REBORN IN THE USA
www.busmanagement.com • Q2 2009
American manufacturing isn’t dead, it’s just been reinvented. But can it capitalize on China’s woes? (p34)
BEATING THE DOWNTURN How to survive the recession (p54) Why Intel is investing in US innovation (p46) Where did it all go wrong for Citigroup? (p118)
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EDITORS NOTE:mar09 30/03/2009 13:43 Page 7
FROM THE EDITOR
7
Back from the brink? The best American manufacturers have evolved in recent years to reflect changing competitive pressures. Other businesses should think about doing the same.
H
“Having a domestic manufacturing base allows us to be more responsive and react quicker to changing tastes and demands” Rob DeMartini, CEO, New Balance (p42)
“Investing in the future isn’t just the right thing to do – it is an essential business decision if we want the US to continue to be the engine of new ideas and technical leadership” Paul Otellini, CEO, Intel (p46)
ere’s a frightening thought from the glory years of US manufacturing in the 1960s: “As GM goes, so goes the nation.” Oops. Unwieldy and inflexible, General Motors is struggling to survive the current crisis – a throwback to a bygone age when US industrial superiority was taken for granted and size was everything. Those days are long gone. The General now faces a real fight for its future, and at the moment is on the ropes. It’s tempting to say the same for the US economy, given the recent turmoil on Wall Street. Without doubt, corporate America has a battle for survival on its hands. But look beyond the headlines and you’ll find opportunities in even the deepest pockets of the recession. Take the manufacturing sector, for instance. Most headlines paint it as rusting away into insignificance, rendered obsolete by China’s emergence as a low-cost production powerhouse. But although the demise of Detroit would certainly cut a swathe through America’s manufacturing heartland, domestic production is far from dead. As our cover story illustrates, the US produced $1.6 trillion worth of goods last year, double the $811 billion produced 20 years earlier. For every $1 of value produced in China’s factories, America produces $2.5. And productivity levels are way up. It shows how the best US manufacturers have evolved with the times, tackling increased competition from China and elsewhere by focusing on highly skilled, highvalue areas of manufacturing such as technology, pharma, aerospace and defense. It’s stretching credulity to say manufacturing is in rude health, but reports of the death of domestic industry have been greatly exaggerated. Opportunities do still exist for those smart enough to recognize them. Indeed, there are valuable lessons here for companies of all types, not just manufacturing. As financial boom turns to bust, the trickle-down effect on the real economy is now being felt. Shrinking markets are a distinct possibility. Budgets and funds for investment are likely to be smaller than before. The challenge of doing more with less is being faced by every company. And as a result, every aspect of the organization is coming under the microscope as companies seek to reduce costs and become more agile without sacrificing performance. New technologies have the potential to help manage through the downturn and beyond, but only if coupled with effective strategies and the right people. The most successful companies will be the ones that can adjust quickest to the new operating environment and see opportunities where others see problems. Survival is one thing; positioning to capitalize on the upturn when it eventually comes is something quite different. If the recent travails of Detroit and the banking sector prove nothing else it is that no organization is too big to fail. Don’t let your company be on of them.
“We see it as an opportunity for us to make our culture stronger and more tightly knit, as well as make the company more efficient” Tony Hsieh, CEO, Zappos (p72)
Ben Thompson, Editor
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CONTENTS BMUS15:mar09 27/03/2009 15:53 Page 9
9
CONTENTS FEATURES
42
Surviving tough times Warren Buffet famously remarked that it’s only when the tide goes out that we see who’s swimming with no trunks on. But how can businesses ensure they’re not caught with their pants down when the recession hits?
Best foot forward They said it couldn’t be done – but New Balance is proving that it is possible to be successful in the sneaker business and still retain a manufacturing foothold in the US
54 46
34 Made in America US manufacturing isn’t dead, it’s just been reinvented. But can it save the economy?
The man with a plan Despite his company’s global footprint, the Intel CEO Paul Otellini, believes the US is where it’s at when it comes to innovation – and is putting money down to prove it
CONTENTS BMUS15:mar09 27/03/2009 16:11 Page 10
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CONTENTS www.busmanagement.com
Tony Hsieh
80 Investing in internet infrastructure
72
Guidance from Vint Cerf on the importance of building internet infrastructure
86 Improving rich internet applications An in-depth look at RIA
88 Next generation enterprise Business Management gets to the bottom of enterprise application modernization
90 The ROI of RIAs Welcome to the world of rich internet applications
94 The internet gold rush Could the immersive internet be the rebirth of Second Life?
98 Unlocking the power of mobile Business Management investigates the impact of mobile marketing on a cash-strapped sector
100 Managing mobility
94
76 Put it down to experience
How to make the most of your mobile devices, with Carl Rodrigues
Forrester’s Bruce Temkin on ensuring a good customer experience
102 Enterprise mobility
78 The next competitive battleground
Willie Jow shares his advice for adopting a strategic platform for mobility
Gary Schwartz reveals why understanding customer experience is key The internet gold rush
104 Making every transaction more valuable Rob Reeg offers a behind-the-scenes overview of the IT systems at MasterCard
64 The importance of performance management Frank Buytendijk explains how to survive and thrive in today’s tough market
66 Improving business intelligence An insight into cutting-edge BI solutions
70 Demand-driven manufacturing Alfred Sherk explains how technologies are emerging to address key manufacturing challenges
72 Breaking out of the shoebox How Tony Hsieh transformed quirky online retailer Zappos into a multimillion-dollar empire
Frank Buytendijk
64
GOLD SPONSORS
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CONTENTS BMUS15:mar09 30/03/2009 08:58 Page 12
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CONTENTS www.busmanagement.com
ASK THE EXPERT
80
68 Tommy Houston, Novaces 92 Daniel Kraft, Open Text 96 Julie Wittes Schlack, CommuniSpace 130 Jason Kerr, QuietAgent
ROUNDTABLE 106 Virtualization BM asks five experts about effective implementation 112 Leveraging product information to generate sales
Vint Cerf
REGULARS
High quality product data is a key competitive advantage, says Greg Wong Citi breaks
118
114 Improving energy efficiency Martin Hanssmann and Rick Nicholson discuss how to improve building efficiency
116 Going green The business benefits of green IT
118 Citi breaks Huw Thomas traces the decline of a banking giant
136
124 What would Google do? With Jeff Jarvis
128 Recruitment lessons for a downturn Kevin Kelly explains why it is a mistake to let a downturn affect recruitment plans
132 Flying high
142
Steve O’Neill reveals how to reduce capital expenditure
134 Avoiding burnout 136 Executive retreats 138 Book reviews 140 Feedback 142 36 hours in‌ San Francisco 144 Final word: Leadership lessons S I LV E R S P O N S O R
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CREDITS:mar09 30/03/2009 11:03 Page 14
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UPFRONT BMUS 15:nov08
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FRONTLINE THE BRIEF
PAYBACK Is it time to hand back the bailouts? Why are certain banks so keen to hand them over? And what impact will it have on the weaker banks? FEARING INCREASED GOVERNMENT INTERFERENCE in the coming months, Goldman Sachs, Wells Fargo, JPMorgan Chase and Bank of America are all considering the repayment of their Troubled Asset Relief Program (TARP) funds as soon
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as possible. Several banks have cut dividends and taken other cost-cutting measures to bolster capital with which to redeem the government’s investment. It seems that Obama’s call for greater transparency and accountability, in-
cluding a cap on executive lion in bonuses late last year, compensation and bonuses, just days before it was taken has not been received over by Bank of America well by the bankers, with some help from Merril Lynch who fear there is taxpayers. And earexecutives pocketed more to come, lier this year particularly given Citigroup reversed the heightened a decision to buy a in bonuses late level of public $50 million corpolast year anger towards Wall rate jet after public Street’s ways. backlash. Investors were outraged AIG has also been under by the reports that Merril Lynch public scrutiny for revealing executives pocketed $3.6 bilthat it paid out tens of millions
$3.6 billion
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FRONTLINE THE BRIEF
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NEWS IN PICTURES in executive bonuses in needed it or not – it signaled February despite $170 billion, that the whole industry was the largest amount by far, in a mess and it also meant being lent to the troubled inthere was no stigma attached surer. And while AIG employto receiving the bailout ees are to pay back $50 money. Now, with firms determillion, critics want the govmined to give back taxpayer ernment to go further. funds it would put undue After the grilling that the pressure on other firms to insurer recently received it get off the government dole. seems that nobody wants to But would this be a bad be the next AIG – thing? Some believe that named and shamed it is time that the govCitigroup before having ernment let failing reversed a decision Congress, as firms fall and got to buy well as the govout of the way of ernment, overthose that can corporate jet after involved in succeed. Indeed, public backlash decision making Wells Fargo processes, from pay Chairman Richard to the way employees are Kovacevich has been saying for hired and operations are run. some time now that the comWhile it’s good news that pany didn’t need the bailout Goldman Sachs, one of the money and has been forced to largest recipients of taxpayers cut its dividend – plus cancel money, as well as other banks junkets – on account of govincluding Wells Fargo, Bank of ernment strictures. It is time Marin and PNC, are attemptfor those who can to give the ing to end their stormy relamoney back so the governtionship with the government ment can concentrate on supand pay back their federal porting the huge firms like AIG loans as soon as possible – and Citigroup who can’t, but we all know that Washington also can’t fall because they could use it – there may be would cause huge shockwaves some potential problems for if they went down. weaker banks. In fact, some At the same time, quesbelieve that if the healthier tions remain about just how banks return their bailout quickly the Treasury will be money, it will leave the weakable to unwind its holdings in er banks even more exposed banks and what it will actually and vulnerable. do with the refunded money. When the original bailout While it remains to be seen plan was designed back in what exactly will happen, sureOctober, former Treasury ly it would be better to see Secretary Hank Paulson oreven a fraction of the nearly dered nine of the nation’s $200 billion that the governbiggest banks to accept a ment injected into the banks bailout whether they felt they than not?
Citigroup plans to spend $10 million on its headquarters. This comes in the wake of receiving $45 billion in taxpayer bailout money
$50 billion
American Treasury Secretary Tim Geithner announced detailed plans aimed at removing up to $1 trillion in bad debt from American banks
In the UK, Sir Fred Goodwin, the disgraced former boss of RBS, had his home attacked by vandals following his refusal to give up his £700,000 a-year pension deal
AIG employees are to pay back $50 million out of the $165 million awarded in February as bonuses. Legislation was clamped down after a public backlash
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FRONTLINE NEWS & NUMBERS
HOME SALE STATISTICS Home prices decline by
12% in the fourth quarter 2008 After a
40% plunge in home sales during 2007, statistics are now showing a 7% rise in sales for 2008
Motivated sales increased by an astounding
177%
BANKS STILL IN SURVIVAL MODE BANKS ARE IMPLEMENTING stringent cost control measures and placing technology spending under heavy scrutiny. Datamonitor analysis forecasts that global banking technology will decline by almost two percent in 2009, where the main impact will be felt in Europe and the US. Overall technology growth is predicted to remain depressed compared to pre-crisis forecasts up to 2012, removing over $40 billion of what would have been IT spending from the banking sector over the next five years.
$40 billion removed from IT spending over the next five years
MORE INFRASTRUCTURE SPENDING NEEDED
in 2008, while all other home sales fell 17%
Obama has unveiled a
US$75 billion plan to help borrowers suffering from falling home prices
Foreclosure filings exceeded
250,000 for the 10th straight month in January
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IN FEBRUARY, PRESIDENTOBAMA signed into law his $789 billion stimulus package, with $80.5 billion to fix roads, bridges, mass transit and waterways, and an additional $72.5 billion for transportation spending in his budget proposal for 2010. However, it has been r eported that this figures fall far short of the $2.2 trillion that the American Society of Civil Engineers estimates is needed to repair highway, transit and water projects. California Governor Arnold Schwarzenegger and New York Mayor Michael Bloomberg, along with Pennsylvania
Governor Ed Rendell have said that the United States need to spend up to $1.6 trillion to make up for decades of neglect and stay globally competitive. Breeched levees in Iowa and New Orleans and the 2007 Minneapolis highway bridge collapse all vividly illustrate the perils of allowing infrastructure to crumble. Obama has proposed $5 billion in seed money for an infrastructure bank with an independent board to pay for capital projects, and is expected to explain his complete transportation plan in April.
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FRONTLINE NEWS & NUMBERS
AROUND THE WORLD: SURVIVAL SPECIAL
EUROPE STILL RATES HIGHEST EUROPEAN CITIES CONTINUE to dominate the worldwide rankings of locations with the best quality of living, according to Mercer’s 2008 Quality of Living Survey. Zurich retains its 2007 title as the highest ranked city, followed jointly by Vienna and Geneva, then Vancouver and Auckland. Canadian cities dominate the rankings in the Americas. Vancouver (four) has the best quality of living followed by Toronto (15), Ottawa (19) and Montreal (22). Only eight US cities made the top 50, the highest ranking was Honolulu at 28. In terms of personal safety, Canadian cities again perform best with Calgary, Montreal, Ottawa, Toronto and Vancouver all ranked jointly at 22. In the US, Chicago, Honolulu, Houston, Lexington, San Francisco and WinstonSalem all share rank 53. Slagin Parakatil, Senior Researcher at Mercer said, “Personal safety within Canadian cities ranks among the highest in the region. This is due to a relatively low crime rate and a stable political environment. In contrast, many of the Latin American cities such as Caracas, Bogotá or Port au Prince continue to be undermined by crime and political and economic turmoil. Traffic congestion and pollution have also had an impact.”
US SNAPSHOT Quality of living regional rankings
Rank
City/Country
28
Honolulu (HI)
29
San Francisco (CA)
37
Boston (MA)
44
Washington (DC)
44
Chicago (IL)
48
Portland (OR)
49
New York City (NY)
50
Seattle (WA)
MICROSOFT + EVEN THOUGH YAHOO’S previous management spurned a takeover bid from Microsoft last year, Steve Ballmer has spoken on the phone with Yahoo’s new chief exec and
“sees a real opportunity for a deal”. He is keen to set up a search partnership and is particularly attracted to Yahoo’s scale rather then it’s technology.
FALLS IN STUDY TOYOTA MOTOR CORP’S luxury Lexus brand lost its top ranking in a key vehicle dependability study, falling to third place. GM’s Buick and British luxury car maker Jaguar jumped to
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the top. Toyota’s mainstream brand and Ford’s Mercury brand round out the top five, which ranks vehicles based on problems reported in the first three years of ownership.
Countries have beeen announcing massive economic stimulus packages aimed at bolstering weakening economies and fighting the effects of a global slowdown. This is the BM guide to the global stimulus packages that are currently underway:
US
UK
President Obama’s $789 billion stimulus is due to avert an economic ‘catastrophe’ and create or save up to four million jobs. The package includes tax cuts for middle-classes and business as well as one-year tax credits for companies that hire new workers. BM rating: ***
The British Government unveiled $47 billion worth of tax cuts to boost spending and a big rise in tax rates for highincome earners. At the heart of the measures was a 2.5 percentage point cut in its goods and services tax (VAT) – from 17.5 to 15 percent. BM rating: ****
CHINA
AUSTRALIA
Amounting to seven percent of the country’s GDP, China is due to spend an estimated $586 billion on a wide array of infrastructure and social welfare projects, including new railways, subways, airports and rebuilding depressed communities. BM rating: ****
The federal government will pump $10.4 billion into the Australian economy to act as a buffer against the global slowdown. The housing sector will be the major beneficiary along with the payments to pensioners that were seen in December. BM rating: ***
SPAIN
INDIA
The Prime Minster unveiled an €11 billion stimulus package aimed at creating 300,000 jobs. The package will include around €8 billion for public works and an additional €800 million to help the country’s ailing auto industry. BM rating: ****
India announced $4 billion in extra spending to boost its economy. Various valuedadded tax will be cut by up to four percentage points. The package also includes measures to boost infrastructure spending and help businesses. BM rating: ****
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FRONTLINE MARKET UPDATE
NEW PLATFORM FOR RIA
MAKING THE MOST OF YOUR UC&C INVESTMENT
CURL, INC. HAS ANNOUNCED the release of Version 7.0 of its rich internet application (RIA) platform, which enables the development of mission-critical, web-based business applications that provide superior security, high performance and support for large data sets.Version 7.0 offers the essential capabilities to build both traditional enterprise-class RIAs and desktop RIAs at a lower total cost of ownership. Rich internet application technologies are converging with desktop applications to form a new platform, called the Fit Client. The capabilities needed for Fit Client platforms include the standard RIA capabilities plus the ability to run applications off-line and directly from the desktop outside of the browser. In addition, enterprises need secure, high-performance processing with large data sets and sophisticated user interfaces, 3D or 2D rendering, sophisticated data input and visualization. Curl Version 7.0 includes the following new features: APPLET INSTALLER AND DESKTOP CONTROLS: Curl applets can be installed on the desktop for online and offline operation in a secure sandbox. The installer creates shortcuts on the desktop and start menu with customizable icons and a ‘skinnable’ user interface CLIENT-SIDE DATABASE: Version 7.0 enables developers to build applications with local databases using the popular open source SQLite database engine combined with standard Curl techniques for data presentation and manipulation DEMO APPLETS: These web-enabled applications run standalone on the desktop, update when connected and provide real business value to enterprises. Curl’s initial demos include a Salesforce.com dashboard and a social network visualization application DESKTOP SECURITY MODEL: With Version 7.0, desktop applications use the same security model as Curl applets. They run in a secure sandbox with local data access but limited system privileges. Curl applications can also be fully privileged applications, which require a standard digital signature provided by an established certification authority – selfsigning is not allowed
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In light of its critical role to the organization, UNIFIED COMMUNICATIONS and collaboration it’s not surprising that business executives are (UC&C) is rapidly gaining market acceptance becarefully exploring their options before taking the cause it helps solve real business problems that real plunge into UC&C. Indeed, Forrester found that 71 businesses experience every day. In an increasingly percent of businesses are either already using or global marketplace, UC&C enhances business effiare interested in buying unified communications ciency and effectiveness by enabling distributed and as a managed service. mobile workgroups to communicate, collaborate and Businesses with available technical resources work together as a team. could take management of their UC&C service inBusiness executives are coming to recognize house and benefit from full feature functhat UC&C enables mobility through anytionality, flexibility and time, anywhere collaboration, enForrester customizability. Alternately, execuhances productivity through found that tives could draw upon the extenpresence management and prosive UC&C technical and vides competitive differentiation operational expertise, custom as UC&C tools are integrated into of businesses are either management tools and ongoing business processes. According to already using or are interested in buying technology training of an estaba recent report by Forrester UC&C lished leader in network management Research, Firms Want Managed services. The acquisition of lifecycle serUnified Communications, this past year vices allows businesses to leverage the comhas seen a dramatic increase in the number of firms pelling benefits of UC&C while helping to control piloting unified communications solutions – a 21 percosts, reduce risk and protect against technology cent increase from 36 percent to 57 percent across obsolescence. They can get a customized and large enterprises. managed UC&C solution that enables them to While UC&C is a source of competitive differentiadedicate scarce human resources to strategic inition, it also introduces network complexity. Network tiatives of their core businesses. convergence is built on a foundation of distributed With a comprehensive suite of managed and multimedia applications, myriad access technologies professional services, and nearly two decades of and a proliferation of user devices. In return for comexperience in managed network solutions, pelling business value, complexity must be proactively Verizon Business makes it easy to realize the full managed if users are to realize expected levels of reliavalue of your UC&C investment. bility, quality and security.
70%
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FRONTLINE MARKET UPDATE
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ACHIEVING ENERGY ENTERPRISE AGILITY CONCERNS ABOUT SUSTAINABILITY and energy have moved center stage as President Obama identified energy as one of three key areas of focus for the country. The spotlight reflects global concerns about sustainability and encompasses many aspects. At the highest level, these translate into investments in renewables, in initiatives to reduce greenhouse gas emissions and in new technologies for energy efficiency. At a more pragmatic level, cost controls are a critical imperative that companies must address sustainably. This requires seeking operational excellence to help them become more agile. It also requires greater transparency and controls. Process improvements and investments in information technology delivered via different business models can help enterprises achieve the greater agility needed not only to survive, but to excel in today’s economy. Organizations in cost-cutting mode
are looking to simplify their portfolio and the software delivery models. This includes delivering effective business process transformation to improve procedures such as systems workflow and the processing of energy transactions for buying and selling physical energy. Serviceoriented architectures that include business process automation are critical components of the solutions that underpin enterprise agility. Tapping into deep physical energy expertise, global experience and widely proven software solutions for physical energy transaction, SunGard’s energy solutions are delivered through a suite of pre-integrated functional components. Delivery incorporates a standards-
based SOA utilizing process automation as well as a common energy data model to help companies realize the controls and efficiencies of true straight through processing. SunGard’s energy solutions have gone even further in making its advanced integration framework and the energy specific common data model available to others. Customers who deploy SunGard’s integrated energy solutions suite can extend its value by incorporating their own applications or those of other parties through the integration framework to help them achieve enterprise agility.
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FRONTLINE PROFILE
TRICKY TIMES Described as one of the most powerful female executives in the US, new Yahoo CEO Carol Bartz faces a host of challenges to turn the internet giant’s fortunes around. Who is Carol Bartz? Bartz is one of only a few women at the top in Silicon Valley. She presided over Autodesk, a design-software maker for 14 years, and boosted revenues from $300 million to a massive $1.5 billion. She also sits on the boards of technology giants Cisco Systems and Intel, and previously held positions at Sun Microsystems, DEC and 3M. The challenges First, she needs to look at boosting morale and make early moves to address the short-term concerns of employee and shareholder confidence – not easy in the current climate. Bartz’s next big decision will be whether or not to outsource Yahoo’s search service to Microsoft. Analysts suggest this could make sense for Yahoo by boosting revenues, cutting costs and pushing the company toward being a next generation media company. Finally, Bartz will need to create a coherent strategy for the company moving forward. Ultimately, she will be judged on how she reshapes the company’s competitive position. What they say Some critics claim she lacks online media experience, while Rob Enderle, an analyst from Enderle Group, questions Bartz’s fit for Yahoo: “She is known as a sustaining manager and what Yahoo needs is a turnaround manager.” Former Autodesk Director Larry Wangberg, however, is a fan. “She has this enormous capability to make things happen. She is very powerful in a quiet way, and a results-driven CEO who is equally comfortable talking to technologists or business people.” Nilofer Merchant, a former Autodesk manager and currently CEO of Rubicon, agrees. “She is driven by doing the best thing for the business,” he says, “She doesn’t spend a lot of time worrying about how people are going to feel. She always wanted to make sure the job got done.” What she says After the announcement on January 13, Bartz herself acknowledged the challenges ahead. “There is no denying that Yahoo has faced enormous challenges over the last year, but I believe there is now an extraordinary opportunity to create value for our shareholders and new possibilities for our customers, partners and employees. We will seize that opportunity.” Bartz also said that, “everyone should give this company some frigging breathing room, so that it can, kick some butt”. Just how much breathing room she expects to be given remains to be seen, although it seems quite clear that she is prepared to put up a fight for the flagging internet giant.
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FRONTLINE MARKET UPDATE SAAS LIFTS PLANNING WHEN IT BUDGETS ARE CUT
ACCORDING TO THE REPORT, ‘Technology Trends: Analyzing Enterprise IT Budgets 2008,’ by Datamonitor, the majority of businesses are planning to cut back on IT expenditures. So, if you’re a CFO and this scenario describes your business, what do you when:
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2 3
You are struggling to provide executive management with updated plans based in this challenging economy? You have pushed the limits of Excel for planning and it can’t keep up? There is no IT budget for new planning software?
The answer to each question: It’s time to consider a budgeting and planning solution delivered via the Software-as–a-Service (SaaS) methodology. SaaS offers companies facing tough economic times the opportunity to rent the resources needed to drive the planning process and manage their businesses more strategically. It also reduces the implementation time and risk compared to typical IT delivered solutions. SaaS customers typically pay a subscription fee to the software vendor on a monthly, quarterly or annual basis, and the cost is treated as an operating expense. In addition, businesses can activate the user seats they need now, prove the benefit (and be more agile), and add more seats as they need them. And if they don’t see the benefit, they cancel the service. The application is delivered over the web, so there is no hardware to buy or complex protocol stacks to manage. According to software expert Timothy Chou, in his book, ‘Seven,’ the cost saving is achieved because SaaS vendors have one-tenth the hard cost of typical on-premise solutions. Budgeting and planning solutions delivered via the SaaS model from industry leaders like Host Analytics provide businesses the strategic innovation they need to mitigate the common pitfalls and costs of traditional software licenses, and become more agile. SaaS-based budgeting and planning solutions are accessible to companies of all sizes and can be delivered using an incremental approach – a key in these quickly changing economic times. Just as importantly, SaaS solutions can be deployed quickly, just in time to make your CFO look responsive and innovative for his or her next executive management meeting.
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WEB SOLUTIONS MEET MOST DEMANDING INITIATIVES OPEN TEXT HAS ANNOUNCED the Microsoft SharePoint, as well general availability of the next genas all Open Text content reposieration of web solutions powered tories, databases, file systems, by RedDot. With the Web Solutions and Web 2.0 applications. Suite, enterprises can rapidly deContent can be managed, ploy intranets, extranets and Web translated and distributed 2.0 tools to meet the expanded deacross dozens of countries and mands of new digital strategies. In sites globally. today's information-driThe new release ven economy, organidelivers the founOpen Text Web zations need to be dation for Solutions ensure a able to move strategic, largswiftly to take ader-scale devantage of opporployment of and engaging user tunities and they Web 2.0 soluexperience need to see rapid retions while offerturn on investment from ing a complete set of web applications. By moving to a Web 2.0 tools tightly integratsolutions approach, Open Text ed to give customers far gives enterprises what they need greater security and control to take full advantage of the web over social media than possiwith fewer resources both at impleble with a set of point solumentation and over the long-term. tions. The Web Solutions Open Text Web Solutions enSuite provides the ability desure a dynamic and engaging user liver and intelligently monitor experience by integrating, managcontent posted to internal and ing and optimizing content. It furexternal wikis and blogs and thermore provides seamless automatically notify moderaaccess to information across a vators and site managers of conriety of existing applications and tent to adhere to industry and repositories, including SAP, company policies.
dynamic
For more information, please visit www.opentext.com/web-solutions
‘DON’T DEW IT’
COCA-COLAhasannounced thatitisgivingawayafreesampleofitsVaultbrandtoanyone whobuysPepsiCo’sMtnDew. The‘Don’tDewIt’campaignaims togetdie-hardMtnDewfanstotry Vault,whichholdsfourpercentof thecitrussegment,comparedto PepsiCo’s80percent.Billedasthe ‘VaultTasteChallenge’,thecoupon offerisgoodthroughlateJuly. The promotion is significant for the brand, and although Coca-Cola declined to comment on the overall cost, experts believe the price tag will easily be in the millions.
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FRONTLINE UN-COMFORT ZONE WITH ROBERT WILSON
advised me, “It took me 10 years ball rolls faster and faster after to quit sweating cash flow, but him. In business, momentum is even so, it is still all about nonthe point at which success bestop marketing.” In other words: gins to come easily. Business maintaining momentum. veterans jokingly refer to it as For a growing company, mohaving, ‘paid my dues’. In mentum is the point where you short, momentum is an accuhave done enough advertising, mulation of acquired knowlmarketing, public relations, netedge, skill, experience and working, customer service, and connections. And, those who so forth that business beunderstand it also know it gins to flow. It is the can be fragile and point where you are KEEPING THE BALL ROLLING easily lost. In garnering the preSales profesbusiness, I KNOW AN ADVERTISING cious and often sionals who AGENCY OWNER who never elusive word-ofhave achieved is the point at which fully takes a vacation. He takes mouth referrals. momentum will success begins to his family to fairly exotic locaMomentum is tell you that you come easily tions, but never so alien that about building a repmust pursue a they are outside the reach of utation. Acquiring it, number of activities to modern communication. In however, doesn’t mean you generate sales leads: phone other words, he is never furcan taper off on your efforts, but calls, emails, sales letters, netther than a cell phone call or it does mean that your efforts working events, etc. You keep email away. He checks in with will become easier. it up building dozens, then the office several times a day – The best thing about momenhundreds of leads at a time. much to the chagrin of his famtum is that once you get it, motiThen to convert those leads to ily who want him to be fully envation becomes self-perpetuating. sales you keep following up on gaged in the holiday at hand. Momentum is energizing. It keeps each of them in a timely fashSo, he ends up sneaking off you on your toes. And, the reion. Meanwhile, you are still under the guise of visiting wards come quickly and regularly. maintaining all the activithe restroom, or going I have found this to true in ties that continue to to the bar for a all pursuits. Even when I am generate leads. So The best cocktail, in order writing fiction there is always a between generatthing about to connect with certain point in a novel that it ing leads, folhis staff, a client takes on a life of its own and delowing up on is that once you get or a prospect. mands my daily attention, enerleads, then turnit, motivation becomes His wife and kids gy and focus until it is complete. ing leads into self-perpetuating aren’t fooled; they Unfortunately, nothing quite sales, you begin to just sigh and accept puts the brakes on momentum feel like the guy in the the inevitable. I used to like finishing a book, or completcircus who spins plates on think he was a control freak – ing any other major task. The top of poles – rushing from someone who couldn’t let go trick to avoid losing that moone plate to the next to keep and let someone else take over mentum is to begin another them spinning. – until I came to understand book or another task before you No wonder these folks hate the concept of momentum. complete the first one. Then you to take vacations – it breaks In science, momentum is just shift your energy over to the the momentum they’ve spent equal to mass times velocity. next project that is already months or years creating and Or think of Indiana Jones in under way. they know it takes time to get it Raiders of the Lost Ark running going again. Years ago when I Robert Evans Wilson, Jr. is a motivational speaker and humorist. For more information on as fast as he can out of the first started giving speeches, a Wilson’s programs please visit tunnel while that huge stone www.jumpstartyourmeeting.com seasoned professional speaker
momentum
momentum
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KEY TO ONLINE SUCCESS THE WEB IS NO LONGER a static information display. Instead, the web provides a dynamic business platform that brings enormous value-add potential. An increasing number of businesses are looking at ways to utilize web-based applications for increased speed, co-operation, transparency and efficiency. Large multinationals are leading the way with both the resources to develop and the most to gain. As web-based applications are now becoming critical business enablers for businesses of all sizes, shorter time-to-live and lower development costs are keys to success. New wave online businesses need to be built quickly on demand, using live online platforms and simple dragand-drop tools. The Finnish company HammerKit (www.hammerkit.com), a winner of a Red Herring Global 100 Award in 2008 and recently selected as a finalist in the Plugg Start-up Rally from over 130 companies across Europe, will launch a new version of their innovative web service development platform in Spring 2009 to meet these demands. The new version of their platform will offer drag-and-drop web application, modular and reusable functionalities, and unique component technology to bring enable services to be created faster than ever before. With HammerKit web design is no longer about coding, but about selecting the right functionalities for each business and tuning the desired user experience. The platform already powers hundreds of sites in their native Finland and the next version, HammerKit 4.0 will be available later in 2009. For more information, or to request a demo, email HK4@hammerkit.com or call Mark Sorsa-Leslie on +358 40 580 1962.
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FRONTLINE FIVE-MINUTE EXECUTIVE
INTERESTING TIMES Karl Landert, Credit Suisse’s CIO, reveals how he is managing IT in an age of uncertainty. This is a people job and with all the challenges that we are facing and all the bad news, the one most rewarding thing is working with a good team, having a good spirit, and making some of the tough decisions you need to make. Nobody can afford to have a long-range strategy, which is very detailed. I think one of the common themes which I see throughout all the things we do in our long-term strategy is about becoming a very agile IT division of financial services or of the bank. The agility has to be within the whole IT organization in structural technology-type of activities, in the way you set up your operating model in order to react to and be able to survive some of the volatility we have and some of the changes which will come along. You need to look at the way that you do financials, how you account for IT costs and the investments you make. You’ve got to tackle some structural aspects of the organization. You’ve got to look at the operating model that includes some of the sourcing strategies you have. You’ve got to look at your architecture and your infrastructure, at technology processes and standards, and last but not least, at your workforce. It’s the key point that you align all these activities because they all highly depend on each other and you cannot change one without affecting another. Right now the challenge is how can we sustain the business, how can we make sure that when we have these events where you triple and quadruple your volumes, that all the systems are really delivering on their SLAs. Reaction to these events has kept us pretty busy. To survive and to keep your cost levels acceptable you need to have a constant process of eliminating your heritage and your end-of-life application systems. That is one thing we do and we have been very successful in it in the last 10 years, in different parts of the IT organization, constantly re-engineering and reinvesting in our systems enables us to eliminate some of the old ones and reduce complexity. That allows you to become more flexible and agile and to also meet business needs in a faster way. We are not a service provider; we are the IT organization of a financial services institution and we need to understand our business. We need to be respected and accepted by our counterparts and our colleagues in the business, and we need to speak with them in the same language. We walk the talk and what we say is what we deliver. Going forward there are going to be some tough decisions that we need to make about where we continue to invest and where we reduce investments. That’s not an IT call you make alone; that’s the one you do with your business.
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FRONTLINE UNEMPLOYMENT
A GLOBAL PICTURE Unemployment is mounting around the world as big international companies rush to cut costs. The jobs scythe, which could put 50 million people out of work worldwide, according to the International Labour Organization (ILO), is reaching beyond the financial sector and into every corner of the global economy. In its worst-case scenario, the ILO global suggests unemployment, which stood at 179 million in 2007, could rise to 230 million by the end of the year
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The jump in the US unemployment rate to the highest level in a quarter century last month suggests the recession is deeper than the Obama administration forecasts and additional measures may be needed to restart growth. The jobless rate rose to 8.1 percent in February as employers reduced payrolls by 651,000. Losses have now exceeded 600,000 for three straight months, the first time that’s happened since collection of the data began in 1939.
UNITED STATES
Unemployment in Brazil’s six largest metropolitan areas rose to 8.2 percent in January, reaching 1.9 million, up a staggering 20.6 percent from December. Brazilian companies are slashing output and staffing as the global financial crisis chokes demand and commodity prices plummet. Embraer, the world’s fourthlargest aircraft maker, said it will cut its workforce by 20 percent. Meanwhile Cia Vale do Rio Doce, the world’s biggest iron-ore producer, fired 1300 workers in December.
BRAZIL
Unemployment in Britain climbed nearer the two million mark in January as it soared to its highest level since 1997 – and is predicted to get worse over the coming 12 months. The number of people looking for work across the UK will reach 3.2 million (just over 10 percent of the workforce) by the second half of next year, according to the British Chambers of Commerce. The number of people claiming unemployment benefit rose by 73,900 last month – the fastest rate since February 2000.
GREAT BRITAIN
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FRONTLINE UNEMPLOYMENT
Germany faces the sharpest economic downturn of any major country in the Western world, with unemployment recently rocketing to five million. Commerzbank analysts predict output is likely to contract by seven percent this year as the global recession wreaks havoc on German industrial exports. Foreign industrial orders have fallen by 37 percent over the last year, prompting companies to cut production and fire workers – sending Germany into its worst recession since World War II.
GERMANY
Russia, heavily dependent on oil and gas exports, has been hard hit by the current financial crisis, which has dampened worldwide demand and sent energy prices down. Businesses, struggling to repay their loans, have been closing down or laying off employees en masse. The total number of unemployed people in Russia grew to 6.1 million in January, up 5.2 percent on December – although only 1.7 million were officially registered as jobless according to official state figures.
RUSSIA
China is facing a difficult employment situation in 2009 as the global financial crisis impacts on the country’s economy. According to the Ministry of Human Resources and Social Security, China’s urban registered unemployment rate climbed to 4.2 percent in December 2008, hitting that level for the first time in five years with an estimated 20 million migrant workers reported to have lost their jobs due to the shutdown of factories that produce goods for export.
CHINA
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Japanese industrial production fell a record 9.6 percent in December, reinforcing expectations of a record economic contraction. Unemployment hit a threeyear high, while job conditions are worsening amid a slew of job cuts by companies that are slowing output at an unprecedented pace. Japan’s jobless rate rose to 4.4 percent in December while the availability of jobs sank to a five-year low. A year ago, 390,000 Japanese were unemployed; in December, that number reached 2.7 million.
JAPAN
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FRONTLINE MARKET UPDATE
IT INNOVATION UNDERVALUED? A GLOBAL SURVEY by the IT Governance Institute (ITGI) has revealed that 59 percent of senior executives do not view IT’s contribution to innovation as important, although a significant majority recognize IT as a major contributor to efficiency and effectiveness. Only a third of enterprises rely on IT to provide information about potential business opportunities enabled by new technologies. Additionally, nearly half of all organizations do not measure the value they are achieving from IT.
THE RESULTS ARE IN... ON THE BUSINESS MANAGEMENT website (www.busmanagement.com) we asked: is 2009 when things start to improve, continue or worsen?
I predict a full recovery
4% Greenshoots of recovery
18% This year will be flat
57% The worst is still to come
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“Executive management is generally convinced of the value of IT investments, but there is a significant lost opportunity that enterprises can close by measuring that value and paying more attention to IT’s potential contributions to innovation,” said ITGI’s John Thorp. “Given the current economic climate, enterprises should strengthen their governance of IT to ensure that expenditures are delivering real value, reduce or curtail those that aren’t, and pursue innovative uses of IT that can sustain and increase value.
AIRLINES REDUCE FLIGHTS INTERNATIONALAIRTRAVELhas been severely hit by the recession. The International AirTransport Association (IATA) reported that passenger demand for international flights fell by 5.6 percent in January compared to the same month in 2008. In February, the six largest US carriers posted a combined drop of 11 percent in passenger traffic or
miles flown by paying passengers. Delta Airlines said that it will chop international capacity by 10 percent in September and United Airlines expect to trim overseas routes by 15 percent by the end of March 2009. American Airlines reported in January that it plans to decrease international flights by 2.5 percent this year.
MAIN ST V WALL ST A NEW SURVEY of American consumer attitudes to Wall Street by The Harris Poll finds that out of 1010 adults, 83 percent think that bonuses paid by financial institutions, that lost money in 2008, should be returned and be paid to shareholders. While 87 percent believe that “recent events have shown that Wall Street should be subject to tougher regulation.” It was found that 78 percent of adults believe that, “Wall Street firms should only pay bonuses when they are doing well and making good profits.” While only 22 percent accept the argument that, “in order to attract and retain top talent, these companies need to pay these large bonuses.”
TECHNOLOGY TRENDS FOR 2009
1 2 3 4 5
Open architectures will continue to shift the balance of processing power. Software-as-a-service, cloud computing and open source will be adopted more widely, driven by a need for integration and a renewed focus on core business processes ‘Eventing’ will begin to make its mark on business systems. Organizations will continue to move towards being event-driven, making them more agile. As a result, the success of IT implementations will be measured by how systems react and respond to events M&A and business streamlining will force collaborative projects. Multiple systems from merging organizations – or shrinking teams taking on new tasks – will mean collaboration technologies become a priority The traditionally innovative sectors will be overtaken. Those sectors that used to be early adopters, such as financial services, will look to protect their investments by focusing on greater returns. Innovation will appear in new areas, where investment was originally lacking Three different types of CIO will emerge. A tougher economic climate will result in CIOs who aggressively seek additional budget for innovation, those that defend existing budgets through outsourcing non-core activities, and others who focus on stripping out costs
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FRONTLINE COMPANY INDEX
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PLANNING FOR EMOTIONAL INTELLIGENCE SUCCESSION WHEN YOUR BOOMERS RETIRE what is your plan to replace not only the talent drain, but the emotional intelligence drain? EQ Succession is a series of leadership development programs designed to give emotional intelligence leadership skills to succession candidates. True North Leadership, Inc. is an executive and organizational development firm that specializes in executive coaching, leadership development and succession planning. Seventy-seven percent of companies say they don’t have enough successors to their current senior managers. Often managers and leaders don’t either have the time or skills to truly develop their next level leaders. In this time of economic stress and downsizing, there is even more of a challenge for leaders to calm, motivate and retain their key performers.
development include web, teleseminars and Emotional intelligence leadership skills are in detraining your leaders to use these methods and mand to help leaders build empathy, inspire, materials to bring these emotionally intelligent lead change initiatives and improve teamwork (EI) strategies to your teams. You can begin the with their direct reports and teams. process by getting a free EI assessment and the Dr. Relly Nadler, a psychologist and leading Derailer Detector from www.truenorthexecutive coach has written Leaders’ leadership.com. These assessPlaybook to share the tools and Emotional intelligence ments will help you to determine strategies he has used to develwhich areas are strong and op the top 10 percent of perwhich need development. formers in organizations like skills are in demand to These are then followed by free Baxter Health, DreamWorks help leaders build emleadership interviews that Dr. Animation and EDS. Dr. Nadler is pathy, inspire,and lead Nadler and Dr. Greenberg have available to speak to your organichange initiatives done with top leadership coaches zation, work with your executive and authors, such as Dr. Marshall team on your succession plan, assess and Goldsmith, Jim Kouzes and Dr. Noel Tichy, giving coach your next leaders. He can also design and you tools and tips for top performance. deliver leadership boot camps that can build
leadership
more top performers in your organization. Other delivery methods for your leadership
Call or email for more information: Rnadler@truenorthleadership.com, +1 805 683 1066.
COMPANY INDEX Q2 2009 Companies in this issue are indexed to the first page of the article in which each is mentioned. 360 Solutions Adobe Alliance for American Manufacturing AllianceQ AMD American Apparel AMR Research Applied Language Solutions Asia de Cuba Auberge du Soleil Audi of America Bain & Company Bay City Bike Best Buy Boeing Boulevard Buck’s Caterpillar Inc. Christian Steven Software CitationShares Citigroup Inc. ClearAction Clift Hotel Communispace Confirmit Curl Deere & Co. Distributive Networks Duke Energy eBay Exony Forrester Research, Inc Frost & Sullivan Gartner General Electric
127 IFC, 90, 101 34 130, 131 46 34 34 139 142 136 54 54 142 54 34 142 142 34 IBC 132, 133 118 25 142 96, 97 78, 79 20, 88, 89 34 98 54 54 61 76, 88, 89 102 78, 102 34, 54
Georgia Institute of Technology 34 Google 80, 124 HammerKit 24, 125 Harley-Davidson 96 Heidrick & Struggles 128 Heiler Software AG 110, 112 Hewlett Packard 4, 34, 66, 67, 106 Host Analytics 23, 123 Hotel Vitale 142 IBM 34, 137 IDC 46, 86, 102, 114 Igloo Software 11 ILL/Magee Manageemnt Advisors 41 Incessant 15 Intel 34, 46 IRIS Data Solutions 113 JP Morgan Chase 54 KPMG 54 Kraft 96 Lockheed Martin 34 Mag Instruments 34 Mandarin Oriental 136 MasterCard 104 Mayflower Destination Spa 136 MDSL 27 Meettheboss.com 93 Microsoft 106 Midnight Coders 85 Millennial Net, Inc 114, 117 Mindshare 141 Mobile Marketing Association (MMA) 98 National Association for Business Economics 54 National Association of Manufacturers 34 New Balance 34, 42 Nike 42
NOVACES Octopz Omniware Open Text Web Solutions Oracle Pano Logic Inc. Pitney Bowes PricewaterhouseCoopers QuietAgent, Inc. Reebok Reliance Industries Ltd Ritual Coffee Roasters San Francisco Seaplane Tours Schering-Plough Corporation SDL Tridion Second Life SherTrack, LCC Six Sigma Solutions SOTI Inc Southwest Airlines St Regis Strativity Group Sun Microsystems Inc SunGard Sybase TeamSpace ThinkBalm True North Leadership Umpqua Bank Universal Mind, Inc. Verizon VMware Xbox Zappos
68, 69 6 49 23, 92, 103 64, 65, OBC 32, 106 54 54 130, 131 42 54 142 142 54 2, 135 94 70, 71 37 8, 80, 100 54 142 78 106 21 52, 102 59 94 31, 129 54 82, 86 13, 20 106 96 72
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MARKET ANALYSIS
I
n the once booming industrial city of Zhengzhou in China’s manufacturing heartland, a throng of jobseekers stretches around the block and down the busy street. A small cordon of security staff are fighting a losing battle to maintain order and hold back the 40,000 people swarming through the entrance to the already heaving employment fair. Cars honk and tempers flare. A fight breaks out. Pandemonium reigns. Welcome to job hunting, Chinese-style. If you thought times were tough for US workers, consider this: in the first half of last year alone, official statistics show that 67,000 factories of various sizes were shuttered in China with more than 100,000 plants predicted to close by the end of the year. Even before the global financial crisis, factory owners in China were straining under soaring labor and raw-material costs, an appreciating Chinese currency and tougher legal, tax and environmental requirements. When the credit crunch took hold – prompting Western businesses to slash orders for Chinese goods and bankers to curtail loans to factories – many operations were pushed over the edge. Stories of bosses burning company books and skipping town – leaving a mountain of debts behind them – are rife. Vendors and customers are left with neither reimbursement nor product. Disaffected staff are rioting. And more than 20 million Chinese workers have lost their jobs in recent months as the slowdown makes ghost towns of once thriving industrial zones. In the worst-case scenario, unemployment is projected to reach as high as 50 million by the end of 2009. The bottom line is that China’s manufacturing industry may not be the unstoppable economic juggernaut everyone assumed it was. Only last year, respected economists spoke of how China’s financial system had become ‘decoupled’ from that of the West and would escape the affects of a USled recession, possibly even helping the rest of the world through the slump. Not any more. Today, even the most optimistic has switched from asking whether China would have a hard landing at all to how hard that now-inevitable landing will be. In addition, and aside from the problems caused by the global economic slowdown, questions are increasingly being asked as to the wisdom of outsourcing that much production to a location so far from key markets. Volatile energy and commodities prices, rising transportation costs and the sheer distances involved in shipping goods from the Far East to Europe and the US have led many to increasingly consider China as something of a risk. “What it comes down to for the supply chain professional is that today’s environment is unpredictable, and they don’t like that,” says Kevin O’Marah, Chief Strategy Officer at analyst firm AMR Research. “It’s extremely volatile, which makes it harder to manage.” Throw in doubts as to the country’s ability to effectively police issues such as intellectual property protection and it becomes clear that low labor costs, for so long the primary reason for relocating manufacturing operations to China, no longer hold the attraction they once did for Western ex-
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Can
Mad
By Senior Editor Ben Thompson
MANUACTURING USA v2:mar09 27/03/2009 16:18 Page 35
emake in America a Comeback? For years it seemed only a matter of time before Chinaâ&#x20AC;&#x2122;s meteoric rise as the workshop of the world killed off American aspirations to reign supreme as a production powerhouse. But with Beijingâ&#x20AC;&#x2122;s economic engine now spluttering, could domestic manufacturers be about to hit back?
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ecutives making strategic sourcing decisions. In an unpredictable operating environment, risk mitigation plays an increasingly important role – which is why a growing number of companies are showing a renewed interest in the advantages provided by US-based manufacturing.
A changing market On the face of it, domestic manufacturing is hardly in much better shape than that of the Asian superpower – decidedly worse, if you believe the headlines. Factory activity is hovering at a 28-year low. Firms are hemorrhaging work to cheaper offshore competitors. Many more are moving operations overseas themselves. And a staggering 200,000 US manufacturing jobs were lost in January alone, the largest single-month drop since 1982. But such grim statistics don’t necessarily paint the full picture. For instance, the value of goods produced in the US is higher than ever, hitting a record $1.6 trillion in 2007. This figure is nearly double the $811 billion produced 20 years earlier. And for every $1 of value produced in the factories and workshops of China, America generates $2.50. In the last 40 years, manufacturing output in real dollars has more than doubled while manufacturing employment has dropped by more than 26 percent – resulting in a tripling of the amount of manufacturing output per manufacturing worker in the US from less than $80,000 in 1972 to almost $240,000 per worker today. Not bad for a sector supposedly on its last legs. Indeed, to paraphrase Mark Twain, reports of the death of American manufacturing have been greatly exaggerated. “People talk about a doomsday scenario for manufacturing, but that’s not the case,” says Vinod Singhal, a professor at the Georgia Institute of Technology’s College of Management. “The best US manufacturers have become more competitive, no doubt about it.” In fact, there are dozens of US companies that are successfully competing in markets dominated by low-wage countries. American Apparel, for example, excels in cut-and-sewn goods, paying its workers wages far above the minimum and providing generous benefits as well. Mag Instruments, home to the Mag-Lite, does exceptionally well competing against cheaper, imported flashlights that have nowhere near the quality. And New Balance, America’s second-largest maker of athletic shoes, has retained a strong US manufacturing base in an industry notorious for outsourcing production to the sweatshops of the Far East. “The fact remains that American manufacturing still has the potential to be very competitive,” says Scott Paul, Executive Director of the Alliance for American Manufacturing. “By and large, it is very modern and efficient with a highly skilled workforce. There are some structural disadvantages like our tax system and our healthcare system that need to be addressed, but I think that there are also a number of inherent advantages.” Chief amongst those is, of course, proximity to market. The United States remains the largest consumer of manufactured goods in the world – a market that has, in recent years, been increasingly satisfied through foreign-made goods (America is also the world’s largest importer). But with energy and transport costs experiencing huge fluctuations over the past 12 months, many companies have been revisiting their decision to source production overseas. “People are beginning to look for ways to either put more of their capacity through their US operations or are just pulling out completely of contracts with manufacturers in China,” confirms O’Marah. “China is the one that is really losing ground here.”
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Buy American The final House-Senate compromise over the stimulus bill could reach $789 billion, with the thrust of the plan directed at infrastructure projects, unemployment benefits, assistance to states and tax cuts. According to a recent study released by the Alliance for American Manufacturing (AAM), investment in the nation’s infrastructure is the most effective approach to creating new jobs. Roughly 18,000 new jobs would be created for every $1 billion in new infrastructure spending on the nation’s transportation, energy, water systems and public schools. While the construction and service industries will see the vast majority of job creation, manufacturing, which has been devastated by the current economic crisis, would also benefit from such an infrastructure stimulus, seeing an increase of 252,000 jobs nationally. The benefits for manufacturing would be felt throughout the economy, with new jobs created in such industries as fabricated metals, concrete and cement, glass-rubber-plastics, steel and wood products. The report further notes that manufacturing employment gains from such an infrastructure program could be improved significantly if the percentage of US-made material inputs were increased. Simply put, a higher share of domestically produced supplies would have a significant impact in terms of generating new manufacturing jobs. Utilizing 100 percent domestically produced inputs for infrastructure projects would yield a total of 77,000 additional jobs nationally. Manufacturing would account for a significant 69,000 of that increase, a 33 percent jump in total manufacturing jobs generated. Americans overwhelmingly support federal requirements for American-made materials in all federally funded infrastructure investment in the 2009 economic recovery bill, according to a random survey of 1001 US adults conducted by Harris Interactive on behalf of the AAM. The national poll found 84 percent favor Buy American requirements; only four percent strongly oppose the requirement and seven percent somewhat oppose it. “Buy American is a good deal for taxpayers and workers,” says AAM Executive Director Scott Paul. “US taxpayers understand the issue at hand. Buy American is longstanding US policy and consistent with our international trade obligations. The Senate should pass economic recovery legislation as soon as possible with Buy American requirements intact and reflect the will of the overwhelming majority of Americans.”
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Diversifying the base According to the results of a recent AMR study, the number one reason for companies ramping up domestic operations is less supply chain risk due to proximity to market. In the initial rush to go to China for lower costs, companies were essentially abandoning the idea of a diversified manufacturing or sourcing base in favor of a headlong rush towards low-cost manufacturing. Now, however, a growing number of people are realizing that there is more to cost than just dollars per day of labor – and for many, the risk of operating in an unstable environment is no longer a price they are willing to pay. “There are a lot of other factors to the total cost, and risk turns out to be the one that was least understood but has become the most relevant,” says O’Marah. The end result is that companies are increasingly concerned with having a diversified manufacturing base in order to minimize exposure to risks. “They’re diversifying. They’re not withdrawing from China or Vietnam or anywhere else; they’re just rebalancing,” he confirms. Hank Cox, VP of Communications at the National Association of Manufacturers, agrees. “You want to have a backup plan whatever you do because you just never know what could happen, and things are pretty volatile at the moment,” he says. Cox’s organization has increasingly been hearing anecdotal stories of companies bringing back production from China to the United States as a result of the difficulty in dealing long-distance. “Once the rising transportation costs were factored in, they just thought the cost advantages were declining in importance and it was a lot easier for them to be doing the work right here where they could guarantee the quality,” he continues. “And if we see political or economic instability arising in certain foreign countries – as we very well might given the current downturn – then that might become another factor in the decision to keep manufacturing closer to home.” And with economic conditions as they are, other issues have been added to the mix, too. “Supplier failure has returned as a huge risk,” says O’Marah. “People had gotten accustomed to suppliers being reasonably reliable in terms of their business viability, but supplier failure in the Far East has become a much more serious concern.” Research also shows that China poses the most risk in terms of intellectual property infringement – with 53 percent of
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The US excels in the production of high-end goods such as technology, pharmaceuticals, heavy machinery, aircraft, missiles and spacerelated equipment
respondents in a recent AMR survey saying that was their top issue. The second highest was supplier product quality failures, with the third being internal product quality failures. “All three of the top answers as to why China adds risk to the supply chain are actually nothing to do with cost – labor costs, transport costs, they’re way down the list,” O’Marah confirms. Cox agrees that IP protection is a real issue. “I’ve known many manufacturers who have made an effort to go overseas, to China in particular, who go over with a product and within a couple of months people all over town are duplicating it,” he says. “The failure of China and a lot of other countries to appreciate and honor intellectual property does work against
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Manufacturing in China represents the world of lowcost and huge volumes – meaning the high number of low-skilled manufacturing jobs lost to China are unlikely to ever return to the US
America goes high-tech And make no mistake, IP protection is important, for it is in the production of high-end goods that America really excels. The US sold more than $200 billion worth of aircraft, missiles and space-related equipment in 2007, and $80 billion worth of autos and auto parts. Deere & Co. sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world. Then there are the gas turbines for power plants made by General Electric, the computer chips from Intel and the fighter jets from Lockheed Martin. Household names like IBM, Boeing and Hewlett-Packard are among the largest manufacturers by revenue. And the nation’s pharmaceuticals and biotech industries lead the world. Manufacturing in the United States isn’t dead or even dying: it’s moving upscale, following the biggest profits and becoming more efficient. “It’s not cost-competitive to offer low-skill, assembly-type jobs to American workers anymore,” says Cox. “You just can’t afford to pay people to do that in an advanced economy like ours. But while those jobs are gone, that doesn’t mean that we’re not manufacturing. It means that we’re concentrating on the high-end where the best jobs are, where the jobs pay much better and where there’s a better future.” Instead, American firms are turning to technology and domestic expertise to help keep costs down and compete for business. Manufacturing in the United States provides advantages foreign competitors often can’t match, such as speed, flexibility and access to the highly capable US workforce. For instance, last year Caterpillar Inc. declared it was to invest $1 billion in a multiyear capacity expansion plan for five of its Illinois plants. And leading chipmaker Intel recently announced a $7 billion investment in USbased advanced manufacturing facilities, citing the country’s highly skilled workforce as a key factor in its decision.
VALUE GENERATOR
$1 $2.50
them, and that is a key factor in why a lot of businesses either just don’t want to go over there in the first place or return to the US pretty quickly. If your business depends on patented products that you’ve spent many years developing, you don’t want to go to a place where it’s just going to be stolen and where there’s little you can do about it.”
As a consequence of this shift, Cox contends that the modern manufacturing worker needs to have high skill levels as a pre-requisite, with a background in mathematics, science and computing deemed essential. “You have to be able to re-learn your job,” he insists. “It’s more sophisticated than it used to be.” This shift in the US manufacturing model is, if anything, a move away from what China manufacturing represents: the world of low cost and huge volumes. O’Marah argues that we’re moving back toward a higher degree of craftsmanship in manufacturing, where smaller total volumes, higher unit prices, higher levels of quality and longer-life products are the order of the day. “A company like HarleyDavidson, which does almost all of its manufacturing domestically, is the kind of firm that will see success,” he says. “Bobcat is another example of a US-based manufacturing operation that focuses on high quality. They use relatively highly paid US labor, and they’re not just churning out cheap stuff. They’re producing long-life, high-quality, well-serviced machinery. So we’re seeing a move toward increasing craftsmanship in manufacturing and away from low-end commodity manufacturing. And it’s going to require a lot more skill, a lot more human capital, and is definitely not just a question of cheap labor.”
For every $1 of value produced in Chinese factories, the US generates $2.50. The total value of US manufactured goods in 2007 topped $1.6 trillion.
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PRODUCTIVITY INCREASE Maintaining the advantage
20000
Back in China, the fallout from the downturn continues to be felt. Last month, Chinese exports fell at their fastest pace in 13 years as the recession further depressed demand for goods in the US and Europe, the country’s largest markets. Guangdong, a southern province of China close to Hong Kong, is a major manufacturing base for electronic products, toys, textiles and plastics and accounts for around a third of China’s exports. It is the country’s richest province, yet growth in exports from Guangdong slowed dramatically from 22.3 percent in 2007 to 5.6 percent in 2008. Nonetheless, despite the slump China has big plans for manufacturing in Guangdong, with the Chinese National Development and Reform Commission releasing plans last month for the region’s Pearl River delta area to become a significant innovation center by 2020. Around 100 state laboratories for engineering innovation and research and development will be established in the next three years, and the goal is that by 2012 there will be three to five industrial clusters powered by high-technology that will generate more than $14.6 billion in industrial output in total. By 2012, R&D expenditure will account for 2.5 percent of the region’s annual GDP, and the proposal sets out plans to improve intellectual property rights protection and make finance more accessible for companies occupied in technological development. Such plans would create a force to be reckoned with – even for the likes of the US and Europe.
19000
Clearly there is no room for complacency, and it is this that America needs to guard against. Manufacturing has traditionally accounted for around two-thirds of the private sector R&D in the US, and Cox points out that China, India and other countries are only too aware that if they want to be competitive and prosperous in the future, they must invest more in R&D. “We can’t just sit on our laurels and take our current advantage for granted,” he says. “We need to be more aware of it and channel more money into it, both in the public and private sector. We have a problem getting our government to understand the value. We ought to help manufacturing be more competitive in the world and it’s an ongoing battle.” Paul agrees. “I think that at all levels – from labor-intensive, mediumskilled jobs up to the very high end – there’s still a considerable amount of competition coming from China,” he cautions. “We do have some advantages in high-end manufacturing, but we’re at risk of squandering those advantages if we don’t take a longer-term view of how to remain competitive. This means rebalancing our economy to be more production-oriented.” The recently passed economic stimulus plan will help address some of the short-term issues, but Paul argues that only sustained investment in reforming areas such as tax policy, education, healthcare and skills development – as well as reinvigorating the banking system to boost busi-
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2800
Employment (1000s)
18000 17000
2400
16000 2000
15000 14000
Billions of 2000$
“People talk about a doomsday scenario for manufacturing, but that’s not the case. The best US manufacturers have become more competitive, no doubt about it”
3200 Manufacturing jobs (left scale)
1600 Manufacturing output value (right scale)
13000
1200
12000 75
80
85 90 95 00 Sources: BLS and Federal Reserve
05
In the last 40 years, manufacturing output in real dollars has more than doubled while manufacturing employment has dropped by more than 26 percent – resulting in a tripling of the amount of manufacturing output per manufacturing worker in the US from less than $80,000 in 1972 to almost $240,000 per worker today. ness lending – can be successful in the long-term. “We need to put an emphasis back on Main Street as opposed to Wall Street,” he says. “The innovation needs to return to the industrial heartland.” Of course, there’s a recession to be survived first – and as the Detroit automakers and their suppliers will testify, things will most likely get worse before they get better. “The macro situation is guiding nearly everything right now and there’s a substantial amount of uncertainty about what lies ahead and when demand will begin to pick up again,” confirms Paul. “Every manufacturer I talk to is just hoping for some factory orders to come in, and longer-term capital investments and other things are on hold right now.” Nonetheless, planning for and investing in the future will be essential if firms are to successfully compete with emerging economies over high-end manufacturing work. And while expecting the US to recapture industries that have already gone to China may be unrealistic, the fact of the matter is that America cannot afford to go back to the days of over-consumption and lack of production if it wants to maintain its status as the world’s pre-eminent economic superpower. Focusing on innovation and technical expertise could be the only way forward. “If we do a good job of it, then it will become exportable,” says O’Marah. “Countries that develop skilled manufacturing – or any type of technology that is superior – build a reputation for it; the Japanese have done this for years. And that supplants the preference for cheapness. I’m certain that we’ll see consumers migrate toward higher quality – at higher price points – for a product that lasts longer and can be repaired and extended. We’re moving from the consume-and-throw-away to the buy-useand-cherish phase. “What China did to us over the last decade – or what we did to ourselves with China’s support – was favor abundance over excellence. Quantity over quality: that was the story of China. But in the current climate, people don’t want another piece of junk. They’re frustrated with the plethora of units and the lack of serviceability.” At the end of the day, it is here where the key challenge lies for American manufacturers: maintaining their current high-tech advantage. The skilled professional – one who can solve complex problems and deliver high quality at low-cost – has never been so critical. n
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THE BIG INTERVIEW
They said it couldn’t be done – but New Balance is proving that it is possible to be successful in the sneaker business and still retain a manufacturing foothold in the US.
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hich would you prefer? Athletic shoes built around the belief that the marketing prowess of an NBA superstar can sell anything? Or shoes founded on the belief that better fit and technology mean better performance? For New Balance CEO Rob DeMartini, it’s a no-brainer. “Performance is everything for us,” he says. “Instead of paying celebrities to tell you how great our products are, we invest in research, design and domestic manufacturing and let our products speak for themselves. We celebrate the true stars: every day athletes who choose New Balance footwear and apparel because they fit and because they perform.”
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Indeed, since the days of selling arch supports to police officers and waiters in the early 1900s, New Balance has been concerned with meeting the needs of the everyday athlete. According to DeMartini, it’s all about getting the details right – and one of the ways his firm is maintaining its focus on the finer points is by keeping a manufacturing base close to its largest market, right here in the USA. In contrast to major rivals like Nike and Reebok, New Balance still makes approximately 25 percent of its shoes domestically, an approach the firm’s forthright CEO feels has contributed significantly to its success over the last decade. New Balance is a rare success story amid increasingly dire headlines: an American manufacturing company that has not only resisted the urge to outsource all its production overseas, but that is thriving as a result. For confirmation, just look at the numbers. Over the last few decades, growth at the firm – America’s second-largest maker of athletic shoes, and the fourth largest in the world – has significantly outpaced that of the industry, with global revenues growing from $100 million in 1991 to $1.63 billion in 2007. Since 1972, the workforce has exploded
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from just six people making 30 pairs of Trackster running shoes each day to a company that today employs approximately 4000 people around the globe to produce upwards of 50 million pairs of shoes per year. Since 1995, the firm has increased the number of manufacturing jobs at its six US manufacturing facilities (three in Maine, two in Massachusetts and one in California) by 45 percent. New Balance faces unique challenges in domestic manufacturing, yet remains undaunted. In this exclusive interview, DeMartini explains the secrets behind the firm’s trend-bucking success. You’ve made a commitment to American workers and American manufacturing part of your core strategy. Why is maintaining a domestic manufacturing base so important for New Balance? Rob DeMartini. There are three main things that we get out of this. The first is it builds our knowledge of the manufacturing process, and in an industry that is primarily driven by shared manufacturing we feel it gives us a better understanding and enables us to work with our partners better. The second is that it’s an important aspect of the company culture, and gives us a significant sense of pride. In the early 1980s when manufacturers started to leave the US marketplace, we maintained a presence here and I think it’s become an important definition of who we are as a company. And then the third area is that there are some consumers for whom the ‘Made in the USA’ label makes a difference. It’s a unique brand differentiator, and we take advantage of that. Many of your competitors have taken the option to go overseas and outsource their manufacturing. So how have you managed to retain a focus on domestic production in the face of such intense competition? RD. We do manufacture some of our products in Asia as well, but in our domestic factories we use a manufacturing process called ‘lean’ that we adopted from Toyota, and it’s allowed us to be significantly more competitive than we were previously. And with the increased costs coming from some of those developing markets, we’re seeing that gap close back down again. I think it also puts us closer to the consumer. We are regularly looking for ways to do late-stage customization – to take components and not fully assemble them until late in the process – so we can get a little bit closer to the customer and closer to the demand signals. Do you think that ‘Made in the USA’ as a concept is going to start on taking a bit more significance given the Buy American provisions in the recent economic stimulus bill and a climate where people are perhaps more inclined to spend patriotically? RD. I think there’s no question there is an existing consumer base that has always valued domestic manufacturing and its products. I think the question you’re asking is an interesting one: will that interest expand with the economic challenges that just about every country is facing? I’m not sure if it will or not, but I do think it helps differentiate us and we don’t think there’s any negatives associated with it. I don’t think any country should get too protectionist, because that’s just going to create other problems further down the line. But we employ about 1500 people in our domestic factories, and we’re proud to have them do something that they feel good about and the consumer responds to. In that respect, we think it’s an angle that’s worth talking about with our customers.
Made in America
U.S. A
Many New Balance brand shoes are produced in one of six United States factories. While most of the footwear industry has moved its production overseas to take advantage of low labor costs and generally cheaper production costs, New Balance continues to make many of its shoes in the United States and has expanded production substantially to meet demand. But in today’s manufacturing environment, there’s not much that is 100 percent made in America. The Federal Trade Commission has attempted to determine what it means to say a product is ‘made’ in the United States, and while this seems like a simple question, the answer is not always obvious given the global nature of the economy. New Balance believes most consumers think ‘Made in USA’ means that real manufacturing jobs were provided to US workers in order to make that product – and in that regard, the shoes produced in its US factories are made by US workers using both US and imported materials. Where the level of domestic value is at least 70 percent, the company labels the shoe ‘Made in USA’. Where it falls below that level, it qualifies the product as containing both domestic and imported materials.
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Given the global nature of the economy and the complexity of global supply chains, is it even appropriate to think of products in terms such as ‘Made in the USA’? Is the concept of American-made still important? RD. Well, we think it is. New England, where our five factories are located, has been the hub of domestic shoemaking for 200 years in the US economy, and we think there’s a history of craftsmanship there that resonates with consumers. However, I think it’s less about where the product is made and more about the craftsmanship that goes into making it and the experience base that’s there. So having a domestic manufacturing base has allowed you to capitalize on the specific skills, knowledge and innovation within that geographic area? RD. The average tenure in our factories is probably upwards of 20 years of experience, and we have so much stability that we haven’t had to replace that workforce in some time. But we do think that we’re fairly well known in the areas where the factories are, and whenever we do have openings we’re able to attract talented people quickly. And given the experience already there, we’re able to train those new hires with people who have been doing it for a long time. It allows us to pass on the experience and the knowledge that they’ve gained.
“The business is so much more fragmented today in just about every category that understanding what the customer wants is far more important to success than it used to be” rob deMartini
As retail outlets consolidate into fewer stores serving more customers, it’s even more critical that manufacturers know what consumers want. Does having production so close to your key markets offer any particular advantages in this regard? RD. It does; it’s allowing us to customize products much later in the supply chain, and that allows us to better meet demand. The shoe business is fairly complex because of the size and the width of each shoe, and by having production closer to the marketplace, we feel that we’re able to supply it as well as anybody out there. One of the things we’re pretty excited about right now is our ability to customize shoes. For example, we’ve been a long-term sponsor of the Susan G. Komen For the Cure Foundation, and in August we will offer consumers the opportunity to order shoes with the name of a survivor or loved one or messages of support embroidered onto the product. Because we’ve got that domestic manufacturing capability, we’re able to customize the shoes and deliver
KeY daTeS 1906 The new Balance arch company is founded in Massachusetts
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1961 new Balance introduces the Trackster running shoe
1972 The company is acquired by James davis for $100,000 on the morning of the 1972 Boston Marathon
1975 a new model, the 320, is worn by Tom Fleming during his winning run in the Boston marathon
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them specifically as ordered, within four to six weeks. I wouldn’t want to say we couldn’t do it with an overseas factory, but I think it’d be far less appealing if the consumer had to wait several months to get the product.
as good a result there as we did on the manufacturing floor. So we’re getting more and more excited about exporting that lean technology into all aspects of the business.
You mentioned earlier the lean production system that you’ve implemented in your plants. Can you tell us a little bit more about this approach to manufacturing, and why it works for you? RD. New Balance has been using lean for about 10 years, and we continue to invest in it. What we find most productive about it is that it puts problem solving directly onto the manufacturing floor in the hands of the associates that do the work. They work in teams, they’re crosstrained to be able to support each other, and as a result we’ve been able to drive productivity up dramatically. We also think that’s a big reason why our staff retention is so good: because instead of supervisors telling them how to fix problems, we’ve used the lean system to teach workers how to solve the problems themselves and how to work in teams to produce better results.
You’ve had considerable experience in the consumer product industry over the course of your career. Have you seen it change over that time, and how have the challenges evolved? RD. It has changed a lot, and in particular I think the consumer’s voice has gotten much more important. When I started in the consumer product business, you did some research, pretty much guessed at what the customer wanted, and that’s what they got. If they liked it, great; if not, there wasn’t as much choice for them to go elsewhere. But the business is so much more fragmented today in just about every category that understanding what the customer wants is far more important to success than it used to be. In addition, manufacturers and retailers work much better together today than they used to. When I started, it was a very combative environment and quite frankly, none of us – either on the manufacturing or retailing side – can afford to invest that kind of time and not give the consumer what they want. The end result is that you’re seeing a much better partnership today. And from a brand building standpoint, it is a far more complicated effort than it used to be when people just watched three or four television stations and read five or six magazines. Now the choices are endless, targeting the consumer is much more valuable and if you get that wrong you’re in trouble. Having that domestic manufacturing base allows us to be more responsive and react quicker to changing tastes and demands, and to figure out exactly what the customer wants. And it certainly seems to be driving our premium business nicely right now.
So how can companies best take advantage of the knowledge of a highly skilled workforce, and how does using American workers offer an advantage here? RD. Well, we’ve already got a very tenured and experienced organization that’s making shoes and using lean manufacturing. What we’re doing now is trying to find other parts of the operation to import the lean system into, because it’s been such an eye-opener and a better way to solve problems. Historically, it’s been thought of as a manufacturing floor program, and we’re now bringing it into the office. For instance, we have a program in place that’s going to take about four weeks of lead time out of the supply chain from inside the office, not on the manufacturing floor. We also have a pilot looking at the production-planning portion, and we’ve seen
1982-1991 Sales rise from $60 million to $100 million
1997 a new manufacturing facility in Maine is constructed
2004 new Balance becomes a sponsor of Major League Lacrosse and purchases a manufacturer of lacrosse equipment
2006 Worldwide sales exceed $1.5 billion
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LEADERSHIP
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THE
MAN PLAN WITH A
So American manufacturing is on its knees, is it? Try telling that to Paul Otellini. Despite his company’s global footprint, the Intel CEO believes the US is where it’s at when it comes to innovation – and is putting money down to prove it. By Tom Benson
A
s someone who’s spent his working life championing the predictability of Moore’s Law – the theory that computing power will double every two years while halving in cost first observed by Intel’s founder Gordon Moore in 1965 – the irony of operating in an economic environment that is distinctly unpredictable is not lost on Paul Otellini. “Absolutely nothing about the future is inevitable or guaranteed,” says Intel’s current chief executive with a wry smile. “Not jobs, not leadership, not our standard of living. No one is confident predicting what the next quarter is like, yet alone the next year. Our entire country is experiencing anxiety about the future.” And, like every other business, Intel is feeling the effects of that uncertainty. Revenues at the Santa Clara, California-based company dropped 23 percent in the last quarter due to a contraction in the market for PCs. Businesses are putting off upgrading to new computers until the economy and their finances improve, while consumers – singed by layoffs and falling home prices and stock portfolios – have scaled back their spending as well. That has prompted PC makers to try and save money by burning through existing chip inventories rather than buying new ones – and has hit the semiconductor industry hard.
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If he’s rattled, Otellini’s not showing it. “Let’s be honest, when we face “Looking ahead, it’s clear that we are living in one of the most remarka crisis our habit is to hunker down and hold fast to what we have and what able periods of creativity and possibility,” he says. “From biomedicine to we know: the jobs, the businesses, the institutions, nanotechnology, the world of life science is destined to and the ways of life we are familiar with and don’t change the way we live within our lifetimes. From wind want to lose,” he explains. “It is a perfectly underturbines to solar panels, we are at the very beginning standable reaction when uncertainty becomes a part of transforming how we generate and consume enerof our lives.” gy. From broadband to microprocessors, we are conAnd while he’s obviously not enjoying the tough necting the world in ways that were unimaginable just decisions that come with the current operating envia few years ago. Our challenge is not to just enjoy the ronment – Intel recently had to close a number of asbenefits of the discoveries so far; our obligation is to sembly and production facilities, affecting between invest to take them further.” Total company revenues 5000-6000 employees worldwide – he does seem enIt is a subject that Otellini is passionate about – and for 2008 ergized by the opportunity this downturn offers. “Our it dovetails with his desire to see the US at the forefront institutions and paradigms have become unfrozen by of innovation. Despite its global footprint (the company this economic crisis, and we have a once in a lifetime generates more than 75 percent of its sales overseas), opportunity to re-shape how things will look and beIntel carries out roughly 75 percent of its semiconductor have as growth resumes,” he says. “This is riskier. manufacturing in the US, and approximately 75 percent There is more uncertainty. It is less comforting. But it is of the company’s R&D spending and capital investments the only proven path to pull out of bad times. If we take place domestically. And contrary to conventional want to see a return of American prosperity, we have wisdom, Otellini believes that it is possible to retain a viNumber of workers employed no other choice than to invest in creating the future, not brant manufacturing economy here in the United States in US-based facilities merely preserving the past.” – provided the country focuses on industries of the future
BY THE NUMBERS
$37.6 billion
45,000
Innovation rules, OK
in which it can command a competitive advantage. “If we are committed to investing in ideas to improve – not just maintain – what we have and what we know, the United States will do more than just recover from this recession,” he asserts. “We will emerge as a competitive, global powerhouse. This is the essential stimulus plan we need; not one that attempts to shore up the status quo or delay the inevitable changes needed.”
And unlike making predictions on the outlook for the economy, the concept of creating the future is something Otellini can talk about with some confidence. The processors his company builds have provided the computing power behind the rapid technological innovations witnessed in the last Investment in US manufacturing half-century, and enabled the phenomenal adover the next two years vances in communications, mobility, convenience Next generation technology and efficiency we now all take for granted. Without Since 2002, Otellini has been putting his company’s money where its the performance improvements offered by Intel chips, the world would mouth is, spending more than $50 billion on US-based plants, equipment be a very different place indeed – and Otellini sees the future as ripe and R&D that support over 45,000 American high-tech jobs. And as further with further exciting opportunities.
$7 billion
ENERGY-EFFICIENT TRANSISTORS Nearly 40 years ago in 1971, Intel’s first processor – known as the 4004 – had just 2300 transistors and sold for $30. In 2009, you will soon be able to get 1,000,000 times the transistors for not much more. Given inflation, today that 4004 would cost over $120. And if you multiply that by a million (for one million times the number of transistors), you now get the equivalent of $120 million worth of transistors in one microprocessor. Each of the 45nm transistors in the eight-core Intel Xeon processor uses 1/7000th the power of the original 4004 transistors that Intel was manufacturing in 1971 – quite a statement in energy efficiency. If the fuel efficiency of automobiles had improved at the same rate, a car would get 200,000 miles per gallon. You could put one gallon in your tank when you first purchase a car and never have to stop at a gas station again for the life of the car, and still have plenty of fuel to spare. And each transistor today takes up 1/40,000th the area of the transistors in the 4004. With the advent of 32nm technology this year, expect those numbers to improve even further in 2009.
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proof of the its commitment to innovation, he recently announced a massive $7 billion investment in advanced manufacturing facilities for its stateof-the-art 32-nanometer manufacturing technology, which will be used to build faster, smaller chips that consume less energy. The good news? Intel’s investment will be made at existing manufacturing sites in Oregon, Arizona and New Mexico and support approximately 7000 jobs. “These factories – we call them fabs – will produce the most advanced computer technology in the world,” he explains. “They are remarkable sites of innovation, and we believe that they will produce chips that will transform what is possible. They are platforms for future creativity.” In addition, the factories also support high-wage, high-tech manufacturing jobs that are the economic engines of the states in which they are located. The investment will also support thousands of contract jobs for technicians and construction workers.
■ With one million square feet and more than 1000 employees, Fab 32 in Arizona is one of Intel’s most environmentally friendly factories and manufactures the most energy-efficient processors the company has ever made.
Accelerating its production of 32nm processors, codenamed Westmere, is a bold move for Intel – particularly given the current economic climate. The company only started shipping its 45nm chips just over a year ago, and as recently as November announced the release of a desktop version of the 45nm chip called Core i7. Now, however, Intel is all but ditching 45nm production and abandoning whole processor families it had planned for this year. “De-prioritizing” the technology is how Intel executive Steve Smith described the step in a recent briefing, and it accompanies the firm’s decision to sell off existing chip stock by slashing prices in an attempt to try and coax reluctant consumers to open their wallets. Analysts see the move as a one-two punch combination aimed at increasing the company’s lead over rival AMD. The first dual-core 32nm chips will be in production later this year, and Intel also plans to release 32nm quad-core chips in early 2010. By comparison, AMD won’t have a desktop
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chip comparable to the 45nm Core i7 until next year, and its 32nm chips are not expected until 2011. “By transitioning to 32nm aggressively Intel is pressing its advantage competitively,” says Shane Rau, an analyst with research firm IDC. “It’s a form of stimulus package for the worldwide demand for processors. Intel is showing that it can invest through the downturn and be ready when the demand returns.”
Investing in the future It all comes back to having the right structures in place to weather the current storm and position for the upturn, taking what Otellini calls “the long look ahead” – a conscious effort to remain the global leader. Because, as he points out, staying at the top of your game won’t just happen on its own. “While it is easy to talk about investing in future technologies, in practice, it can be a frustrating process,” he says. “For example, we now know
■ Miles of tracks make up the automated handling system that runs along the ceiling of Fab 32. Wafers are transported along these tracks from tool to tool as they go through the manufacturing process.
an enormous amount about alternative sources of energy, but we still have a long way to go to find a way to power a city efficiently using wind and solar power, let alone run a single car all day on safe battery power. Nearly all American schools are wired for broadband, but finding a way to use digital content and emerging social networks to craft young minds is not yet a well-understood teaching paradigm. And we all know that technology has the potential to revolutionize the way that healthcare is delivered, yet we cannot even agree on common standards for electronic medical records.” He concedes that solving these problems will be challenging – even exasperating – but believes that the act of pursuing such goals has the potential to improve us. “That is the critical point,” he says. “There is an old adage in sports: you can’t win if you don’t show up. The same is true for these grand challenges of our time.”
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The answer, according to Otellini, lies in supporting a true culture of investment – one that begins with a common understanding that good investments lead to ideas and discovery, which spawn new businesses, that in turn create new jobs and ultimately lead to wealth creation and higher standards of living. “This is what investment means,” he explains. “Putting capital to work not just for the new products you will produce, but for creating the capacity for innovation we haven’t yet imagined. If investment is going to make a difference, it has to lay the groundwork for the future.” And this is what Intel aims to do by shifting to a more efficient, more advanced manufacturing process. It is predicting chips produced by the new fabs could substantially lower development costs for manufacturers struggling to outdo each other with cutting-edge TVs, phones and other de-
■ Fab 32 has 184,000 square feet of clean room space, equal to three football fields. Clean air continuously flows through the ceiling and floor. All of the air in the clean room is replaced several times every minute.
so close to becoming reality that we can almost touch them; but what really excites Otellini is imagining what such breakthroughs will lead to given the right environment and continued investment. “The truth about technology is that it is constantly building on ideas that came before it,” he says. “This is a critical distinction if we are going to think aboutinvestmentintherightway.NoneofthebreakthroughsI’vejustmentioned are one-off products. They are platforms on which thousands of other innovations will be built. That is the model that drives us at Intel. It is the model for the technology industry. And it ought to be the focus of what we do when we talk about stimulating the economy and remaining competitive as a country.” More than anything, Otellini is passionate about retaining America’s status as a hotbed for innovation and technological excellence. He’s realistic enough to recognize that innovation often comes from the most
■ The thousands of people who work in Intel cleanrooms all wear ‘bunny suits’ to protect the chips from human particles such as skin flakes or hair. A bunny suit is made from a unique non-linting, anti-static fabric.
vices. Otellini hopes that the chips will become “the basic building blocks of the digital world, generating economic returns far beyond our industry”.
The pace of discovery Otellini sees this pace of discovery continuing for the foreseeable future, and believes some of today’s most interesting breakthroughs in technology are just the tip of the iceberg when it comes to what will be possible in the world of tomorrow. Powerful computing and communications devices that deliver the full internet and fit in your pocket. Computers so inexpensive that the poorest villages in Africa can have them in their classrooms. High-tech sensors that replace the role of full-time nurses caring for the elderly. Smart networks of microprocessors, software and sensors that will eventually re-engineer the electrical grid. Some of these developments are
■ The technology used in Intel’s manufacturing process builds chip circuitry 32nm (32/billionth of a meter or about 1/millionth of an inch) across – incredibly small, atomic level structures.
surprising outlets (“companies we’ve never heard of, or industries that haven’t been invented yet, in places we least expect”) and that global competition only enhances this uncertainty. Nonetheless, he maintains that creating the future is an area where American business and entrepreneurialism has a stellar track record. “As a global company, we have made a conscious decision to expand these factories here because we believe that investing in the future of American discovery isn’t just the right thing to do – it is an essential business decision if we want the United States to continue to be the engine of new ideas and technical leadership,” he concludes. “Yes, it’s important to deal with the realities and inefficiencies of today. But it is essential for the well being of all of us that we make a collective investment in tomorrow.”
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RECESSION MANAGEMENT
Surviving
tough times Warren Buffet famously remarked that it’s only when the tide goes out that we see who’s swimming with no trunks on. But how can businesses ensure they’re not caught with their pants down when the recession hits? Senior Editor Ben Thompson reports on how some of America’s biggest companies are dealing with the downturn.
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ou’re probably all fed up with hearing about the downturn – but the fact is, we’ve never seen a recession like it. The metrics are bad enough. CEO confidence is at rock bottom in the face of a recovery that is likely to take years rather than months. Consumer spending is plummeting, with recent figures showing the sharpest decline since 1980. Economic growth in the world’s largest economy is predicted to shrink by 1.9 percent this year and a total of 2.8 percent in the current downturn, the most since the 1973-75 slump. Employment numbers are falling at their fastest rate for years with over two million US jobs lost last year, while a recent study by the National Association for Business Economics predicts another 3.2 million Americans will be cut from payrolls in 2009, pushing unemployment to nine percent by year-end. Debt levels are way up, credit is in short supply and both consumers and businesses alike are deleveraging with alarming speed. Tough times indeed. No wonder the world’s CEOs are preoccupied with how best to manage through the downturn. “The speed and intensity of the recession has rocked the psyches of CEOs and created a global crisis of confidence,” says PricewaterhouseCoopers’ Global Chief Executive Samuel DiPiazza, Jr, whose firm has just completed a survey into the top concerns for business managers. The results are compelling – if unsurprising. “CEOs are most concerned about the immediate survival of their companies,” he continues. “Even in once rapidly emerging economies, companies are now coping with issues like unavailable credit, sluggish capital markets and collapsing demand. In addition, the severity and duration of the recession are difficult to predict and CEOs are balancing the challenges of successfully managing through the downturn while also remaining prepared for economic turnaround. Their prospects for recovery are truly connected.”
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James rogers, chairman, Duke energy
ray Davis, president and ceo, Umpqua Bank
Striking that balance between hunkering down and riding out the storm on the one hand, and exploring opportunities that could give you the jump on the competition when the good times return on the other, is one of the most challenging problems facing business managers in such times – a fact borne out by the results of the PricewaterhouseCoopers report. Nearly 70 percent of CEOs said their companies will be affected by the credit crisis, and of those, nearly 80 percent said they faced higher financing costs with 70 percent saying they would delay planned investments as a result. Worldwide, just 21 percent of CEOs said they were very confident of revenue growth in the next 12 months, down from 50 percent in last year’s survey, and more than a quarter of CEOs said they were pessimistic about prospects for the coming year. CEOs worldwide were also gloomier about longer-term growth, predicting a slow recovery. Nevertheless, it’s the hand we’ve been dealt. The recession isn’t going to disappear overnight – although without the right management strategies in place, your business might. Survival won’t be easy, but it’s far from impossible. So what are the business essentials for managing through the current recession?
Assume the worst – and if you must freak out, do it quickly It’s often said that the first rule in a downturn is ‘don’t panic’; the second is that if you are going to panic, panic fast. Fear is a natural reaction to the challenges posed by a recession, but the quicker you can formulate a plan to get you and your company through whatever lies ahead, the better your chances of survival. Tomorrow may be too late to put in place key deals or partnerships that could contribute to your continued existence and longterm health, so don’t wait for your competitors to get the jump on you. Reevaluating your business priorities is a must (that expensive office refurb will have to wait, for sure), and recalibrating your sights on what’s important is a vital first step. What was previously ‘business as usual’ may no longer apply, so decide what you have to do to stay relevant in the new operating environment – and act fast. “Acknowledge the problems, and deal with them head on,” advises Ray Davis, President and CEO of Umpqua Bank. “There is
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Jamie Dimon, ceo, Jp Morgan chase
no ‘normal’ in an economic downturn like this. These issues won’t dissipate or just go away, so it’s critical to address them straight on.” Alongside your immediate concerns, consider how these short-term issues affect your long-term strategy. Check that this is still valid, and still delivers your corporate goals. This will help you focus on what is really core in the short-term, and ensure your employees focus on securing these objectives in the long-term. “The world is changing so fast, you cannot think in terms of what you want to do 10 years from now; instead, you have to think on a rolling basis in terms of three-to-five year time spans,” suggests Mukesh Ambani, Chairman and Managing Director at India’s Reliance Industries Ltd. “The world fundamentally becomes a new place every three to five years. At Reliance, our longest planning cycle is five years. We pride ourselves on our ability to adjust quickly to external situations. We are clear about things that are in our control and those that are not.” JP Morgan Chase CEO Jamie Dimon is even more forthright, and recently instructed a group at the Harvard Business School to put crisis management at the top of their list of priorities. “I am shocked at the number of people who are watching that train coming down the track and still worrying about their strategic plan for 2009,” he told them. “We canceled all that stuff – all of it, meetings, travel, you name it – to focus on the fact that we’re in the middle of a real crisis.”
Work on the basics; recessions don’t last forever The next step on the road to recovery is to consider some business fundamentals – in other words, distinguish between your costs and investments, and manage each accordingly. Research shows that winners in recessions tend to brake quickly heading into a downturn by controlling costs carefully and consistently. Bain & Company partner Darrell Rigby says it’s like downshifting to a lower gear to slow momentum and increase responsiveness. “Winners focus on what the company does best, reinforcing the core business and spending to gain share,” he says. “They aggressively monitor the competition to ensure they have the best possible line through the curve. That sets them up to accelerate at the apex of the curve when the economy starts to improve.” The idea is that the farther ahead you can see and the quicker you can turn, the faster you can safely corner – an analogy that’s not lost on Johan de Nysschen, President of Audi of America. His company is determined to maintain the positive momentum it has built up over the last few years, and is looking to cost-containment as a means of achieving this. “At Audi we are doing everything we can to maintain the solid product impetus we’ve built up over the past few years, and
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Mukesh Ambani, chairman, reliance Industries
Johan de nysschen, president, Audi America
we will continue to roll out new models throughout 2009. This is part of our long-term strategy to offer unsurpassed progressive engineering across our line up,” he asserts. “At the same time, however, we are very aware of the need to conserve as much capital as possible. We are examining every corner of our budget to find expenses we can rein in now so we don’t have to cut back on products, marketing initiatives, dealership activities or staffing later this year.” For Audi, marketing, products and people are all seen as strategic elements that are key to the long-term health of the company. Others are following suit, reducing wastage, eliminating duplication and focusing on how to do the basics effectively and efficiently rather than cutting investments in core initiatives. “Of course, this is something you should do on a routine basis, but a recession brings the lesson home,” says Duke Energy’s President and CEO James Rogers. “It also reminds you of the importance of reducing capital expenditures. We’ve minimized our need to go to the market for capital in 2009, not knowing exactly what kind of market we’d find. We can always turn the spigot back on if the capital is there. It’s about protecting your balance sheet. It’s about reducing your cost structure. And it’s also about being prepared when the recession begins to lift.” And it will lift. It may take a while, but the fact remains that sooner or later all recessions end. The trick lies in positioning yourself to take advantage when they do. The most successful companies never stop funding their most critical competencies, whether they be product quality, customer service or brand sophistication.
Invest in innovation: new problems mean new solutions One of those key areas is innovation – although this doesn’t necessarily mean you need to come up with the next iPod. Remember that the recession will mean new challenges for your customers as well as for you, and that responding in sophisticated ways can be a critical competitive differentiator. No matter what business you’re in, providing value for clients and giving them a reason to continue using you is what separates the successful companies from the also-rans. It’s a lesson those involved in the tech sector know only too well. “If you’re in the internet world, your customers face zero barriers to exit,” says John Donahoe, eBay CEO. “You’re always one click away from losing a customer. So saying that change is constant is not just a conceptual thing. For us, it’s absolutely an everyday reality. And being in a young industry means that the industry structure is not yet es-
Fred hassan, ceo, schering-plough
tablished, so new business models are constantly emerging and challenging the status quo.” It means companies like eBay have to remain fiercely committed to offering the customer the most positive experience possible, and precludes them from taking loyalty for granted. As a result, thinking outside the box is a core requirement for Donahoe, and other companies would do well to take a similar approach. Such times also provide an opportunity to re-examine traditional ways of doing business to see whether alternative approaches could provide an advantage. Fred Hassan, Chairman and CEO of ScheringPlough Corporation, thinks that the economic downturn might provide an extra stimulus to innovate. “For example, take energy,” he says. “The US is currently looking at a $700 billion bill for energy that we’re paying
Top concerns For ceos Anxieties cited by executives in Pricewaterhouse Coopers’ Global CEO Survey
85% 72% 55% 50% 46%
The IMpAcT oF The recessIon
DIsrUpTIon In The cApITAl MArkeTs
oVer-reGUlATIon
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5
FIVe Top TIps
Too busy saving the business to stop and listen to advice? Here’s all you need to know about managing through a recession in five simple steps.
1
Don’t panic – and if you must panic, do it quickly. The quicker you formulate a plan for getting through the downturn, the better your chances of survival
2
Recessions don’t last forever, so plan for the upturn. Find a balance between short-term survival and long-term growth; things won’t always be this bad
New problems mean new solutions. Continue doing what you’re good at, but look for how you can better serve your customers’ changing needs
3 4
Identify your talent, keep hold of it – and then headhunt. If you can motivate and incentivize your best people, you’ll be in the best shape to survive and thrive
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Don’t underestimate the value of good communication. Set the tone from the top; leaders should be visible and accessible, and above all honest
to overseas suppliers. If we truly are going to have a robust, long-term economy we’re going to have to deal with this and make some tough decisions. If we keep thinking short-term, we will not be able to deal with some of the structural challenges that need to be dealt with. In other words, tough times can make one innovate harder and faster.” A key point is to ensure you make the most of your company’s inherent innovative potential. Great ideas can come from the most obvious of places, and quite often simply adopting best practices from certain areas of the business across the whole enterprise can reap significant rewards. Robert Willett, CIO at Best Buy and head of the firm’s international operations, says his firm has benefited from its global footprint – in more ways than one. “One of the great benefits of going international is that you create a balanced portfolio over time – a four-piston engine in which three pistons are usually working well. But geographic diversification also provides depth in terms of new, innovative ideas,” he argues. “We’ve had some wonderful innovations from Canada that have been adopted by US operations. Our China and US operations have also traded innovations, and vice versa. I don’t know how you quantify that; all I know is that we need innovation across the enterprise to continue our growth, and by operating on three continents we really increase the volume of ideas available to us.”
Identify your talent, keep hold of it – and then steal some more Finding and retaining top talent remains a major priority for CEOs even when times are good, but is particularly pertinent during a downturn. A shortage of candidates with essential skills was cited as a key challenge by nearly 70 percent of respondents in the PricewaterhouseCoopers survey, while other human resource concerns included recruiting and integrating younger employees, providing attractive career paths, and competition for talent within their sector. Throw the twin specters of layoffs and cutbacks into the mix and it’s clear that we’re looking at a busy 12 months for people professionals. “The ability to attract people – to motivate them while they’re with you and motivate them to stay with you – is going to be a challenge,” believes Duke Energy’s Rogers. “We’re in a period when the demand for people is going to be greater than it’s ever been before.” At such times, identifying and keeping hold of your best employees should be an absolute priority – especially given that almost half of the employers surveyed in a recent KPMG study indicated individual staff workloads have gone up as a result of the credit crisis, with a similar number witnessing an associated increase in employee stress levels. Keeping your top talent feeling happy, rewarded and motivated to continue doing their best work for your company has never been so important. EBay’s Donahoe sees this as a critical area. “I think the first thing is having clarity about who the top talent is, and second, ensuring that you reward them both financially and with expanding opportunity as well as with personal acknowledgement,” he says. “At the same time, it’s counterproductive to lavish acknowledgement on your top talent if it’s done at the expense of everyone else in your company. But the worst-case scenario is that you over-invest in your weakest people and under-invest in your strongest people. If I can make my strongest performers five percent more effective through good feedback and
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John Donahoe’s recession playbook At the recent World Economic Forum in Davos, the eBay Chief Executive outlined his four-part plan for dealing with the downturn.
coaching, that has a much greater impact than getting a five percent improvement from my bottom performers. It’s not sufficient simply to say to your top performers, ‘Good job, keep it up’. Instead, you want to be saying, ‘You’re doing great, but here’s how you could do even better’.” Knowing who the best people are in your organization is obviously a crucial first step – as is your ability to keep tabs on top performers at rival firms. Those companies that fail to provide the best people with the right incentives and motivation to stay will quickly find themselves embroiled in a fight to hang on to their talent – leaving you poised to capitalize.
Be open, upfront and honest; good communication is key Successfully communicating in a downturn has two important elements: building or maintaining confidence in the brand on the one hand, and motivating staff and alleviating their fears on the other. External communication is key. During recessions, companies of almost every size are tempted to rein in their spending, especially in marketing. They withdraw from the market, decreasing their presence and their visibility. But while it may seem counterintuitive given the nature of a recession, the fact that so many firms retreat from the market actually presents a great opportunity for a company to expand its presence – which means the last thing a company should do is decrease its marketing efforts. Once the economy recovers, the company that ramped up its marketing efforts during the recession will have already gained share or will be positioned to do so quickly as the economy grows. The other element is internal communication. Good managers respond by communicating even more than usual, and having all the answers is less important than maintaining an honest, open dialog with employees and stakeholders. The recession was barely under way when The Wall Street Journal ran an article headlined “Allaying
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Stay externally focused. At times like this, it is so easy for an organization to turn inward. You read the newspaper and you watch the stock price and you become obsessed with your own situation. We’ve got to stay customerfocused because we now have to scratch and claw for each customer’s dollar. You’ve got to be really realistic about your costs and get them in line early so you don’t have to be reactive and surprised down the road. You can’t stop investing, but you’ve got to invest selectively. You’ve got to be very targeted in what you invest in, the things that will make a difference – which often turn out to be opportunistic investments. I would view our Bill Me Later acquisition as an opportunistic investment in our future at a counterintuitive and tough time. Work on teamwork and execution. During a downturn it’s natural for organizations to get distracted and have one part of the business start accusing another of getting more time and attention: “How come we’re being cut back more than they are?” Tensions build inside and people get sidetracked. So good execution and teamwork during turbulent times can provide a company with a degree of competitive advantage. Workers’ Fears During Uncertain Times” that advised management to “communicate often”. It makes sense. One lesson learned from the previous recession is that those companies who are able to maintain employee engagement – and thus benefit from extra effort from their staff – have a much better chance of surviving and flourishing during the tough times and beyond than those who don’t. The right tone has to come from the top. “Leadership is always important, but particularly critical during tough economic times,” says Umpqua Bank’s Davis. “Leaders have many roles, which include driving the company’s success externally. But more importantly, leaders must support and empower the people within their organization.” Davis’ firm provides the training and tools to support associates so they’re comfortable and confident handling the situations they face. “This empowers people to have their own answers, and also holds them accountable,” he says. For public companies it’s important that the CEO or president doesn’t disappear in challenging times, but is visible and available. That openness and accountability helps build trust and confidence in your company’s strategy and leadership – both internally and externally. “It’s no surprise that organizations are reining back on non-essential spending and scrutinizing policies carefully. What is important is that changes are made sensitively and in a way that preserves goodwill,” says Tim Payne, Head of HR at KPMG. “Firms don’t want to alienate staff at a time when employee goodwill is a vital commodity. Employees understand companies need to manage their costs – but they still expect leaders to communicate clearly with them when changes are made.”
In times of economic weakness, the strong get stronger General Electric CEO Jeff Immelt recently called the current downturn “the opportunity of a lifetime” in a letter to shareholders, and
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Inside business
Mike Monahan, CFO at mailstream technology company Pitney Bowes, offers his thoughts on how to manage through a recession. How are you approaching the current downturn? MM. We take a very balanced approach to this type of market. First and foremost, we need to understand the risks inherent in the marketplace, and we have a fairly comprehensive enterprise risk management program in place. We have taken the opportunity to create greater efficiency around our organization in the downturn, but have also focused on investment. In fact, as we went into this economic downturn in 2008, we actually increased our investment in R&D by 11 percent. What we’ve seen in the past is companies that invest through these types of economic downturns generally accelerate faster out of them, so we realigned some of our resources
into investment in both our traditional mailing business as well as our newer software businesses. Have you seen much impact in terms of your own operations? MM. We do have a high degree of recurring revenue, which provides a certain degree of stability, but economic downturns affect all businesses. We have focused on maintaining a strong capital structure, very strong credit ratings and good access to the commercial paper markets – as well as the long-term debt markets, because we do financing as well. More and more of our customers are looking for ways to finance their business operations, and we’re able to provide that. And like many other companies, we’ve also looked at ways of streamlining our organization, increasing the span and control of our management team and reducing the resources necessary to manage the business. To what extent do you think it is important to have a really good risk management policy in place? MM. We think it’s critical. We’ve had a program in place now for a few years and it’s well understood across the organization. We have 16 key risk categories that we’ve identified, and we’ve assigned ownership across the organization for developing mitigation plans against those risks. We also have a regular meeting process that allows us to look at current business environment issues and factor those into our planning process, and it’s a process that rolls right up to our board of directors. Do you think this has been a problem area for companies in the last year or so? MM. I think you see it every day in the way that companies are challenged in terms of access to the capital markets. In many cases, some of the very serious steps that companies have had to take may be related to the fact that they hadn’t anticipated certain risks or exposures to their businesses. I don’t think any company could claim to have full visibility into what’s occurring today, but the key is to have the mechanisms in place to respond to it. What is the most important thing for executives to keep in mind when managing through a recession? MM. Well, I think first and foremost is to keep the customer front and center. That’s where our revenue is generated, and so making sure that you continue to invest in relationships with customers, giving them the right kinds of products and services, is key. Good customer service is going to be critical. And the other side of the equation is how you interact with your vendors. Make sure that 1)
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“As with anything, striking the right balance for your particular circumstances is paramount” you have a viable set of vendors, and 2) that you’re managing relationships with them for the long-term. What value do you put on open communication? MM. I think there’s two sides to communication – external and internal. From an external standpoint, transparency is very important for customers and investors to understand the value proposition of the company, what you’re doing to be successful and how the business is performing. On the internal side, we have a strong philosophy around communicating with our employee base, engaging them in the actions that need to be taken, and in this downturn we’ve seen a very strong reaction from our employees to that. How is this recession different to ones we’ve witnessed previously? MM. I think the speed at which it came on and the breadth of the industries and geographies that it’s impacted have marked it as different. It’s truly global, and thanks to technology we’re all interconnected much more closely than in previous recessions – but this isn’t necessarily a bad thing. Modern technologies really allow you to communicate more broadly and more consistently. In fact, we’ve introduced something we call IdeaNet, which allows our entire employee community to be involved in generating innovative ideas. I think it’s very empowering to employees. It gives them an outlet to put their ideas forward and to communicate with others across the organization. It’s a very important piece of technology, but also very important in terms of engaging employees in the business every day. How do you ensure you’ve got the right talent in place to take the company forward? MM. We have a pretty robust people development process that allows us to identify the skills we need for the future, and identify talent that can be developed to take on senior roles. Our succession planning program requires us to identify at least two candidates that would be appropriate for a position within 12 months and then additional candidates that could be ready for the position out from there. It allows us to create a development program for each person that helps them move towards their career goals; and for the organization, it provides us clear visibility to the people who are going to be the future leaders of the business. In an environment like today, the ability to engage those people in problem solving is a great way to help them develop quicker, and it gives us a lot of insight into how we can manage going forward.
there are plenty of others who feel that whilst operationally challenging, periods of recession actually give them the chance to prove their mettle. As business journalists everywhere are fond of telling us, the Chinese symbol for opportunity is the same as the one for crisis – a cliché, to be sure, but only because it contains an essential truth. According to the results of an eight-year study by Bain & Company that analyzed the net profit margins and sales growth of more than 2500 companies, around 24 percent more firms moved from the back of the pack to the front in the 2001 downturn compared with the subsequent period of economic calm. Take Southwest Airlines, for example. With a clean balance sheet, a clear cost advantage and adroitly hedged fuel costs, the discount carrier was able to grow during the last recession at the expense of its older, more established rivals. As others eliminated capacity and jobs, Southwest lowered fares to gain market share, boosted advertwwising to trumpet its price advantage and built solid relations with labor by avoiding layoffs. The bottom line? Its fleet grew 51 percent in the six years ended December 31, 2007, and it is the only airline to make a profit every year since it was founded. Audi’s Nysschen is in no doubt as to the potential offered by such periods to those companies with the courage of their convictions. “Times like these can be an opportunity,” he says. “While other manufacturers are pulling back, there is a real opportunity to gain market share – which is why we are planning to increase our 2009 marketing spending 15 percent from 2008. While paying due attention to the implications a challenging operational environment’s demands, one should remain focused on long-term objectives. You must plan for success. Keep the team motivated and focused on the long-term vision of the organization, and celebrate every success.” Others concur. “We’re not standing still, particularly in these economic times,” says Umpqua’s Davis. “There are certainly challenges when operating a business in difficult economic times – for example, sustaining company culture and positioning a business for growth. But when crisis hits, there is also great opportunity to gain market share and hire great talent if you stay nimble and open to opportunity. We’re continuing to look for opportunities to grow and to support growth in our communities. When our communities thrive, we do too.” As with anything, striking the right balance for your particular circumstances is paramount. The final word goes to eBay’s Donahoe, who points out that being successful in a downturn is not about battening down the hatches and waiting for the storm to pass; nor is it about betting big in the vague hope your hunches will come off. Instead, it’s about executing what you do well better than ever before; about making incremental improvements across the board; about seeing the potential in opportunities as they arise; and most importantly, about having the vision to see beyond the immediate situation. “There is more marketshare shift in turbulent times than there is in good times – more of an opportunity for a strong company to gain ground,” he asserts. “We’ll do it by being a little more customer-focused. We’ll execute a little bit better. We’ll be more prudent about our costs, and invest in a few, right things. I view the next 18 months or so as a period of opportunity first and foremost. It’s not fun, but it’s a period of opportunity.”
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EXECUTIVE INTERVIEW
The importance of performance management In an exclusive interview with Business Management, Frank Buytendijk explains how to survive and thrive in today’s tough market. In your book, Performance Leadership, you propose a different view on performance management. Can you tell us more about this? Frank Buytendijk. Performance is all about motivation, dedication, teamwork and matters of the heart. Management is more associated with plans, control, accountability and matters of the mind. All we focus on in performance management are the matters Frank Buytendijk, VP and of the mind. Performance management is a contraFellow for Oracle’s Enterprise diction in terms. Performance Leadership is based on Performance Management lessons in personal development that people should Global Business Unit, is a develop on four dimensions. The physical dimension leading expert in business is needed to stay healthy and have energy for the intelligence and performance other dimensions.The mental dimension helps us get management. Before joining ahead: Where are we now, where do we want to be, Oracle, Buytendijk was VP of how do we get there? The social/emotional dimenresearch at Gartner. sion helps us to develop ourselves as balanced peoBuytendijk is also a Visiting ple, being an asset to our environment. The spiritual Fellow at Cranfield University dimension, lastly, helps us to think about what we School of Management. stand for. These same dimensions can be applied to
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organizations. The physical dimension compares to efficient day-to-day operations, to allow management to focus on improvement and innovation. The mental dimension dovetails with strategy, again asking: Where are you now, where do you want to be, how will you get there? For the social dimension, we need to examine where business performance really comes from. How do we make sure that the value we add is not subtracted from somewhere else? Do we really add value or do we see business as a zero-sum game. Perhaps the most concrete of is the spiritual dimension, if we translate that to organizational values. Every organization has core values, attracts certain people, and has a certain culture, and that creates the actual drive of the organization. Performance Leadership describes how to address all four dimensions.
tomers, skills and services from suppliers and partners. Regulators offer fair competition, shareholders offer capital, society supplies a business infrastructure. And you can only count on contributions if you also consider stakeholder requirements. This leads to entirely different performance management implementations, less aimed at internal control and more on stakeholder interaction. Now more than ever, we need to stick together, loners won’t survive.
One of the calls to action in your book is to encourage finance and IT leaders to look beyond reporting and decision support to drive business performance within the organization. Can you explain what that means? FB. Traditionally, an organization is defined as a group of people with a common goal. But if you take a stakeholder view, they actually have very different goals. Customers want a good product for a reasonable price. Shareholders want maximum return. Employees need to pay the mortgage. I define an organization as a unique collaboration of stakeholders who, through that organization, reach goals and objectives that none of them could have reached by themselves. Eighty percent of decisions impacting your bottom line are taken outside the walls of the organization, in the wider performance network. Performance management is first and foremost about understanding the contributions of all stakeholders, and how to manage them. The business from the cus-
In today’s market, companies must do whatever they can to increase efficiency and maintain profitability. How does enterprise performance management technology help? FB. Three imperatives for surviving and even thriving in today’s market. First, you need to enforce transparency, immediately. If you don’t have access to the right data about the market and your organization, you’re flying blind. The basis of performance management is a solid business intelligence foundation. Second, adopt rolling forecasts next to or instead of a traditional budget. Sticking to the plan is useless, you need to stick to reality that is changing every day. Lastly, use performance management to build or rebuild trust in your organization and in your market. Say what you do, and do what you say. Share critical information with all your stakeholders, through supplier scorecards, customer service levels, sustainability reporting or do like the New York City, posting all performance indicators on your website.
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INDUSTRY INSIGHT
Improving business intelligence Business intelligence matters more than ever, as enterprises need to make critical decisions to improve their business outcomes. By Giuliano Di Vitantonio, Hewlett-Packard.
n a challenging economy, it is no surprise that business intelligence (BI) remains the top priority for CIOs in their quest to add value to the business, as executives realize that the availability of timely intelligence can separate the winners from the losers. However, many customers who depend on business intelligence to drive critical business decisions say that they are not getting the full value from their investments, because the information is too fragmented, they canâ&#x20AC;&#x2122;t get it quickly enough and they are unable to get the right intelligence to the right people in the enterprise to capitalize on a new wave of business opportunities. The underlying cause is the fact that BI platforms and methodologies have not kept up with the rapid evolution of business opportunities that depend on effective decision-making for success. Traditional approaches to business data management were devised for delivery of functional reports, based on historical data, to a small set of executive decision-makers. Businesses today need to get a consistent view of business data, and need to be able to share the data across organizational boundaries for applications such as supply chain management and demand-forecasting. They also need to bring decision making much closer to the point of value to enable a much wider range of users to
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extract maximum value from every interaction with customers. Finally, in many vertical industries, the emergence of business ecosystems spanning public and private sectors creates the possibility to serve a new class of consumer needs through the exchange of relevant information in a timely fashion. In some cases, the business model of key players in the ecosystem inherently depends on the value and timeliness of the information exchanged. As these business opportunities mature, the gap between the potential value of business intelligence and the value delivered by the current generation of solutions grows wider and wider. Hewlett-Packard recommends that BI strategists adopt a three-pronged approach to bridge the gap between potential business outcomes and realized business outcomes. First, connect intelligence across boundaries to enable enterprise-wide performance management, support the integration of mergers and acquisition and provide full visibility into the supply chain. Evidence of success is when customers get a consistent view of their business data across the connected entities. To achieve this goal, they must go beyond basic data integration and implement enterprise-wide information governance and master data management initiatives, comple-
mented by the adoption of standards for information exchanges across enterprises. Second, connect front office decisions with back office operations to enable a much broader range of users to perform activities that require timely access to information, such as demand forecasting, risk management and customer management. Success means being able to support complex decisions at business speed. To achieve this goal, large amounts of data need to be made available within different contexts, and analytics need to be embedded into business processes for rapid delivery to people and applications. Third, connect the business to new opportunities spawned by the emergence of dynamic business ecosystems spanning public and private sectors, and powered by the cloud. This new wave of opportunities requires the systemic exchange of business information to serve a new class of consumer needs. In this context, service orientation becomes the design principle for information architectures, supporting a range of delivery options for shared data services and knowledge capture. As an early user of cutting-edge BI solutions, HP applies its deep understanding of this domain to help customers master the complexity of their environment and realize the full value of their investments. HP has assembled a portfolio of services and technologies to support the customerâ&#x20AC;&#x2122;s journey, including discovery workshops and maturity assessments that explore all three vectors of successful BI implementations (business, information and technology). n
Giuliano Di Vitantonio is the Head of Global Marketing and Alliances of Business Intelligence Solutions (BIS) in HP. In this role, Giuliano is responsible for the market and partner strategy of a newly created organization that combines consulting services and platform technologies to create business solutions for customers.
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ASK THE EXPERT
Investing in process improvement strategies With the need to improve efficiency, reduce costs and drive quality, it is the ideal time to invest in process improvement strategies. Tommy Houston explains how such tools, specifically Lean Six Sigma, can help create competitive advantage.
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ean Six Sigma is focused around the pursuit of excellence and has revolutionized the way leaders approach business process improvement. Today’s economic climate is intensifying the need for companies to compete on the basis of lowest cost and risk. Lean Six Sigma by its very nature is about taking the waste out of business processes, and reducing the variability in product and service quality. The application of Lean Six Sigma – particularly when it is integrated with Theory of Constraints – puts a proven methodology at the fingertips of an enterprise to maximize both quality and throughput. This combined approach provides a systems perspective to focus improvements where they are most needed to produce the best returns at the enterprise level. While these methodologies have previously been associated with manufacturing and the supply chain, today they are increasingly being applied successfully to services such as healthcare, banking, and government.
Rolling it out
Previously associated with manufacturing and the supply chain, today Lean Six Sigma is being applied successfully in virtually all major industries.
Before making any investments in the training and infrastructure of a Lean Six Sigma deployment, NOVACES uses a comprehensive roadmap to align the program with an organization’s strategy. Rather than investing in training right away, it is more important to identify where the gaps and opportunities are and define them as improvement projects. It is this first step that identifies what training is needed. This way a business will maximize its process improvement investment – by knowing up front exactly what the business needs to be more competitive.
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NOVACES is a premier implementer of today’s most powerful process improvement methodologies that strengthen operational capabilities and financial performance. NOVACES is dedicated to advancing the science of process improvement and leveraging research to provide the most effective solutions in the market.
The development of Master Black Belts, the most advanced of Lean Six Sigma practitioners, is another key to successful deployment. These professionals are an organization’s internal quality gurus who must have the technical knowledge at both the strategic and operational levels, and the people skills to manage the cultural change. They also provide leadership by training, coaching and mentoring talent to facilitate the endless pursuit of excellence. In addition to detached executive leadership support, the absence of critical Master Black Belt skill sets is a leading cause of poor return on investment or outright program failure. It is also important to understand that implementing Lean Six Sigma is not a one size fits all solution. What works for one company does not necessarily work for another. This requires a deployment approach that recognizes the unique needs and culture of an organization so that the right process improvement tools are applied to fix problems and sustain the gains. By implementing Lean Six Sigma throughout an enterprise, leaders have a proven way to get through these rough times and prepare for growth in the future. This is an essential investment right now. In the end, it is all about positioning a business to not only survive, but thrive, by capturing new market share and by being quickest out of the gate as the economy starts picking up again. n
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EXECUTIVE INTERVIEW
Demand-driven manufacturing Manufacturers face numerous issues; from global competition to cost pressures and customers demanding exacting on-time delivery performance. Alfred Sherk, CEO of SherTrack, explains how technologies and methodologies are emerging to address some of the top challenges. Demand-driven manufacturing in complex production environments is a tough management challenge. What new approaches are developing to help tackle this issue? Alfred Sherk. Every process has a capability limit. A demand or pull based fulfillment process is inherently more efficient than a forecast driven process. In facilities that produce many products on the same lines, the complete set of firm customer orders required are not available. Our research has shown that predictive analytics can be successfully applied to actually predict near term orders with defined confidence levels. When variation is properly bounded, probabilistic inventory algorithms that are synchronized with finite scheduling are very effective in determining the optimal production system response. This breakthrough enables customer orders rather than demand forecasts to drive the production response in complex plants. Eliminating the reliance on forecasts offers vastly improved performance but it comes with a change management challenge. Why is this especially important in the current economic climate? AS. Since the credit crisis spread to Main Street in September 2008, all industries have seen dramatic volatility in their demand, which had not been anticipated by most sales forecasts. Many companies did not adjust their production levels until weeks after their order books weakened. Companies with significant hydrocarbon or energy costs saw their raw material costs and product prices drop precipitously. Those companies with sluggish supply chains had large financial losses on the value of their inventories. Demand-driven manufacturing operations can sense demand shifts and are inherently more responsive to shifts in demand. As the economy recovers, they will be able
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occurs in the analyze phase of the Six Sigma DMAIC process. Predictive modeling, based on a detailed and accurate digital representation of the facility, opens up sophisticated design of experimental approaches to determine an operation’s true physical capabilities. Operational strategies and tactics can be assessed without experimenting on your plants or your customers.
“Complex manufacturers need predictive analytic tools to give them insight into customer demand over the current and next manufacturing cycle” to provide better service and more agile responses to their customers and have the opportunity to gain market share, permanently. What challenges are there in applying continuous improvement initiatives to complex plant operations? AS. Complex plants are characterized by multivariate and non-linear process relationships that are nearly impossible to analyze with standard tools such as spreadsheets and off the shelf simulation products. For example, how will on-time-delivery be affected by providing shorter lead times? Would more frequent production changeovers be required? The inability to quantify these performance impacts is the roadblock that
If a company has implemented supply chain modules from an ERP vendor and set up sales and operations planning (S&OP), can they use these tools to become demand drivers? AS. For assembly operations, the answer is yes. These tools can be used in a Lean process but the way they are used may need to be modified. However, complex manufacturers need predictive analytic tools to give them insight into customer demand over the current and next manufacturing cycle. Forecast systems are incapable of providing order level information. Probabilistic inventory and scheduling are also required to ensure the proper response by operations. In demand-driven operations, the S&OP teams provide tactical guidance only. It is too slow and unwieldy a process to be used for execution decisions when customer orders drive operations.
VISION In SherTrack’s vision, the demand-driven predictive manufacturer: • Synchronizes production with demand • Makes the right amount of the right product at the highest margin • Maximizes production yield • Optimizes capacity utilization • Minimizes production cost
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TODAY’S BUSINESS ENVIRONMENT IS THE MOST VOLATILE IN 75 YEARS. DOES DEMAND FORECASTING MEET YOUR NEEDS?
WHY NOT PRODUCE TO ORDER INSTEAD?
All manufacturers can now drive production with customer orders using SherTrack’s hybrid LEAN Pull solution. SherTrack’s innovative, predictive analytic solutions and services enable demand-driven manufacturing to meet customers’ needs with agility, flexibility, speed and uncompromised production economics. Predictive analytics anticipate customer orders over the scheduling horizon so that any facility can use the very efficient Lean Pull fulfillment process. Achieve competitive advantage through best-in-class responsiveness, service and production efficiency.
P.O. BOX 545 BLOOMFIELD HILLS, MI 48303 TEL: 734.462.6220 www.shertrack.com
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CUSTOMER SERVICE
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Thinking shoebox outside the
In less then a decade Tony Hsieh transformed online shoe retailer Zappos from quirky startup into a multimillion-dollar empire. How? By focusing relentlessly on customer service and building a company culture based firmly on fun. Rebecca Goozee caught up with the CEO to find out what’s next on his agenda.
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ocketing to success as an online shoe retailer, Zappos is famed for its legendary customer service that has not only won the praise of Fortune, Forbes and Fast Company, but has also led the company to regularly share its ethos with Fortune 500 companies. So what’s behind Tony Hsieh’s passion for service? In 1998, fresh out of college and aged just 24, Hsieh sold his first business, the ad company LinkExchange, to Microsoft for $265 million.Why? Mainly because the company got big pretty quickly and because he soon learned that while he hired the right people in terms of skill set, he hadn’t built a company culture. “When it was just five or 10 people it was a lot of fun, but by the time we had 100 or so employees I dreaded going to the office,” says Hsieh. A year later he invested in an idea nobody else would touch: selling shoes on the internet. “I got involved around two months after the company started. I started off as an investor and parttime advisor, and was actually involved in 20 or so different internet companies at the time. Over time it became clear that Zappos was both the most fun and the most interesting, so within a year I ended up joining full time,” explains Hsieh.
And since he joined Zappos as CEO in 2000, the entrepreneur has taken the company from $1.6 million in annual turnover to over $1 billion. All by focusing on great customer experience. While any firm is reliant on its staff, in order to produce a superb customer experience a company becomes even more dependent on its employees. So how does Hsieh ensure that his new hires are the right cultural fit for Zappos? He only hires people who are passionate about what Zappos is passionate about – namely, great service. Anyone who comes into the company, be it an accountant, lawyer or call center rep, is put through two sets of interviews. The first set is through the hiring manager and his or her team, to make sure that the individual fits within the team, has the correct technical ability and the relevant experience. Then the HR department does a separate set of interviews, purely for culture fit, which consists of some wacky interview questions (including, ‘on a scale of 1 to 10, how weird are you?’ And, ‘what’s your theme song?’) in order to filter out egomaniacs as well as wallflowers. The individual has to pass both in order be hired. “We’ve actually passed on a lot of experienced and talented people that we know can make an immediate impact on
Image: Brad Swonetz/redux/eyevine
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ZAPPOS 10 CORE COMMANDMENTS Deliver WOW through service – do something beyond what’s expected
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Embrace and drive change – in order to stay ahead of your competition Create fun and a little weirdness – one of the side effects is innovation
Be adventurous, creative and openminded – develop and improve decision-making skills
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Pursue growth and learning – stretch yourself
our bottom line, but if they’re not a culture fit, then we won’t hire them. One of the things we’re looking for is people who are passionate about the company vision, which is to provide the very best customer service,” says Hsieh. However, while ensuring that he has the right people is crucial to the business, this also means that the company goes through a lot of potential employees. When the company holds a job fair for the call center for example, 200 people might show up, but only around 20 will be offered a place after the initial interviews. After that there are four weeks of training, beginning everyday at 7am, to learn about the company culture and how to use customer service tools. New recruits are even offered $2000 to leave the company during training, in order to weed out the half-hearted. And to keep his employees happy once they are hired, Hsieh throws a weekly costume party at the main office. Zappos employees, or Zapponians as they are known to those in the know, are required to be just a little bit crazy, but mainly open-minded and creative when dealing with customers. Rather than using a script, each consumer is treated as an individual case, and will be encouraged to order multiple pairs of shoes to ensure they find the right pair as well as take advantage of the free shipping in both directions. And if Zappos runs out of a particular style, call reps will actively point out competitors who have the style in stock. There are many stories about customer service reps going beyond the normal boundaries of the job. For example, a recently widowed woman called to see if it would be possible to return some shoes that had been ordered for her husband, who died a short time after receiving them. The rep accepted the shoes and sent the customer some flowers. In fact, a large part of Zappos’ appeal is the hassle-free returns policy, free shipping both ways and the fact that 90 percent of orders arrive the following business day. In order to accommodate the high volume return rate it
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Build open and honest relationships – communication is key
Build a positive team and family spirit – go beyond the typical ‘coworker’ relationship Do more with less – constantly raise the bar
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Be passionate and determined – have a positive but realistic attitude Be humble – treat others how you wish to be treated yourself
was imperative that warehouse and customer service operations be highly efficient. “Our return rate can be anywhere from 20 to 40 percent depending on the brand, so we had to ensure that we would expect this level of return, and also encourage it,” says Hsieh. Having a warehouse with around four million pairs of shoes is just part of the business for Hsieh, but while there are costs associated with that and extra steps around making sure they haven’t been worn and so on, it is all part of the service. “While there is more labor involved, it’s what makes people keep coming back to us – because it’s so easy to return items.”
“We are of the philosophy that you can do a lot more if you get the culture right, and then most of the other stuff will take care of itself”
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Tough decisions In a tight economy companies across all verticals have to make tough decisions. And in October 2008, when Hsieh himself announced a number of layoffs, he was widely praised for the way in which he handled them. “The economy definitely affected our original growth plans,” explains Hsieh. “All our hiring and expense structure was based on us hitting the $1.1 billion mark in 2008, but we ended up doing a little over $1 billion.” Hsieh decided that Zappos should start 2009 in as healthy a position as possible, and so he knew that when the figures were going to fall short, he would have to lay off about eight percent of employees. “It was a tough decision but at the same time we wanted to be proactive about the situation and not wait until we had no choice.”
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been spent on the customer experience. So, for example, the free shipping Every laid off employee was given at least two months severance, and both ways, 365-day return policy and 24-hour call center are all huge exif they had been with the company for three or more years, received one penses for the company, but viewing these as marketing outgoings month per year that they had worked. On top of that, Hsieh offered to reimmakes it much easier to see the benefits. “Any costs that we’ve put into burse them for up to six months of COBRA payments so that they were taken investing in the customer experience end up driving that repeat cuscare of on the medical side as well. “It was definitely a tough thing to do but tomer behavior and word of mouth, so it we were very open and honest in terms of is very much an indirect marketing cost,” the business reasons for doing it,” says explains Hsieh. Hsieh. “We sent an email to all employees He goes on to explain that he is very explaining why we had to do it and why it much aware of the importance of letting your was the best choice for the company given employees here the applause of the conthe economy. And then we posted that sumers. “A lot of it for us is instant,” says same letter on our blogs and announced it Hsieh. “The customer will be on the phone through Twitter. It wasn’t something unique and when you wow them you can hear the to the layoffs but rather part of our culture – feedback instantly from the customer thembeing open, honest and transparent.” selves.” A weekly newsletter also goes out to However, this wasn’t the first time that the whole company that highlights when Hsieh had to make layoffs. He also did so LET THERE BE SHOES someone emails or calls to tell the company during the first couple of years of the comabout a great experience. “At Zappos we realpany, and while it involved fewer people, In 1999, founder Nick Swinmurn was ly believe in the importance of forming a perpercentage-wise it was actually a much walking around a mall in San Francisco, sonal and emotional connection with as many greater portion of the company. “Looking looking for a pair of shoes. One store had the customers as possible.That’s why we put our back it was a blessing in disguise that we right style, but not the right color. Another 1-800 number on the top of every page of our had to lay people off in the early days, as it store had the right color, but not the right website, because we actually want to talk to forced us to focus on the customer experisize. Nick spent the next hour in the mall, our customers,” explains Hsieh. ence. In fact, if we hadn’t gone through walking from store to store, and finally went that we wouldn’t be who we are today. So home empty-handed and frustrated. Future focus we do see it as an opportunity for us to At home, Nick tried looking for his Having previously described Zappos as make our culture stronger and more tightshoes online and was again unsuccessful. a service company that just happens to sell ly knit, as well as make the company more Although there were a lot of stores selling shoes, it is unsurprising perhaps that Hsieh efficient.” shoes online, there was no major online is planning to get into other industries this retailer that specialized in shoes. So, since Feedback year. “We’re already making a big push in it was 1999 and anything seemed possible, In order to manage touch points and new ranges of clothing in 2009 – we already Nick decided to quit his day job and start the behavior of his employees Hsieh uses sell clothing, as well as electronics and an online shoe retailer. . . and Zappos.com net promoter score, but on the whole he housewares, but really 10 years from now was born! prefers to inspire them rather than try to Zappos doesn’t even have to be an online The original idea was to create a manage them. “We are of the philosophy business. website that offered the absolute best that you can do a lot more if you get the cul“We just want to be about the very best selection in shoes in terms of brands, styles, ture right, and then most of the other stuff at customer service. We’ve had customers colors, sizes and widths. Over the past will take care of itself in terms of great cusemail us and ask if we would start an airline – decade, the Zappos.com brand and tomer service,” he explains. “We’re extreme so a Zappos airline would just be about the aspirations have evolved, and in addition to in trying to inspire people through the largvery best customer service. One brand that offering the best selection, the company er vision and living the core values.” we look toward for inspiration is Virgin – it wants to provide the absolute best service With 75 percent of sales from repeat does airlines, music and a whole other bunch online – not just in shoes, but in any category. customers, Hsieh is keen to highlight that of businesses, but their overarching brand is good customer experience not only generates repeat sales but those customers become promoters, recommending the brand to others. ‘We’ve grown from basically no sales in 1999 to a little over $1 billion in gross merchandise sales in 2009. The number one driver of that is repeat customers and word of mouth – promoters have become an extremely important thing for us.” In fact, these promoters have meant that the company has spent less on paid advertising than it otherwise would have, and in turn that money has
about being cool. We want to become an overarching brand around the very best customer service and customer experience.” With the core competence – namely that great customer service – entirely transferable and already in place, it seems that Zappos has the edge over its competitors and is already well on the way to building a lasting advantage through customer and corporate culture, providing first-class customer experience to the masses.
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ANALYST VIEWPOINT
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hendefiningcustomerexperience,it’s importanttodistinguishit from proving it. At the end of 2006, about 90 percent of company executives said that customer service. “Customer service,” as Forrester’s Bruce Temkin customer experience is either very important or critical. points out, “is a function in a company that handles a set of interac“About that same number said it in 2007 and a similar number said it in tions. Often it deals with post-sales, post-customer issues, but not always. It 2008. So we’ve seen a consistently high level of executive alignment around the deals with a set of issues and problems that customers have. concept of customer experience.What’s changed over the last few years is what “When we talk about customer experience, this represents the perception they’re doing about it, how disciplined they are, do they have executive leaderthat customers have of all their interactions with your firm. It does include intership assigned to it, are they measuring it with a set of metrics – those types of actions you have with customer service, but it also includes inactivities have grown rapidly. teractions with marketing campaigns, with the selling process “Thelevelofinterestincustomerexperiencehasbeenhigh “You can’t sustain if you’re in the store, and with the research process if you’re onallalong,butonlyrecentlyareweseeinglargecompaniesdeda dramatic ongoing icatingfocusandresourcestoit.Ialwayslookfortheinitiatives. line. They are components of each other. A good way to think improvement in about it is that good customer service is necessary but not sufWhat are you doing to systematically improve customer expecustomer ficient to deliver great customer experience, because you can rienceacrosstheorganization?Whatareyoumeasuring?What experience without areyouincenting?Andwhatareyoucelebrating?Thosearethe let customers down in other interactions.” getting it imbedded things that are key to moving cultures along.” Temkin says this distinction is important, because if comin the culture” panies mistake customer experience for customer service, Probably the biggest motivation for the increase in custhey’ll optimize around their customer service organizations. tomer focus has come from executives realizing that they need They may then focus only on a subset of interactions that custofightforeverydollar–thattheloyaltyofcustomersisthemost importantassettheyhave.“They’vecometorealizethatcustomerexperience,the tomers have with them, and won’t get any real improvement in customer expeinteraction they have with customers, is one of the key levers in terms of building rience. According to Temkin, to attack customer experience requires a focus uployalty.Acrossindustries,they’restartingtohavetobattleforeverycustomer.” across functions like customer service, marketing and retail, as well as product development, because products are also a key piece of the experience.
Economic climate Getting it What makes the difference between those companies who really get customer experience, and those who don’t? Temkin says it comes down to tradeoffs, and so does the focus on measuring it and improving it. “We’ve been doing surveys of large companies for several years, working to understand what customer experience means to those organizations and how they go about im-
Temkin believes that in the current economic climate companies should spend their money on loyalty, not on acquisition, because there aren’t as many customers left to get. “One of the things we’re seeing is that relative to other areas in the firm, customerexperiencehas some resiliencein termsof its spending and priority. That doesn’t mean it’s not going to be cut like every other area in the company, but its not going to be cut as dramatically as other areas.”
Forrester’s Bruce Temkin gives Marie Shields some tips on how companies can ensure a good customer experience.
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There is also a link between the way companies treat employees and the quality of the experience its customers receive.Temkin says he would challenge anyonetofindanorganizationthatdeliversgreatexperiencebuthasn’tengaged its employees effectively. He points out that a company is an inanimate object; it doesn’t in and of itself deliver experiences. People do, either directly through their actions with customers, or the things they do that help other areas that interact with customers. “One of the key laws for creating great customer experience is that unengaged employees can’t create engaged customers.The starting point for a lot of customer experience efforts is internally focused. We need to make clear to our employees a) that we think customer experience is important, but also b) engage them in the process of improving stuff with customers. “If you want to improve customerexperience,you have to make sure you’re measuringit and incentingit better,and that you’re celebratingquality.You need to have your entire systems set up to reinforce this. You can’t sustain a dramatic ongoing improvement in customer experience without getting it imbedded in the culture.”
Social media The explosion of social media over the last few years has added to a company’s ability to monitor and analyze and measure customer feedback, but Temkin notes that it’s important to keep the social media channel in context. “There’s a boom of free-flowing information about everything in the social media space, so there certainly is an opportunity for companies to learn about theperception thatcustomers andnon-customers haveaboutthem.Having said that, there are a couple of things that are important to keep in mind. The first is
that you have to actually tap into it effectively and analyze it correctly and use it appropriately. “The general population isn’t actively giving you feedback in the social media space.That’s a subset of people. But there are also a lot of other listening posts that companies have with their existing customers. You have verbatims fromthe callcenter,the actualdialogsandconversationsthatpeoplehavewhen they call.You have data around what they’ve done on your websites. If you send out surveys, you have the comments they put on survey responses. You have their inbound emails and letters. “What you don’t want to do is think that the social media space represents the entirety of customer listening. It’s one slice of insight.There happens to be a lot of it, but there are also a lot of other places where you can get, sometimes, even more impactful insights about customers from other listening posts in the company.” The key challenge for companies is to work out how they can recognize where those touch points are, or how they can use the feedback once they get it. Temkin says: “One of the limitations to what people do today is that across social media, as well as across other listening posts, voice of the customer programs are all listen and no action. They spend so much time figuring out how they’re going to collect information and how they’re going to look at it, that they don’t spend nearly enough time figuring out what are they going to do with the insight once they get it.” For companies looking to manage this process, Temkin says he would put together cross-functional teams that are focused on figuring out what they’re going to do with the information, so they can identify problems and attack them collectively. “If the web team, for instance, are doing web surveys and asking questions about the web experience, they might also get feedback on the product or on the brand. You want to make sure that there are effective processes to get that feedback to the people who can do something about it quickly.”
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INDUSTRY INSIGHT
The next competitive battleground Gary Schwartz, Senior Vice President of Marketing at Confirmit, explains why understanding customer experience is key to business success.
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n the blockbuster film, When Harry Met Sally, when Sally told Harry “I want it how I want it,” he just snickered. But that was 1989, and most consumers simply got it how the company delivered it. Twenty years later, the tables have turned. Not only do more customers want it how they want it, they also increasingly expect it. As consumers adopt a variety of technologies that allow them to browse, purchase and obtain service around the clock, companies have had to change the way they do business – almost all business-to-consumer companies now sell their products and services in stores, online or via call centers and catalogs. With so many routes to market, you need to work hard to maintain your brand promise and create a coherent customer experience, irrespective of the channel that individual customers choose. Loyalty and repeat purchases increasingly depend on the quality of service provided and whether a customer feels that their opinions, desires and attitudes are taken seriously. The 2008 Gartner’s CRM Summit provided some interesting food for thought for all businesses in the current eco-
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“The best way to enhance customer experience, loyalty and advocacy is by first measuring it and then showing customers that their opinions count” nomic downturn. Speakers cited customer retention as a key area of focus for the executive level. CEOs increasingly look to reduce attrition and compete effectively in a world where switching to a competitor’s products is increasingly commonplace and building an enduring relationship with customers is harder to achieve. Research carried out by the Strativity Group corroborates this point, finding that 95 percent of executives think that customer experience is the next competitive battleground. Developing an effective customer strategy that allows an organization to build long-term customer relationships in order to counteract the ‘switch culture’ is essential. The situation is even starker now that cash and credit are less readily accessible. Consumer defection is as likely to be in the sidelines as it is to be the competition. The best way to enhance customer experience, loyalty and advocacy is by first measuring it and then showing customers that their opinions count. Feedback management initiatives enable you to create a two-way dialogue with customers to find out how they feel about a product or service and what factors impact their decision-making process. Such a dialogue serves as a vital component of any successful customer experi-
ence strategy. Only by tracking individual ‘pain points’can you change business processes to improve customer experience, enhance a product offering or provide a personalized service that differentiates you from your competitors. As with sales channels, feedback technology has evolved to the point where you can communicate with your customers both ‘how they want it’ and ‘when they want it’, whether instore, online, via IVR or the contact center. And you can leverage that feedback into an enterprise-wide program that directly impacts business results. With feedback management software you can turn the multi-channel environment into a highly-effective communication and marketing mechanism. More than just market research, in which the company solicits the answer to a specific question at a particular time from a large population, feedback seeks data at each customer’s experience on an ongoing basis. Driving action through the business upon receipt of the feedback, whether through automated system alerts triggered by very strong responses to specific questions, or through trending attitude over time, gives you the ability to integrate the voice of the customer into every facet of your business. By combining real-time understanding of customer attitude with key business performance metrics, you will be in a much better position to differentiate your business on the basis of customer experience and quality of service.
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INNOVATION
Cerf’s up In an exclusive interview, Vint Cerf, internet pioneer and currently Vice President and Chief Internet Evangelist for Google, explains why infrastructure development is more important than ever in a tight economy. By Rebecca Goozee
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hen Vint Cerf speaks about the web, people sit up and listen. Widely thought of as the founding father of the internet, Cerf, along with research partner Robert Kahn, designed the TCP/IP protocols that govern data transfer across the net along with its basic architecture. In 2005, the pair received the highest civilian honor bestowed in the US, the Presidential Medal of Freedom – recognizing the fact that their work on the software code put them “at the forefront of a digital revolution that has transformed global commerce, communication and entertainment”. For many, Cerf is as close as you get to internet royalty. However, it’s a title he’s reluctant to accept. “The internet has many fathers; there are lots of people who’ve contributed,” he says. “This is very much a collaborative effort, and over the history of the internet you’ll find that tens of thousands – maybe by this time, hundreds of thousands – of people have contributed over the years. This is one of those wonderful ideas where everyone has an opportunity to contribute – and they do! And that’s the real magic and power of the internet. It’s an open environment that everyone has an opportunity to share in and to contribute to, and that’s exactly what’s happening.” Indeed, the idea of openness and collaboration – and of sustaining the internet as an open network for consumer choice and innovation – is a subject close to Cerf’s heart. “Google believes in a very open internet environment,” he explains. “One where everyone has the opportunity to try out new products and services without discrimination. We also believe that you have a right to know exactly what you are getting. Suppliers of internet service need to be clear about expected performance and what you are paying them for.” In Cerf’s view, the internet should be an egalitarian entity used by anyone and everyone, one where suppliers of the service are unable to discriminate against a user merely because of who or where that user is. “We are arguing that the internet should be nondiscriminatory in terms of its access, although we accept the argument that for larger capacity you may have to pay
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more,” he says. “What we are after is an open environment where both consumers and suppliers of applications are treated fairly.”
Investment Naturally, in order to attain the open environment that Cerf is so keen to see happen, the infrastructure itself needs investment. But in a tight economy, are companies in the mood to invest in internet infrastructure? “We have a situation where the incentives for companies providing internet access are distorted by a natural desire to maximize their investment to the detriment of innovation,” concedes Cerf. “I think we need to provide adequate incentives for all parties, those providing underlying facilities and those providing value-added services, to have fair and nondiscriminatory access to the underlying bit-carrying capacity of the internet. Monopolizing provision of service does not produce innovation; in fact, it sometimes inhibits it. People want to know why they should invent a new, less expensive solution when they are able to charge more money for their service by sticking with the old way of doing it.” However, Cerf sees innovation as critical to long-term prospects, and as a result insists there must be some kind of incentive for investors to create the appropriate infrastructure. He believes that there will certainly be opportunities to find ways to invest in infrastructure, particularly in light of the current financial crisis. “Perhaps there are subsidies that could be provided? Maybe there are other tax benefits that could be provided? What we need to do is be creative about providing incentives for building infrastructure, and at the same time ensure that it is as openly accessible as possible to all parties who want to innovate on top of it,” he explains. He likens the shared asset to a road system – everyone drives on it and the roads are used simultaneously by lots of different users – which is exactly how packet switching works. “Packet switching may be a way, like the road system, to allow people to share common infrastructure,” says Cerf. “From my point of view, in order to create broadband access there needs
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BUSINESS INSIGHT infrastructure in the US, and Cerf believes that there is now a reasonable need and opportunity to do something similar in the current climate. However, he maintains that it is of vital importance to invent 21st century versions of those infrastructures. “I want to build the 2010 version of infrastructure,” he says. “So we need to ask ourselves technologically, what kinds of infrastrucHow is information on the move revolutionizing the modern enterprise? ture could we build? What kind of infrastructure CR. From field-service to retail to healthcare, mobile devices facilitate the would create more opportunities for businesses movement of information between key stakeholders like customers, employees to invent new products and services? In and management. Device management solutions that support the collection, Roosevelt’s case he focused on this in the midst security and distribution of data via mobile devices and that allow organizations of horrible turmoil and joblessness; he saw an to support mobile field-workers are needed to realize the potential of information opportunity. They say opportunity lies on the on the move. edge of chaos – maybe that’s going to be true today too.” And what impact is the convergence of fixed, mobile and internet services Ideas for the 2010 infrastructure include enhaving on today’s business environment? suring that every new mile of highway or bridge CR. The mobilization of information drives the creation of improved products that is built has conduits built-in so that it could and services, and facilitates the conversion of real-time information to carry fiber. This way the road wouldn’t have to be competitive advantage. As a result, companies must ensure the uptime of their dug up later in order to pull fiber along that pardata collection devices with solutions that allow them to manage, support, ticular length of road. Other examples include secure and track their mobile field-force in the use of so-called Smart Grids. “For the first real-time. time in history, we may have the opportunity to The combination of improved not only adapt our supply of electrical power to data networks, better datademand, but have control over some of the encollection devices and mobile ergy-consuming devices in businesses and residevice management software dences. We can communicate when to run the allows enterprises to improve hot water heater or the air conditioning in order products, services and customer to moderate peak-load demand, and if we manresponsiveness. Fixed-mobileage the demand as well as the supply, then we internet convergence will may be able to avoid investing huge amounts of accelerate this by making money in peak load capacity that we only use services more accessible two or three percent of the time. Similarly, if and appealing. we’re investing in new electrical grid distribution media, maybe that same framework will allow us to also invest in new high-bandwidth telecomto be a financial or other business incentive, whether that’s R&D tax credmunications facilities, fiber being an obvious example.” its or credits related to revenue gained on new investment – if there are It’s about exploring the possibilities, and at the end of the day Cerf sees ways of providing incentives to business for creating openly sharable inhuge potential in terms of the opportunities the internet opens up for the frastructure, then that’s a hint of the direction in which one might go in this businesses of tomorrow. “I think what companies need to do is to examcurrent climate where at least the present legislation is intending to proine the products and services that they offer and the means by which they vide a substantial amount of government support for investment in inframake those things known to others and ask themselves how the internet structure of all kinds. can enhance their ability to draw attention to their products and services – “Creating incentives for industry and the private sector to both build or even to deliver their products and services,” he says. “Google is an exthe underlying infrastructure and then participate in inventing new ways ample of this. Our business is the selling of advertising, but the advertisto use it is the direction that we want to be heading in.” ing is incidental to the use that most people make of our products and services – they’re looking for information, and we try to help them find it. 21st century infrastructure Take Google Maps or Google Earth, for example. We didn’t get any direct But away from the development of the internet infrastructure itself, revenue from the Google Earth or Google Maps system, although we have Cerf sees great potential for expansion of internet services and applicaadvertising related to it, and if people are there taking advantage of infortions. For example, during the Great Depression, President Roosevelt demation that others have provided and also can see related information comliberately created a massive investment in physical facilities and ing from our advertising, people click on the ads, and that generates
Google’s basic model is to organize the world’s information and make it accessible and useful – a goal shared by champions of enterprise mobility. Carl Rodrigues, President and Chief Technology Officer of SOTI Inc., gives Business Management an insight into the role of device management solutions in enterprise mobility.
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“Creating incentives for industry and the private sector to both build the underlying infrastructure and then participate in inventing new ways to use it is the direction that we want to be heading in”
revenue for us and sometimes also for the other people who provided the information.”
Business opportunities Almost invariably, improvements in technology lead to opportunities in the business world – whether by making it less expensive to provide a product or service, or by creating entirely new businesses or industries that nobody had ever thought of before. Cerf cites a couple of examples. “Look at education. Here, the product is learning; but technology opens up new opportunities with regards to how you deliver it. For many years, the way you delivered it was by having a professor up on the podium and students sitting in chairs taking notes. But we now recognize that not everyone can afford to go on a four-year course at a college and devote themselves exclusively to that. Nonetheless, they still have to learn new skills and knowledge in order to maintain the edge that they need for the jobs they’re doing. So the university, which is providing education as a product, needs to package not only the four-year degree and the twoyear degree, but also the two-week special course or the part-time MBA program. In this instance, repackaging the product of education and delivering it through the network could be a very powerful revenue enhancer, to say nothing of growing a market that doesn’t exist compared to residential colleges.” The second example is that of information sharing. “People increasingly rely on information in order to keep their lives organized, whether it’s calendars, keeping track of their stocks, or keeping track of medical records,” he explains. “Most people probably visit more than one doctor and have medical records scattered around on physical paper in different offices. This means when someone new asks you for your medical records, you don’t have an easy way of gathering the data. So if we had common
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ability to record our personal medical records, we could supply that information more easily and accurately – making this information more easily discoverable and analyzable is a powerful tool.” Google has a number of applications that help people manage this information, such as Google Docs and Spreadsheets, and Cerf insists that it is the increased level of collaboration provided by advances such as cloud computing that is making the difference. “Companies that are trying to help people analyze, evaluate and accumulate their information can take advantage of the internet – and in some cases, of what Google offers – to help people organize their information and evaluate and analyze it.”
The value of collaboration It is this quality that most inspires Cerf about working for Google – the company’s commitment to organizing the world’s information and making it accessible and useful. “That’s an honest motivation,” he says. “It’s true. The company really believes that this is what it wants to do, and that’s what people who work for Google want to make happen. I’m one of them, but just one of 20,000. It’s a wonderful feeling to have a company whose leadership believes that motto and wants to make it happen.” He believes one of the keys to the organization’s success is its ability to deal with scale – particularly given the rate at which information flows into the internet, the rate at which it changes and the rate at which Google has to keep track of that. The ability to manage all of that change and all of that increase quickly and responsively is really stunning,” he enthuses. “When you walk into one of the Google datacenters, which most people are not gonna be allowed to do, it’s awe-inspiring. The physical scale of the facilities, and the number of machines that are made to work together – both the hardware and the software – is frankly mind-blowing.” Cerf also cites the firm’s internal structure – the quality of people it
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THE FUTURE OF THE INTERNET? “Frequent speculation is that somehow as the internet gets larger and larger and more computers with more software and more memory flow into it that someday it will simply wake up and become self-aware. I am somewhat skeptical of this, although I will say that as we provide the internet with more and more information – and in particular the ability to experience the world the way we do through video cameras, microphones and sensors – the internet could potentially have a kind of sensory system like human beings do. “The question is, ‘How does the internet experience that information?’ In a human being, the information is sensed through our neural system and then goes into a neural network in our heads. The neural networks are extremely complex, and they are quite malleable. In fact, the imposition of sensory data into the brain physically affects the way in which the brain evolves. The internet could conceivably affect a similar kind of evolution, but it might require human beings to change the software because we don’t have self-programming systems at this stage of the game. “I think, though – in my science-fiction speculative moments – that if the internet could interact with the environment in ways like human beings interact that we might someday actually find that the internet or its successor could become self-aware. For me that’s still science fiction. But you can certainly see on another axis here that – independent of self-awareness – the network and the sensory systems associated with it can handle much more information than any individual human being could handle and could process that information with all the huge computing power that’s available, and so that’s a different kind of intelligence than what you and I have.”
hires and their ability to work together and share information – as important. “The willingness to share internal information with a fairly significant part of the entire company really helps improve its likelihood of success,” he says. “One thing I’ve learned about companies that are successful is that virtually every employee, whether they are cleaning the floors or the CEO and everything in between, have a pretty good idea of how the company makes money. And if people understand how the company works, then they can reasonably ask the question – and I hope they do – of whether what they are doing today is helping the company do what it’s trying to do.” Ultimately, however, it is technology that really excites him. “For the first time in human history, computers are allowing us to magnify and leverage our brain power, whereas in all the previous history what we’ve done is magnify and leverage our muscle power,” concludes Cerf. “This is a big change in our human civilization where we’ve mechanized something that never has been mechanized before.” And it is this – Google’s ability to leverage the power of the human brain to make it more capable than it ever has been in the past – that truly sets it apart. n
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TECHNOLOGY FOCUS
Improving rich internet applications While rich internet applications aren’t new, recent developments have boosted their potential reach and capabilities. Business Management takes an in-depth look at how and why it has taken off, and where the market is heading. “Rich internet applications have allowed the integration of information from a wide variety of sources that is presented to users in a highly accessible, usable and appealing format,” explains Brett Cortese, President of Universal Mind, Inc. “This is dramatically increasing customer satisfaction and making core critical processes far more efficient.” Indeed, companies that have successfully employed a rich internet application (RIA) have enjoyed much success. The archetypal example is Google Maps, which meshed geographical information with
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structured database information and added interactivity. Since then, thousands of companies have jumped on board, embracing interactive capabilities from email applications, such as Yahoo Mail and Gmail, to the social networking sites of MySpace and Facebook. So what is a rich internet application, and why have they become so popular? Technically speaking, rich internet applications are a variety of applications that use tools and middleware technologies, enabling the mixing of traditional structured information with audio, video, im-
ages and high-interactivity in one mashed-up, user-facing environment. “It’s highly presentation-centric,” explains Al Hilwa, Program Director for Application Development Software, IDC. “While in fact what are ultimately delivered are applications, most of the time we’re talking about the tools and middleware that enable
Google presents their Google Earth program during Paul Otellini’s keynote speech at the opening of the Intel Developer Forum at the Moscone Center on August 23, 2005 in San Francisco, California
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those applications, meaning the languages, the libraries and the authoring tools that make these things possible.” Hilwa goes on to explain that rich internet applications have been around for some time. In fact it took the internet 10 to 15 years to catch up to computer capabilities; however, the current amount of interactivity with much larger internet databases, rich content and much larger communities of people online has brought a new dimension of richness to the applications. “In the last four or five years, we’ve seen a revolution in this kind of technology and it’s everywhere now,” he says.
“Rich internet applications have rapidly moved from an interesting trend to a critical part of many businesses’ strategies” Hilwa believes there are two reasons why a company should invest in rich internet applications. Firstly, the area is a highly competitive space and it is an absolute must for retailers or manufacturers who are competing with other companies using the medium to do every thing they can to attract customers. Secondly, as consumers become habituated to highly interactive websites, it becomes harder to attract customers without RIA technology. “Advertising, of course, is another huge driver, and so you need an interactive site to attract customers, otherwise you are not going to be able to keep up and eyeballs will go elsewhere,” summarizes Hilwa.
jects remain hard to justify and largely cost orientated and ROI is difficult to attain. “More often than not, a company will put something out for its customers because that can be mapped directly to selling products and enticing customers to look at the product – it will have much more impact than inside the company,” says Hilwa.
BUSINESS BENEFITS When RIA technology is applied properly it is possible to: • Create a more engaging experience – building a larger and more active customer base • Keep customers on your site rather than lose them to competitors • Build your brand • Use and re-use web services, gaining a higher return on your technology investment • Add new features to your website, potentially turning your site into a larger profit centre
Becoming mainstream As rich internet applications continue to gather pace in the market, Hilwa believes that the market will continue to head in a positive direction, and Cortese agrees: “The ability to innovate business models and processes has become critical to business growth and in some cases survival. RIAs have become key enablers in driving this innovation.” Hilwa believes that the business benefits of RIA should be thought about from two different perspectives: the external customer-facing environment and the internal business environment. While rich internet applications have been huge on the business-to-consumer side, it hasn’t been particularly prevalent inside businesses, where pro-
For external-facing applications, Hilwa believes that businesses have no choice but to continue investing in rich internet applications. “The bar for interactivity is rising, driven by advertising, and if you want to have a web presence there is almost no choice over time but to continue with it – the ship has sailed.” However, on the intranet side there is a whole set of different concerns and many more things to take into consideration, which is where application modernizing and mash-up come in. “Businesses are more reluctant to spend on internal projects today,” explains Hilwa. In the cur-
rent climate it is unlikely that there will be an explosion of internal applications using rich middleware tools, although Hilwa expects external applications and e-commerce type applications to continue growing. Indeed, Cortese believes that rich internet applications have rapidly moved from an interesting trend to a critical part of many businesses’ strategies. “Companies must extend their reach and business processes over multiple channels and devices. More and more applications will be ripped from the confines of the desktop and given new life and capabilities. This will continue to the point where RIAs are an expected part of business interaction.”
Future Looking forward, Cortese believes that as SaaS platforms such as salesforce.com and the Intuit Partner Platform mature and expand, businesses will move away from hosting critical business applications in-house. “This will provide lower cost of ownership and far greater flexibility. RIA technologies are perfect for capitalizing on the rise of these platforms and the cloud in general.” However, Hilwa sees a potential barrier slowing adoption. He believes that application developers have to negotiate a variety of technologies that are currently competing for standards. As with many new business tools, several vendors are vying for market share, Adobe, for example, has made some early strides with its flash technology. “Adobe has really grabbed a chunk of the market through some smart alliances and through its mobile platform. But there are challengers,” explains Hilwa. “Microsoft has made a play to muscle in with its Windows Presentation Foundation derivative browser plug-in called Silverlight, and Java has recently released a new platform for RIA called JavaFX.” As the major players continue to wrestle over the technology, it makes it harder for business decision-makers to figure out what standards to use. “There’s that age-old question in the history of computing,” says Hilwa. “What development language do I use, what runtime do I use? Because standards are never completely standard; there are always variations, and it’s no different in this case. The decision-makers have to decide, and it’s completely understandable why companies might slow down their decision-making as they negotiate these options or wait to see which standards become more prevalent.”
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THE NEXT BIG THING
Next generation enterprise Business Management gets to the bottom of enterprise application modernization.
Richard Treadway
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ver the past few years there has been considerable excitement around applications based on rich internet application (RIA) technology. Most of the attention has been focused on consumer-facing applications like Google Maps, which was one of the first applications to embrace the functionality of RIA technology. “RIA provides many capabilities that were previously unavailable or challenging,” explains Ron Rogowski, Senior Analyst at Forrester. “The biggest benefit, essentially, is that they improve user task flows.” Although Ajax-based RIA has been around for a while, enterprise RIA is still a relatively new software category. Enterprise RIA platforms can help enterprises modernize their client server applications, converting them into web applications. Delivering the application over the web reduces maintenance costs and improves the user experience. “While Ajax has been the technology most used for consumer RIA applications,” says Richard Treadway, VP Marketing and Product Strategy for Curl, “It falls short when considering the requirements of the enterprise, including scalability, security and high-performance.”
Advantages So why is enterprise RIA such a compelling business proposition? Treadway identifies the top reasons as reduced support costs and im-
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proved process efficiencies. “By delivering the application over the web there is a substantial savings in maintenance and distribution costs,” he says. “Also if you have to support multiple platforms, and distribute it to a large number of users, you have the costs of testing, packaging, distributing and installing it, which quickly adds up.” Treadway goes on to explain that because enterprise RIAs offer higher performance and improved data visualization over current solutions they can greatly improve existing processes, making them more efficient. “A good example of this is if you are looking at a large data set in a tabular form, it’s very hard to see patterns, but with a graphic visualization the patterns are easy to spot. A lot of these old applications didn’t have the capability to make those kinds of visualizations, but now we do,” says Treadway.
WHY RIA? Save time through process efficiency • High productivity • Eliminated round trips • Reduce process time Lower costs through web deployment • • • •
Reach new users Run on any platform Eliminate distribution costs Lower maintenance costs
Increase revenue with competitive products • Good design increases adoption • Competitive interface design
Sagawa, the Japanese equivalent of UPS, is one organization that has embraced the use of enterprise RIA. The application in their case was a label printing system that was used in their 30,000 or so package distribution points.
“2009 to 2012 will really start to see enterprise RIA becoming an increasingly popular application platform” Although the application had an intuitive interface it required updating every time there was a change in codes, which was fairly frequently, adding up to huge costs both in time and money. Management at Sagawa decided it was time to move to web, but were adamant about preserving the interface of the application. “In this case they were able to keep their interface,” explains Treadway, “which additionally saved them a lot of time and training. Since the move to the web, functions are smoother and faster and the company has saved on support costs, as each update can be executed quickly and efficiently.”
Future “Enterprise RIA is taking off,” says Treadway, “It’s simply a question of how fast it will move. We’ve seen considerable adoption in Japan, but awareness of this technology in the US is starting to grow. In the US we’re at the early adoption stage and I believe that 2009 to 2012 will really start to see enterprise RIA becoming an increasingly popular application platform.”
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PRODUCT UPDATE
The ROI of RIAs In recent months, a new class of enterprise application has emerged to help increase productivity, accelerate decision-making, reduce costs and enhance the user experience: welcome to the world of rich internet applications (RIAs).
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s more businesses recognize these benefits, RIAs will become increasingly common in enterprise deployments. A strategy report by Info-Tech Research Group on the business case for RIAs concludes that “soon the choice will not be whether to roll out an RIA, but rather what type to roll out”. Furthermore, RIA technology has evolved significantly over the past year, opening up a new opportunity for businesses to realize ROI in a short period of time. The Adobe Flash Platform enables enterprises to join the RIA trend quickly by deploying the technology in a stepwise approach, gradually enhancing existing infrastructure and systems with RIAs (or even regular web applications) that can be rapidly and affordably developed. By deploying RIAs, businesses can unlock tremendous new value from systems that have already been deployed, and create new synergies by connecting isolated components in an enterprise’s infrastructure. They can also create new opportunities for implementing breakthrough systems that weren't previously possible.
Similar applications can be equally valuable in internal deployments. Sharp Electronics deployed an executive ‘cockpit’ application that informs core executives of detailed progress against key company metrics. The application presents data from the company’s SAP system in an interactive display available to the Sharp executive team, facilitating rapid decisions to emerging market trends.
Discovering new synergies In addition to unlocking information from existing data, RIAs can create new synergies or integration between multiple databases or systems that have already been deployed.
Maintaining agility in a dynamic market For businesses that must adapt to an evolving market place, from large economic swings to smaller customer trends, being able to discern meaningful patterns from inbound data is critical to making good business decisions. Unfortunately, business data is often collected faster Nasdaq Market Replay is a rich internet application, built with the Adobe Flash Platform, that enables investors and brokers to replay market events and review historical data in simulated real-time than personnel are able to analyze it, and the data is too complex to evaluate without an analytical layer to visualize trends. LMG, a marketing services company, develops and manages large Adobe Flash Platform is ideal for developing RIAs and web applications retail-based customer reward programs for retailers and service providers that enable companies and their customers to quickly distill and visualize worldwide. The group owns and operates the Nectar brand, the UK’s large and complex data sets, facilitating rapid interpretation and analysis. largest customer reward program. Using Adobe Flash Platform, the comOne such application, NASDAQ Market Replay, enables investment pany is able to provide applications that overlay Nectar data with their professionals to distill massive quantities of market data to visualize stock clients’ own customer data, such as sales figures. trades and other market events down to a millisecond. This kind of analySelf Serve, one such application, was developed by LMG for its susis not only assists investment firms with customer support, but also enpermarket client Sainsbury. The application allows users to analyze hunables them to offer their clients valuable investment insight, as well as more dreds of millions of transactions made by half of UK households easily ensure their own regulatory compliance. According to Claude annually. Self Serve provides Sainsbury’s buyers with new insights into Courbois, head of product R&D for NASDAQ, the application would not customer behavior, helps them identify trends, and enables them to have been possible without Adobe Flex and Adobe AIR, both part of the build sophisticated reports that ultimately drive better business deciAdobe Flash Platform. sions for the company.
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Meeting the new consumer benchmark
SUCCESS STORY: NASDAQ
As business users are exposed to consumer applications in their lives outside the office, their expectations of what is possible are rapidly changing. Consumer applications move forward at an accelerated pace, exposing people to new ways to communicate and consume information. As expectations rise, business users become more frustrated with the use of business applications and push for more consumer-like user experience in their work environment. Business applications that employ RIA techniques can help users make decisions faster and complete their work more efficiently. They are easier to learn and therefore increase overall productivity sooner. The Adobe Flash Platform enables the development of highly interactive and expressive interfaces that invite user acceptance and meet these rising expectations. The result is improved adoption and increased ROI for enterprise applications.
Getting to deployment faster Applications built with the Adobe Flash Platform can often be developed and deployed faster than with other web development technologies. Developers can use pre-built components in Adobe Flex, part of the Adobe Flash Platform, to accelerate project schedules. Courbois reports that this practice “sped up development time and reduced costs tremendously” on the company’s Market Replay application. Since the Adobe Flash Platform is a complete system, it offers efficiencies and synergies unmatched by alternative technologies. The platform enabled Optimal Payments, the online payments processer, to complete development on their application in half the time and one-third the amount of code that would have been required using Ajax or other open source frameworks. Development time is also reduced by the cross-platform reach of the Adobe Flash Player. News International, publisher of The Times, The Sun, and other international periodicals, deployed a Flash-based application to co-ordinate the commissioning of freelance content across newspaper and magazine titles. Because the application could run on multiple platforms, including different browsers (Safari, Internet Explorer, Firefox) and desktops (Mac and PC), the company could develop once and deploy to their diverse user audience without needing to develop multiple versions of the application. Additionally, with the development skills the developer teams had from building SAP, Java and web-based applications, they were able to learn Adobe Flex without any organized training.
Choosing the right technology The flexibility, reach and completeness of the Adobe Flash Platform make it the ideal solution for building RIAs and web applications, particularly when integration or enhancement of existing systems is desired. In a recent Gartner Research MarketScope report released in late 2008 reviewing RIA technologies, Adobe received a ‘Strong Positive’ rating, the highest rating for the report. n
ince its debut in 1971 as the world’s first electronic stock market, NASDAQ has been at the forefront of innovation by using technology to bring millions of investors together with the world’s leading companies. Recently, the NASDAQ product development team turned to Adobe Flex and Adobe AIR, both components of the Adobe Flash Platform, to create NASDAQ Market Replay, a dynamic application that gives users instant insight into extremely detailed trading activity in the market at any time during the day. For example, users can query when a stock trade happened and play forward and backward the market events as if they were watching the market in real-time. The new Adobe AIR application will enable brokers to show customers exactly what was going on in the market at the time a trade happened, helping them understand why they received a particular price. To minimize bandwidth demands, the Adobe AIR application manages the data for the replays. “There’s no doubt that working in Adobe AIR is a huge benefit with these large data sets,” says Randall Hopkins, vice president at NASDAQ. “The ability to process trading data on the desktop enables NASDAQ to deliver valuable data analysis at a lower cost to everyone involved.” According to Hopkins, NASDAQ Market Replay will help all sorts of market participants better understand and explain the market. For example, an analyst or journalist will be able to replay market events for viewers to help them understand significant price changes. “We are entering a world where people will be able to replay interesting market events in simulated real-time to experience the event exactly the way it originally happened,” says Hopkins.
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For more information on the business benefits of RIAs and the Adobe Flash Platform, download a free PDF at www.FlashForBiz.com.
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ASK THE EXPERT
Socializing in the digital world A look at the challenges of taking social interaction online.
DANIEL KRAFT
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eople are the greatest corporate asset within an organization, and collectively they represent a tremendous portion of corporate memory and intellectual capital. Employees create, consume and share content every day with their colleagues as well as their business partners outside of the company, and the movement of content coincides with these standard business processes or business practices.
adding search to email) is simply not sufficient. One limiting factor in communication lies within the isolated one-to-one communication processes that occur and the restriction in access. Most communication happens in a linear fashion, like sending an email to one or many people. They give feedback and may suggest or forward the email to another person, and in many cases I might not even have access to the right person because he or she is not known to me or is not even working in my organization. Beyond linear, people are now operating in a collaborative world outside the workplace and look to embrace that same environment within the organization to help them achieve better collaboration in their personal world.
Digital coffee Communication re-engineering Today we are experiencing a paradigm shift toward productivity. Organizations are expected to do more with less as they reduce head count during these recessionary times. If companies are looking for efficiency gains with their ‘people and process’, communication cannot simply be automated (digitalized like email) but in fact would need to be re-engineered. The goal of communication in a business context is to identify all the required information to make a decision using only the required resources. Automating the current process (e.g.,
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Imagine a coffee house: you go in, get your coffee and get out. This is what email is doing to communication: you ask for information and you get information. Now imagine you enter the coffee place again: you wait in line, you start a conversation and you find out that the person next to you has been working on a similar problem that you have to solve and is offering you support. What just happened is typical offline social networking activity. Two people with the same interest (coffee) meet at a place they both like (coffee place) and they build a social network to share (knowledge). The goal now is to take this
face-to-face experience into the digital world and build a social marketplace.
The social marketplace Where individual knowledge was previously hidden, the social marketplace shares part of the corporate culture. Instead of asking one person via email a question, your question now proliferates among those within a related community (like the people in the coffee place). People who actively share their knowledge build their reputation and become recognized publicly as experts (or even friends). As a result, organizations that encourage this type of community sharing build stronger peer-to-peer and community networks, which help accelerate productivity gains. Underlying contributions of these social communities include employee attraction and retention as part of human capital management, not to mention the enabling of a more virtual organization. Organizations that see the value of social interaction with their external stakeholders can preserve market share, accelerate pipelines, cultivate customer loyalty and reduce the costs of frontline customer service. The social marketplace delivers fundamental values such as customer engagement and proactive peer-to-peer support and recommendations; development and solidification of communication and recommendation channels; the ability to spot and react to new opportunities for markets and prospecting; and community engagement with your brand to build loyalty and customer commitment.
“Organizations are expected to do more with less as they reduce head count during these recessionary times” We often talk about the potential of Enterprise 2.0, but what does that mean to an organization? Simply digitalizing communication is not the answer. Just as people are comfortable socializing around coffee, enabling your ecosystem to socialize in the digital world can be achieved – sometimes the solution is simply a good cup of coffee. Daniel Kraft is SVP of Corporate Strategy for Open Text.
MTB MAG AD:feb09 27/03/2009 16:07 Page 93
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The internet gold rush Rebecca Goozee explores the immersive internet to find out if it could indeed be the next generation of business working.
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econd Life is the archetype for a virtual world, it has its own economy, geography, own laws, rules and sense of community. OK, so the sense of community is relatively anarchistic and the rules are pretty minimal, but it is a piece of the immersive internet, the so-called ‘next big thing’ for business working. “If someone has exposure to Second Life then they will have a pretty good understanding, at a primitive level, of what the immersive internet is,” explains Sam Driver, author of the ThinkBalm report, ‘Make Tactical Moves Today for Strategic Advantage Tomorrow’. “If you’re familiar with Second Life you could envision the immersive internet as the next logical step,” continues Driver, “but it’s certainly a step into a much larger landscape than a virtual world.” When Second Life entered the public sphere in 2003 it was heralded as the future of the internet. Six years later, interest is waning. However, interest in the immersive is not. While Driver’s report indicates that adoption of the immersive internet is still in its seedling stage, he expects to see rapid adoption within the next five years. “The ideas behind the immersive internet have been floating around for a long time,” he says. “Savvy investors have recognized the value of creating an immersive, engaging environment for people to do whatever they want to do; it doesn’t have to be solely work or play. There’s been a lot of recognition around this as the next step and the reason it’s in a seedling stage is that for the first time the hardware has caught up to the thinking and the software.” The immersive internet is a collection of hardware, software and user activities that, through 2008, have grown out of a collection of other distinct areas that were not necessarily business orientated. It is, in a sense, the convergence of hardware and the business ubiquity of gaming-appropriate machines – advanced graphics capabilities, advanced sound capabilities and enough processor power to be able to render 3D objects in real-time – combined with the software. “We’ve started to witness the availability of hardware and the early business explorers build business-appropriate workspaces inside these virtual worlds. Around 2008, we saw the emergence of a few small companies, primarily backed from the learning simulation side, like the US Military and the Department of Defense, who wanted a way to innovatively train their soldiers, recognizing that they needed something more graphical and more hands on,” says Driver.
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This culminated in the formation of the immersive internet, which is a blending of internet data with an immersive 3D environment that increases engagement of the user. Rather than a passive internet mode, it is a collaborative, collective mode where it is possible to examine data in real-time with other people, with a sense of presence awareness that allows you to delve much deeper into whatever it is that you are doing.
they’re going to demand the level of contact immersion and social networking potential be embedded in their lives, as it is today,” says Driver. At the top end, businesses will begin to recognize that their teams are distributed, and bring advocates into the business to show the business value. “We’re in the middle of producing an ROI study for businesses who are going to bring these pilot projects in and determine whether there are actually valuable returns on investments before disseminating them through their organization,” explains Driver. “Certain kinds of jobs are going to adopt this more quickly – certainly design and research jobs long before you see things like call center jobs or factory floor jobs. But ultimately everyone will have some component of their job done immersively.” Looking to the future, Driver believes that it is hard to predict just how the immersive internet will evolve over the next five years, although he does believes that as computing becomes more distributed adoption will become increasingly common bringing a treatment advantage to the business world.
“Savvy investors have recognized the value of creating an immersive, engaging environment for people to do whatever they want to do” And as the amount of business machines increase and the kinds of machines sitting in peoples’ home offices are finally able to run the requirements for the software, the floodgates have opened. “What we’re seeing is an Old West style gold rush as everyone recognizes that now is the time to build the software and the communities,” explains Driver.
Geographically independent As the full extent of the recession kicks in it seems that this may have a huge impact on the uptake of the immersive internet in business. The concept of immersive technology is slowly being recognized as a replacement for face-to-face meetings, and as companies undergo budget cuts, they are under increasing pressure to do more with less. “Global companies are scrambling around for other ways in which to have meetings among dispersed geographical offices,” says Driver. “What we’re seeing is the pressure that the market is putting on business to increase their productivity, and this is manifesting in spending smaller amounts of money on immersive tools that can save a lot money by reducing the amount of travel that has to happen.” As Driver suggests given the current economic environment most early adopters are focusing their efforts on cutting costs and increasing efficiency and production, with the most common being early targets, meetings and events, as well as learning and training. “The real power of the immersive is that it’s truly geographically independent,” says Driver. “It doesn’t matter where you are, and that’s important, particularly in this economic environment. You can create the environment that is appropriate to the meeting. You can go further and build into these environments so that you can extend your capabilities, some companies are known to sit with the entire contents of their office around them in realtime so they are able to pull in data at any time.” Driver sees adoption from two directions. At the bottom end he predicts that the younger generation, who will be replacing the rapidly aging workforce, will drive the demand for business to adopt the technology. “As the Millennials grow up and start getting jobs
THE SEEDLING STAGE Driver expects adoption of the immersive internet to progress rapidly toward mainstream during the next five years for six reasons: • A slow economy and the green movement influencing business decisions • Early case studies demonstrate return on investment • We live in a video game culture • Large business technology vendors are jumping into the fray • Hardware, software and networking technology have advanced rapidly • Social networking is a way of life, allowing advocates and implementers to find each other
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Using social media to drive insight Julie Wittes Schlack, Senior VP of Innovation and Design at Communispace, explains when and how to use private and public customer communities for maximum business impact.
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onsumers not only want, but increasingly take for granted, that they should be able to share advice, experiences and feedback with one another, and with the brands whose products they use. Customer communities provide companies with a way to meet this need, giving them the means to involve larger groups of individuals, deepen relationships and foster loyalty. Some customer communities, like HarleyDavidson’s rider clubs, grow organically and gather largely offline. Others, like the Xbox Users’ Community, are also self-forming but congregate online. Some, like Kraft Foods’ First Taste Community, are public, but others (including several other communities also sponsored by Kraft) are private. Online communities have become one of the most important tools for companies interested in using social media to achieve business results. But the distinction between public and private communities is an important one, as each serves different purposes, provides different benefits and requires different skills and resources.
Differences Private communities for business are typically invitation-only, small (with members numbering in the hundreds) and intimate. If you want to be selective about who you are interacting with, private communities allow you to recruit and/or admit only those specific types of individuals or customers you want to engage with – for example, your most loyal customers, your lapsed customers or those representing a specific demographic or psychographic segment. Both of these elements – small size and commonalities – create a more focused and generally more revealing, insight-generating interaction. Public communities on the other hand, are open to anyone who would want to join – whether they just read what’s going on in the community, or if they actively post in the community. Typically they are larger than private
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communities and used for marketing or support purposes to help companies reach a wider audience, so they end up having a broader market impact in terms of who they reach.
Best use One way to understand the difference between private and public communities is by thinking about the distinction between information exchange and insight. Public communities provide a great way for companies to take quick polls and invite general feedback and suggestions. They’re also an ideal venue for distributing coupons and other promotional materials (enabling customers to exchange technical support tips and post product reviews), and are helpful for consumers trying to figure out what to buy and for marketers to learn what is and isn’t working. In contrast, members of private communities tend to go beyond reviews and actively engage in co-innovation with the sponsoring brands. By the same token, companies are free to share much more confidential and early-stage concepts, and to invest far greater confidence in the feedback they receive because they know so much more about the highly-screened members providing it. But beyond feedback, the secure, intimate environment of private communities
generally enables discovery – letting the conversation focus as much, if not more, on the lives and needs of the customers, and not just on their perceptions of the sponsoring brand.
Working together These two forms of community can complement each other in a myriad of ways. Private communities offer insights, sentiments and ideas that you may then want to explore or test in a broader context, with greater numbers of people. Likewise, trends or sentiments that broadly emerge in public communities can be easy to observe but hard to understand. Private communities provide a channel in which to deeply, repeatedly and longitudinally explore the “whats” behind the “whys” . To drive insight and innovation, to broadly and deeply connect with customers, to enable and enhance word of mouth, communities play a vital role. Using private and public communities together can help you get the most from your social media marketing efforts and allow you to harness the power inherent in each for the greatest business impact.
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MARKETING FOCUS
UNlocKING tHe poWer of
MOBILE Could a brand in the hand be worth two on a billboard? Business Management investigates the impact that mobile marketing is having on a cash-strapped sector.
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ith over one billion mobile devices sold annually, mobile is on track to become one of the hottest media channels in the world. Always on and always close to hand, the mobile platform provides brands with the unique ability to connect with consumers like never before. And, over the last few years, the awareness of mobile marketing has grown enormously as companies have realized the significant benefits of using the channel to reach customers and get their message across, whether it is a marketing program or a specific advertisement. To date the most high profile case for mobile marketing was the Obama for America campaign in 2008. The campaign ran the most technologically sophisticated promotion in history, with Nielsen Mobile reporting that Obama’s text message announcement of Joe Biden as his running mate was, “The single largest mobile event in the US”. The use of mobile marketing and advertising was a substantial component of how the campaign reached out to the constituency, particularly during the latter sections. All the technical support was provided through Distributive Networks, a mobile marketing platform that helped build up the opt-in list and, using previous expertise, engage voters, encourage volunteers and spread the news of the vote on Election Day. “We set up a short code for them, set up different keywords and encouraged people to text in their zip codes
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so we could make sure we were sending relevant actions to them,” explains Kevin Betram, CEO of Distributive Networks. Although John Edwards, Hillary Clinton and the Republican National Committee all launched mobile marketing campaigns during the 2008 election, it was the Obama campaign that quickly grasped how to leverage the key characteristics of the mobile strategy into the primary and general election. “Obama for America was a dream client as far as willing to try new technologies and techniques,” explains Betram. Reaching voters across demographics, interacting with them in a personal way and providing updated and real-time information that was tailored to individual users, spurred supporters to attend events, contribute funds and offer their services. The unique attributes of mobile marketing were leveraged to create a rewarding and engaging relationship between Obama for America and the voters. “When people are passionate about a brand, which is fundamentally what a candidate is, they are willing to be ambassadors for that brand,” says Betram. “We were really impressed by the way that people reacted to the mobile marketing promotion, and impressed by how immediate the effects were – we would send a text message to a particular state about volunteers and suddenly 400 would show up. It was really exciting to see the immediacy of this communication tool.”
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Mobile’s unique strengths Growing fast As mobile marketing continues to grow it becomes obvious that the platform is a key tool for the marketing sector moving forward. However, there are some challenges that need to be overcome before we see adoption across the board. “One of the disappointments is that handsets in the US aren’t as advanced as they are in other parts of the world,” says Betram with regard to the Obama campaign. “We had to avoid doing things like video and location-based services, audio was pretty limited and although the WAP site was useful, it was perhaps too plain and simple. So we had to work around the limitations of technology and focus primarily on text messaging.” But, with handsets quickly evolving it is plain to see that the technology will not remain a barrier to uptake for long, indeed emerging technology will bring yet new ways to reach the consumer. The iPhone, for example, has opened up many new opportunities, along with the new BlackBerry products and Google’s Android handset. “These phones are opening up and people are starting to realize the potential of this – they aren’t just phones any more, but small handheld computers,” enthuses Betram. Nevertheless while we see improvements to the technology there may be another challenge for the sector – the current global economic crisis. Betram believes that the current economic environment is likely to slow the adoption of mobile marketing, mainly due to shrinking marketing budgets. “It’s unfortunate because mobile marketing is probably the most effective way to drive traffic to a store or website, because it is a call to action that can support other media efforts, relatively cheaply,” explains Betram. “You have a billboard and that’s good for a branding exercise and you will probably have your domain on there, but people aren’t lugging their laptop around for the most part when they see a billboard. If you have a short code, people are much more likely to get in touch.” Mike Wehrs, President of the Mobile Marketing Association (MMA), on the other hand argues that economic uncertainty has become an incredible opportunity for those using mobile marketing
There are four channels of mobile messaging that distinguish it from other media: 1. Ubiquity: Mobile messaging is affordable for end users, and penetration in the US is 84 percent and still climbing; nearly everyone has and uses a mobile phone on a daily basis. 2. Interactivity: Mobile messaging allows for interactive two-way communication, providing instant gratification and enabling personal relationship building. 3. Immediacy: Mobile messages have the highest chance of reaching a recipient wherever they are, and within moments of being sent. On average, incoming text messages are read within 15 minutes of receipt. 4. Impact: Mobile communication spurs recipients to act, whether to purchase a product, make a donation, attend an event, share information with a friend, or any other call to action. Text message reminders have been found to increase the likelihood of an individual voting by 4.2 percentage points.
strategies. “It has become an extremely attractive place, and has many financial advantages. Mobile marketing has this dynamic in it that addresses a device that sits in an individual’s pocket or purse, allowing a message to be delivered in the context of that person’s life. It’s immediate and relevant,” he explains.
Moving forward
Whether or not the economic downturn plays a part in the adoption of mobile marketing, it is clear that it is best used in conjunction with other media channels, including broadcast and print. This is mainly because each channel has unique characteristics associated with what it can do, and in combination these techniques add up to broader and more thorough coverage of the potential consumer. In mobile, for example, there is the ability to use location-related information and so it becomes possible to tailor a specific message to a customer. “What’s key in a company’s marketing team is including Mobile developers get Microsoft boost mobile in the planning process from the outset. So, keeping in mind that when you’re designing a billboard or print In its commitment to helping developers create new and exciting mobile campaign that there is enough space for a ‘call for action’ applications, Microsoft will provide developers with 70 percent of the that can be done via mobile, or similarly that it’s included in a sales revenue of their applications from Windows Marketplace for television ad. And that you think about how to integrate proMobile, transparency throughout the certification process and guidmotions, contests, coupons or giveaways into your specific ance and support from the stage of development to the final sale to the brand and integrating that into all of the other efforts so that consumer. “Microsoft’s decades-long relationship with developers has people can act immediately,” advises Betram. led to some of the most exciting innovations the industry has seen. And, in order for people to react immediately it is We’ll continue our successful collaboration with developers through important to have a way for them to have technology that Windows Marketplace for Mobile, which will provide a broad reach to enables them to do that. “Obviously the Obama campaign customers,” said Andy Lees, Senior Vice President of the Mobile Comwas pretty high profile, and people realized how effective munications Business at Microsoft Corp. “Windows phones represent was, which means it will be seen more and more, especially an incredible opportunity for developers everywhere.” With more than as people get fatigued over email and it becomes less and 20,000 applications already in market, Windows Mobile is among the less effective,” says Betram. “It’s only a matter of time most popular platforms for developers. before people embrace mobile marketing and realize how amazingly effective it is.” n
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EXECUTIVE INTERVIEW
Managing mobility Managing the mobile enterprise is becoming increasingly challenging. Carl Rodrigues, of SOTI Inc, explains how to make the most of your mobile devices. As more advanced devices enter the market and the demand for data applications and services rise, managing the mobile enterprise is becoming even more complicated. What are the key issues for management teams to consider? Carl Rodrigues. To maximize the success of a mobile deployment, organizations must control the costs associated with supporting and maintaining their devices. Whether the devices are across the hall or across the globe, management teams must consider how they will provision devices with software and settings and how they will rectify problems on the devices when they are out in the field. These remain the most underestimated costs and least planned for challenges of most mobility projects. Data security is also critical. Sensitive customer and corporate data is being extended outside of the four walls and is at increased risk from exposure and fraud. Mobile devices can be easily lost or stolen, so the data on them and the data they have access to, must be kept secure. Industry and government legislation, like HIPAA and PCI, further demand that this data be protected. What tools are emerging to help address these issues? CR. The core challenges of maintaining, supporting and securing remote devices can be overcome with tools found in device management, or ‘DM’, software. One of the most important benefits of a DM solution is that it can automate tasks, such as provisioning software, over thousands of devices, regardless of their physical location. The helpdesk capabilities that DM solutions provide are crucial, as they allow problems on remote devices to be diagnosed and fixed while they are out in the field. Security tools are available in most DM products. However, the mix and quality of security features in each product varies. User authentication and file encryption are critical. Authentication allows administrators to re-
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strict access and assign user level policies and privileges. Encryption of data on devices and external storage protects sensitive data. Other features that provide additional control include application whitelist and blacklist, device kiosk mode, hardware feature control, etc. Together, these tools allow organizations to harvest the efficiencies that mobile technology offers. SOTI’s MobiControl Advanced DM solution provides these features, and many others like Location Services, Data Synchronization, Reporting and Automatic Diagnostics. To what extent can better management of a company’s mobile devices improve its ability to respond to clients and enhance the customer experience?
Carl Rodrigues is President, Chief Technology Officer and founder of SOTI Inc., a world leader in mobile device management and security technology. Under Rodrigues’ guidance, SOTI products and technology have received numerous awards and accolades, including most recently winning the 2008 Microsoft Impact Award for Best Mobility Solution.
CR. Ultimately, better management maximizes the uptime of mobile devices. This supports the flow of information in real-time to key stakeholders such as customers, as well as internal decision-makers who analyze it to improve the customer experience. This is particularly important in the current economic climate where competition is fierce. Can you give us an example of how your solution has been applied in a real-world setting? CR. We have thousands of customers worldwide and across all market verticals that use MobiControl to achieve their mobility targets. One of our US-based hospital customers has deployed over 500 mobile devices equipped with medical applications to enable healthcare workers to update patient notes, access lab results and search medical resources from anywhere in the hospital. Their IT helpdesk uses MobiControl to remotely provision the devices with critical updates and to fix problems in real-time. The ultimate goal, and end-result, was improved quality of care. The use of mobile technology at this hospital additionally resulted in over $3 million in annual savings as a result of eliminating paper-based processes and increased efficiency. Another customer – a popular provider of residential and commercial moving and storage across the US, Canada and Australia – wanted to achieve and maintain a competitive advantage by ensuring on-time deliveries and great customer service. Having deployed over 1000 Motorola MC9097 handhelds in their trucks and warehouses and utilizing various line-of-business applications throughout the job-cycle, they turned to MobiControl to keep devices and software working. By leveraging MobiControl’s remote helpdesk, military-grade security, software provisioning, data synchronization and scripting capabilities, they keep their trucks moving and customers satisfied. n
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TROUBLESHOOTER
Enterprise mobility Willie Jow, Vice President of Marketing and Business Operations for Sybase, shares his advice on adopting a strategic platform for enterprise mobility.
I’ve deployed many standalone mobile solutions over the past decade. A colleague suggested that we implement a standard practice for the entire organization, to reduce the increasing costs of ad-hoc mobile applications. What’s your advice for launching a rollout strategy?
O
nce viewed as novelties within corporate enterprises, mobile devices have penetrated organizations, gaining ever-increasing access to corporate applications and data and spawning increased mobile application development. It has been tactical, though, with scatterings of one-off, departmental, siloed deployments. Nonetheless, this steady infiltration, the continuous increases in mobile device power and functionality, and ever-improving wireless coverage have brought us to the point where mobile computing is now mainstream. Most important, organizations have found that extending business applications and data to mobile workers produces compelling business benefits including increased worker productivity and efficiency, reduced operational costs, more agile and timely decision-making, and increased revenue and profitability. So, it is any wonder that conversations about mobile computing are increasingly focused on how companies can integrate their de facto mobile enterprises into their larger corporate enterprises. This question becomes especially pressing when many groups of users begin
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running multiple applications that require access to various back-end systems and databases on different devices. The problem gets even stickier when end-users choose the devices they prefer and frequently replace them with sleeker, more feature-rich models. So, what are already beleaguered IT managers and developers to do? The answer, according to industry experts at firms like Gartner and IDC is to implement a mobility platform. According to IDC, “As mobile technology and customer adoption of such technology continue to move forward, it is critical today for businesses to recognize the importance of mobility as a strategic investment and a mobile enterprise platform as the core of their strategy to deploy applications to a growing set of users... The development, deployment and management of applications across a myriad of devices and back-end systems require a mobile enterprise platform.”
“Extending business applications and data to mobile workers produces compelling business benefits” The mobile platform most often described by IT analysts and other experts is a single, strategic architectural platform that allows organizations to mobilize, manage and secure data and business processes for users of virtually any mobile device.
Where to begin? Sybase, as a global enterprise mobility leader, provides a mobile platform that meets the requirements set out above, enabling organizations to implement, manage and expand their mobile computing initiatives in a coherent, streamlined, cost-effective manner.
The platform enables: • Nomadic employees to access and send email anywhere, anytime, and to do so in a secure, bandwidth-efficient way. • Mobile users to employ their email inboxes for more than just email. They can take action from their mobile devices to initiate or complete business processes such as submission and approval of expense reports, human resources requisitions and purchase orders, or to receive notifications and view CRM activities. • Developers to build custom mobile solutions as well as extend existing enterprise information and applications directly to any mobile device. • IT departments to manage, support and secure mobile devices and to enforce corporate security policies and configuration standards, perform application updates, distribute and update data and other types of content, manage connections between devices and backend systems, all from a central web-based console. These benefits are tangible, powerful and readily achievable through the implementation of Sybase’s mobile platform. The global consulting company, Frost & Sullivan, has praised Sybase’s mobility platform saying, “It is a secure, scalable mobile platform that addresses the converging IT requirements of enterprises today. It ensures that mobilized applications are as secure, reliable and available as those that are running within the data center. Backed by more than 20 years of expertise in solving mobile deployment challenges, Sybase allows organizations to integrate, extend and leverage investments in their existing IT infrastructure when developing a mobile strategy.” With mobility becoming increasingly essential and strategic to organizations’ ability to compete, the time to start planning for their seamless integration into corporate enterprises is now. The good news is that there is a proven, available platform to facilitate that integration. n
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IT MANAGEMENT
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n May 2008, Rob Reeg took over as President of MasterCard Global Technology and Operations to become the chief of IT at the US$4 billion credit and debit card and electronic payment provider. Responsible for IT operations in 210 countries and territories supporting 24,000 financial institutions, Reeg is key in preventing fraud and credit card scams and enhancing innovative IT systems. There is no doubt that IT is vital to the success of MasterCard. “We put five key functions together for our ultimate goal, which is to leverage technology to drive business,” explains Reeg. “And we have a little saying here in the technology department at MasterCard, and that’s to make every transaction more valuable.” He goes on to explain the five key functions that he looks after: one is the worldwide network, which is used to connect and process transactions around the world; then there is the delivery of customized payment solutions for business partners; followed by support for customers; technology-based payment solutions for financial institution customers; and finally the continued development of the data warehouse and business analysis that comes from that. “When we’re looking for opportunities for MasterCard to enhance our processing scale or to drive more business solutions, it always comes back to technology, and then how we link that technology with the power of the MasterCard brand to deliver solutions for our customers.”
Business benefits The business benefits of having effective IT processes in place are obvious. And Reeg also enjoys the impact these effective processes have had on differentiating the organization to become more agile, quicker to market and provide solutions while enjoying the benefits and cost savings associated with global scale, providing a localized solution for a particular business opportunity. However, that said, Reeg also faces a number of challenges regarding the maintenance of these processes. “It goes back to the demand we have from our customer base on how we provide on a global scale yet implement localized solutions. So from our customers’ standpoint we need to be global but act local – paying attention to each country’s regulatory situation and dealing in different languages, currencies and cultures – in order to put customized solution at the edge of the network that best meet our business partners’ needs,” says Reeg. In order to overcome these challenges, MasterCard has evolved its network architecture to mitigate the strengths and limitations of two network architectures – the centralized network and the peerto-peer network. The MasterCard Worldwide Network represents a unique and new network architecture in the payments industry. “The intelligence we built into our network is what makes it unique. The MasterCard network dynamically adapts processing based on the individual characteristics and needs of each transaction, seamlessly
Making every transaction
more valuable The man behind MasterCard’s IT operations, Rob Reeg, offers a behind-the-scenes overview of the systems that are so critical to the organization’s success.
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Contactless payment blending the speed and reliability of a distributed network with the real-time availability and high-volume threshold of a centralized network,” says Reeg. Secondly, from an IT management perspective, Reeg ensures that simple, easy to use processes are in place, to make processes definable and repeatable in order to understand where sticking points are and understand where there are opportunities for improvement. “We drive a lot of business process management into our systems,” explains Reeg. “We actually have a function in our IT group that purely focuses on opportunities for improvement. Whenever you’re operating on a global scale, the more you can make that a common process the better economy of scale you’ll enjoy.”
PayPass is a new contactless payment feature that provides a fast and convenient alternative to cash for everyday small purchases including subway fares and traffic tolls. Consumers simply tap their PayPassenabled card or device on a specially equipped merchant terminal or swipe their card. The feature has gained strong momentum worldwide and so far there are over 50 million PayPass cards and devices in use at over 141,000 merchant locations worldwide. “We rewrote our core processing systems a few years ago, and one of the guiding tenets going into that rewrite was the point of interaction, whether a card or fob or some other kind of contactless technology, the system would not care how the transaction came in but has all the capabilities behind it to process any kind of transaction,” explains Reeg. “That architecture has really paid off as we’ve moved into contactless as the next payment vehicle.”
Technology So, exactly what technologies does Reeg leverour customers’ sites, help them look at a problem, and then leverage age to help him remain best-in-class? On a global scale, MasterCard data in our data warehouse, to help them come up with innovative operates a network that has technology intelligence at the edge that solutions for everything from payments to customized services to can be used to route transactions. “We operate under a concept of marketing strategies, risk reduction and operations,” says Reeg. “A using best-of-breed architectures to ensure that we get the best posbig part of this goes back to having the right kind of analysts who can sible processing for our customers,” answers Reeg. “So, we have use the data we produce as a business solution.” mainframes, client server and Windows-based applications.” Virtualization has been in place for some time now, and has a Looking ahead huge part to play within the data center. “It’s a big part of our thought Reeg believes that data warehouse appliances will continue to processes behind how to reduce server sprawl advance and evolve, becoming a real touch and how we reduce the number of footprints that point in the future. “Even some of the prodwe support in the data center – allowing multiucts that you can employ now are a kind of ple applications to run on one server, integrated hardware/software soluwhich then goes back to a lesser tion in one box – they have really power requirement and improving our advanced the capabilities to leverage green footprint.” the vast amount of data that sits in MasterCard in numbers While virtualization has been a the warehouse,” he says. • $ 2.5 trillion in gross dollar volume in 2008 significant business function for the And, in terms of the future Reeg • 21 billion transactions every year payments transaction processor, the also believes that there will be a lot • Supporting 24,000 financial institutions data warehouse is a key building block of opportunity around the social • In 210 countries and territories of infrastructure for MasterCard – and networking technologies that are • 160 currencies with 21 billion transactions in 2008 it emerging. Having used collaboration • Transactions processed in an average 140 is easy to see why. “We’ve got a methtools for sometime at MasterCard he milliseconds response time odology in place that is patented to believes that social networking tools • Cards accepted at 28.5 locations, innluding actually cleanse the data, so it takes will take that to the next stage, giving 1.5 million ATMs the data that comes in from multhe company the ability to set comtiple sources and puts it in a common munities within MasterCard, really format, and through these cleansing leveraging those communities to routines we are able to take this data and make it much more managecreate knowledge bases that are much more easily shared. able for the analysts that then work on the data,” explains Reeg. “I’m really excited about wikis and blogs and the opportunities MasterCard continues to get recognized for its ability to deal with that we are rolling out now,” says Reeg, “From a solution standpoint, the amount of data it produces. However, Reeg has moved on from our ability to continue to enhance and deploy an integrated global simply dealing with that volume of data, rather he is looking at how to network gives us the opportunity to drive these localized solutions use it as a business function that can improve customer experience. that our customers need, and at the same time make sure we have One function MasterCard has crafted is called MasterCard Advithe very fast, reliable processing that contributes to the economies of sors, which is basically a consulting company. “This group can go to scale needed to perform transaction processing.” n
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ROUNDTABLE
Virtualizing your business Business Management asks a panel of experts for their thoughts on the benefits of virtualization, how to manage an effective implementation and where the future lies for the business tool. THE PANEL The potential of virtualization, when implemented correctly, is management, security and auenormous. What are the benefits of virtualization and what are tomation. Zane Adam, Senior Director of the key areas of improvement? Virtualization Strategy, Microsoft Zane Adam. The benefits vary depending on the maturity of the John Kish. Businesses that Jerry Chen, Senior Director, Enterprise IT organization. The first and primary benefit of virtualization is leverage virtualization can delivDesktop Virtualization, VMware reduction in hardware, which means reduction in hardware er superior service at lower cost John Kish, CEO, Pano Logic Inc costs, and then with that goes reduction in utilization of electriwith greater security and conJim McHugh, VP Datacenter cal power, so the consumption of electricity goes down because trol. While most businesses foMarketing, Sun Microsystems Inc of the consolidation that comes in. It is not just due to the concused initially on server Roberto Moctezuma, VP and General solidation of the servers, but it is also because of all of those reconsolidation, the same set of Manager for Desktop Solutions, HP quirements that start going down as the footprint of the servers benefits applies to desktop congo down. The datacenter can become more efficient without insolidation. Desktop consolidacreasing the footprint of the datacenter and without increasing the utilization is the ability to run the desktop operating system and applications as tion of electrical power. virtual machines on centralized servers, leaving absolutely nothing at the endpoint to manage or secure. In this model the endpoint device is not a Jerry Chen. VMware customers of all sizes across all industries turn to PC or thin client but rather zero clients that have no processor or software VMware’s industry-leading virtualization platform for the ROI of building and nothing to manage or secure. Only a zero client architecture like the the most efficient, flexible datacenters with the performance and reliabiliPano System delivers the full benefits of reduced operating costs since all ty to run business-critical applications and services. They can deliver high software assets are consolidated in the datacenter or network closet. Use availability, allocate resources dynamically and automate management of of a zero client ensures that company data is safe even if the endpoint is applications and hardware. lost or stolen. For the enterprise desktop, VMware View is used by customers to deliver rich, personalized virtual desktops hosted in the datacenter, solving Jim McHugh. Today, everyone is focused on cost savings. And with virtualfocused problems such as addressing data and access security and comization, one of the key drivers to achieve that is by leveraging workload mopliance. It enables key business capabilities such as fast and flexible deskbility. With virtualization, workloads are no longer bound to where they top provisioning for new offices or call centers, and centralized were initially implemented. Companies have the flexibility to react to business changes, by moving workloads to new machines, moving a datacenter from one place to another or a variety of other scenarios. And the benefits of virtualization are similar whether it’s server, storage or desktop virtualization. We’re seeing tremendous improvements in the number of virtual machines we can run on hardware systems, driven by more efficient hardware design as well as software improvements. The cost of storage is also coming down, and radical improvements to the software implementations are making virtual machine images consume much less disk space than before, which drives the overall costs down.
“A hosted virtual desktop solution delivers greater flexibility, but requires the orchestration of the groups that manage server, storage and network infrastructure” Jerry Chen
Roberto Moctezuma. We most often hear our customers concerned with several key
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business issues that virtualization can help resolve. The most common are compliance and security, keeping agile to ensure time-tomarket delivery of products or services, and the need for more flexible work environments for their employees. From an IT perspective, business continuity and disaster recovery, simplifying manageability, and reducing operating costs and resource consumption are the chief concerns. Client virtualization is a cost-effective tool to help businesses overcome all of these challenges.
legacy endpoint with a zero client achieve only a fraction of the return on their investment since the management burden still stretches across the entire distributed workplace.
In your opinion, how can firms ensure they have an effective implementation strategy in place? JC. Any shift in IT process requires thorough analysis of existing costs and processes, qualification of use cases, and identification of all the stakeholders. A hosted virtual desktop solution delivers greater flexibility, but requires the orchestration of the groups that manage server, storage and network infrastructure. VMware has many partners who deliver end-to-end services to customers, deploying thousands of virtual desktops to help them qualify their existing environment, design the right architecture to support their use cases, and roll out the solution to achieve optimal management efficiencies.
“Management tools and software assets purpose-built for desktop consolidation will maximize the value business derives from investments in virtualization” John Kish
JK. An effective desktop consolidation strategy complements the backend server architecture with a purpose-built client device. PCs were designed as standalone systems, and thin clients were designed for Terminal Services; neither is ideal for desktop consolidation. Clients that are purpose-built for desktop consolidation – like those from Pano Logic – are critical because they completely eliminate the endpoint from the management equation. Businesses that virtualize the desktop but do not replace the
JM. You want to work with an experienced vendor – one who understands the various requirements and can offer a complete solution. The other thing you should do is look at the before and after of the cost equation. If the solution comes at an equivalent cost to what you’re currently spending today, you’re not saving any money you’re just becoming more mobile, which by itself doesn’t necessarily justify the move to virtualization. Since virtualization is a very large area, you should set a concrete goal and look to maximize the cost savings for that goal. Don’t try to attack everything at the same time.
RM. Companies need to re-think virtualization in terms of managing and automating mixed physical and virtual environments and in terms of the full business process or service value chain. Today, most virtualization projects focus on an individual technology element or application without consideration of the broader business environment, leading to the use of different tools and processes and adding complexity and redundancy. HP’s approach starts with a look at applications and business services and carries all the way down through infrastructure and end-user computing solutions, addressing the specific needs at each level. ZA. While planning this, one of the core things to realize from an IT implementation perspective is as you virtualize, you want to ensure that your virtual environment is an open environment and not a closed, proprietary environment, so you’re not creating a virtual island. Ensure that the virtualization deployment is for the long haul and not just a point solution, which is how people have designed it in the past.
“We’re seeing tremendous improvements in the number of virtual machines we can run on hardware systems, driven by more efficient hardware design as well as software improvements” Jim McHugh
It’s been reported that firms are failing to manage virtualization, leading to virtual machine sprawl as servers are created to meet a need but are not removed when they have fulfilled their purpose. What’s your advice to firms to ensure they avoid these difficulties? JK. Virtual machine sprawl has the potential of being orders of magnitude worse when virtualizing desktops. Desktops easily outnum-
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WHAT THE ANALYST’S SAY According to new research, virtualization is being implemented in companies of all sizes. A Forrester Research report, The State of Emerging SMB Hardware Trends: 2008 to 2009,’ released in March 2009, found server virtualization being implemented in a majority of mid-market companies. The results of the survey revealed that 53 percent of small and midsize businesses have already implemented x86 server virtualization or are doing so in the next 12 months, and 74 percent of SMB respondents said they hope to lower PC costs with alternative technologies, such as various forms of desktop or client virtualization.
ber servers by at least 20 to one. At the extreme, virtual desktops can be completely disposable and may be deleted and re-provisioned after just a single use. Businesses need a system that delivers a ready-to-use work environment that is appropriate for the intended task, even though behind the scenes it is built upon multiple discrete technology components. The key to achieving this capability is the purpose-built management logic that ties the components into a co-ordinated, cohesive system. For instance, the Pano System supports pooling of virtual machines which can be provisioned to tightly match demand. The same management system controls user access and ensures users are given only the resources to which they are entitled. JM. When deploying physical hardware, there is usually a system of checks and balances that are based on cost, and this doesn’t just go away with virtualization. The same checks and balances should still be in place. If you leave a virtual machine lying around when you shouldn’t, it costs you something. Over years of working in datacenters we’ve created policies that define when we add machines, retire them, and so on, and the same rules should apply to virtual machines. In addition, there are some great products available, which administrators can leverage to help manage workflow across both their virtual and physical assets.
ZA. With the right management tools, you can track the virtual machine lifecycle from the time you’ve spawned one to the time you destroy one. We have a product called Virtual Machine Manager, which works by implementing or shutting down a virtual machine as workload is higher or lower, so that you can control the process. In real terms our customers all end up saving multiples of money, and most of the time the ROI for virtualizing is less than seven or eight months, depending on how complex that environment is. JC. Because you can provision a new server or desktop with a few mouse clicks, it is best to create a set of policies and processes to manage the lifecycle of virtual machines, from provisioning to operation to retirement. VMware offers the product VMware vCenter Lifecycle Manager to automate virtualization workflow so all virtual machines, server and desktop, are in compliance with the policies your organization sets. Gartner analyst George Weiss believes that most companies today are in the first stage of virtualization, consolidating, and virtualizing servers as cost cutting measures, typically with a single vendor. Can you explain the next phase of virtualization? JM. The next phase is really mobility – consolidating and virtualizing servers is just the first step, the next one is that developers will be creating applications specifically for these virtualized platforms. Sun believes open source and free desktop virtualization tools can accelerate this. And we believe that developers having virtualization tools available to them for free on their desktops will help propel us into this next phase.
RM. I’ve mentioned the need to dynamically link physical and virtual resources, but it’s “With the right processes, not a pervasive practice just yet. I believe that will soon change as customers realize tools and virtualization RM. Look for solution providers with offerings that are orthe value and simplicity of using the right technologies, and a proactive chestrated to work in a virtual environment and offer tools to manage virtual and physical devices approach to management, tools that let you manage physical and virtual devices in with the same people, using the same businesses can ensure that the same way, from the same interface – for example, processes, under the same governance virtualization is helping the most HP servers and blade clients are certified for comguidelines. organization achieve its patibility with leading virtualization software products Client virtualization is also emerging as business goals and from Citrix, Microsoft and VMware – and HP also offers an opportunity to achieve greater return on priorities” integrated management and business service automayour overall IT investment by improving the Roberto Moctezuma tion tools that allow you to automate provisioning, mainreliability, security, manageability and flexitenance and compliance tasks across physical and virtual bility of the computing infrastructure, while service boundaries to eliminate redundancies, enable still providing the exceptional, personal comgovernance to IT policy and drive down administration overhead. With the puting experience end users demand. This user experience will continue right processes, tools and virtualization technologies, and a proactive apto become more robust as multimedia compression and USB device manproach to management, businesses can avoid these common issues and agement continues to evolve, along with hypervisor technology and other ensure that virtualization is helping the organization achieve its business means of dividing and securing the personal and business experience withgoals and priorities. in a single, ubiquitous device.
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ZA. The next phase is managing servers, both physical and virtual, through a single pane of glass, followed by automation. Automation of the workload, is one of the core next investments you’ll see, and all those investments are actually, if you think of it from a datacenter perspective, going to make the datacenter more dynamic, which aligns to the following statements: where the IT organization can dynamically adjust to the workload or requirements of the business organization, and that’s where you’ll see more of this happen. JC. At VMworld Europe in Cannes, France, we met with customers to hear about their experiences. Many have desktop virtualization in their environments, and are building broader use cases in their organizations to reap the operational cost saving benefits on a larger scale. We are adding improvements to deliver a better user experience. With VMware View 3, released late last year, we improved end-user experience for playing rich multimedia, and when the PC-over-IP protocol we demoed at the conference is available the second half of this year, our customers will be able to deliver a truly uncompromised user experience.
In addition to technology you’ll see investments being made in how IT departments manage their virtual environment, which is a little different to the physical environment. The change management, security, process and policy management, lifecycle management, all of that is where it will evolve. There is extremely rapid deployment happening, so you’re seeing that shift from physical to virtual start happening extremely aggressively now versus even 24 months ago. JC. Today, virtualization is helping customers evolve the datacenter by eliminating complexity, enabling IT to spend less time on maintenance of applications and infrastructure by viewing all their resources as a pool, or internal cloud, that can mold to fit their business needs. VMware announced its focus on creating this new layer as its Virtual Datacenter Operating System (VDC-OS) Initiative and we expect to ship the first instantiation in 2009. With the VDC-OS, the management layer to enable service providers to deliver external clouds and federate with internal clouds, and the evolving technologies for desktop virtualization, all the elements needed to deliver IT as a service come together. IT organizations can be empowered with the flexibility to manage desktops as a service internally or in co-operation with a hosting provider, while reaping the same benefits of server virtualization.
“There is extremely rapid deployment happening, so you’re seeing that shift from physical to virtual start happening extremely aggressively now versus even 24 months ago” Zane Adam
JK. The next phase of virtualization is about the desktop. Desktop consolidation is currently lagging server consolidation by about two to three years. While the current economic malaise is slowing adoption, there is no doubt that broad based desktop consolidation is going to happen. In the near term, most businesses will adopt desktop consolidation via tactical projects that minimize capital investment and provide necessary, but not mission critical, capabilities. Integrated solutions that are easy to deploy and purpose-built for desktop consolidation will predominate. During the early parts of this phase it is important to start building the skill set so that once the capital budgets open up, you are ready to go. In your opinion, what’s the future of virtualization, and where do you expect it to be in the next 18 to 24 months? RM. I think the future of virtualization will somewhat mirror that of the technology industry as a whole, with smaller providers consolidating with the industry leaders – in this case HP and partners such as Citrix, VMware and Microsoft. This will allow each of these companies to deliver even greater value to customers with new virtual client models like enabling virtual environments directly on the client device, facilitating offline scenarios and the ability to synchronize virtual sessions from anywhere on any device. Combined with a focus on differentiation around the end-user experience, these elements will continue to fuel rapid growth in the client virtualization space over the next couple of years. ZA. We view base virtualization to be the enabling platform for the dynamic datacenter. That’s where we see the evolution before you build up with the management stack and automation stack on top of that.
JK. The future of desktop virtualization is largely about desktop consolidation. Adoption should accelerate dramatically in the next 12-24 months since the PC refresh has been deferred due to the economic malaise and businesses’ reluctance to adopt Vista. With the introduction of Windows 7 and the opening of capital budgets likely to coincide, there may be a ‘perfect storm’ resulting in the wholesale reassessment of desktop computing. Purpose-built zero clients will be the endpoint of choice for desktop consolidation as their cost is driven down, and management tools and software assets purpose-built for desktop consolidation will maximize the value business derives from investments in virtualization. JM. The next big phase is obviously the cloud. Vendors are already offering services where people can develop applications in the cloud or for the cloud. This allows a developer to take direct advantage of virtualization, instead of virtualization just being a way to access and manage an application as if it was running on physical hardware. And remember that cloud computing is not just adopting a cloud that’s owned by someone else, but also enabling organizations to create their own clouds – running behind their own firewalls. n
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INDUSTRY INSIGHT
Leveraging product information to generate sales In times of economic crisis and decreasing margins, many companies are streamlining their sales processes. Greg Wong, President and CEO of Heiler Software Corporation, explains why high quality product data is a key competitive advantage.
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ustomers are demanding more and better information from suppliers all the time. They want that information available to them at all times and in many different ways, including print, such as catalogs and sales flyers, electronic means through the internet and now mobile commerce through smart-phones. This poses significant complexity to retailers and distributors that have to manage all of this product data and provide it instantaneously to consumers in all of these different ways. This is especially true when you consider that most companies manage their data today in several different systems that are each focused on one output channel. It is typical that there is an ecommerce system and team that supports a company’s website and then a marketing and graphic artist team that supports catalogs and sales flyers. There is also a sales team that supports larger enterprise or B2B customers. Integrated Product Information Management (PIM) solutions are the key to success. They provide the combination of processes and technology to manage product data in one central hub and then synchronize it across the organization and supply chain. The goal of a PIM solution is to streamline the data acquisition process from suppliers and internal organizations, centrally manage and enrich that data, and then communicate that information in all required distribution channels in order to generate sales and market products. PIM systems cross internal organizational boundaries, providing a common view of data and a central point of truth. It enables all groups within an organization to access the same data and ensure that all customer communications, whether through the web, mobile phone or printed catalog, deliver the same message. This provides consistency and a better customer experience for consumers.
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“Organizations that are leveraging their data wisely are not only managing their own data, but also managing their competitor’s data by cross-referencing their own products” Organizations that are leading the way in product information management understand the power of maintaining high quality data and product references such as up-sell and cross-sell relationships. Extending the data management process between products is enabling companies to generate not only more sales, but higher margin sales. Leading companies like Fastenal, Coca Cola and Rubbermaid count on product information
management software. The findings of a new US market research study show that Heiler is the leading provider of integrated PIM solutions and boasts the best project experience and consulting quality. In December 2007, Heiler also reached the top of the same market research in Europe. One customer mentioned that after using the Heiler PIM suite, they were able to increase the sale of their most profitable hammers by 200 percent by simply providing its sales staff with the margin information and the advantages of one hammer versus another. Organizations that are leveraging their data wisely are not only managing their own data, but also managing their competitor’s data by cross-referencing their own products. This is enabling them to capture sales from competitors and increase market share. PIM systems are also enabling organizations to reach new customers by automating the data exchange process to various other platforms. Over the last few years, auction platforms such as eBay, online stores such as amazon.com and other aggregator or community sites such as CNET, Buy.com and shopzilla have grown at exponential rates. All of these sales channels support an automated data exchange that can be integrated into a PIM system so that all of your products can not only be listed on your own website, but also on various other sites at no additional cost. Customers are also looking for their vendors to carry more products, often in the millions instead of thousands. This is good for distributors because the top selling products typically have the lowest margins while niche products or non-stocked items secure better margins. That means the more products that an organization can sell, the higher the average margin. An effective maintenance of product information will increase sales, by catalog printing with a press of a button or maintaining electronic customer specific catalogs.
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Improving energy efficiency Martin Hanssmann, President and CEO of Millennial Net, and Rick Nicholson, VP of Research at IDC, discuss how and why energy smart businesses are reducing their energy waste and taking further steps to improve building efficiency. Volatile energy costs and a growing awareness of the climate change issue are leading many companies to re-examine their energy usage policies. Why does energy efficiency make good business sense? Martin Hanssmann. Businesses strive for predictable performance. Any volatility is an impediment to business optimization. In the commercial sector, energy is consumed primarily in buildings for lighting, comfort, data centers and office equipment. Despite all the investments in energy efficiency in new con-
struction and renovation since the 1970s, energy consumption today is literally out of control in most commercial buildings. Upon further investigation, these buildings operate wastefully because energy consumption is not aligned with need. For example, most buildings heat and cool regardless of occupancy, and unoccupied offices consume electricity in non-essential lighting and idle office equipment. Such waste yields no business benefit and is a non-productive contributor to greenhouse gas emissions. Energy smart businesses continuously reexamine usage policies to target and reduce energy waste and take further steps to improve building efficiency. Rick Nicholson. It makes good business sense for a couple of reasons. For consumers of energy – the enterprises – it gives them the opportunity to decrease their energy costs and decrease their carbon footprint. So I think those are the bottom line benefits to the consumer. The energy providers, on the other
hand, are coping with demand growth for energy, and in many cases, regulatory mandates or goals that regulators have set for energy efficiency. At the same time, they’re facing very high costs and long lead times for building additional generation. So they’re squeezed, and energy efficiency makes a lot of sense for them too. Can you give us some examples of the ways in which companies can improve their energy efficiency? MH. Energy efficiency improvements to existing buildings can be achieved in a number of ways. Recently, energy efficiency has become synonymous with larger investments, focusing on capital improvements such as replacing HVAC, office equipment, windows, lighting fixtures, roofing and insulation. These typically have paybacks of five to 10 years or more. However, there are many moderate measures with a one to two year pay back that can yield dramatic savings with minimal disruption to business operations. Today, businesses can justify energy efficiency investments based on savings and through reducing the impact that volatility has on their business. They are further encouraged by utility and government incentives. RN. The commercial sector – and by this I mean office buildings, schools, hospitals, retail facilities, etc., rather than residential or high-end industrial users – tends to be where there’s a lot of interest right now. And the areas where they could increase energy efficiency include things like commercial lighting and cooling, HVAC systems, data centers and other IT equipment. Those tend to be areas where they can get some additional savings. And that’s also where you tend to see a lot of the utilities focusing their energy efficiency programs – in promoting more sophisticated building energy
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With more than 20 years of experience in information technology in the energy industry, Rick Nicholson leads Energy Insights, one of IDC’s industry research companies. In this role, Nicholson is responsible for the company’s research-based advisory and consulting offerings.
management systems, whether that’s heating, cooling, lighting or IT equipment. Is there a role for technology here? What solutions are emerging to help companies better analyze and manage their approach to energy use? MH. Technology can play a critical role. Consider the advances made in communications and information technology since the 1970s, compared to that of energy alternatives. Companies can now measure and control energy consumption in ways previously impossible, through the combination of low-cost sensors/ controls, robust wireless mesh networks and ubiquitous access to the internet. Leveraging these technologies, Millennial Net is helping companies establish energy policies, enforce compliance, measure performance and improve continuously, based on realtime information. We see smart wireless devices as ideally suited for retrofitting existing buildings in a non-invasive approach, so companies can rapidly and affordably deploy energy management solutions across their enterprise in a consistent manner. RN. A lot of the low-hanging fruit has already been picked. And those tend to be low-tech solutions, to a certain extent – replacing incandescent lights with compact fluorescents, that type of thing. The less sophisticated energy management systems have already been installed in most of these facilities, so what we’re looking at is getting much more sophisticated around those areas of heating, cooling, lighting and managing the power consumption of IT equipment. There’s been a lot of R&D done around sensor networks that enable you to, at a
relatively reasonable cost, put a network of sensors around a building or in a data center that collect information about temperature, movement, whether people are in a room or not, etc. And these sensor networks can collect a lot of information, and use that for much more sophisticated analysis to optimize energy usage. That’s probably one of the biggest developments we’ve seen. In previous downturns, going ‘green’ was seen as a luxury that companies could not afford. Is there a danger that energy efficiency might get pushed to the bottom of the agenda given the current climate? And why would this be a mistake? MH. In an economic downturn, when companies need to cut costs and restructure, there is a tendency to evaluate investments in traditional economic terms, with less regard to long-term social and environmental costs. However, it would be a mistake to push energy efficiency programs to the bottom of the agenda. While it is true that the downturn has reduced energy prices from the extreme
highs in 2008, already we see energy prices rising again. Energy smart businesses apply technologies in a pragmatic approach to achieve significant long lasting improvements in efficiency and reduction of energy waste, typically with relatively short one to two year pay back. These companies take advantage of utility and government incentives to invest in energy efficiency programs that will enhance their competitiveness and contribute to economic recovery. Millennial Net’s solutions are a pragmatic way to gain significant savings now by reducing the cost of energy waste and ensure that this savings is sustainable over the long-term even when the business cycle improves. RN. I don’t think it will. Actually, when we did our top 10 predictions for the year, our number one prediction was that energy efficiency was going to become what we called the first fuel of choice for electric utilities. And I think it’s because of this confluence of the ability for energy consumers to save money – and in today’s environment, everybody’s looking to save money – and the situation that the utilities are in, where it’s very hard for them to satisfy demand growth with traditional means. So if it was all being driven around sustainability and going green, then I’d say yes that it would get pushed down. But if it can save people money, help them control their energy costs, then I think it’s going to remain up at the top of the stack. Now that will probably change over time, but in the current economic climate, if it helps manage costs then I think it’s going to stay at the top. n
Martin Hanssmann is President and CEO of Millennial Net, provider of commercial and industrial wireless sensor network solutions. Hanssmann has over 25 years of automation experience. Previously, he served in a variety of management roles for Brooks Automation and Schlumberger.
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ANALYST VIEWPOINT
Going green Aberdeen Group’s Jeffrey Hill explains how green initiatives are lowering costs and increasing efficiencies in the datacenter.
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ne of the most compelling aspects about going green for many companies is that the kinds of activities that support sustainability also support increasing efficiency, using resources and lowering overall infrastructure costs. This fortunate coincidence of objectives makes introducing greener concepts into an organization much easier, even for people who are doubtful about the substantive benefits of going green. For example, recycling has tangible benefits beyond helping to decrease the amount of plastic and glass plowed under in landfills. I visited a foundry that machined brass and copper fittings in the early 1970s and was amazed how much usable material was reclaimed on the foundry floor. Back then the primary aim was to reuse costly materials in the manufacturing process; now the primary might be to reuse materials and meet corporate or stakeholder expectations for being green. Both goals nicely coincide with saving money. This fortunate coincidence of green goals is highly apparent in ITorganizations and datacenters around the world. Consolidation of applications and servers through virtualization is an inherently green thing to do because fewer servers means
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lower power consumption and lower requirements for cooling, but it is also the right thing to do for cost and management reasons. Server virtualization is also about increasing overall infrastructure efficiency, and perhaps even more
software storage manager so that applications are dynamically allocated storage capacity on the basis of need is another way to increase capacity and infrastructure utilization. Using storage tiers is another way to increase utilization. In fact, one of the reasons IT organizations implement Information Lifecycle Management policies is to codify the movement from one storage tier to another. Once transactional data has lost its currency, the data needs to be moved to lower cost, lower-performance storage. In an ideal world, we would have a good understanding of what data needs to be retained, say for regulatory purposes, and for how long. Such knowledge would make buying storage more predictable, but the current flood of information generated by knowledge workers in organizations of every size makes it unlikely that companies will stop or even slow adding capacity. Even though the datacenter is a conspicuous consumer of power and cooling, most IT departments don’t see the utility bill – often that bill goes to another part of the organization. This practice is changing however, as better methods of monitoring consumption by servers and storage become available. It is estimated that only 40 percent of the power coming into the datacenter actually gets used by servers, but rising energy prices and the threat of global recession is forcing companies to take another look at consumption throughout the organization. Efficient
“It is estimated that only 40 percent of the power coming into the datacenter actually gets used by servers”
importantly, server utilization. Servers are frequently over-provisioned to support applications (for example, database) that are transactional in nature – lots of record writing and reading requires a robust server and fast storage to maintain acceptable performance. As a result, storage capacity often becomes underutilized, the opposite of what we would wish for in an efficient infrastructure model. So, consolidation of applications on virtual servers is a good way to break the IT practice of ‘one application per server’ and thus increase overall utilization. Thin provisioning of storage, in which allocation of storage is controlled by a
use of the infrastructure not only helps control costs, it also increases manageability. Organizations don’t start out being efficient; it takes a commitment at all levels of the organization to work towards efficiency. As with a green initiative, the company needs to implement a purposeful strategy of increasing utilization of existing resources. IT organizations need to incorporate the company’s strategic initiatives and goals into their infrastructure planning, acquisition, and retirement activities. In this way, IT not only makes a substantial contribution to the company’s green initiatives, it also enjoys the resulting efficiency and cost savings.
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Citi breaks A decade after it changed the financial landscape, Citigroup is falling apart. Huw Thomas traces the decline of a banking giant
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t’s been a difficult few years for Citigroup. When it was formed by the merger of Citibank and Traveler’s Group in 1998, it was envisaged as the epitome of the modern financial services firm. A one-stop shop that rolled up credit cards, insurance, retail and investment banking and wealth management under one roof. No-one had ever seen something this big before, a financial services supermarket where you could take out a loan to buy a new car, or a new company. Speaking in 1998, Roy Smith, a professor of finance at New York University, described Citigroup’s genesis as a fundamental game changer. “This new company will look more like Procter & Gamble than a bank,” he said. “That's because what is being created here is a retail-products-distribution company for people interested in financial services.” At first this bold move seemed to be paying off. Citi became the most successful financial institution in America, reporting a profit of $24.6 billion in 2005. In that year, the company took second place in the Fortune 500 list, only beaten to the top by oil giant Exxon Mobil. Fast forward to 2009. At the end of January, CEO Vikram Pandit announced losses of $18.7 billion for the previous year and that Citi
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would ‘realign’ itself into two separate sections, Citicorp and Citi Holdings. Though this is officially not yet a full-scale split, the feeling is that this is a precursor to exactly that. The fact that many of Citi’s worst performing businesses, as well as $300 billion in toxic debt, have been assigned to Citi Holdings could well be significant, particularly in light of Pandit’s stated intention to only keep the parts of the organization that ‘work.’ In any case, Citigroup’s fall from grace has been spectacular, and there is every possibility that it could yet plummet further. Was the company purely a victim of the credit crunch or one of its major architects? And exactly what were the factors that led to its decline?
“What we are doing is creating a company headquartered in the US that will be able to compete very effectively all over the world.” Sandy Weill, April 1998.
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“The specific merger transaction clearly has to be seen to have been a mistake. The stockholders have not benefited, the employees certainly have not benefited and I don’t think the customers have benefited because our franchises are weaker than they have been.” John Reed, April 2008. Upon its creation, Citigroup’s model of the all-encompassing financial supermarket was a new paradigm. In bringing together Citibank and Traveler’s Group, co-CEOs Sandy Weill and John Reed redefined what a financial organization could be. Citigroup’s birth was a key factor in the repeal of the last remnants of the Glass Steagall Act, which restricted the types of services a single financial institution could offer. This in turn effectively paved the way for deregulation and the tangled financial environ-
ment we live in today. The Act was introduced in the wake of the Great Depression in order to prevent any repeat of the large-scale bank failures of 1929, a fact that will not be lost on connoisseurs of cruel irony. But at the end of the twentieth century, the birth of this gigantic organization promised much. Economies of scale would enable huge cost reductions, while the sheer range of customers touched would provide virtually limitless options for cross selling. Citi’s share price and reported results certainly seemed to vindicate the wisdom of the model, at least at first. Nonetheless, even a decade ago, there were certain dissenting voices. “When you create these oversize companies, they become vulnerable by definition,” said Porter Bibb, a senior investment banker at Ladenburg Thalmann back in 1998. For all its benefits, the size of Citigroup does present certain disadvantages. Maintaining any sort of agility in such a monumental entity is a major challenge. The ability to quickly react to changing market requirements could leave Citi trailing behind smaller, more nimble competitors. A good analogy would be that of a supertanker and a frigate. Sure, the tanker can carry more cargo, but good luck to you if you need to make a quick turn. Weill, the architect of the Citi/Traveler’s merger, dismissed such concerns. His theory was that people simply didn’t want to shop around for financial products. If they could get a mortgage, credit card, loan and current account in the same place, then that is exactly what they would do. Such an attitude now seems dangerously misguided. The way in which the internet has reshaped not only the financial services industry, but business in general, has irrevocably changed things. Quite simply, choice matters. As the web has gained in sophistication and popularity, it has become increasingly easy for customers to shop around and find the exact products they are looking for.
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INSTRUMENTS OF DESTRUCTION In fact, technology can be seen as both one Citi’s biggest achievements and one of its greatest failures. While it undeniably has some of the most advanced and best-funded IT in the industry, this hasn’t always been to its advantage. “They spared no expense,” says Ralph Silva, a Research Director at TowerGroup. “But as a result of all this expense, the only way they thought they could make their money back was to implement this technology everywhere. Nobody had a choice.” While it might have been superior technology, it didn’t necessarily serve the specific need of every customer everywhere. When you try to make everybody happy, you often wind up making nobody happy. Compared to some of its contemporaries, Citi’s ability to respond to changing market requirements often seemed lacking. “Look at some of their competitors,” says Silva. “Often they use the same middleware software but each implementation has the ability to add in something unique to their region. Citi never had that.” While it had a far better efficiency ratio in its IT, it also had far worse customer satisfaction because it lacked the ability to make changes. These problems are only compounded by current events. Due to its sprawling technology infrastructure, making even small changes can be a slow process, often leaving it lagging behind its peers. “When the economic conditions are like they are, you need to have the ability to change quickly. I don’t think Citi have that now,” confirms Silva. But Citi’s structural problems aren’t purely a question of technology. Culturally too, it has often seemed disjointed. According to one former Citi employee now working at Deutsche Bank, Traveler’s and Citi didn’t really come together following their merger. “That the two firms were never truly integrated, and that the resulting entity become too large and cumbersome for senior managers to really understand the ground realities and operating environments, is a view that is shared by many Citibankers,” he says. “After John Reed's departure, I doubt there remained a senior manager who really
t the heart of Citi’s troubles has been the company’s heavy involvement in collateralized debt obligations (CDO), a form of asset-backed security. CDOs bundle up different types of debt with varying degrees of risk and gained a great deal of popularity during the boom time of the early noughties. Despite warnings from certain quarters (notably legendary investor Warren Buffett) that such derivatives were greatly increasing risk, the market continued to surge. In 2007 Citigroup was the world’s biggest issuer of CDOs. It accounted for 11.1 percent of the global market in the instruments, with investments totaling $49.3 billion. Unfortunately for everybody, subprime lending was a major component of many CDOs. When the bottom fell out of that market, something had to give. By mid 2008 the value of CDOs issued by Citi had dropped to just $5 billion.
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understood the firm. So long as the tide was rising, it kept lifting Citi’s boat, but at some point in time, the tide starts going out.” Considering Citigroup’s ceaseless appetite for expansion through mergers and acquisition, this scenario certainly has the ring of truth. “Citi was a huge beast, devouring very many businesses in a very short time,” agrees Bob MacDowall, another Research Director at TowerGroup. “While the legal and regulatory issues were addressed, culturally I don’t believe they were ever fully integrated.” The risk for merging institutions that fail to take differing cultures into consideration is that they simply end up running different brands. Quite simply, time and effort has to be made to stitch disparate elements together, otherwise you wind up with a single entity in name only. “When HSBC bought CCS in France, they allowed it to run independently for seven years because they felt that that was the length of time required for the cultures to merge, “says Ralph Silva. “Citi’s mentality was ‘I’ll buy you on Friday and you’re Citi on Monday.’ They didn’t give a lot of opportunity for that change.”
A CITI IN DECLINE: KEY DATES 15 Jan 2008 Reveals $18.1 billion in writedowns
4 Nov 2007 CEO Charles Prince resigns as Citi announces $8-$11 billion in writedowns
18 Nov 2008 Announces a further 52,000 job cuts, following 23,000 earlier in the year
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“We see a lot of people on the Street who are scared. We are not scared. Our team has been through this before.” Charles Prince, Aug 2007 “It is my judgment that given the size of the recent losses in our mortgagebacked securities business, the only honorable course for me to take as Chief Executive Officer is to step down.” Charles Prince, November 2007 Any institution of Citigroup’s size requires an extremely firm hand on the tiller particularly in trying times. When the bullish Sandy Weill anointed his protégé Chuck Prince as his successor, it was generally seen as a fairly uncontroversial move. The company was riding a wave of huge profits and strong share prices and Prince had been a loyal servant. It was only his lack of a heavyweight financial background that gave any pause. Besides, Prince would be backed up by plenty of people who did know the money game inside out, not least Director Robert Rubin, who boasted credentials as a former Treasury Secretary under President Clinton. But as the economic winds shifted, Prince’s suitability for the job became less certain. Reports from insiders suggest that he was unaware of the full extent of Citi’s exposure to the subprime market, only learning that the bank owned $43 billion in such assets as late as September 2007. No one was necessarily expecting him to be checking up on every calculation made by his subordinates, but such an oversight made his ousting from CEOs office a question
20 Nov 2008 Share prices slump 26.4 percent, closing at just $4.71
of ‘when’ rather than ‘if.’ “Prince understood the business but I don’t think he was the right man for the job,” says Silva. “He’s the perfect strategic thinker, in a good economic situation he was great. But in this situation what Citi needs is a three star general with battlefield experience.” What they got was Vikram Pandit, undoubtedly a competent and experienced candidate, but perhaps not one to rally the troops in such a dire climate. Since his appointment, he has continually been called upon to justify himself, both to shareholders and the industry at large. “It would be a shame to see Pandit go because I think the bank would do very well with him but in a different economic situation,” says Silva. “I think they should put him one step down, just for a while and get a Norman Schwarzkopf-type figure who has nothing to lose on a short year contact and just get it done. Right now they seem to be changing their minds as often as I change my shoes.” New chairman Richard Parsons, who succeeds Sir Win Bischoff, certainly has experience of turning failing companies around, as demonstrated by his recent work at Time Warner. However, his lack of experience in the financial space does raise some concerns. It is here that Pandit has the opportunity to prove his worth. “Parsons background might supply leadership skills but I don’t think he is going to lead the strategic initiatives,” says Bob MacDowall. “I see him almost as a mollifying figure. He has had a glittering career but not in banking so will have to work closely with the chief executive on the strategy.”
“We will continue to move aggressively to get Citi back on the right track and return it to a position of sustainable financial success.” Vikram Pandit, Jan 2009
2 Jan 2009 Citi’s top executives declare that they will forgo their 2008 bonus
16 Jan 2009 Announcement that Citigroup will split into Citicorp and Citi Holdings after losses of $18.7 billion the previous year
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CASUALTIES OF THE CRISIS Bear Stearns When Bear was forced into a sale to JPMorgan Chase in March 2008 for a paltry $2 per share, it was a clear sign that the downturn was for real. Essentially a victim of a lack of confidence rather than a lack of capital, Bear Stearns stock had been worth $175 only a year before its collapse.
IndyMac When this Californian thrift with assets of $32 billion and deposits of $19 billion was taken over by the government in July 2008, it was the largest failure of an FDIC-insured institution since 1984. It lost $184.2 million in the first quarter and dropped 95 percent of its stock price over two years. The final straw came in the bank’s exposure to the Alt-A mortgage sector.
Lehman Brothers Unfortunately for those at the 158-year old investment bank, it was not deemed too big to fail, filing for bankruptcy in September 2008. As one of Wall Street’s biggest fixed-interest traders, it was heavily involved in the subprime market. As the risks of mortgage-backed securities became clearer, Lehman’s share price dived by 95 percent and efforts to find outside investors foundered.
will have to be tempered. Citi alone have already accepted $45 billion in government bailouts. It would be astonishingly naïve to think that a new Democratic administration isn’t going to want something back in return. “At the end of the day, it’s the taxpayers money,” says Bob MacDowall. “Taxpayers have rights too and the government will want to see a return on its funds. These monies are not grants. I suspect it will be a three or five year extrication. This is not something that’s going to turn around in a year or so.” So what does a nationalized Citi look like? “If Citi is taken over, I think its international operations get sold, they get rid of all their fancy products, you will never get a discount on any Citi product and it will only be a US bank,” says Silva. From a corporate point of view that’s not great news. But for a customer who just wants to know their money is safe, it could be the best possible outcome. Just before press time Citigroup CFO Gary Crittenden was installed as Chairman of Citi Holdings, the new arm created for most of the bank’s riskiest assets. The market greeted the news with a seven percent bounce in prices of Citi stock. But it will take time before we can truly tell if this is a blip or a trend. For now, the threat of Citi’s nationalization remains very real and increased regulations are a certainty. Financial institutions are going to face fresh demands for transparency and much tighter controls on the way risk is managed and how they handle the funds entrusted to them. Citigroup, the institution that put the final nail in the original Glass Steagall Act’s coffin, could well be a key player in the birth of a new 21st century version. n
Vikram Pandit
“There must be a clear understanding that government support for any company is an extraordinary action that must come with significant restrictions on the firms that receive support.” Barack Obama, Jan 2009 So what will the future of Citi and the financial industry in general look like? “I believe that within the next three months we will have significant ownership by the US government,” states Ralph Silva. Looking at the realities of the situation, such an outcome doesn’t seem as unlikely as it did a few years ago. Citi is still carrying a lot of toxic debt and it basically has no new business. If an organization of Citi’s size isn’t growing, it is essentially running at a loss. “The economic situation has stagnated so much that they’re not growing their business, so from a revenue perspective they can barely make enough money to cover their ongoing expenses.” Right now, the only source of cash to help them meet their obligations is the state. And as long as the specter of nationalization hangs in the air, shareholders aren’t going to part with any more funds. After all, if the government steps in, investors get zero. The US has always been extremely hostile to government involvement in private enterprise, but it has now reached the point where that hostility
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Googling the economy A new book suggests that learning from the fastest growing company in history could prove key to surviving in today’s rapidly changing business environment. The question on every manager’s lips should be: what would Google do?
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ive the people control and we will use it; don’t, and you will lose us. That, according to author, blogger and social commentator Jeff Jarvis, is the essential rule of the new age. Businesses everywhere should take note. In his new book What Would Google Do?, Jarvis reveals the new challenges companies face in an economy that is experiencing fundamental changes, and how taking a leaf out of Google’s playbook could help. “The question I ask in the title is about thinking in new ways, facing new challenges, solving problems with new solutions, seeing new opportunities and understanding a different way to look at the structure of the economy and society,” he says. “I try to see the world as Google sees it, analyzing and deconstructing its success from a distance so we can apply what we learn to our own companies, institutions and careers.” In this exclusive interview, Jarvis explains just what makes the fastest growing company in the history of the world tick – and how that applies to your business.
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In your new book, What Would Google Do?, you argue that much of corporate America would be in better shape if it followed the ethos of the world’s largest search engine. Where did this idea come from in the first place? Jeff Jarvis. The moment of the title came when I was at a publishers’ conference in London about two and a half years ago, and I was trying with some frustration to tell the assembled media guys that they should stop seeing Google as a competitor and start thinking about what Google does that makes it so successful. And at the time, that was just trying to get them to think more about their own industry. But as I thought about it more and more, I saw other elements of what Google was doing that were helping to make it the fastest growing company in the history of the world, and realized that it was potentially a model for understanding the changes in our world today. That’s really the point of the book: that the world has changed – fundamentally and radically and permanently – and it’s very hard to under-
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REVIEW What Would Google Do?
On that note, our last issue looked at the travails of the auto industry. So how could taking a Google approach help shake up Detroit? In What Would Google Do? Jarvis explores JJ. I would start here: if car companies released the principles, ideas, philosophies and betas (and I’m not sure I would want to drive the worldview underpinning Google’s success. beta car!) it could let us into their design process By reverse-engineering Google, Jarvis much earlier. My favorite example of this is if discerns its core practices, strategies and they’d had the means to hear the consumer attitudes to lay out a blueprint for what years ago, most of us would have told them to corporations, governments and individuals put a 39¢ plug in the car radios to enable us to can do to build on the success of the plug in our iPods. But they didn’t have the means world’s fastest growing company. to listen to us because they thought that secrecy was paramount: that they controlled the cars, BM says: A bold and vital look at the most important challenges facing they did everything on the cars, they had the exorganizations today, this book will change the way businesses ask questions, perts, and when they were ready, they released solve problems and chart a course for the future. the car and it was perfect. Well, guess what? They’re not perfect, and they’re sitting on car lots all over the US. stand. It’s counterintuitive. But perhaps the way to address some of those So the first step is opening up the design process, and that runs so radical changes is to look at the world as Google would. And so the book contrary to Detroit’s culture. Once you’ve done that, then I think you can is really not about Google; it’s more about the changes we currently face think about cars in a new way. What if I got a car that was unpainted, for in the world. example, and I could take it to my friend the graffiti artist, and he could paint it and make my car look like no other? A silly example, but it’s the So you use Google as a signifier for a larger change in business fundastart of thinking differently in terms of platforms or even as an open mentals? source manufacturer. What if I could also put in my own seats from anJJ. Yeah, it’s about taking a different worldview and trying to understand other company or grill or dash or whatever else? What if cars were made how the internet, how technology and how globalization have changed the more like computers, and I could put in elements of my own? That would structure of our economies and society. I could have used Amazon, eBay, be a different way to look at car companies, and the truth is if Detroit did Craigslist or a number of other companies that have understood the world that, they would reduce risks by enabling other companies to build prodin a new way, but it’s hard to get anybody who’s better at this than Google. ucts on top of its platform.
By Jeff Jarvis
The current downturn is obviously challenging the traditional way of doing business. So what lessons can companies take from Google about how to operate in a fast-changing world? JJ. The most important lesson out of Google is that it doesn’t grow as other companies have done through recorded history. It doesn’t have centralized control of things; it doesn’t try to acquire its world. Instead, it creates networks and platforms that enable others to succeed, and that’s critically important. That’s a new model that I think people don’t really grasp, and Google has a different relationship with its constituents as a result. So on my blog, for instance, I have Google content of all sorts, Google functionality, even Google advertising. Google helps me succeed, and that’s important. In that new relationship, Google is more collaborative. We all have to be more transparent if we want to be found in a Google search, but one way that Google is very transparent is in rolling out beta products. What that says to users is: “This product is imperfect and unfinished; help us complete it.” I think that’s a very important lesson for companies and organizations to understand, because not only is it an act of humility and humanity, but it’s also very importantly an act of collaboration. It’s saying to the public ‘Come in to our process; help us design the products that help you by using us.’ And I argue that everything from restaurants to auto companies should be doing that.
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“If you open up to your customers, trust them and respect them, great things can happen. For instance, Starbuck’s started My Starbucks Idea where they ask customers to provide them with suggestions on how to improve the customer experience, which they then research and act upon”
So it’s bringing a much more customizable element into the process – which I guess harks back to the idea that the customer is king, that we should be giving the customer what they want? JJ. Absolutely. We’ve always said that and not meant it! Now, however, the internet enables the customer to have their say. I start the book with a story of my problems with a Dell computer and how, without meaning to, I caused quite a storm on my blog, and the truth is that customers can do this now. There’s nothing new about what we think about companies; what’s new is that the consumer now has a more powerful voice. If you see that as a disadvantage, then you basically don’t trust your customers. But if you see that as an advantage, then you’re going to find the ways to enable them to become part of the improvement process.
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If you open up to your customers, trust them and respect them, great things can happen. For instance, Starbuck’s started My Starbucks Idea where they ask customers to provide them with suggestions on how to improve the customer experience, which they then research and act upon. There are some wonderful thoughts on that service. Dell has done the same thing with Dell Ideas. So it’s not just about us complaining; it’s about us making suggestions about how to fix the problem because we’ve been given an opportunity to do so. Have you had much feedback from companies regarding your ideas? JJ. I think that they’re all a little busy with the economy collapsing around them at the moment, especially in Detroit! But that’s all the more reason why they need to think about their structure in a new and fundamental way. This is true of banking, of automobiles, of retail, insurance, you name the industry: what the financial crisis really reveals is that a great restructuring is taking place that makes new thinking all the more vital. So far we’ve talked about business, but is there anything the new administration could learn from Google? It strikes me that President Obama is one of the most Googly leaders we’ve had for a while… JJ. The campaign was very Google-like. Obama has promised to have a transparent administration; the question is whether the bureaucrats and Congress will allow him to do that, but I think he’s made a positive start: if
you’re going to be Googly in government, then you should be thinking about how to make everything in government searchable and linkable, and how we can discuss issues more openly and be involved and be collaborative. I’m not suggesting that we turn everything over to rule of the mob, but we can instead have involvement in our own government. It seems to me that two-way communication and interaction are the common themes here – whether we’re talking about business or public institutions, it all seems to come down to taking a dialog rather than didactic approach. JJ. Oh, well said, and I think that kind of communication leads to collaboration. And so finally, a question of what seems to be preposterous scope: can this approach save the economy? JJ. I think understanding the economy in new ways could save the economy, and I think Google is an example of that. But it’s not just Google; it’s the fact that the world has changed, and that’s what we have to understand. And so everyone has to develop their new worldview, which may not be exactly like Google, but you can’t assume that old models will fit into this new world. Newspapers have learned that first; magazines and television are learning that now; advertising will learn it next; manufacturing next; it’s an avalanche that’s going to hit every industry. n
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HUMAN CAPITAL
RECRUITMENT LESSONS FOR A DOWNTURN
All businesses have cycles but when a recession hits, recruitment plans will naturally be affected. So how should firms approach recruitment during a downturn?
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recession may seem an odd time to talk about recruitment. Since the start of the downturn in December 2007, 4.4 million jobs have been lost, with more than half the losses coming during the past four months; 651,000 workers lost their jobs in February alone, the third straight month in which more than 650,000 people were made redundant. The fact that unemployment has climbed to 8.1 percent is only the latest sign that the economic crisis is getting worse. But traditional layoffs and hiring freezes – the most obvious recruitment responses to a recession – may not necessarily be those that will help a firm most. All businesses have cycles – periods of sustained growth followed by downturns and periods of quiet – and it is how you manage through these cycles with an eye to emerging stronger and more agile that sets you apart from the competition. And in fact, experts insist that a carefully considered recruitment strategy is integral to surviving the difficulties of a downturn. As CEO of Heidrick & Struggles, the world’s largest executive recruitment firm, Kevin Kelly sees his fair share of corporate staffing plans up close. His verdict? “I think firms need to look at this as an opportunity to rebuild their talent pipeline,” he asserts. “For instance, we’re seeing the best organizations moving out those individuals who, long term, aren’t necessarily going to get them where they need to go in terms of their strategy; they’re upgrading their reserves of talent, rather than simply laying people off.”
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It all comes down to productivity, and ensuring the people you have are the best candidates for the job. “Even if you let go a certain number of individuals, in the current climate you could probably rehire senior level individuals who are more productive than some of the individuals you let go,” says Kelly. Such an approach means that companies need to focus more closely on identifying where their top talent lies, and incentivizing those with the right skills to stay and contribute to the future success of the firm. According to Kelly, it’s about demonstrating to your employees that you are committed to whatever strategy you have embarked upon. “Show them a clear future and how they are a part of that future,” he says. “You can’t hide in a bunker right now; get out to your offices and talk about the future of the firm, what it looks like, what you’re planning to do as an organization and how you want to get through the next 12-18 months.” For Kelly’s firm, it means a growing emphasis is being placed on retention and loyalty strategies as opposed to just executive search. “We’re seeing a fundamental shift in terms of what we’re doing as a firm,” he explains. “When companies come to us today, they no longer just want us to provide them with a shortlist of candidates, because in today’s market, candidates are fairly easy to find. Instead, they’re asking us how we can help make their company successful, and what makes a certain person the right fit for their organization. In the recent PricewaterhouseCoopers CEO survey, 95 percent of executives were concerned about retaining their key employees. So
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we’re focusing more and more on retention, development, assessment and succession planning for those key individuals. It’s not only providing an individual in the first place; it’s helping ensure their success and developing the next generation of leaders.” He sees clients falling into one of two camps. “Some are being aggressive and using the current climate as an opportunity to go out and upscale and retool their businesses. Others are going back into the trenches. However, I think those that are focusing on being more proactive – assessing and developing their people and retaining them – are going to be much better off when we finally get out of this downturn.” It’s one of the great dilemmas whenever we enter a downturn: whether to invest in future growth or hunker down and ride out the storm. So does he see any trends in terms of how companies are responding in different industries? “Biotech, technology and pharma have been more aggressive in using this opportunity, yet you still have some boutique investment banks using this as an opportunity as well,” he says. “The challenge they all have is sifting through the vast number of candidates that are out there. And that’s where firms such as ours come into play, in evaluating all those different candidates and sorting the top talent from the rest.” Other potential beneficiaries could be current business school students – along with industries outside of the typical consulting/investing sectors they generally serve. “One of the best things business school students could do for themselves is to go out over the next cou-
ple of years and get broader experience in a different industry – whether it’s technology, renewable energy, or the environmental sector – because banking will come back and they’ll be better off for having gained that broader experience.” He explains how a lot of individuals who find themselves in a leadership role grow up in a silo, whether it be marketing, finance or operations. However, more senior roles require much broader experience and a number of key skills – not least an ability to work well with people. “Around 95 percent of what you learn in business school is operations, finance, accounting and marketing, with only five percent of your time spent on people. Yet when you become a leader in an organization you spend about five percent of your time on those things and 95 percent of your time on people. Therein lies a huge problem behind some of the leadership issues we are seeing today.” Kelly believes staff development is going to be an increasing part of his business over the next few years. “There are going to be beneficiaries out of this recession and the companies that are going to do best – and I think history shows this – are those individual organizations that use this as an opportunity to grab market share,” he concludes. “Globally it’s going to be a very challenging year, yet it provides us as an organization – just like our clients – with a great opportunity to go out and potentially capture a bigger share of the market. And that’s really exciting.”
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ASK THE EXPERT
The recruitment black hole Jason Kerr, founder and CEO of QuietAgent, reveals how recruiters should be focusing on utilizing advanced matching capabilities to find the best candidates for new positions.
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uring these tough economic times, most companies have a recruitment problem. I can hear the readers shouting now, “A recruiting problem? We’re not hiring.” This is a common misconception. Most large and mid-sized companies are always hiring, either to take care of turnover or to scoop up a star employee from a competitor. In the current economic environment, more and more jobseekers are applying to fewer and fewer roles, which leads to a number of problems. First, your internal recruiters are inundated with resumes, which they need to sift through.
The black hole of recruitment isn’t just an HR problem, it’s a marketing problem as well. Today’s job seekers are current and prospective customers, as well as being future job seekers. One major bank discovered that two-thirds of its applicants were account holders at the bank. Imagine the damage that can be done to a company’s brand, its relationship with its customers, and its future revenue, by perpetuating the black hole. Better candidate care leaves seekers feeling good about your brand as a possible employee and customer. This improved treatment is not altruistic, it is good business.
“In the current economic environment, more and more jobseekers are applying to fewer and fewer roles” Most of those resumes are not qualified or appropriate, but companies don’t communicate with them, leaving them in the so-called ‘black hole’. Lastly, because of government compliance rules, these resumes sit inside a corporate applicant tracking system (ATS), driving the costs of these systems through the roof.
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To combat the brand damage caused by the recruitment black hole, 100 of America’s leading companies have come together to form AllianceQ, powered by online recruitment company QuietAgent, Inc. AllianceQ enables the member companies to provide jobseekers with the opportunity to be matched to more appropriate posi-
tions with other employers. By providing ‘continuing care’ for candidates, AllianceQ members substantially enhance candidates’ opinions of the company, a huge benefit to future recruitment efforts as well as providing a positive experience for current and prospective customers. In addition to the brand protection benefits, the members of AllianceQ get dramatic recruitment benefits. Utilizing unique candidate matching technology from QuietAgent, members are able to source candidates from each other, lowering costs substantially. Most importantly, the candidates are precisely matched to the members’ job openings based on skills and career ambitions. This matching is done in an automated fashion, which hugely increases recruiter capacity and simultaneously reduces time-to-fill and overall recruiting cost. QuietAgent’s Q-Filter technology offers companies a solution to address the escalating costs and the flood of resumes. By reducing the candidate flow to only the best matched candidates, QFilter significantly increases the performance of an applicant tracking system, reduces ATS hosting and data storage costs, can reduce privacy and data compliance issues, and significantly frees up recruiter time, in some cases, by more than 80 percent. Q-Filter enables recruitment to be a ‘laser’, not a shotgun. Employers can search to find jobseekers who are well qualified, and want to do the job. Utilizing advanced matching technology from QuietAgent, both employers and jobseekers do less work for a more relevant result in less time. Auto-Search agents continually look for (your definition of) the best candidates and can automatically ‘invite’ them to apply to your jobs. Your ATS now contains only those candidates who are qualified and interested. QuietAgent provides companies with next generation matching technology, a huge source of candidates through its partnership with AllianceQ, a system for candidate care. Using QuietAgent, companies can cost effectively and continuously source the best candidates as well as taking care of candidates and customers for the future. n
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INDUSTRY INSIGHT
returns home and the aircraft flies back empty. If two hours of flight time are required each way, eight hours would have been put on the aircraft and it would have been tied up for two or three days. With eight meetings a year, they would put 64 hours on their aircraft, which would fly empty half that time, for just one director. We created the Supplemental Lift program to fly one-way trips most efficiently. In this case, we could provide transportation for each director on whatever Citation model is appropriate, and the company would be billed only for the four hours the director is aboard the aircraft. This could result
Flying high With aviation costs rocketing it has become increasingly important to reduce capital expenditure while retaining executive travel requirements. Steve O’Neill, founder and CEO of CitationShares, explains how.
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n 2000, I started CitationShares with a group of friends. We had six employees, three aircraft and worked out of a hangar at Westchester County Airport. We sold fractional interests in King Airs and operated exclusively in the Northeast United States. A lot has changed since then; as a division of Cessna Aircraft Company, we now operate Citation aircraft exclusively with a fleet of 82 Bravos, CJ3s, XLSs and Sovereigns. Our workforce is comprised of 650 employees and our principal product lines have expanded from only selling fractional shares to jet cards and whole aircraft management offerings. While our operation has undergone dramatic changes, our entrepreneurial spirit and commitment to our customers has not. We continue to provide our customers with the safety, value and flexibility they expect, and in the economic climate we face today, we are more conscious of that than ever. One of the primary targets of criticism today has been the corporate jet. Many companies are frowned upon for owning a private aircraft and consequently, are being forced to divest their asset, which will seriously impact the efficient
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movement of executives who travel regularly. Our hope is that this trend eventually slows but in the meantime, companies that operate aircraft will have to carefully evaluate how they are being utilized. With that in mind, CitationShares has developed a strategy to assist corporations weather this economic storm. Our goal was to develop innovative, cost-effective programs that allow companies to continue using private aircraft but in a more sensible and efficient way. One such program is our Supplemental Lift program, which helps corporations reduce capital expenditures and operating costs while still meeting the travel requirements of their executives. The program gives them access to all aircraft in our fleet, with the flexibility to select the most cost-effective aircraft for each mission. The program includes all-inclusive, one-way pricing, with discounted rates that are 12 percent less than CitationShares list prices. Here’s an example of how this program provides a benefit. If a company provides transportation for their directors to attend board meetings, chances are they will have to fly a deadhead leg to pick a director up. After the meeting, the director
in substantial savings for a company, while still meeting their private travel needs. Our objective is not to replace corporate flight departments; rather it is to work hand-in-hand with them to become a sensible addition to it. Through the Supplemental Lift program, companies don’t own the aircraft, CitationShares does. Companies don’t invest in these aircraft, they remain on our books, and billing is based on a simple pay-as-you-fly basis. We aim to reduce costs, complement an existing fleet, and provide executives with privacy and convenience. Despite the intense scrutiny companies with corporate aircraft are facing, there is still a need for private jet travel to maximize efficiency for those who travel regularly to conduct business. Those who fly privately have long understood the benefits – the flexibility, the access to remote airports, the time savings and the privacy that commercial airline-flying cannot provide. CitationShares remains committed to supporting our customers with innovative solutions that meet their private travel needs and providing them with the tools they need to make intelligent and cost-effective decisions for themselves and their companies.
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WELLNESS
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Battling boardroom burnout As the country slides into a deeper recession, burnout becomes a reality for many. However, dealing effectively with the first symptoms can lead to increased self-awareness, a renewed sense of direction, energy and enthusiasm.
xecutives are facing the toughest economic situation since the Great Depression. Growing demands on services, staff layoffs, salary freezes and shrinking budgets, are all adding up to a huge amount of stress – is it any wonder that executives are feeling the burn? We all deal with stress in our lives, it is part of everyday life, however, working long hours for sustained periods of time under pressure leads to mental and physical exhaustion – a century ago Robert Yerkes and John Dodson definitively showed that there is a tipping point where stress detracts from performance. It is vital to recognize the symptoms before this exhaustion leads to breakdown or burnout, with early signs including, insomnia and depression, extreme tiredness and fatigue, heart palpitations, inability to focus and migraines. Burnout takes a hefty toll on job satisfaction, performance and retention, as well as health and well-being, indeed, stress has long been linked with many ailments, including heart attacks, high blood pressure, hypertension, allergies and skin disorders. In fact, 75 to 90 percent of employee visits to hospitals are for stress related symptoms. And as excessive workloads and unrealistic targets come off the back of the deepening recession, it is par for course that the average employee is dealing with above average stress. By learning the skills you need to perform under pressure, you can help deal with stress and anxiety, as well as improve your employees wellbeing. Firstly, managing workload is key. This can be fought on three levels, over-commitment, resource issues and focus problems. Over-commitment often stems from an inability to draw boundaries and say no to unrealistic requests. By concentrating on resource issues you can delegate work to others and make sure you are effectively using the tools that are available. It is imperative to focus correctly, perhaps you are simply responding to emails coming in rather than managing your time according to priorities, or procrastinating on things that are difficult. The second weapon against burnout is around embracing renewal. There is no doubt that hard work is critical to success but it is just as vital to renew, restore and rejuvenate your body and mind. Short-term look at building quiet time into each day, just 15 minutes a day of meditation or listening to soft music will work wonders. Longterm, take vacation time and enjoy yourself, look at filling in time with adventure and rest. The key is to stay healthy – eat light, nutritious meals, exercise and make sure you are getting enough sleep. Thirdly, evaluate your work/life balance and ensure you are doing the right work for you. Bob Burford, business leader and best-selling author talks about a “smoldering discontent” that many workers feel after realizing that they have spent decades building lives of success but not significance. Find ways to work everyday that serve your
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family, workplace community or cause, and choose a role within an organization that has a mission or culture that fits to you. A healthy team is a happy team. Companies that invest in the psychological health and wellbeing of their staff will undoubtedly see the benefits of increased productivity and employee retention. It has been proved that stress-free staff will perform better, work harder and are generally happier in their working environment than those that feel undervalued and overworked.
Top 10 Tips to beat burnout
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Learn to delegate Learn to say no Work in a physically comfortable environment Plan your day Take a 15-minute power break each day Avoid caffeine Take regular exercise Keep your sense of humor Introduce monthly stress buster meetings Remember your staff are your best asset
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Healthy body, healthy mind In a difficult economic climate it becomes even more important to make sure that you are well rested for the testing months ahead. Business Management explores three of the top spa retreats in the country, giving you perfect the excuse for a well-deserved break.
Mayflower Destination Spa, New England Within the superb setting of the New England countryside in the idyllic town of Washington, Connecticut is the divine Mayflower Destination Spa. The luxury spa is designed to offer the ultimate in personalized spa experiences and offers an unparalleled paradise to soothe, refresh and rejuvenate both body and mind. Outside are 58 acres of breathtaking gardens, and beyond lie the Steep Rock Nature Reserve and Shepaug River. As well as spa treatments the retreat also offers a number of tools and strategies to quiet the mind and relieve tension including body image appreciation, music therapy and flower arrangement.
Auberge Spa, California Nestled in the verdant hills of Californiaâ&#x20AC;&#x2122;s wine country the Auberge Spa at Auberge du Soleil is truly paradise. The spa, which overlooks the Napa Valley, embraces a nurturing philosophy designed to relax and pamper, utilizing natural ingredients indigenous to the region. Inspired by the small luxury hotels of the Mediterranean, the result is a secluded, discreet and elegant hotel over 33 acres of olive grove and vineyard-filled land, with unmatched privacy and pampering.
Spa at Mandarin Oriental, Florida The 15,000 square-foot Spa at Mandarin Oriental is an award winning sanctuary and Miamiâ&#x20AC;&#x2122;s only five-star spa. The one-of-a-kind spa combines traditional relaxation therapies and modern-day comforts, resulting in an indulgent and luxurious experience. There are 17 private treatment rooms, including six stunning VIP suites, with floor-to-ceiling windows overlooking the stunning bay. Bamboo, rice paper and natural linens are all used within the fabric of the building, contributing to the ambience of total harmony.
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IN REVIEW
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ON THE SHELF From leadership lessons to customer service and going green, Business Management reviews the best of this quarter’s business book releases.
Inside Steve’s Brain
Business Lessons From Steve Jobs, The Man Who Saved Apple, by Leander Kahney In Inside Steve’s Brain, Kahney distills the principals that guide Jobs as he launches killer products, attracts fanatically loyal customers and manages some of the world’s most powerful brands. The result is a unique book: part biography and part leadership manual, a revealing analysis of one of the critical business figures of our time, with some interesting nuggets of information about what makes him tick. BM says: A fascinating look at the thought processes and inspiration behind the man responsible for the success stories of both Apple and Pixar. A worthwhile, informative and concise read for anybody looking to learn more about Jobs.
Delivering and Measuring Customer Service By Richard D. Hanks
Author Richard Hanks sets out to provide a complete and comprehensive guide to delivering and measuring customer service, and as such this book is all about tactics and execution rather than the strategy and academics of customer service. Full of practical and specific advice on customer service, this guide discusses such matters as securing accurate feedback and how best to use that feedback, along with many more general tips – why guess a customer’s experience when you can ask them outright? BM says: A unique, interesting and informative book that is full of useful advice and information that managers can start acting on straight away – a must-have guide for any business with customer service or support teams.
The Green Guide For Business
The Ultimate Environment Handbook For Businesses Of All Sizes, by Chris Goodall A whole heap of businesses claim to be ‘green’ but how much of this is true is anyone’s guess. Slashing carbon footprint is about more than just switching to a few low-energy light bulbs – it’s about changing your whole mindset. Author Chris Goodall, an expert on climate change solutions, guides you through cutting carbon and costs with advice on everything from ‘green’ computing and data centers to recycling and reducing office travel. It also features scores of case studies to help you learn from other people’s successes and mistakes. BM says: An informative book that illustrates how making a few simple changes can have a massive impact on your carbon output. A good read.
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FEEDBACK
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Little mileage in auto bailout Only bankruptcy can save Detroit’s underperforming carmakers now, argued senior editor Ben Thompson in the last issue. But what did you think?
Last issue’s cover story (and subsequent blog discussion on our website, www.busmanagement.com) on why bankruptcy would be better for Detroit than a government bailout certainly rattled a few cages – our inbox was inundated with responses pointing the finger of blame at everyone from shortsighted management to complacent workers to out-of-touch unions. But the most surprising element? That pretty much all of you agreed with us. I guess we need to work on our distribution in the rustbelt… Jana Grune, Online Editor Even if the automakers do go bankrupt and then return with a comprehensive recovery plan, I think it is simply too late for the US industry. Even Japanese car companies like Honda and Toyota, which have been ahead for years, are now struggling. What hope does the antiquated US industry have of catching up in such a difficult climate? US automakers missed their chance to innovate when times were good; neither bailout nor bankruptcy is likely to save them now. Joachim Getz, Los Angeles, CA Let them sink. You can’t bail out everyone who starts pleading poverty. First it was the banks, then the auto industry; where will it end? Paul Jameson, Toronto, ON The competency of the companies to successfully use any bailout money leaves the taxpayer hanging in the balance. Now is not the time to be saving mismanaged industries at the taxpayer’s expense. Christine Devaux, Charlotte, NC Unfortunately it is the poor workers at these companies that are suffering the consequences. Any government cash should go directly into their pockets – not into the pockets of the fat cats that got the industry into this state in the first place. Jomo Herald, Miami, FL Obviously mismanagement has played a part, but equally culpable are the archaic, selfish unions that have not given an inch, to their long-term detriment. Their shortsightedness and inability to compromise shows a complete lack of understanding of the bigger picture. The blame is equal – the only difference is, even in times of crisis (like right now), the unions still refuse to budge. Pure stupidity. Rolf Jungkvist, Minneapolis, MN
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You talk about the workers as if they’re innocent victims in this mess, but surely we’re all complicit in the success or failure of the companies we work for? Those union employees on wages way above market rate were happy to take the money when times were good. It’s the same in the financial sector. It’s all very well blaming the banks for getting us into the subprime mess, but they weren’t the only ones to gain from the days of easy credit. Everyone benefited from the boom, and few stopped to question where all this money was coming from or what it would lead to. Who’s more at fault: those who lead people into trouble, or those who blindly follow? Jaime Wisniak, Boston, MA
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AWAY ON BUSINESS
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36 hours in San Francisco Business Management finds out how to make the most of your downtime in the tech capital.
Sleep The St Regis is situated in the popular South of Market district and is where Al Gore and Google creators Sergey Brin and Larry Page crash when they are in town, so you know you are in good company. Stay in an Astor Suite, they are strategically located on the corner of every floor, and have sleek floor-toceiling windows, framing the stunning views of San Francisco’s skyscrapers. Alternatively the Hotel Vitale on the Waterfront is known to draw the venture capitalist crowd and is a boutique spa hotel to boot, with outdoor deep soaking tubs and a penthouse level yoga studio with terrace.
St Regis guest room
Eat Asia de Cuba, the hip Clift Hotel’s restaurant, is located in the Theater district where you will regularly spot the financial set enjoying breakfast meetings. Its speedy service and delicious food make it an absolute must. The elegant Boulevard restaurant situated in the Financial district has long been a place to woo or be wooed by clients, but make your reservation in advance, this place gets booked up quickly. However, if you fancy something a little less formal, eBay, Hotmail and Netscape were all brought into this world at Buck’s, a kitsch restaurant/ diner in Woodside, and although much is made about the tech clientele, it is a fine spot for breakfast, lunch or dinner.
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Hotel Vitale’s Cielo Terrace Studio
Buck’s
Asia de Cuba
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Time off If you want to take some time off from work, the best way to do some sightseeing is by air, and the San Francisco Seaplane Tours are the ideal charter service, with high wings and large view windows with un-tinted glass. Another way to get around the city is by bicycle, and who better to show you around than Bay City Bike, a tour company specializing in cycle trails around the city.
Getting out and about
Cafe culture
Drink Ritual Coffee Roasters in the Mission district is a great place to grab a coffee – the baristas take their coffee making very seriously – and the crowd include web techies on their MacBooks, indeed Flickr founders held their early meetings here. If late night drinks are more your style then Vessel is the place to see and be seen. The boutique lounge is located in the heart of the Union Square district and has some great signature cocktails.
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FINAL WORD
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A new way of working Second Life encourages a more collaborative way of working, with businesses able to try ideas very cheaply without having to make huge upfront investments. But can it help companies survive the recession? CEO Mark Kingdon thinks so.
Linden Lab is always thinking big, even in the most challenging of times – which is why Second Life is leading the evolution of virtual worlds today. Like many businesses, we are approaching the current economic downturn with a careful strategic focus. We have been profitable for some time, and are continuing to grow our revenue and our user base. We’ve added more than 100 employees in the past year, including several new executives, and are in a very strong position with an experienced and knowledgeable team. Our strong balance sheet allowed us to make two strategic acquisitions earlier this year to expand our virtual goods e-commerce business. Do we see this as a crisis or an opportunity? Well, if you look back at other economic downturns, there are certain things that people continue to do for entertainment, often staying at home and going online. Recently, we’ve seen a significant growth rate in user engagement – residents are spending an increasing amount of time in-world, reaching 112 million hours in the last few months of last year alone, and we’re seeing new peak concurrencies, surpassing 85,000 people in Second Life at one time. Another trend we’ve seen during economic downturns is that people look for extra ways to make money. Second Life is a great place for a second job. Residents create and sell unique content within Second Life itself. In fact, more than 18,000 merchants sell virtual goods in our e-commerce marketplace, XstreetSL. Second Life also offers fantastic benefits to the business world as companies are tightening their belts and looking for
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ways to cut costs. It enables businesses to conduct virtual meetings in-world, which reduces unnecessary travel time and expenses.
“At a time like this, every little bit helps, and we expect that the real world economic woes may well be the making of a Second Life boom” A fantastic example of this is IBM’s use of Second Life. In late 2008, IBM held a Virtual World Conference and an Annual Meeting hosted in a secure Second Life environment with a conference space specially designed by IBM for keynotes, breakout sessions, a simulated Green Data Center, a library and various areas for community gathering. The 200-plus
participants were offered pre-conference training on the basics of Second Life to make them comfortable communicating and navigating within the environment. At a time like this, every little bit helps, and we expect that the real world economic woes may well be the making of a Second Life boom. IBM estimates the ROI for the Virtual World Conference was roughly $320,000, and that the Annual Meeting was executed at one-fifth the cost of a real world event. Focus is the most important thing. When it comes to managing through a recession, do what matters most. Focus on things that will move the needle. Stay close to your people. And communicate even more than you would normally. I’ve been through several downturns and I’ve found it’s a time of opportunity if you are focused and determined and keep your head. If you panic, you’re done. If you’re cool and collected, focus on the basics, prioritize and execute well, you win. n
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