Enterra Insights

Saving the World with Big Data, Part 1

"We're not asking enough of Big Data, and we're still getting in its way," writes Stephen Collins, Chief Executive Officer of Bazaarvoice. "We should be using Big Data to do what we can't, not just help us do what we're already doing, better." ["Big Data needs big problems," Bazaarvoice: Blog, 29 July 2013] I like Collins' headline. It's optimistic about the potential of big data analytics. When it comes to big challenges, what could be bigger than saving the world? You might be asking, "Save it from what?" Good question. As you will read below and in the final segment of this series, proponents of Big Data have a number of things in mind. Collins believes that we need to establish a new paradigm for approaching problem solving. The old paradigm, he writes, involves defining the problem, then training the machine (i.e., the computer) to solve it. The new paradigm, he insists, should involve training the machine to define the problem. He explains:

"Right now, humans are still better at at least one thing: defining the problem. But that's not to say Big Data can't eventually outdo us in this arena, too. If we can train machines to solve problems, we can train them to define them as well. Once this happens, we close the circuit—the true power of Big Data is realized. The system starts working on its own, and better than ever before. Here are the conditions which must be met for Big Data to flourish:

1. It must be ubiquitous; accessing data from everywhere we let it.
2. It must be always on, constantly gathering, processing, comparing, and acting.
3. It must be empowered to act in the moment."

I certainly agree with the first two conditions; but, I would have to add a few modifiers to the third one. Empowering action implies that whoever is in charge of the computer has the authority to act. When it comes to solving the world's problems, there simply is no single organization or individual with that kind of authority. Does that mean that Big Data can't be useful in solving the world's challenges? Certainly not. Mike Wheatley writes, "Big Data's reputation has taken a bit of a battering lately thanks to allegations that the NSA is collecting and storing people's web and phone records, leading to a wider debate about the appropriateness of such extensive data-gathering operations. But this negative publicity detracts from the reality of Big Data today, which for the most part will only benefit society as a whole. There's more to these massive data sets than simply catching terrorists (or spying on law abiding citizens)." ["Big Data’s Still On Track To Save The World," SiliconANGLE, 9 July 2013] Analysts involved in the Global Pulse initiative, an innovation initiative launched by the Executive Office of the United Nations Secretary-General, agree with Wheatley that Big Data has the potential of addressing significant world challenges (as the following video demonstrates).

Mark van Rijmenam, founder of BigData-startups.com, also believes that Big Data is going to make the world a better place. He notes that "the Engineering Social Systems department (ESS) of Harvard has collected several inspiring use cases." ["How Big Data Can Help the Developing World Beat Poverty," SmartData Collective, 2 August 2013] He continues:

"Big data offers for example the possibility to predict food shortages by combining variables such as drought, weather conditions, migrations, market prices, seasonal variation and previous productions. Or what about the possibility to better understand the dynamics of slum residents using mobile data to develop predictive models to better serve the poorest? For example using [Call Detail Records (CDR)] information to map changes in the slum population and direct latrine and water pipe building efforts for the benefit of the slums residents. Time-series analyses performed on CDR combined with random surveys can lead to better insights about the dynamics of rural economies and provide insights on how governments should respond to economic shocks in rural and poor environments. The World Bank shows an example where big data is used to ensure the right distribution of the right medicines to the right location at the right moment in time. A pilot programme called SMS for Life improved the distribution of malaria drugs at a health facility level in rural Tanzania, reducing facilities without stock from 78% to 26%."

One thread that weaves its way through the Global Pulse initiative, as well as van Rijmenam's observations, is ubiquity of mobile devices. Van Rijmenam writes:

"For the vast amount of the poor, a simple or basic mobile phone is the only interactive interaction with the World Wide Web. Although in the developed world smartphones may seem to be the common device, they still only account for 10.44% of the global mobile website traffic. On the other hand, traditional mobiles take up 78.98% of mobile worldwide website traffic (with tablets taking 10.58% of the traffic). Luckily there are vast opportunities for the developing world to use data created by basic mobile devices to identify needs, provide services, and predict and prevent crises for the benefit of the poor."

Gillian Tett adds:

"These days, there are about 2.5 billion people in emerging markets countries who own a mobile phone. In places such as the Philippines, Mexico and South Africa, mobile phone coverage is nearly 100 per cent of the population, while in Uganda it is 85 per cent. That has not only left people better connected than before – which has big political and commercial implications – it has also made their movements, habits and ideas far more transparent. And that is significant, given that it has often been extremely hard to monitor poor societies in the past, particularly when they are scattered over large regions." ["Big data is watching you," Financial Times, 10 August 2012]

Mike Wheatley asserts that one source of global data stands out above the rest when it comes to capturing real-time information – Twitter. "Few are as superior as Twitter," he writes, "and not just because of its widespread user-base that's spread across the globe. More important, tools such as TwitterHose facilitate this data calection, allowing anyone to download 1% of tweets made during a specified hour at random, giving researchers a nice cross-section of the Twitterverse."

Although mobile data provides a wealth of useful information, van Rijmenam understands that mobile data alone is insufficient to address all potential problem areas. He concludes:

"Big data can be as a catalyst for long lasting improvements, but we will have to look further ahead to see that. Mobile data alone is not sufficient to really create opportunities that could impact developing countries on the long term. Therefore, more data sources are required, ranging from data from NGO's, to public data and social data. ... Big data offers many opportunities for the developing world to beat poverty, but it will require different organisations to work together in order to achieve lasting results. In addition, the joining organisations should ensure transparency and availability of the data. Transparency will stimulate awareness of the possibilities, ensure data accountability and reduce bureaucracy and corruption. Availability of the data will ensure that multiple data sources can be fused, such as CDRs, open data, social data, government data, NGO data and corporate data, to create valuable and relevant new insights that will truly have a long term impact."

Van Rijmenam's anecdotal use cases touch on many of the areas that have been identified as areas in which Big Data can be used to address seemingly intractable problems: agriculture, finance, healthcare, poverty reduction, and disaster response. In the final part of this discussion, I'll look a little closer at how Big Data can help solve problems in each of these areas.

The African Continent: Emerging Markets Full of Potential and Challenges

Last August, Andrew England and Xan Rice reported, "From Lagos in the west to Nairobi in the east and Lusaka in the south, trendy new shopping malls have sprung up across Africa as the continent's mushrooming cities modernise and its emergent middle class swells." ["Retailers wake up to Africa’s promise," Financial Times, 6 August 2012] That same month, analysts from McKinsey & Company confirmed that consumerism was the fuel behind the GDP growth rate of many African countries. The report entitled, The rise of the African consumer, was written by Damian Hattingh, Bill Russo, Ade Sun-Basorun, and Arend Van Wamelen. An article announcing the release of the report stated, "Most investors and businesses know about the tremendous potential of Africa — the world's second-fastest-growing region, topped only by emerging Asia. But it may come as a surprise that Africa's growth is fueled not by resources but rather by a rising consumer market." ["The rise of the African consumer," McKinsey & Company, November 2012] The article continued:

"The continent's consumer-facing industries are expected to grow by $400 billion, representing its single-largest business opportunity, by 2020. But many companies don’t know how to translate this potential into action, because of a dearth of market research."

Justin Sandefur agrees with the McKinsey conclusion that there is a dearth of data available about African nations; but, he believes, those interested in collecting and analyzing data too often obsess "over national statistics." And, he argues, that is the wrong data to be obsessing over. ["Seeing Like a State in Africa: Data Needed," Center for Global Development, 17 May 2013] Sandefur is more interested in development than marketing, but the data needed to advance both is very similar. For example, while it's interesting to note that "the continent's consumer-facing industries are expected to grow by $400 billion," that figure is way too vague to be of use to a marketer. Even when McKinsey analysts inform us, that "the African market opportunity is concentrated, with 10 of 53 countries — Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Sudan, and Tunisia — accounting for 81 percent of Africa's private consumption in 2011," that information only narrows the search for data that marketers and developers really need.

The important data for both marketers and developers is local (as granular as the neighborhood level). Sandefur argues that developers need "reliable data, and more disaggregated data." Marketers need the same. Sandefur stresses reliability (or veracity) for a good reason. He points out, for example, that you could ask schools to report the number of children who are attending class so that proper resources can be allocated. "At the end of the day," he writes, "schools get allocated more teachers and more funding if they report more pupils. So schools have an incentive to exaggerate their numbers." If, on the other hand, you asked parents in the area around the schools about how many of their children are attending school, you would get a much more accurate number because parents would have no incentive to exaggerate.

The bottom line is that data reveals both the potential and the challenges that marketers face in African countries. One of the companies hoping to fill the data void is IBM. In August of last year, it announced that it was opening a research center in Nairobi, Kenya. ["I.B.M. Adds an African Lab to Its Growing Global Research Network," by Steve Lohr, New York Times, 13 August 2012] Lohr continued:

"In Africa, the problems — and opportunities to solve them — would seem in greater abundance than computer science expertise. And indeed, the Nairobi lab is intended as a hub for nurturing home-grown skills. I.B.M. plans to build the lab up to 50 researchers within five years. In addition, it will be the center for a 'resident scientist program,' which will bring in researchers from Nairobi and elsewhere in Africa to collaborate with I.B.M. scientists. The candidates can come from universities, government or industry, typically for one-year stints. The I.B.M. lab is seen as a step toward reversing the tradition of bright young Africans' departing for the West, in search of advanced education and jobs. 'A lot of them, like me, have gone into the diaspora,' said Osamuyimen Stewart, 46, a scientist at the I.B.M. lab in Hawthorne, N.Y. 'We want to help train Africans to innovate in Africa,' said Mr. Stewart, a Nigerian. 'The best minds there should be working on big national problems and African problems.' The Nairobi lab will seek to develop technology-assisted solutions to the problems of Africa's fast-growing cities (Africa has 52 cities of more than a million people — more than are in Europe). Water management and transportation, I.B.M. executives say, are prime examples. And solutions, they add, need not depend on long, costly projects."

Hopefully, other researchers will complement the IBM research effort to provide the kind of granular data that will be needed to make real progress. Having said that, not all aggregated numbers are bad. The McKinsey report concludes, for example, that apparel, consumer goods, and agriculture will account for nearly half of all consumer spending. If your company is involved in one of those sectors, then you should probably take a closer look. Other mega-trends that marketers should be interested in include the fact that "more than half of [Africa's] inhabitants are under 20 years old." In urban areas, "the 16-to-34 age group already accounts for 53 percent of income." And, just as in other areas of the world, "the consumption habits of youth are quite different from those of their elders." It might surprise you to learn that "Africa is more urbanized than India and nearly as urbanized as China." It won't surprise you that the McKinsey concluded that it will be in urban areas where most of the consumer spending is going to be done. That is why marketers and their clients need to know a lot more about cities and their residents.

More than likely, companies entering African emerging or frontier markets are going to be targeting that 16-to-34 age group. According to the McKinsey analysts, members of that group are more brand conscious, follow the latest fashions and trends, and are willing to try out new things. The analysts conclude, "These qualities point to a major change in consumption habits as this cohort ages, its incomes increase, and its behaviors and decision criteria become the societal norm." It is the behavior and decision criteria in which marketers are most interested.

Although the future is looking brighter for some African nations, the McKinsey analysts note, "Poverty and unemployment are still widespread on the continent, more so than in other emerging markets." Infrastructure also remains a challenge which means that companies will need to address distribution challenges. In many cases, African nations are their own worst enemy. Patrick McGroarty reports, "African nations are sacrificing billions of dollars worth of potential trade each year to inefficient border crossings and discordant regulations that make it difficult to do business on the continent, the World Bank said in a ... report." ["World Bank Warns on Africa Trade," Wall Street Journal, 9 February 2012] Companies desiring to conduct cross-border trade in Africa need to keep this in mind.

Supply chain analyst and founder of Supply Chain Insights, Lora Cecere, believes that South Africa enjoys a unique position among African nations and could assert itself as a supply chain hub that could influence the rest of the continent. "South Africa," she writes, "is uniquely positioned to gain benefit in the race for supply chain modernization of Africa." ["Out of Africa," Supply Chain Shaman, 4 June 2013] To gain that benefit, however, she believes that new partnerships must be formed that can help the country bootstrap its capacity and talent. Cecere also writes about another African factor that will impact how the continent develops — mobile technology. She writes, "I love what is happening in Africa on mobile application development. Most African households will never know a wire in the wall for a conventional phone. Instead, they are innovating in new ways on mobile devices." The McKinsey analysts note that when companies are developing a marketing strategy for African markets, "their approach to marketing should take into account the new reality of the digital consumer."

The McKinsey study makes several recommendations for companies looking to penetrate the African marketplace. Among them are:

Focus where it matters. Cities offer the best opportunity: urban Africa is forecast to contribute nearly 40 percent of GDP growth. But companies may be wise to bypass high-profile megacities, such as Cairo, Johannesburg, and Lagos, for midtier cities, like Abidjan and Rabat, which are more accessible, have less competition, and offer better profit margins.

Develop locally relevant, quality products. Companies can better tailor products to local markets if they understand what quality means for African customers and know their preferences, lifestyles, and daily needs.

Hit the right price point. Since affordability is critical, companies may have to reengineer products to hit a specific price point. The necessary moves may include offering lower-cost versions, smaller sizes, or alternative payment models.

I would add just one other recommendation — be mindful of packaging. Size and price point are interconnected factors when it comes to getting products into the hands of emerging middle class consumers. They are even more important to consider when sizing and pricing products for the so-called bottom billion consumers who live in the slums surrounding large urban areas. The study concludes, "Africa's business and economic growth potential is widely acknowledged. The issue for companies now is how to obtain a better understanding of the market and its consumers." Since African society is going to be a mobile society, data is going to be available and analytics are going to open the door to a better understanding of the emerging African consumer.

Globalization Continues to Define the Business Landscape, Part 2

Last March, Pedro Videla, an economics professor at the IESE Business School at the University of Navarra, told an audience in Madrid, "The 21st-century is going to be one of huge changes. Over the next few years we will see an immense transformation of the world economy, with an impact similar to that which occurred during the first Industrial Revolution." ["The World is Undergoing a Fundamental Change," IESE Business School News, 14 March 2013] If current trends continue, he notes, "In 2050 Asia will generate 50% of the world's GDP while Western Europe will only produce 7%." Companies that want to survive and thrive in the decades ahead are going to have to figure out a way to compete in in areas where growth is predicted. According to Videla, "The new axes of world economic growth are Asia, Africa and Latin America. ... This suggests a convergence in the world economy that we've never seen before."

In Part 1 of this series, I quoted Steve Varley, Ernst & Young UK & Ireland Chairman and Managing Partner, who stated, "Globalisation continues to define our business landscape." ["BRICs face competition as globalisation creates new emerging players," by Jonathan Marciano, Ernst & Young, 21 January 2013] If Videla and Varley are correct, and I believe they are, then companies are going to have to adapt to this new business landscape. They will need to understand the cultures, tastes, and preferences of millions of new consumers who are predicted to emerge from poverty's grasp and join the ranks of the global middle class. Varley explains: "Leading companies are adopting a multi-market approach. While the BRICs remain critical to their strategy, executives are also looking closely at opportunities in non-BRIC emerging markets, where they are seeing improvements in the ease of doing business, infrastructure, government policies and labour productivity. They're also discovering that a standard strategy for a group of markets — e.g., an 'emerging markets' strategy — no longer works. Instead, what they will need are nuanced and customized strategies for different markets, areas, regions, sectors and countries."

The truth of the matter is that companies are NOT looking for areas, regions, sectors, or countries. They are looking for consumers; and, the largest number of new consumers is found in emerging markets. The Economist notes, "Nearly 1 billion people have been taken out of extreme poverty in 20 years. ... The world's achievement in the field of poverty reduction is, by almost any measure, impressive. ... Most of the credit, however, must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution." ["Towards the end of poverty," 1 June 2013]

Professor Videla agrees with that assessment. "Countries don't compete," he states, "they become more commercial. When countries interact they generate wealth." How much wealth? In the first segment of this series, I quoted McKinsey & Company analysts Yuval Atsmon, Peter Child, Richard Dobbs, and Laxman Narasimhan, who assert, "By 2025, annual consumption in emerging markets will reach $30 trillion—the biggest growth opportunity in the history of capitalism." ["Winning the $30 trillion decathlon: Going for gold in emerging markets," McKinsey & Company, August 2012] That is a flow of revenue into which companies want to be emerged. The authors continue, "Leading the way is a generation of consumers, in their 20s and early 30s, who are confident their incomes will rise, have high aspirations, and are willing to spend to realize them. These new consumers have come of age in the digital era. Already, more than half of all global Internet users are in emerging markets." Most of these digital natives won't access the Internet via computers; rather, they will use mobile devices like smartphones. The authors report, "A recent McKinsey survey of urban African consumers in 15 cities in ten different countries found that almost 60 percent owned Internet-capable phones or smartphones. As e-commerce and mobile-payment systems spread to even the most remote hamlets, emerging consumers are shaping, not just participating in, the digital revolution and leapfrogging developed-market norms."

Atsmon, Child, Dobbs, and Narasimhan believe that for companies to win their piece of the predicted $30 trillion pot of gold, they "must master ten key disciplines." According the authors, these ten disciplines "can be grouped into three types of activities:

• "Throwing accurately. Companies must aim their emerging-market activities at the right opportunities. That involves surgically targeting urban growth clusters, anticipating moments of explosive growth, and carefully balancing local relevance and global scale. The digitization of the emerging world is generating increasingly rich data sources that can guide such efforts.

• "Jumping in. As multinationals leap into action in the emerging world, they face the potential for big gains or losses. The next four capabilities reflect these moments of truth: aggressively redeploying resources to seize nascent opportunities, creating product portfolios, crafting brands, and building a go-to-market system that delivers what emerging-market consumers need, where they want it. Success in these markets demands cutting-edge technology and aggressive investment in processes tailored to local conditions.

• "Running the distance. The final three capabilities underscore the fact that competing effectively in emerging markets is a long-term challenge. Global organizations must rethink structures and management processes to move nimbly in unfamiliar environments while retaining scale advantages. They must fashion new models to attract, retain, and develop scarce emerging-market talent and forge new relationships with stakeholders to build sustainable businesses."

One thread that runs through all of these activities (especially those found in the first two groups) is big data analytics. This becomes more apparent in the authors' discussion of the individual capabilities beginning with targeting urban areas.

1. Surgically target urban growth clusters.

"The scale of the modern exodus from farms to cities has no precedent. In emerging-market economies today, the population of cities grows by 65 million people a year—the equivalent of seven cities the size of Chicago. Over the next 15 years, just 440 emerging-market cities will generate nearly half of global GDP growth and 40 percent of global consumption growth. Most of those are midsize cities. ... These 'middleweights,' as opposed to tier-one megacities, frequently offer the best opportunities. ... [However, failing to recognize] the diversity of consumer preferences, purchasing power, and market conditions in emerging societies, ... is a fundamental strategic error. China has 56 different ethnic groups, who speak 292 distinct languages; India embraces about 20 official languages, hundreds of dialects, and four major religious traditions; Brazil's citizens are among the world’s most ethnically and culturally diverse; the residents of Africa's 53 countries speak an estimated 2,000 different languages and dialects. Even geographically proximate tier-one cities can be radically different. Consider Guangzhou and Shenzhen, two southern Chinese metropolitan centers of comparable size, separated by a distance of just 100 kilometers. In the former, the majority of consumers are locally born Cantonese speakers. In the latter, more than 80 percent are migrants who communicate in Mandarin and, reflecting their disparate regional origins, have far more diverse tastes in consumer electronics, fashion, and food."

The only way to get a handle on the complexity noted above is by embracing big data analytics. Even within cities, there can be differences in neighborhood lifestyles, preferences, and tastes. If consumers in those unique locations are to be reached, targeted marketing is essential and that can only be achieved through the use of big data analytics. As Atsmon, Child, Dobbs, and Narasimhan conclude, "For all but a handful of high-end product and service categories, the emphasis should be on 'going deep' before 'going wide'."

2. Anticipate moments of explosive growth.

"In emerging markets, timing matters as much as geography in choosing where to compete. Demand for a particular product or category of products typically follows an S-curve rather than a straight line: there is a 'warm-up zone' as growth gathers steam and consumer incomes begin to rise, a 'hot zone' where consumers have enough money to buy a product, and a 'chill-out zone' in which demand eases."

Clearly, big data analytics plays a crucial role in providing insight into which zone is located in which geographic location.

3. Devise segmentation strategies for local relevance and global scale.

"Identifying high-growth hot spots and anticipating when consumers there will be ready to buy isn't enough. Multinationals also must determine how to refine their product or service offerings so that they will appeal to (or even shape) local tastes, be affordable, and give the company an opportunity to achieve reasonable scale in a timely way. Deciding how and how much to cater to local preferences requires a deep understanding of consumer demographics, preferences, and behavior within target segments."

In other words, companies need to get much better at implementing targeted marketing. It has been estimated that less than 10 percent of today's marketing is targeted. That simply won't be good enough to capture consumers in emerging markets.

4. Radically redeploy resources for the long term.

"To win in emerging markets, developed-market companies must be willing to embrace big changes fast; those unable to reallocate resources radically risk a drubbing by local competitors. Our research shows that emerging-market companies redeploy investment across business units at much higher rates than companies domiciled in developed markets. Emerging-market firms are growing faster than their developed-market counterparts, even when both operate in neutral third markets where neither is based. The emerging players’ growth advantage persists even after controlling for the smaller base from which they start, and it also exists in developed markets."

Analysts have warned companies for some time that the clock speed of business is going to get faster. Planning can longer take place on a quarterly basis if companies want to be agile enough to compete in today's changing landscape. The business world is moving ever closer to a real-time business model.

5. Innovate to deliver value across the price spectrum.

"Emerging markets offer greenfield opportunities to design and build products and services with innovative twists on best-in-class equivalents in established markets. ... The number of multinational firms with major research centers in China has risen to nearly 1,000, from less than 20. Local players too are proving nimble innovators. ... Whether a company sells basic products or services to challenge low-cost local players or seeks to entice consumers to adopt new products and services comparable to global offerings, competing effectively often requires innovating and localizing, while redesigning product lines, service operations, and supply chains."

One innovation process that continues to gain steam is called "Jugaad" (pronounced jewgard), an Indian term used to describe a unique innovation process. Literally, "jugaad" means "somehow get it done." That's not a bad mantra for companies wanting to capture marketshare in emerging markets.

6. Build brands that resonate and inspire trust.

"The outlook of consumers in emerging markets differs from those in developed ones in many ways. On average, emerging consumers are younger—with 63 percent aged 35 or under in 2010, versus 43 percent in developed countries—and more optimistic than their more affluent counterparts. And unlike developed-market consumers, whose purchases are informed by a lifetime of exposure to products and brands, emerging consumers are novice shoppers for whom buying a car, a television, or even a box of diapers may be a first-time experience. ... These characteristics have significant implications for brand and marketing strategies. In emerging markets, it is critical for products to be included in the initial consideration sets of consumers—the short list of brands they might purchase. ... Building trust ... requires careful scrutiny of brand messages and delivery."

Companies need to be sensitive to the fact that many new consumers will have long memories concerning past abuses by foreigners and foreign companies. As a result, building trust could take time.

7. Control the route to market.

"Our research underscores the importance in emerging markets of managing how consumers encounter products at the point of sale. In China, 45 percent of consumers make purchasing decisions inside shops, compared with just 24 percent in the United States. ... Managing the consumer's in-store experience is an enormous challenge, especially in middleweight cities where the biggest growth opportunities lie. Part of the problem is the fragmented nature of the retail landscape in emerging markets; e-commerce penetration currently lags behind Western levels, supermarkets remain a relative novelty, and consumers still make most purchases from ubiquitous mom-and-pop shops."

Decisions like size, packaging, and resupply intervals will be critical. Logistics will also require some out-of-the-box thinking since many brownfield urban areas are infamous for their narrow crowded streets. That makes the "last mile" challenge a significant one.

8. Organize today for the markets of tomorrow.

"In theory, global players should enjoy substantial advantages over local rivals in emerging markets, including shared infrastructure and the protection that a more geographically diverse business portfolio offers against country and currency risks. In practice, however, we found that as global companies grow bigger and more diverse, the costs of coping with complexity rise sharply. ... Furthermore, the need to adhere to globally standard policies and risk-management practices sometimes hinders managers of global companies in emerging markets from moving quickly to lock in early opportunities."

The authors recommend moving essential functions into the regions they support. Just as many companies are finding that extended supply chains expose them to new risks, extended lines of communication also can makes things more difficult.

9. Turbocharge the drive for emerging-market talent.

"Unskilled workers may be plentiful in emerging societies, but skilled managers are scarce and hard to retain. In China, barely two million local managers have the managerial and English-language capabilities multinationals need. ... Increasingly, local stars prefer working for local employers that can offer them more senior roles. ... In emerging markets, global firms must develop clear talent value propositions — an employer brand, if you will — to differentiate themselves from local competitors. ... Deepening ties between key corporate functions and emerging markets can create opportunities for local talent while enhancing organizational effectiveness. ... Given the leadership requirements of emerging markets, global companies need bold talent-development targets."

The managerial talent problem will diminish gradually as emerging markets gain more experience. But, for now, the problem is significant.

10. Lock in the support of key stakeholders.

"No matter where successful businesses operate, they need the support of key stakeholders in government, civil society, and the local media (increasingly shaped by online commentators). Managing these relationships effectively can have a huge impact on a company's market access, ability to engage in merger or acquisition activity, and broader reputation. We believe global companies must devote far more time and effort to building such support in emerging markets than they would in developed ones."

Unfortunately, in many emerging markets corruption remains a serious problem. That makes gaining the support of local government and business stakeholders problematic. Nevertheless, Atsmon, Child, Dobbs, and Narasimhan conclude, "The rise of the emerging world's new consumer class is the greatest competition of our age for businesses—one no truly global company can ignore." I agree completely.

Globalization Continues to Define the Business Landscape, Part 1

Back in January Ernst & Young released its annual globalization report. Commenting on the report, Steve Varley, Ernst & Young UK & Ireland Chairman and Managing Partner, stated, "Globalisation continues to define our business landscape with increasing levels of cross-border trade, capital and labour integration. Despite the highly volatile economic backdrop the trend for greater integration and closer co-operation continues to outweigh the threat of protectionism for the majority of the world's markets." ["BRICs face competition as globalisation creates new emerging players," by Jonathan Marciano, Ernst & Young, 21 January 2013] Over the past few years as the global economy has tried to pull itself out of the clutches of the great recession, some pundits have declared that globalization is dead (or is at least suffering the throes of death). Clearly, that is not the conclusion of the Ernst & Young report. Marciano writes, "Despite weak growth in 2012 and an uncertain economic outlook in many markets for 2013, globalisation is still increasing among a majority of the world's 60 leading economies."

Marciano notes that the report draws on "two sources of original research: Ernst & Young’s Globalisation Index, which measures the world’s 60 largest economies according to their degree of globalisation relative to their GDP, and a survey of 750 senior business executives worldwide." In other words, the report uses both objective and subjective data. Historically, globalization has been defined by the international flow of goods, people, and capital; but, Marciano reports, in the future, globalization "will continue to advance driven primarily by technology and the cross-border flow of ideas."

The report does sound one note of caution. Many of the executives interviewed had real concerns "that continuing weak growth combined with increased global competition could spark more protectionism." Nothing stops the flow of things like a good barrier. Interestingly, respondents believed that protectionist barriers were more likely to arise in the so-called BRIC countries (Brazil, Russia, India, and China) than in "in other smaller rapid growth markets." That's a pretty clear indication that many countries still see globalization as the gateway to prosperity. H. Khasnobis reminds us, "Globalization gained wide currency following the collapse of the Soviet Union in 1991. The term denoted a measure of triumph because capitalism no longer faced any large-scale barriers to its expansion." ["20 years of globalization show what works, what needs fixing," The China Post, 21 April 2013] There should be a note of triumphalism when discussing globalization; not because the Soviet Union collapsed but because it has helped raise millions of people out of poverty and into the middle class. To read more about why the optimists praise globalization, read my post entitled Globalization's Bed of Nails, Part 1: The Optimists. Khasnobis writes:

"Globalization ... carried the connotation of advances in transportation and telecommunications, mobility of people and expansion of markets on an unprecedented scale. Consumer choice had widened and this implied expanded levels of generalized prosperity."

However, it's clear from the headline of Khasnobis' article that globalization hasn't sailed entirely on smooth seas. He continues:

"The question is whether globalization has actually transformed the world for the better. Economists, who advocate extending globalization in its current form and those who are critical of this concept and call for reforms to make globalization work, argue that it is the only path to a more prosperous and peaceful world. Globalization has created increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods and services, technology and capital. It has resulted in increasing economic integration between countries leading to the emergence of a global marketplace. Multinational companies manufacture products across many countries and sell them all over the world. Money, technology and raw materials have broken international barriers. The developed economies are integrating with the less-developed through foreign direct investment, reduction of trade barriers, economic reforms and in many cases, immigration. Globalization has increased the flow of investments from developed to developing countries, and the money that is invested can be used for economic reconstruction."

Countries that have yet to benefit fully from globalization's touch still want that opportunity. That's why Ernst & Young's Steve Varley can safely assert that globalization will continue to define the business landscape. McKinsey & Company analysts Yuval Atsmon, Peter Child, Richard Dobbs, and Laxman Narasimhan, assert, "By 2025, annual consumption in emerging markets will reach $30 trillion—the biggest growth opportunity in the history of capitalism." ["Winning the $30 trillion decathlon: Going for gold in emerging markets," McKinsey & Company, August 2012] To win a portion of that pot of gold, companies are going to have to behave differently than they have in the past. Khasnobis writes:

"Globalization now carries with it the disturbing imagery of deforestation, desertification, the decline of small producers in both agricultural and commercial sectors, the primacy of foreign direct investment and transformation of economies to create the right investment climate. This could work out to the detriment of labor, sidelining of unions or making them illegal, a drop in real wage rates in the formal sector, increased participation in the informal sector, increase in child labor and a return to human trafficking. ... As long as the profit-motive remains the sole principle of the production process and capital accumulation, the world will face rising unemployment and poverty. Violence, sparked by unfulfilled needs, will persist. Even the staunch advocates of globalization concede that some of the concerns of pessimists are legitimate."

Fortunately, it is becoming more difficult for companies to behave badly without being caught. Is there a long way to go — certainly. Recent events in Bangladesh and China demonstrate that some working conditions remain hazardous and unacceptable. The good news is that these events were not able to be swept under the rug. They received media attention around the globe. Khasnobis writes that "the trend towards ethical considerations is quite a recent paradigm shift." The fact that it started during an economically difficult period is also worthy of note. There are other reasons to be optimistic. Atsmon, Child, Dobbs, and Narasimhan write:

"Over the past two decades, the urbanization of emerging markets — supported by long-term trends such as the integration of peripheral nations into the global economy, the removal of trade barriers, and the spread of market-oriented economic policies — has powered growth in emerging economies and more than doubled the ranks of the consuming class, to 2.4 billion people. By 2025, MGI research suggests, that number will nearly double again, to 4.2 billion consumers out of a global population of 7.9 billion people. For the first time in world history, the number of people in the consuming class will exceed the number still struggling to meet their most basic needs."

Consumer packaged goods manufacturers and retailers are certainly aware of this fact. Getting to know these new consumers will be one of the big challenges that will emerge in the coming years. Only big data analytics can help provide the insights that manufacturers and retailers will need to reach these new consumers. In the second part of this post, I'll discuss ten capabilities that Atsmon, Child, Dobbs, and Narasimhan believe are crucial for companies to successfully traverse the changing business landscape.

A Thought Probe Series on Tomorrow's Population, Big Data, and Personalized Predictive Analytics: Part 6, Getting Personal

In the final segment of this series on tomorrow's population, big data, and personalized predictive analytics, I want to get personal. The series has primarily focused on cities because that is where the majority of the world's population lives. We must remember, however, that the world's cities are occupied by millions of individuals. Too often we lump all city dwellers together and treat them as a homogenous group (e.g., we say, "He's a New Yorker"). New York City residents know, however, that the city is a melting pot of cultures and individuals. Understanding these differences is at the very heart of what makes a city smart -- and only big data analytics can provide that understanding.

Big data can be empowering and transformative. Individuals, corporations, and governments all over the globe are generating zettabytes of data every year as they connect to networks using their computers and cell phones. People all over the world can search for and purchase consumer products; make dinner reservations at their favorite restaurants; perform research; conduct banking transactions across country boundaries; interact socially with their friends; perform activities associated with their careers; and deepen the interactions of their lives. And, as recent events have demonstrated, newly connected individuals in the developing world can also transform countries and drive social change using mobile telecommunications and social media. As these developing countries grow and millions of more people come "on-line," the next large marketplace in the global economy is being created for consumer goods and services that cater to the needs and desires of these newly connected consumers (who are estimated to be more than 2 Billion in number). ["Capturing the world’s emerging middle class," David Court and Laxman Narasimhan, McKinsey Quarterly, July 2010]

However, big data presents challenges for today's networks and computing systems. Major challenges include: data comes from everywhere, is mostly unstructured, is in many shapes and forms, and is far too large to move. Historically, data has come from traditional structured sources, such as corporate and governmental computer systems. Today it increasingly comes from unstructured data sources such as the Internet, mobile devices, social media interactions, GPS location information, weather models, RFID, transportation and logistics scans that do not reside neatly within the tables and columns of traditional uniform databases and computer systems. What this means is that big data is too "Big" and too "Unstructured" to be currently leveraged by most organizations.

Even if the data could be centralized, today's computing systems still have difficulty making sense of the data (i.e., understanding and learning) from the interactions between both related and seemingly unrelated data elements. Using current analytic techniques, most decision-making frameworks are challenged to process and understand volumes of data and then instigate actions that foster desired outcomes within timely decision cycles.

That is why it is essential in today's business and government environments to employ technologies that process and analyze big data in a way much like the human mind senses its environment and processes data. For example, an individual assesses the risks of crossing a street when a car is approaching. The mind processes variables like car speed, distance, obstacles, personal motor skills, and so forth, before making the decision to cross or wait. Like human thought processes, cognitive reasoning ingests and transforms data into prioritized information; creates rich referential connections between data elements; enables understanding and learning; and is then presented as actionable intelligence (within relevant timeframes). This kind of cognitive reasoning can be used by businesses and governments to take on some of today's most vexing challenges. Many of these challenges are cross-industry and cross-discipline in nature. They require complex simultaneous analysis on many levels that can model real, or open, world considerations. Some of these interdisciplinary challenges that apply to the global Consumer Products/Food and Retail Industries include, amongst many others, how to:

• Feed and provide water to a hungry and thirsty planet;
• Efficiently develop and deliver energy to a highly consumptive population without increasing the carbon footprint;
• Motivate consumer-centric outcomes with differentiated insights to maximize value for the consumer, Consumer Packaged Goods companies, and retailers alike;
• Personalize recommendations for global consumers about the products they purchase;
• Develop and deliver new drugs to cure disease and increase quality of life;
• Manage the global supply chain efficiently and with fewer risks; and,
• More accurately predict weather and its impacts on the environment.

As noted in previous posts, each of the world's 50 largest cities is unique. Some have deep historical roots as large cities and others have only recently joined the list as a result of massive building efforts in places like China (see the attached map -- based on a map from Free World Maps). As the global population continues to grow, new "greenfield" cities are likely to emerge. Regardless of whether a city labeled a "brownfield" (i.e., older) or "greenfield" (i.e., newer) city, some challenges they face are universal (e.g., infrastructure, sanitation, education, healthcare, food security, and so forth). Meeting those challenges, however, can differ significantly. That is where big data analytics plays its most important role.

Making smart decisions about urban growth and lifestyles is important. I agree with Parag Khanna, Director of the Hybrid Reality Institute and a leading geo-strategist, that cities will play a leading role in world affairs. ["Cities, Not Countries, Will Once Again be Key to World Order," The National, 26 March 2013] He argues, "Urban corridors are a force multiplier, a source of great strength." Such corridors can exist within a country as well as between countries. These corridors exist because they link the largest number of people and, therefore, provide the most opportunities (and challenges) associated with life's endeavors. At the international level, most of the traffic along these corridors involves the flow of information, goods, and services. Ensuring that these flows are optimized is going to require cooperation and technology. Khanna believes there are seven activities that cities must embrace if they are going to provide a good quality of life for their residents. They are:

• First, use technology to empower the population. ...
• Second, the use of scenario planning to forecast diverse possibilities and strategies for a turbulent world. ...
• Third, complement urban master planning with economic master-planning. This means investing in the vocational training systems that prepare the labour force for rapidly shifting supply chains.
• Fourth, use data and social media as a tool of governance to more efficiently deliver public services and manage traffic.
• Fifth, constantly upgrade infrastructure to meet sustainability standards.
• Sixth, expand the economic footprint through investing in special economic zones in neighbouring countries.
• Seventh, and finally, think of all residents of increasingly multinational/ethnic cities not as citizens versus non-citizens, but as stakeholders.

For the remainder of this post, I want to concentrate on three of those activities: Using technology to empower people and companies; improving "rapidly shifting supply chains"; and upgrading infrastructure.

Using technology to empower people and companies

Since most of the new consumers that form the global middle class are found in cities, companies want to connect with them. Because business, like politics, is local, global companies need to act like local enterprises, regardless of their size, if they want to succeed in this new business landscape. That's because cities are so diverse. Each neighborhood has its own character, lifestyle, and preferences. From one street to the next, the culture can change dramatically. If companies want to get in front of the money, they need to understand neighborhood differences and tailor their offerings to meet local preferences. Although some of those offerings will be made available in local brick-and-mortar stores, tomorrow's business landscape is going to be dominated by mobile devices. This makes the digital path-to-purchase a critical element of any company's business strategy. The most successful companies will find a way to seamlessly weave together multi-channel sales opportunities.

In order to sell a product or service, however, manufacturers need to ensure that consumers know about it. That's where technology can empower consumers, manufacturers, and retailers. In mega-cities, the ability to target consumers will be the sine qua non of successful business strategies. For a more in-depth discussion of targeted marketing, read my posts entitled Personalization and Targeted Marketing, Part 1 and Part 2. Even areas that are supposedly "off the grid" have been penetrated by mobile phone technology. The so-called "bottom billion" who live in these areas still require products and services. There are profits to be made selling to the bottom billion, if the products and services can be tailored to their circumstances. Big data analytics can help companies and governments better understand the requirements of people living in these "off the grid" areas so that they are not destined to live forever in poverty and squalor.

Improving "rapidly shifting supply chains"

At Enterra Solutions, we believe that companies must obtain full visibility into their supply chains -- from the issuance of a purchase order (PO), continuing through production milestones, transportation (i.e., ocean shipping, rail/truck), to warehouse delivery, and ultimately shipping to a customer. In order to achieve this, they need to implement what we call Global Network Synchronization. For a company, Global Network Synchronization refers to the ability to understand the complex interactions and dependencies within its supply chain. If a supply chain can be synchronized, it can quickly adjust to disruptive events (e.g., production delays, raw material shortages, weather, port delays, labor disputes, and other events). Global Network Synchronization can also reduce systemic risk by looking for supply chain risk exposures and pre-planning to mitigate those exposures. A company's global sourcing strategy requires real-time supply chain visibility and understanding the perturbative effects of any delays, so that action can be taken to mitigate any negative consequences. Understanding the perturbative effects of a supply chain disruption is a complex multi-threaded analysis that must take into account the entire range of critical supply chain issues and risks.

Upgrading infrastructure

Cities are not going to get smarter if their infrastructure remains dumb and outdated. The single most important infrastructure a city needs is a good electrical grid. Without a stable and reliable source of electricity, cities can't attract businesses, create new jobs, or become an "always on" hub of activity. The next most important infrastructure requirement is a good water and sanitation system. Without such a system, the population is likely to remain unhealthy and exposed to disease. With water forecast to be in short supply in the future, having a state-of-the-art water system could mean survival for some cities. For more on this topic, read my posts entitled Water, Water, Every Where -- What Can We do About It? -- Part 1, Part 2, and Part 3.

Transportation infrastructure is essential for economic growth. Goods cannot move on dirt roads during severe storms. Container-laden ships cannot offload at ports whose harbors are not deep enough or whose docks can't handle the containers. Some analysts believe, however, that the greatest infrastructure shortfall in the developing world is found in the so-called "last mile" of distribution. For example, Andrew Youn and Nicholas Fusso write, "Today’s greatest need is not for scientists and engineers to create new tools. The real need is for better distribution of solutions that already work." ["Distribution, the Key to Unlocking the Development Toolbox," Next Billion, 25 April 2013] Although developing countries suffer from significant infrastructure shortfalls, even countries like the United States have infrastructure issues (see my post entitled Infrastructure, the Supply Chain, and Economic Growth. You cannot discuss transportation-related infrastructure issues in isolation. The logistics world has always been intermodal, but the complexity of orchestrating intermodal shipments is increasing. Only technology can deal with this complexity; which leads to the final infrastructure that is becoming essential for economic growth -- an information grid.

Analysts are predicting that we will shortly have an Internet of Things that will primarily involve machine-to-machine communication. Smart buildings, smart grids, smart robots, smart cars, and every other "smart" machine will be communicating on the Internet of Things ensuring that systems are functioning efficiently and effectively. Technology has always made progress easier and improved the quality of life for millions of people. I don't see this trend ending any time soon.

A Thought Probe Series on Tomorrow's Population, Big Data, and Personalized Predictive Analytics: Part 5, Beyond Smart Cities

I borrow the tagline for this post from Dr. Tim Campbell, author of a book entitled Beyond Smart Cities. Explaining the premise of his book, Campbell writes, "To really achieve smart cities — that is to create the conditions of continuous learning and innovation — this book argues that there is a need to understand what is below the surface and to examine the mechanisms which affect the way cities learn and then connect together." [Beyond Smart Cities] Campbell argues that the same technologies that will make cities smart will also help make the planet smarter -- something, he claims, the world desperately needs. He explains:

"Over the last few decades, nations states and bumped up against real limits in their ability to solve problems in global goods. The failures on climate change and trade in Copenhagen and Durban and Doha, respectively are only the most visible of many such issues, such as environmental sustainability, peak water, and renewable energy use. All have failed to gain much traction among national governments and international organizations. At best, progress has been slow and disappointing. Yet we cannot and should not surrender our ability to tackle global goods issues until all options are given a hearing. One unexpected source of new ideas is coming from below, from cities."

He claims his book reveals "a flowering of city-to-city exchange[s] in policy and practice that may hold promise for some global issues and many local issues of global significance." He continues:

"Cities can never solve globally significant problems by themselves, much less pay for the costs. But they are beginning to act like self-sponsored laboratories of invention. At the same time, they are establishing a new edge in best practice that can lead to more readily adoptable standards by nation states. Perhaps more important, cities are forging a system of learning and exchange that stretches right around the world, north and south, rich and poor. As national policy makers debate intractable problems of global goods, the solutions for some problems might be popping up where we least expect them."

I believe that Campbell is correct in his assessment that solving many of world's most pressing challenges begins in the city. As researchers at MIT note, "In the future, cities will account for nearly 90% of global population growth, 80% of wealth creation, and 60% of total energy consumption. Developing better strategies for the creation of new cities, is therefore, a global imperative." [City Science website] To peel the onion one more layer, if cities are important in the effort to solve many of the world's challenges, then the people living in and governing those cities are even more important. Andrea Di Maio, a vice president and distinguished analyst in Gartner Research, claims that too much attention is being given to technologies and processes and not enough attention is being given to the people involved in smart city initiatives. ["Technology Is Almost Irrelevant for Smart Cities To Succeed," Gartner, 10 August 2012] Technology," he writes, "is mostly irrelevant unless policy-makers, city managers, heads of department and city CIOs get the fundamentals right." He must have realized shortly after writing that sentence that it was too constrained in the list of people that matter. He continued:

"What really matters is how different sectors (not just government) cooperate and, how they can exchange meaningful information. Of course there is technology involved, but that's not enough to make cities smart. Cooperation requires solid governance and a roadmap that is respectful of (1) the different – and potential diverging – business objectives and timeframes of different stakeholders involved and (2) the inevitable resource constraints that affect most urban areas. Actually many people still associate smart cities to environmental sustainability and carbon footprint reduction, but the truth is that the main challenge going forward is financial sustainability and the ability to deal with an increasingly turbulent and uncertain future."

The MIT researchers quoted above mainly discuss building new infrastructure to handle the swelling number of urban residents expected in the future. As I pointed out in Part 4 of this series, smart city initiatives must deal with existing infrastructure as well as new construction. Di Maio agrees that "greenfield" projects aren't going to be sufficient to make cities smarter. He notes, "The vast majority of cities that need to become smart are developed in a brownfield environment. So there are major constraints as far as the physical infrastructure, the availability of budgets and how flexibly or cooperatively they can be used, the entrenched governance processes and the different ways in which city governments provide different services." He is spot on with that assessment.

Because smart city initiatives must be applicable to the real world in which we live, their implementation is going to require cooperation and partnerships amongst an array of stakeholders. It's going to be messy, but necessary. Di Maio explains some of the challenges:

"In some cities most public services are entirely operated by the city government: there are government-owned energy companies, transportation companies, water management companies, telcos, or they are even part of the city government itself. In other cases, city government is just a payer or a supervisor of services provided by external service providers. In either case, the roadmap to make – say – transportation smarter in conjunction with public safety is very different. If the city government owns both, it can ideally establish a common program or a common enterprise architecture or a common interoperability framework that both domains (transportation and public safety) will apply when cooperating on their smart objectives. If the city owns only one of the services and outsources the other, the cooperation must be built through a more careful negotiation process, where vendor management and governance play a much greater role. So, while technologies that can be applied to capture, process, exchange information, to control sensors and actuators, to analyze and visualize performances are pretty much the same around the world, the roles that city governments play in each and every one of the domains that must cooperate to make the city smart vary a lot. Early focus on how these roles can contribute to help or hinder smart city objectives is far more important than looking at technologies and vendors."

Concerning the changing urban landscape, analysts at Pike Research state, "The social, economic, environmental, and engineering challenges of this transformation will shape the 21st century." ["Smart Cities"] They continue:

"While there are many innovative pilot projects and small-scale developments that are looking at the smart city from a holistic perspective, there are no examples yet of a smart city that supports hundreds of thousands, never mind millions, of people. The smart city offers a coherent vision for bringing together innovative solutions that address the issues facing the modern city, but there are many challenges still to be faced. If the smart city is to truly become a blueprint for urban development, then a number of technical, financial, and political hurdles will need to be met."

For those interested in this topic, Pike Research offers a downloadable report about smart cities. The Smart Cities project, whose goal "is to create an innovation network between governments and academic partners leading to excellence in the domain of the development and take-up of e-services," also offers a number of downloadable publications on its website. All smart city initiatives rely on the collection and analysis of big data. Rather than seeing this as a "big brother" effort, MIT's Professor Alex "Sandy" Pentland believes that a win-win situation can be established that benefits individuals as well as their communities. As you will see from the following video, he also explains why targeted marketing has such a promising future and why that future is intimately connected to smart city initiatives.

I share the sense of optimism displayed by Professor Pentland. Big data analytics have the potential to change individual lives as well as cities and the planet. And if Professor Pentland is correct, and I believe he is, most of us will be voluntarily and cooperatively involved in making our cities and the world better places in which to live.

If this series of discussions about smart cities has convinced you of one thing, it should have be that the collection and analysis of big data is critical. It should also be apparent that no one company is capable of addressing all of the challenges or providing all of the insights that will be necessary to achieve smart neighborhoods, smart cities, smart regions, smart nations, and/or a smart planet. That is why I'm suggesting that an open-architecture framework be created that can integrate information from diverse databases, apply big data analytics and artificial intelligence reasoning, and develop reference ontologies for the myriad of activities that combine to help explain the complex structure of neighborhoods, cities, regions, states, and, eventually, the planet.

I'm not suggesting that such a framework will be easy to create in the short-term. I suspect that it will take decades to develop properly so that actionable insights can be drawn from the repository of knowledge that will be created. As the knowledge repository is populated, I believe this framework can be built in such a way that it provides incremental benefits to neighborhoods, cities, regions, and nations. Because the knowledge repository will be linked to ontologies and artificial intelligence technologies, the system itself will provide new insights, discover new relationships, and research and test promising hypotheses that could significantly improve how people live and interact.

There is much we don't know about cities and the data needed to help us know more is not readily available in some cases. For example, author Robert Neuwith recently discussed on NPR's TED Radio Hour why squatters and slums are going to be critical to the planet's future in the decades ahead. Neuwith believes these slums represent the "cities of the future" because by 2050 one out of every three people living on the planet will be living in them. Neuwith notes, that while it may appear to outsiders that slums are lawless areas filled with poverty and crime, there actually are rules and organizations to be found within these "cities." Understanding the relationships in these areas (as well as their relationship to more formal urban networks) won't be easy because, by their very nature, most of them are "off the grid." Only the kind of framework I suggest above can help provide the kind of bottom-up insights that will help make the lives of those billions of people better. Improve their lives and you improve the world.

A Thought Probe Series on Tomorrow's Population, Big Data, and Personalized Predictive Analytics: Part 3, Where Things Stand

"What makes a city?" That is a question asked on IBM's Smarter City website. The company believes that a city is "an interconnected system of systems" that rests on three pillars: infrastructure, operations, and people. The site goes on to state that a city is "a dynamic work in progress, with progress as its watchword. A tripod that relies on strong support for and among each of its pillars, to become a smarter city for all." That definition may be a bit too cheery for some because they know that for years many inner cities have not progressed but languished or deteriorated. That entropic trend must change, because the world is becoming more urbanized every day. If tomorrow's cities are not going to become vast areas of poverty and decay, we have to be smarter about how they are planned, managed, and maintained. In a special issue about smart cities, the editors of Scientific American wrote:

"Many otherwise lucid thinkers, from Tho­mas Jefferson to Frank Lloyd Wright to President Gerald Ford, tended to think of cities as centers of poverty, crime, pollution, con­gestion and poor health. In recent years, though, the thinking has shifted along with the demographics. Many experts have come to realize that people are better off when they live in a city. This is not to dismiss the problems of urban life; cities, particularly fast-growing ones in the poorer parts of Asia and Africa, can be places of great human suffering. But even a city slum has benefits that you won't find on the farm or in the village. The move from the country leads, for instance, to dramatic changes for many women. As Kavita N. Ramdas of the Global Fund for Women notes in Stewart Brand's Whole Earth Discipline (Penguin, 2010), 'In the village, all there is for a woman is to obey her husband and relatives, pound millet, and sing. If she moves to town, she can get a job, start a business, and get education for her children.' Indeed, the city has come to look less like a source of problems than as an opportunity to fix them. Investments in sanitation and water have turned many cities in the developed world from places of disease and pestilence into bastions of health. City folk are at lower risk of death from motor vehicle accidents and suicide by firearms (although they are overstressed). From the stand­point of the metropolis, climate change also seems less intractable. Because city residents rely less on cars and live in more compact dwellings than suburbanites, they tend to leave smaller carbon footprints. The challenge is to extend the efficiency of the urban center to the wider conurbation, embracing the city center, suburbs and satellite towns. Although climate is bigger than any one fix, how we build our cities, and how efficiently we live in them, is going to factor large in our response." ["Street-Savvy," 17 April 2011]

In Part 1 of this series, I discussed suggestions from experts on how to begin smart city initiatives. One of those experts, Dr. Boyd Cohen, created a model he calls the Smarter Cities Wheel. IBM has also developed a model that is reminiscent of Dr. Cohen's Wheel. The IBM model shows how it believes the three pillars of a city discussed above are interconnected.

Like most organizations involved in smart city initiatives, IBM believes that data collection and analysis is the undergirding that makes such initiatives useful. IBM's site states:

"As demands grow and budgets tighten, solutions also have to be smarter, and address the city as a whole. By collecting and analyzing the extensive data generated every second of every day, tools such as the IBM Intelligent Operations Center coordinate and share data in a single view creating the big picture for the decision makers and responders who support the smarter city."

In Part 2 of this series, I noted that participants in a study published by the Institute for the Future expressed some concern that companies like IBM are trying to establish data monopolies that could be used to hold cities hostage in the decades ahead. IBM obviously sees itself as providing a much-needed service that cities can't provide for themselves. The company offers a nifty interactive Smarter Cities experience that can be explored at your leisure. Of course, IBM isn't the only global company that sees business opportunities in helping cities operate more efficiently. Oracle has its own interactive website that highlights its solutions for smart cities. The launch page for that interactive site also shows how Oracle sees connectivity within an urban setting (with business and citizens being the focal point).

Although the site explains that "Oracle offers a complete, integrated set of solutions to meet the complex needs of local government," some people, like Greg Lindsay, believe that companies like Oracle, IBM, and Cisco are "offering 'smart city in a box' solutions" that don't take into account the nuanced complexities that make each city unique. ["The Battle for Control of Smart Cities," Fast Company, 16 December 2012] See Part 2 of this series to learn more about Lindsay's concerns. Cisco's offering is called Smart+Connected Communities. Cisco's Shane Mitchell explains, that "the main barrier to adopting [smart city] solutions is the complexity of how cities are operated, financed, regulated, and planned." ["Smart City Frameworks: A Systematic Process for Enabling Smart+Connected Communities," Cisco Blog, 10 October 2012] Rather than offering a set of solutions, Cisco begins with "a 'Smart City Framework' designed to move the Smart City debate from merely an academic or esoteric discussion to a call for action." The framework is shown below.

Mitchell explains, "The Smart City Framework ... describes a potential process that will help key stakeholders and city/community participants 1) understand how cities operate, 2) define city objectives and stakeholder roles, and 3) understand the role of ICT within physical city assets." I agree with Mitchell that all stakeholders must be involved in smart city initiatives. As I wrote in Part 2 of this series, the only way to move forward is to embrace public/private partnerships that benefit both sectors." Terry Kirby agrees with that position. He writes, "When it comes to achieving the high-tech, sustainable, and smart cities of the future, there is one word that sums up the pathway to success: partnership." ["Getting smart cities connected," The Guardian, 2012] He continues:

"Imaginative and collaborative partnerships between local authorities, utilities, universities and the private sector – whether it is bus companies or software providers – are the defining characteristics of 'smart thinking', according to leading figures in cities around UK and Europe. All agree that so-called 'smartness' – which at its most basic level is about using new technology to improve lives – is necessary to adapt to the demands of urban growth. ... These kind of partnerships can range from multi-agency infrastructure ventures aimed at transforming the lives of millions, to simple projects improving digital access for everyday users of public services. They include new ways of using mobile phones and smartcards to pay for a wide range of goods and services, to schemes designed to recycle waste water for heating."

The editors at Scientific American conclude:

"The most hopeful impact of city life may be its effect on the mind. Humans are social animals; we draw stimulation from other minds close at hand. Plato and Socrates both lived in fifth-century b.c. Athens, a city-state. Galileo and Michelangelo lived in Renaissance Florence. Steve Jobs and Steve Wozniak grew up in a western U.S. conurbation that includes Silicon Valley. The young, agile minds at work on the next Big Thing are probably tweeting—they live, as author William Gibson points out, ... in a kind of digital meta city. Chances are, they are living in a physical city, too. Technology is reshaping city life and making it more intellectually productive, but it will not soon replace the easy interchange of ideas that comes from casual proximity, the cornerstone of city life."

While some pundits believe that smart city initiatives may drain city centers of their vitality, I agree with the editors at Scientific American that making cities more livable will actually increase the vitality of cities and make urbanization a boon rather than a bane to mankind. Gerd Leonhard, chief executive of the business thinktank The Futures Agency, agrees. He told Jemima Kiss, that "the more digitised our lives become, the more we will value real experiences. 'The landscape of the cities of the future will be a huge place to do the things that don't work in digital form – food, culture, contemplation. Digital tools drive us to want to have the actual experience much more than before.'" ["City design: A digital revolution," The Guardian, 2012] The thing I appreciate most about the smart cities movement is its optimism. There are enough Cassandras in the world warning us of impending doom. Optimists bring about progress and, as the IBM website states, progress is the watchword.

Food Security Requires Implementing Complementary Strategies

Mankind has been trying to control the weather since the dawn of time. Historically, this intervention has taken the form of sacrifices, offerings, dances, and prayers to the gods who supposedly control such matters. There have also been more scientifically-based attempts to make rain, such as cloud seeding. Needless to say, these attempts have generally fallen short of the desired goal. Yet, as Keith A. Wheeler, chairman and CEO at ZedX Inc., reports, "All farmers, no matter their size, depend on the weather to the grow crops that feed the world, while providing a livelihood for their families and communities. This makes them among the most vulnerable to the changing climate. By 2050, if farmers are not assisted to meet these changes, agriculture yields will decrease with impacts projected to be the most severe in Africa and South Asia, with productivity decreasing by 15% and 18% respectively. Therefore, strategies to adapt to the significant shifts in weather patterns are greatly needed." ["Building resilient food systems in a world of climate uncertainty," The Guardian, 21 December 2012]

In other words, if we can't change the weather then the weather needs to change us. The irony of this situation is that "agriculture today accounts for 14% of total greenhouse gas emissions, with another 17% attributed to land use change linked to deforestation." That means that farmers are in some measure contributing to the climate variability with which they must contend. So one of the first strategies recommended to help shore-up food security involves empowering "farmers with the knowledge, practices and technologies needed to adapt and reduce agriculture's contribution to global warming." Fortunately, Wheeler reports, "Amidst these colossal challenges there is hope." He explains:

"Technological innovations are at the forefront of meeting the world's growing food demands, while reducing carbon emissions. High tech methods such as Precision Agriculture, for example, calculate the exact amount of fertilizer required by the soil on your farm, preventing over application and the release of unnecessary greenhouse gases, while simultaneously improving yields. Other practices, such as integrated pest management and pest information systems, improved training for farmers at all levels and new finance and risk management tools for smallholder farmers will all go a long way to building more resilient food systems. The thread that ties all of these innovations together is greater access for farmers to research, information and extension."

The need for better food security is becoming increasingly evident. "Pressure on the world’s resources is intensifying," writes Paul Polman, CEO of Unilever. "Increased competition for these resources has been compounded by the effects of severe weather conditions." ["Now is the time for action," Financial Times, 21 November 2013] He explains:

"Since 2000, food prices have more than doubled because of soaring demand, with desertification, floods and drought adding significant volatility to the trend of food price inflation. To make matters worse, it is countries with already high rates of malnutrition that tend to be worst hit. People in Chad, Ethiopia and Angola spend up to 60 per cent of their weekly budget on food – much of it imported. The most vulnerable are hit the hardest by price rises."

Polman admits there are no silver bullet solutions to the food security challenge. But he offers three strategies that he believes should be taken immediately. "First, we should eliminate the use of unsustainable biofuels." By "unsustainable" he means biofuels derived from food crops (such as corn) or feedstock that is grown on ground that could be used to produce food crops. "Second, we need increased investment in those parts of Africa and Latin America where the last remaining serious agricultural expansion potential lies, or wherever current yields are threatened." On this point, he agrees with Wheeler. Finally, he asserts that "developing country governments need to create long-term partnerships with the private sector, donors and civil society, to stimulate investment in commercial agriculture. The Copenhagen Consensus concluded that an investment in fighting malnutrition would benefit people more than any other type of investment – with a return of $30 for every $1 invested. And the World Bank found that an investment in nutrition can translate to a 2-3 per cent increase in a nation's GDP each year, breaking the cycle of poverty that traps families and nations."

Another recommended strategy for creating better food security is reducing food waste. The Institution of Mechanical Engineers asserts "the world wastes from one-third to one-half of the four billion metric tons of food it produces each year." ["The World Wastes As Much As Half Its Food, New Study Finds," by Jeff Spross, Climate Progress, 14 January 2013] If the waste itself is not bad enough, Spross reminds us, "Because any item of food also represents an entire chain of production, wasted food also translates into wasted fresh water, wasted energy, wasted cropland, and further contributions to global warming with no discernible counter-balancing benefit." And one shouldn't forget the amount of wasted money represented by wasted food. With the global population continuing to swell, wasted food puts greater pressure on rising food prices. Although the causes of wasted food are different in the developing and developed worlds, the problem is global. The report explains:

"In less-developed countries, such as those of sub-Saharan Africa and South-East Asia, wastage tends to occur primarily at the farmer-producer end of the supply chain. Inefficient harvesting, inadequate local transportation and poor infrastructure mean that produce is frequently handled inappropriately and stored under unsuitable farm site conditions. As the development level of a country increases, so the food loss problem generally moves further up the supply chain with deficiencies in regional and national infrastructure having the largest impact. […] In mature, fully developed countries such as the UK, more-efficient farming practices and better transport, storage and processing facilities ensure that a larger proportion of the food produced reaches markets and consumers. However, characteristics associated with modern consumer culture mean produce is often wasted through retail and customer behavior."

Since the causes of food waste are different, the strategies for reducing such waste must adapt to the situation. The report points out that controlling waste is beyond the capability of any single stakeholder (i.e., farmer, distributor, retailer, or consumer). Fortunately, it reports, "In most cases the sustainable solutions needed to reduce waste are well known. The challenge is transferring this know-how to where it is needed, and creating the political and social environment which encourages both transfer and adoption of these ideas to take place." Brad Plumer reviews a few of the solutions that could be implemented. ["How the world manages to waste half its food," Washington Post, 12 January 2013] He writes:

"For poorer countries, simply building better food-storage buildings could cut down massively on waste in places like Pakistan or Ghana (which lost 50 percent of its stored maize in 2008). Better harvesting technology and techniques could also help, although the report suggests that some nations like India will need more sweeping societal and political changes to cut down on waste. Meanwhile, wealthier regions like the United States and Europe will need to think harder about not throwing out so much perfectly good food. ... One small step, which Britain has been exploring of late, is to rethink their use of food labels, which often encourage supermarkets to toss out food long before it actually goes bad."

Another irony that we confront when discussing food security involves dietary habits. As food security improves so does the economic condition of impoverished people. As their wealth increases, their eating habits change and that can have a profound effect on food production. For one thing, studies have shown that as people scratch their way out of poverty their taste for meat grows. Raising livestock, however, is not the most efficient way to provide the protein that we need to be healthy. It takes a lot of land, feed, and water to raise livestock. Livestock, particularly cattle, also produce a lot of methane gas. You can't blame (or prevent) those who have struggled to survive from wanting a more varied and enriched diet; but, we need to realize that our dietary choices have an impact. In the end, changing human behavior may be the most difficult challenge we face in striving for better food security.

For an excellent discussion on the challenges that lie ahead and some of the strategies that can be used to meet them, watch the video of a panel discussion held at The Aspen Institute last year. The first speaker, Jon Foley, Director, Institute on the Environment, University of Minnesota, stated that if we don't get agriculture right nothing else really matters. Foley offers five recommendations for improving global food security. The first recommendation he offered is to stop deforestation and halt agricultural expansion. This would help reduce agriculture's carbon emission footprint. Second, he recommended closing "yield gaps" on underperforming lands. There are huge opportunities in Eastern Europe where farms are producing only 20 percent of what could be produced. Third, he recommended improving cropping efficiency. That is, ensure that resources like water and fertilizers are being used to maximum efficiency. Israel, for example, uses water 100 times more efficiently than Pakistan. Fourth, he says we need to shift dietary preferences. Finally, as discussed above, we need to reduce waste. Polman concludes, "Securing the future of agricultural development needs individual commitment and action on the ground. All of us, individuals, companies, policy makers and consumers, have a responsibility to act together, and the time to act is now."

Water, Water, Every Where -- What Can We do About It? -- Part 3

In the final segment of this three-part series, I want to discuss some of the technological breakthroughs that could help mitigate the predicted water crisis as well as some of strategies that have been recommended for dealing with the crisis. Before doing that, however, I thought a brief review of the problem would be in order. For Water Day 2013, the celebrated actor Matt Damon narrated a clever video on the subject. It takes less than three minutes to watch.

In Part 2 of a series of posts entitled "Let's Talk Water," I discussed a number of ideas that were being worked on including: obtaining drinking water from humidity in the air; managing drinking water systems by computer; finding and fixing leaks in existing water systems; cleaning sewage water with diamonds; more cost-effective ways of disposing of hazardous waste water; a bicycle-powered water pump; a low-cost safe water tester; and a student-designed Solarball that can be used to obtain safe drinking water. In Part 3 of that series, I discussed advances in desalination techniques. Desalination is particularly important because most of the world's water is found in its oceans and a growing proportion of the world's population lives along the coast.

"It's been centuries since Coleridge's Ancient Mariner lamented the undrinkable salty seas around him," writes Alex Planes. "Today, it's easier -- but not necessarily easy -- to get fresh water from the vast water reserves of the world's oceans. Over 15,000 desalinization plants now operate throughout the world, but they produce less than 1% of the water the world consumes every day. Population growth and water scarcity often go hand in hand, so anything that could enhance the usefulness of desalinization efforts would be well-received everywhere." ["This Tiny Innovation Is a Giant Leap Forward for Water Services," The Motley Fool, 25 March 2013] The tiny device referred to in Plane's headlines is a Lockheed Martin filter that "makes use of graphene, an atom-thin sheet of pure carbon that's arranged in a hexagonal pattern." The product is called Perforene. Planes continues:

"It's 1,000 times stronger than steel but 100 times as permeable as competing membranes. However, that strength comes on a single-atom sheet, which is still going to be delicate when applied to industrial uses. Lockheed claims to be a year or two away from prototype testing, and by the time Perforene is ready for action there may be 107 million cubic meters of desalinization capacity already at work around the world. That's a doubling of capacity from 2008, and an estimated $64 billion will be spent on this capacity growth. If Perforene can provide the same functionality at a fraction of the energy cost, it's quite feasible to expect the next decade of desalinization build-out to be far more intense. If Perforene proves effective, it might lead to the development of smaller, more distributed desalinization machinery for the developing world."

Professor Nidal Hilal, the director of the Centre for Water Advanced Technologies and Environmental Research (CWATER) at Swansea University, states, "Basically we are taking too much water from water resources, and tapping into the sea is the only option available to address such water shortages. Desalination of sea water increasingly proves to be the most practical – and in many cases the only – solution for many countries across the globe." ["Nano-water technology could be key to relieving water shortages, claims Swansea University expert," WalesOnline, 4 April 2013] Making sea water potable would go a long way towards mitigating potential coastal water shortages. Planes goes on to note that more effective filtration is not just important for desalination. Better filtration systems could also make wastewater treatment more effective and less costly.

Access to clean water, as mentioned in the first segment of this series and in the video above, is important if populations are going to remain healthy. To underscore this point, The Wall Street Journal awarded its top prize in the 2010 Asian Innovation Awards to "an inexpensive water purifier aimed at households that may not have electricity." ["Tata Water Purifier Wins the Top Prize for Novel Product," by Andrew Lavellee and Emily Veach, 25 October 2010] Another device designed for households without access to power is being developed in Morocco. "In the Sahara, nomads are among those suffering most from limited access to water, particularly during the hotter periods when rising salt levels in water drawn from wells make it undrinkable." ["Desert nomads marvel at water purifying device," MySinchew.com, 8 April 2013] The device, called the "waterpod," is being developed by "Alain Thibault, an ex-sailor who had to confront the issue of fresh water shortages at sea." The article continues:

"The device, which resembles a large letter box, currently costs around 500 euros ($650). But the inventors have already given courses at a college in Tiznit, on Morocco's Atlantic coast, to teach students how to produce them more cheaply. ' The waterpod is made of wood, cork, stainless steel and glass,' said Thierry Mauboussin, who is helping to promote the water project in Morocco. ... The waterpod ... can produce six litres of pure water daily from 12 litres of brackish water, according to its creators. They give it an estimated lifespan of 20 to 40 years, with just a daily clean needed to keep it in good condition."

If you want big breakthroughs in water usage, you have to look to the agricultural sector. Globally, 70 percent of all water consumption is involved with agriculture. The next largest sector is industry (20%). Domestic consumption accounts for only 10% of the total. One suggestion that has been made is to raise more food in so-called "vertical farms." A vertical farm is one contained in a highrise building. There are technological challenges associated with urban farms, but one of the up-sides of such farms is that they can use water much more efficiently and effectively than traditional farms. In fact, much of the required water can be treated wastewater that is often dumped into rivers or directly into the ocean. That creates a real win-win situation. Like it or not, some form of recycling must be adopted if the water shortage crisis is to be mitigated. The following video provides a good overview of the vertical farming concept. You can also learn more on the website The Vertical Farm.

Even if vertical farms do flourish, traditional farms, gardens, and ranches won't disappear. In fact, in developing parts of the world, traditional methods are likely to be used for foreseeable future. Fostering better water usage in these traditional settings is an area where research is continuing and some progress is being made. Techniques like "subsurface drip irrigation systems minimize the amount of water lost due to evaporation and runoff. ... Rainfall harvesting, efficient irrigation water transport, and use of reclaimed water can also lead to more efficient agricultural water use." ["4 Agricultural Practices and Technologies to Reduce Water Impacts," Water Implications of Biofuels Production in the United States, Water Science and Technology Board, 2008]

A number of strategies have been recommended for dealing with the coming water shortage. Some of those strategies were discussed by a panel of experts assembled by Bloomberg Businessweek Chairman Norman Pearlstine. ["How the Experts Would Fix the Water Supply," Bloomberg Businessweek, 21 March 2013] The experts included: Ahmet Bozer, President, Coca-Cola International (KO); Jae So, Manager, World Bank Water and Sanitation Program; Carlos Riva, CEO, Poseidon Water; Thomas Powers, Commissioner of Water Management, Chicago; and Jeff Sterba, President and CEO, American Water (AWK).

Jeff Sterba believes that the most important strategy to pursue is "increasing efficiency of [water] use." Carlos Riva believes that more has to be done in the area of desalination. Ahmet Bozer discussed one the technologies mentioned above -- harvesting rainwater. "India is a perfect example," he stated. "When you have the monsoon season, so much water comes and gets wasted. So how do we fulfill our commitment of returning the amount of water we use back to nature? A rainwater harvesting system. Now these systems don’t cost too much. And we’ve actually placed somewhere around 500 of them. And that water is stewarded back underground, and you’re replenishing the sources. So maybe there are emerging-market solutions that can also be applied to developing markets." Too many people still think in terms of large water distribution systems. I suspect that the developing world will leapfrog large grid systems (like it did when it leapfrogged landline telephone grids and adopted mobile phone systems) and rely on local water solutions. Such solutions will be cheaper to build, use, and maintain.

That doesn't mean, however, that large water systems will disappear. Thomas Powers talked about the leakage problem associated with aging water systems. The United Nations estimates that between 66-132 billion gallons of drinking water leaks from the supply systems in many mega cities each year. Powers reported that Chicago is replacing old pipes. "With our new program, over the next decade, we're going to replace nearly 1,000 miles of water main. And just in doing that," he state, "we conservatively estimate that we’ll be able to provide enough water for an additional 400,000 residents."

Jae So believes that putting more data in the hands of consumers could make a big difference. "We've been talking about how we're going to manage the supply and the service of water," she stated. "But there's a huge amount that we can do in managing customer demand. Just having information, like how much water you use, can be a big signal. Customers will actually look at that. And then there are information campaigns teaching people the value of water." Riva agrees that people need to start appreciating (and paying for) the value of water. "If you really want to have efficient use," he stated, "you need to align the pricing to the value of the usage." Sterba also agreed. "By and large, in the U.S. people don’t pay for water," he stated. "They pay for a delivery of it and cleaning of it, but the molecule is generally provided at no cost. Because the federal government isn’t going to be giving money out as it used to and states are in financial hardship, the communities are going to have to find other ways to raise capital. So I think prices will continue to move up."

The rising cost of water is likely to cause enormous angst around the world; but, "the obvious solution, at least to economists, is: if water has become a scarce good then it needs an appropriate price to properly allocate it." ["Can the World Afford Cheap Water?" by David Biello, Scientific American, 29 March 2013] Obviously, it will be the implementation of a combination of all these strategies that eventually helps mitigate the water crisis. Peoples' lives are going to change as a result. Some of the changes will be for the better and others will likely be unwelcomed. In the end, however, people understand that without water there is no life.

Water, Water, Every Where -- What Can We do About It? -- Part 2

In Part 1 of this three-part series, I discussed the overall problem of predicted water shortages. In this post, I want to discuss the affect that water shortages can have on the supply chain. The most obvious impact perhaps is the affect that water shortages can have on agricultural (a subject touched upon in Part 1). Without enough water to raise crops, the world can go hungry. In this post, I want to look at some of the less obvious impacts that water use can have on the supply chain.

"Supply-chain professionals deal with all kinds of risks every day," writes Jennifer Baljko, "from managing routine shipping delays to second-sourcing products when a natural disaster hits a key supplier. But there are a number of other global issues that should compel supply chain experts and corporate senior management teams to rethink their risks and their potential impact. One of them is the growing scarcity of stable water supplies." ["Water Risks Impacting Supply Chains," EBN, 7 February 2013] Baljko reports that "water shortage was named one of the top global risks for 2013" at the most recent World Economic Forum discussions in Davos, Switzerland. She continues:

"On a global scale, the industry uses 20 percent of water resources, notes the Cousteau Society. And as Bloomberg reported, without available, affordable, and clean water, companies could see disruptions, higher commodity costs, and reduced earnings. Given the data and growing awareness around this, it should come as no surprise that more watch groups are monitoring the world's water situation and groups like the WEF and the Pacific Institute, the U.N.'s Global Compact CEO Water Mandate, are encouraging more government, local, and corporate involvement in monitoring and managing water-related risks."

Baljko doesn't offer any solutions to the conundrum she raises; but, she does ask some pretty good questions: "Will it escalate enough to become something supply chain managers will have to deal with fairly regularly? Will secondary sourcing strategies have to be put in place if factories located in water-risk areas run dry? Will teams of purchasers be dedicated to negotiating spot water prices the way they negotiate prices for gold or copper?" In the Bloomberg article referenced by Baljko, Andrew Steer reports, "CEOs increasingly recognize that water is essential for their business models and economic growth." He added:

"More than half of the Global 500 companies that responded to the 2012 Carbon Disclosure Project Global Water Report cited 'detrimental' water-related impacts. These effects include property damage from drought or flooding, higher prices for water itself, poor water quality requiring on-site pre-treatment, and fines and litigation over pollution. According to the report, the associated costs for some companies ran as high as $200 million, up 38 percent from the previous year. ... Water risks are increasingly compromising businesses. ... In response, companies are realizing they need to work with governments and local communities to improve water management. Some industries are beginning to define water stewardship principles and water accounting standards. For example, 45 major companies representing hundreds of billions of dollars in revenue endorsed the U.N.'s Global Compact CEO Water Mandate, an initiative designed to help companies develop, implement and disclose water sustainability policies and practices.

The biggest threat is to companies whose current water usage is unsustainable. "Unsustainable water use is threatening agriculture, other business and populations in China, India and the US, according to a study by risk analysis company Maplecroft." ["Excessive Water Use ‘Threatening Business in Major Economies’," Environmental Leader, 11 May 2012] The article continues:

"The Water Stress Index calculates the water stress of over 168 countries by evaluating renewable supplies of water from precipitation, streams and rivers against domestic, industrial and agricultural use. The arid Middle East and North Africa region is the most at-risk region in the index, with Bahrain, Qatar, Kuwait, Libya, Djibouti, UAE, Yemen, Saudi Arabia, Oman and Egypt categorized as the 10 most water-stressed countries, listed in order of risk. However, the widespread use of irrigation for agriculture, combined with increasing domestic and industrial water demand in India (ranked 34th in the index), China (50) and the US (61) means that those economies' water resources are coming under increasing pressure – and this may place more of an impact on the wider world, Maplecroft says."

The greatest challenges for businesses are going to be in areas where their interests are in direct conflict with the interests of the community. "Companies ... have for the most part made progress on managing water resources," reports Suzanne Zweben. "Largely they recognize that access to water will be one of the greatest challenges of our time." ["Behind the Brands: The Human Right to Water AND Supply Chain Responsibility," Oxfam America, 18 March 2013] Zweben continues:

"It's projected that by 2025, just 12 years away, that 1.8 billion people will be living in countries or regions with absolute water scarcity. Two-thirds of the world's population is expected to have limited access to clean water. This is one sustainability issue food and beverage companies grasp as core to their business; it will impact their ability to make products and touch the lives of their employees, consumers and the communities where they operate and from which they source."

In addition to physical risks associated with water (such as, not having access to enough water to operate), there are also reputational risks. Organizations, like Oxfam, are now ranking companies with respect to how well they manage water resources. Of Oxfam's so-called "Big Ten companies," none were given a good score (although Nestle came close). Below is how Oxfam assessed three main aspects of its scorecard relating to water.

(1) Human Right to Water: Has the company recognized the human right to water as defined by the UN? Has the company committed to consult communities on plans to develop water resources, i.e., before a project has started? Have grievance mechanisms been established in cases where water rights have been violated? (A recent report by The Special Rapporteur on the human right to safe drinking water and sanitation, On the Right Track, addresses good practices in implementing the human right to water. See Chapter 3 especially.)

(2) Transparency: Does the company disclose information on water withdrawals, discharges (i.e., the quality of water released into lakes and rivers), water-stressed regions where the company has operations, regions where the company operates that are at risk for water stress, and raw materials that come from regions subject to water-related risk? (Seven of the ten companies companies assessed through the Behind the Brands scorecard disclose information through the Water Program of the Carbon Disclosure Project.)

(3) Supply Chain Management: Does the company require its suppliers to report on their water use, risks and management? Are requirements on water rights and use specified in a company’s supplier code? Has the company set a specific target to reduce its water use along its whole value chain?

Zweben reports that "food and beverage companies have played a central role in the CEO Water Mandate ... yet no one company has taken significant steps on both the human right to water and supply chain management." Ramit Plushnick-Masti predicts that self-interest will keep beverage companies, in particular, involved in water conservation and best practice programs. ["Beverage Companies Pay Millions To Conserve Water," Manufacturing.net, 8 August 2012] He writes, "For Dr. Pepper and other beverage companies engaged in similar work, the impetus is their bottom line — conserving water guarantees long-term access to the most crucial ingredient in their products." He continues:

"The biggest players — from Coca-Cola and Pepsi Co. to Miller and MolsonCoors — as well as smaller, regional beverage companies list water as a risk in long-term plans. In 2006, 18 companies created an alliance called the Beverage Industry Environmental Roundtable to tackle water, energy and other issues that could affect the industry's growth. There is no total available for how much has been invested in water conservation projects in the past five years, but experts believe it's more than $500 million dollars. Thomas Lyon, a professor at the University of Michigan who researches connections between industry and the environment, said three factors have pushed beverage companies to conserve water: future markets in developing countries don't drink enough soft drinks, from their perspective; the impacts of climate change are starting to become more apparent; and some of the countries targeted for growth are the same ones experts believe will be most affected by climate change."

With Asia predicted to be the focus of the global economy in the decades ahead, experts are concerned that water issues could have significant impacts in that region. ["Supply Chains in Asia Run High Risk of Water Shortages, Study Finds," by KPMG, SupplyChainBrain, 5 April 2012] The article notes:

"Of the sectors with the highest levels of water use, the share consumed by suppliers is greatest for food & beverage, personal & household goods and automobiles & parts companies. They could be affected by pressure on water resources through water pricing or scarcity driving up commodities costs. Companies are at the starting blocks of understanding financial risks and opportunities from water-related challenges in operations and supply chains. Companies that assess water risks will be well placed to strengthen water management strategies, secure supplies and stabilise input costs."

If all that is not enough for companies to worry about, Jonas Kron, an investment advisor at Trillium Asset Management, told Bloomberg "that he thinks the world's dwindling supply of fresh water may soon impact results at the companies the fund invests in." ["Water Risks Becoming Investor Concerns, as New Interactice Tool Helps Companies Assess their Own Risk Levels," The Green Supply Chain, 11 January 2012] In other words, if companies don't manage water resources better, they may find access to investment capital difficult to find.

The bottom line is that potential water shortages are going to affect private and public organizations as well as individuals. The problem is international in scale and will require widespread private/public partnerships to address it. In the final segment of this series, I'll look at some technological breakthroughs as well as some strategies that have been recommended for dealing with water challenges.