. Staples became the poster child for this kind of personalization strategy when Jennifer Valentino-DeVries, Jeremy Singer-Vine, and Ashkan Soltani revealed that "the Staples Inc. website was displaying "different prices to people after estimating their locations. More than that, Staples appeared to consider the person's distance from a rival brick-and-mortar store, either OfficeMax Inc. or Office Depot Inc. If rival stores were within 20 miles or so, Staples.com usually showed a discounted price." ["Websites Vary Prices, Deals Based on Users' Information," Wall Street Journal, 24 December 2012] The article noted that Staples wasn't the only culprit, other companies mentioned included: Discover Financial Services, Rosetta Stone Inc. and Home Depot Inc. The revelation was generally met with consumer outrage. The reporters were quick to point out that "offering different prices to different people is legal, with a few exceptions for race-based discrimination and other sensitive situations." As a result of their investigation, the reporters concluded:

"The idea of an unbiased, impersonal Internet is fast giving way to an online world that, in reality, is increasingly tailored and targeted. Websites are adopting techniques to glean information about visitors to their sites, in real time, and then deliver different versions of the Web to different people. Prices change, products get swapped out, wording is modified, and there is little way for the typical website user to spot it when it happens. ... Basing online prices on geography can make sense for various reasons, from shipping costs to local popularity of a particular item. Some retailers might naturally cluster in specific areas as well — a prosperous suburb, say — boosting the competitive pressure to discount. But using geography as a pricing tool can also reinforce patterns that e-commerce had promised to erase: prices that are higher in areas with less competition, including rural or poor areas. It diminishes the Internet's role as an equalizer."

Personalization isn't a bad thing if the strategy is customer-centric; but, too often, it is about the business not the customer. In order to personalize messages effectively, companies need to know and understand their customers without becoming creepy. "When you've developed a precise and unique customer profile," writes Maria Geokezas, account director for Heinz Marketing, "it will carry through to your marketing and sales plan, customer acquisition and loyalty strategy as well as the campaigns you execute." ["Three keys to more effective customer profiles," She offers "three components of a solid customer profile." They are:

"1. Go beyond the basic firmographics
Obviously, basic targeting characteristics are essential to understanding the ideal customer for your product or service. Your strategy, messaging, channels and budget will differ if you are targeting managers in Human Resource departments of multi-national enterprises versus Vice Presidents of HR of small professional service firms in the Pacific Northwest.

"2. Get to know where they live
Paint a picture of your ideal customer by describing their work environment. Describe the pressures they face, their pain points and priorities. Understand the decision-making process they go through. How painful does it have to get before they go searching for a solution? Do they have approval authority or do they need to influence another decision maker? If you can figure out what keeps them up at night, and how they make decisions, you have a good start to your marketing plan.

"3. Bring your profile to life
Give your profile a name and build a story about how this customer uses your product (or category of product) and how they interact with your brand. Capture their attitude about the offering. Use language that they would use if they were telling the story to a friend. Bringing in this level of customer insight will add feeling of familiarity to your communications."

When creating a customer profile as recommended by Geokezas, I would remember the caveat offered by Gabbay: "Business owners make the HUGE mistake of thinking that how they perceive the world is exactly how their audience will perceive it." Your instincts need to be backed by big data analytics if you are really going to understand your customer. Richard Ting insists that most companies aren't doing a good job of profiling their customers. ["The Customer Profile: Your Brand's Secret Weapon," Harvard Business Review Blog Network, 11 March 2013] He writes:

"Aside from a select few companies — like Amazon — most brands still have no unified view of what their customers are saying, doing, or buying on their websites, in retail, and across social media. As a result, instead of better targeting and personalizing brand messages, experiences, and deals, most brands are still embracing the 'spray and pray' tactics commonly used during the height of traditional advertising."

Many analysts believe that the power is shifting to the consumer. This shift makes personalization even more important. Monetate Marketing created the following infographic about the importance of personalization.

Monetate Marketing Infographics

The fact that 94 percent of companies believe that online personalization is critical to business performance clearly demonstrates that they understand what is at stake. Those intuitive beliefs about personalization are being solidified by research. For example, "Survey results from MyBuys and the e-tailing group reveal customer-centric marketing — the ability to engage consumers in one-to-one conversations across the customer lifecycle and all touch points — increases buyer readiness, engagement and sales activity. ... A record 40 percent of respondents claim they buy more from retailers who comprehensively personalize the shopping experience across channels. Results revealed that consumers increasingly reward customer-obsessed retailers." ["Consumers Buy More When Retailers Get Personal," by Daniela Forte, Multichannel Merchant, 2 April 2013] In other words, when personalization is implemented correctly, a win-win situation is created.

All Customers are not Created Equal

"Those who insist that every [customer] is created equal merely ensure that 'the worst customers get better service than the best," Bob Sabath, a discipline expert in supply chain management with Trissential, told the editorial staff at SupplyChainBrain. "Companies need to be thinking about new and creative strategies for serving their most valuable customers." ["Breaking the Rules of Supply-Chain Management," SupplyChainBrain, 25 July 2013] This is true whether you are discussing current customers or potential new customers. The most desirable customers are generally labeled high value customers. Michael Greenberg, vice president of marketing for Loyalty Lab, writes, "Everyone has customers who are more valuable than others. But why do you have them? Put another way, why did they choose to become a high-value customer?" ["Why Do You Have High-Value Customers?" Chief Marketer, 24 April 2006] Perhaps there is a more important question that needs to be asked first, "What exactly is a high value customer?"

Often the designation high value customer is given to an individual or company with a high customer lifetime value (CLV) -- "the dollar value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship. Customer lifetime value is an important concept in that it encourages firms to shift their focus from quarterly profits to the long-term health of their customer relationships." ["Customer lifetime value," Wikipedia] In order to determine which customers deserve the high value descriptor, Greenberg indicates that you must look "for variation between your high-value and low-value customers. This requires a fair amount of data concerning your customer spending, so that you can separate your customer base into a reasonable number of groups and still have enough response data to generate significant results."

In today's emerging era of big data, obtaining and analyzing data is becoming easier. Mark Zilling, Executive Vice President & partner at MeritDirect, claims, "The potential ways to use Big Data for customer segmentation are only limited by the imagination." ["All Customers Are Not Created Equally in Value," Direct Marketing News, 1 March 2013] He explains:

"Big Data takes many forms and can be aggregated from numerous sources. ... Over the past few years, behavioral information has introduced yet another level of data sitting between the static demographics of compiled data and the proven buying characteristics of customer files. Today new technology provides the opportunity to link online activities, like email responses or website visits, to these large aggregated data sources, further enhancing the behavioral category known colloquially as 'hand raisers' or those displaying interest in specific products or services. Together these data sources integrate to create a Big Data platform that changes the landscape for marketers focusing on customer segmentation."

Zilling offers three ways marketers can use Big Data to improve segmentation (i.e., identify potential high value customers from lower value customers). The first way is by "identifying probability of high-value, long-term customers at first order." He writes:

"Marketers typically focus on new customers with the intent to convert the highest number possible into repeat purchasers. While this is a noble endeavor, it's simply not practical. All new customers are not equal in regards to their future potential and the traditional tools are not adequate to segment greater potential customers from those of lesser value. In fact, new customers all have the same recency and frequency, leaving only the size of first purchase (monetary) and the product purchased as the characteristics on which to base segmentation decisions. By integrating Big Data, additional attributes can contribute to reorder models that have proven highly predictive in not only determining which customers are more likely to repeat purchase, but also how much they're likely to purchase and what product or category it will most likely be in the next 12 months. This information is useful in determining what frequency and channel of communication to use in converting the site, and what offer or messaging strategy to employ. It can also help define which customers to send to the sales force well before they've self-selected or before a competitor has a chance to pry them away."

Those all are excellent points. Greenberg notes that superficial data analysis is not sufficient. "It is likely you will find only a few differences in [the] responses to preferences, attributes, promotion, satisfaction, and so on [of your highest and second highest segments of customers]. You'll have to get specific. Don't ask about just three or four areas – ask about 30 or 40. You may find that only two or three show enough difference to warrant further study. The payoff comes from attention to the details, however, so looking at the differences in very specific areas can lead to a big payoff." Zilling's second recommended way to improve segmentation is to identify "higher-potential customers while they're prospects." Doing so, he writes, will save money. He explains:

"Big Data ... can identify prospects who are not only more likely to respond and become a new customer, but of those prospects who are likely to become higher-value customers. This allows for a segmentation strategy that either avoids lower-value potential customers before spending money to acquire them, or tailors the acquisition and subsequent retention strategy to a lower-cost approach, creating a balance for the lower potential revenue and an acceptable ROI."

Greenberg notes, "Your lower-value customers will come into play as you look at your competitors, which is the second area to examine. Study how your customers rate your competitors on the same attributes and what their preferences are. It’s very likely that your low-value customers are high-value customers somewhere else." Zilling's final recommendation is to link "website visits to marketing media" in order to recapture leads lost to e-commerce." He continues:

"It's the intent of every successful marketer's website to capture a visitor first and foremost with an order. If not an order, a registration provides future marketing reach across most channels. Unfortunately, on average, eight or nine out of every 10 visitors doesn't place an order or register on the site. Marketers use cookies to tag a higher percentage of visitors, but cookies are only useful when visitors return to the website or when attempting to reach them via targeted display network platforms. Recent technological advances now provide the ability to link these website visitors to a business entity's physical location. While the technology does not guarantee the website visitor at the contact level, linking to their business and then targeting appropriate contacts at those locations based on current contact strategies has shown improved performance in new customer acquisition efforts as high as 15 to 25%."

That kind of analytics simply wasn't possible a few years ago. Today, however, Zilling concludes, "The opportunities are as endless as the data itself." Paul French agrees with Zilling. "Data lies at the heart of the modern sales success story," he writes. ["How Can I Spot High Value Customers Faster?" Fliptop Blog, 31 May 2013] He also agrees with Greenberg that you can learn a lot by knowing why your low-value customer is someone else's high-value customer.

"What makes a high value customer choose to become a high value customer? What steers their path from one-time purchasers to long-term business asset? If the question seems obvious, try pinpointing the answer. All sorts of resources go into marketing, but perhaps not as much towards identifying precise success and failure points, improving customer retention and over delivering where you have under promised. Within these walls are the secrets to effective customer service, where good management will safeguard the long-term success of your business. Are your low value customers a competitor's high value customers? And why? Crack open a spreadsheet table and get specific. Run a warts-and-all assessment of customers' preferences, satisfaction and attributes. But don't stop there. Go deep. Look for as many as fifty areas where you can make things easier for people to love you."

Obviously, the only way you are able to "go deep" is by using big data analytics. Much of the data that will be required for this deep dive is unstructured; which means that natural language processing is an essential capability if you are really going to understand the nuanced differences between high and low value customers. French concludes, "When you've got access to that data, you can identify the high value customers and their place in your sales funnel, leading to increased efficiency, customer satisfaction and ultimately business success." John S. Parke, president and CEO of Leadership Synergies, LLC, agrees with the other pundits cited above. "Successful companies are using sophisticated analysis and deployment strategies to segment customers into categories such as 'high value' and 'low effort'," he writes. "This lets them allocate a disproportionate amount of resources to high-value customers, resulting in improved loyalty and higher revenues from customers who are good for business." ["Not Every Customer Is King," Executive Update, November 2004] He claims that "successful companies employ these simple concepts":

• Not all customers are of equal value. Segment your customers and focus on those who will help deliver higher profit margins and make you more money.

• Loyal customers are good for business. A loyal customer costs less in terms of marketing, sales, and service. That saves money.

• Allocate a disproportionate amount of time, money, and resources to acquiring and keeping high-value customers. This is a good return on investment.

• Customers who want to form a business-to-business partnership instead of treating your organization like a commodity are more profitable over the long term. They tend to buy more and complain less, they collaborate on innovation and product development, and they keep switching costs high. (Simply put, switching cost is the amount it would cost a customer to move from your organization to your competitor. This cost is prohibitive because you already have a multifaceted, long-term relationship with the customer.)

Parke concludes, "Corporations need to make tough choices. If they're smart, they'll keep the good customers and let the competition have the low-value customers. This way they drive up their competition's operating costs while driving down their competition's profit margins." The bottom line is that you can't make smart choices if you don't have access to the data and analysis necessary to provide decision makers with actionable insights.

Supply Chain Segmentation

A couple of years ago the staff at Supply Chain Standard wrote an article entitled "Ten issues that keep supply chain leaders awake at night." [8 November 2011] The number four issue on that list was supply chain segmentation. The list was drawn from a survey conducted by the consultancy Crimson & Co. Concerning the list, Crimson director Dave Alberts stated, "For most, the issues included within this top ten will come as no surprise, especially when it comes to Supply Chain Segmentation, given the recent increased emphasis on this subject." He went on to say:

"There is general agreement on the need to define and execute different supply chains within each organisation. However, what factors should be used to define the segments and how many you should have, is a subject that remains unclear. This confusion seems to have been partly fuelled by poor results from organisations that have relied on customer driven factors to make the segmentation decisions. The subject of supply chain segmentation is clearly on the rise but for most companies it's not yet real, despite the growing recognition among those interviewed who agreed that 'one size fits all' supply chains are a thing of the past."

Matthew Davis, a Research Director at Gartner, states, "The goal with supply chain segmentation is to move from a 'one-size-fits-all' approach to a portfolio of supply chain execution options. Among the industries that are working on supply chain segmentation, Davis notes, are: Pharma; High Tech; Apparel; Consumer Products; Med Devices; Agrochemical; and Heavy Equipment. ["Supply Chain Segmentation … Why is everyone so one-size-fits-all?" Gartner, 10 December 2012] Tom Craig, President of LTD Management, told Dustin Mattison that he believes companies have been segmenting supply chains for years, whether they realize it or not. "There is a myth out there of the supply chain," he said. "There is no such thing as a single supply chain. It is more complex. There are supply chains within supply chains." ["Supply Chain Segmentation and the Myth of a Single Supply Chain," Dustin Mattison's Blog, 11 September 2012]

Barbara Jorgensen writes, "Many global supply chains have been engineered to manage stable, high-volume production, and to take advantage of low-cost-labor regions such as China. The advantages of China, though, are fading. Wages are increasing, labor practices are under scrutiny, and transportation costs are fluctuating wildly. Other nations are trying to attract manufacturing to their shores, and politically, governments are being pressured to bring manufacturing back home." ["4 Supply Chains May Be Better Than 1," EBN, 5 October 2012] All of that complexity makes it abundantly clear that a single supply chain is clearly a myth. She writes that supply chains are more like a "river delta with a series of tributaries." In her article, Jorgensen reports that "McKinsey & Co. reached a similar conclusion in its study, 'Building the supply chain of the future.'" McKinsey analysts write:

In such a world, the idea that companies can optimize their supply chains once -- and for all circumstances and customers -- is a fantasy. Recognizing this, a few forward-looking companies are preparing in two ways. First, they are splintering their traditional monolithic supply chains into smaller and more flexible ones. While these new supply chains may rely on the same assets and network resources as the old, they use information very differently -- helping companies to embrace complexity while better serving customers.

Many analysts note that customer segmentation (i.e., segmenting customers by traits such as gender, age, location, path-to-purchase, etc.) requires supply chain segmentation. Jorgensen agrees. She writes, "It is increasingly difficult for manufacturers to meet customers' diverse expectations." She continues:

"McKinsey recommends 'splintering' the supply chain into smaller, nimbler mini-chains. This reduces complexity, saves money, and better serves the customer base. In one case study, a US-based consumer durable goods manufacturer had offshored the bulk of its manufacturing to China. A smaller presence was retained in the US. All factories relied on a single, unified production planning process and manufactured the full range of products. However, customer demand patterns were changing while, at the same time, SKUs were proliferating. Customer service was being negatively affected. In response, the company examined its portfolio of products and components along two dimensions: the volatility of demand for each SKU it sold and the overall volume of SKUs produced per week. According to McKinsey:

Ultimately, the company decided to split its one-size-fits-all supply chain into four distinct splinters. For high-volume products with relatively stable demand (less than 10 percent of SKUs but representing the majority of revenues), the company kept the sourcing and production in China. Meanwhile, the facilities in North America became responsible for producing the rest of the company's SKUs, including high- and low-volume ones with volatile demand (assigned to the United States) and low-volume, low-demand-volatility SKUs (divided between the United States and Mexico). Ramping up production in a higher-cost country such as the United States made economic sense even for the low-volume products because the company could get them to market much faster, minimize lost sales, and keep inventories down for many low-volume SKUs. Moreover, the products tended to require more specialized manufacturing processes (in which the highly skilled US workforce excelled) and thus gave the company a chance to differentiate itself in a crowded market."

Douglas Kent, global vice president for Avnet Velocity, told Bolaji Ojo, Editor in Chief of EBN, "Companies need more than one supply chain system to be effective and cost-competitive." ["The Case for a Multiple Supply Chain System," EBN, 1 February 2013] Ojo continues:

"If you're surprised by this then get ready for another shocker. The proliferation of multiple supply chain systems at manufacturing companies is sure to accelerate in coming years, driven by an ongoing move by enterprises to finesse their operations to use the most efficient and effective strategies. ... Forget about creating a unique supply chain system for your company. Instead create supply chains that can most efficiently support the product and markets under consideration. This may mean managing multiple supply chain systems if your company has many products or sells into many markets. This shouldn't faze you. As I said, the concept of multiple supply chains emerged long ago, and it's even more valid today."

Analysis about how best to organize these different supply chains is what has been missing for many companies. Davis' concern is that too many companies use a similar (i.e., one-size-fits-all) approach when trying to figure out the best way to segment their supply chains. He doesn't think that makes any more sense than trying to maintain a one-size-fits-all supply chain. He recommends looking at three types of segmentation:

1. "Internal product/supply network — Using historical SKU data on product demand volume and variability, companies design end-to-end efficient, agile and responsive supply chains. Companies with legacy cost-focused supply chains carve out an end-to-end service-driven supply chain. Organizations that compete with service and differentiation create an end-to-end efficient or low touch network.


2. "Channel-back — In order to address varying channel requirements, analysis begins with an understanding of how value is defined by partners or markets. Value attributes include speed to market, freshness, predictability, price (cost), availability, delivery frequency and lead times. The supply chain is then segmented to deliver these value outputs by managing the necessary trade-offs.


3. "End-user-back — Analysis of how end users — patients, farmers, consumers, businesses, etc. — define value highlights required trade-offs. Value attributes can include price (cost), on-shelf availability, value-added services, specialty packaging or labeling, seasonal needs and integrated solutions. The supply chain is then segmented, based on these criteria as opposed to regional or industry-vertical customer segmentations."

Ernst & Young analysts conclude, "In the end, segmenting a complex global supply chain to create a series of clear pathways, defined by performance metrics that align with specific goals, not only cuts through the complexity associated with achieving those goals (in essence, reducing it), but also generates better information to support corporate decision-making and increases the organization’s overall flexibility. Segmentation achieves all this by aligning and engaging organizational resources optimally to obtain the desired results." ["Supply chain segmentation: a pathway to efficiency and strategic advantage," February 2013] With so many respected analysts touting the benefits of supply chain segmentation, companies would be unwise to ignore their advice.

Marketers Mining for Big Data Gold

In a post entitled Big Data: Do Marketers Get It?, I discussed the fact that marketers are still wrestling with how best to use big data. Nevertheless, I noted that they are often ahead of their peers in exploiting opportunities offered by big data analytics. Still, many analysts believe that big data's potential remains mostly an untapped vein of gold waiting to be mined. For example, Jessica Marie writes, "In a world littered with seemingly endless streams of data, marketing has some interesting challenges. What exactly are we supposed to do with terabytes, even petabytes, of data? Unfortunately, there is still a lot of buzz in the phrase, 'big data'.; Most believe it's still just a marketing term that provides little value in the long run." ["Big Data: The Marketer’s (potential) Goldmine," infochimps, 23 May 2013] Another example comes from the editorial staff at Marketing magazine; it writes, "As rhetoric flies around the topic of 'big data' – that concept that everyone's talking about but nobody seems to know how to define – a business optimisation expert has told Marketing that marketers should focus less on worrying about how to collect data and more on effectively using the data they already have to boost business outcomes." ["Marketers 'sitting on a gold mine of data'," 15 February 2013]

Kevin Geraghty, Vice President of reporting and analytics at 360i, explains, "Big Data is a whole new ball game." It takes time to learn a new game let alone perfect it. ["Why Big Data Is a New Ball Game," Direct Marketing News, 1 February 2013] Geraghty asserts, "It's still not clear as to what the next step is for marketers — despite the fact that we're now aware of the power that lies in Big Data." He notes, "It is understandable for marketers to feel a little underwhelmed by the Big Data revolution. Most of the conversation about Big Data focuses on how big it is and tends to be a little light on what to do with it." Being overwhelmed with data and underwhelmed with results is not an enviable position. Lars Petersen, head of business optimization services at Sitecore, told the Marketing magazine staff, "Marketers are actually sitting on a gold mine of data. Most organizations already have a lot of data that they can use." The question is, "Use for what?" Geraghty offers some suggestions.

"Finding the right mix of contributing factors for success is a challenge marketers are familiar with. Marketers need to give the right amount of credit to each marketing tactic that customers are exposed to on their journey to conversion. This is often referred to as attribution. Marketers are now learning to leverage Big Data to overcome this challenge. Big Data can track explicit exposure paths and make correlations that were not previously available. This can cut out the clutter and allow marketers to focus on the specific tactics that drive real value for their brands. Another important solution area is one-to-one marketing. Traditional marketing methods focus on customer characteristics, such as age or gender, to craft a message. Using this approach George W. Bush and Mick Jagger may be treated as similar prospects. Big Data often tells us about customer behavior instead of customer characteristics. And customer behavior is what we care about. In many cases we were using aggregate characteristics as a proxy for expected behavior. Big data helps marketers tell the difference between George W. and Mick."

The effort to learn the big data game has paid off for marketers who have made the effort. Andrew Frank, a research Vice President at Gartner, reports that an IBM survey "compared the activities of top performing marketers with others." The survey offered "some evidence that greater involvement with data-oriented activities was correlated with marketing success." ["Big Data Creates Big Differences in Digital Marketing Efforts," Gartner, 28 May 2013] Frank reports, "The activities that showed the greatest gaps in involvement between top performers and others happened to be extremely data-driven." Jessica Marie agrees, "Big data is quite powerful." At least, it's powerful if you know how to use it. She states, "While its relevance may seem obvious for certain industries that are heavily structured around data, for most organizations, big data still represents an unknown." She goes on to offer "a few areas where big data can help marketers gain a competitive edge." They include:

"Predictions: Big data is fundamentally about predicting outcomes and behavior. By analyzing data from multiple channels and multiple points in time, big data can potentially supply marketers with information about customers' buying and behavior patterns. We now have highly advanced real-time analytical models to ease these challenges. Instead of taking data from only the past, we can now use big data to find patterns based on real-time data, not simply averages over certain periods of time."

It's not just predictions that make big data analytics powerful. Discovering new relationships and identifying subtle patterns are also important benefits.

"Better Decisions: When we have accurate predictive models in place, we can make better decisions about all aspects of a marketing campaign. And more importantly, these decisions can now be based on evidence, rather than guesswork. How many times have you seen marketing and sales teams make decisions based on gut feelings? Gut instinct is a nice way of saying gambling. As creative marketers, we certainly like intuition and creativity, but, for the most part, decisions in this context need to be based on evidence. If we can know what, how, why and when, there is no need to rack our brains on 'what if' scenarios."

Good analytics provide actionable insights; but, it's not just the insights that are important. Insights must be presented in a timely enough manner that actions can be taken within the appropriate decision cycle. On the other hand, I wouldn't be so quick to dismiss "what if" exercises. The past is not always prelude to the future.

"Social Media: When social media began to surface, it made us realize that companies can interact and engage with customers (and potential customers) immediately. And with further development of analytics, it's becoming more important to evaluate those interactions to determine customer opinions and perceptions, and identify ways to improve. Social media has given the public a platform to voice their opinions, which can go viral in the blink of an eye. Depending on what has been said, there may be a need for serious damage control. Never before has the public had the power to make or break a company with an expression of their thoughts and experience. Big data can help gather the information and make predictions based on that data. Just as governments, NGOs and other organizations have used data to predict patterns in crime, health epidemics, and even financial events and fraud patterns, companies can utilize the huge amounts of data in social platforms to not only observe customer thoughts, but to analyze their online behavior to predict the success of a company’s product or service."

Listening (i.e., monitoring social media comments) has become an important activity for large companies. The point of listening, however, is to respond quickly when problems emerge.

"Customer Experience Management: Consumer data is extremely valuable. It's the marketer's currency. And with recent advancements in technology, there are now ways that data can help us discern what is valuable to the customer, what influences customer loyalty and what makes them return. This is relevant because having this insight can help marketers tailor advertising campaigns to current and perspective customers."

To learn more about the importance of customer experience, read my post entitled Analytics 2.0: Big Data, Big Testing, and Big Experiences -- Part 2.

"Automation: Marketing automation is now expanding into more advanced functionality, partially with the help of machine learning. Big data is giving marketers the ability to create advertising and content that is highly personalized. When actions are automated, machines and humans can form a partnership and the platforms can eventually decide what is released to the customer, why it's released, and how. This can be very powerful because the more relevant the material for consumers, the more likely they are to make a purchase."

Machine learning will play an increasingly important business role in the years ahead. Google believes it is so important that it teamed with NASA to establish the Quantum Artificial Intelligence Lab to advance research in machine learning. To learn more, read my post entitled Has the Age of Quantum Computing Finally Arrived?

"Marketing Evaluation and Performance: One of the most valuable aspects to big data is that the technology can be used to measure nearly everything. It not only gives marketers insight into their customers, but also into their own organization's efficiency. Big data makes it possible for marketers to monitor the productivity of marketing programs through constant analysis and evaluation. Campaigns are virtually useless if their performance isn't being measured."

Most analysts accept the adage, "That which is measured, improves." If true, big data analytics should result in big improvements. Marie's bottom line is this: "Big data is often a missed revenue opportunity. If marketing teams can incorporate data management into their strategy, the payoff is potentially huge. Think of data as the essential ingredient to an overall strategy. The combination of insights from big data, decisions based on those insights, and the actions taken will ultimately prove worthwhile." I couldn't agree more.