Enterra Insights

Is There a Difference Between Segmentation and Personalization?

Judy Bayer, Director of Strategic Analytics for Teradata International, and Marie Taillard, a professor of marketing and Director of the Creativity Marketing Centre at the ESCP Europe Business School in London, wrote a very interesting article in which they stated that they no longer believe in segmentation. ["A New Framework for Customer Segmentation," HBR Blog Network, 12 June 2013] Obviously, the headline for their article (which they may not have personally selected) undercuts that statement; nevertheless, their arguments are both interesting and persuasive. They believe that segmentation (like dividing consumers by gender, ethnicity, geography, religion, etc.) promotes a "rigid methodology that carves out the market" in unnatural ways. They accept the notion that you "can't be all things to all people," and they believe that rigid segmentation defies that concept. They continue:

"To resolve these contradictions, we had begun pleading with students and clients to look for 'jobs to be done.' The approach echoes Ted Levitt’s famous comment about selling ¼ inch holes rather than ¼ inch electric drills, and advocates a mindset shift away from selling products to 'doing jobs' that solve customers’ problems. In Clay Christensen’s words, customers 'hire' products or other solutions because they have a specific job to fulfil, not because they belong to a certain segment."

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SAP Discusses the Future of Business, Part 2

In Part 1 of this two-part series, I indicated that I divided the facts presented in an interesting SAP slideshow entitled "99 Facts on the Future of Business" into thirteen separate categories. In that post, I discussed the first five categories: Big Data; Business Leadership; Customer Service/Experience; and Education. In this post, I'll discuss the remaining eight categories, namely: Emerging Markets; Innovate or Perish; the Internet of Things; Risk Management; the Supply Chain; Targeted Marketing; Urban Growth; and a Miscellaneous category. SAP introduced the presentation by explaining:

"Business Innovation is the key ingredient for growth in the future of business. Changes in technology, new customer expectations, a re-defined contract between employees and employers, strained resources, and business and social networks are requiring businesses to become insight-driven businesses. In this presentation, we have gathered 99 facts that represent the changes taking place in the world today. Each fact represents a key insight and suggests where we need to focus and change to become viable, sustainable and growing future businesses."

As noted in Part 1, I placed these facts into thirteen categories to help paint a more coherent picture of the future as seen by the analysts at SAP. In the first post, I included the first five categories: Big Data; Business Leadership; Customer Service/Experience; and Education. In this post, I'll discuss the remaining eight categories, namely: Emerging Markets; Innovate or Perish; the Internet of Things; Risk Management; the Supply Chain; Targeted Marketing; Urban Growth; and a Miscellaneous category.

To continue reading this post, click on this link to the new Enterra Insights site.

SAP Discusses the Future of Business, Part 1

In an interesting slideshow entitled "99 Facts on the Future of Business," the folks at SAP paint a picture of the future to which businesses should pay attention. The company introduces the presentation by explaining: "Business Innovation is the key ingredient for growth in the future of business. Changes in technology, new customer expectations, a re-defined contract between employees and employers, strained resources, and business and social networks are requiring businesses to become insight-driven businesses. In this presentation, we have gathered 99 facts that represent the changes taking place in the world today. Each fact represents a key insight and suggests where we need to focus and change to become viable, sustainable and growing future businesses." I've placed these facts into thirteen categories to help paint a more coherent picture of the future as seen by the analysts at SAP. In this post, I'll include the first five categories in this post. They are: Big Data; Business Leadership; Customer Service/Experience; and Education. The remaining eight categories will be provided in the next post.

To continue reading this post, click on this link to the new Enterra Insights site.

Order Fulfillment in an Omnichannel Environment

A year ago, Dan Gilmore, Editor in Chief of Supply Chain Digest, wrote, "In case you haven't noticed, e-commerce is growing at a breakneck pace, putting a near panic in traditional brick and mortar retailers, and of course driving many of them to invest heavily in their own dot com sites and business units – even if most of them are losing money at it for now." ["Multi-Channel Commerce and the Supply Chain," 9 November 2012] As we approach what hopefully will be a good holiday season for retailers, order fulfillment is rising quickly to the top of concerns for many retailers — especially omnichannel order fulfillment. I previously addressed this topic in a post entitled The Impact of Omnichannel Operations on the Supply Chain, but with the holiday season upon us, I thought it might be a good time to discuss it some more. Gilmore continues:

"E-commerce ... is now part of the whole 'multi-channel commerce' phenomenon. Multiple paths of purchase and delivery. Buy anywhere, pick up anywhere. More sales and delivery channels are coming too: your television…vending machines…what else? A senior supply chain executive from one of the country's largest retailers told me at a dinner ... that 'multi-channel is going to create big winners and losers' in the retail sector, depending on the decisions and investments each merchant makes. One of the weird things here is how technology driven this all is. ... Of course, this is not only a retailer phenomenon. Manufacturers and wholesalers of all sorts are dealing with many of the same e-commerce/multi-channel supply chain challenges and questions. How aggressive do we go? Will we tick off our channels? Do we insource or outsource e-fulfillment operations? If we insource it, do we use an existing DC, or a separate fulfillment operation? Etc."

Gilmore's questions point out why omnichannel operations are so difficult to get right. He goes on to discuss three of the biggest questions involved in omnichannel operations: How do you best fulfill orders? How do you manage shipping costs? And, how do you manage inventories.

Omnichannel Order Fulfillment

Jason Denmon, a supply chain management consultant, writes, "Fulfillment can get complex as customers expect a seamless experience across all channels. One of the key decision points is whether to manage fulfillment of each channel in shared or separate distribution centers." ["Aligning fulfillment operations with a changing channel mix," Modern Materials Handling, 29 June 2012] Jim Barnes of enVista told Gilmore:

"We like the idea of combining the dot com and retail distribution operation if and only if the retailer has the ability to consolidate reserve inventory but logically keep it separated using a Distributed Order Management (DOM) or what I like to refer as enterprise commerce flow (ECF). In principle we like them combined, but many retailers don't know how to do it, therefore you see a lot of physical or virtual fences separating dot com from retail order distribution. ... The bigger question is regarding service and this is why there is a strong argument against combining retail and B2C. I believe to keep up with Amazon retailers are going to be required to establish more satellite or spoke locations in larger demographic areas that allow the retailers to service customer same day, at worst case next day."

Denmon agrees that "operating out of a shared Distribution Center is most effective when the channels or segments have common order profiles (item type and quantity) that share the same inventory." But, as Barnes notes, that isn't always the case. As a result, Denmon claims, "Fulfillment with each channel in its own distribution center makes sense when the channels have unique requirements." Denmon concludes:

"Choosing what type of fulfillment operation is best for your company starts with a holistic view across the business, channels and segments. Getting stakeholder alignment across channels is a critical first step. Start by asking these questions:

• Where are the synergies and differences between channels?
• Are you struggling to respond quickly to market demand? Or dealing with excessive mark-downs and out of stocks as a result of allocation problems?
• How is the performance of each channel measured?
• What are the tipping points where you are willing to sacrifice the optimization of one channel for the overall benefit of the organization? How wide is your lens?
• What are the impacts of changing business requirements in your channel mix?
• Do you have true business/stakeholder alignment between channels with an overarching strategy that drives one consensus plan?

"With an understanding of the full impact of multiple channels on your fulfillment operation, you can look for synergies and ways to deliver the seamless experience your customers expect."

Shipping Costs

A lot more retailers are offering free shipping on orders. That makes getting a handle on shipping costs particularly critical. As Gilmore writes, "Discounted/free shipping is sapping the profits out of e-commerce." But, as Bob Trebilcock, Executive Editor of Modern Materials Handling, notes, retailers continue to offer these shipping options because customers expect them. He writes, "Companies] are now operating in a world where cheap or free shipping dominates. Even wholesale businesses are having to guarantee next-day delivery to meet the expectations of business customers that are influenced by consumer expectations." ["Four trends driving automation," 22 May 2012] Jones Lang LaSalle, a global real estate services firm, asserts that the cost of new warehouses designed for omnichannel operations is significantly higher than the cost of traditional warehouses and distribution centers. "Traditional warehouses that support stores require less investment and machinery and fewer staff," they write. "The new e-commerce distribution centers, which involves direct order fulfillment, can cost three times as much and involve three times as many employees." ["Growing E-Commerce Forces Transformation in Distribution Networks, Report Finds," SupplyChainBrain, 25 May 2012] All of that new cost must be absorbed or passed on. Last December, Supply Chain Digest published the following graphic to show "what a number of leading retailers and service providers are doing relative to multi-channel fulfillment strategies."

As you can see, with so many fulfillment strategies in play, keeping shipping costs in check is no easy matter.

Inventory Management

Gilmore doesn't believe than anyone has been able to master omnichannel inventory management, but, he writes, "Some of the Distributed Order Management solutions are getting close." Kris Bjorson, head of Jones Lang LaSalle's Retail/e-commerce Distribution Group, told the SupplyChainBrain staff, "Traditional retailers must support the delivery of merchandise and manage both in-store and online inventories and shipments at a frenetic pace against the backdrop of intense competition from pure e-commerce rivals." Stephen Gerrard, Vice President of Marketing & Strategic Planning at Voxware, Inc., notes, "Warehouses are now on the front line of customer satisfaction, but enterprises are still downsizing the supply chain as much as possible. Logistics has to do more with less." ["Warehouses: The New Front Line of Online Customer Satisfaction," Supply Chain Digest, 10 May 2012] It is ironic that at a time when the supply chain is playing an increasingly important role that many executives still only see it as an area to cut costs rather than as an area that will differentiate them from their competitors. Supply chain professionals are fond of saying: The supply chain doesn't support the business the supply chain is the business.

Supply chain analyst Bob Ferrari writes, "Many in the industry believe that there is no single formula for success in this new evolving multi-channel commerce world and each retailer will have to continue to 'tune-in' to customer needs and requirements and provide appropriate, differentiated capabilities that can best balance all physical and online assets." ["Bricks and Clicks - The New Business Model and Supply Chain Capability for Retail Industry," Supply Chain Management, 28 March 2012] Bill McBeath of ChainLink Research concludes, "The rising emphasis on omni-channel has reached a pitched crescendo this year, with no signs of abating. One of the reasons it is 'taking so long' is there are so many dimensions to really doing omni-channel well. It touches everything. Even though e-commerce has been around for well over a decade, we are really just getting started on the journey of putting in place the various dimensions of the foundation for wide spread true omni-channel integration. In reality there are currently centers of gravity—unifying the front-end (the shopper experience) vs. unifying the back-end (fulfillment). For now that is probably the enterprise’s best approach, since, especially the front-end mobile game is just discovering itself." ["Reading the Pulse of Retail at NRF 2013: Omni-Channel Still the Big Thing," 22 January 2013]

Get Personal with Your Customers

"In a climate where companies send mass, generic emails to entire mailing lists on a regular basis," writes Malcolm Duckett, "consumers have become deadened by indiscriminate email campaigns." Duckett believes that "a targeted approach is the only real way to avoid damaging your company's relationship with customers and to build brand loyalty." ["Intelligent email marketing should be personalised and targeted," Fourth Source, 7 May 2013] Janet Kyle Altman, of Kaufman, Rossin & Co., basically says the same thing, but in a different way. She writes, "Your target is not 'everyone'." ["To Market Successfully, Your Customer Can't Be 'Everyone'," Business News Daily, 27 September 2013] It's obvious that you can't personalize your marketing efforts if you know little to nothing about the consumer you wish to reach. Richard Ting asserts that "brands are missing out by not fully understanding who their customers are. Let's face it: the signal-to-noise ratio is still fairly low among brands." ["The Customer Profile: Your Brand's Secret Weapon," HBR Blog Network, 11 March 2013]

Angela Wells calls the "getting to know your customer" approach Business-to-People (B2P) marketing. "B2P Marketing," she writes, "is the recognition that businesses aren't actually buying what you're trying to sell. Individual decision makers — people — are making the decisions for their companies, not impersonal disengaged companies as a whole." ["Forget About B2B And B2C - Technology Enables B2P (Business To People) Marketing," Marketing Tools: CRM, 28 June 2013] Whether your desired customer is sitting behind a desk at a business or on the couch in their home, doesn't really matter. Wells is correct that individual decisions are what you are trying to influence. Duckett insists that "saying the right thing at the right time to the right person" is getting easier thanks to technology. He writes, "The new generation of cloud-based marketing automation tools out there can help make this quick, simple and effective." He recommends a four-step approach for getting to know customers better.

"Step 1 – Create a profile: Clearly identify and classify visitors by monitoring and remembering their behaviour. There are tools that let marketers automatically record visitors’ individual behaviours as part of a 'customer history' record.

"Step 2 – Target: The marketer can set up simple targeting 'rules' (one by one as needed) so, for example, a rule might say 'target people who have looked at brand A more than 15 times', 'target visitors who have been visiting for 2 months but have not purchased' or 'target visitors who have purchased but not for 3 months'. Then the marketer will communicate to the system what content they want to try on each segment (this might include a set of email variants or even content to show in the visitor’s web page or triggers to your telesales team).

'Step 3 – See what works: Gathering this data on which content delivers the best results from this target segment (and the control group) is useful to marketers that then need to look at conversion rates, number of sale and, basket size to make their decision.

"Step 4 – Repeat and love the engagement: Keep the process going, each time building into the targeting the additional behavioural information harvested from the visitors. Your system should also include functions to ensure customers aren't repeatedly contacted with the same message or offer. This is important; otherwise customers will get wise and exploit the brand. For example, they will come to understand that if they abandon a basket one day, they will receive a discount the next – or will get frustrated when continually offered a deal they are not interested in, for example, a product they already purchased elsewhere."

Duckett concludes, "By engaging the visitor at every stage, marketers can ensure that customers are not disappointed by their experience of the brand, either by confusing content or unnecessary adverts. The end goal is that the visitor's experience will be easy, engaging and ultimately provide the visitor and the brand with exactly what they want." As I've noted in previous posts, it's easy for online customers to jump on or off the path to purchase. That's why I agree with Duckett that consumers must encounter a good experience at every stage or touchpoint along their journey.

Ting believes that many companies don't get to know their customers better because the data they collect about them is siloed. "Combined," he writes, "this information would be enough to create the ultimate 360-degree customer profile, which would allow enhanced targeting and personalization." The different types of siloes into which data is gathered include:

• "What they're saying — social CRM. What are your consumers saying about your products and services in social media? Are your consumers' brand sentiments shifting from positive to negative or vice versa?


• "What they're buying — purchase history. What is the last product a consumer purchased from you? How often does he buy from you? What are her favorite products? Are people making more or fewer purchases?


• "What they're doing — brand interaction history. Are they using your mobile apps? How often are they using them? Are they visiting your website? Are they spending more or less time with your brand?


• "What they're liking — social interest graph. What interests do they share on social media channels, and who is in the network of people who share similar interests?"

He cautions, "It may seem simple to combine these discrete data sets into one holistic customer profile, but there are major technology obstacles brands need to get past." Integrating data is never as straight forward as people think it will be. Ting insists that a customer's lifetime value will increase "by better engaging them over the long term and with purpose. ... To surgically cut through the noise, advertisers need to develop richer customer profiles. It's not the sexiest of topics in advertising, but it's one that will ultimately allow brands to target and personalize the experiences and messages that consumers deserve." Altman concludes, "No matter what product you sell or service you deliver, more targeted marketing gives you a better return. Targeting a specific audience gets you in front of them more often, with messages that touch them emotionally. If you try to be everything to everyone, your message becomes vague and less impactful."

Wells agrees. "With the rise of social media and engagement," she writes, "it has become increasingly obvious that we are all targeting people – those people who make the decisions whether or not to purchase what you are trying to sell. These people we are targeting are consuming media like never before, across a range of social platforms such as Facebook, Twitter, LinkedIn, and so much more." It should be pretty obvious by now that none of the recommendations offered by these pundits can be achieved without the right kind of technology. The secret is to get personal with your customers without creeping them out. It's a fine line that companies must walk when making personalized offers. The right technology and a good marketing department or firm will help you walk that line.

Personal Data: Who Should Own It and How Much Should It be Worth? (Part 2)

In Part 1 of this two-part series, I discussed the general topic of data ownership and why it is becoming an important issue in the Big Data era. I concluded that post with a quote from Joseph W. Jerome, a Legal and Policy Fellow at the Future of Privacy Forum. He wrote, "'Monetizing privacy' has become something of a holy grail in today's data economy." ["Buying and Selling Privacy," Stanford Law Review, 3 September 2013] As I have reported in previous posts, the World Economic Forum has recognized the economic value of data and has declared it to be a new resource class comparable to gold or silver. That has raised the eyebrows of a lot private citizens who see companies getting rich on their personal data. As a result, many people are asking how can they gain ownership of their data and get their share of the pie?

"As any savvy consumer knows," writes, Meghan Neal, "there's big money to be made off our personal data. I'm talking gobs upon gobs of cash, potentially." ["Should We Be Making Bank Off Our Own Personal Data?" Motherboard, 9 July 2013] For the moment, she insists, "we're just digital cash cows" for data brokers. She continues:

"But that data is our lives, our identities. So why the hell aren't we seeing a dime? The short answer is that consumers are using personal data as currency, rather than looking at is as a commodity. We 'pay' for 'free' services like Gmail and Twitter with our data, instead of viewing that personal information as private property they — the Googles and Twitters and the like — should be paying us for. ... That's why now is a good time to look at the longer answer. Which is to say that consumers taking back their own data, to say nothing of profiting from it, would be a radical upheaval of the global digital economy as we know it. It’s daunting to even think about."

In the previous post, I cited an article written by Robert Hillard, who insists that the "true owner" of personal data is the individual. ["You should own your own data," Mike 2.0, 25 April 2013] He believes that the individual should be in control of their data and, presumably, that means free to make a buck off of it. As a result, he writes, "This approach actually opens up a huge array of new possibilities and leaves the individual in control. The evidence is growing that when people feel confident that they can withdraw their information at any time and are not at risk of unintended consequences they are much more willing to submit their data for a wide array of purposes." The question is: Will selling access to our personal data be enough to replace our 401(k) as a pension plan? The short answer is: Don't count it. Jerome writes:

"Today, privacy has become a commodity that can be bought and sold. While many would view privacy as a constitutional right or even a fundamental human right, our age of big data has reduced privacy to a dollar figure. There have been efforts — both serious and silly — to quantify the value of privacy. Browser add-ons such as Privacyfix try to show users their value to companies, and a recent study suggested that free Internet services offer $2,600 in value to users in exchange for their data. Curiously, this number tracks closely with a claim by Chief Judge Alex Kozinski that he would be willing to pay up to $2,400 per year to protect his family's online privacy. In an interesting Kickstarter campaign, Federico Zannier decided to mine his own data to see how much he was worth. He recorded all of his online activity, including the position of his mouse pointer and a webcam image of where he was looking, along with his GPS location data for $2 a day and raised over $2,700."

Hayley Dixon reports, "Collecting personal data online has become a multibillion-dollar industry but there are fears that it is largely unregulated as companies obtain information through web searches, social networks, purchase histories and public records." ["Personal Details Are Being Sold For A Fraction Of A Penny," Business Insider, 13 June 2013] Dixon goes on to report how much your personal data is worth per each transaction:

"Basic age, gender and location information sells for $0.0005 per person, or $0.50 (32p) per 1,000 people, according to the figures seen by the [Financial Times]. The data on those who are considered to be 'influential' within their social networks has the higher value of $0.00075, or $0.75 (48p) per 1,000 people. Details of how much a person earns or their shopping history are slightly more valuable again - and each piece sells for $0.001. In total most people's data is now worth less than a 64p."

You have to remember that those figures are what the data brokers are charging. If they had to buy that information from you, your share would be considerably less. As Dave Morgan told Dixon, "You're not worth much." The Financial Times published an interesting calculator to help you determine what your data is worth. It can be accessed by clicking this link (subscription may be required). At the moment, however, individuals are not getting any remuneration for their personal data because companies assert that they are providing it voluntarily. For the most part that's true. Most consumers ask: What choice do I have? If you don't provide the information you don't get the service you need. Mark Veverka finds it interesting that "it appears that we are much more willing to share personal information with banks than our doctors. About 87% of Americans are willing to share personal financial details with their financial institutions, but only 58% are willing to share personal medical details with their doctors, according to an extensive global survey exclusively obtained by USA TODAY." ["Unplugged: Who's got your personal data," USA Today, 24 June 2013] He continues:

"The assertion that we might trust Wells Fargo more than our family doctor isn't that surprising at first blush, says Steve Pratt, the San Francisco-based head of Infosys' consulting and systems integration group. We expect banks to monitor every transaction we make, regardless of how big or how small, to assure that our money is safe. We also tend to trust them more because they've earned that trust, for the most part, since making the transition to digital banking more than a decade ago, Pratt says. How an institution treats our information, and how it uses that data, tends to determine how much we as consumers are willing to share with them."

Veverka, like Neal earlier, argues that in many cases consumers aren't giving up this information for free. In return for providing information, they receive "exclusive service, timely discounts or other tangible benefits to reinforce their willingness to continue to share information." Jerome appears to agree with the premise that consumers should only provide data when there is a benefit to be gained. He writes:

"A recent piece in the Harvard Business Review posits that individuals should only 'sell [their] privacy when the value is clear,' explaining that '[t]his is where the homework needs to be done. You need to understand the motives of the party you're trading with and what [he] ha[s] to gain. These need to align with your expectations and the degree to which you feel comfortable giving up your privacy.' It could be possible to better align the interests of data holders and their customers, processing and monetizing data both for business and individual ends. However, the big challenge presented by big data is that the value may not be clear, the motives let alone the identity of the data collector may be hidden, and individual expectations may be confused. Moreover, even basic reputation-management and data-privacy tools require either users' time or money, which may price out average consumers and the poor."

I certainly don't have a definitive answer about who should own various kinds of data or whether it's a good idea to pay consumers for certain data. There are smart (and opinionated) people who are considering the matter and it will be interested to see what they propose in the years ahead. The only thing I know for certain is that Big Data is worth big money. It remains to see who will cash in. I just wouldn't expect to get rich selling your personal data.

Personal Data: Who Should Own It and How Much Should It be Worth? (Part 1)

"Data is the issue du jour," writes Jack Marshall, "CEOs are now frequently asked what their 'big data strategies' are, and CMOs are being pressured to turn the volumes of information their companies collect into business insights and cunning marketing strategies. That's prompting many clients to panic and to question where their data lives, who has access to it, and what exactly it's being used for." ["Brands Get Nervous About Data Ownership," Digiday, 22 April 2013] Interestingly, Marshall is talking about data provided by business clients to ad agencies. He continues:

"According to agencies, clients do 'own' their data in the vast majority of instances. But agencies are well aware of its value and have no incentive to give up control of it to the client. It's less an issue of ownership than it is of control and access. Relationships and contracts vary, of course, but typically it's understood that agencies have rights to it on their behalf. But the reality of the situation is that most data-management platforms, DSPs, trading desks and other data platforms sit on the agency side, not with clients. Therefore, even if brands wanted to take control or 'ownership' of their own data, they're simply not in a position to do so at present."

Peeling the data ownership debate back one more layer, we find that within large organizations there are debates about who should "own the data." Tom Casey, Kumar Krishnamurthy, and Boris Abezgauz write, "Unlocking the potential inherent in all this data, structured and unstructured, internal and external, demands that companies set clear goals for how the data will be used — whether for optimizing the supply chain, developing closer relationships with customers and partners, predicting and reacting quickly to market shifts, or identifying areas for operational improvements and better accuracy of reporting. And they must decide on how it is to be collected, analyzed, and acted on." ["Who Should Own Big Data?" Strategy + Business, 12 August 2013] They continue:

"Given the cross-functional challenges, rich potential, and inherent dependency on complex technology, the question of who should own the data has become a hotly contested topic. In an online survey of more than 500 business intelligence professionals, respondents were evenly divided among three possible scenarios — that IT should take the lead, that the business should, or that a matrix organization should be created, bringing together the expertise of both."

If large companies can't get a grasp on how big data is to be used and who owns it, it's no wonder that individuals feel even more helpless. A number of privacy advocates believe that individuals (not companies) should have ownership of their personal data so that they have more say in how their data is used. "Citizens and consumers are becoming increasingly aware of the value of their personal information," writes Robert Hillard, "and hence are looking for more privacy options." ["You should own your own data," Mike 2.0, 25 April 2013] He continues:

"The default position of governments has been to revisit their privacy regulations. This approach, though, is doomed from the start as no regulation can possibly keep up with this rapidly developing information economy. In fact, it is likely to be economic forces that will provide the solution to the privacy risks of Big Data. Both government and businesses are beginning to realise that they can make individuals much more comfortable to share their data if rather than providing an almost infinite (and incomprehensible) set of privacy settings they simply renounce any attempt at taking over ownership of the data and simply borrow or lease it with the permission of the true owner – you. Rather than reducing the value to business and government, this approach actually opens up a huge array of new possibilities and leaves the individual in control. The evidence is growing that when people feel confident that they can withdraw their information at any time and are not at risk of unintended consequences they are much more willing to submit their data for a wide array of purposes. The protection of the individual in a world of Big Data is not through better privacy, but rather through clarifying who actually owns the data and ensuring that their rights are maintained."

I agree with Hillard that technology will always outrace any attempt to regulate it. When it comes to permission-based data usage, however, the devil is in the details. With so much data already available, getting the privacy genie back in the bottle could prove problematic. Mark Veverka rhetorically asks, "Do you know where your personal data is?" His short answer is: "Everywhere." ["Unplugged: Who's got your personal data," USA Today, 24 June 2013] "We need not only be concerned with how the government is gathering and using our data," he writes. "We should be equally cognizant of what businesses such as retailers, banks and medical providers are doing with our personal information and how it affects our relationships with them."

Duncan Jefferies reports that trust, privacy, and data ownership weren't really front-burner issues until recently. "During the early years of Web 2.0," he reports, "everyone seemed only too happy to share a huge amount of information about themselves through tweets, Facebook updates, geo-location data and other sources. But it seems people are beginning to realise that it might not always be a good idea to turn off their internal privacy settings." ["Can we trust organisations with our data?" Green Futures, 24 June 2013] Even though the privacy genie may never be able to be put back in the bottle, Abhishek Mehta, founder of Tresata, believes that "the discussion around the positive applications of Big Data is hollow if user privacy is not being addressed." ["Abhishek Mehta Discusses the Concept of Data Ownership," by Maria Deutscher, Silicon Angle, 18 June 2013] Mehta believes, "Individuals and organizations need to know who owns their data, who has access to it, and what can be done with it." The article continues:

"The way Mehta sees it, big tech firms possess 'pools' of user data. Amazon is the 'purchasing cloud of information,' Facebook is the 'social cloud of information,' and so on. Consumers entrust these companies with their data, but they don't necessarily know who owns it, and more importantly, they can't access all of it from one place because the technology required to do so is not yet available. Much of this also applies to private organizations, which generate large amounts of sensitive information that can easily fall into the hands of third parties. Mehta believes that in time, these isolated pools of user information will collapse into one another. He views this trend positively, but stresses that Big Data can be a source of both good and evil."

When Mehta talks about collapsing data pools into one another, one potential course for that collapse is to place data into what has been called Personal Data Vaults. But even if such vaults are created, individuals may not know what to do with them. Howard Gross asserts that consumers already know that massive amounts of data are being collected about them as they shop, surf the web, and make mobile calls. But, he notes, "Knowing is not always the same as understanding." ["Big Data and the Myth of Consumer Control," SmartData Collective, 25 June 2013] He continues:

"Joseph Turow, a professor at the University of Pennsylvania’s Annenberg School of Communication, has found that most Americans are unfamiliar with concepts like data mining and behavioral targeting. They are also limited in their ability to use technologies that protect their privacy. Moreover, few grasp the fact that by simply 'liking' something on Facebook, they may inadvertently reveal their ethnicity, economic status, political views, religious beliefs, mental health or sexual preferences."

Clearly, the issue of data ownership is only going to heat up in the years ahead rather die down. If privacy doesn't become the driving issue, money will. "'Monetizing privacy' has become something of a holy grail in today's data economy," writes Joseph W. Jerome, a Legal and Policy Fellow at the Future of Privacy Forum. ["Buying and Selling Privacy," Stanford Law Review, 3 September 2013] In the final post of this two-part series, I'll explore whether or not you and I are going to get rich selling our private data to the world.

Surviving in the Omni-channel World

Erik Brynjolfsson, Yu Jeffrey Hu, and Mohammad S. Rahman believe that mobile technology is forever changing the face of retailing. They write, "Recent technology advances in mobile computing and augmented reality are blurring the boundaries between traditional and Internet retailing." ["Competing in the Age of Omnichannel Retailing," MIT Sloan Management Review, 21 May 2013] As a result, they assert that "retailers [can] interact with consumers through multiple touch points and expose them to a rich blend of offline sensory information and online content." The editorial staff at SupplyChainBrain agrees that mobile technology has changed the retail landscape, and the staff insists that interactions with consumers are just as critical after the sale as before the sale if they are to remain happy and loyal. "With more customers shopping online and on their mobile devices," it writes, "it seems imperative that retailers offer different channels for fulfillment to not only keep prices low, but to remain competitive and foster customer loyalty." ["Multichannel Fulfillment Is The New Normal," 11 March 2013]

Brynjolfsson, Hu, and Rahman believe that technology has finally reached the tipping point in the retail arena. They describe the new business landscape this way:

"In the United States today, more than 50% of cell phone owners have smartphones, and more than 70% of these have used their devices for comparison shopping, a habit that is becoming increasingly common worldwide. In the past, brick-and-mortar retail stores were unique in allowing consumers to touch and feel merchandise and provide instant gratification; Internet retailers, meanwhile, tried to woo shoppers with wide product selection, low prices and content such as product reviews and ratings. As the retailing industry evolves toward a seamless 'omnichannel retailing' experience, the distinctions between physical and online will vanish, turning the world into a showroom without walls. The retail industry is shifting toward a concierge model geared toward helping consumers, rather than focusing only on transactions and deliveries."

It doesn't take much imagination to envision the challenges and complications created by this new retail landscape. Although analysts seem to be in agreement that retailers must adapt to this omnichannel world or risk extinction, "some of the largest U.S. and U.K. retailers [have been] slow to adapt their store operations to changing consumer buying habits, according to a study by SD Retail Consulting, a retail advisory firm and unit of Hilco Trading, LLC." ["Largest Retailers Slow to Adapt to Needs of Omni-Channel Shopping Environment, Study Finds," by SD Retail Consulting, SupplyChainBrain, 7 June 2013] Antony Karabus, president of SD Retail Consulting, stated, "The largest retailers must examine every customer touch point and how they play their part in creating that seamless customer experience. For the minority of retailers who are successfully transforming their store environments, the rewards will be substantial."

Charles Hunt, owner of Duvet and Pillow Warehouse, a fast-growing online retailer, told reporters from The Economist, "'Multichannel' (or even better, 'omnichannel') is something almost every self-respecting retailer wants to be. It means letting customers shop with smartphones, tablets, laptops and even in stores as if waited upon by a single salesman with an unfailing memory and uncanny intuition about their preferences. Pure-play internet vendors are good at this. But most resist the idea that actual stores, with their rents, payrolls and security cameras, ought to be one of those channels. The thought of having the same costs as bricks-and-mortar competitors 'scares the living daylights out of me'." ["Mixing bricks with clicks," 23 March 2013] Hunt clearly spots the sorest point in omnichannel operations — the differential costs between online and brick-and-mortar operations.

Another sore spot, however, is omnichannel alignment. McKinsey & Company analysts Duarte Braga, Paul-Louis Caylar, and Pascal Griede, note, "At many companies, ... channel conflict or poor coordination gets in the way of true multichannel harmony. Successful multichannel leaders understand the importance of flexibility – helping customers shift between channels at the different steps of their decision journey to achieve the experience they want." ["A symphony of separate instruments: Cross-channel and online sales," Telecom, Media, and High Tech Extranet, 24 October 2012] Braga and colleagues note companies that began as brick-and-mortar stores are sometimes as reluctant to enter the online market as Hunt indicates he is to enter the brick-and-mortar arena. This kind of reluctance can result in the disharmonies noted by the McKinsey analysts. They conclude:

"No company today would neglect digital sales altogether. Yet many still view these efforts as sideshows to their 'real' business in stores. By taking smart advantage of the range of digital platforms currently available, retailers can delight customers both inside and outside their stores, while harvesting valuable consumer insights. Going a step further to integrate these digital channels within a truly multichannel strategy can boost performance across all channels – whether online or offline."

Brynjolfsson, Hu, and Rahman report how "the availability of product price and availability information, the ability of consumers to shop online and pick up products in local stores, and the aggregation of offline information and online content have combined to make the retailing landscape increasingly competitive." They note that "retailers used to rely on barriers such as geography and customer ignorance to advance their positions in traditional markets. However, technology removes these barriers." For brick-and-mortar stores location still matters in two ways. The most obvious way that location matters is, of course, ensuring that a store is located in an area easily accessible and desirable to shoppers. In the mobile age, Brynjolfsson, Hu, and Rahman point out that location also provides an advantage when shoppers are nearby. They explain:

"The growing prevalence of location-based applications on mobile devices is a critical enabler of these changes. According to the Pew Research Center, 74% of U.S. smartphone users used their phones to obtain location-based information in 2012. Retailers are taking advantage of opportunities created by location-based applications. Walgreens, for example, has teamed up with Foursquare, a location-based social networking website, to offer customers electronic coupons on their phones the moment they enter a Walgreens store. Saks Fifth Avenue has also worked with Foursquare to steer consumers toward physical locations by offering goodies (such as high-end brand Nars lipstick). Macy's offers free Wi-Fi in its stores; consumers can scan QR codes on products to see online product reviews, prices and exclusive video content on fashion trends, advice and tips. In some cases, the location-based applications aren't managed by the retailers but by third parties. For instance, RedLaser, an eBay company, allows consumers to scan UPC codes to determine whether specific products are available nearby and at what price. Mobile applications themselves are becoming increasingly advanced. For example, Loopt, of Mountain View, California, provides real-time location-based services aimed at specific users and popular locations. Retailers can use Loopt as a virtual loyalty card, allowing them to connect directly with consumers based on their location. Loopt users can find friends nearby and receive coupons and rewards for checking into specific locations. Another app called Doot enables users to leave public or private messages for friends or family members at restaurants or stores; the messages are activated when the designated people reach the sites."

Brynjolfsson, Hu, and Rahman offer seven strategies for achieving successful omnichannel retail operations. They are:

1. Provide attractive pricing and curated content.

2. Harness the power of data and analytics.

3. Avoid direct price comparisons.

4. Learn to sell niche products.

5. Emphasize product knowledge.

6. Establish switching costs.

7. Embrace competition.

They conclude:

"Technology is making omnichannel retailing inevitable and is reducing the ability of geography and ignorance to shield retailers from competition. It is breaking down the barriers between different retail channels as well as the divisions that separate retailers and their suppliers. At the same time, omnichannel retailing expands the overall pie by extending market reach and introducing consumers to products they may not have known about. Supply chains that generate increased consumer value are likely to win in the long run. More transparency is likely to speed up this process, leading to more of a 'winner-take-all' effect. As a result, retailers and manufacturers will need to find an area where they are truly the world’s best, as opposed to just working harder to hide from competition. With omnichannel retailing, competition will increase on many fronts, but so will the opportunities for savvy retailers and supply-chain partners to gain competitive advantage."

Omnichannel operations for many companies will result in smaller retail stores and larger distribution centers. I will discuss the backend impacts of omnichannel operations on the supply chain in a future post.

Web 3.0: Does Anybody Really Know What It Will Be?

Half a dozen years ago I wrote a post entitled Web 3.0 Still Advancing -- Even if People Don't Know What to Call It. I noted that Web 1.0 could be called the Information Web and that the Information Web morphed into the Social Web (commonly called Web 2.0). For most of the intervening years, people have been talking about the Semantic Web being the successor to the Social Web and they have been referring to it as Web 3.0. Back in 2009, however, Miguel Helft wrote about the amazing rise of "Twitter, Facebook, and other similar services" and how they "are increasingly becoming the nation's virtual water coolers. They spread information quickly, sometimes before the mass media do, and their ricocheting bursts of text and links become an instant record of Americans' collective preoccupations." Helft labeled the next evolution in the Web "Real-Time Search." ["How High Will Real-Time Search Fly?" New York Times, 24 October 2009] He didn't refer to Real-Time Search as Web 3.0, but he clearly saw it as the next step towards something new.

The following year Alice Truong interviewed Herman Lam, chief executive of Cyberport Management Company Limited, a government-owned company in Hong Kong that manages a development called Cyberport, which was supposed to be Hong Kong's silicon valley. During that interview, Lam did talk specifically about Web 3.0, but not as the Semantic Web. He simply called Web 3.0 "smarter computing." ["How to Make Web 3.0 Reality," Wall Street Journal, 7 December 2010] Lam told Truong:

"Web 3.0 is about how to make life even easier for us in the future. We believe with all this technological change that we could be looking at a paradigm shift and how people interact with the Web. When this changes, it opens up an opportunity for small startups, new companies and young entrepreneurs. ... In the world of Web 3.0, the Internet should know I won't be able to watch my favorite TV show. It should automatically record it and book a time slot for me to catch up on this show."

Lam's vision of Web 3.0 is certainly something different than Helft's Real-Time Search and certainly doesn't sound like traditional descriptions of the Semantic Web. It sounds more like a cross between a personal digital assistant and a smart TV. Daniel Nations probably got it right when he wrote, "The truth is that predicting the Web 3.0 future is a guessing game. A fundamental change in how we use the web could be based on an evolution of how we are using the web now, a breakthrough in web technology, or just a technological breakthrough in general." ["What is Web 3.0?" About.com] Nation's goes on to state, "Many people ponder the use of advanced artificial intelligence as the next big breakthrough on the web. One of the chief advantages of social media is that it factors in human intelligence." Certainly, the Semantic Web won't emerge without artificial intelligence technology. Concerning the Semantic Web, Nations writes:

"There is already a lot of work going into the idea of a semantic web, which is a web where all information is categorized and stored in such a way that a computer can understand it as well as a human. Many view this as a combination of artificial intelligence and the semantic web. The semantic web will teach the computer what the data means, and this will evolve into artificial intelligence that can utilize that information."

Another possibility raised by Nations is what he calls the "Ever-Present Web 3.0." He explains:

"Not so much a prediction of what the Web 3.0 future holds so much as the catalyst that will bring it about, the ever-present Web 3.0 has to do with the increasing popularity of mobile Internet devices and the merger of entertainment systems and the Web. The merger of computers as a source for music, movies, and more puts the Internet at the center of both our work and our play. Within a decade, Internet access on our mobile devices (cell phones, smartphones, pocket pcs) will be as popular as text messaging. This will make the Internet always present in our lives: at work, at home, on the road, out to dinner, wherever we go, the Internet will be there."

More recently the so-called Internet of Things has been put forth as a viable candidate for Web 3.0. ["Introducing Web 3.0: Internet of Things," by Xath Cruz, Cloud Times, 9 September 2013] As I've explained in previous posts about the Internet of Things, it's basically a machine-to-machine network. Cruz explains that it "basically refers to the concept of every gadget and appliance we own being interconnected via the Internet." Sarah Perez acknowledges that both the Ever-Present Web and the Internet of Things were potential candidates to be crowned Web 3.0, but notes: "None of these got to win the Web 3.0 branding." Perez nominates another candidate — the Ephemeralnet. ["The Rise Of The Ephemeralnet," TechCrunch, 30 June 2013] She believes the Ephemeral Net will emerge as people combine the desire to share their lives with friends as well as maintain a modicum of privacy. She writes:

"While some confuse the 'Ephemeralnet' with the so-called 'SnapchatNet,' in reality, it’s not only a new way to socialize online, it's a new way to think about everything. You can see the trend also in the rise of the (somewhat) anonymous and untraceable digital currency Bitcoin. Unlike traditional transactions, Bitcoin is decentralized and doesn't require banks or governmental oversight or involvement. And though it’s not entirely anonymous, there are already efforts, like Zerocoin, working to change that. ... At the end of the day, the Ephemeralnet may never get to become as defining a trend as Web 2.0 once was. Though it may find adoption beyond the demographics of its youngest participants, it will continue to share the web with the services that preceded it – services too big, too habitual, and too lucrative, to die off entirely."

Kevin Lindquist labels his version of Web 3.0 "'The Integrated Web' (Not 'The Semantic Web')." ["Web 3.0 is Here! Is Your Small Business Ready?" YFS Magazine, 30 August 2013] He explains:

"Many are pushing for this thing called 'The Semantic Web' where an app will be able to understand user interaction in such a way that it will not only return directly relevant results, but also indirectly relevant results. For instance, a search for 'showtimes 84003' returning what time movies are playing at the Cinemark in American Fork, Utah, including nearby places for dinner (because you are probably going on a date) or gas stations en route because it knows that your car is out of gas. These concepts are exciting, innovative, and forward thinking, but there is a critical evolutionary step missing in between the 'The Social Web' and 'The Semantic Web'. Instead of the telephone lines that we constructed between web apps and services during Web 2.0, Web 3.0 brings bridges and process to support the future of the app. Integrated services are the future, integrated applications of those services will take over the world. Being able to take one object, and pass it through multiple services to accomplish a task is that critical evolutionary step before 'The Semantic Web' becomes meaningful. Instead of a world where the app returns data about indirectly relevant things, what if it could instead automatically perform those indirectly relevant services for you upon approval? In other words, if you are going to show me 'The Semantic Web' show me a semantic web that can get things done without me needing to go between a number of different apps, web pages, etc."

I started this post with a reference to another post I wrote six years ago. Over those six years, there have been a number of technological advances. One thing that hasn't advanced, however, is agreement on what Web 3.0 should be called and what exactly its characteristics will be. In the end, that really doesn't matter very much. We will get what we will get — and we will probably like it.

Cyber Security: A Growing Risk to Supply Chains

Guy Carpenter, a reinsurance brokerage firm, recently published a report highlighting emerging risks facing the (re)insurance sector. One of the three emerging risks identified was cyber risk. The other two risks were climate change and space risk. ["Cyber, Climate Change And Space Highlighted As Critical Emerging Risks In Guy Carpenter Report," gccapitalideas.com, 8 September 2013] Insurers and reinsurers are constantly looking for risks that could affect their bottom lines. Some of those risks could affect their own operations, but most of the risks identified could significantly and negatively impact the companies they insure. Cyber risks fall into both categories. Concerning cyber risks, the article states:

"Instances of cyber attacks are indeed on the rise and have reached alarming levels. Moreover, cyber risks are not isolated and are usually connected to other seemingly less obvious risks. For example, the immediate risks associated with a cyber attack can range from legal liability and computer security breaches, to privacy breaches of confidential information. Reputational damage is another concern. A company may also be vulnerable to risks to their supply chain as a result of cyber threats, as technology has become a critical enabler of a supply chain's operations. According to the report, technology failure and cyber attacks represent a greater threat to most organizations than adverse weather, fire and social unrest combined. Given the growing loss potential from supply-chain risks, companies need to ensure they understand their supply chains and offer all data to their insurers. Every company that utilizes technology and collects or handles data should therefore consider cyber insurance cover. The (re)insurance sector has reacted quickly to cyber developments and now offers coverage that addresses nearly all aspects of technology-based risk faced by modern companies."

Over the past few years, supply chain disruptions caused by natural disasters have captured most of the headlines. That's why it may come as a surprise that cyber risks to supply chains are a greater risk than adverse weather, fire, and social unrest combined.

Zurich, another insurance company, is also keeping its eye on cyber security. In an article written for Zurich, Catherine Bolgar writes, "One of the biggest threats on every executive's minds is cyber security. Businesses are more dependent than ever on information technology." ["Emerging Risks," Supply Chain Risk Insights, 8 April 2013] Bolgar continues:

"The new cyber security breaches are 'not for taking assets or taking money, but to control assets,' says James B. Rice Jr., deputy director of the Center for Transportation and Logistics at the Massachusetts Institute of Technology in Cambridge, Massachusetts. 'Many operations are managed by machines, and it's quite possible for somebody to wrest control of those.' An indication of the potential damage is the Stuxnet worm that attacked Iran's nuclear facilities in 2010. As with social media, the threat can come from disgruntled employees, pranksters or hackers. Risk also can come via suppliers. Companies evaluate risks in terms of physical operations and facilities, but they 'don’t always think about the maintenance providers that have access to service the facilities in person or remotely,' Mr. Rice says. 'That represents a significant opportunity for bad actors to take action, whether against a particular company or against infrastructure to cause a systemic risk.'"

Kirsten Doyle reports that Edna Conway, chief security strategist at Cisco, expressed a number of concerns about cyber security at a conference earlier this year. Conway was concerned that "today's supply chain is reliant on a complex network involving the movement of goods, services, funds and information across a range of parties worldwide. This makes the supply chain vulnerable to not only cyber attacks and disruptions, but also cyber espionage." ["Securing the supply chain," ITWeb, 16 May 2013] Conway told conference participants, "We have to get security right, and apply it across the supply chain. We need to think end-to-end. Introduce a security model that moves away from the endpoint. We need to capture failures within the supply chain, so the customer is never affected."

Michael de Crespigny, CEO of the Information Security Forum (ISF), an international association that focuses on cybersecurity issues and information risk management, told CSO magazine that supply chains are increasingly a target for hackers. "It's a case of the hackers identifying the weakest link and breaking in," he observed. ["Supply chain the new tempting attraction for hackers," by John P. Mello, Jr. (CSO), Network World, 10 April 2013] De Crespigny continued, "Criminals are seeing the supply chain as a means of accessing information they wouldn't otherwise be able to get from a large, proficiently run, well secured global organization." Supply chain analyst Bob Ferrari agrees with de Crespigny that supply chains are sometimes the weakest link in corporate networks. This is because those networks must often connect with other, less secure, networks. Ferrari writes, "The weakest links in global supply chains, namely supplier networks, can sometimes be the target of [cyber] attacks. Insure that your supplier audits involving strategic suppliers include some basis of insuring that adequate information security measures are in-place." ["The Growing Threat of Cyber Attacks Across the Global Supply Chain," Supply Chain Matters, 20 May 2013]

Earlier this year, you might remember reading about how the Chinese military is conducting persistent cyber attacks against both government and commercial organizations. As Kathrin Hille reported, "Western governments are ... accusing China of sponsoring aggressive, highly co-ordinated and long-running cyber espionage campaigns against the rest of the world, often in pursuit of corporate and military secrets." ["Chinese cyber crime: More crooks than patriots," Financial Times, 19 May 2013] Hille pointed out, however, that not all cyber attacks emanating from China are government sponsored. She related the story of six young Chinese men who decided to attack Foxconn on a whim. As a result, she concluded, "Governments and companies must design their defences to resist not only state-sponsored attacks but also threats from half a dozen young men looking to make a quick buck by extorting a multinational."

If there is any good news in all of this, it may be "that supply-chain attacks are harder to carry out and require more resources than other modes of attacks." At least that is what "officials from four industry groups and one research institution" told the Government Accountability Office. ["Is supply-chain risk overstated?" by Mark Rockwell, FCW, 22 May 2013] Rockwell reports that most experts agree that software vulnerabilities ("like malicious software uploaded to equipment through the Internet") greatly outweigh hardware vulnerabilities. Rockwell writes, "Three network providers told [the] GAO the most common anomalies found in equipment were caused by unintentionally bad coding in their software. A third-party testing firm, however, said the anomalies could lead to exploitable vulnerabilities." Rockwell noted that Roger Schell, senior computer scientist at the University of Southern California, spoke earlier this year at the SAS Government Leadership Summit in Washington, D.C. At that conference, Schell indicated that "software manufacturers ... are not doing nearly enough to protect their users. As evidence of the oversight, he cited a recent government-sponsored 'red team' practice attack on a U.S. armed forces computer network in which the team replaced six lines of code in a Windows XP program, resulting in loss of control of the program."

Supply chain professionals are not generally IT professionals as well. They don't write code, they are users of programs. It is up to the software providers to help make supply chains more resilient to cyber attacks. As more losses are accumulated as a result of cyber risks, I suspect that insurance companies will start identifying software providers that place their clients at greater risk of cyber attacks. With so much at stake, neither governments nor companies can treat cyber risks lightly.