BMUS 16

www.busmanagement.com • Q3 2009

SMARTER PLANET HOW SAM PALMISANO’S VISION OF AN INTELLIGENT FUTURE IS SAVING THE WORLD, ONE BYTE AT A TIME... (P34) HASBRO’S TOY STORY How Brian Goldner transformed the company’s fortunes (p46) TOMORROW’S WORLD Will next generation technology revolutionize how we work in the office of the future? (p52) WELCOME TO THE JUNGLE Amazon CTO Werner Vogels on IT innovation (p68) STATE OF THE UNION Is organized labor killing US competitiveness? (p92) LAND OF OPPORTUNITY Why business in Iraq is finally starting to flourish (p126)

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ED NOTE BMUS16:june09 07/07/2009 13:23 Page 7

FROM THE EDITOR 7

Making the world go round Can greater intelligence help provide the solution to today’s most pressing challenges?

I

f space travel had been possible 100 years ago, those early astronauts would have seen the light from 16 concentrations of a million or more people. Today, the crew of the space shuttle can see 450 such shining cities on the globe – the economic, governmental, cultural and technological power plants of an increasingly urban age.

The pace of such development is staggering.

At the turn of the last century, only 13 percent of the world’s population lived in cities. Two years ago, for the first time ever, more than half of us were urban dwellers. And by 2050, that number will rise to 70 percent. We are adding the equivalent of seven New Yorks to the planet every year – and putting a huge strain on the planet’s resources and infrastructures in the process. Managing such complex systems in the future is going to take a much smarter approach than the ones we are currently using. And in this issue’s cover story, we look at one company that believes it has the answer.

IBM’s Smarter Planet initiative works on the principle that building greater intelligence into our

“The first decade of the 21st century has been a series of wake-up calls with a single subject: the reality of global integration. We are all now connected – economically, technically and socially” Sam Palmisano, CEO at IBM, on building a smarter planet (p34)

complex networks of devices and sensors can lead to smarter ways of operating. With technology being embedded into everything from cars, appliances, cameras, roads and pipelines to medicine and livestock, we can collect and analyze greater volumes of data and use it to our advantage in the way we manage the world around us.

The benefits of such an approach are already being felt. Transportation officials in Singapore, Brisbane and Stockholm are using IBM systems to reduce both congestion and pollution. Public safety administrators in major cities like New York and Chicago are able not only to solve crimes and respond to emergencies, but to help prevent them.

A large hospital organization in Paris is implementing an integrated patient-care management solution to facilitate seamless communication and track every stage of a patient’s stay. Smart water management in the Paraguay-Paraná River Basin of Brazil is helping to improve water quality for São Paulo's 17 million residents. While in Malta, the government is implementing the first countrywide, integrated smart water and electricity sys-

tem to monitor and manage natural resources more intelligently, and at the same time enable its citizens to make energy choices that are more cost-efficient and environmentally friendly.

Sometimes, a problem seems so insurmountable – so challenging – that it is hard to know where to start in solving it. The issues seem so many and so complicated that it often becomes easier to bury your head in the sand and ignore the problem, or pass the blame on to the next likely candidate. IBM has taken a different view, and is leveraging its huge scale, resources and capabilities to make a difference. It is also opening up huge revenue opportunities for itself in the process.

The ability to identify where those opportunities lie is what seperates the best from the rest.

So think: where can you make a difference?

“We asked a lot of questions. We challenged ourselves. We brainstormed. And really from that moment in time we have been working together with the filmmakers to tell the story. It’s been a great partnership” Brian Goldner, CEO at Hasbro, on working with Hollywood (p46)

“In terms of our personnel, we look for a very particular individual: they need to be able to think in the way that the customer thinks; it’s important to have a culture where everybody understands the core values” Werner Vogels, CTO at Amazon, on being customer-centric (p68)

Ben Thompson Editor

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CONTENTS BMUS:july09 07/07/2009 13:20 Page 9

CONTENTS 9

A world of difference

68 Welcome to the jungle Amazon’s Chief Technology Officer Werner Vogels is focused on transforming the internet behemoth into the world’s most customercentric organization – and is using innovation to help him get there.

Can greater instrumentation, interconnectedness and intelligence be used to help make the world a better place? IBM certainly thinks so, and is betting billions to prove its point.

Business Management reports on how Big Blue is saving the planet, one byte at a time.

34

52

46 Brand transformer Hot on the heels of its latest box office smash, Hasbro’s charismatic CEO Brian Goldner explains why there is more to the toymaker than meets the eye.

Tomorrow’s world By 2020 stockbrokers will be replaced by robots and offices will only exist in virtual worlds. Or at least that’s what the experts think. Business Management looks at how you could be doing business by the year 2020.

CONTENTS BMUS:july09 07/07/2009 13:21 Page 10

CONTENTS 10

The X-factor

The silver lining to cloud computing

100 66

78

How to market in hard times

44 Still playing catch-up

GOLD SPONSOR

100 The X-factor

According to new research, energy efficiency is still not a priority for US consumers

Just how did Xerox ensure such a smooth succession plan?

61 CPM in a changing business environment

106 Communicating the vision

Jon Kondo explains how to best deliver corporate performance management

84 Optimizing digital asset management

62 Customer experience counts

Melissa Webster talks about the increasing emergence of DAM

With Aberdeen Group’s Ian Michiels

Gary Burnison shares his thoughts on leadership skills

108 Moving into the spotlight Dr. Relly Nadler explains the importance of directing a leadership spotlight

88 Driving change 66 How to market in hard times Luke McKeever reveals why optimization is key to marketing in a tough climate

Assign an energy czar to drive IT and facility improvements, recommends Kenneth G. Brill

92 State of the union 76 Blue sky thinking With VMware’s Wendy Perilli

Is organized labor stifling US companies’ ability to compete?

78 The silver lining to cloud computing

96 The game-changing potential of HR

Business Management weighs up the value of implementing the latest storage solution

Why the HR department could decide the fate of their firms in these tough times

ASK THE EXPERT 58 Christian Ofori-Boateng, ChristianSteven Software 60 Willie Jow, Sybase 64 Joe Barrett, Quantum Art 82 Chris O’Malley, CA, Inc. 90 Major Baisden, Iris Data Services

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CONTENTS BMUS:july09 07/07/2009 13:21 Page 12

CONTENTS 12

110 Putting muscle behind executive education

IN THE BACK

Beth Cliff reveals why executive education is worth the investment

112 Out of sight, not out of mind Why corporate alumni networks are increasing in popularity

114 A change of focus Kodak’s Jeff Hayzlett explains the role of social media in communicating with customers

118 Chain of command Why supply chain visibility is vital for CEOs

122 Improving procurement Procurement could maximize business performance, argues Joseph Raudabaugh

124 What’s in a name?

Executive health

Seattle

136 Executive health: Retreats 138 On the shelf: Book reviews 142 36 hours in: Seattle 144 Final word: John Amaechi John Amaechi

Satyam had its woes, but remember the context, says Ovum’s David Mitchell

126 Rebuilding Iraq

Willie Jow

Is now the time to finally put Iraq on the business map?

60 112

The game-changing potential of HR

96

Out of sight, not out of mind

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Ritz Carlton, Marina Del Rey • California

13 – 15 October 2009

Chairman/Publisher SPENCER GREEN Director of Projects ADAM BURNS Editorial Director HARLAN DAVIS

Next Generation Utilities Summit The Next Generation Utilities Summit is a three-day critical information gathering of C-level technology executives from the utilities industry.

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A Proven Format

Terrific oppatunities to ‘Speed Date’ potential business partners in a cost effective, highly efficient format which is run very well.

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Editor BEN THOMPSON

Associate Editor REBECCA GOOZEE Deputy Editors MATTHEW BUTTELL, NATALIE BRANDWEINER, DIANA MILNE, JULIAN ROGERS, MARIE SHIELDS, HUW THOMAS

Creative Director ANDREW HOBSON Design Directors ZÖE BRAZIL, SARAH WILMOTT Associate Design Directors MICHAEL HALL, CRYSTAL MATHER, CLIFF NEWMAN Assistant Designer ÉLISE GILBERT Online Director JAMES WEST Online Editor JANA GRUNE

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This inspired and professional format has been used by over 100 CIOs and CTOs as a rewarding platform for discussion and learning.

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Finance Director JAMIE CANTILLON Production Coordinators HANNAH DRIVER, HANNAH DUFFIE, JULIA FENTON Director of Business Development RICHARD OWEN Operations Director JASON GREEN Operations Manager BEN KELLY Subscription Enquiries +44 117 9214000. www.busmanagement.com General Enquiries info@gdsinternational.com

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Excellent format, highly productive and informative with a great mix of current state and future state reality based research and experience.

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The advertising and articles appearing within this publication reflect the opinions and attitudes of their respective authors and not necessarily those of the publisher or editors. We are not to be held accountable for unsolicited manuscripts, transparencies or photographs. All material within this magazine is ©2009 BM.

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UPFRONT BMUS 16:25 June

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UPFRONT ANALYSIS

16

IT ALL ADDS UP President Obama’s American Recovery and Reinvestment Act promises a major boost for infrastructure funding. But does it go far enough? And does that matter?

At a time when the US is facing the worst economic conditions since the Great Depression, President Obama’s new administration an-

nounced the American Recovery and Reinvestment Act (ARRA).

Faced with a huge hole in the nation’s finances the government is

aiming to tackle unemployment and Infrastructure is penciled in to restimulate the economy by spendceive around $100 billion of this ing its way out of trouble. money, which will be doled The ARRA offers out to projects that are TheARRA offersatotalof a total of $787 billion ‘shovel-ready’ and to be spent on everyable to get moving thing from tax relief without delay – tobespentoneveryto healthcare and edspeed of action is key thingfromtaxrelief ucation. This is a headto providing the immetoeducation line-grabbing figure, diate stimulus the country particularly in the wake of the desperately requires. billions of dollars pumped into the fiThere are those who argue that nancial system of recent years. the amount of money earmarked for

$787 billion

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UPFRONT ANALYSIS

17

infrastructure projects is insuffiwhat at odds with the administracient, given the nation’s pressing tion’s claims that the Recovery Act needs. In its 2009 Report Card for can revolutionize the country in the American Infrastructure, the long-tem. No innovative energy American Society of Civil project or paradigm-shifting piece Engineers (ASCE) was scathing in of construction is going to be able to its assessment. The US, it contends, get moving in the narrow window is a D student when it comes to the allowed, rendering the ARRA state of its infrastructure. According something of a missed opportunity. to the ASCE, $2.2 trillion dollars Despite the strict time limits need to be spent over the next five placed upon ARRA infrastructure years to remedy the situation. The funding, fears remain that the amount between what it says we wheels of government will grind need and what the government is too slowly for the act to be truly efproposing to spend is striking. fective. Ron Utt, Research Fellow at Taking ARRA money and regthe Heritage Foundation, cerular spending into actainly believes so. “The count, the shortfall is money is going to be somewhere in the spent extremely region of $1.1 trilslowly. The new needstobespent lion over the next program requires overthenext five five years. If this somebody to sit yearstoremedythe figure is anywhere down and write the situation near accurate, then regulations as to who’s from an infrastructure eligible. How you submit a perspective the ARRA is little more bid, what sorts of things are acceptthan a band-aid on a wound that able, what we’re looking for, how requires surgery. will rewards be granted, and then In addition, the way the give everybody a chance to remoney is being made available is sponse to these.” being criticized as is the need for Regardless of the strengths speed. A key criticism is that the and weaknesses of the administraARRA wants to focus on projects tion’s response to the economic crithat are shovel-ready in order to sis, the stimulus finds do represent tackle unemployment and stimua considerable opportunity to late the economy. But while getting strengthen the nation’s infrastrucwork underway is vital, for those ture – surely something is better tasked with actually carrying out than nothing? As a result of the the projects it could led to major huge bank losses and previous govchallenges. With the stipulation ernment bailouts, we have become that work be able to get underway increasingly blasé about figures that within 120 days, there is precious seemed almost too big to comprelittle time for states to come up with hend just a few years ago. Indeed, any truly ambitious plans. whichever way you slice it, $100 bilTherefore much of the ARRA lion is a fair wad of cash, even if it funding will go to projects that were only allows us to clear the backlog previously overlooked due to either of projects already on the books a lack of cash or lack of interest. and put us in a position to invest in That’s not to say that today’s truly innovative ideas once the ecoprojects are not necessary but nomic dust has settled. While it’s rather patching up roads and not $2.2 trillion, perhaps we should crumbling bridges seems somestop worrying and start doing.

NEWS IN PICTURES

US Secretary of the Interior Ken Salazar announces $260 million in economic stimulus projects from the ARRA to help California address its long-term water supply challenges

$2.2 trillion

President Obama marked the 100th day of the ARRA by highlighting the development and use of geothermal and solar energy

The ARRA will invest $19 billion in computerized medical records, $1 billion for research and $500 million to help train the next generation of doctors and nurses

Construction workers paving a section of Route 101 in New Hampshire, one of 10 early highway stimulus projects initiated by the state

UPFRONT BMUS 16:25 June

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UPFRONT NEWS & NUMBERS

18

GM: A BANKRUPTCY IN NUMBERS

$82.2 billion: $172 billion: 463: 450 million: 235,000: 91,000:

total assets at time of filing total liabilities at time of filing number of subsidiaries

access 6% Gaining to capital

13%

44% Attracting new business

Managing your people

number of people employed worldwide number of US employees total monthly wages for US employees

493,000:

total number of retirees, all receiving benefits amount spent on third-party parts and services

11,500:

number of GM suppliers in North America

$20 billion:

amount received in prebankruptcy government financing

$30 billion:

further funds pledged by President Obama to assist the turnaround

14:

On the Business Management website (www.busmanagement.com) we asked: What’s your most pressing business concern at the moment?

total number of cars and trucks produced since 1908

$476 million:

$50 billion:

THE RESULTS ARE IN…

number of plants set to close under bankruptcy plans

21,000:

number of US layoffs expected as a result of reorganization

1100:

number of GM dealerships set to close

33% 4% Fulfilling existing contracts

Investing in future growth

WEATHERING THE SLUMP Ford of Europe is getting through the global auto slump better than most rivals due to a coincidence in schedules. Four years ago, Ford scheduled the redesign of its Fiesta and Ka brands to be released in Autumn 2008 and as luck would have it that was exactly the same time that governments from Germany to Serbia started offering cash to consumers who traded in old gas-guzzling cars for new, fuel-efficient ones.

Western A: Volkswagen European B: Ford Market 11.7 Share C: Opel/Vauxhall D: Fiat 2009 10.3 E: Peugeot F: Renault * 2008

9.0

8.5 7.7

8.1 7.5 6.9 6.9

A

B

C

D

*Peugeot sold slightly more cars than Renault in absolute terms.

Source: European Automobile Muanfactuers’ Association

E

7.3

7.7 6.9

F

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UPFRONT NEWS & NUMBERS

19

TOP 10: GREENEST CITIES A big congratulations goes out to all the cities that made Greentech Media’s top 10 greenest cities list published in May – with a special mention to California who secured the top three spots. San Jose top the list for one of the nation’s most aggressive green initiatives, the Green Vision program, with a 15-year goal that includes: creating 25,000 cleantech jobs; reducing per capita energy use by 50 percent; diverting 100 percent of waste from landfills, receiving 100 percent of electrical power from clean renewable sources; and ensuring that 100 percent of public fleet vehicles run on alternative fuels.

And while there are some obvious choices on the list, tiny Greensburg in Kansas has launched a plan to resurrect their town as the greenest in America.

After being decimated by an F-5 tornado, leveling the city and leaving few homes standing, all new buildings are to conform to LEED platinum standards. Now, two years after the disaster, the new homes in Greensburg are almost 50 percent more energy-efficient due to energy-saving windows, improved insulation and efficient heating.

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7 8 9 10

AROUND THE WORLD IN 80 DAYS

San Jose CA

Palo Alto CA

Berkeley CA

Greensburg KS Our guide to the last quarter’s global events – and their impact on your business.

Gainesville FL

AustinTX

Boulder CO

Burlington VT

MadisonWI

New York City NY

MORE SPACE AT MYSPACE MySpace, the social networking website owned by Rupert Murdoch’s News Corp., has announced plans to cut about two-thirds of its international workforce and close at least four of its offices outside the US. The restructuring plan would reduce international staff from 450 to 150.

These cuts come after announce-

ments to reduce US staff numbers by around 30 percent to 1000 people. “As we conducted our review of the company, it was clear that internationally, just as in the US, MySpace’s staffing had become too big and cumbersome to be sustainable in current market conditions,” MySpace Chief Executive Owen Van Natta said in a statement.

MISSLE THREAT

INFLATION DROP

North Korea reportedly threatened to launch a ballistic missile in the general direction of Hawaii, prompting the US to beef up military defenses. It remains to be seen if it will carry out it’s threat, but either way it is certain that the government is unstable.

BM impact rating: ****

Prices in Japan fell by the most on record in May, raising fears of a new bout of deflation. After the country’s “lost decade” in the 1990s it seems Japan could collapse further into a deflationary spiral. An uncertain time ahead.

BM impact rating: ***

EXPORT RESTRICTIONS

FUNDING UP

China is investing billions in infrastructure, stockpiling key raw materials and placing restrictions on purchases of foreign goods, using the downturn to strengthen its industrial competitiveness.

Our prediction? Further friction with the West.

BM impact rating: *****

Banks are back to funding renewable energy projects again – at least in Europe – with a whopping $14.4 billion in new projects assigned.

Globally, investment hit $24.3 billion, down 33 percent from a year earlier but up 83 percent from the first quarter this year.

BM impact rating: ****

UNEMPLOYMENT RISING

GREEN FLIGHT?

The number of Americans filing for initial unemployment insurance has risen unexpectedly to 627,000, with the government reporting that 6,738,000 people continuing to file unemployment claims, indicating that the labor market may take longer to stabilize than first thought.

BM impact rating: *****

Australia has announced plans for a new nationwide system of flight navigation that promises to slash annual carbon emission by 122 million tones, while saving airlines 39 million kilograms of fuel per year. Climate change will be a key driver in the years ahead.

BM impact rating: ****

UPFRONT BMUS 16:25 June

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UPFRONT MARKET UPDATE

20

THE ROAD TO ENERGY INDEPENDENCE?

FACILITATING HIGH PERFORMANCE Fostering a work culture that values and cultivates collaboration is the backbone of team building. True to the Web 2.0 philosophy, the values of collaboration and cooperation lie at the heart of today’s high performance teams. By leveraging social software tools, managers can quickly and easily set up and coordinate project teams to meet deadlines, deliver results and develop best practices along the way.

Here are some tips on how to use social software to help you cultivate high performance teams.

Audi has launched an aggressive public awareness campaign in the US to highlight the ways in which TDI clean diesel can help America achieve energy independence. Ranging from television ads to a social media-driven charitable donation, the campaign will kick off a summer-long push to change public perception of the once-maligned diesel engine.

“Energy independence and fuel efficiency are at the forefront of public debate, and with the launch of the Q7 TDI clean diesel, Audi is introducing a viable solution into that national discussion,” said Johan de Nysschen, President, Audi of America. “Several solutions for reducing America’s dependence on foreign oil have been introduced, but few are as convenient, accessible, and fun as simply switching from regular gasoline to clean diesel.”

Not only do the statistics on clean diesel show a dramatic change from the smoky, noisy and

dirty diesel image of the past, but these truths prove that diesel is a viable, ready-to-go solution for reducing America’s dependence on foreign oil.

“Many Americans still don't understand the benefits clean diesel provides,” said Scott Keogh, Chief Marketing Officer, Audi of America.

“That's why Audi developed an intensive campaign to spread the truth about TDI technology. Central to our message is this point: With far lower carbon emissions and far better fuel efficiency than gasoline, it can truly be said that diesel is no longer a dirty word.”

Launched in June, the Audi multimedia campaign to educate America about the benefits of TDI clean diesel includes advertisements at fuel pumps around the country, a television advertisement, a ‘Truth in Diesel’ viral video and a Facebook cause campaign in support of reducing carbon emissions.

TDI clean diesel: THE TRUTH A US EPA analysis found that if one-third of Americans fueled their cars, pick-ups and SUVs with clean diesel instead of gasoline, the United States could send back 1.5 million barrels of foreign oil per day One drop of diesel fuel has 12 percent more power than one drop of gasoline TDI clean diesel engines reduce carbon emissions by 20 percent over gasoline engines If one-third of Americans switched from gasoline to clean diesel, it would be the equivalent of planting 2.2 billion trees

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Make your team’s expertise highly transparent.

Encourage your team members to fill out their business profiles in detail to align and cross reference areas of expertise, interest and experience.

Ensure from the outset that you establish high levels of communication. This is crucial because establishing trust is based on open communication.

Move away from traditional, hierarchical organizational models. These can foster distrust and a competitive, unproductive team environment. Concentrate on cooperative models.

Make sure that everyone has a clearly defined role on your team. Engagement and involvement are integral to your team’s success.

Encourage collaborative leadership models within your organization. Your executive management team should display leadership with frequent communications (blogs, forums).

Collect and distribute your best practices. One of the key benefits to a social software system is the ability to establish, store and share standard operating procedures (wikis).

Appeal to the guidance of professionals to help educate your team members. As social software tools gain acceptance, guidance from experts is necessary to ensure return on investment.

Provide a consistent level of resources and support. One of the best ways to diminish motivation and hamper productivity is to expect people to perform without the tools and resources they need. Make sure that everyone on your team has access to the information and the tools they need to perform.

Discover more: www.igloosoftware.com

UPFRONT BMUS 16:25 June

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UPFRONT MARKET UPDATE

21

OPTIMISM IN THE HOUSING MARKET? A Harvard University report has reported that the ages of 25 to 44, numbering over five million people children of baby boomers will eventually resusci- more than their parents in the 1970s. The group is tate the US housing market, but that in the mean- thoughtto bolsterdemandfor thenext10yearsatleast, supporting the sagging housing market, even if time, limits on income and credit are immigration drops, claims the report. sustaining the three-year bust.

The childrenof However, there are a myriad of Despite unprecedented efforts by challenges ahead that the housing the Obama administration, the market has not experienced for over highest unemployment in almost 60 years. There is no doubt that the 26 years, record foreclosures and willeventuallyresuscirigid lending threaten to overcome tatetheUShousing housing crash caused the longest recession since the Great Depression and as a emerging home sales progress claims market healthy housing market is integral to a growthe report.

Harvard’s State of the Nation’sHousing2009re- ing economy it seems that it will be some time before port believes that ‘echo boomers’, the children of the seedlings of recovery blossom into post-World War Two baby boomer generation, are anything further.

baby boomers

GLOBAL PERSPECTIVE The month of May saw the launch of BM’s new sister magazine Business Management Europe, with one of the cover articles featuring an exclusive interview with Rio Tinto’s CEO for Energy, PRESTON CHIARO. Speaking at their London headquarters, an ebullient Chiaro revealed that being at the sharp end of the company’s global operations is where he feels most at home. “Visiting the mines is one of my favourite parts of the job. I like to see the equipment working and I like to see, literally, the shovel contacting the coalface – that’s the fun part of the job.”

To see more about Rio Tinto’s global ambitions, go to www.bme.eu.com

Microsoft’s new search engine Bing secured

8.23% of all US-based searches for the month of June

FAST FACT

entering the peak home buying and renting

DIGITAL DRIVING ENTERTAINMENT GROWTH According to the PricewaterhouseCoopers Global Entertainment & Media Outlook, the entertainment and media (E&M) market, including both consumer and advertising spending, will grow by 2.7 percent compounded annually for the entire forecast period (2009-2013) to $1.6 trillion in 2013.

Though the current economic downturn has impacted virtually every sector of the E&M marketplace, says the report, it has also accelerated and intensified the digital migration among both providers and consumers of content. The switch to digital will drive divergences in revenue performance between different segments and geographies, however.

Marcel Fenez, Global Leader Entertainment & Media practice at PricewaterhouseCoopers, says: “Companies who grasp the opportunities in this fast changing marketplace will be able to take full advantage of the potential and new revenue models as they emerge.”

Consumers are adopting “time-shifting” and broadband penetration to get what they want from wherever they want. In addition, growth in mobile access is allowing consumers to access the internet from any location, giving rise to the popularity of smartphones, iPods and the Kindle that combine mobility and access.

The advances in digital music are also allowing consumers to purchase songs individually through digital channels (unavailable in physical format) and generating growth in sideloading, which allows consumers to buy music less expensively online and transfer it to mobile devices.

Over the next five years, predicts the study, advertisers will shift their resources to reflect the increasinglyfragmentedadmarket.Inthemobilearena, advertising continuum opportunities will enable the growthbetweenbrandsandconsumers,rangingfrom click-through banner ads and pre-roll ads on video clips through coupons and online subscriptions.

Source: Research Brief from the Center for Media Research

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UPFRONT COMMENT

22 A PERFECT STORM

Leading America’s largest electricity generator with over 39,000 miles of network, MICHAEL MORRIS, CEO of American Electric Power, explains why AEP remains a key utility player and why it is a great time to be in the industry.

If Michael Morris is concerned also owns the nation’s largest by recent power industry develelectricity transmission system, opments, he’s not showing it. a nearly 39,000-mile network The media claim the energy that includes more 765 kilovolt sector is at a crossroads; soaring extra-high voltage transmission domestic demand, coulines than all other US pled with an uncertransmission systems tain regulatory combined. In pure AEP’s performance environment, business terms, isimpressive heightened AEP’s perforwithlast year’s awareness as mance is just as revenuesexceeding to the environimpressive, mental effects with last year’s of power producrevenues exceedtion and the increasing $12.6 billion. ingly large capital Energy crisis? Not at AEP. investments needed to address these challenges, are all heaping Addressing AEP growth at a repressure on America’s power cent shareholder meeting, producers. The IPCC’s latest Morris said that actions taken in report into the effects of clilate 2008 and early 2009 were mate change has also added felt to assure the company’s stafurther fuel to the debate over bility in these weak economic the direction the industry conditions and have it posishould take next. But ask the tioned to resume growth when AEP Chairman, President and the economy recovers. He credCEO whether such concerns its the finance committee and keep him awake at night and board of directors with moving he’s pragmatic in his response. early to take down lines of credit “They certainly are challenges,” that had been negotiated back in he says, matter-of-factly. “But 2005/2006. As an A2P2 credit we’ve overcome some pretty rated utility the company, like big challenges over the years other utilities around the US, deand will overcome them again pend on commercial paper to in the future.” fund the day-to-day operations

$12.6 billion

Perhaps he’s right to be so confident: his company remains one of the largest electric utilities in the US, delivering electricity to more than five million customers in 11 states. AEP has more than 38,000 megawatts of generating capacity – placing it amongst the nation’s largest generators of electricity – and

of a business for paycheck, to pay for coal as it is delivered, to pay for transporters, in fact the entire business.

“Worried that this might not continue through an extended credit crunch, we took down those lines of credit,” explains Morris. “We then moved quickly into the equity markets in Q1

’09 to take advantage of what we saw as an opportunity to put additional equity into the system and help balance out the debtequity ratio in our balance sheet.

Those steps put us in a very unique space, and we feel comfortable that we are financially healthy and prepared to move back to substantial capital investment if and when the retail market comes back and we begin to see the cash flows that we counted on.”

mately over time we have knitted that together.

“American Electric Power’s transmission grid also handles about 10 percent of all the electricity that flows across Texas, so it seems we will be a major player, no matter how this unfolds. And therefore, it’s very important to our customers, very important to the states we serve and very important to our shareholders because we see it as a real potential growth opportunity in an earning sense.”

Nevertheless, there are still challenges are out there, even for a company with such significant Looking to the future, Morris reach and with the financial believes that it is a great time to backing in place. According to be in the utility business, not recent forecasts, the US grid is least because of the improvegoing to add 20 percent of new ments in technology and the pousers in the next 10 years. AEP, tential for change towards of course, will have a major role renewable energy. “My timeline to play, so just how is the will be up in 2011, and that’s grid going to cope? pretty sad because, “The grid is able quite honestly AEP’s to handle that. there’s no better transmissiongrid handlesabout Clearly, whentime to be here. ever the AEP I’ve seen lots of forecast enerups and downs, ofalltheelectricity gy growth over but we’re there. that flowsacross the future, Having had the Texas they’ve always been chance to do a wrong, so they’ll be University Listening Tour wrong again,” replies Morris. throughout much of ’08, I’ve “There are some very important seen a technologically well-adsubsets, though, to what we need vanced generation coming to do. When we had the ’03 outthrough and I’m a firm believer age, a lot of people said we had a in the creativity of the American Third World grid. That just isn’t way of doing business. It is this accurate. What we have is a very generation that will solve the bifurcated grid. It was built not problems we have with reneweven regionally. It was built very ables now as we go forward, so locally as each utility served their it’s a really interesting time to be own individual needs, and ultia part of the business.”

10%

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UPFRONT COMMENT

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UPFRONT FIVE-MINUTE EXECUTIVE

24 MICK BUCKLEY,President of business news channel CNBC in Europe,on the challenges of keeping his audience happy.

The credit crunch has been a complex story to explain to our viewers. It’s fair to say that regulators, senior business people and viewers alike have been challenged by the complexity of some of the financial instruments involved. The speed and the extent of the financial crisis and now the economic crisis have taken everybody by surprise.

We have a huge responsibility to actually get our coverage right. We’re not a general news channel with a broad-based audience. Our audience is made up of senior, multi-private investors and financial investors. It terms of what we want it’s data. But data is available everywhere so what we seek to give them is the story of what’s behind that data – what are the big macro trends by sector.

With fragmentation in the digital space it’s really important that you have a valuable niche. We have the most valuable audience in television. We have an audience that everybody aspires to in terms of their quality. We are happy understanding who our audience is and programming to their needs.

Last year we changed CNBC Europe to simply CNBC to reflect the increasing need for pan-regional and global business news. When we launched the channel 10 years ago there was a need to differentiate our European programming, but since then so much has changed in the way we do business. Every story we cover has global implications and the adjustment to the brand reflects this.

I’m very attentive to what’s going on with our advertising sales. Things look pretty good for this year. We’re not in a local country retail advertising space; we’re an international channel and we have a really good diversified portfolio of advertisers from a sector point of view as well as from a regional point of view.

I wouldn’t describe this as a stressful job because it’s something I really enjoy. My background is commercial and I’ve worked in television my entire career in a variety of places. Clearly the biggest pressure of the job is the responsibility of making sure that our coverage is the best.

Frost & sullivan ad:18oct

1/7/09

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UPFRONT THE UNCOMFORT ZONE

26

ness and thus her voice. log the little ones, because they She told me her story over a are so easy to forget or overlook, couple of beers after work. It was and yet they carry tremendous the fall of 1984, and I was a fellow weight when it comes to giving waiter at the restaurant; just anourselves confidence. other struggling artist in the city You say, “I’m just starting that never sleeps. She explained out and have no accomplishthat she got nervous during her ments.” That just means you’re audition and couldn’t hit the high not looking in the right places. notes. She would get one more We all have successes, some of chance to audition, but she them may be found in difwould have to wait an ferent areas of your life. entire year.

I often read in the “Out of ROBERT WILSON I never found Wall Street Journal allthepeoplewho haveeverlived, out if she made it; about women DEFEATING THE DE-MOTIVATOR as a writer my art who, after years as The sweet strains of a Puccini aria is portable and a stay-at-home haveattainedwhat cut through the Saturday night few months later I moms, return to Iwant?” clatter of the busy Italian restaumoved to a city the work force in rant in New York City, but it waswhere they still have a well-paid management n’t coming from the aging voice of bedtime. I suspect she did, bepositions. They acquire these the Sicilian baritone who was cause that night she received a jobs by citing in their resumes the hired to belt out favorites like proof – a vital beginning step. many skills and achievements Funiculi-Funicula. It was a sopraDoubt is a silent killer. We they learned through their volunno whose crystal clear voice filled transmit feelings of doubt to othteer work. What talents are you the room. Within moments all the ers through subtleties in our racking up through your hobbies ambient noise came to a halt. body language, facial expression and leisure activities?

Diners stopped eating and talking, and tone of voice. It is picked up Sometimes proof comes to busboys stopped clearing tables, subconsciously by those with us by comparing ourselves to the cooks even came out of whom we communicate. others. Simply ask yourself, “Out the kitchen.

Worse than that, we of all the people who have ever Singing on the communicate it to lived, how many have attained tiny stage was the ourselves, and it Doubt isthe what I want?” The sheer numskinny moonseeps into our bers alone will often be all the faced waitress performance. proof you need. andalltoooftenit from Ohio. The Doubt is the deWhen all else fails, fall back preventsusfrom Sicilian heard she motivator and all on faith.

Some of the most suceventrying studied opera, so he too often it prevents cessful people in the world had invited her to join him, us from even trying. absolutely no proof that they but what began as a duet We all suffer doubt occacould achieve their dreams. All ended in solo as he too was messionally, and its cure is always the they had was a strong desire and merized by the beauty of her same: proof. Proof that we are ina belief in themselves. As Martin voice. When she finished, the deed talented enough to do what Luther King, Jr once said: “Take place thundered in applause and we set out to do. A proof doesn’t the first step in faith. You don't I saw tears of gratitude glistenneed to be big to eliminate doubt. have to see the whole staircase, ing in her eyes. She had hit each A series of little ones can be just just take the first step.” note perfectly. as effective.

Robert Evans Wilson, Jr. is a If only she had done that I keep a journal – a log – of motivational speaker and humorist. when she auditioned for the accomplishments both small and He works with companies that want to be more competitive and with Metropolitan Opera. But she large, because they all add up to people who want to think like innovators. For more information on choked, flinched, allowed a seed of reasons for believing in my abiliWilson’s programs please visit doubt to creep into her consciousties. It is especially important to www.jumpstartyourmeeting.com

how many

de-motivator

IN QUOTES On June 29, Bernard Madoff was sentenced to 150 years in jail for orchestrating the biggest self-confessed fraud in US history.

“The message must be sent that Mr Madoff's crimes were extraordinarily evil. This kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll. I simply do not get the sense that Mr Madoff has done all that he could or told all that he knows.”

DENNY CHIN, US District Judge “From the moment I learned from my husband that he had committed an enormous fraud, I have had two thoughts. First, that so many people who trusted him would be ruined financially and emotionally, and second, that my life with the man I have known for over 50 years was over.”

RUTH MADOFF, wife “He stole from the rich. He stole from the poor. He stole from the inbetween. He had no values. His was a violent crime without the use of a tangible weapon. My life will never be the same. I am financially ruined and will worry every day about how I will take care of my wife.”

TOM FITZMAURICE, investor “I will live with this pain, with this torment, for the rest of my life. I live in a tormented state knowing the pain and suffering I have created. I cannot offer you an excuse for my behavior. How do you excuse betraying thousands of investors who entrusted me with their life savings?”

BERNARD MADOFF, defendant

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UPFRONT MARKET ROUNDUP

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Temperature, humidity, electrical sub-meters and other wireless sensors can be online within minutes to measure and record energy consumption. This real-time data clearly shows energy consumption patterns to identify areas for savings, faulty equipment, or failure to follow energy guidelines.

Go to our Energy Savings Assessment Request page www.millennialnet.com/contactus/ and find out if you are one of the many companies sitting on multiple opportunities to reduce energy waste and inefficiencies that can save thousands of dollars per year with relatively little capital investment. Millennial Net has developed an energy savings assessment program to help you determine the potential for savings.

27

PERSONAS INSPIRING SUCCESSFUL INNOVATION Successfulinnovation goes beyond the best investment, technology, research and designers, according to Booz Allen Hamilton’s report The Customer Connection: The Global Innovation 1000. “Unless their R&D efforts are driven by a thorough understanding of what their customers want, their performance may well fall short – at least compared to that of their more customer-driven competitors,” the report says.

It’s essential to be crystal-clear about what customers buy. They don’t buy a product or service per se; rather, they buy a desired endresult. Customer experience personas capture the intertwined inherent emotional and functional value judgments, or metrics, for a solution’s ability to meet the intended end-result. Ethnographic and metaphor-based research is particularly useful in gaining a deep understanding of the full customer experience for persona development.

Customer experience personas are instrumental in growing a customer-centric culture and in-

volving the entire organization in ongoing customer-focused innovation of business processes and policies in support of the brand promise. Segmentation by circumstances, rather than demographics, is the best way to align innovation to desired end-results.

Re-framing competition by circumstance-based customer end-results helps the organization see things from the customer’s perspective. It enables a new vantage point on the value proposition and innovation opportunites.

Although the iPod was a late market entrant, it was the only solution delivering the desired endresult – the ability to legally buy single songs and share playlists – thereby becoming the market leader and outpacing Apple’s core business. Customer experience personas provide new perspectives for innovative business models, products, services, affinities and conveniences. Companies that find superior ways to deliver the desired end-result are the natural market winners.

See the e-handbook Innovating Superior Customer Experience for both internal and external customer experience innovation templates at www.clearaction.biz/innovating

DESIRED END-RESULT

FAST FACT

What customer buys

US unemployment hit

9.5% in June – that means nearly one in 10 willing workers don’t have a job

Emotional Functional Usage end

Need awareness

Circumstances

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UPFRONT PROJECT UPDATE

28

THE ROAD TO RECOVERY Are we are on the brink of a rebound?

These are the top seven signs that show we just might be.

IHS Global Insight has noted that single-family home construction may be stabilizing.

Ray Boulger at broker John Charcol says: “It took six to seven years for average property values to fall around 15 percent in the last recession and recovery was also slow. The 20 percent fall we have seen in the space of 21 months could mean a more rapid recovery.”

HOUSING STARTS

Wall Street closed its first positive quarter in more than a year and a half on 30th June, backing up hopes for economic stabilization.

The Dow Jones industrial average rose 11 percent during the second quarter, it’s biggest quarterly jump on a percentage basis since 2003. Investors have largely left behind the fears of a severe global recession that sent stocks to their lowest level in 12 years in March.

Stocks are up more than 30 percent since then, and both the S&P 500 and the Dow have recouped most of their losses for the year.

STOCK MARKET UP

Figures for the Conference Board’s Consumer Confidence Index in February marked an historic low of 25.3 – a reading above 90 means the economy is on solid footing, and above 100 signals strong growth. May figures jumped to 54.8, showing a marked increase in consumer confidence.

And while June’s figures dropped back to 49.3, Brian Bethune, Chief Economist at IHS Global Insight, believes that figures will hover around the 50 and 60 marks this year. He anticipates a moderate recovery in consumer spending this year but no significant rebound until 2010.

CONSUMER TRUST

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UPFRONT PROJECT UPDATE

Manufacturing shrank less than forecast in May, spurred by the first gain in new orders since the recession began, in a sign that companies are increasingly confident the slump will end this year. “The manufacturing outlook has improved significantly,” said Ellen Zentner, a Bank of Tokyo-Mitsubishi UFJ Ltd. senior economist in New York.

Still, “with the absence of household spending, we just can’t have a robust recovery. All eyes are going to be on how the economy will fare toward the end of the year” as analysts gauge the impact of fiscal stimulus measures.

NEW ORDERS UP

29

The number of people on the unemployment insurance rolls fell slightly for the first time in 20 weeks at the beginning of June.

At the same time the government claimed that the tally of new jobless claims also dipped. The Labor Department report provides a glimmer of good news for job seekers, despite the fact that both drops were small and the figures remain significantly above the levels associated with a healthy economy.

Global economic growth in the first months of 2009 was characterized by persistent financial tensions. However, in May the spread of banks’ credit default swaps in the US reached its lowest level since the demise of Lehman Brothers. Banks are starting to trust one another again. In May, the three-month London interbank offered rate (Libor), a benchmark for interbank loans, fell below one percent for the first time on record.

That was down from 1.16 percent a month ago and 2.51 percent six months prior.

US stock futures rose, indicating the S&P 500 Index may extend its biggest quarterly rally since 1998, after better-than-estimated results from Apollo Group Inc. and H&R Block Inc. spurred speculation that earnings are strengthening. The S&P has climbed 16 percent in the quarter, the steepest advance since the fourth quarter 1998, as reports signaled the recession is easing. “We are looking forward to a good third quarter and ending the year with gains,” said Andrew Popper, Chief Investment Officer at SG Hambros in London. “I don’t think we will see the same kind of soaring stock prices that we saw in the second quarter. We have come from a situation where the market was discounting a very deep depression to a situation where market participants are now seeing the economy going through a recession in the immediate future but then a recovery.”

FIGURES DROP

INCREASED CREDIT

HIGHER EARNINGS

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UPFRONT RESEARCH ROUNDUP

30

PLANNING FOR CEO SUCCESSION STARTS YESTERDAY Managing the CEO succession process is a sion procedures. It should also outline priorboard’s ultimate responsibility, and a closely itized capabilities and qualities required in followed succession plan is essential to sucthe next CEO, given the company’s evolving cess. The costs of shortchanging this process direction and strategy. This aspect of the plan can be high if an organization is caught off also forms the basis for ongoing assessment guard; the reward for planning is also high, of the company’s senior management resulting in continued momentum as it to ensure there is a strong and relevant moves from one leader to the next. talent pipeline.

“The challenge is to make Russell Reynolds Associates “By succession planning an ongoguides boards through the dethe time a ing process,” says Clarke velopment and implementaMurphy, Managing Director tion of the plan including the plan is needed it is and global head of the use of external benchmarking far too late to start CEO/Board Services Practice in the selection of a finalist builing one” at executive search and assesscandidate and the key elements ment firm Russell Reynolds of a successful transition. Well-exeAssociates. “Boards need to integrate it into cuted transitions include structured knowltheir oversight role and not let other issues edge-sharing between the outgoing and push it off the agenda.” Murphy and his colincoming CEOs and adequate opportunities leagues in the CEO/Board Services Practice for the incoming CEO to build support and have developed a comprehensive guide for goodwill with the board, investors, employboards to regularly review their current sucees and business partners. cession plan and ensure that it clearly out“Succession planning is like insurance,” lines the roles of those involved in the process says Murphy. “By the time a succession plan is and covers agreed-upon emergency succesneeded it is far too late to start building one.”

succession

THE END FOR BLING CULTURE? New research suggests that the recession has brought with it a new economic ethic that will curtail the display of ostentation and conspicuous consumption. The study by Georgios Patsiaouras, of the University of Leicester School of Management, is entitled Luxuries or Necessities? Economic Recession and its Impact on Conspicuous Consumption and reveals how the recent global financial crisis has had an impact on consumers’ motivation to compete for social status.

Patsiaouras argues that individuals consume and demonstrate products and services in order to achieve a desired status designation. Manufacturers, sellers and advertising agencies produce and promote goods that aim to satisfy consumers’ tendency to emulate ‘superior’ lifestyle groups.

But the recession has changed the normal state of play. “The recent global financial crisis seems to have a huge impact on consumers’ motivation to compete for social status and the game of conspicu-

ous economic display will be played with different rules,” says Patsiaouras. “The dominance of a competitive consumer ethos (especially amongst middle-income individuals) supported by bank credit facilities, surfeit of advertising messages and unprecedented conformity to emergent lifestyles is over. Experiencing harder economic times, consumers’ desire to differentiate themselves via the exhibition of luxurious brands will be suppressed by financial constraints, social awareness and ethical considerations. Sliding into the depths of a global financial recession, the levels of heightened materialism and ostentatious economic display will be reduced.”

Emerging from these straitened times will be a new type of economic consumer, concludes Patsiaouras. “Perhaps a moderate consumer who distances himself from excessive and ostentatious consumption activities will emerge as an archetype of advertising strategies,” he suggests.

LEVERAGING DAM Research from the Aberdeen Group has revealed the number one reason companies are turning to digital asset management (DAM) – operational productivity. Luckily, this has been the mantra of recently elevated CEO Matthew Gonnering of Madison, WI-based Widen Enterprises. Gonnering will be applying his extensive marketing background to fortifying Widen’s 60-year tradition of pioneering tools and technologies to better serve marketing and creative professionals worldwide.

To that end, Widen’s most recent update (Version 5.3) of its digital asset management application incorporates important modifications designed to generate efficiencies within the primary hosted software service – the Widen Media Collective. The upgrade includes significant changes to the Widen Appliance, the on-site hardware/software configuration integrating the company’s hosted DAM with the client’s desktop.

According to Gonnering, the current economic climate has also changed the way companies evaluate DAM solutions.

Widen is trailblazing metrics that validate current performance relative to peers and competitors and identify recommendations for increasing return on marketing investment. Gonnering says the last ‘S’ in SaaS (service) is what elevates web-based and hosted DAM software as the new standard for protecting brand consistency, leveraging the power of the web and capitalizing on the demand for online video.

DIGITAL ASSET MANAGEMENT SUCCESS METRICS Digital asset activity ratio Repurposing ratio

User activity ratio Digital asset consumption ratio

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UPFRONT COMPANY INDEX

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TECHNOLOGY TRENDS FOR THE RECOVERY

1 2 3 4 5

DON’T MISS...

Open architectures will continue to shift the balance of processing power. Softwareas-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 organisations – 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

46 BRAND TRANSFORMER An exclusive interview with Hasbro’s charismatic CEO Brian Goldner

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

COMPANY INDEX Q3 2009 Companies in this issue are indexed to the first page of the article in which each is mentioned.

A.T. Kearney 122, 123 Aberdeen Group 62 Accenture 73, 100 Adobe 2 Amazon 68, 142 AMI-Partners 78 Blackberry Farm 136 Bluelock 81 Board Advisor 100 CA Inc. 82, 83, OBC Capgemini 118 ChristianSteven Software 58, 59 Cisco 140 Clear Action 13, 27, 73 Datamonitor 44 Drexall 117 Eastman Kodak 114 Facebook 114 FedEx 96 Fenestrae 75 Flickr 114 Forrester Research 64

Four Seasons Hotels and Resorts 96 Frost & Sullivan 25 Genius Inside 37 Grand Hyatt Seattle 142 Greenbrier 136 Hasbro 46 Hay Group 108 Host Analytics 8, 61 Hotel 1000 142 HP 4 Human Capital Institute 112 Hurwitz & Associates 78 i2 Technologies 119 IBM 34, 82 IDC 84, 100 Igloo Software 15, 20 Iris Data Services 90, 91 Korn/Ferry International 106, 107 Mason 51 McGraw-Hill Research 66 McKinsey and Company 88

Meettheboss.com 87 Mercedes 32 Metropolitan Grill 142 Microsoft 142 Millennial Net 6, 27 MVS Solutions IBC NetApp Inc. 96 Nexusis 11 Northeastern University 110, 111 Novell 43 Ovum 124 Portrait Software 66, 67 Quantum Art 64, 65 Russell Reynolds Associates 30, 102 Schumacher Group 78 SelectMinds 112 Shertrack 125 Six Sigma Solutions 45 Sun Ranch 136 Sybase IFC, 60 True North Leadership 108, 109

Twitter 114 Upsite Technologies 88, 89 Verari Systems 41 Verian Technologies 121 Verizon 55 ViaPeople 105 VMware 76, 134 Widen Enterprises 30, 85 Xerox 100 Yankee Group 78

100 THEX-FACTOR How Xerox managed a textbook succession

126 REBUILDINGIRAQ How the economy in war-torn Iraq is finally on the road to recovery

Mercedes.indd 2

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Mercedes.indd 3

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COVER STORY

A world of difference Can greater interconnectedness, instrumentation and intelligence be used to help make the world a better place? IBM certainly thinks so, and is betting billions to prove its point. Senior Editor Ben Thompson reports on how Big Blue is saving the planet, one byte at a time.

34 www.busmanagement.com

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W

e live in an unpredictable world. You know it when you get caught in an unforecast storm on a sunny summer’s day; you know it when the stock market tanks and your previously rock-solid investments are reduced to worthless junk; you know it when you hit unexpected gridlock on the way to that all-important business meeting. What you don’t always know are the hows, whys and wherefores – the myriad combination of variables that fell into place in order for those events to unfold.

It’s like trying to link the butterfly in China to the tornado in Texas: did the miniscule changes in atmospheric conditions caused by the flapping of the butterfly’s wings set in motion a chain of events that ultimately led to the formation of a Texan twister 7000 miles away? Without the right information, how do you know whether each of those interactions are connected?

What other factors played a part in creating the right conditions for those complex systems to develop? And given better intelligence, is it possible to predict how such permutations might play out in the future?

IBM Chief Executive Sam Palmisano doesn’t claim to have the all the answers – but he’s working on it. From financial crises to climate disruption,

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energy geopolitics to food supply hazards, Palmisano believes solving the Saving the planet global challenges of today and tomorrow will be about the smarter use of inIt is precisely these questions that IBM hopes to answer. Approximately formation, and has spent over $60 billion on acquisitions and R&D in prepa30 percent of the company’s $6 billion annual R&D budget goes into longration for the seismic shift in thinking such a move will require. He now feels term research, with the department churning out more than 4000 patents a the time is right for IBM to capitalize on the opportunities that will result – year. IBM consultants then mine that output for so-called ‘repeatable assets’ adding to the company’s bottom line at the same time it helps make the world – problem-solving technologies that can be applied in a variety of different a better place in which to live. settings and industries – under the aegis of IBM’s Smarter Planet initiative, a “The first decade of the 21st century has been a series of wake-up calls program built on the idea that if we can connect the systems that run our with a single subject: the reality of global integration,” he explains. “In busiworld, we can create less traffic, healthier food, cleaner water and safer cities, ness, global integration has changed the corporate model and the nature of amongst other things. work itself. In the last few years, our eyes have been opened to global climate change, and to the environmental and geopolitical issues surrounding energy. We have been made aware of the vulnerabilities of global supply chains for food and medicine. We entered the new century with the shock to our sense of security delivered by the attacks on 9/11. And, of course, we are now in the midst of a global financial crisis. These collective realizations have reminded us that we are all IBM’s annual R&D now connected – economibudget cally, technically and socially.”

And as the world continues to get flatter, smaller and more interconnected, IBM is banking on something happening that holds even greater potential: the prospect of our planet becoming smarter. “This isn’t just a metaphor,” asserts Palmisano. “New intelligence is being infused into the way the world literally works – the systems and processes that enable physical goods to be developed, manufactured, bought and sold; services to be delivered; everything from people and money to oil, water and electrons to move; and billions of people to work and An intelligent future live. The future now beckoning us is one of enormous IBM’s Sam Palmisano believes that through pervasive instrumentation and promise.” interconnection, almost anything – any person, any object, any process or any His confidence is based on three key developments. service, for any organization, large or small – can become digitally aware, Firstly, the world is becoming instrumented. IBM claims networked and intelligent. “These new capabilities could not be more timely,” that by 2010 there will be a billion transistors per human, he says. “Even in today’s difficult environment, businesses are willing to invest each one costing one ten-millionth of a cent, with sensors in IT solutions – if they cut costs, drive efficiency and productivity, preserve being embedded into everything from cars, appliances, capital and create competitive advantage. And that’s exactly what smarter cameras, roads and pipelines to medicine and livestock. solutions do.”

Secondly, with over a trillion networked devices, the world is also becoming more interconnected, producing rising volumes of data each year. Finally, things are becoming more intelligent.

Dr Mark Dean is Vice President of Global Technical Strategy and Algorithms and powerful systems can analyze and turn those mountains of Operations for IBM Research, and responsible for setting the direction of the data into actual decisions and actions that make the world work better. Real company’s overall research strategy across eight worldwide labs. He believes insight, in real-time, is now a real possibility. that a better understanding of the way systems work can help solve some of “With so much technology and networking available at such low cost, the challenges we face as a global society. “Most of the environments we work what wouldn’t you enhance?” he asks. “What wouldn’t you connect? What and live in are complex systems, a group of operating elements that together information wouldn’t you mine for insight? What service wouldn’t you proare too complex for us to visualize,” he explains. “Experience helps us to make vide a customer, a citizen, a student or a patient?” a guess about what might happen in a particular system, but as humans we

$6 billion

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CASE STUDY

just don’t have the capacity to model all the possible outcomes in our minds.

So we are looking for approaches that allow us to come up with some reasonable insight into how those systems work.”

Consider some facts. Congested roadways in the US cost $78 billion in 4.2 billion lost work hours and 2.9 billion gallons of wasted gas annually, not to mention having a significant adverse impact on air quality. Inefficient supply chains cost $40 billion annually in lost productivity, more than three percent of total sales. Our power grids are hemorrhaging energy, with enough electricity lost annually to power India, Germany and Canada for an entire year. And our healthcare system really isn’t a ‘system’ at all; it fails to link diagnoses, drug delivery, healthcare providers, insurers and patients, while costs spiral out of control, threatening both individuals and institutions.

“I think we’ve reached a breaking point in lots of different industries,” acknowledges Dean. “Things develop legacies over time, and once we get something working we tend to push that approach to its limits until it reaches a point of capacity. It’s time to break down the old established ways of doing things, in order to move to the next level. We need to add in new approaches that allow us to do things more efficiently, to develop more trust, to get more done. It’s time for a fundamental reboot of the basic operating systems that drive our economies, our markets and our societies.”

IBM believes such a reboot is possible by thinking smarter – and has the customer case studies to prove it. Stockholm, for instance, has used a congestion management system to cut gridlock by 20 percent, reduce emissions by 12 percent and increase public transportation use dramatically. Smart food systems are using RFID technology to trace meat and poultry from the farm through the supply chain to store shelves. Smarter healthcare systems can lower the cost of therapy by as much as 90 percent. And similar intelligent sys-

tems are transforming energy grids, supply chains and water management, as well as helping confirm the authenticity of pharmaceuticals and the security of currency exchanges.

“We’re using these technologies to help countries, organizations and companies blend old with new, so you don’t have to do a rip-and-replace,” says Dean. “There’s still a lot of capacity out there; it’s just that new approaches need to be brought to bear in order to utilize it. Creating a smarter planet is about the integration, analysis and monitoring of existing infrastructure, along with the addition of new analytic and management capabilities, which has made a lot of this possible. And it’s amazing what we’ve been able to create.”

Powering up Take the energy industry, for example. For decades, power was something the average consumer didn’t think about too much. Electricity was just there (except, of course, when it wasn’t, and then it was all you could think about until it came back on). Today, however, climate change, rising energy prices and technology advances have all helped to reshape the collective mindset of consumers, turning many from passive ratepayers to highly informed, environmentally conscious customers who want a role in how and when they use power – as well as what they pay for it.

As Vice President of Strategy in IBM’s global energy and utilities business, Allan Schurr has witnessed this shifting dynamic firsthand. “All three of those things have fundamentally altered the go-forward for utilities so there’s not really an option of business-as-usual,” he says. “There is a real groundswell of change taking place in the industry. Up until now it has operated more or less in the same manner for the last 50 years – central station generation pushing electrons through a hierarchal distribution network down to the end consumer, with

The intelligent utility

A simulated thunderstorm shows how CenterPoint's intelligent grid responds instantly to isolate outages.

Image: CenterPoint Energy

W

hen it comes to the electricity that powers homes, schools, businesses and hospitals, most people have little more than a fuzzy idea of what’s involved to get it there. This ambiguity disappears when it comes to their expectations, however. They expect the power to be there when they need it, and if it’s not, they want the problem fixed as fast as possible – period. In the greater Houston area, it’s the responsibility of CenterPoint Energy’s electric transmission and distribution business unit to meet this expectation for its two million customers. The utility owns and maintains 3766 miles of transmission lines and 46,376 miles of distribution lines – enough to go around the world twice – and delivers over 76 million megawatt hours of electricity annually.

38 www.busmanagement.com

Like others in the electric transmission and distribution industry, the company faced the challenge of how to deliver power more efficiently and reliably in the face of growing consumer expectations, environmental concerns and increasing

costs. Following the Northeast blackout in 2003 and the severe hurricane seasons in 2004 and 2005, the utility was looking for ways to ‘harden’ the grid by making it better able to resist outages and fluctuations in power quality. It was also

SMARTER PLANET:25 June 07/07/2009 13:32 Page 39

very little information flow. What we’re now doing is adding substantially more intelligence and data collection systems to the energy picture, so that far more energy awareness and energy efficiency can be effected through the use of new technology and better interaction amongst the parties. It’s really exciting.”

Schurr explains how smart grids use sensors, meters, digital controls and analytic tools to automate, monitor and control the two-way flow of energy across operations – from power plant to plug. A power company can optimize grid performance, prevent outages, restore outages faster and allow consumers to manage energy usage right down to the individual networked appliance. Smart grids can also incorporate new sustainable energies such as wind and solar generation, and interact locally with distributed power sources or plug-in electric vehicles.

Intelligent networks are a win-win, says Schurr. “There are opportunities to reduce the amount of investment that utilities are required to make if they have more precise information about loading,” he explains. “There are opportunities to increase reliability based on information about where outages are occurring, how extensive they are, and whether power has been restored after an event. And most importantly, there are opportunities for efficiencies on the consumer side.

With greater granularity of information, consumers can make better decisions about what they purchase in terms of appliances, how efficiently their equipment is operating and whether or not they can shift their consumption patterns from more expensive peak periods to less expensive off-peak times.”

One of IBM’s flagship projects can be found in the Mediterranean.

Malta’s electricity and water systems are inextricably intertwined, with the country depending entirely on foreign oil for the production of all of its electricity and more than half of its water supply, which filters through an energy-intensive desalination process. A newly implemented smart grid,

integrating both water and power systems, will be able to identify water leaks and electricity losses in the grid, allowing the utilities to more intelligently plan their investments in the network and reduce inefficiency. Over 250,000 interactive meters will monitor electricity usage in real-time, set variable rates and reward customers who consume less energy and water.

“By becoming more efficient with water use, they reduce electricity consumption; and by becoming more efficient with electricity consumption, they reduce the importing of fuel that is used to power their generators,” says Schurr. “It’s a very exciting project that demonstrates how taking a very ambitious agenda and putting it into reality can be done economically.”

Dealing with complexity The project also highlights another key point: that many of the challenges we face today are interrelated, and involve a greater understanding of the interplay between a variety of complex systems in order to be tackled intelligently. The synergy between the water and power sectors is one example, but there are countless others.

“This whole Smarter Planet initiative is about trying to understand these different environmental areas as part of a larger, more complex ecosystem, and being able to generate enough information so that we can start to identify patterns and see where the impact points are,” says Sharon Nunes, Vice President of Big Green Innovations, an organization created to identify and launch new businesses for IBM. “Take water, for example. There’s a lot of stress on water systems around the world. With a limited supply, we need to be able to better manage it – and that means better monitoring and measurement, as well as having a holistic picture of what the demand will be and where that demand will come from.”

looking to give electricity consumers the information, make the grid more reliable means to change their consumption and operations more efficient. “We expect patterns based on near real-time usage that the intelligent grid will improve data, transparency and time-of-day pricing, electric power line grid planning, allowing the consumer to be an interactive operations and maintenance, enabling us participant in the electric market. to deliver power more efficiently,” says The goal was to bring many of the Tom Standish, Group President of defining attributes of the information Regulated Operations at CenterPoint superhighway, such as Energy. “We also expect the resiliency and intelligence, technology to contribute to to the electrical grid. fewer and shorter outages.”

Drawing upon expertise The solution will address CenterPoint and technology from these issues through the Energy delivers nearly every part of innovative application of 76 million MWH IBM, CenterPoint Energy leading-edge technologies, annually established a roadmap such as broadband over power for building an intelligent line (BPL), and first-of-a-kind utility network that would failure detection capabilities that go provide a more granular, real-time beyond what was previously thought view of conditions on the grid – vastly possible. The fact that BPL, which sends a improving the ability to leverage broadband signal over distribution wires,

leverages the utility’s existing assets is just one benefit; the bigger story is how the company’s future BPL infrastructure will provide a single conduit for a wide range of grid-related activities, with advanced meter services, the use of the meter as a sensor on the grid, and the deployment of home area network monitoring and control prime examples.

As a storm-prone city situated on the Gulf Coast – and the home to a large base of energy-hungry businesses – Houston is the ideal testing ground for one of the world’s first true intelligent utility solutions. “While we see this initiative as helping to transform us as a company, many of the results and innovations that come out of it will help to transform the energy transmission and distribution industry as a whole,” says Don Cortez, VP of Operations Technology at CenterPoint Energy.

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ing a shared resource. “There is no sharing of data to achieve a holistic view of the entire watershed or water ecosystem,” she says. “Yet if you want to ensure that water is distributed amongst all of the competing demands in an equitable fashion, you really need to understand what the supply is and what the demand is on that entire system.”

To address such issues, IBM is working on a number of programs to help make management of the world’s water ecosystem smarter. Together with the Beacon Institute for Rivers and Estuaries and Clarkson University, the company is creating a data platform to support instrumentation of the entire length of the 315-mile Hudson River for a real-time view of a river system that supplies both industry and individuals. In the Netherlands, the company is working with partners to build smarter levees that can monitor Number of IBM’s changing flood conditions and respond accordingly. And patents filed across the world, sensors are revolutionizing agriculture, annually providing detailed information on air quality, soil moisture content and temperature to calculate optimal irrigation schedules. Elsewhere, smart metering can give individuals and businesses timely insight into their own water use, raising awareness, locating In Galway Bay, Ireland, SmartBuoys such as this inefficiencies and decreasing demand. IBM and the Dow Chemical Company, collect data from a variety of different sources through its Dow Water Solutions business, are working together to enable unwhich is used to inform a host of industries. precedented visibility into water usage – starting with desalination plants. And Aquaculture IBM itself is saving over $3 million a year at one North American semiconFarmers cultivating shellfish need information on salinity, ductor plant through a comprehensive water management solution. temperature and water quality, especially harmful algae Nunes’ team is also hoping to move beyond real-time monitoring to preblooms that may threaten a crop diction, using advanced computing and analytics to support better-informed Commercial fishing management decisions. The test-bed is a collaborative research initiative with Fishing boats are mostly interested in weather and water the Marine Institute in Ireland that aims to turn Galway Bay into a living labquality data, to better locate catches and ensure safety oratory – instrumenting the bay to gather data on water temperature, curHarbor Master rents, wave strength, salinity and marine life, and applying algorithms that Controlling the industrial shipping ports in the bay can forecast everything from wave patterns over 24 hours to the right time to requires real-time information on high tides and flow rates harvest mussels. “There’s a lot of data available about water, but there is not a Alternative energy lot of information,” she explains. “What we have found working with the Energy companies are particularly interested in data on Ireland team is that we’ve been able to take a lot of what you would think of the potential energy in waves as disparate information and integrate it to give us a better picture of what is Tourism happening in Galway Bay.” The Irish Water Safety Association can close beaches or alert lifeguards to dangerous water conditions like jellyfish Healthy profits or rip tides Healthcare is another sector set to benefit. “Our current approach to Restaurants healthcare is just not sustainable,” says Sean Hogan, IBM’s VP for Healthcare Fishing boats can communicate with local restaurants to Delivery Systems. “However, the financial crisis has highlighted the burden inform them of when they will dock and with what catch that healthcare costs are placing on our society, and as such is prompting a

4000

Smarter water management

Clearly, there’s plenty of room for improvement. For instance, municipalities commonly lose as much as 50 percent of their water supply through leaky infrastructure, while global agriculture wastes an estimated 60 percent of the 2500 trillion liters it uses every year. One in five people still lacks access to safe drinking water and the United Nations predicts that nearly half the world’s population will experience critical water shortages by the year 2080.

As an example of the inefficiency inherent in the system, Nunes highlights how there are nearly 53,000 water agencies in the United States alone, but very little co-ordination between them – despite the fact that they are all manag-

40 www.busmanagement.com

very engaging debate about what to do about it. And the conclusion is that if we are going to address the issues of access, cost and healthcare quality, we have to have better information technology to support that.”

Rising costs, limited access, high error rates, lack of coverage, poor response to chronic disease and the lengthy development cycle for new medicines – Hogan explains how most of these could be improved if we could link diagnosis to drug discovery to healthcare providers to insurers to employers to patients and communities. Today, these components, processes and participants that comprise the vast healthcare system aren’t connected.

Duplication and handoffs are rampant. Deep wells of lifesaving information are inaccessible.

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IBM believes that a smarter healthcare system starts with better connections, better data, and faster and more detailed analysis. It means integrating data and centering it on the patient, so each person ‘owns’ his or her information and has access to a networked team of collaborative care. It means moving away from paper records, in order to reduce medical errors and improve efficiencies. And it means applying advanced analytics to vast amounts of data, to improve outcomes.

“If you had a map of all industries and plotted the sophistication of the use of information technology within those industries, healthcare would be on the lower end of the spectrum – despite the fact that it is a very technology and information intensive sector,” says Hogan. “But IT can help make the administrative process smarter and more efficient; it can enable health information to be shared between care providers and eliminate redundant procedures; and it can better support the process of care so that physicians have the right information available to support the decisions they need to make.”

For instance, Sainte-Justine, a research hospital in Quebec, is automating the gathering, managing and updating of critical research data, which is often spread across different departments. With the help of IBM technology, the center is applying analytics to speed childhood cancer research and im-

tems will be a multitrillion-dollar opportunity for tech companies such as IBM. It helps that there is currently federal funding available for many of these initiatives as a result of the recently passed economic stimulus package. The American Recovery and Reinvestment Act of 2009 includes $19 billion for healthcare technology, $11 billion for the implementation of smart-grid technologies and has $6 billion earmarked for water infrastructure projects.

Federal money has also been set aside for expanding broadband and wireless access, as well as countless other infrastructure improvement projects that could help realize the vision of implementing a more intelligent approach to the way we manage our socio-economic systems.

IBM is not alone in pursuing this emerging market. GE has ramped up its Ecomagination program; Cisco has its recently announced EnergyWise project; and similar initiatives from technology big-hitters such as Google, Hewlett-Packard and Fujitsu, amongst others, have also raised awareness as to the opportunities in this space. Ultimately, this is a good thing: not only are such companies spending at a time when the economy desperately needs it, they are also establishing the ground rules for a new way of looking at the world. The vision of a smarter planet is one where technology provides the building blocks for change; however, it will be up to people to effect those im-

Smarter traffic management The city of the future may have fleets of smaller buses that change routes on the fly to go where they are needed most, while larger buses travel high-demand routes in peak periods. All will be integrated with a system that dynamically tracks and adjusts their movements, to meet changing user demand.

prove patient care while drastically lowering the cost of data acquisition and enhancing data quality. Another example is Geisinger Health Systems, which is integrating clinical, financial, operational, claims, genomic and other information into an integrated environment of medical intelligence that helps doctors deliver more personalized care. This enables them to make smarter decisions and deliver higher quality care, all because they can easily turn information into actionable knowledge.

And true to the premise of Smarter Planet, healthcare systems like these hold promise beyond their particular communities, patients and diseases.

“The smart ideas from one can be replicated across an increasingly efficient, interconnected and intelligent system,” says Hogan. “This should result in lower costs, better-quality care and healthier people and communities. In other words, we’ll have a true healthcare system with the focus where it belongs – on the patient.”

Green means green Of course, despite the undoubted societal benefits the program is likely to stimulate, Smarter Planet is not purely governed by altruism. Nunes estimates that information technology for water management could become a $20 billion market over the next few years, while in the energy sector, recent research by analyst firm The Brattle Group suggests US utilities alone will spend $1.5 trillion upgrading infrastructure by 2030. Make no mistake: the building of smarter sys-

42 www.busmanagement.com

provements and implement the vision. And, IBM has the right people in place to execute its vision – the company has a vast organization of business consultants who specialize in applying technology to solve industry-specific issues.

It’s why IBM is spending millions on the marketing side of Smarter Planet – in order to generate a greater appreciation of both the challenges we face as a society, and the solutions that are possible using existing technologies and approaches. “Why get smarter?” asks Palmisano. “Firstly, because we can: the technology is both available and affordable. Secondly, because we must: the shocks we’ve seen to so many systems show that the current approaches aren’t sustainable. And finally because we want to: IBM is starting a conversation with the world because we think now is the time to make these changes for the better.”

The final point is that this is a campaign that has the potential to inspire us all to try and make a difference. We might not have a $6 billion research budget or a big picture view, but we can all recognize inefficiencies in the way society operates on a daily basis. Think of the butterfly and the tornado: small changes can have a big impact, and if Smarter Planet can open the eyes of the next generation of entrepreneurs and scientists to just what is possible and to how they can make a difference, it will have been a success. Palmisano is right: if we can think of ways to become smarter ourselves, we can not only improve our quality of life and make the world a better place in which to live; we might also make some money in the process. n

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ENERGY EFFICIENCY

Still playing catch-up

According to new research, energy efficiency is still not a priority for US consumers.

I

t was expected, particularly after the oil price shocks of mid-2008 and the impact of the US recession, that American consumers would be leading the way in terms of changing their personal energy consumption behaviors and usage – particularly as European consumers have a significant head-start over their US colleagues in most matters relating to energy efficiency and the environment. According to the Energy Information Administration, in 2006 the US accounted for 21 percent of global energy consumption, more than double UK per capita consumption.

Indeed, over the period 1980-2006, US energy consumption rose overall by 27 percent, compared to only 11 percent in the UK and only six percent in Sweden – emphasizing the fact that the US has a much greater scope for conserving energy than most developed economies.

However, according to research undertaken as part of Datamonitor’s Recession and Recovery program, US consumers are still not embracing energy efficiency and green initiatives to anywhere near the extent of consumers in Australia, Canada and the UK. “For example, only 12 percent of Americans claim to have used public transport more over the last year, compared to 31 percent of Britons,” says Datamonitor Global Consulting Director Neil Hendry. “Whilst this in part can be put down to differences in the geography of the UK and the US, it does not explain why over 20 percent of consumers in similarly vast countries such as Australia and Canada say they use public transport more frequently than previously.”

A similar pattern is evident when consumers are asked whether they have increased the frequency with which they walk or cycle to work: 27 percent of UK respondents say they are now walking or cycling to the office more often than before, but only 12 percent of US respondents claim to be doing the same.

There is a contradiction in the numbers when automobile journeys and mileage are taken into consideration, however; 29 percent of US consumers state they are taking fewer car journeys now than they were a year ago, compared to 21 percent of Britons. This apparent paradox can be explained by the fact that once the convenience and relative affordability of car ownership are taken away from US consumers, lifestyle elements that were facilitated by the car reduce in importance, thereby forcing a fundamental reassessment of recreational and shopping behaviors. Whilst consumers in Australia, Canada and the UK will find other ways of ensuring that their lifestyle is not affected

“US consumers need to lead the world in embracing change and need to start to show real and meaningful shifts in behavior” by rising petrol prices and an increased social awareness of issues such as climate change, US consumers are tending to ‘stay-at-home’ and are finding other ways of working and socializing.

Herein lies the problem for the Obama administration: whilst US consumers begin to use their homes as more of a social hub or as a place of work, over the last 12 months 25 percent of US consumers say they have not reduced the amount of time they have the heating on at home, compared to 13 percent of Britons and 19 percent of Canadians. “Even the argument of a harsh winter does not carry much truck when trying to defend these findings when it is considered that the winter of 2008/9 was relatively as

harsh across all three countries,” Hendry says.

But this is only part of the story. On every indicator of home energy efficiency examined by Datamonitor – from use of energy saving light bulbs to investment in solar panels – the US comes out bottom of the list compared to Australia, Canada and the UK. Whilst arguments can be made around the age and design of housing stock and the cost of domestic energy supplies across the countries, the underlying fact is that at present US consumers have a long way to go when it comes to ensuring that they are using precious gas, fuel and electricity resources in the most efficient and green means possible.

Basically, what this means is that US consumers are actually trading off energy consumption in one part of their lives for increased energy consumption in other areas, rather than seeing what they can do from a holistic perspective.

According to a University of California study in 2008, whilst this may have the desired effect of reducing carbon dioxide emissions, it has the negative effect of resulting in more nitrous oxide emissions because of the increased use of home electronics equipment and other gadgets.

Whilst initiatives being undertaken by the US Department of Energy to offer tax credits, rebates and financial incentives to consumers looking to save energy and go green are to be praised, it is apparent that more of a co-ordinated approach needs to be made at a local, state and federal level to encourage consumers to not only understand the impact that energy efficiency can have on their back pockets, but also more broadly on US energy security and global warming generally. “If the Obama administration’s efforts to engage with the rest of the world on climate change are to have real resonance, US consumers need to lead the world in embracing change and need to start to show real and meaningful shifts in behavior for his words not to sound like proverbial hot air,” says Hendry. n

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Datamonitor.indd 44

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What’s your number?

The scientific approach to operations performance improvement

Grab the bull by the horns!

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THE BIG INTERVIEW

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Hot on the heels of its latest

box office smash, Hasbro’s

charismatic CEO Brian Goldner explains why there is more to the toymaker than meets

A

s befits a film depicting monster robot mayhem, Transformers: Revenge of the Fallen crushed all-comers at the box office on its opening weekend in June. The cinematic juggernaut hauled in a whopping $201.2 million in its first five days of its US release (putting it second only to The Dark Knight in terms of the best ever five-day sales figures), and laid down an early marker in the race to be this summer’s biggest blockbuster. It certainly ticks all the right boxes: big-budget special effects, impossibly attractive Hollywood actors and a plot that comes a distant second to heart-pounding, high-octane action sequences. As one reviewer put it: “It’s 90 percent explosions, 10 percent waiting for things to explode.”

But the real stars are the Transformers themselves. Giant robots, tiny robots, funny robots, evil robots; robots that turn into planes, cars, tanks and trucks; even robots that disguise themselves as hot coed girls and seduce their male counterparts. In every scene it is the Transformers who steal the show – which is great news for the company behind the franchise, Pawtucket, Rhode Island-based Hasbro. Why? Because a big summer event movie is the perfect vehicle for selling more of the firm’s core product: toys.

Hasbro’s move into the movie business is part of CEO Brian Goldner’s vision to transform it beyond being a mere toymaker into an entertainment and intellectual-property powerhouse. “We made a commitment to re-invent, reignite and re-imagine our core brands in order to create new experiences for our consumers,” he explains. “We’re now putting our brands in front of consumers in a number of different ways, and Hasbro’s shareholders have benefited as a result.”

Over the last five years, the company has grown its business by a CAGR of six percent, while in 2008 it delivered the eighth consecutive year of record net EPS growth. Transformers has became a touchstone at Hasbro, helping to keep the 85-year-old company relevant while at the same time paving the way for future growth opportunities. Hasbro has another movie release scheduled for this summer (GI Joe: The Rise of Cobra, due out in August), and as part of a four-picture deal with Universal has plans to produce a feature film based on its iconic Stretch Armstrong action figure.

Other properties in line for the big screen treatment include Monopoly, Candy Land and Battleship, all based on classic Hasbro games.

the eye.

So far the strategy has been a runaway success and represents proof – should any more be needed given Hasbro’s remarkable turnaround – that in Goldner the company has one of the sharpest marketing minds in the industry at the helm. Over the last year, Goldner has expanded into children’s television in a deal with Discovery, brought online and interactive versions of popular games to market through a deal with Electronic Arts, rebuilt strained relationships with retailers, given employees the training and authority to tackle new challenges, and implemented a flash reporting system to the board of directors to keep them abreast of what’s going on with the company and the industry. “We want to create an array of experiences,” he says in this exclusive interview. “What we need to do now is to be very imaginative about how we reinvent the core toy and game business, and how we tell stories for those brands across a number of formats. The last two quarters have proved to be the most challenging in the current economic cycle, but we’re confident we have the brands and the strategy to succeed.”

There’s always been a natural synergy between the entertainment industry and toymakers, given the merchandising potential offered by TV and film. How is what you’re doing now different to previous approaches taken by the industry?

Brian Goldner. I think Wall Street has often delineated between those firms more known as intellectual property companies and those that are seen as toy companies. Historically, however, the retailer views us agnostically. They want to have brands in their stores that are part of the consumer zeitgeist, that resonate with consumers and that have a very strong storytelling element to them so as to move those products through their stores as quickly as possible. They want to intercept consumers in their daily walks of life with exciting new product offerings related to those entertainment elements.

Throughout our history we’ve done a lot of that, but with a greater focus on other people’s properties. And while we believe that there is always room for some long-term strategic license relationships, we also believe that the company needs to focus more single-mindedly on its own properties and to bring our own brands into those same forms of entertainment as we have had via license relationships with other people’s properties. So that’s been the big shift: to rely more heavily on our own brands.

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Page 47

Hot on the heels of its latest

box office smash, Hasbro’s

charismatic CEO Brian Goldner explains why there is more to the toymaker than meets

A

s befits a film depicting monster robot mayhem, Transformers: Revenge of the Fallen crushed all-comers at the box office on its opening weekend in June. The cinematic juggernaut hauled in a whopping $201.2 million in its first five days of its US release (putting it second only to The Dark Knight in terms of the best ever five-day sales figures), and laid down an early marker in the race to be this summer’s biggest blockbuster. It certainly ticks all the right boxes: big-budget special effects, impossibly attractive Hollywood actors and a plot that comes a distant second to heart-pounding, high-octane action sequences. As one reviewer put it: “It’s 90 percent explosions, 10 percent waiting for things to explode.”

But the real stars are the Transformers themselves. Giant robots, tiny robots, funny robots, evil robots; robots that turn into planes, cars, tanks and trucks; even robots that disguise themselves as hot coed girls and seduce their male counterparts. In every scene it is the Transformers who steal the show – which is great news for the company behind the franchise, Pawtucket, Rhode Island-based Hasbro. Why? Because a big summer event movie is the perfect vehicle for selling more of the firm’s core product: toys.

Hasbro’s move into the movie business is part of CEO Brian Goldner’s vision to transform it beyond being a mere toymaker into an entertainment and intellectual-property powerhouse. “We made a commitment to re-invent, reignite and re-imagine our core brands in order to create new experiences for our consumers,” he explains. “We’re now putting our brands in front of consumers in a number of different ways, and Hasbro’s shareholders have benefited as a result.”

Over the last five years, the company has grown its business by a CAGR of six percent, while in 2008 it delivered the eighth consecutive year of net EPS growth. Transformers has became a touchstone at Hasbro, helping to keep the 85-year-old company relevant while at the same time paving the way for future growth opportunities. Hasbro has another movie release scheduled for this summer (GI Joe: The Rise of Cobra, due out in August), and as part of a four-picture deal with Universal has plans to produce a feature film based on its iconic Stretch Armstrong action figure. Other properties in line for the big screen treatment include Monopoly, Candy Land and Battleship, all based on classic Hasbro games.

the eye.

So far the strategy has been a runaway success and represents proof – should any more be needed given Hasbro’s remarkable turnaround – that in Goldner the company has one of the sharpest marketing minds in the industry at the helm. Over the last year, Goldner has expanded into children’s television in a deal with Discovery, brought online and interactive versions of popular games to market through a deal with Electronic Arts, rebuilt strained relationships with retailers, given employees the training and authority to tackle new challenges, and implemented a flash reporting system to the board of directors to keep them abreast of what’s going on with the company and the industry. “We want to create an array of experiences,” he says in this exclusive interview. “What we need to do now is to be very imaginative about how we reinvent the core toy and game business, and how we tell stories for those brands across a number of formats. The last two quarters have proved to be the most challenging in the current economic cycle, but we’re confident we have the brands and the strategy to succeed.”

There’s always been a natural synergy between the entertainment industry and toymakers, given the merchandising potential offered by TV and film. How is what you’re doing now different to previous approaches taken by the industry?

Brian Goldner. I think Wall Street has often delineated between those firms more known as intellectual property companies and those that are seen as toy companies. Historically, however, the retailer views us agnostically. They want to have brands in their stores that are part of the consumer zeitgeist, that resonate with consumers and that have a very strong storytelling element to them so as to move those products through their stores as quickly as possible. They want to intercept consumers in their daily walks of life with exciting new product offerings related to those entertainment elements.

Throughout our history we’ve done a lot of that, but with a greater focus on other people’s properties. And while we believe that there is always room for some long-term strategic license relationships, we also believe that the company needs to focus more single-mindedly on its own properties and to bring our own brands into those same forms of entertainment as we have had via license relationships with other people’s properties. So that’s been the big shift: to rely more heavily on our own brands.

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So you’re unleashing the creative power of the company a lot more than you were previously?

BG. Yes. Consumers will very readily accept well-loved brands in new forms of entertainment and new experiences. So Transformers is a great example. It was a comic book animation and a toy line, and now it’s also part of the motion picture business. We’re developing it as a theme park attraction with Universal. We’re developing it in numerous other forms such as video games and online. And so if we can take our brands and reinvent them in an appropriate way for each of the consumer audiences that are most interested in them, then we will continue to grow our business and unleash the potential of those brands around the world.

Obviously Transformers is the standout story among the company’s recent successes. It’s been around for 25 years, but what’s the story behind the reinvention of the Transformers franchise?

BG. I first came to Hasbro in 2000 from another toy company that was really well known in the boys’ action arena. I had seen Hasbro’s brands from the standpoint of the competition, and realized and understood that Transformers was one of the biggest potential brands that the company had, and yet one that had really not been fully leveraged over its history, particularly during the 1990s. And so the first step when I arrived was to get the brand growing again.

And so we created the first TV series with our Japanese partners in many years, and that started building some excitement around the brand again. This was back in 2002. At the same time, the first Spider-Man hit theaters, which was, for me, a great proof point that a brand that had grown up as a comic

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On China…

Hasbro is a global company. In fact, the first Transformers movie was the second most successful foreign film ever released in China. The most successful was Titanic. When I was over in China, I had all these 30-something-year-old men coming up to talk to me about how excited they were to see Transformers coming back into the market, because for many years the Transformers brand had disappeared from Chinese television and animation. So the motion picture provided this great opportunity to reignite that brand for Hasbro in the Chinese market, and it’s been a significant contributor to our growth in China since that time.

book could resonate as a motion picture. And so we took the concept to the studios, many of whom passed. But through perseverance and a belief in the brand we arrived at a deal with Paramount and DreamWorks, and people like Steven Spielberg came onto the project, and that’s really what gave the brand the momentum it needed.

Getting those folks involved was the first step, but the second and third steps were in making sure that we told a compelling story filled with great characters that’s based on the core mythology of the brand; you need to make

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BG. Michael Bay came to our Rhode Island headquarters even before he had signed on to direct the movie, along with the writers and producers, and we spent some time together at what he called “Transformers School.” And we walked through what the brand was about, the stories that had been told, a family tree of all the characters and how they related to each other, and gave him a grounding in a lot of the source material that made the brand so special and beloved by fans.

“Through perseverance and a belief in the brand we arrived at a deal with Paramount and DreamWorks, and people like Steven Spielberg came onto the project, and that’s really what gave the brand the momentum it needed” And then we asked a lot of questions. We challenged ourselves. We brainstormed, and really from that moment in time we have been working together with the filmmakers. They do what they do best, which is to tell big, special effects, motion picture stories. And we, of course, are the custodians of what makes the brand special – the characters and the intimate details of those relationships. And it’s been a great partnership.

Transformers: Revenge of the Fallen world premiere. Director Michael Bay (front) poses with cast members of his latest film

a movie that contemporizes the brand, but you don’t walk away from the things that made the brand special in the first instance. And we got to work with a great group of filmmakers – Michael Bay, Steven Spielberg, Lorenzo di Bonaventura and the producers and the studios – who believed that there was a great marriage between the core mythology and the story, between the storytelling that had been done for two decades and a new contemporary story that could be appreciated, enjoyed and become special for both the old and new generations of fans.

What sort of creative input did you have on the project? And how did you maintain control of the Transformers brand during the movie development process?

I know that Transformers has a huge fanbase with very strong ideas about how things should be done,which characters should appear,what storylines could potentially be worked on as film ideas, etc. To what extent do you interact with fans in terms of taking onboard what they say and integrating that into the products?

BG. We spend a lot of time listening to the fans and getting feedback. I remember after the first movie launched, the very next day USA Today ran a poll asking what characters fans would like to see in the next movie. The fans were online talking about that right after that movie released, so obviously there’s a lot of interest and love there.

What’s also so much fun is that while the adult fans kicked this whole thing off, there’s nothing more heartening than being able to share your favorite brand with the kids of today and tomorrow. And so in many ways, we’re building the next generation of fans; I run into young kids all the time who have very strong points of view about the movie and what’s important to them in terms of characters and story elements as they go forward.

So do you think you’ll be focusing more on the content generation side of things in the future?

BG. Well, we believe that our brands – and not just GI Joe or Transformers, but all of our brands, from Littlest Pet Shop and My Little Pony to our preschool brands like Playskool and Play Doh – have interesting stories to tell. Now, those stories may not be told by a motion picture, but the brands will be regularly reimagined and told in interesting, compelling ways that are appropriate for each of those audiences. So for a young audience, it might be as simple as children’s storybooks, coloring books, preschool television programming or an online experience. What matters is that the experience is highly relevant and enjoyable and innovative for the audience that we intend it for.

What’s so interesting about owning an amazing array of brands in this day-and-age is the opportunity to let them move quickly between all the dif-

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On dealing with the downturn…

Our goal, first and foremost, is to develop tremendous value for our shareholders – which is really all about Hasbro having the tools necessary to re-invent, re-imagine and reignite the growth of our brands across multiple platforms.

We need to keep our heads down and focus on that, irrespective of the environment, recognizing we need to be cautious about the utilization of our cash, have a strong balance sheet, and continuing to generate growth in earnings and revenues over the long-term. I think what we would say, though, is that our most recent move with Discovery is not some signal that we are going into a more acquisitive or bolder period. It’s really the completion of a strategy, the assembly of that toolset. And so in many ways we are entering the next phase of our development – we now have the tools to take our brands to these formats.

One of the things we’ve seen is that the last quarter of 2008 and the first of 2009 have proved to be the most challenging in the current economic cycle. So we are not immune to the current challenging economic

ferent formats. It used to be much more separate, but young people these days are digital natives. They think nothing of moving seamlessly between television and online, between their mobile phone and television, a motion picture and a game, and so our goal is to provide experiences that enable the consumers to move across all those different platforms.

“There’s nothing more heartening than being able to share your favorite brand with the kids of today and tomorrow” How do you make sure that the branding or the message remains consistent across all those different platforms and channels?

BG. Up until recently we’ve been working to restructure the company and focus more on our brands, and it took about six years to get where we are today.

Now we’ve restructured as a global brand organization, we have global brand leaders for our biggest properties and those leaders are responsible for the architecture for each of those brands. Three or four years ago, there were all kinds of different people involved, but today there is just one person with ultimate responsibility for being the architect of a certain brand across all those platforms, augmented by subject-matter experts who enable those elements to come to life.

It’s been a real big change to the organizational structure of the company.

In the 1990s you focused on other people’s properties,but recent growth has been achieved in a much more organic fashion. Are acquisitions still a part of your strategy moving forward, or will you continue to focus on exploiting the potential inherent in your existing portfolio?

BG.I think we’re much more focused on our own portfolio. In the 1970s, 1980s and 1990s, the company was very acquisitive and acquired a number of great

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environment. Having said that, the majority of our products are still very value-oriented, with the majority selling for under $20 at retail, so we see this as a key strength in the current climate. Our approach is very value-oriented and innovation-oriented – providing great value at every price point and trying to focus on enabling people to have a great play experience at a reasonable cost.

brands through those decades that are a part of the company today. Milton Bradley and Parker Brothers were acquired in the 1980s. Kenner Parker Tonka became part of the company in the 1990s. Tiger Electronics, Wizards of the Coast, Laramie, Oddzon and Cap Toys – we’ve combined all those elements.

And now we have so many brands – both the ones that are on the market and those that are not on the market today but that have great salience to consumers – that it makes sense to focus on these. We have to reimagine these existing brands and relaunch them in the marketplace.

We also have some long-term license relationships that are important to us, such as with Lucasfilm and Marvel. But we also have a number of preschool relationships that are licensed that we are equally interested in continuing to drive, like the relationship with the BBC and Ragdoll for In The Night Garden, and Weta Workshops with a brand called WotWots in preschool.

And so we’re selective about the licenses we do, but we do know that there is a role in our portfolio for licensed properties alongside of our own core brands.

Will you be developing further in-house brands as well as working on the ones that you already have in the portfolio?

BG. There are three phases to all that we’re doing today. One is making our most well known brands bigger across more formats and global markets. The second is taking brands that are less well known in certain geographies, or brands that are only known by one attribute or in one form, and making them known across multiple forms – for example, Nerf is a great brand in the United States, and we’re just beginning to roll Nerf out with great success around the world; similarly, Candy Land is a brand that’s really only been known as a game, and yet we’re developing a motion picture for Candy Land that will enable us to turn it into a whole new experience. The third phase will be introducing new brands using the disciplines that we’ve developed and the expertise we have in the company, and you will see us introducing new brands to the marketplace over time.

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On dealing with the downturn…

Our goal, first and foremost, is to develop tremendous value for our shareholders – which is really all about Hasbro having the tools necessary to re-invent, re-imagine and reignite the growth of our brands across multiple platforms.

We need to keep our heads down and focus on that, irrespective of the environment, recognizing we need to be cautious about the utilization of our cash, have a strong balance sheet, and continuing to generate growth in earnings and revenues over the long-term. I think what we would say, though, is that our most recent move with Discovery is not some signal that we are going into a more acquisitive period – although we continue to look at the landscape and if a compelling opportunity came along we would consider it. It’s really the completion of a strategy, the assembly of that toolset. And so in many ways we are entering the next phase of our development – we now have the tools to take our brands to these formats.

One of the things we’ve seen is that the last quarter of 2008 and the first of 2009 have proved to be the most

ferent formats. It used to be much more separate, but young people these days are digital natives. They think nothing of moving seamlessly between television and online, between their mobile phone and television, a motion picture and a game, and so our goal is to provide experiences that enable the consumers to move across all those different platforms.

“There’s nothing more heartening than being able to share your favorite brand with the kids of today and tomorrow” How do you make sure that the branding or the message remains consistent across all those different platforms and channels?

BG. Up until recently we’ve been working to restructure the company and focus more on our brands, and it took about six years to get where we are today.

Now we’ve restructured as a global brand organization, we have global brand leaders for our biggest properties and those leaders are responsible for the architecture for each of those brands. Three or four years ago, there were all kinds of different people involved, but today there is just one person with ultimate responsibility for being the architect of a certain brand across all those platforms, augmented by subject-matter experts who enable those elements to come to life.

It’s been a real big change to the organizational structure of the company.

In the 1990s you focused on other people’s properties,but recent growth has been achieved in a much more organic fashion. Are acquisitions still a part of your strategy moving forward, or will you continue to focus on exploiting the potential inherent in your existing portfolio?

BG.I think we’re much more focused on our own portfolio. In the 1970s, 1980s and 1990s, the company was very acquisitive and acquired a number of great

50 www.busmanagement.com

challenging in the current economic cycle. So we are not immune to the current challenging economic environment. Having said that, the majority of our products are still very value-oriented, with the majority selling for under $20 at retail, so we see this as a key strength in the current climate. Our approach is very value-oriented and innovation-oriented – providing great value at every price point and trying to focus on enabling people to have a great play experience at a reasonable cost.

brands through those decades that are a part of the company today. Milton Bradley and Parker Brothers were acquired in the 1980s. Kenner Parker Tonka became part of the company in the 1990s. Tiger Electronics, Wizards of the Coast, Laramie, Oddzon and Cap Toys – we’ve combined all those elements.

And now we have so many brands – both the ones that are on the market and those that are not on the market today but that have great salience to consumers – that it makes sense to focus on these. We have to reimagine these existing brands and relaunch them in the marketplace.

We also have some long-term license relationships that are important to us, such as with Lucasfilm and Marvel. But we also have a number of preschool relationships that are licensed that we are equally interested in continuing to drive, like the relationship with the BBC and Ragdoll for In The Night Garden, and Weta Workshops with a brand called WotWots in preschool.

And so we’re selective about the licenses we do, but we do know that there is a role in our portfolio for licensed properties alongside of our own core brands.

Will you be developing further in-house brands as well as working on the ones that you already have in the portfolio?

BG. There are three phases to all that we’re doing today. One is making our most well known brands bigger across more formats and global markets. The second is taking brands that are less well known in certain geographies, or brands that are only known by one attribute or in one form, and making them known across multiple forms – for example, Nerf is a great brand in the United States, and we’re just beginning to roll Nerf out with great success around the world; similarly, Candy Land is a brand that’s really only been known as a game, and yet we’re developing a motion picture for Candy Land that will enable us to turn it into a whole new experience. The third phase will be introducing new brands using the disciplines that we’ve developed and the expertise we have in the company, and you will see us introducing new brands to the marketplace over time.

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FUTURE BUSINESS

FUTURE BUSINESS

TOMORROW’S WORLD In little over a decade stockbrokers will be replaced by robots and offices will only exist in virtual worlds – or at least that’s what the experts think. Business Management reports on how you could be doing business by the year 2020.

P

icture yourself at work in the year 2020 and what do you see? Office staff replaced by robots, deals done in 3D virtual worlds or journeys to the office in cars that drive themselves. While all this may have sounded like the stuff of science fiction novels a decade ago, the sophistication of today’s computer technology and the speed at which working life has changed in the past 10 years means just about anything is possible. In this feature we ask a panel of technology and management experts for their vision of working life in 2020.

The virtual office One of the biggest clues to how working life will have changed by 2020 is the emergence today of a mobile workforce that can be based anywhere provided they have a laptop and an internet connection. By 2020, experts predict that organizations will depend on plug-and-play virtual offices that employees can link into from wherever they are, to such an extent that corporate HQs could become extinct. A study by the US firm OfficeTeam, entitled Office of the Future 2020, predicts that the

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whole concept of going to work will be redefined as employees use portable, wireless tools to communicate from any location. Physically commuting to work will be replaced by telecommuting – a trend that 87 percent of the executives polled by OfficeTeam believe will increase in the coming decade. The actual geographic location of employees will not matter, allowing businesses to shift human and material resources around the world – virtually – in response to changing market conditions. These trends will be driven by businesses that will realize huge benefits from savings on overheads and travel costs, as well as cutting their carbon footprints.

IBM, for instance, has added 400 staff to one of its existing campuses in the UK, simply by introducing flexi-time and mobile working on laptops and mobile phones.

Academic Nipan Maniar specializes in creating computer games and virtual environments for educational and training purposes. He describes his vision for the 2020 virtual office: “My vision for 2020 is that there will be no office spaces at all. It will all be virtual. You will be at home, you will log into your office online and it will be a 3D office environment where there will be, for instance, bookshelves containing books you click to open and read online. Companies will straightway see the advantages of having virtual offices. In fact, they would save so much money that they should offer employees’ financial incentives to work from home.” Robotics expert Kevin Warwick agrees with the concept that offices will become 3D virtual environments that workers can enter online. “I’m noticing big trends already with people working more from home – the power of the internet and the IT network is incredible in that respect. But by 2020 it won’t just be about message passing. It will be a visual environment with the user’s home network linked in.”

The emergence of the virtual office naturally leads to increased virtual meetings, which are already growing in popularity as companies strive to cut travel costs and carbon footprints. Work Wise UK, a non-profit organization that aims to boost the British economy, claims that if British businesses alone aimed for 10 additional virtual meetings a year they could save $19.5 billion collectively. Meanwhile research by BT Business claims that a single virtual meeting saves companies on average 247 miles of travel $480 and three hours of travel time. Indeed, by 2020, meeting virtually will have overtaken face-to-face interaction completely, according to Rachel Pickering of eco-consultancy Enviros: “One of the key ways that companies are looking to cut costs during the recession is to cut meetings. They are so expensive and can so easily be done by video conferencing. Before, if you weren’t there face-to-face at a meeting this was seen as a sign that you didn’t take it seriously enough.

By 2020 this attitude will have turned on its head completely and people will ask why they have travelled to a meeting at all.”

Today’s technology allows companies to hold virtual meetings using video conferencing and even to create 3D virtual worlds, Maniar, however, believes that by 2020 business will be done in environments similar

to the online virtual community Second Life, with participants represented by avatars. “As far as proper meetings, I don’t see why this shouldn’t happen because it will only save time and money.

You can incorporate PowerPoint presentations, video calls and conferencing calls into the meeting and all the usual facilities.”

While the technology for virtual offices and meetings may be readily available, widespread adoption of it will depend on the shifting of pre-conceived ideas by less forward thinking companies, according to Mike Emmott of the Chartered Institute of Personnel: “The one inhibition is attitudes. In some parts of the world and in some sectors you get some unreformed attitudes. Surprisingly it’s often the workforce that finds flexibility implausible.” The concept of virtual working, while demonstrating clear financial and logistical advantages, needs a fundamental attitude shift on the part of companies to become widespread. However, as the recession cuts into travel budgets, and overhead costs and technology makes the transition from physical to virtual a seamless one, practical considerations are overtaking companies’ increasingly outdated reservations.

“My vision for 2020 is that there will be no office spaces at all. It will all be virtual” Nipan Maniar

Organizational structures Technology is an enabler of dramatic changes in working practices, as demonstrated by the move towards the mobile workforce. But how will it shape the organizational structure of the future? It is one of a number of forces that will mould the corporate landscape in 2020 – one of the strongest being the credit crunch and ensuing financial meltdown that has shaken the business world to the core and forced a complete re-assessment of corporate practices – from governance and ethics to management structures.

In 2007, a team of experts from PricewaterouseCoopers embarked on a year-long project to explore the future of people management. The result was the Managing Tomorrow’s People report, which identifies three potential scenarios for working life in 2020: the Blue World, the Orange World and the Green World. One of the lead researchers on the team was Sandy Pepper, a member of the Employment Relations and Organizational Behaviour Group at the London School of Economics. He explains the thinking behind creating three possible scenarios: “If you look back over the last 15 to 20 years, and you think about the things that have happened to profoundly change the world economy, such as 9/11 or the financial crisis, it’s almost impossible to predict what will happen by 2020. The scenario approach involves thinking about a number of possible paths to the future and building up narratives around those paths.”

The closest 2020 scenario to today’s world, and the one that assumes the least impact from the financial crisis, is the Blue World. “The Blue World is the world in which there is a continuing growth of big companies and capitalism and a continuing focus on individualism and consumerism,” says Pepper. “This is a development of the world we’ve got now.”

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In the Blue World the corporate is king – big company capitalism rules and consumers take precedence over social responsibility. Th is is a world, says Pepper, in which global companies will assume the role of mini states, with many making profits equivalent to the GDP of a small country. Factors that could drive this, according to PwC, include the merging of the world’s biggest technology and search engine companies in 2012, the climax of a decade of M&A consolidation across industry sectors in 2014 and the emergence of the Indian economy as a leader in several industry sectors by 2011.

Describing the impact of the Blue World on working life, Pepper says: “The implication of the Blue World to employment is that people would become linked to companies in the way that they are currently linked to the state. You might imagine, for instance, a world where corporate health schemes become more important than national health services.

The relationship between companies and individuals would become ever more important.”

Such a scenario assumes, however, that there will be no backlash following the fi nancial crisis against the types of corporations that helped to make it happen. The opposite scenario would be the Green World, in which there’s a reaction against the focus on individual preferences and consumerism. The Green World would still involve a focus on large companies, but with a focus on ‘patient capitalism’ – where social responsibility dominates the corporate agenda and green concerns, such as climate change and sustainability, are the key drivers for the business.

In this scenario, virtual meeting technology comes into its own, face-toface meetings are replaced with virtual solutions and air travel is only

“Because of what’s happened in the past 12 months I think one might well expect there to be a reaction against the traditional big company capitalism that has dominated the last 50 to 100 years” Sandy Pepper permitted in exceptional circumstances. Companies would also provide employees with corporate transportation options between work and home. There would, says Pepper, be a stronger focus on the work/life balance with companies taking a holistic view of employment: “Companies would engage with staff around a psychological construct that’s much more focused on work/life balance and sustainability. There would be a much more rounded view of people’s careers and they would be encouraged to go on training courses and to go on secondment to social enterprises for a period of time.”

A more pragmatic scenario – and one driven by today’s technology trends – is the Orange World. Th is takes the virtual office concept to the extreme by suggesting a world where companies become increasingly fragmented and specialized. Each organization has a core staff, which is supported by a network of mobile workers that are called upon whenever their skills or services are needed. As well as technology facilitating the mobile workforce, the following events could result in the emergence of an Orange World: a record number of corporate de-mergers and spin-offs by 2012; a steep decline in the popularity of supermarkets and a move towards local farmers’ markets; skills

MANAGING GENERATION Y

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eneration Y is predicted to become the most productive cohort in the modern workplace, according to HR consultancy group Mercer. But these individuals come with attitude, and it’s high time for organizations to wise up.

Firstly the traditional employment model is dead. Employment propositions and total rewards systems which were built on years of service to fund retirement are over. Organizations (and trade unions) that were used to longstanding tenure of 15, 20 or even 25 years need to rethink very quickly. Generation Yers are probably prepared to give your organization 3 to 5 years at most, before they will move on.

Cash is king. This generation enters the world of work with student debt.

Long-term benefits or pensions do not even register. Choice is key, as is flexibility both in terms of working hours and location. Career enhancement, rather than development, is paramount – international assignments and experience is critical.

But this promise needs to be real, not a frustrating, dangling carrot. Generation Y is not a homogenous group – a one- size-fitsall solution does not work. Remember, they like to customize!

Generation Y wants to be judged on outcomes and results, not the hours seen at the office. Generation X knew promotions were given out to those who got in first and left late, irrespective of their real contribution. Generation Y’s upbringing of constant coaching from their

parents means that they expect constant feedback and stroking. Line managers need to give a lot of face time to this group – this is the biggest management challenge for the Baby Boomers who were taught to be micro-managers.

Unlike Generation Xers, who are very self-centred (Me plc), Generation Yers are more team-focused and anti-hierarchical.

Formal grading and status attributes will be resisted – they want to have a voice.

Creative working parties and innovation groups are the way to get their juices flowing. Early delegation and involvement is paramount. Theirs is a thirst for knowledge.

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THE GREEN AGENDA

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reen issues are already high on the agenda of US companies, but the pressure to produce sustainable products and to operate in a way that will have minimal impact on the environment will have greatly increased by 2020, according to Rachel Pickering, Development Director of Enviros. Th is, she says, will have a particularly big impact on smaller companies that today are under less pressure to comply with environmental guidelines. She says: “Smaller companies tend to be under the radar today from an environmental regulations perspective. But by 2020 they will be impacted more directly, particularly as environmental issues move from being voluntary guidelines to legal requirements. Government

targets set a few years ago that don’t seem challenging now are likely to be revamped and to become more stringent. Climate change will mean companies will have to look much more closely at how much energy is used within a product or a process and at minimising the amount of material that is used in it.”

She goes on to say that proving their environmental credentials will become a way for companies to raise their competitiveness: “Legal requirements can take a long time to move from being an idea into legislation whereas sustainability issues affecting the reputation of an organization require a faster response. Companies need to pre-empt these reputational issues because it will give them the competitive edge.”

shortages in China that push up wages and drive the balance of power to the individual and away from the collective. In the Orange World, organizations would be built around an “inverted doughnut” structure, says Pepper. “The idea is you have a core of people working for an organization and then an outer ring of people associated with it. Companies would manage this network of people so that they’ve got resources when they need them.” Pepper suggests this would provide the opportunity for people to have “portfolio careers” in which they work on individual projects for companies of their choice – a very different scenario from PwC’s Blue World.

Although the Orange World has the least similarities to today’s business environment, Pepper believes the fi nancial crisis could be the catalyst that will drive a move from corporate giants to the fragmentation and specialization of companies. “Because of what’s happened in the past 12 months I think one might well expect there to be a reaction against the traditional big company capitalism that has dominated the last 50 to 100 years. What’s happened in the fi nancial world has caused a huge number of people to re-think their careers fundamentally and to take much more interest in smaller organizations that have a particular niche.”

Mike Emmott of the Chartered Institute of Personnel agrees that the current fi nancial crisis will drive changes in organizational structure and management practices. He points to the fact that organizations are under increased pressure to improve their reputations and manage staff in an ethical way, indicating support for PwC’s Green World scenario. “There is a defi nite rebound from the behaviors that are seen to have produced fi nancial disaster. Management will want to display greater responsibility in the sense that they can defend their actions and behaviors at the bar of public opinion. There’s far more interest now in issues about reputation and brand.” He goes on to say that he expects managers in 2020 to veer from the accepted model of corporate behavior and take a more maverick, individualized approach

to running their organizations: “Managers will be more willing to rely on their own judgement and less impressed by establishment or ‘top-down’ thinking. It will be a bit less hierarchical and less dependent on formal authority and more aware of individuals’ ability to assert their right to be listened to.”

The fi nancial crisis, coupled with sophisticated technology allowing remote working, could spell the end of the corporate giant. But with corporate mergers shrinking the size of the fi nancial world and emerging economies gathering power in the industrialized world, the Blue World could continue to be a force to be reckoned with in 2020 and beyond. The change will be driven by a combination of the public’s reaction to the fi nancial crisis and the strategies of corporations as the world economies recover.

Artificial intelligence PwC’s three scenarios focus on the ways in which employees will be managed in 2020 and assume human beings will still be required to carry out the work they do today – albeit in a different context. However, there are experts that believe that by 2020 the human element will be taken out of the equation completely in some workplaces – instead the work will be carried out by computers with artificial intelligence (AI) or, in extreme cases, by robots.

One of the biggest proponents of this theory is Kevin Warwick, a professor of Cybernetics at the University of Reading. He is currently leading a project to study the use of artificial intelligence and in 1998 became the first person to have an RFID transmitter implanted under his skin. In a later experiment his nervous system was connected to the internet, from which he was able to control a robot arm. He firmly believes that artificial intelligence is reaching such a level of sophistication that it won’t be long before machines make decisions in the workplace – particularly where humans are prone to error such as in the fi nancial sector.

“The human response is slow and can be error prone and too emotionally driven, which on a business front is not always a good thing,” says Warwick. “In the future, a lot of decisions will be taken not by humans but by technology, particularly regarding fi nancial transactions where humans make a bit of a hash of it sometimes.”

He goes on to say that in the fi nancial sector today, transactions are already carried out by machines, but these machines do not yet have the intelligence to make decisions. The development of this intelligence will allow machines to decide whether to buy or sell stocks and products based on up-to-the-minute data. Th is, says Warwick, could lead to stockbrokers being replaced completely by machines: “I think they should be drawing their pensions now because in 2020 machines will be doing the stockbroking,” he says.

Warwick also outlines a situation where this sort of AI will enable

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“In the future you may well be able to take part of your brain and send that to work. Your robot self could go off to work and do the boring stuff and you could stay at home” Kevin Warwick

companies to gather information about customers far quicker than a human marketing officer ever could, and to tailor their marketing accordingly. He outlines how this could work, for example, for retailers. “In supermarkets, 95 percent of what people buy are regular purchased consumer products like milk and bread.

The AI system can therefore predict what customers are going to buy and look for links to other products. Then it can send marketing messages about those products that are specifically tailored to the individual consumer. For instance, if somebody has a mobile phone and they usually buy a certain cheese, the AI machine could send them a text message offering them a free trial of a bottle of wine. Th is would be a specific message tailored to the customer, not a general spam.”

The big advantage of AI in this context – like in a banking environment – is that machines will have the ability to make decisions based on up-to-the-second fi nancial calculations and a rapid analysis of variables, far quicker than the human mind. Th is raises the question of whether humans will in fact become subservient to machines with superior artificial intelligence in the workplace – a scenario that Warwick suggests is inevitable: “From an economical point of view you can see how the machine will be able to make better decisions and do the job in a much better way. Because of this, the human will become much more subservient to the machine. But then we end up with a situation where human beings are drones, keeping the machines going. The roles will be reversed. It’s like a Terminator scenario.”

One area where moves are already being made to completely replace humans with machines is the military, where technology is being developed, particularly in US, for autonomous vehicles and weapons. “The military is already heading towards technological warfare. I don’t know how long there will be soldiers,” says Warwick. “Already there are pilot-less fighter planes and drones so it’s already gone a long way. Autonomous vehicles on land and sea is the direction it’s moving in.”

Th is technology could, by 2020, also fi lter down to transform the way we travel to work, according to Warwick, who claims GPS technology combined with artificial intelligence could lead to cars being able to drive themselves: “Satellite navigation systems already know what road you should take to get to your destination and what road signs you will pass. So as long as cars can stop you hitting other drivers then there is no need to drive.”

Hearing Warwick’s theories

it is easy to imagine a world in 2020 where offices are full of humanoid robots and given the sophistication of robots such as Honda’s Asimo, this does not seem so far-fetched. Artificial intelligence has developed to such an extent today that machines are now able to carry out conversations with humans, as Warwick testifies: “There are tests that are done now where people have to decide whether they are having a conversation with a human or a machine. The best machines are able to fool some very eminent people. So even today we have machines that can communicate with humans so well that experts don’t know the difference.” The growing sophistication of humanoid robots could see them become a fi xture in people’s homes, says Warwick: “I think there is the possibility of people having humanoid robots around the house that can talk and interact and carry out housework.”

The most extreme research his team is currently carrying out involves implanting rats’ brain cells in robots which then assume the creatures’ characteristics.

The next step would involve doing the same with human brain cells – an experiment that could mean “the workplace in 2020 would change dramatically”, says Warwick: “In the future you may well be able to take part of your brain and send that to work.

Your robot self could go off to work and do the boring stuff and you could stay at home.”

It’s certainly an attractive prospect but it relies on a certain business model where rigid working practices and decisions made according to set fi nancial criteria stifle creativity and individualism. Whether this will happen comes down to PwC’s three scenarios. There would be little place for robots in an Orange or Green World. But in the Blue World, artificial intelligence and taking humans out of the equation may be seen as the only way for companies to avoid the sorts of mistakes that led to today’s fi nancial collapse. 

Honda’s humanoid robot Asimo

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Leveraging BI in a down economy Three reasons why business intelligence could improve profitability and long-term growth even in a downturn.

F

irst, the good news. Many economists predict the economic downturn will end soon, and businesses are seeing the light at the end of the tunnel. Now, the bad news. Countless companies have made it this far, only to flounder as we near the end of this financial storm. For these businesses, and for all the rest who want to come out of this slump in a position of strength, business intelligence tools are a crucial piece of the puzzle.

In general, there are three main problems with the smooth running of companies. In a recession, these problems often become worse.

Luckily, all three can be successfully addressed with business intelligence tools, which range from reporting software and online information dashboards to simple spreadsheets.

The first of these problems is customer service. In business, you must know your customer inside and out: a business intelligence tool to capture and analyze customer data is essential.

For example, use it to discover which customers you haven’t been in touch with for three months, and follow up with them. While you’re at it, examine the reasons for customer service requests. You’ll find problems that can be elim-

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inated and requests that can be automated – improving customer service while saving your business time and money.

The next problem is operational issues.

Most often operational challenges stem from bad decision-making. The root cause of most

“The root cause of most bad decisionmaking is the lack of good information to base decisions on” bad decision-making is the lack of good information to base decisions on. Take a fast food restaurant as an example. With a business intelligence tool that tracks orders, the owner can learn most of his customers order a burger and soda. A second look reveals that if you ask them, these customers will add a salad for two dollars more. So, the owner tells his staff to offer everyone who orders a burger and soda a salad as well, and sales increase significantly.

The third problem comes down to the bottom line: profits. By addressing the first two problems you’re halfway there, because good customer service and informed decision-making drive profits. Business intelligence also boosts profits by allowing you to offer customers more of what they want. If you add a product or service customers have been asking for, they’ll buy it. But the only way to know what they want is to know what they’re requesting. Finally, business intelligence allows your company to operate ‘leaner and meaner’ – doing more with less in order to survive the downturn.

When selecting a business intelligence tool, define the information you need first. Too many companies choose a business intelligence program and then let the program determine what information they will track. They’ve got it all wrong. The first step is identifying the information you need to make smart business decisions and finding a system to meet those needs.

Don’t forget that the effective use of business intelligence depends on automation. At many companies, valuable business intelligence festers in a database because no one bothers to create the needed reports. At countless others, well-paid workers sit at computers for a good chunk of their day completing the mindless task of generating reports and sending them out. It just doesn’t make sense. A good automation tool can generate reports, print them, mail them, fax them, email them, send them to your cell phone, post them to the web or do just about anything else you can imagine. Putting key information within easy reach of decision-makers every day without fail will improve your business.

When the economy recovers, the business intelligence tools you put in place now will allow your company to emerge stronger. Leveraging these tools will allow you to outlast your less ‘intelligent’ competitors – leaving you with greater market share. Plus, the information you now have at your fingertips will assist you in driving profitability and long-term growth.

Christian Ofori-Boateng is CEO of ChristianSteven Software, a leading developer of business intelligence, reporting and automation software.

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Managing mobility

personal device, it is also true that most employees will respect corporate usage policies, provided they know what those policies are.

It’s important for organizations to clearly document and publicize policies. IT, with enduser input, may need to create and document different policies for different user groups.

Once documented, these policies should be distributed to and reviewed with employees.

It’s also a good idea to create a type of contract that is revisited and revised frequently in order to keep pace with the constant evolution of mobile technology and user expectations.

The mobile platform

Implementing mobile governance in the face of constant change is a matter of balance.

WILLIE JOW

T

here’s a constant buzz in the IT world. It seems more like a non-stop chorus of thousands of cicadas ‘singing’ on a summer night.

In the IT world, each buzz is an alert that some technology issue is becoming problematic. Lately, one of the most audible buzzes pertains to the issue of mobile governance – establishing rules and regulations focused on people, processes and policies concerning the use of mobile devices in the enterprise.

This is nothing new for IT departments.

Policies are necessary to protect both physical and intellectual corporate assets. Extending governance beyond traditional corporate walls is also not new. However, the rapid adoption, evolution and diversity of mobile devices and types of users pose unique challenges. IT is being called upon to extend management and security policies to the farthest reaches of the enterprise, which today can be practically anywhere.

IT has long since learned that it cannot simply forbid the use of new technologies.

Th is is certainly true in the case of the broad range of mobile devices that are used by virtually every category of employee from senior executives to warehouse workers. Banning or limiting specific device types is particularly futile in light of the indisputable benefits enabled by mobile technology. IT must fi nd another way to address this challenge.

Strategic approach

Th is leads us to another current buzz in the IT world: managed diversity. Managed diversity is a strategic approach based on the recognition and acceptance that workforces are more diverse than ever, consisting of traditional employees, part-time and contract employees, consultants, telecommuters and others. Each may have different mobility requirements based on their roles and the devices used (some of which are personal devices while some are owned by the organization). It is an approach that requires a combination of user education and technical capabilities to effectively protect corporate assets.

Education critical

While it is true that many employees regard any mobile device they use as their

Employee honesty and good intentions aside, it is essential to have a way to monitor and enforce your mobile governance policies.

Most experts recommend that organizations implement a mobility platform – a single, strategic architectural platform to mobilize, manage and secure data and business processes for users of virtually any mobile device.

Simply stated, you want a mobility platform that allows you to extend your historically office-based management policies to your frontline devices. It should provide cross-platform support and enable you to monitor and manage devices to ensure compliance with your policies. It should also enable easy integration with enterprise applications. And, of course, it should enable you to implement security features such as password sign-on, on-device encryption, data fade and device wipe, in the event a device is compromised or lost.

A matter of balance

The mobile enterprise is guaranteed to continue to grow, both in terms of user population and device types. The sooner you create mobile governance policies and implement a mobility platform to simplify enforcement of those polices, the better off your department and your organization as a whole will be.

Mobile deployments are driving business success. But like all of the technology across your enterprise, their competitive value must be balanced by policies and controls necessary to protect the organization.  Willie Jow is Vice President of Mobility Product Marketing and as a 15-year veteran of Sybase, oversees critical initiatives aimed at improving customer interactions.

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INDUSTRY INSIGHT

CPM in a changing business environment Jon Kondo, CEO of Host Analytics, explains the advantages of using software as a service to deliver corporate performance management.

I

n today’s turbulent economic environment, it is critical for companies to remain agile in their financial performance management. Having faster and clearer transparency into their business, along with the ability to quickly adjust their financial plans, allows companies to better weather the current market conditions. Benchmarks show that CPM solutions help companies thrive in adverse conditions by better understanding the dynamics of their business and factoring in the potential market and economic threats. In these wild, times companies who wait for situations to evolve can never get ahead of the market whereas companies who have robust CPM solutions in place can model and plan for unforeseen changes or events. A dynamic modeling and planning environment gives them the agility to both plan and even react quickly without being bogged down in Excel Hell.

while allowing them to iterate multiple times to accommodate the changing business environment around them.

Using software as a service

SaaS implementations are designed to be implemented quickly, provide fast time-tovalue, and can be implemented incrementally.

A unique advantage

The components of CPM

An integrated suite of CPM includes statutory financial consolidation, robust budgeting and planning, revenue planning, financial reporting and scorecards (designed to encapsulate the strategic plan). The scorecards serve as a tool for strategic management that is the capstone of CPM. But even if a company is not ready for a balanced scorecard, benchmarks are clear: companies that replace Excel as their budgeting and planning tool with a systemized approach to budgeting and planning perform better. Also, with revenue forecasting, a company can better align their operational plans with their financial plans and a financial consolidation system frees up valuable resources from purely aggregating the numbers to actually understanding the numbers.

Host Analytics allows enterprises to reap all the benefits of world-class corporate performance management without the cost or long time-to value of traditional on-premise solutions. Host delivers this using a software as a service (SaaS) methodology. This allows companies to see positive results quickly,

going success and satisfaction or risk having the customer go away. SaaS delivery also ensures continuous improvement to the product as we continually strive to improve our functionality and service through frequent upgrades. Because a customer doesn’t have to go through a long custom implementation, we can get someone up and running in a fraction of the time it would take to do an on premise implementation.

Jon Kondo

Companies purchasing SaaS CPM don’t need to break the bank or be ready to implement across the organization immediately. This allows them to get ‘quick wins’ or pockets of success before they move to the layer or division.

Host Analytics’ solution offers a number of advantages. At a high level it is a complete product offering delivered via a software as a service delivery model. This means companies won’t outgrow the solution as they go from implementing budgets to financial reporting and scorecards for strategic management.

As you drill down, the depth and breadth of product offering provides for a unified database so all information is available across all applications. The consolidated numbers are available for both budgets/plans and scorecarding without a cumbersome dump/load process or complex metadata layer. Our modeling environment is meant to be driven by finance and does not require complex scripting or data copying/manipulation outside the application in Excel. Our consolidation environment is meant to be driven by finance and is rule-based – organization rules, valida-

"Having faster and clearer transparency into their business, along with the ability to quickly adjust their financial plans, allows companies to better weather the current market conditions" From a purchase software perspective, SaaS shifts the balance of power away from the software vendor and back to the customer. Because the customer is in essence paying for a service means that we, the vendor, have to ensure on-

tion rules and consolidation rules – and as such does not require complex scripting. We also look to leverage ‘Excel in a browser’ for a familiar and flexible interface, which is also systemized and controlled. n

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CUSTOMER MANAGEMENT

The customer is always right Ian Michiels, Senior Research Analyst of Aberdeen Group’s customer management group, reveals why customer experience is a key competitive differentiator in both good times and bad.

W

ith an explosion of different marketing channels from social media and blogs to landing pages and email, customers have numerous ways to interact with a brand and experience a more effective, intimate and personal service. And while every firm claims to have its customers’ best interests at heart, for many this is just lip service. So what is the difference between companies that really ‘get’ what customer experience means and those who don’t? Aberdeen Group’s Ian Michiels believes that the difference is in the performance. After completing surveys from hundreds of companies in the market and isolating the highest performing in metrics like revenue and return on investment, he has been looking at what those companies are doing differently.

“The big difference is how they market,” says Michiels. “All the companies that really get it use customer data to build actionable marketing campaigns that are personalized and are going down a path of building a relationship with their customers as opposed to sending out mass emails and just delivering the same message to everyone in the hope that they get a one percent conversion – those companies just don’t get it yet. You need to think about the customer experience for endusers and you want to be personalized and relevant.

There is no doubt that the definition of spam is changing and when I get an email that’s not relevant for me, it’s spam.”

Michiels goes on to explain about the emergence of social media monitoring, which is a technology that observes and records the perception of a brand or company in the mind of a consumer. It looks at the good and bad things that people are saying about the brand and takes a new look at the consumer through the eyes of social media. And as social media evolves it becomes increasingly important to use the channel to promote better loyalty and retention – after all, you simply can’t avoid the power of social media but can you can leverage it to your advantage with the right customer experience in place, whether that is service in person or on the web.

“Think about when you’ve gone to a website where you didn’t necessarily buy anything, but you walked away and said ‘I had a good experience, that was a cool website, I liked it’. That promotes retention both directly and indirectly – if you had a bad experience you’re probably going to talk about it too, and when they have bad customer service people talk.

And now social media makes it so easy for people to just go online and talk about their experience,” explains Michiels.

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Room for improvement But despite social media having such a huge impact on a company or brand image, customer experience is yet to have a big influence on the way that companies are managing their marketing activities. Michiels believes that while the value of social media is recognized, organizations are yet to put in strategies or structured approaches in place to try and improve the customer experience. He says that it tends to be more siloed, and so the companies that are doing this right are indirectly building into it and then realizing that what they are actually doing is building a better customer experience. “There’s definitely room for improvement, but beyond that there’s probably room for some In a tough economy it becomes even standardization around how to build out a strategy more important to keep customers for customer experience management,” suggests happy. In this year’s ranking of the top Michiels. performing customer service And while there is room for improvement companies, based on data from JD there is no doubt that the current recession has Power & Associates, more than half of when you start to see companies that highlighted bad processes, making them stick out the top 25 brands showed improved market around recent changes, and all of like a sore thumb. While some areas of the busicustomer service scores over last year. a sudden there’s a commercial, you can ness easily slide under the radar when the econsee they’re already marketing around it.” omy is doing well, it is possible to really start to see the companies who are doing things well Importance of technology emerge. Michiels believes the companies that are and culture doing well have more than good technology in With technology as an enabler it is place. “Customer experience management is a possible to execute a strategy throughout cultural change for a lot of organizations, and a company, so for example, it is possible to you have to wrap a cohesive vision around what personalize an email campaign. However, it is that you, as an organization, are delivering every business depends on its ability to hire so that the message is being delivered.” great people with great customer service Of course, constantly looking at how to imskills, particularly people that understand prove the customer experience should be par for the importance of the business/consumer the course rather than simply a reaction to tough relationship. Company culture becomes conditions. So, how can a focus on better mankey to how those people interact with your agement of customer experience be a key comcustomers and prospects and is driven by petitive differentiator? “It all comes back to the decisions that management makes benchmarking metrics within your own organiand ensuring that everybody is delivering zation,” says Michiels. “So not simply measuring the same message. the metric, but taking the metric that you’re While Zappos is the famous examgoing to define and making that a predefined, ple of a company that truly values a posstandardized measurement to see whether you itive customer experience, going out of are improving or not.” its way to put these beliefs at the heart of By comparing the same measurements over the business, Michiels cites Nordstrom as another company that is extime it is possible to see whether there are improvements in a sector and tremely good at managing the customer experience. “I had some shoes that it is possible to be able to compare to industry norms or competitors. were just falling apart and they were two years old,” explains Michiels. “And Michiels explains that he has seen far too many companies that are looking I took them in to the store and said ‘I’d like to pay to get them fixed’, and back six or nine months behind performance when it is too late; he says that they said ‘No, you shouldn’t have to do that’, put a new pair on the counter it is vital to be reactive to the market. “You have to understand your data and and I walked away: no receipt, nothing. And since then I’ve bought shoes at I think that the companies that understand how to execute customer experiNordstrom’s exclusively, so that customer loyalty and retention has really ence management effectively, are ahead of the ball. And the organizations that paid off for them.” can react quicker and maintain that customer experience are interesting –

1. AMAZON.COM 2. USAA

3. JAGUAR 4. LEXUS

5. RITZ CARLTON

6. PUBLIX SUPER MARKETS 7. ZAPPOS.COM

8. HEWLETT-PACKARD 9.T ROWE PRICE

10. ACE HARDWARE

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ASK THE EXPERT

their specific requirements, while underinvesting in the human efforts required to source and produce content that engages and activates their target audience.

Keep it simple

More is not more

Joe Barrett, CEO of Quantum Art, a leading WCM provider, on the lure of biting off more than you can chew…or need.

O

ne of the biggest fallacies about web content management (WCM) systems is that ‘more is more’. Most clients currently use less than 50 percent of web content management application features, yet an increasing number of WCM providers are adding more and more functionality to their offerings. Moreover, there is a huge disparity in price point offerings, ranging between $50 a month for the most basic soft ware to several million dollars for major enterprise deployments. Hundreds of WCM companies are vying for market share, with offerings ranging from simple, templated SaaS subscriptions to highly evolved enterprise content management systems (ECM).

At the same time, WCM demand is growing strongly because of its ability to personalize content delivery, increase the advertising value of web pages and traffic, and improve ecommerce success. Over 72 percent of WCM decision-makers and stakeholders surveyed

by Forrester Research in the ‘Web Content Management Investment Continues Despite the Challenging Economic Climate’ report stated their intent to increase WCM deployments and budgets in 2009. And the fastest growing user segment is mid-market clients – defi ned as companies or corporate divisions with less than $250 million in annual revenue, and non-profits, governments or NGO’s – with multiple websites, hundreds of pages

Joe Barrett of frequently-updated content and multiple distributed divisions.

Unfortunately, Forrester Research also reports that only 29 percent of organizations surveyed are satisfied with their WCM deployment. So, how does one join the 29 percent? A few simple, and even obvious, truths can be your guide to success.

It’s the content, stupid

Highly relevant content, based on deep customer insight and optimized for online delivery, is essential to success for organizations considering or using WCM solutions.

Nothing else will have as positive an impact on improving your customer experience.

All too often, clients err on the side of overinvesting in WCM products that far exceed

Elegance often coincides with simplicity.

The same is true of successful WCM deployments. Sound objectives, concise business requirements, exceptional content and excellence in execution make all the difference.

Keep it simple, innovate rapidly, ignore extraneous features, require short development cycles, and A/B test to identify the winning ideas. Finally, don’t allow vendors to entice you into paying for more WCM than you need, or sell you on the benefits of mega-projects based on all the fancy bells and whistles they offer.

‘Must-have’ features

It all starts with a flexible technical framework that accommodates web application development for cost-effective delivery of robust enterprise solutions and lightweight custom web applications. Empowering the non-technical user is the next key capability. ‘On the fly’ page-building and ‘on-screen text editing’ enable non-technical users to build, modify and manage websites and new web pages without involving programmers or requiring programming skills. High performance and scalability are important to accommodate future growth. Not exactly product features, but highly recommended vendor capabilities include strong application development resources, excellent project management disciplines and 24x7 customer support.

Final words

Summing it up, WCM demand is growing based on its increasing ability to help organizations create a competitive advantage within a rapidly evolving business landscape. And while there are numerous traps to avoid when choosing and deploying WCM solutions, successful clients demonstrate that the benefits are worth the risk.

Beware of ‘feature bloat’: twice the functionality at 10 times the price is no bargain. In other words, don’t bite off more than you can chew or you risk returning to square one: shoot the vendor, fire the innocent, promote the uninvolved, write off the cost and ‘rinse and repeat’.  For further information, visit www. quantumart.com

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Luke McKeever, CEO of Portrait Software, reveals why optimization and customer centricity are key to marketing in a tough climate.

How to market in hard times

Y

our marketing budget has just been cut, sales are down and the market is as competitive as you have ever known – so what do you do? Throttle back, tighten your belt, make do with what you have and weather the storm. Or see this as an opportunity to take advantage. As your competition eases up on the pedal you have an opportunity to get ahead. Not by spending more but by marketing smarter.

Henry Ford once said, “Business is like an automobile. It won’t run itself, except downhill.” So with a slight change of vehicle analogies, cut the engines on your marketing and you may be gliding – but don’t count on any thermals to bring you back up. The outcome is inevitable and it takes more power to get back up to your previous height, let alone go higher than before.

A McGraw-Hill Research study showed that four years after a downturn, companies that maintained or increased marketing during the economic slowdown typically experienced 14 times more growth than those that cut back. Companies that gain share during downturns historically keep that increased share when the economy bounces back.

“In today’s highly competitive marketplace where customers are bombarded by marketing across all channels, knowing when, where and what to communicate becomes the differentiating factor”

of the customer base they have rather than focus on expansion. However acquisition tactics cannot just be re-targeted on customers. What treatment strategy should be adopted for which customer? Are they at risk of defection or do they show a high propensity to acquire further product or should they be left alone? How about customers you have lost – should you target these customers for win back?

What is clear is that you need a clear ‘portrait’ of each and every customer to optimize the message. In today’s highly competitive marketplace where customers are bombarded by marketing across all channels, knowing when, where and what to communicate becomes the differentiating factor. Today the beating heart of any customer centric strategy is intelligence, the more you know the better you can serve, retain and grow that customer. Great customer advocates then become a key tenant of your relationship strategy. The right of passage is to serve well through consistent processes, use these interactions to learn and build intelligence, use this intelligence to plot your customer in the maturity lifecycle and hence drive automated customer engagement and ensure every customer interaction counts. In today’s market less is more.

Smart companies are spending more time listening to and learning from their customers rather than broadcasting, and then at the right moment choosing to interact with that customer at the opportune time. Spend less on communication but achieve a higher return – it’s true.

The good news is that smart companies are taking advantage of this opportunity to get a head start over the competition by moving forward with their incremental CRM solutions based on smarter marketing.

Th ink customer, think analytics, and automate engagement to retain, increase customer value and win back lost customers. 

History says keep marketing but practice smarter marketing. Smarter marketing is about optimization and for marketers optimization comes in two flavors. The first is centered on the efficiency of marketing production, which relates to the creation, procurement and delivery of all marketing goods and services. The second focuses on the effectiveness of the marketing activity, which relates to how well the activity influences the customer and their propensity to respond to your offer, either directly or indirectly as a result of the activity. Here we focus on the latter and how to continue to your CRM journey and continually enhance and optimize communications with your customer base and prospective target markets.

The key here is alignment with key business goals. For some organizations the priority may still be increasing market share, however over the past 12 months we have seen a major shift in the business priorities for customers facing organisations. Growth strategies are giving way to retention strategies as organizations look to conserve and grow the value

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INSIDE STORY

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WELCOME TO THE

Amazon’s Chief Technology Officer Werner Vogels is focused on transforming the internet behemoth into the world’s most customer-centric organization – and is using innovation to help him get there.

By Ben Thompson

T

he Amazon rainforest contains the largest collection of living plant and animal species on the planet – and like its jungle namesake, the world’s largest e-commerce platform holds a similar wealth of weird and wonderful specimens just waiting to be discovered. As well as everyday items such as clothing, music and consumer electronics, the internet explorer can also find a huge range of rarer treasures. Want to reduce your carbon footprint? How about a 400W self-assembly wind turbine to help get you started. Looking for that unusual gift?

Check out the original Andy Warhol screenprints in the ‘Everything Else’ department.

Fancy getting married? Try the 10x18 wooden wedding chapel, complete with front porch and steeple (sorry, bride not included). Shopping has never been this easy.

Yet while some may still think of Amazon as simply an online retailer, the reality is very different. From its bookseller origins, the company has grown to become one of the world’s biggest technology organizations, a platform that attracted over 615 million visitors last year and on which more than one million active retail partners do business worldwide. An increasing number of diverse businesses are built on the Amazon.com platform – including the online operations for Target, Lacoste, Marks & Spencer and Timex Corporation – and the company’s relentless focus on innovation helps Amazon maintain its status as a high-tech pioneer. From new hardware development to the definition of new business models, from building ultra-reliable storage services to a massively scalable computing cloud, from pervasive monitoring and performance control to revolutionary efficient software architectures, Amazon is recognized as being on the bleeding edge of technology development.

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“We have three different businesses,” explains the company’s CTO Werner Vogels. “One is the retail business, and that’s the one that people are most familiar with. Then there’s the seller business, which consists of three major streams – the seller-only Amazon website, the enterprise services business where companies launch e-commerce operations on top of our platform, and services such as Fulfillment by Amazon that enable businesses to take advantage of one of the most advanced fulfillment networks in the world. And then there’s the developer business. For all of those, we take the same approach: we want to be the world’s most customer-centric company.”

For Vogels, this means focusing on continuous interaction with the customer-base – generating what he calls a ‘feedback loop’ – to ensure that the services Amazon provides are the right fit for its customers. “We have a process that we call ‘working from the customer backwards’ to develop new technologies, where we start with what the customer needs and then work backwards from that point to make sure that the technology we implement really does what we want it to from a customer standpoint,” he explains.

Plotting a path Take Amazon’s popular and much-copied product review system, for example. The site had reviews from the outset, and the idea of letting the market decide what’s hot and what’s not has played a key role in helping to make the company such a trusted seller – even non-customers admit to checking out the user reviews before eventually buying elsewhere. But as other retailers jumped on the user review bandwagon, Vogels and his team decided to take the concept a stage further. By adding a simple button asking ‘Was this review helpful to you?’, Amazon prioritized the most relevant reviews – those that had helped customers make a decision over whether or not to buy a particular product, both positive and negative – and provided a simple way for customers themselves to regulate the quality of the reviews. A recent article in Business Insider suggests the move has had significant business benefits. In 2008, Amazon brought in $19 billion, of which 70 percent came from media products such as books, movies and music – products that also make the best use of the reviews feature. The study suggests that promoting the most helpful reviews has increased sales in these categories by 20 percent (one out of every five customers decides to com-

Head in the clouds Werner Vogels was recently named Information Week CIO of the Year for his role in bringing Amazon to “the cusp of the computer industry’s next major architecture”. Here he explains why cloud computing is such a revolutionary development.

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plete the purchase because of the strength of the reviews) – adding a projected $2.7 billion to Amazon’s top line.

It is often said that the best innovations are the ones that seem so obvious. And while Vogels is at pains to stress that such developments don’t just happen without a considerable degree of effort, he does concede that all Amazon’s technology improvements start from a very uncomplicated concept. “You have to find ways in which your customers can be more efficient at what they want to do,” he explains. “We have a number of high-level goals around how quickly customers can find items, how easily they can browse, how they can check out and how they can purchase things, and making that as efficient as possible for our customers is key for us.”

If you focus on the customer, continues Vogel, you take the long-term view. “You’re not looking at the next quarterly success; you’re looking at how you can make sure that Amazon is the world’s most customer-centric company over the long-term, and how you can innovate on behalf of the customer to make sure that the things you do really matter. In this sense, everything from reviews to web services can be thought of as supporting tools for doing the right thing for the customer. In terms of technology, it means seeing

C

loud computing refers to the idea of making massively scalable IT capabilities available to anyone who would want to use them, on a pay-as-you-go basis. It means highly reliable IT components can be used by startups, midsized and very large enterprises alike to provide an environment in which developers or engineers no longer have to worry about managing physical resources.

Instead, they can use these resources as a service over the internet, and that will have a major effect on how applications are built.

Applications will become more reliable, they will become more secure, they will become more cost-effective.

There are a number of benefits. Just look at the amount of time that businesses currently waste on managing physical resources: companies both large and small invest an enormous amount of manpower on just getting their infrastructure off the ground; factor in the cost of maintaining that infrastructure so that it is highly reliable and performing in such a way that customers can actually make use of it, and that’s a big commitment.

Think about electricity. If you go back to the beginning of the last century, before public utilities, most companies actually generated their own electricity. Everybody felt that power generation was a core competency they needed to have because otherwise, they couldn’t perform basic tasks. However, as soon as public companies that provided electricity as a service came along, businesses couldn’t wait to decommission their generators and focus on the things they did well.

This is similar. Companies are investing a lot in managing a physical infrastructure when it doesn’t actually help them build a better product for their customers. So at Amazon, given that we had to invest in these technologies and build them at very large scale for our own operation, we are now looking at using them to

whether we can take a more cost-effective approach or have better scalability and better reliability, or whether can we help our customers make sure they make the right purchasing decisions.”

Of course, efficiency is one measurement of success, but there is also a more intangible quality that must be achieved for such a platform to be loved by its user-base: ultimately, it must also provide an enjoyable experience.

“Customers are very vocal with what they appreciate and what they don’t,” he continues. “So while our customer service is known for being excellent, customers also have the power and the tools to actually give feedback directly to the technology teams. In terms of innovation, we make sure that all these small experiments that are going on all the time with new technologies, with new customer-facing functionality, can be continuously measured.”

Measuring value Amazon has taken a number of steps to ensure any improvements to the platform add real, measurable customer value, and has built a large infrastructure to ensure it can monitor and assess the impact of changes to the site. For instance, all Vogel’s teams have been given the instruction to in-

help other companies also become more reliable, more costeffective and more productive – without having the massive cost of actually building and maintaining those technologies themselves.

We can help companies become more reliable and more secure than they are now, at a much lower price point. Plus the pay-asyou-go model means that you only pay for those resources that you use. If you look at starting a typical new enterprise product, then often you have to get a large budget upfront to make sure you have the physical resources to execute on. By using web services, there is no upfront investment, and only if your product becomes successful will you carry the cost for the resources that you’ve been using.

So that’s a shift from a capital expense model to an operational expense model, which at the same time lowers the risks for enterprises to do new product innovation. There are no boundaries anymore for any company in any country to access these resources.

In some ways, cloud computing provides the democratization of business creation. You no longer need access to huge sums of money to get access to physical computing resources in order to get your business or product off the ground.

I think technology development will shift – from actually having to manage physical resources and having multiple system administrators in order to keep your service going, towards building better applications for your customers. That’s where the focus will be. Cloud computing will trigger a whole new range of application building that wasn’t possible before because we were so focused on just getting the basics right.

And we will see that applications become more available with better performance, because there will be more automation in terms of keeping these enterprise applications running – under all circumstances – in the cloud.

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About the logo Amazon’s logotype is an arrow leading from A to Z, representing customer satisfaction (it forms a smile) and the goal to have every product in the alphabet. “If your catalog becomes larger, more customers will come to your site, which makes it more interesting for sellers,” explains Vogels. “That means more sellers come to your site, which means your catalog grows. It’s what we call a flywheel, and the more energy you put into innovation in the flywheel, the better you’re actually able to execute.”

novate continuously on behalf of the customer, constantly looking at where improvements can be made. What makes a particular service a best seller? Is it better information, better presentation or different sources? “Our goal for customers is that they can find what they are looking for as fast as possible, in the most efficient way, in the minimum number of steps,” he explains.

Vogels maintains that this is only possible via constant monitoring of the customer experience. Consider the following example. A customer wishes to download a movie to watch on the long Seattle-NYC flight, and sends Amazon an email with a question about its video-on-demand service. Not only does the service team answer within the hour, they also include a link to indicate whether the answer solves the question or not. Choosing ‘yes’ takes the customer to a ‘Thanks for your feedback’ message, which not coincidently puts them back onto the Amazon site and contains a further link to provide additional feedback. If you respond ‘no’ to the original question, you are taken to a similar page to rephrase the question. This simple feedback mechanism provides a number of important benefits. First, it demonstrates Amazon actually cares whether the user’s problem is resolved satisfactorily; it allows the customer to easily submit another question if not satisfactorily resolved; it allows

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you to quantify the performance of the service department; it identifies areas where better answers are needed; and finally it helps identify tricky problems that can be corrected.

Such attention to the minutiae of customer service interactions helps the company refine its offerings and continuously improve.

And while conceding that the management team makes most of the long-term big technology bets, Vogels insists that many of the ideas actually come up through the organization. “Amazon is very flat in terms of its organizational structure and we have a tremendous focus on innovation, so we’ve got all sorts of paths in which key information and ideas can travel to those who actually make the decisions,” he says. “I think most of the technologies as you see them in Amazon – whether it is reviews, whether it is Listmania, whether it is Gold Box – have come out of the grassroots.”

Such a meritocratic hierarchy, where the best ideas rise to the top, is essential to the company’s reputation as an innovator. Encouraging ideas that add value is a philosophy that is nurtured right through the company culture, from the C-suite down to the recruitment of new hires, as Vogel elaborates. “In terms of our personnel, we look for a very particular individual: they need to be able to think in the way that the customer thinks,” he says.

“It’s very important to have a culture where everybody understands what the core values of the company are. New starters are often surprised at how important focusing on the customer is to us and how good Amazon is at

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doing that. So having a core value throughout the company that everybody signs up to is essential.”

The importance of teamwork The other essential trait that Amazon tries to instill in all staff is the ability to collaborate effectively – something that is particularly important in the technology function, which by its nature involves small teams focused on specific projects. “Our development teams talk to each other all the time,” says Vogels. “Even though we work in very small teams, Amazon itself is a very large technology operation and it is essential that everyone co-operates and collaborates all the time.”

It is a challenge Vogels relishes. “I think you can have brilliant ideas, but taking them from the idea phase to the stage where they really mean something for your customers is much more challenging than I anticipated when I was still in academia,” he continues. “I did some startup work alongside my academic work, but even so the path going from idea to actual implementation is a long journey, and when you have to operate at the scale of Amazon that’s a whole different story again. Suddenly, issues like reliability, performance, availability and cost-effectiveness play a major role in all of the decisions you make along the way.”

And in contrast to Google, which famously encourages developers to spend 20 percent of their time on individual projects outside their day-today responsibilities, the team ethos rules at Amazon. The motivation comes out of the idea that the things that you do have a direct impact on the customer. “Doing things that matter to people is tremendously motivating, and so most of our engineers and program managers – and indeed everyone else that is working on our products – find remarkable reward in making sure that our customers have a better experience. We often have meetings where we start off with a ‘customer voice’ – a success story, even sometimes a negative story, of a customer’s experience of buying on Amazon – and use those stories to drive our services to become better.”

Once again, it all comes back to the customer. “We don’t just want to be the most customer-centric company on the web; we want to be the most customer-centric company on the planet, period,” concludes Vogels. “I think that if you look 10 years from now, you’ll see that many of the innovations Amazon has implemented have had a tremendous impact on how customer-centricity is viewed.”

“I think you can have brilliant ideas,

but taking them from the idea phase to the stage where they really mean something for your customers is much more challenging

than I anticipated” According to Vogels, teamwork is key to delivering fully rounded ideas that really work for the customer – whether that customer is internal or external. Coming from a background in academia (prior to joining Amazon in 2004, he spent a decade as a research scientist in the Computer Science Department at Cornell University looking at scalable reliable enterprise systems), Vogels admits to being energized by the way business organizations approach the issue of R&D. “In academia there’s a real focus on individual achievement,” he says. “Although there is some collaboration among faculty and there are student teams working together, the work is still rather individual, as is the reward structure. In industry, however, building real technology is a multi-disciplinary activity. First of all, you need good engineers and program managers to build something that really works. But there are also legal implications, there’s an impact on tax, there’s impact on PR, on marketing – all of those functions make up a team, and you can only build and deliver a product to your customers as a team.”

Amazon.com fast facts FOUNDED: 1994 HEADQUARTERS: Seattle, Washington AREA SERVED: Worldwide CEO/CHAIRMAN: Jeffrey Bezos REVENUE: $19.16 billion OPERATING INCOME: $842 million NET INCOME: $645 MILLION EMPLOYEES: 20,500 WEBSITE: Amazon.com

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EXECUTIVE INTERVIEW

Blue sky

thinking Business Management speaks to VMware’s Wendy Perilli about how virtualization is enabling the cloud computing revolution.

B

oth cloud computing and virtualization offer substantial flexibility in the way applications, services and resources are pooled and distributed, and they both represent the final break from the silo-style architecture that has dominated IT from the outset. But what is the (virtual) reality for most companies, and what do they need to do to prepare for the cloud computing revolution?

Cloud computing and virtualization represent Gartner’s top two strategic technology trends for 2009, and are often mentioned in the same breath. How do you think virtualization intersects with or is different from cloud computing?

Wendy Perilli. Virtualization is a key enabler that differentiates cloud computing from the ASP, ISP, MSP models we remember from the late 1990s. It is providing service providers with the agility and reliability needed to deliver infrastructure on demand. Similar to service providers, enterprises have also gained the benefits of agility and reliability from virtualization. Customers are seeing virtualization as the first step in their journey to delivering IT as a service internally. By leveraging virtualization, IT groups are adding self-service capabilities and chargeback elements to transform how they deliver services that align with the business.

We expect to see IT groups that look at internal and external compute capacity as a giant pool of resources that they can start to provision off based on the SLA of the applications and the business needs. This vision of boundary-less IT drives better business alignment, while continuing to drive out CAPEX and OPEX spend.

What is VMware doing to take advantage of the potential inherent in cloud computing?

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WP. VMware sees cloud computing as more than a way to consume an application over the internet, or an outlet for frustrated development teams to get infrastructure provisioned faster. In addition, VMware sees cloud computing as empowering IT to best manage those experiences. With over 130,000 customers worldwide, the cloud needs to be a way to drive increased efficiencies, reduce costs and be a reliable delivery vehicle. This is why our cloud strategy looks at how clouds are built internally and leveraged externally to deliver a federated, enterprise-ready private cloud.

“This vision of boundary-less IT drives better business alignment, while continuing to drive out CAPEX and OPEX spend” The strategy delivers three key elements. First, technology: VMware delivers a reliable platform that offers the same experience on site or within a service provider. Additionally, as an innovator, customers trust VMware to deliver the future of cloud computing, both on and off premise. Second, choice: whether building an internal cloud or consuming external resources, VMware offers choice in where your applications will live and the mobility offered among them. VMware partners with over 700 service providers worldwide delivering VMware technology as a platform for IT as a service and many other value-add offerings, like disaster recovery and test and development. Third, applications: unlike many proprietary clouds covered in the media today, VMware delivers the platform that businesses trust to run production applications on or off site. With VMware, there is no need to rewrite your application to work in the cloud, and if you choose to bring it back inhouse, you know it will work.

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How real is the vision of cloud computing for the average organization today? Are we set to see a mass migration of IT functions toward external suppliers?

WP. Many research studies have shown that about 20 percent of the enterprise market is consuming or about to trial cloud from an external resource.

Interestingly enough, about the same number are looking at how to build their own internal cloud, while the balance is still uncertain on direction. As the market unfolds and businesses scope out their cloud strategy, we’ll see a wave of external cloud trials. Analysts are recommending this as the strategy for 2009 and encouraging low risk applications like collaboration or test/dev to be put in the cloud. This will set the expectation of the cloud experience, including anticipated SLAs, costs savings, performance and so on.

Additionally, we see many larger customers starting to scope out internal clouds and considering how they will deliver IT as a service within their own enterprises. Many of these businesses have been waiting for the cloudwave to take hold as a proof point to show how IT should be delivered. This provides IT management with the models and data points to prove to senior executives that leveraging internal and external clouds optimizes the alignment of IT and business.

As Director for Cloud Computing Are there any implementation challenges?

Product Marketing at VMware, What recommendations do you have for comWendy Perilli is responsible for panies looking to get started on a cloud comdriving the company’s thought puting approach? leadership strategy as it pertains WP. The challenges associated with consuming an ple is of course more extreme than most, but across the to cloud computing. She joined external cloud include application compatibility, board, companies are looking for ways to get more effiVMware in 2006 and brings over mobility of environments if required for business ciencies from less resources. Survey data confirms this by 16 years of high-tech experience needs or performance issues, and control and visishowing the leading goal of IT executives is to drive down to the role. bility of what goes into an external cloud. Although operating expenses. it may be relatively easy to get into an external cloud, much like a roach motel, it can be very hard to get out. Knowing the Does the realization of the cloud computing vision have any implications cloud provider’s virtualization platform is compatible with your internal orfor data backup, security and compliance? How are these being adganization, as well as over 700 other providers worldwide, gives users peace dressed? of mind in knowing the application won’t be stuck in the cloud.

WP. As businesses start to explore external cloud resources, security and comFor internal clouds, we recommend customers to continue with their virpliance are critical. It’s one of the main reasons why more applications aren’t tualization strategy. Given virtualization is the foundation of the cloud, leverbeing considered for external clouds and why the growth of internal clouds aging VMware’s strength and innovation, users will gain efficiencies through continues. There will be applications that have data so critical or confidential elements for automation, like self-service access points for business groups, that an external cloud will never be an option. Challenges such as security, or management, like chargeback. Essentially, the journey to internal and ulavailability, control, management and compliance are key inhibitors to broadtimately federated clouds (on and off premise) will extend from your virtualer adoption of external clouds. That said, providers that have dealt with enization strategy. For users looking for input on an internal cloud strategy, read terprises and government agencies are more likely to be the first to tackle these VMware’s whitepaper Eight Key Ingredients for Building an Internal Cloud. challenges. Once such provider, Terremark, a VMware vCloud provider, delivers cloud services to many enterprises and recently won business to host What impact will the current economic climate have on organizations’ the usa.gov website. Proof points like this will provide an example for movwillingness to adopt cloud computing? ing critical applications off premise.

WP. The economic downturn is artificially driving the adoption of external cloud consumption at a much faster rate. With fewer people to do the same Finally, what is next for VMware in this space? or more work in many IT groups, businesses are forced to look at outsourcWP. VMware is committed to delivering the private cloud and all the elements ing as an option. One example is the auto industry, as bankruptcy looms for that enable our customers to fully experience the benefits of clouds. VMware some, many IT staff are losing their jobs, but the role of IT still remains critiwill continue to work with service providers to deliver a broader ecosystem cal. One such example is a group that had dwindled down to one IT person with a variety of value add services. Customers will also see new technologies to run all of IT. He was forced to start outsourcing applications that may not that enable internal clouds to evolve and federate to external providers, with normally be outsourced for an enterprise of that scale, like email. This examthe control IT professionals desire. n

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TECHNOLOGY FOCUS

The silver lining to cloud computing?

Cloud computing is everywhere, but what value does this fast emerging technology offer small and medium businesses, particularly in light of the current economic crisis? Business Management gets to the bottom of cloud computing and weighs up the value of implementing the latest storage solution.

A

ccording to a March 2008 report from analyst firm AMIPartners, small and medium businesses (SMBs) are flocking to use new IT services. Around 31 percent of midsize companies currently use cloud computing as a software service, double the uptake of those in 2004. So why has cloud computing become such a valuable business proposition to SMBs? Agatha Poon, Senior Analyst in Yankee Group’s Anywhere Enterprise research group, believes a big driving factor is around cost saving, particularly with the economy in its current state.

“Cost saving is the value proposition for a lot of providers,” says Poon.

“It is definitely one of the strongest benefits areas, but interestingly we also see that some SMBs consider cloud computing as a method for disaster recovery. This makes sense if you consider that many SMBs have a basic infrastructure in place for keeping servers and data, however, not so many have the practice to backup data or maintain a redundancy because it is very costly to keep one server in one location and another one as a backup in an alternate location.”

Poon goes on to explain that a small number of SMBs will consider the flexibility and scalability of cloud computing as a further value proposition

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for the business. “Typically they are very business driven and don’t want to invest a lot of money up front. They want an appropriate budget for growth, but as the business grows of course they would like to have access to resources that can help them scale, which cloud computing can help them do.”

Doug Menefee is one such CIO that has adopted cloud computing. The Schumacher Group provides emergency department physicians to 150 hospitals across the country, and as a medium size business, Menefee is charged with leveraging IT processes in order to drive efficiency in the emergency rooms in which the group operates. Over the past five years he has deployed a multimillion-dollar technology initiative to upgrade or replace every enterprise system in the company. He explains that he has essentially worked to automate the entire recruiting office, credentialing processes, utilizing software and building out custom applications.

As Menefee was looking to redefine and redeploy new applications, he chose to leverage a cloud solution. Based in South Louisiana, the headquarters were in a prime location for hurricanes and at the time of replacing the infrastructure there was no disaster recovery plan in place. If the datacenter were to get destroyed by a hurricane or an electrical outage it would basically shutdown the entire operation.

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“By leveraging the cloud solution we had multiple instances of our data that ensure that one or two of those individuals are primarily focused on security, were being hosted either on the east or west coast or both, that were inside a and that’s what we do for the protection of our database. However, when I multimillion dollar datacenter with full-time technical support,” explains use a cloud computing solution I get the same benefits as every one of the enMenefee. “A big driver for us was business continuity purposes – knowing that terprise level, publicly traded companies that are also customers of the cloud our data would be accessible 24 hours a day, seven days a week, anywhere that computing solution. Salesforce.com or Workday for instance, have literally we could find an internet connection. We realized that we would no longer have an army of individuals and their only job is to protect and secure the data to rely so heavily on our own datacenter to keep operations going.” that’s inside their systems. Being a midsized business I can’t keep an individSince involving cloud computing technology at the Schumacher Group, ual or individuals busy for that amount of time.”

Menefee has been able to leverage a range of custom options, including platAnd it is true, instead of pressurizing a small team of IT staff to perform form and hardware services. “On the platform side, we do development on top at a level consistent with larger competitors, it is possible for SMBs to access of salesforce.com and then inside we have a hosted solution in PeopleSoft where enterprise-class capabilities with an initial low investment and the chance to they simply have the hardware at their location and they maintain all of the software for us and then we do the development on top of that. The custom work that we do inside of salesforce.com According to IDC, the market for cloud spending is expected to grow six times faster is typically because the application doesn’t prothan traditional IT spending in the foreseeable future and will reach $42 billion by 2012. vide an out of the box solution for us, so we go The analyst firm also predicts that total IT spending will grow an average of seven and write a custom solution using Apex code. percent per year from 2008 to 2012 whereas cloud spending will grow a staggering 27 From here we can develop anywhere from three percent per year. As the pie chart shows, over half of all the cloud spending will be for to four times faster in that environment than if the application side. This is due to the ease of deployment across multiple sites, while at we were developing in any other platform,” exthe same time separating the user and the physical datacenter location. plains Menefee.

There are a number of benefits around being able to design a custom range of options.

Worldwide IT cloud services spending: 2008-2012 In Menefee’s case it means that he is able to de(For business applications, application development/deployment, liver products faster to internal customers so system infrastructure software, storage and servers) that they are received within a matter of hours, days or weeks depending on the individual case.

2008 2012 CAGR “The solutions that are housed inside of our 383,274 493,713 7% All spending ($M) datacenter, such as patient billing operation and 16,235 42,270 27% Cloud service spending ($M) paperless charts will take me a couple of weeks 4% 9% Cloud as % of total to a couple of months to deploy, whereas with

CLOUD SPENDING

our cloud services it takes a couple of hours to a couple of weeks. So the cloud solutions, in a programming world, are much more agile and a faster application development environment.”

Concerns But while are many reasons to embrace cloud computing there is also an area of concern that is potentially keeping SMBs from using the technology, namely IT security, which is the number one concern cited by IT managers when they think about implementing the technology in their business.

Menefee has no such concerns, he believes that as a medium sized business he is able to ensure that he actually boosts the security of the Schumacher Group as there are more people looking out for the business. “I’m always concerned with security inside our enterprise,” he says. “As a midsized business with about 30 individuals inside information technology, I can

Source: IDC, October 2008

Worldwide IT cloud services spending* by product/service type 2008-2012 Server 9%

Storage 5%

Storage 13%

Server 8%

App Dev & deployment 11%

Infrastructure software 18%

Business applications 57%

2008 $16.2 bilion

Business applications 52%

App Dev & deployment 9% Infrastructure software 18%

2012 $42.3 bilion

* Includes enterprise IT spending on business applications, system infrastructure software, application development and deployment software, servers and storage. Source: IDC, October 2008

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Hardware trends scale. However, for those that remain concerned about the privacy and security of their cloud, Poon advises working with a transparent provider who is able to provide documentation and demonstrate the level of security in place.

“Typically many cloud providers will have the classic SOA program in place, but any enterprise users, from SMBs to one large enterprise, need to read the fine print in their service level agreements and be ready to really negotiate for a stronger security program,” she says.

Laurie McCabe, Partner at Hurwitz & Associates, agrees that it is important to go with a reputable provider and recommends noting a checklist of points that need to be in place with that provider to ensure the data is protected and secure as well as available at any time. “Even though SMBs are very busy and are

“Around 31 percent of midsize companies currently use cloud computing as a software service, double the uptake of those in 2004”

The Forrester report ‘The State of Emerging SMB Hardware Trends: 2008 to 2009’, provides highlights of an extensive data set collected across North American and European enterprises. Hot topics include server virtualization, cloud computing, client virtualization, hardware spending plans, channels, professional services and sources of information that influence purchasing decisions. Adoption of x86 server virtualization reached 34 percent, while two percent of SMBs reported using cloud computing. SMB respondents report that peers are the most valued traditional source of information for purchase decisions while websites are the preferred digital source. Seventy-four percent of SMBs hope that they can lower PC costs with alternative technologies such as desktop virtualization.

trying to install a million different things at once, it does pay to evaluate at least a couple of different services,” says McCabe. “Check it out a little bit, search around, find at least a couple of providers that might fit your needs before doing free trials and evaluating exactly what best works for your specific needs.”

Poon goes on to explain that on the supply side, aside from security or service availability, there is another potential barrier to adoption that may play a part in whether it will help drive market uptake or not, namely whether the vendor is sustainable. She says that there are many small cloud providers quickly jumping into the market and their financial health could make an impact in terms on infrastructure requirements and whether or not it will help drive market uptake. ready put so much of what they do every day online that they have no psychological barriers in the way they store data.”

The financial health of vendors will no doubt play a part in whether or However, Poon is a little more reserved in her evaluation of the future of not we continue to see increased adoption of cloud computing, as does the cloud computing. She believes that while there is no doubt as to the value that current economic crisis. As one of the main cloud computing can bring, adoption depends on how drivers, cost saving is key in the current useful the technology is to a particular business. “If you are market as many companies are able to reclooking at a retailer for example, they have the seasonal ognize the clear value of implementing the sales for their ’09 store and they can pick times such as technology. “A lot of cloud providers are foChristmas or Valentine’s Day where they know they are In summary there are three cusing on the downturn and saying that it’s going to see a traffic peak. Therefore they need a lot of promain benefits to be found in their favor because in this economy it’s a cessing power and capacity in order to keep their website in cloud computing: cost saving and through this they are able to running quickly and efficiently and cloud computing will facilitate, if not drive, sales,” explains Poon. be very useful to them in that sense,” says Poon.

• Cost saving “But if you look at it the other way round “However, there are also companies that will simply • Disaster recovery the situation is actually forcing companies need to update their website information occasionally and • Scalability to become more innovative. They have to don’t have a need to store data in a cloud because they know look for technologies that can help them cut that traffic will be regular, they just need minimal support.” costs while maintaining the performance, It seems cloud computing for SMBs will ultimately deso typically the classic cloud computing model is in demand.” pend on whether it is possible to articulate the value of cloud computing to the So, what about the future of cloud computing, how should we expect to market of potential users of the technology. Despite the solution being in place, see the technology develop? McCabe is keen to point out that the recession it is only those who require it that will in fact adopt it. And, while there is no has given cloud computing a boost but she also sees a big generation shift afdoubt that cloud computing is still in the very early stages of development and fecting the way the solution is perceived. “Change is coming,” says McCabe. it is hard to say just how the capabilities and benefits will change, it is certain “A lot of the baby boomer types are retiring and in their place the Millennials, that it will indeed evolve to become a much more sophisticated solution as time who’ve grown up with internet, are used to putting things online. They’ve algoes on. n

Financial situation

POWER OF THREE

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Where cost containment, reliability and ‘green IT’ meet Why mainframes are playing a key role in improving business performance.

C

orporate decision-makers are facing escalating business pressures and new mandates to reduce costs, improve reliability and encompass green technologies. These seemingly contradictory objectives are driving enterprise IT organizations back to the mainframe. Mainframe worldwide capacity has grown from four million to 14 million MIPS over the past decade – in part because progressive companies are addressing their business requirements by centralizing key systems such as SAP business applications on IBM System z mainframes running Linux, or hosting new workloads under z/OS. The move back to the mainframe makes sense in light of budget pressures, staffing realities and accelerating global market dynamics. IT organizations with constrained staff resources and flat budgets simply can’t afford to add more servers to their data centers or add any more floor space – no matter how much vendors promise to ease server ownership.

Mainframes, on the other hand, already do an enormous amount of processing with minimal staff and fewer ‘moving parts’ to manage. An estimated 70 percent of missioncritical applications still run on mainframes, so the platform is perfectly capable of supporting most workloads. Plus, with its substantially lower power, cooling and floor space requirements, the mainframe can deliver highlyscalable computing power with a minimized carbon footprint.

By aggressively leveraging the unique value proposition of today’s highly efficient and adaptable mainframe, IT executives can play a leading role in enabling their companies to achieve competitive advantage in a global marketplace that is increasingly information-based, resource-constrained and closely regulated.

Many organizations are capitalizing on this opportunity. Since IBM’s introduction

of the z10 Enterprise Class platform last year, traditional z/OS workload capacity growth accelerated despite current economic conditions. In addition, a new study by TheInfoPro shows 93 percent of large ($2 billion plus) companies are projecting their use of Linux on mainframe to increase or remain steady over the next two years – with 10 percent projecting growth of more than 76 percent. Respondents cited the ability to leverage available mainframe computing capacity, the superior costeffectiveness of the mainframe, support for green computing initiatives and infrastructure consolidation as their reasons for doing so. The mainframe is also the industry’s most reliable

“The mainframe is

exactly the kind of powerful, scalable, secure, reliable, cost-efficient, energy-efficient and compliance-friendly platform companies need to survive and thrive in today’s global electronic marketplace” platform, offering 99.999 percent uptime – which is unheard of with distributed servers – and unmatched security.

One challenge companies may face in exploiting the mainframe’s potential business value is that many IT organizations have not hired and trained for mainframe management over the past few years, since distributed platforms have been in vogue. At the same time, many of their oldest and most experienced mainframe managers are nearing retirement,

leaving many IT organizations facing the possibility of a significant skills gap on the mainframe side.

CA has addressed this issue with its Mainframe 2.0 initiative, which both enhances the productivity of under-staffed mainframe teams and empowers the next generation of IT professionals to effectively manage mainframes using their existing skill sets. Mainframe 2.0 therefore enables companies to get the full potential business value out of their investments in mainframe infrastructure for many years to come.

The mainframe’s value transcends simply keeping ‘legacy’ applications running smoothly. The mainframe is exactly the kind of powerful, scalable, secure, reliable, cost-efficient, energy-efficient and compliance-friendly platform companies need to survive and thrive in today’s global electronic marketplace. IBM and CA have also put a lot of work into ensuring that the mainframe can fully support the open source, internet-centric, service-oriented computing environments that represent the future of information technology.

That’s why everyone who is thinking strategically about their company’s technology roadmap should make sure that the mainframe plays a central role in that roadmap. IT service levels – and the efficiency with which they are maintained – will become even more critical to business performance in the future. Effective exploitation of the mainframe’s full potential value will therefore remain a key competitive advantage for many years to come. n

Chris O’Malley is Executive Vice President and General Manager for the Mainframe Business Unit at CA, Inc. He is responsible for developing and executing CA’s strategy for this key global market .

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Optimizing digital asset management In an exclusive interview the IDC’s Melissa Webster talks to Business Management about the increasing emergence of digital asset management and the potential for the future of the sector.

Perhaps you could give us an indication of the types of challenges enterprises face when managing their digital assets?

Melissa Webster. First of all it’s a really fragmented market, mainly because there are so many different use cases. For example, if you are talking about the enterprise, typically the needs revolve around management and marketing and the need to manage a library or repository of assets, which can be shared for worldwide marketing programs and that can be taken and reused by regional or local groups when they kick off their own campaigns. The assets can be marketing collateral, designed for print, web or radio, or they could be brand materials such as logos.

So, depending on what your business is, if you are a large brand manufacturer or consumer goods manufacturer, you are going to have a tremendous amount of content – some of it will be product photos, some of it will be rich media, such as video, audio or multimedia. You need to have expert metadata about your assets so that you can serve up the appropriate version to the right person, in context. Of course the digital asset management (DAM) system also provides the security, authorization and control over who actually says what. That’s part of the equation and it has worked for us for interesting assets and cataloguing them, but

also when people use them and implement things like notification and approval workflows and so forth.

How does digital asset management refer to enterprise content management? Are the two related? Do they have unique functions and features?

MW. The difference really lies in the unique workflows, which need to be extremely specific in the case of digital asset management. The digital asset management system hopefully takes apart the asset into its component parts and stores these as separate assets in order that they can be reused in other creative ways without being redundant and then putting those assets back together when need be.

A digital asset management system can be used to help with problems around logo changing. For example, if I need to change the logo in 2000 brochures in 75 places than you can change the logo in one place and reflect that change throughout your current set of print brochures and on to websites. There is this notion of items that were used and the extensive linking of assets to each other, and we can call that level. There is the unique workforce for the creative process, which is a little different from what we do on the enterprise national side.

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Do you see digital asset management as a subset of an enterprise content management system or something completely separate? Is it within an enterprise content management (ECM) solution or is it something that companies will be looking to purchase separately?

MW. That depends on the requirements.

Certainly the enterprise content management vendors have for some time offered digital asset management systems. However, there is still a place for DAM solutions, even in organizations that have these ECM offerings from the top ECM vendors if your requirements are specialized. If you are a large print publisher, for example, it may be that your enterprise content management vendors digital asset management solution does not deal well in designed documents and doesn’t manage those components. If you are doing a lot of print publishing, perhaps you need to buy a DAM that is tailored to managing that kind of content because you need to manage the component level so that you can print different renditions or need to dynamically resize things for the web.

right publishing point, although it is not itself providing the web publishing capabilities, that is the job of the web content management system.

Where do you see the market heading next? Is there a major trend that you think will have a big impact on this particular sector?

MW. I certainly think that the trend seems to tightly connect the digital asset management system and the web content management system as an important trend. Increasingly among smaller web content management vendors are integrations with DAM systems and I believe we are going to see that more and more between the web publishing side and the digital asset management side.

We are seeing grand management applications on top of digital asst management systems to provide some of the out-of-the-box workflows that the marketing department needs, either to work internally across a large globally distributed marketing organization or to facilitate collaboration with their advertising and interactive agencies and stakeholders to help in their marketing. n

“Increasingly what we see is companies wanting to design media and career assets that can be used be online and in print, digital asset management can play an important role along that repository”

How does the increasing digitization of many different types of content and information add to this challenge?

MW. Well, on the one hand we have this tremendous explosion of digital content and that is the case inside the enterprise as well as on the consumer side – we all take more photos with our digital cameras for example. There is a huge distortion of digital content and one of the things that happens is that because everything is digital it is relatively cheap and everybody keeps everything.

On the flipside, having digital makes it so much easier to catalogue, find and search. You can immediately call information based on a search, watch a preview and verify that that is the asset you want, which makes life so much easier. The other thing that is so great about the digital world is that it is easy to create variance of that asset, it just takes a little code, whether that is a transcoding video or audio or whether you are taking a brochure apart and putting it back together in a new way with new ingredients. It is so easy to take, edit and revise different assets.

One of the things we are talking about in this issue is the idea of managing the customer experience across different platforms and channels. What role does DAM play in helping manage that customer experience for companies?

MW. The digital asset management system is a source of direct images, video, audio, the rich media and multimedia formats assets. It might be used in the context on a website with mass logos and text or the applications to enable transaction on that website and other commerce. The DAM is managing ingredients for that process. Increasingly what we see is companies wanting to design media and career assets that can be used be online and in print, so the digital asset management system can play an important role along that repository and surface the right assets for the

Types of DAM There are several broad categories of digital asset management systems, including: • B rand asset management systems: With a focus on facilitation of content re-use within large organizations, here the content is largely marketing or sales related.

For example, product imagery, logos, marketing collateral or fonts • L ibrary asset management systems: With a focus on storage and retrieval of large amounts of infrequently changing media assets. For example, video or photo archiving • P roduction asset management systems: With a focus on storage, organization and revision control of frequently changing digital assets. For example, digital media production • D igital supply chain services: With a focus on pushing digital content out to digital retailers. For example, music, videos and games

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INDUSTRY INSIGHT

will be among some of the best money you will ever spend. You are likely to find very expensive energy waste and a significant reduction in capacity that is literally going down the drain.

“The cost of powering and cooling datacenters has increased by 500% since 2000”

DRIVING CHANGE

Many will need third-party engineering expertise such as that available through Upsite Technologies, to identify energy inefficiencies.

You ought to expect a targeted remediation strategy, which, among other solutions, may recom-

mend the installation of KoldLok Raised Floor Grommets and HotLok Blanking Panels for IT server cabinets from Upsite. If followed, the reBy assigning an energy czar to drive IT and facility mediation strategy would begin saving you operimprovements, Kenneth G. Brill, CTO, Upsite Technologies, ating costs immediately and offer simple payback Inc., has seen a 50 percent saving in energy consumption. within a few months.

As CTO of Upsite Technologies, I helped t’s likely no surprise that the rising costs of mand that someone be empowered to drive create the curriculum and methodology behind running a datacenter are energy-related. change, someone like an internal energy czar.

Upsite Services, a suite of specialized engineering The fact that a 40,000 ft2 datacenter can Will Forrest of McKinsey and Company and educational services that optimize facility enconsume as much energy as 20,000 people and I advocate corporate average datacenter efergy efficiency without requiring additional capshould be proof alone. While the acquisition cost fectiveness (CADE) as a simple business metric ital investment. Understanding how the airflow for servers is continually declining, the total for consolidating IT and facility asset and enerand cooling dynamics of your datacenter is causcost of ownership (TCO) for housing, powergy efficiency. Using a 40,000 ft2 datacenter, the ing energy waste is the first step in recovering ing and cooling them has increased by 500 percash flow savings using one set of proven asstranded capacity and freeing your company to cent since 2000. These costs are obscured by IT sumptions amounts to $144 use the computer room best and facilities accounting silos, which makes efmillion over four years. practices our engineers have fective financial management grossly ineffiAchieving these savings reperfected over 30+ years. cient, and often results in poor or suboptimal quires eliminating existing Upsite’s introductory investment decisions. perverse organizational intwo-hour overview session, Increasing server TCO is an enormous ecocentives as many of the which looks at the fundamennomic problem for the productivity of IT, and if largest savings opportunities tals – hotspots, bypass airflow, not addressed, one that could compromise your lie between existing organiand cooling margin available – competitive advantage and bottom line. zational silos (not only those will empower your organizaEnergy consumption is a proxy for datacenter between IT and facilities, but tion with a wealth of valuable investment. Driving energy consumption down dealso the many functional diagnostic and remediation Kenneth G. Brill fers or eliminates future investment in additionsilos within IT itself). These information that I can guaranSee Kenneth G. Brill, Revolutionizing al datacenter capacity, which is currently actions will not happen tee will yield OpEx and CapEx datacenter Efficiency at consuming 50 percent or more of IT’s capital exwithout the appointment of savings. In other words, you www.uptimeinstitute.org/revolutionizing _update. penditures. Controlling ever-increasing dataan energy czar empowered have an enormous amount to center CapEx investment and OpEx energy costs and accountable for driving gain, in terms of both dollars requires accountability, in the form of a toprapid change. and hidden capacity, by approving your energy down reduction mandate. It’s not that your One of the first projects a new energy czar czar’s pursuit of a third-party datacenter energy efcompany expects or needs you to personally should undertake is a datacenter check-up in ficiency evaluation. After that, combined IT and fagrasp the precise details of energy-efficient IT each of the four IT/facilities quadrants of the cility savings of up to 50 percent are not too and facility best practices, but it ought to deCADE matrix. Identifying energy inefficiencies unreasonable.

I

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Litigation up, costs down?

New technologies are enabling corporations to significantly control litigation cost.

By Major Baisden, President, Iris Data Services.

D

espite mass layoffs at a number lection, culling, processing and review of of large global law fi rms and electronically stored documents to determine a global economic downturn, their relevance to the legal matter in question. litigation is predicted to be on e-discovery costs can generically be broken the rise again in 2009. According to a study into two major components – processing by the international law fi rm Fulbright & Ja(the cost to collect, convert to a usable form worski LLP, litigation has been spurred by the and produce data) and review (the legal cost alleged misdeeds on Wall Street, fallout from required to review the data). Historically sub-prime lending and even by cash-strapped these services, particularly document review, companies. have been expensive. In turn, this has driven Interestingly, litigation is also being used corporations to source more competitive, alas a way to control assets; as cash flows and ternative solutions to monolithic e-discovery credit tighten, companies can use litigation practices. as a vehicle to delay payments. “Litigation Those alternatives are starting to emerge. is often used by companies Innovative e-discovery comas a cash flow tool to avoid panies have been able to drapaying money out,” explains matically reduce cost by using Ted Greeno, a partner in the newer technologies to not only London office of Herbert convert data into a usable form, Smith, LLP. “Sometimes they but also significantly reduce just litigate for longer simply the number of man-hours it to hang on to cash.” Th is spike takes attorneys to review large in litigation bodes well for law quantities of data, thereby fi rms looking to rebound, but shrinking the overall cost of is worrisome to corporations litigation. Iris Data Services already stymied by budget has positioned itself at the lead Major Baisden is the founder and President of Iris Data cuts, smaller profit margins of this growing trend.

Services. He is recognized as an and increased costs of doing One of the largest factors industry expert in electronic business. in reducing processing costs discovery and litigation technologies.

It is no secret that one in the e-discovery industry is of the most concerning asvirtualization. Iris utilizes a pects of increased litigation is the high cost network infrastructure built on virtual maof handling vast amounts of electronically chines, a technology that makes it possible stored information for discovery purposes. for one processing server to perform the work First emerging in litigation in the 1990s, the of several, allowing data processing to be perhandling of electronic discovery was codified formed substantially quicker by distributing by the US Congress in December 2006. These necessary tasks to multiple processing units changes to the Federal Rules of Civil Proceworking in tandem. dure brought greater burdens on litigants to Although the ability to convert data into a review and produce all relevant documents, usable form in a more efficient and less costly adding layers of time and expense to even the manner signals a great advance, there still most benign legal confl icts. remains the immense cost of actually reviewElectronic discovery involves the coling the data. Review applications that can be

accessed via the internet have provided efficiencies in allowing large teams of attorneys to review documents in concert.

A leading tool within the eDiscovery space which has remedied this laborious burden is Unify by Iris. Unify affords attorneys the ability to credibly and defensibly

“It is no secret that one of the most concerning aspects of increased litigation is the high cost of handling vast amounts of electronically stored information for discovery purposes” review documents that are related to one another in bulk. Specifically, Unify allows the review team to group and simultaneously mark documents that are ‘nearly’ identical, are part of the same conversation thread, are attached to each other and more; thus cutting the time necessary to do a substantive review by more than 60 percent, saving tremendous amounts of attorney cost.

As the amount of litigated matters increase in the wake of the turmoil within the fi nancial markets, coupled by the downturn in the economy, corporations must keep fully abreast of technologies and service providers that will allow them to control costs, while still providing their legal counsel with the tools necessary to complete their work, meet stringent court deadlines and zealously represent the interests of their clients. Virtualization and review applications like Unify are leading methods of meeting these goals.  Unify is a trademark

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STATE OF THE UNION:25 June 07/07/2009 13:26 Page 92

THE BIG DEBATE

STATE OF THE 92 www.busmanagement.com

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UNION

Amid widespread job losses and credit woes, it’s unsurprising that union membership is on the rise, jumping to 12.4 percent of the nation’s workforce last year. Yet while such organizations undoubtedly provide a valuable role in safeguarding employee rights and welfare, are they stifling America’s economic ambitions? www.busmanagement.com 93

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labor unions can have a crippling If the Detroit auto debacle has taught us anything, it is that unions still relevant in today’s impact on American companies’ ability to compete. So are time to re-evaluate their role? Business hyper-competitive global business environment? Or is it out.

Management canvases the opinion of four experts to find

JAMES SHERK

DAVID MADLAND

Bradley Fellow in Labor Policy at The Heritage Foundation

Director of the American Worker Project at the Center for American Progress

s. In order to Unions don’t make money grow out of trees for their member any other like raise their wages, what they do is form a labor cartel. It’s just prodtheir of cartel or any other monopoly; they want to restrict the supply wages. the raises uct (in this case, labor) so that there will be fewer jobs, which OPEC, But a cartel only works as long as there’s no competition. Think of oil so of supply which does the same thing with oil. They try and restrict the nonthese all that consumers have to pay more at the pump. But if you have get a actually OPEC nations producing oil the cartel breaks down; they can’t the It’s rate. higher price for their product, and they’re stuck with the market cartel the down same thing for unions. If you’ve got competition, it breaks higher wages. and your members are forced to accept market rates rather than not someIt’s nt.

And that’s what’s been happening to the union moveme d comorganize thing the unions like to publicize, but actually in most newly wages. higher panies once the workers vote for a union they don’t get any then under; go y Why is this? Well, the union doesn’t want to see the compan not try they so they don’t have any more union members paying dues. And means, that to negotiate contracts that put firms out of business. What as soon though, is that they can’t negotiate contracts that raise wages because say, just ers as the firm tries to pass on the wages to the consumers, consum under.

“Oh, we’ll buy from this other company,” and the firm goes United That’s what’s happened to the Detroit automakers here in the obviis which , States. They were paying $70 an hour in wages and benefits e auJapanes the ously a great compensation package if you can get it. But workers n America tomakers operating in the United States using non-union wages – have – making between $40 and $50 an hour, still extremely good what compebeen able to undercut the Detroit manufacturers. And so that’s ers to consum tition does. Competition kills the ability of the union to force pay higher prices in order to fund their higher wages. honest.

I would argue that the place of a union is to keep management goes, saying the as Workers should have the option of joining a union because, out threat that “Management gets the union they deserve”. It’s good to have not and jerk a there, that the workers can form a union if the boss is being there isn’t treating the workers with respect. But in terms of an economic role, that much use for them. more If unions had fantastic training programs that made workers much ecoany be t productive and that’s how they raised wages, then there wouldn’ cara forming by nomic harm. But the way unions attempt to raise wages is the So y. econom tel, which we know from past experience is not good for the overall the to way unions try and raise wages for their members is harmful and causes economy, and ultimately it’s harmful for their own companies them to become less competitive.

is totally false I think the idea that unions aren’t relevant in a global economy d the increase has – in fact, there’s even more need for them. Globalization to able be to power of management and capital, and so in order for workers tocome to able bargain for their share of productivity gains, they need to be gains. gether in unions and have some power to get their share of the in to Certainly, companies need to be competitive and need succeed sure I’m that. e order for workers to succeed, and I think most unions recogniz absolute best you can find instances where they do things that aren’t in the around the interest of the company, but the basic argument that workers ng against world need to reduce their demands because they’re now competi in supmade are each other is deeply flawed. Those same kinds of arguments decent a workers port of abolishing the minimum wage. But really, paying pay you when wage can be a competitive strategy, and there is evidence that your workers a higher wage you get greater productivity. probAnd while I’m sure unions did some things that contributed to the made ment lems in Detroit, the major part of the problem was that manage peothat s some really terrible decisions. They just weren’t making product ple wanted to buy at the prices they were trying to sell them. ent In fact, there are plenty of companies that have good labor-managem few a just are relations – Harley Davidson, AT&T and Kaiser Permanente effecgreat examples of how workers and management can work together ies in compan tively to be globally competitive. Unfortunately, far too many ned embolde ly the United States, especially in recent years, have been political whatdo can es by right-wing ideology that’s promoted the idea that executiv society. For ever they want, whenever they want, regardless of the costs on –minimum all at the past eight years our labor laws were hardly enforced had so ment wage and overtime violations were rampant, because manage much power. now is At the core of our economic problems in the United States right econothe drive that workers don’t have the purchasing power they need to unions have my; in order to get workers greater income and benefits, labor ed to incontinu an essential role. For the past 30-plus years, productivity has just They ive. crease quite rapidly. Workers are becoming ever more product haven’t gotten very much, if any, of that share. manSo how do you enable a better relationship between the union and United the in s agement? That’s a very good question. One of the problem don’t think States is that there are many corporate executives who really be unionshould unions have a right to exist, don’t think that their workers ed, and recogniz ized and so continue to fight the union even after it has been recogto key: the that certainly is detrimental to any relationship. So that’s ng somethi have nize that both parties have a right to be there and exist and to together valuable to bring to the table. You need both sides to be working really succeed.

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STATE OF THE UNION:25 June 07/07/2009 13:26 Page 95

STEPHEN CABOT

RON BLACKWELL

Chairman of the Cabot Institute for Labor Relations

Chief Economist of the American Federation of Labor and Congress of Industrial Unions

The labor union that represents the employees at a particular company negotiates a contract. And the contract includes what one can and cannot do as an employer, particularly with regards to protection of employee rights. And while the issue of protection is not necessarily a problem in itself, sometimes the protections protect the bad employees as opposed to the good ones. Those that are really performing don’t need a union and don’t need a union contract. It’s the slackers that do.

Here in the United States, we have the most anti-union relationship between business and labor out of all the OECD countries. The United States actually has some of the most competitive companies in the world, but our national economy is not competitive as we’re borrowing five to six percent of our GDP to pay for the things that we consume that we no longer produce. I think restoring this country’s competitiveness is one of the fundamental challenges for establishing a more sustainable basis of growth going forward, and I think unions make an enormous contribution to that.

So for example, if you need to make layoffs, as you often do in a tight economy, the layoffs under the contract are made by seniority. If a union wasn’t around, a good management team would look at what work needed to get done and retain the best employees to do it. Under the union contract, it’s a case of the least senior gets laid off first. There are many examples where unions restrict management’s ability to manage as effectively as it could.

We hear a lot about the need for businesses to be more agile and more flexible in order to compete, but unions are restricting that ability. The automotive industry is a case in point. If you take a look in the United States, some of the most successful companies –Toyota in Georgetown, Kentucky; Nissan in Smyrna, Tennessee; Honda in Marysville, Ohio – they’re non union. And these companies are able to make decisions that impact operations more effectively, more efficiently, more quickly. At GM and Chrysler, you see that their inability to be as flexible in virtually every way as the likes of Toyota is materially having impact on their business.

The union movement really hasn’t changed much since the 1930s. We have legislation today that protects people. If they get laid off, they get unemployment compensation insurance. We have protections against discrimination because of age, sex, race or union activities. So many of the reasons for unions have gone out the window. The only place where unions have validity today is where an employer is stupid, insensitive, uncaring and unresponsive to the needs of employees. Then there’s a role for labor unions.

But what’s happened is that companies today better understand that employees are their most important resources. They are more enlightened in their management style in trying to build a positive culture. And so as a consequence, for companies who understand that – and most do – labor unions are irrelevant. It’s where employers are operating and managing in the dark ages, where they abuse employees, that unions might have some relevance.

But that’s one in 1000 companies today. The companies I work with don’t operate that way.

If employees begin to see that the non union employer can be trusted and that there’s a positive company culture, the role of unions diminishes. In this instance, many employees decide that they no longer want a union, so when a union begins to see that positive cultural change, one of its strategies is to try to make things adversarial again and agitate.

The stronger that unions become and the more people who are in unionized environments, the greater the risk of an increase in the types of productivity issues that we addressed earlier. It will adversely affect our sustained positive recovery.

There’s a huge reservoir of information about the performance of companies that is locked up in the specific skills, knowledge and commitment of workers, but this is largely neglected in the way American companies are managed, because management tends to think that workers are ignorant or stupid or at least can’t be trusted, and therefore need to be supervised. And there’s no incentive in our industrial relations system for workers to offer that knowledge to management, since there’s no guarantee that it won’t be used against them.

What a union does is provide protection for the workers to share the knowledge that they have to help companies do things differently and do the things they do better, and that’s one of the keys to competitive success. One of the things that we’re going to have to do to make companies competitive in the United States is to base our competitive strategies on innovation – doing new things and doing the things we already do in newer and better ways. That means changing the way we work. The workers will resist those kinds of changes unless they know that their interests are protected in the enterprise, and that’s what unions provide.

It is very tempting for a company faced with falling markets to take the easiest route to try to regain competitiveness by cutting costs – and the largest part of those costs are compensation costs. And unions get in the way of taking that route because we believe it’s very shortsighted, particularly for a highstandard country like the United States. We are not going be able to compete by offering low wages; there’s no way American workers can compete with Mexican workers, much less Chinese workers, doing the same kind of thing.

Instead, our competitive success has to be based on innovation.

Innovation is difficult, and management is right in the middle of that. How do we make new products, while increasing the quality of the products we offer and at the same time generating better customer service? How do we deliver products and services in ways that startle consumers and really build demand for those? That’s hard. Running a big business is a hard business, but running it as an innovative enterprise is an extremely challenging thing for management, and the temptation is always to take the low road to competitive success – to try to compete by cutting costs.

Unions keep them from pursuing that kind of strategy and force them to compete with each other on a high-road competitive strategy. And when they take that strategy, their company’s gonna be more successful, the workers obviously are gonna have more job security, but the national economy is gonna prosper because they’re producing the kind of product and delivering the kind of services that enable us to be a world-leading economy. n

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Talent management How efficiently your human resources department manages the impact of the economic recession could decide the fate of your firm in these tough times. Rebecca Goozee takes at look at what’s happening in the top performing HR organizations and the role HR is playing in keeping employees motivated and ensuring talent stays put.

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hether or not the economic recession is behind us, there is no doubt that many companies are still experiencing the full effects of a damaged economy in every function of the firm, including human resources. While tackling the challenges of a recession, the HR department is also charged with ensuring that employees stay inspired and motivated, even in today’s tough times. And while some aren’t doing so well, others are rising to the top, as demonstrated

by the companies on this year’s Fortune 100 Best Companies to Work For list. So just how and what are these companies doing differently?

According to Fortune, culture continues to be the most important aspect of what makes a company great. And topping the list was NetApp, the San Francisco-based data storage and management company that has been steadily rising on the list for the past six years running, and continues to grow revenues while boosting employee morale.

NetApp’s SVP of Human Resources, Gwen McDonald, believes that HR will continue to play a pivotal role in ensuring that employees stay

The gamechanging potential of HR

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motivated and productive during the downturn. “We continue to focus business strategic objectives, whether that’s recruiting, performance on effective communications so our employees understand what’s going management or employee relations.” on with the business and what we still need from them in terms of drivEdge goes on to explain that the economic crisis has created new ing our business forward,” says McDonald. priorities in human resources at FedEx. She sees much more emphasis Keeping employees engaged and now on performance management and on communicating with them keeps them technology to deliver training or informamotivated, suggests McDonald, who tion. “There’s more emphasis on the leaderhas been working on a number of difship pipeline because even though we have ferent ways to ensure that employees this economic crisis, we still have a large feel valued at NetApp. First of all is generation of baby boomers who will eventuthe quarterly meeting that is facilitated ally retire. They may have delayed retirement

by CEO Dan Warmenhoven and COO for a year or two, but eventually they will be Tom Georgens, which gives an overview leaving the job market and we still have a high of accomplishments the quarter before focus on growth, especially internationally, and focuses on priorities for the upcomso I do believe that those new priorities have ing quarter. been highlighted by the current economic “We have also been creative in situation,” she says. looking at social media,” explains McGoing on to explain how the company Donald. “We have in place what we call is working on the value of leadership and Gwen McDonald NetApp Live, which is an opportunity performance management as priorities, Edge for employees to ask questions andfor reveals where the company is looking to step us to find out what’s on their minds. We up. “We’re pushing the visibility of executive also have video on demand where various leaders talk about business opleadership teams and we’re increasing recognition for employees and portunities and address key areas for employees. Also, our intranet keeps ensuring an open channel with them,” says Edge. “It’s not that we didn’t top of mind on critical areas, from business to HR and marketing. We’ve have that before, it’s just that we have recognized the importance of found various levels of communication that keep our employees engaged having these things in place now more than ever before.” and we continue to focus on how effective we are at communicating.”

Edge goes on to say that she sees many companies struggling with While historically NetApp has seen double-digit growth in terms performance management tools that are perceived to be effective at disof both revenue and the number of employees, the economic situation tinguishing performance across an array of different levels. FedEx has has meant that, from an HR perspective, it has been possible to stop and had a performance system in place for a number of years and is currently look at the company’s transformation. “This pause has allowed us to step undertaking a full review of it to see if there is a better way to structure back and look at some of the areas we need to improve to ensure that our performance management at the organization. “We want something that HR organization can continue to play a role in helping with business and provides leadership with a visible dashboard that those leaders can look change readiness,” explains McDonald. at and monitor on a monthly basis to see how their objectives are cascad-

“This pause has allowed us to step back and look at some of the areas we need to improve to ensure that out HR organization can continue to play a role in helping with business”

Changing priorities

Nick Mutton, Executive Vice President of HR for Four Seasons Hotels and Resorts, maintains that programs that recognize the best employees in both customer service positions and “heart of the house” positions are a mainstay of employee morale. “We also recognize the special efforts of those employees who go out of their way to resolve guest or fellow employee issues,” Mutton says of the hospitality giant. “At a time of slower promotion opportunities, we encourage our employees and managers to cross-train in different positions to expand their skills and adaptability.”

For Judith Edge, Corporate Vice President of Human Resources at FedEx, the recession highlights the business benefits that the function can bring to the business. She believes that HR should be a strategic partner proactively collaborating with different business units and operations. “We work closely with legal, finance and other teams so that we are able to analyze data, spot trends, identify risks and opportunities and then help develop action plans to address those opportunities,” explains Edge. “We also work to ensure that HR priorities are aligned with key

Top 10: BEST COMPANIES TO WORK FOR Even in the current recession, some companies are going out of their way to please employees. As Google slips to number four, 2009 sees a new number one.

1. NetApp 2. Edward Jones 3. Boston Consulting Group 4. Google 5. Wegmans Food Market 6. Cisco Systems 7. Genentech 8. Methodist Hospital System 9. Goldman Sachs 10. Nugget Market

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Top of the pile You’ve topped Fortune’s 100 Best Companies to Work For list.

What does this mean to you as a company?

Judith Edge, Corporate Vice President of Human Resources at FedEx: “It really is our report card because a lot of the selection is based on an anonymous survey, so it’s a real affirmation that our leadership team is delivering and it’s a signal to us that we’re continuing to do the right things, even though it’s a difficult economic time.”

Gwen McDonald, SVP of HR at NetApp: “It’s reinforced the reputation of the company.

We believe that we have a company that is unique and that our culture is our critical differentiator and being number one is a validation and a confirmation that our employees have a great experience.”

ing down into the organization and how those employees that have input into the accomplishment of strategic objectives are contributing and progressing towards completing those deliverables.”

Mutton agrees that new priorities have emerged during the downturn, and admits that Four Seasons is focusing on learning and training, despite a reduction in training being among the seven most popular actions companies are taking in this recession. “We aim to be a learning organization,” he says. “We continue to make training priorities top of our list and are constantly reviewing our programs to find efficiencies to ensure they are relevant, job-specific and create measurable outcomes.” Mutton goes on to explain the importance of e-learning at the company, pointing out how effective and relatively inexpensive the program has proven to be. “We are also continuing our middle and senior management learning programs in anticipation of our continued and rapid growth,” he adds.

At NetApp, McDonald has also been reviewing training and is looking at different methods of delivering training, given how critical the function is, particularly in tough times. “We’ve looked at how we should continue to deliver training, but we’re also trying to balance out costs and our ability to stay within budget. We’ve seen a drastic reduction in face-to-face classroom training and we’ve spent more time looking at e-learning and web-based learning. Employees absolutely need to continue improving their skills, particularly around project management and cross-functional boundaries; leadership, for example, is key for us to sustain but we’re simply looking at alternative delivery models.”

Leadership

Nick Mutton, Executive Vice President of HR at Four Seasons: “We are honored by this kind of recognition. It validates our efforts and we are thrilled to have achieved this status in many countries around the world.”

Over at FedEx, Edge considers there to be two main training categories: critical training such as leadership development, and continuous training that is important but that is not necessarily critical, such as presentation skills. In terms of the former category, Edge is keen to continue delivering it, and while not in the exact vehicle she would like, she has been utilizing technology so employees can have access to training online, which is a lot more economical than traditional classroom learning.

“I do think it’s important to maintain programs like leadership development, and as such we have maintained two of our critical programs, Purple Pipeline and Excel. The first is a development program for high-potential managers who

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we want to develop and move up in the organization, and the second is targeted at those at the vice president level who are looking for promotion and to move up in the organization. So we have taken action to use different delivery methods for our important training, but we have managed to maintain what we would call our critical or essential training.”

What impact does this focus on training have on employees? Edge believes that employees appreciate the continued focus on leadership development. “During these tough times we’re asking people to do a lot more, so when you recognize an employee for a special program like Purple Pipeline or Excel, it’s flattering to be nominated for that because only a limited number can go into those programs and it’s a way for us to recognize top talent while continuing to develop their leadership.”

Edge goes on to explain about the online system at FedEx called SkillSoft, which delivers 2000 different training courses that are open to all employees from home or at work, allowing them to continue developing their skills. “Employees become more marketable and are always able to continue developing their careers at FedEx, so I think those things have gone over in a very positive way,” adds Edge.

NetApp also faced an employee reduction earlier this year: on February about six percent of the global workforce was cut. McDonald cites the global economic crisis as the driver behind evaluating several areas in the company that were not performing adequately. “We looked at balance in terms of how we continue to look at cost and the move to lower cost areas like India,” she explains. “The second area we are looking at is around emerging markets and how fast you get into those markets given their solvency, Challenges which is vital given the current situation.”

Beyond training, there are a number Recruitment has also been an issue, as compaof challenges that the economic crisis has nies are unable to recruit as they normally would, highlighted – including tough decisions resuggests Edge. She reveals that while FedEx is garding a reduction in the workforce. With committed to reducing costs, they are not willing the unemployed count going up daily in the to compromise on service and so the organization US, this is an especially tough challenge, is still working to ensure FedEx’s position in the particularly when you consider that how long term with expansion plans. “FedEx Express companies handle this tricky situation will just improved its international domestic services also reflect back on them. Last December at into Mexico and in China we began operations FedEx, Edge had to reduce the number of at our new $150 million Asia-Pacific hub,” says personnel and the number of work hours at Judith Edge Edge. “There’s still growth going on and I’m sure FedEx Express and FedEx Freight networks that’s true of many companies out there, I just in a number of locations. By streamlindon’t think it’s as intense as it was.” ing information technology systems and As the strategic partner in the business dealing with all other arms making pay reductions, it was possible to minimize the further impact of the company, the HR function will always be under pressure to ensure to employees across the enterprise. that the firm as a whole is working to the best of its ability, and keeping But in March, FedEx was forced to take another employee action. employees motivated and giving them opportunities will always be a big While it impacted less than one percent of the workforce, it was still a part of how well the firm is working. It is critical that HR is visible with tough decision. “We’ve been able to ensure highly competitive severance employees. With a high degree of influence over key decisions made in packages, outplacement services and opportunities to apply for other the company, it is also integral that HR take a leadership role in driving positions at FedEx and I think by taking those actions, we’ve been able to performance management through the organization, particularly given preserve our culture while addressing the challenging issues that face so the current state of the economy. n many different companies today,” says Edge.

“There’s still growth going on and I’m sure that’s true of many companies out there, I just don’t think it’s as intense as it was”

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SUCCESSION PLANNING

The

X-factor The succession of Anne Mulcahy at Xerox has been described as a model case in succession planning – so what has the multi-billion dollar document management giant done to ensure a smooth handover? Rebecca Goozee investigates.

O

n 1 July 2009, Ursula Burns takes the reins from Anne Mulcahy as the CEO of Xerox. As Mulcahy’s handpicked successor, Burns will face many challenges in the current climate, not least of all remaining ahead of the pack in the document management sector. However, the succession itself appears to be an extremely smooth transition of power to an heir that has been apparent for some time, which well may be one of the secrets of the succession’s success.

Angèle Boyd, responsible for IDC’s worldwide research in the areas of imaging and output, has been following the company for many years.

She believes that it became overt over the past two to three years that Burns was being groomed for this position. “However, it’s only now that it has become apparent that Ursula was groomed for much longer than

we thought – in other words, she’s always been viewed as a promising individual within the organization,” says Boyd, who goes on to explain that Mulcahy had to figure out a few years ago who would take her place and what those candidates could bring to the Xerox boardroom.

When Burns was made President in April 2007, it was then that Mulcahy sought advice to defi ne each of their respective roles and responsibilities. “While Anne was CEO, Ursula was one notch behind as President. It was a very open and honest discussion, and what they concluded is that Anne would focus on the customer and Wall Street side of things, whereas the focus for Ursula would be more on operations and product development,” says Boyd. “They carved out their individual roles that made sense for them and that’s why there’s been such an open dialogue. The other thing is that during the whole

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turnaround process, Anne depended on Ursula quite a bit, no doubt because of Ursula’s background, strength and understanding of the product portfolio, particularly around what needed to be done and where there were holes.”

And while Mulcahy leaned on Burns, it seems the same is true the other way round. According to Boyd, Burns clearly saw how Mulcahy brought the team together and kept the entire company – not only her management team, but the employees – motivated and focused, like a true leader. “Whether she had those talents or not, Ursula had firsthand experience, which was par none in terms of relevance for going forward as the new CEO.”

Successful succession

The transition of Mulcahy to Burns is a stark contrast from when Mulcahy took up the position herself. In 2000, then-CEO G. Richard Thoman resigned after only a year due to the pressure of attempting to execute a turnaround. Mulcahy succeeded him, as she was President at the time, before then-Chairman Paul Allaire stepped back as CEO until 2001 when Mulcahy officially became CEO. With this in mind, Mulcahy wanted to ensure that her succession was a completely different affair: well planned

and with as little disruption to the organization as possible.

Beverly Behan, the founder of Board Advisor, worked with Mulcahy back in 2001, when she first became Chairman and CEO of Xerox. “She struck me as someone who would be a superb mentor. Moreover, she cared deeply about the organization that she was leading. One thing that I always thought made Anne an outstanding CEO is that, as a

“Ursula had firsthand experience, which was par none in terms of relevance for going forward as the new CEO” Angèle Boyd leader, she always put Xerox first. It was never about Anne, the person, it was always about Xerox – and you certainly can’t say that about every CEO,” says Behan. “With that combination of excellent mentorship capability and a deep, fundamental care for the future of the organization she has led so well up to this point, it is hardly surprising that her succession has been so well planned.”

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THEN AND NOW Behan believes that there are two things in particular worth noting about this particular succession. As Mulcahy identified Burns fairly early on in her own tenure as having the potential to be her successor, it gave Burns the opportunity to function in a role that provided a corporate-wide perspective. “It’s well known that executives who are ‘siloed’ in one business unit or role often don’t begin to operate from that corporate level until far too close to the point of succession itself,” explains Behan. “Moreover, Anne gave Ursula challenging assignments to prove herself, both to the board and her Xerox peers, including downsizing the workforce by nearly 40 percent and fi lling gaps in product offerings that enabled Xerox to be more competitive in selling to small and midsized businesses.”

Secondly, Behan believes that one of the things that Mulcahy found valuable prior to assuming the CEO role at Xerox was having the experience of sitting as a board member on other public company boards. Behan herself believes that this is an extremely valuable experience for any new CEO to have as it provides a perspective from “the other side of the board table” that can be beneficial in working with your own board as CEO. And Mulcahy herself had served as a member of boards for Target, Citigroup, the Washington Post and Fannie Mae, she ensured that Burns also sat on some outside public boards as part of her own development, including American Express and Boston Scientific, although she resigned from the latter upon being named CEO of Xerox.

A SHOCK DEPARTURE?

R

obert Nardelli’s sudden departure from Home Depot in 2006 was a sharp disruption to the Fortune 500 giant. When Nardelli came to Home Depot as CEO in December of 2000, much was expected of him. While he was well trained in finance during his long career at General Electric, he increased Home Depot’s return on capital impressively, to almost 20 percent, and stock was right where it was when he got the job six years earlier, the company market value had actually fallen by 40 percent. The bottom line was that although Nardelli had increased both revenues and profits enormously, investors didn’t believe he could invest increasing amounts at an attractive return in the future and his blunt, critical and autocratic management style turned off employees and the public.

By bringing someone in to run the company, Home Depot was ignoring some of the key points of succession planning – that the individual needs some experience of the company culture, and the company needs to know exactly where the strengths of the candidate are. In this case, Nardelli’s poor public relations led to his downfall.

When Mulcahy took up the position of CEO at Zerox back in 2001, the company was in a precarious position. Bringing the organization back from the bring the out-going CEO improved income by a huge $300 million. How, and if, Burns manages to improve on these figures remains to be seen.

Market cap: Employees: Net income/loss: Revenue:

Then $5.78 billion 78,900 -$71 million $17.01 billion

Now $5.95 billion 57,100 $230 million $17.61 billion

Source: WSJ Market Data Group

Anne Mulcahy

Ursula Burns

Importance of selection

There is no doubt that the selection of a CEO is arguably one of the single most important decisions any board makes in terms of its impact on an organization and its value to shareholders. Ensuring that there is an internal executive talent pool that has the capability to be effective in providing leadership to the company is essential. In the past, when boards were less focused on good succession planning and found themselves caught with no internal candidates, they were forced to go outside the company for a new CEO. There are several downsides of this: often a new CEO could be a mismatch to the company in terms of both corporate culture and other factors – Robert Nardelli at Home Depot is a classic example of this (see boxout).

So what are the key steps to ensure that leadership in an organization is transferred correctly? Behan believes that the first step is for every member of the Board of Directors to become engaged early on, at least three to five years in advance of an anticipated CEO transition. “In thinking about what the real requirements will be for the organization in terms of the next CEO, identifying a pool of potential inside candidates, assessing how each of these ‘stacks up’ against the future CEO requirements and ensuring that steps are taken to close the gaps between an executive’s current state of readiness and the real requirements of a CEO job,” explains Behan.

Looking at Xerox this typically involves giving the executive work assignments that force him or her to develop professionally and broaden their capabilities to the point that they can be successful in a CEO role.

“It can’t be done in a couple of months,” advises Behan. “For example, if the next CEO really needs to have international experience and your top

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two candidates have only had domestic assignments, sending someone and while they’re sometimes a little early with a technology or product, to Brussels for six months won’t give them the depth you need; you are they eventually pave the way and other vendors follow them because looking at a two year assignment. And after that, a potential promotion they create the market opportunity. So I don’t expect any immediate to Chief Operating Officer or President for another 18-24 months before change in that.” you can make that person CEO. If you don’t get started at least three to What everyone will be looking at, however, knowing their respecfive years out, you become very limited in terms of the grooming you can tive strengths and backgrounds, is how or if the services side will do for your high potential executives – and that can often compromise change going forward, because Burns’ strengths are much more on your internal candidates the hardware part of the business. “I’m and force the board to going to be very interested to see what will have to go outside of the happen with the services strategy going organization.” forward – whether her attitude will be to By ensuring that continue letting the people run that side the board is involved of the business run with it as opposed to in the decision-making giving hardware a higher priority, because process earlier it means the businesses has changed and services that all parties are have become incredibly important. I’m aware of the issues and curious to see what will happen to their get engaged, allowing services strategy in general, and whether all kinds of criteria to she’ll give them as much clout in the stratebe accounted for that gy going forward. It is assumed that Ursula perhaps wouldn’t have will continue to focus on the importance been otherwise. “Whenever I work with a board on CEO succession of services because she knows the signifiance of it and she’s seen how it planning, I begin by interviewing every member of the board, the has become a core part of Xerox’s strategy.” current CEO and all the key players on the executive team about the Top of Burns’ to do list is ensuring that she continues to take Xerox criteria for the next CEO and the potential candidates to fi ll that role. in a visionary direction, as this is what the company is known for, but Th is ensures everyone is involved in the process and brings multiple also to execute this flawlessly and continue to take market share. Exlenses to the situation, which are extremely valuable, particularly at the actly what Burns will do and how she will go about it remains to be outset of a succession planning process,” says Behan. seen, however, if her future at Xerox is as well planned as her succession Boards often see internal CEO candidates through a very narrow she will be a textbook CEO.  window at board meetings, off-sites and informal board dinners, and many board members are asked to make The key steps to a smooth transition judgments about their potential to become a CEO based Yaarit Silverstone, Managing Director of the Accenture Talent & Organization on this. However, increasingly these processes are changPerformance Practice believes that there are a number of critical steps to ing and boards are demanding multiple perspectives on ensure that leadership in an organization is transferred correctly: candidates to better inform their own judgment, including formal third party executive assessments, feedback • Critical positions (e.g. CEO, CFO, CTO) requiring succession candidates are from the board and the CEO comparing the candidate identified and the list updated on a regular basis to the actual criteria they have developed. “In the case • High-potential individuals are nominated as succession/leadership of Xerox this involved Anne giving Ursula challenging candidates by senior executives and managers assignments, as a means of not only broadening her de• Mentors are assigned to each succession candidate to guide and assist velopment but as a proving ground,” believes Behan. with their development

“With that combination of excellent mentorship capability and a deep, fundamental care for the future of the organization she has led so well up to this point, it is hardly surprising that her succession has been so well planned” – Beverly Behan

Moving forward

Boyd is convinced that Burns’ move into the CEO position will not result in any major changes for Xerox, at least not straight away. With a strong strategy in place, it doesn’t make sense that Burns would feel she needed to make her mark by creating waves, adds Boyd.

“The strategy has been unfolding ever since Anne took over and brought the company back from the brink, and it’s a very good strategy that is currently in place – they’re a very visionary company, and they’re bold.

They tend to lead the industry as opposed to follow it,

• The list of succession candidates is reviewed and updated regularly, based on the performance of the candidates • Candidates are removed from the succession list when they repeatedly fail to progress on their development plans, or their performance is lower than expected for an extended period of time • Open leadership positions are filled from the list based on the candidate best suited for the job • Candidates are given rotational assignments and job experiences that will help them develop the skills required for a leadership role • The succession planning process is regularly monitored and updated as required

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KORN FERRY:4jUne 07/07/2009 13:25 Page 106

INSIDE BUSINESS

Communicating the vision Gary Burnison, CEO at Korn/Ferry International, shares his thoughts on the current climate as well as some of the leadership skills needed to succeed in today’s corporate environment.

T

alent management is complex, particularly in today’s business environment in which mergers, acquisitions, world events and market trends can demand instantaneous change and the competition for highly qualified employees is increasing. The current downturn adds an additional level of complexity. So how do you balance your staffing development needs with basic business survival? Korn/Ferry CEO Gary Burnison believes the two are inseparable.

“Leadership is about making the organization more productive by impelling others to act,” he explains in this exclusive interview.

How are the needs of your clients changing?

Gary Burnison. Over the last several months, many executives have been in survival mode dealing with this recession. In this environment, cash is not king, but God. However, the best companies often make their boldest moves during turbulent times and we have seen a number of great leaders enquire about how they can keep their people motivated during these times, or how they can creatively compensate their talent now that cash isn’t as readily available. Others have come to us looking to use the recession as a time to upgrade talent or to implement talent-related programs to drive cultural change.

What steps should organizations take to cultivate, grow and keep the best talent?

GB. Irrespective of the current recession, our research indicates that the drivers of retention remain fairly consistent through economic cycles.

Ultimately, people want to be part of something – a common purpose, a journey. Today’s professionals are concerned with individual and organizational growth. They want to be treated equitably and will seek out and stay with organizations that provide them with ongoing development, career opportunities and professional challenges.

Employers need to have a continuous focus on developing and engaging their talent. Think about it as an ‘annual contract’; over time, this focus turns into loyalty and long-term commitment. While monetary incentives must reach a reasonable threshold and competitive levels, they are secondary drivers of retention for most people.

Korn/Ferry seems to be in the midst of great transformation. Can you share the strategy with us?

GB. As Korn/Ferry completes its fourth decade in business this year, our offerings have evolved over the past several years as talent management has grown increasingly complex. Today, we are doing a great deal more than just helping our clients attract great leaders. Our flagship service remains executive recruitment, in which we are ranked number one in the world, placing

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more than 10,000 professionals a year across all industries. But we have expanded to a broader business model and today, our non-search offerings – Futurestep and Leadership and Talent Consulting – comprise more than a quarter of our overall revenues.

Our strategy with our clients concentrates on four key areas: attracting, developing, retaining and sustaining key talent. By attracting, we emphasize the importance of offering a premier career destination for executives and employ the latest science and technology to ensure the best fit between candidate and the organization; developing focuses on creating a lifetime of personal career learning, coaching and advancement; retaining looks at maximizing employee engagement, satisfaction and creating a competitive and rewarding compensation structure; and sustaining pulls all of these elements together to create a long-term platform and culture within our clients’ organizations that is centered around talent development, advancement and positive morale. These are exciting times for Korn/Ferry.

How has leadership evolved over time?

GB. There’s no doubt that the stakes have been raised for today’s leaders and laser focus has become critical for effective leadership; with so many options and directions, prioritizing can be extremely difficult. Small changes can have big results if you identify key issues on which to focus and execute relentlessly against them. To do this means you have to say no to a whole range of alternative opportunities. It has also become clear that a crucial component of leadership is energizing the employee base – unquestionably the most important natural resource an organization has. Leadership is about making the organization more productive by impelling others to act.

On that note, what is the role of the leader today?

GB. As much as things change, the more they also stay the same. Whether the pilot is flying a Boeing 777 or the Wright Brothers’ Flyer, it is the person rather than the aircraft that makes the flight successful. Despite all of the technological advances of the past 100 years, people make businesses successful.

Today’s leaders must do many things. They need to set and communicate the vision and strategy for their organization; they need to anticipate and navigate the turns in the road and they need to celebrate the organization’s successes. More importantly, they need to inspire others based on their actions, not their words. They need to listen, learn then lead, not the other way around. Leaders need to engage their teams and provide others with a sense of purpose. Leadership is not easy, but for the companies that have devoted the time to attract, develop and prepare their leaders, they will be poised to power through the curve and take their companies to new heights in the years ahead. n

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“There’s no doubt that the stakes have been raised for today’s leaders and laser focus has become critical for effective leadership”

INDUSTRY INSIGHT

Moving into the

spotlight

H

ow much influence do you have over your team’s climate? Plenty.

The Hay Group has found that a leader has 50-70 percent influence over the climate of the team. The leader is the ‘emotional thermostat’ for the team, setting the focus and team mood.

A leaders’ influence results in bottom line differences. In some studies team climate has explained up to 28 percent of the variance in bottom line results. We have found though, that just about every leader has under estimated their influence over others. What that means is they have underperformed, their teams have underperformed and their organization has underperformed. Drastic results because of leadership oversights and missed opportunities.

Directing the spotlight

All succession and leader development programs include executive coaching to help leaders create a high performing climate and maximize a leaders’ influence. In a recently released study of coaching with 2165 clients from 64 countries, coaching yielded on average a seven to one return on investment. So if you spend $100,000 on executive coaching for four of your top leaders you can expect a $700,000 return with increases in productivity, higher morale, promotion from within and talent retention.

We coach executives about ‘work leadership balance’ and identifying the key leadership actions that need to be done daily. These leadership tasks can be done quickly but often get relegated down the list in favor of the pressing issues, but not so with great leaders. They maximize their time and influence by shining their light and using focused micro-initiatives to create macro impacts. When done regularly these small actions keep a team motivated, productive and wanting to please their leader.

Dr. Relly Nadler, CEO of True North Leadership, Inc., believes that great leaders have a spotlight and to be used it in a disciplined and focused manner to achieve outstanding results.

SPOTLIGHT ERRORS Why is it that a leader has under-utilized their influence capacity?

We have seen five errors common for leaders at all levels.

First error: every leader is under a spotlight 24-7. What they say and do gets read into and interpreted whether they know it or not. So not only are they under the spotlight, they have a spotlight that can shine bright on employee’s efforts and accomplishments. Error one is many leaders don’t realize they have a spotlight that can enhance individual and team performance so their potential influence is diminished.

Second error: leaders don’t realize that their spotlight is always on. What they chose to focus it on magnifies in importance. One manager we worked with was very collegial with her employees and after work occasionally would go out for drinks with her team. After a few drinks she started bashing her executives as she felt she was with her friends. She was still their boss to them after hours and offsite. She eventually got relocated once the executive heard about her ‘leadership actions’.

Third error: leaders use their spotlight but in an undisciplined manner, focusing on too many things. Everything is urgent and important, thus employees and the team are not sure what is most important to prioritize. A leader needs to be clear to their team what is important now and why. ‘Connecting the dots’ for employees provides clarity, purpose, focus and accomplishment.

Fourth error: leaders use their spotlight but on everything that goes wrong.

Often leaders are targeting problems and use their spotlight to zoom in and highlight problems. This laser focus on problems and not also on solutions leaves employees sweating under the lights of their perceived interrogator. Anxiety, fear, intimidation and tentativeness then can take the place of confidence, risk taking and initiative for better performance.

Fifth error: leaders focus on strengths but not enough. Leaders don’t give the clarity and specificity for employees to know exactly what to do next time.

Great leaders use a metaphorical highlighter to state exactly what they liked, why and the benefit or impact to the company, customers or clients, the team, the employee and the leader, so it can be repeated.

Call or email for more information: 1-805 683-1066 / www.truenorthleadership.com

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INDUSTRY INSIGHT

Putting muscle behind executive education Beth Cliff, Director of Executive Education at the Northeastern University College of Business, explains how executive education can be worth the investment.

that combines our faculty expertise with cutting-edge learning process and design.

• Strong client relationships. Companies want to know we can deliver on what we say.

Nothing speaks more to this issue than our client list. We bring these organizations and their employees into partnerships with us so they can learn from each other, and take advantage of graduate business scholarships and other services for their employees.

T

oday’s news is all about the winds of change in the economy, and how we all need to tighten our belts and dig deeper. A natural place for companies to look these days is at their executive education budgets, and to trim the fat. Eliminating fat is always a good practice; the trick is not to cut into the muscle. And in our experience, executive education programs that are designed and delivered correctly can be just the muscle needed to drive an organization forward.

At Northeastern University, there are a number of elements we feel make for strong executive education programs, which we share here. We urge decision-makers to consider these elements as they determine their executive education investments for the year ahead.

• Practical. We have a bias towards applied learning. Takeaways should be immediately relevant and useable. As we design our programs and determine faculty, we strive to ensure we use pragmatic tools, frameworks and exercises.

• Customized. We believe real value is offered when workshops are customized to

•

•

•

•

meet the specific business challenges of our clients, which is why we don’t even offer ‘off the shelf ’ programs. We use active client work in our programs whenever we can.

Delivering business results. Success for our clients is not just “Wow, that professor was really interesting” but also, and more importantly, a positive answer to the question “Did this help us reach our business objectives?”

Broad content knowledge. Business challenges do not follow the curriculum of a business school. Usually they are a blend of cross-functional or cross-disciplinary issues. Our clients can access university resources and expertise that extend beyond our business school whenever necessary.

Multiple delivery options. Because every client has different operational needs, we offer multiple delivery options for all our educational programs, including accredited online learning.

Numerous partners in the learning space.

We have developed relationships with outside faculty, consultants, practitioners and executives who can supplement our inhouse expertise as needed. In this way, we are a one-stop learning shop for our clients

• Industry expertise. Clients gain assurance knowing our faculty is accustomed to working in their industries. We are deliberate about working in certain industries and investing in them purposefully.

• Key focus areas. Business schools can have disciplines for which they are well-known, and it is often advisable for clients to tap into that knowledge when possible. At Northeastern, we encourage clients to get to know our faculty in our areas of strength so they can leverage – and at the same time contribute to – their research and expertise.

• Easy to work with. We do all we can to listen to our clients needs and respond accordingly. If we’re too difficult to get on the phone or meet with, the relationship becomes more distant, and the program, too, can move away from the client’s objectives.

• R apid and responsive client engagement.

We strive to turn things around quickly, adjust our plans to meet client requirements, listen and respond to their suggestions, and flex as situations develop. We’ve come to see this as a significant success factor in our work.

In summary, armed with the right approach (practical, customized and resultsoriented), the right faculty (industry and area-focused) and the right executive education partner (quick, responsive and flexible), a company can’t help but provide top-notch educational experiences to their executive teams.

In times like these, this is precisely the muscle that’s needed. n

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HUMAN RESOURCES

Out of sight, not out of mind With record layoffs in the current recession, more organizations are recognizing the value of staying in touch with former staff members. By creating and supporting corporate alumni networks, companies are able to leverage talented employees and build a lifelong affiliation.

W

hen employees leave an organization, managers often wish them well, relationships end and businesses ignore a highly valuable resource: corporate alumni networks. “Now, more than ever, companies are investing in alumni social networks as a way to retain access to talent that they have been forced to layoff,” explains Anne Berkowitch, CEO of SelectMinds, a corporate social networking solution. “Former employees represent future hires, partners, brand ambassadors, customers, mentors and more. Maintaining these relationships can be extremely beneficial to organizations in the areas of staffing, branding and new business development – ultimately representing millions of dollars in measurable benefits.”

When you look at the value and cost savings an organization stands to gain as a result of an alumni social network, it far outweighs the upfront investment. Deloitte, for example, reported savings of $1.6 million in headhunter fees due to the 31 recruits it found through its alumni network. “One of our large professional services firms identified $180 million in new business through alumni relationships in just one year,” confirms Berkowitch.

Investment

While there is no denying that times are tough right now, companies are continuing to invest in alumni social networks. Berkowitch believes that this is because forward thinking organizations want to invest in people and technology in ways that will give them an advantage when the market turns. “When the market recovers, there will be an urgent need to hire quality talent very quickly. Those organizations who have an alumni social network will find themselves ahead of the curve since they already have a highly vetted and qualified candidate pool in their alumni network,” she says.

The investment in this technology may seem pretty huge when sites like Facebook and LinkedIn exist, and allow companies a branding presence on the internet with alumni who may be on those sites. However, Berkowitch believes that building engaged relationships with alumni members requires a more targeted and personal approach. Most companies are only comfortable with deeper information exchange on private and secure networks, where all members are authenticated and controls can be used to target and moderate interactions. “At SelectMinds we en-

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courage our clients to have a presence on LinkedIn and Facebook – as a way to funnel alumni to their private corporate alumni networks, where they can have full access to all alumni data and manage outreach on a highly targeted, more effective basis,” says Berkowitch.

KEY DIFFERENTIATORS FOR SUCCESSFUL PROGRAMS

Benefits

clearly differentiate good corporate alumni

Dr John Sullivan has identified 10 factors that

While the benefits of corporate alumni networks are obvious for the organizations that set them up, why are former staff members interested in joining a corporate alumni? Well, particularly in a down economy, people turn to those they know and trust for information. A corporate alumni social network, sponsored by the company itself, is a place where former employees can safely and securely build relationships with former colleagues, access industry information, job opportunities and knowledge, as well as network with their former peers. The corporate alumni is a trusted and valuable source of information and place of interaction that they cannot get elsewhere.

“Our client alumni social network statistics speak for themselves,” explains Berkowitch. “Over the past six months, for example, our client alumni social networks have experienced on average, an increase in usage of 65 percent. One of our clients, Hewitt Associates, was launched in December 2008 and within the first four months, more than 2600 alumni were registered on the site, which was double what they had expected.

These numbers demonstrate the level of interest among alumni in joining and utilizing these networks.”

programs in his report Corporate Alumni and

Rehiring

8. Electronic capability: Key programs must be web-based

“There are all kinds of good reasons, especially with top performers, to maintain an alumni database, but more than that to actively manage an employee’s exit from the company in a positive way and then try to maintain some type of rapport with them going forward,” says Allan Schweyer, President of the Human Capital Institute. “It’s not unusual to return to a former place of employment, particularly when you’ve left it on good terms. And a smart company doesn’t begrudge good people who

TOP FIVE According to Anne Berkowitch, CEO of SelectMinds, the top five advantages to becoming part of a corporate alumni network are: • Access to highly relevant career marketplace, both job opportunities and candidates • Access to privileged content not found elsewhere: intellectual capital and professional development resources • Ability to ask questions/search for information from highly relevant and trusted individuals • Continued social and professional association with a brand, organization and culture – particularly in the case of strong brands • Corporate perks offered to employees and extended to alumni

Boomerang Recruiting Programs Are Hot Due to Layoffs:

1. A strong business case: The program needs to be

perceived as a business initiative, not another HR fad

2. Prioritize alumni: The best programs prioritize their

alumni based on their future value to the organization

3. Use technology: Use software or tools to keep track and maintain the relationship

4. Dual focus: Focus on rehiring alumni and using them for business development purposes

5. Utilize social networks: The best programs use multiple channels to reach target talent

6. Use metrics: Metrics are used to drive continuous improvement

7. Rehire rate: 10-20 percent of all hires should be

boomerangs directly traced to the alumni network

9. Dedicated webpage: A webpage should be designed exclusively for corporate alumni

10. Diversity: Information and options should be flexible to fit individual needs

leave, especially as they are going away and will probably pick up great experience somewhere else.”

Rehiring former employees is an extremely cost efficient way to source talent and save organizations a significant amount of money.

Rehires can cost less than half to employ compared to an outside hire, saving companies thousands of dollars per hire; statistics show that they will also come up to speed almost 50 percent faster than outside hires as they know the business and how to navigate through the organization.

Rehires are proven to stay twice as long as outside hires in a position, with many staying for the remainder of their career since the decision to re-join the organization is a much more informed decision on both parts. In one year alone, for example, Deloitte rehired 31 people found in its corporate alumni network and Hewitt Associates recently reported that in just six months since their launch, they have successfully rehired nearly 30 alumni.

Due to advances in technology, the cost of operating alumni programs is quickly going down, while the ROI is higher than ever. By keeping in contact with many valuable employees it is possible to continue to drive business and maintain a valued and worthwhile connection for both employees and employers alike. 

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MARKETING FOCUS

A change of focus

The world’s undisputed king of photography, Eastman Kodak, recently made a successful transition into the digital age. A huge part of that transformation was down to the way the company’s CMO, Jeff Hayzlett, changed how the company communicates with its customers. By Rebecca Goozee

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A

s one of the most visible and active social-media fans in the CMO business, Jeff Hayzlett believes that social media has the power to grow a brand, strengthen relationships with audiences and keep a finger on the pulse of what’s happening with the business. And nowhere has this been more evident than at Kodak.

When Kodak was going through it’s transformation from a film and print company to a digital one, many functions in the company played a role in making that transition a successful one, including decisions to downsize, cut jobs and an increased focus on B2B customers, marketing came into its own, particularly the use of social media.

“Overall marketing itself has changed,” explains Hayzlett. “At the same time that Kodak was going through its transformation, marketing was going through a big change – mostly driven by the internet gaining more and more of a shift of the way in which we reach out to people online. We’ve seen a real shift away from traditional television ads to more viral types of campaigns, which has been a fundamental transfer. And at the same time, Kodak was getting its mojo back making for an exciting time quite frankly.”

There were undoubtedly challenges in moving from a film and print company into a digital one, but by putting a program in place it was possible to change the mood of the company and align goals to ensure everyone was working together and in the same direction. By leveraging a number of themes it was possible to generate a great deal of energy and enthusiasm in Kodak.

“One of the themes we focused on was around spend,” explains Hayzlett. “When you’re a company the size of Kodak you have hundreds of millions of dollars that you spend in the marketing area. What we’ve done is got much smarter in the way in which we spend it, so we reduced our supplier spend, but we’ve increased our external investment in making Kodak much more visible to our marketplace.”

Hayzlett put forward the idea of FAST, standing for focus, accountability, simplicity and trust, which also denotes speed. “When you go through a lot of change inside a company sometimes people become afraid to act because they want to be sure they are doing the right thing.

The FAST mantra was that even if we mess up, let’s do it and let’s do it faster. It got employees focused on what their jobs were and what they needed to do.”

By changing the mood of the company it was possible to achieve one of the biggest turnarounds in business history. Sixty percent of business today is now B2B compared to four years ago when it was around 30 percent. Eleven digital product lines now provide around two thirds of the

revenue and more than half of those products didn’t exist four years ago.

By comparison less than half of the revenue came from digital products four years ago.

Why did marketing play such a huge part in the turnaround? According to Hayzlett it is because the Fortune 500 giant is an extremely marketcentric company in that marketing is the only function that can bridge an idea all the way through from production and delivery to the customer.

“Marketing is very much like the chief customer officer in the respect that marketing strategy is involved in the evolution of Kodak. It’s really leading the effort to move beyond the US into critical markets like the UK, Russia, China, Australia, Germany and France – marketing is the Calvary officer that’s out front leading the horse charge,” smiles Hayzlett.

An unconventional approach

While marketing is clearly key at Kodak, Hayzlett is renowned for his love of alternative and innovative marketing techniques. So why has he chosen to embrace so many social media tools? “Because they work!” he laughs.

“Social media has been around forever but its recent transition to the internet has made it a great way to communicate with customers.”

By shifting the discussion from a one-sided sell it has been possible to engage, educate and excite potential customers with new and improved products. Rather than calling an 800 number customers can directly interact with Kodak and share their ideas or problems.

Jeff Hayzlett “We’ve been opening up dialogs in different ways and they’ve helped us spread the word. It’s amazing to watch conversations on Twitter for instance.

Someone will say they are looking at an HD video camera and then immediately people will reach out to this person and give them advice about the best product. It’s exciting and it’s helping to fan the flame of the fire that’s already taking hold.”

Aside from Twitter, Hayzlett is involved with Facebook and Flickr, as well as number of tools to monitor and participate in different ways, such as TwitterBerry and TweetDeck. “I use a number of tools and it’s really amazing, because I wrote something yesterday in one of my tweets regarding TwitterBerry, and then someone said, have you heard of UberBerry, so now I’m checking that tool out too. All of them are great for getting the message out there.”

Hayzlett originally started using social media to keep in contact with his family and let them know where he was. And he soon figured out that Facebook was a great way to keep in contact with employees. “Social media was just such a great way to be connected and share our lives,” he explains.

“And then I found out, wow, I’ve got this great big Kodak community at my fingertips, with 20 percent of our employees on Facebook alone, which

“Kodak has a better bond with customers than ever before and that’s because of the way in which we are able to communicate with them”

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was phenomenal. It gave me direct access to them, without any filters, and I started getting all these followers and it’s just taken off from there, it’s just I’m doing a little bit more of it.”

That said, Hayzlett is unsure to how much time he devotes to social media. “I just don’t keep track of it,” he admits. “I just know I do all of it myself, nobody else does it for me, and that I spend enough time to get what you need to get done done. That’s the best way to describe it, and you know, I used to spend a lot more time on the telephone and I don’t do that anymore and I see myself doing more along these lines than I do now by email.”

Hayzlett is a firm believer in the power of narrowcast marketing and admits that it has had an impact on the types of media that he continues to use today. “Narrowcast marketing is very much in line with one of the best marketing techniques that we can use. So while direct mail is an older media tope it provides a 13 to one ratio on your return on investment,” he says. By applying the same kind of rules to newer media types, Hayzlett is able to help their customers focus in on customizing and individualizing products. “It’s all about recognizing the individual customer and narrowing your message down to meet the individual needs of that individual person. What we try do is make the experience as personalized as possible.”

The use of social media has certainly played a part in making Kodak’s communications more personalized. Indeed, Hayzlett believes that having conversations with individual customers is vital to forging a relationship and providing a personalized service. And that conversation doesn’t always have to be a good one for that relationship to flourish. “We fi nd that social media has helped us fi nd customer complaints, which is great because it enables us to go about fi xing them, as opposed to

WHAT THE ANALYSTS SAY

S

heryl Kingstone, Director of Yankee Group’s Enterprise Research group and with an expertise in customer centric strategies, believes that 2009 is the year that social media will solidify its place within the realm of traditional business applications. In her report, Enterprises Need to Say ‘I Do’ to the Marriage of CRM and Social Media, Kingstone says that although social media is a disruptive technology, its real benefit will come when businesses incorporate it within day-to-day customer lifecycle processes to engage in real-time customer conversations.

She reports that social media is forcing enterprises to make substantial changes to sales, marketing and service.

Now companies are using social networking sites such as LinkedIn and Plaxo – which started as professional networking communities – to create their own enterprise social graph to improve sales opportunities. Kingstone cites reduced sales and support costs and increased richness of the customer relationship resulting in CRM software independent software vendors as having to embrace the changes social media is bringing or else face becoming less strategic to corporate goals.

Source: www.yankeegroup.com

before when we wouldn’t have known about those things,” says Hayzlett.

“Kodak has a better bond with customers than ever before and that’s because of the way in which we are able to communicate with them.

Nobody wants to be treated like a number and we don’t want to treat our customers like that because they’re people and they’ve got special information or memories, and we want to help them whether they’re a B2C or B2B customer.”

A HUMAN FACE Biz Tech Daily named Hayzlett a top 20 Twitter All-Star for business and he is one of the few executives followed on ExecTweets, but what does this mean to him?

“It’s both scary and exciting,” he explains. “It’s exciting to be included in such great company as Sir Richard Branson, but it’s also a great honor and it’s reflective of the new spirit of Kodak. Social media has helped put a human face on Kodak, and usually with such a big company you don’t always have a face to reach out to, so we have people, as well as myself, that are using social media tools to connect and engage with customers.

“It’s really a great honor to be seen as somebody who’s really on the cutting edge, and I think that’s a great thing for Kodak.”

Looking ahead

In terms of moving forward, Hayzlett is looking to continue building customer relationships in a much more intensive way, by “turning up the volume”. He hopes to focus on a few key messages and get the entire marketing organization and all the external partners executing those key ideas. “We’re re-energizing our marketing communication and evolving into a truly social organization. You’ll see it through the appearances on Celebrity Apprentice and you’ll see it more on our blogs and through other social media.”

Internally Hayzlett is working on mykodakworld.com, an internal website for the company’s 27,000 employees, to engage and activate the workforce to become brand ambassadors for Kodak. He is also looking to improve training around cross-promotion. “We’re starting to a lot more cross-promotion that we’ve ever done before, because you know that if a customer buys a camera then they will want a printer.

They’ve made a decision that Kodak’s the best brand, so therefore we can sell them other products under the same umbrella.”

The Kodak transformation has been one of the biggest turnarounds in business history, successfully combining elements from HR to R&D to marketing, to make a stronger and more relevant company to today’s market. “We’ve been doing the best to get the word out and integrated out products to make Kodak a part of the story, and we’ve done that effectively in a number of markets, in Celebrity Apprentice for example, where we’ve used branded content to get the word out to those viewers.” When you look at the success that the company have seen it seems obvious that social media is a truly effective way to spread the word. 

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OPERATIONS

Chain of command

Capgemini’s Global Supply Chain Planning 2009 report provides insights into trends in the economic downturn, and reveals why supply chain visibility is vital for CEOs.

I

n a market faced with increased volatility and variability in demand, supplies and lead times, improving supply chain planning (SCP) can significantly lower inventory levels and maximize product turnover. That was the conclusion drawn by Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, based on the results of its recently released Global Supply Chain Planning Study 2009. Nevertheless, the study – based on responses from 120 supply chain executives from around the world – finds that even when faced with difficult market conditions, supply chain planning is not being given the focus essential to navigate these challenges successfully.

Despite the fact that supply chain planning is viewed positively as a source of competitive advantage and a critical decision-making function by some – 67 percent of

participants indicated that changes in planning processes were key to improving the overall performance of the supply chain – more than half the respondents perceived SCP as nothing more than an important support function or a back-office execution process, suggesting that planning is not being prioritized as it should be by most organizations.

Collaboration is one of the most important factors in effective supply chain management. However, less than 30 percent of respondents involve customers and less than 20 percent involve suppliers in their demand and supply planning processes. Very few organizations are sharing critical information like actual stock levels and gross demand or production plans with their suppliers, relying instead on forecasts and purchase orders to do the job. As a result, accomplishing end-to-end

“Effective planning is crucial to achieving a truly world-class supply chain, which in turn determines the success and often the survival of organizations in the current global market”

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supply chain integration, both internally and externally, still remains a dream for many.

“Effective planning is crucial to achieving a truly world-class supply chain, which in turn determines the success and often the survival of organizations in the current global market,” says Steve Lambert, Global Leader of Supply Chain Planning at Capgemini Consulting. “The traditional supply chain challenges of balancing operational costs, working capital, agility and increasing service requirements are more important than ever, and this is where the opportunity lies for SCP to really innovate and orchestrate the entire supply chain, to effectively achieve the goals of the business and gain a competitive advantage. By giving SCP the attention and resources it deserves, companies should be able to dramatically improve services, quality and costs, which at this time are vital areas of focus.”

Supply chain in the downturn

The global economic downturn presents more challenges for the supply chain function than ever before. Top trends in the market, as reflected by the survey, include increased requirements in terms of customer service, collaboration and transparency, with a strong focus on logistics improvement and globalization. Indeed, the biggest challenges in supply chain management can be directly traced back to the globalization of supplies and markets. With 81 percent of respondents confirming they source at least 10 percent of their supplies from outside their borders, the scale of the challenge faced becomes clear.

In addition, the current global operating environment presents a unique set of potential supply chain risks that are intensified in the economic downturn. Perhaps most notably, while the risks associated with commodity-price fluctuation and availability are well recognized and incorporated into the planning process, exchange-rate fluctuations are not. Also, a significant majority of organizations do not consider energy use, reverse flows/returns, carbon footprint and logistical delays due to natural and geopolitical factors as critical to their planning.

KEY FINDINGS SCP is not yet universally seen as a strategic, decisioncritical activity, with the majority of respondents viewing it as simply a support function, and very few respondents considering their organizations to be innovators or best-inclass in planning Most organizations are not factoring in the increased risks associated with the tougher economic environment Though most companies recognize that close collaboration with partners and customers is key to success, many have not defined mechanisms to accomplish this and struggle to achieve end-to-end supply chain integration both internally and externally A significant majority of respondents do not utilize sophisticated and fully integrated tools for their planning processes

Significant challenges persist

Th ree-quarters of survey respondents indicated that their organization has regular sales and operations planning (S&OP) processes in place. However, the report also fi nds that considerable challenges still remain in implementing these. For example, data availability and accu-

BUSINESS BENEFITS Capgemini’s experience in implementing improved demand and supply planning capabilities for major automotive and industrial manufacturers has shown benefits to the tune of:

10% 20% 56% $100m increase in service levels

reduction in total inventory levels

drop in finished goods inventory

improvement in working capital

racy continues to be an issue. Necessary data often cannot be readily located, is inconsistent or only exists in fragments, which make it difficult to interpret. A major contributor to these data issues is a lack of adequate IT functionality to support the S&OP process. More than a third of respondents were missing S&OP functionality in their current planning systems, while the vast majority relies on ERP reporting capabilities or spreadsheet analysis for S&OP data reporting.

In addition, with the move to a more globalized model, the trend towards offshoring means more supply resources are being shared across enterprises than ever before and so the ability to run an interdivisional, global S&OP process is becoming increasingly important.

However, the survey’s results indicate that single global S&OP processes are not being widely adopted. Less than one-third of respondents had a single, global process in place for S&OP that spanned all regions and divisions. However, integrated planning tools, providing an insight into real-time data, can play an important role in improving supply chain efficiencies.

“The macro environment in which organizations and their supply chains operate in is fraught with major challenges,” says Lambert.

“While there is a recognition of those challenges and need for solutions at the executive level, misalignment between IT and business groups is creating obstacles for implementing effective solutions. The basic planning process is getting done, but only a few are innovators in their planning approach. With increasing pressure and complexity resulting from global supply chains, process innovation and planning as a differentiator could be leveraged to turn the supply chain into a competitive advantage.

By applying new tools, technologies and techniques that are available to integrate supply and demand planning, companies can create a profitdriven planning and execution organization.”

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EXECUTIVE INTERVIEW

Improving procurement In an exclusive interview, Joseph Raudabaugh explains the importance of procurement in managing through the crisis, keeping costs down and maximizing business performance.

What are the main challenges for companies that are struggling to deliver procurement results consistently? How are you tackling these challenges at A.T. Kearney?

Joseph Raudabaugh. We typically get involved with a client at some trigger point, such as when a new CEO, COO, CFO or CPO wants to change the procurement game. The new leadership knows sourcing, knows that it can be done better and expects results – quickly. We collaborate with our clients – understanding their mandate, leadership style, culture and values – to deliver tailored, sustainable solutions. We change the positioning, tackle the inertia, bring visibility to more than 95 percent of the organization’s spend quickly, provide consistency, take on virtually all the addressable enterprise-wide spend and apply technologies appropriate to deliver the prize.

We also focus on leading-edge solutions.

For example, we use a collaborative optimization offering to help our clients set a broad range of business constraints, which allows suppliers to provide more options and better solutions. This approach unlocks more value for clients and suppliers alike.

Within each client project, we also incorporate quick hits, or near-term results. These have always been valuable in transformation programs that require a significant level of change management and involve building credibility over time.

Quick wins not only build support for long-term goals but also achieve the near-term results that companies need to weather the current storm.

Chief procurement officers are under pressure to keep purchase costs down and enhance the value of supplier relationships. What effect has the current economic crisis had on this sector?

JR. The current economic crisis is marked by unprecedented price fluctuations and a capricious supply base. This volatility, largely independent of sector and geography, magnifies the opportunities and challenges for CPOs. Leading CPOs are adopting commodity hedging strategies and capabilities to build in pricing predictability. They are also aggressively leveraging their buying power and consolidating their supplier base to stronger suppliers. The result: better terms with the same or lower risks.

Typically, companies might source 40 to 45 percent of their spend in a given year, but with the crisis, we are seeing leaders target more than 80 percent by the end of 2009. Additionally, CPOs are more actively engaging key suppliers to find joint cost-reduction opportunities, simplify touch points and processes, develop innovation opportunities and ensure supplier stability.

How do you see the procurement sector evolving over the next six to 12 months and why? What is at the top of your agenda during this time?

JR. We see two priorities: managing through the crisis, and focusing on long-term growth using collaboration tools and preparing for the ‘iGen’ workforce.

First, CPOs must navigate the crisis by conserving cash and managing supplier risk. Deep dives into complex spend categories that may have previously been off limits – such as legal, marketing and contractors – are generating amazing results and affecting how a company improves its long-term market competitiveness.

Second, future leadership requires getting ahead of the curve by connecting with iGens and adopting their collaborative networking tools. This generation, now entering the workforce, will fundamentally change how, where and by whom key decisions are addressed.

People who can perform real-time collaboration of design, sourcing, innovation and market intelligence will be the keys to business success. If procurement wants to continue on a journey to become truly strategic, it must adapt to these advanced technologies and demonstrate its ability to lead a more collaborative workforce. Collaboration technology and iGens will bring transparency to how we lead and operate, just as e-sourcing brought transparency to the negotiation process. n

“Quick wins not only build support for longterm goals but also achieve the near-term results that companies need to weather the current storm”

How does your solution help companies address the difficulties of the current market and maximize results?

JR. Because we do not offer standard, off-the-shelf solutions, we can be agile in helping companies customize an approach that best meets their unique business challenges, within their individual timelines and budgets.

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Joseph Raudabaugh is President of A.T. Kearney’s Procurement & Analytic Solutions unit.

With more than 25 years of industry and consulting experience, Raudabaugh supports global companies in addressing complex supply chain issues and in building leadership skills in procurement.

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FOCUS

A security officer sits guard near 25 boxes containing 1532 original documents, CDs and other records containing 65,000 pages submitted to the court in the suit against former Satyam CEO Ramalinga Raju. Raju resigned in January amid a scandal over a billion-dollar fraud that sent company stocks tumbling 70 percent.

What’s in a name?

Satyam had its woes, but remember the context, says Ovum’s David Mitchell.

L

ast month we learned that Satyam, the beleaguered consulting and IT services company, is to be rebranded as Mahindra Satyam in the next stage of its integration into Tech Mahindra. The new branding marks the start of the rebuilding exercise – one that will need to be approached with care and patience.

There is obviously residual value in the Satyam brand, sufficient for Tech Mahindra and the broader Mahindra Group to retain it in the new concatenated brand. Many had called for the Satyam brand to be annihilated, in a kneejerk reaction to the corporate governance scandal wrought on the company by chairman and founder Ramalinga Raju. This reaction failed to recognize that the majority of Satyam staff, not just customers and shareholders, were also victims of a scandal that they knew nothing about. On a day-to-day basis, Satyam continues to provide services to a large number of customers, with stability and certainty increasing since the Tech Mahindra acquisition was announced in April. It is those everyday customer interactions that represent the remaining value in the Satyam brand.

In our discussions with Satyam customers, with few exceptions, the reactions to the scandal have fallen into two camps. First, there are those who feel deeply disappointed, some say cheated, disheartened, upset and almost

entirely negative towards all things Satyam.

Second, there are those customers who remain happy with the Satyam teams who support them on a daily basis and who want the company to continue to provide them with the services that they need. As a general rule, those customers who had personal dealings with Raju fall into the first category, and those who didn’t fall into the second. However, business decisions need to be made on the basis of rational logic not on purely emotional grounds.

Initial indications are that Mahindra Satyam and Tech Mahindra will run as separate businesses. However, we expect that practical cooperation and cross-working between the companies will emerge. There are complementary capabilities within the companies – for example, the combination of the infrastructure managed services capabilities in Tech Mahindra and the application services from Mahindra Satyam.

What we hope to see emerging is a realpolitik where the two firms co-operate on deals where it makes sense for them and where the skills needed are genuinely complementary – this is already happening in places. This is practical integration rather than forcing through a destructive but theoretically sound integration strategy.

The post-acquisition integration in many companies turns into a territorial minefield where decisions are made in the interests of demonstrating decisiveness and a long-term

vision. However, this is not always the right thing and certainly would not be the right strategy for Mahindra Satyam and Tech Mahindra.

In the generic case, value can often be destroyed through hasty decision-making, and this would certainly be the case if Mahindra Satyam and Tech Mahindra were rapidly crashed together.

Beyond the pragmatics, the question of corporate culture will be the next talking point.

Each of the brands that make up the new Mahindra Satyam brand brings cultural heritage. Of the five values espoused at the launch of the new brand (‘good corporate citizenship’, ‘professionalism’, ‘customer first’, ‘quality focus’ and ‘dignity of the individual’), the focus on the dignity of the individual is, in our view, the prime one.

All of the other values will flow from here.

The Tech Mahindra team are patiently and calmly working through the problems that they inherited with the Satyam acquisition, even though it may be tempting to rush through and attempt to ‘fix’ all of the issues in a few weeks. It will take some time to work through the phases of understanding, stabilization, alignment, integration and growth that their plan will inevitably need to encompass.

There will undoubtedly need to be realignment in the Mahindra Satyam cost base, to cope with the revenue realities of today rather than the Raju-esque figures. When these cuts come – as they inevitably will – care will be needed to interpret them correctly. Major cost reduction could not be driven out of integration synergies in IT, marketing and other back-office functions – and the market should not expect this. Instead, it needs to be the service delivery functions that bear the brunt of any cost reduction, since they are where the biggest cost-line items can be found. Equally, the market needs to be careful about reacting adversely to any future Mahindra Satyam cuts. Significant cuts will be needed to realign delivery costs with real revenues. The market must recognize that these cuts will inevitably be designed to protect shareholder value, while still ensuring that customer commitments are delivered. n David Mitchell is SVP of IT Research at advisory and consulting firm Ovum.

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FOREIGN FOCUS

Boasting a skilled and educated workforce, vast reserves of untapped oil and gas and a young population, Iraq has all the raw ingredients to turn itself into an influential economic powerhouse. But does it have the political will?

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Land of opportunity It’s a fractured and fragile country scarred by bloody wars, the shackles of sanctions and a despotic regime. But with green shoots of peace and stability sprouting, the Iraqi government is beckoning foreign companies and investors to resuscitate the nation and unlock its riches. There’s no doubt this is the land of opportunity – but is now the time to finally put Iraq on the business map?

A

n unassuming blue Arabic and English sign hangs from the facade of a non-descript building in the now thriving Karrada district of the Iraqi capital, Baghdad. Inside, captivated brokers and investors gaze up at one of the 46-inch plasma TV screens flashing up ‘buy’ and ‘sell’ prices for abbreviated stock codes. A couple of grey-haired gentlemen gesticulate at the screen while others babble into their mobile phones. The stock exchange, a microcosm of capitalism and free enterprise the world over, has entered a new era in Iraq with the introduction of an electronic trading system – the first of its kind in the country and another milestone towards this nation’s gradual recovery.

Until recently, prices at the Iraq Stock Exchange (ISX) were adjusted using primitive white boards and marker pens, and a traditional open outcry system. With the newfangled technology, trades are executed in minutes instead of the two weeks and more it took for stock certificates to be issued under the manual method. “My first baby was establishing this stock exchange in 2004 but my second baby has been getting the electronic trading system,” the exchange’s CEO, Taha Ahmed Abdul Salam, reveals proudly with a broad smile.

A total of 91 Iraqi companies are registered with the bourse, but for the time being the shares of just three banks and two hotels can be bought and sold using the new platform. Around $270 million was traded last year – a miniscule amount compared to colossal financial centers like London or New York. Nevertheless, foreign investors (deterred by the old paper system) are now much more willing to take a punt on Iraqi stocks, says Salam. “I have investors from the US, Canada, Europe, as well as Arabs in the region and Iraqis living abroad, who have told me directly that they are very interested in Iraqi stocks now that we have this automation.”

Granted, the ISX going digital may seem a pretty insignificant development when you assess the destruction and carnage that this country has endured after decades of bloody wars, crippling sanctions and tyrannous rule. However, Iraq looks to be finally turning the corner as a new dawn beckons in this land of opportunity. This is a nation that boasts a skilled and educated workforce, gargantuan oil and gas reserves and land ripe for agriculture. It’s a young nation, too, with 40 percent of its 28 million people under 15 years of age. Indeed, Iraq has the raw ingredients to resurrect itself into a prosperous and influential country in the region.

And there has been no shortage of companies from all four corners of the globe eyeing up a slice of this juicy pie as the country begins to stabilize. Americans, Chinese, Russian, French, South Koreans, Brazilians, Australians and a whole heap more are vying for, or have already landed, lucrative contracts to build and repair the full gamut of sectors, such as healthcare, energy, transport, education, construction and telecoms, as well as rejuvenate basic services like waste management, electricity and water supplies.

Hussein al-Uzri, Chairman and President of Trade Bank of Iraq (set up in 2003 to facilitate reconstruction and international trade), says now is the time for investors to come to the country. “Iraq is open for business because most of the country is now quite safe and the time is right – we are also seeing Iraqi investors bringing their money back to the country. Iraq hasn’t had investment in infrastructure and industry for the past 20 years because of the sanctions so we need hundreds of billions of dollars.”

UK-based Kier Construction assisted in building a port in the south of the country back in the 1980s. Managing Director Phil Cave travelled to Iraq in April to assess opportunities and now feels the time is right for his firm to return. “There is definitely a change in the air and, notwithstanding recent incidents, the security situation has sig-

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nificantly improved over the last year. They are determined to move companies unfamiliar with doing business in the Middle East; and Iraq the country forward and have the means to underpin their priorities. has sustained a significant ‘brain drain’ with skilled professionals either It is evident that the government is working to overcome actual and killed in the confl ict or choosing to flee abroad to escape the bloodshed. perceived challenges.”

Then there are practical problems like unreliable telecommunications Iraq itself is shelling out $15 billion this year on modernizing its and a sporadic electricity supply, which are hardly conducive to a quick civil infrastructure, but the fly in the ointment is crude oil prices – recovery. tumbling around $100 from last summer’s record high. The sky-high “Essential services have not improved much,” concedes Mohamad price was seen as an oil bonanza that would provide an additional boost El-Tai, CEO of Iraqi satellite TV broadcaster Al Fayhaa. “Electricity is to state budgets. The subsequent nosedive forced overall 2009 spending still unstable and shut off several times a day, which constitutes a sigplans to be slashed from $80 billion to less than $60 billion, nificant problem affecting many aspects of the lives of Iraqis.” with some officials panicking about the country’s future Indeed, estimates suggest Iraq will need an additional spending power. The downturn is another reason 20,000 megawatts of electricity to repair the country why the Iraqi National Investment Commission is and provide power for new homes and businesses. It looking to attract $500 billion of foreign investcurrently produces 6750 megawatts of intermittent ment by 2015. It could include overseas fi rms supplies but a slump in oil revenues has left a $2 being allowed to own land (as opposed to the billion shortfall in the budget assigned to develop of Iraq’s population current leasehold arrangement) in a bid to make power supplies. is under 15 years of investment in the crumbling country a more atPutting the troubles to one side, El-Tai believes age. Its median age tractive prospect. investment opportunities for overseas fi rms, paris just 20.4

40%

Risk-reward ratio

Despite its obvious opportunities for big business, Iraq isn’t without its problems and any would-be investor is more than aware of this. For starters, the regulatory and legal framework of the Investment Law 2006 appears fuzzy and vague in places to say the least, while government agencies and ministries don’t always sing from the same hymn sheet when enforcing the laws. Also, the security situation, although vastly improved compared to the bloodbath witnessed just a few years ago, spiked again in April and May with a spate of deadly suicide bombings.

Bureaucratic red tape can prove a particularly vexing obstacle for foreign

oil accounts for a mammoth 95 percent of Iraq’s revenues

ticularly those involved in oil and gas, outstrip those of Iraq’s neighbors in the region. “Iraq is a promising market with numerous investment opportunities,” he asserts enthusiastically. “The foreign companies have a strong and competitive wish to invest in Iraq and the government has put forward facilities to encourage this.” He is also upbeat about the country’s future when asked to gaze into his metaphorical crystal ball. “I am optimistic, despite the difficulties that Iraq and Iraqis are facing at present. I believe the tremendous riches of Iraq – be it oil, gas or other minerals, agriculture and water resources – will enable the rebuilding of the country very quickly.”

The Iraq stock Exchange is looking to attract foreign investment with its new automated system

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As the spearhead in the invasion of Iraq in 2003, the United States has benefited the most from lucrative contracts. Indeed, some $2 billion of American contracts have been signed with over 5000 private equity firms TIMoThY MIlls former President of the american in the last three years alone. Timothy Chamber of Commerce in Iraq and a practising international lawyer Mills, former President of the American Chamber of Commerce in Iraq and a practising international lawyer, has seen with his own eyes compatriots working to rebuild the country. hicles flooding in for the Speaking to Business Management from Washington prior to his latest reconstruction effort but departure for Iraq (his 111th visit since July 2003), Mills says the country’s has since looked elsewhere redevelopment is a bright light amid the global economic gloom. “The for private contracts. It’s attractiveness of business opportunities has increased as other areas of a similar situation with the world have retracted, but whether or not to work in Iraq comes down construction equipment to a risk versus benefit calculation for many company bosses.” But with manufacturer Caterpillar. thousands of companies from countries that played no part in the 2003 But whether you are rebuilding an oil refi nery or installing soft ware for invasion awarded reconstruction contracts, do the Americans feel any rea telecoms contract, Mills stresses the need for businesses to do their sentment? “There is a window open for all international companies,” Mills homework first or face failure. “If US companies have not been working responds diplomatically. “When you go to Iraq and speak to officials they in Iraq, either with the government or the private sector, then there needs might say they want an American company to carry out a $50-100 million to be a serious adjustment of the business model and they need to do project to rebuild a refinery or electric power station. But if a US company due diligence. It also means fi nding trusted Iraqi partners to do business won’t come and do it they will just find another firm from France, Russia, with and navigate the local nuances.”

China or wherever, that will. The need to find companies to do these Iraqi government projects always persists.”

Money matters As well as government projects, Mills notes that many US companies Although most industries are creaking, one sector lagging light who came over in the initial reconstruction phase have branched out into years behind its peers in the region is banking. In Iraq cash is king, the private sector. He says car giant General Motors (GM) originally set with people forced to hoard wads of dinars because the banking system up a maintenance facility in Iraq to service the tens of thousands of veis so antiquated. Transactions are carried out manually, branches can’t

“There is a window open for all international companies”

Iraqi airways is soaring again with new scheduled routes and destinations, including Europe

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communicate electronically with one another and ATMs are virtually nonexistent. Paying for goods and services with credit cards is a nascent payment option, too. Shirko Abid, an Iraqi Kurd and Chairman of B-Plan Information Systems, is introducing a much-needed electronic clearing system across stateowned Rafidain Bank’s 155 branches (55 in Baghdad). With the new system Abid says companies will be able to pay salaries directly into employees’ bank accounts, money can be transferred between branches and even withdrawn from Rafidain’s seven outlets abroad.

Rafidain, which holds 45 percent of the country’s financial assets, used to

Iraqi institutions. He believes Iraq’s lenders could eventually “leapfrog” other banks in the Middle East with modernization. He’s also an advocate of companies setting up in the region and building up a reputation and trust with customers. “Banks here don’t necessarily want to deal with companies flying in from the West, dropping software on them and then flying home again. They want partners who are committed to the region and committed to them as customers, and companies with Arabic skills and the right people to implement solutions.”

One of Misys’s clients includes al-Uzri’s Trade Bank of Iraq. He describes Iraq as being seriously “underbanked” when assessing the condition of the financial sector. “Iraq has less than 600 branches countrywide, which is very low compared to other regional countries,” he remarks. “Iraqis would be encouraged to have bank accounts if there were better services, better returns on their deposits and good credit policies to allow the banks to lend.” Al-Uzri is also a proponent of the banks playing a much more significant role in the economy and in terms of Iraq’s GDP.

stand proud as the Middle East’s largest bank before falling into a decrepit state.

Laurence Hargreaves, B-Plan’s Project Co-ordinator on the ground, is candid in his assessment of the archaic state of the Crude awakening banking industry. “Rafidain struggles Of course when it comes to GDP, Iraq’s most prized to function without a banking system and coveted asset is its enormous energy reserves. The Mohamad El-Tai CEO of Iraqi to manage its 4.5 million accounts,” he ramshackle oil sector brings in a mammoth 95 percent satellite TV broadcaster Al Fayhaa explains. “There is no communication of the earnings for a country with perhaps the largest system to enable any of the branches unexploited energy resources in the world. Iraq’s official to communicate to HQ, money can’t reserves are around 115 billion barrels (the third largest be transferred between branches and no unified products can be offered. in the world) but this is based on archaic 2D seismic surveying. AmbiThe legacy of Saddam Hussein’s regime and the two wars have left gaping tious estimates by industry insiders triple the outdated reserve figure, holes in the balance sheets that need to be filled.” Trying to repair the partly because only 17 of the 80 known fields have been significantly situation was taxing in the years following the fall of Saddam, suggests tapped for oil. If the ambitious estimates turn out to be true, Iraq would Hargreaves. “Until recently, the security situation meant that installacatapult to the top of the production league table, ahead of neighbour tions of such large new systems couldn’t be achieved and banks have had Saudi Arabia. “The reserves are not exaggerated – they are huge, and I to ‘make do’ with an incompatible range of legacy systems.” am optimistic that this figure will be higher than 115 billion barrels,” For Hargreaves, a reliable and trustworthy banking system is one of suggests Manouchehr Takin, Senior Analyst at the Center for Global the most basic requirements for building a secure and prosperous state. “Many people find it hard to comprehend that a country does not have a system that allows citizens and companies to store, transfer and invest their earnings.” Without reliable voice, postal or internet communications it has been very hard for any bank HQs to standardize – Rafidain is essentially a group of 155 individual banks all operating with unique procedures and systems, and most banks are in a similar situation. Being a government-controlled bank it is sitting on a cash mountain of $15 billion, which proves exHussein al-Uzri tremely hard to manage and invest without electronic clearChairman and President ing and a core banking system. “Every government account of Trade Bank of Iraq is held with Rafidain Bank so once Rafidain starts working, Iraq will start working,” Hargreaves explains.

Dubai-based Roy Froud is Head of the MEA region for Misys Banking, a global application and services company involved in upgrading and centralising operations at four

“Electricity is still unstable and shut off several times a day”

“We are seeing Iraqi investors bring their money back to the country”

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“The reserves are not exaggerated – they are huge, and I am optimistic that this figure will be higher than 115 billion barrels” Manouchehr Takin Senior Analyst at the Centre for Global Energy Studies

Energy Studies. “Some think it could be 200 billion or higher but these amounts are just estimates.” With rockbottom extraction costs, thought to be as low as $2 per barrel, and more than a third of reserves lying just 600 metres below the earth’s surface, you can just imagine the dollar signs flashing in the eyes of the bosses of the foreign oil majors. It’s a tantalising prospect, according to Takin: “Why go to harsh and inhospitable places in the world like the Arctic? It really is entering the unknown and despite all the costs that are incurred, you are not guaranteed to find oil. In Iraq the costs are low and the fields are already there.”

Iraq currently pumps around 2.4 million barrels a day (bpd), of which 1.8 million is exported. But although the industry overall is seriously dilapidated, Oil Minister Hussein al-Shahristani is confident that output can be ramped up to an ambitious six million bpd, although he openly admits that $50 billion will be needed to achieve this, along with the help and technical know-how of the international oil companies (IOCs). But there are still stumbling blocks: the long-awaited hydrocarbon law, a bone of contention between political factions, has been deadlocked for two years, the industry itself is in dire need of a skilled workforce and technology to boost production, while many facilities and pipelines have been sabotaged or damaged.

“I would say the oil industry is on its feet at the moment but the question is what needs to be done to get it to a brisk walk?” says Mills. “Iraq needs to rehabilitate refineries, explore new reservoirs and then extend the pipeline and port capabilities in order to export, so the IOCs will be key because this needs significant investment.”

Meanwhile, the autonomous Kurdistan has signed contacts with overseas oil companies to extract hydrocarbons, much to the anger of Al-Shahristani who has branded these deals as “illegal”. Tensions between Iraq’s leaders and the Kurdistan Regional Government (KRG) are strained to say the least. For the time being, the IOCs are busy preparing

and submitting their final bids to the Iraqi oil ministry for the technical service contract (TSC) award ceremony at the end of June. Those that land the highly sought-after contacts will be weighing up the costs versus the risks of venturing into the unknown. “Business in Iraq for oil and gas companies remains far from straightforward,” explains IHS Global Insight’s Senior Analyst, Samuel Ciszuk. “Despite the dramatic improvement in security over the past two years, Iraq still remains one of the most unsafe business environments in the world.” Security costs for IOCs and contractors with a significant physical footprint run in the range of $8000 to $10,000 a day, according to Ciszuk.

A large proportion of the recent bombings in Iraq have targeted oil installations. With the IOCs on their way in, there are serious concerns

Greasy palms Watchdog group Transparency International ranks Iraq as the world’s third-most corrupt country behind lawless Somalia and dictatorial Burma. Since the 2003 invasion Iraq has been dogged by accusations of dishonest business practices, including allegations that government workers absconded with billions of dollars planned for reconstruction, military supplies and food. Two years ago, the former head of the country’s anti-corruption commission, Radhi al-Radhi, suggested that some $8 billion had disappeared. Iraq’s anti-corruption committee investigated 12,000 complaints of government corruption and discovered the worst departments are the ministries of interior, finance, defense, education and health. However, the committee admits that the investigation barely scratches the surface of what goes on.

Iraq’s image has also been tarnished by the recent resignation of Trade Minister Abdel Falah al-Sudani amid allegations of corruption and embezzlement linked to the nation’s food assistance programme. Meanwhile, Prime Minister Nouri al-Maliki admits that his country cannot prosper until widespread corruption is snuffed out – a seemingly impossible task as it stands.

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‘Nothing to declare’

that a deadly bombing and kidnapping campaign could surface. “You have to analyze it on a case-by-case basis; structure your business plan accordingly with respect to your security precautions and security costs,” is Mills’ advice to foreign oil firms. “In vast reaches of Iraq the environment is what the military would call permissive. The military itself does not wear military gear and has declared these areas as safe, particularly such areas as Najaf, the south, Kurdistan and areas of Baghdad.”

It may not be the obvious destination for European and North American sun-seekers, but a trickle of tourists are tentatively venturing into Iraq to discover its unique culture and stunning archaeological sites firsthand.

Bizarrely, for $220 a night newlyweds can even spend their honeymoon in the late Saddam Hussein’s bed at The sky’s the limit his former palace south of Baghdad. Geoff Hann, owner Any oilman entering the country will invariably do so by air. And and Managing Director of Hinterland Travel, recently one of the most vital aspects of the recovery effort will be the expanreturned from a 15-day tour of the country accompanying sion of routes and regional airports, together with improved security at eight American, Canadian and British tourists. He Baghdad International Airport (previously known as Saddam says curiosity fuels visitors’ decisions to go: International Airport). Th is gateway to the country was an “Iraq has been in the news so much over the important travel hub in the Middle East in its heyday past few years so people want to come before UN sanctions were imposed during the 1991 The International and see things for themselves, as well as Gulf War. The national carrier, Iraqi Airways, used Monetary Fund predicts take in the archaeological and Islamic to fly to destinations all over the world until the history.” This was Hann’s first organized embargo forced the fleet, with their distinctive tour since a self-imposed hiatus in green and white livery, to languish on runways 2003. “We stopped going because of the and in hangers for 12 years, like relics of a bygone growth for kidnappings and killings so this trip was era. Baghdad and other Iraqi cities were scrubbed Iraq in 2009 a learning curve for us.” For Hann and his from destination boards in most major overseas airports, too. Recently however, several of Europe’s major group, fears over security and getting bogged airlines have tentatively expressed an interest to resume down in administrative matters were the biggest fl ights. British carrier bmi says it is “ready and willing” to begin headaches but he insists that these issues didn’t spoil the trip. “The clients were prepared to put up with services between London Heathrow and Baghdad by summer 2010, anything,” he recalls, “And they needed to be because which would be the fi rst commercial fl ights between the two countries the infrastructure is quite bad and the checkpoints can since the Gulf War. The only direct link currently between Iraq and be extreme at times, which leads to delays.” Hann says Europe is provided by Austrian Airlines. the trip was an overall success and has a second tour Iraqi Airways is soaring again too, with new planes on order and earmarked for October. new routes planned. It recently launched a scheduled fl ight to Stockholm, Sweden, and plans are in the pipeline for other European and Middle East destinations. Improved technology and facilities are being installed at the capital’s airport, too. Abdul Wahab Teffaha, Secretary General of the Arab Air Carriers Organization (AACO), is buoyant about Iraqi Airways’ future. “I believe the foundation is there for a successful and powerful airline that will make its mark on the air transport scene in the Arab world. Iraq is a rich country that is also extremely rich in culture and historical heritage, as well as having a large diaspora.” Teffaha goes on to say: “You cannot deny that there are business opportunities and attractions so there will be traffic. It will not be like the Big Bang but gradually, however long it takes, Iraqi Airways will get out of this situation.”

Apart from improving security, Teffaha is perturbed by the dearth of trained aviation personnel in the country and says it could very well bring the industry down to earth with a bump. “They need to plug the gap after being isolated for 35 years because of wars, embargoes and working in a very precarious situation,” he notes, “but before this Iraqi Airways had an excellent engineering base and a modern fleet.” It’s the same for the airport, says Teffaha. “Baghdad International Airport was a state-of-the-art airport when it was built and although new equipTourist Tina Townsend snaps away during a visit to the Crossment can be easily purchased it is more about the people who will be sabers Monument in Baghdad’s Green zone needed.”

6.8%

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“You cannot deny that there are business opportunities and attractions [in Iraq] so there will be traffic” Abdul Wahab Teffaha Secretary General of the Arab Air Carriers Organization (AACO)

Those business chiefs brave enough to venture into Iraq through Baghdad International Airport after the coalition forces toppled Saddam were all too aware of the problems awaiting them. Even before passengers touched down on Iraqi soil the aircraft would land using a steep corkscrew manoeuvre in a bid to avoid rocket attacks from surface-to-air heat seeking missiles. Then once through customs they had to negotiate the 12km stretch of road into the city that gained the notorious tag of the most dangerous stretch of highway in the world – a white-knuckle ride avoiding roadside bombs, insurgents blowing themselves up and the common-or-garden drive-by shooting. Many high-ranking officials and VIPs sought the sanctuary of the heavily fortified Green Zone by means of helicopter. Others stumped up as much as $3000 for a ride in an armoured car to their hotel.

Today, the situation is much safer but with increasing numbers of executives, contractors and government officials flooding in, the dilemma of where to stay is proving rather a headache. Iraq needs tens of thousands of additional hotel rooms to cope with the influx but this will take time. Luxury hotel group Rotana is already developing a hotel in the Kurdish area of Erbil but has announced its intentions to open a five-star development opposite the American Embassy inside Baghdad’s Green Zone. The move left people in the industry “astonished”, says President and CEO Selim El Zyr. “We always go to places where nobody else goes and that is why we are pioneers in this field. We don’t mind taking risks, not at all.” Rotana, which manages a portfolio of 67 properties across Middle East, says its 250-room Baghdad hotel, due to open in early 2012, will cater to diplomats and visiting businessmen. As well as the British and Australian embassies, the new US embassy is located inside the zone and is the largest (the size of Vatican City) and most expensive in the world. Up to 5500 Americans and Iraqis work and live there, although more than half are security professionals.

Apart from hotels and accommodation for foreign workers and visitors, there is a chronic shortage of housing. It’s thought that Iraq needs between two and three million new housing units. This could lead to a whopping $35 billion of foreign investment in real estate for 2009, according to US-based Dunia Frontier Consultants. Likewise, Mills suggests this shortage will fuel a sharp upswing in construction projects: “You will eventually see a building boom because there is a need for several million housing units and there is the development of a nascent

mortgage industry to support this.” He even foresees Dubai-esque development. “Over the next five to 15 years the capital will be redeveloped and you will see a core of office towers in downtown Baghdad – similar to Sheikh Zayed Road in Dubai.” Quite whether Baghdad will ever be lined with shiny skyscrapers piercing the clouds remains uncertain. But there is no getting away from the fact that 10 years from now the capital and country could be unrecognisable. With coalition troops withdrawing and investment pouring in, Iraq is coming off its life support machine, but the crux of Iraq’s recovery will depend on long-term peace and the government being able to squeeze every drop of profit out of its abundan t natural resources. And, of course, drumming up the right levels of foreign investment. “Iraq has potential to become either the second or even the most vibrant economy in the Middle East,” suggest Mills. Watch this space. n

PROVED OIL RESERVES Iraq 9.3% 9.5% 61%

3.3% 5.6%

9%

11.6%

North America South and Central America Europe and Eurasia Middle East (Saudi Arabia 21.9%) Africa Asia Pacific

Total: 1237.9 billion barrels Source: BP

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IN THE BACK 136

EXECUTIVE HEALTH

Healthy body, healthy mind In a difficult economic climate it becomes even more important to make sure that you are prepared for the testing months ahead. Business Management explores three of the top retreats in the country, giving you the perfect excuse to disappear into the wilderness.

The Lodge at Sun Ranch A luxury eco-lodge located in southwestern Montana, near the angler-acclaimed Madison River and just 40 minutes from Yellowstone National Park, Sun Ranch is in the center of a 26,000-acre sustainable cattle ranch.

Recreational opportunities in the Madison Valley include fly-fishing, horseback riding, hiking, canoeing and bird-watching. Or stay indoors and savor a culinary lesson with the chef or enjoy the indulgence of a massage in your cabin.

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The Greenbrier An award-winning resort located in White Sulphur Springs, West Virginia, the Greenbrier has been around since 1778 and is full of southern hospitality.

With an unparalleled tableau of outdoor adventures to challenge the widest range of interests, it is impossible not to find something to your liking within this 6500-acre playground.

The resort offers more than 50 activities, including: whitewater rafting, hunting, falconry, billiards, bowling, croquet and wine tasting.

Blackberry Farm A rustic retreat hidden away in the Great Smoky Mountains in Tennessee, Blackberry Farm is situated on a pastoral 4200-acre estate, with great views and boundless luxury. Regardless of the season, Blackberry Farm offers countless activities and adventures from nature hikes, mountain biking and fly-fishing, to pure indulgence at the Farmhouse Spa.

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IN REVIEW

On the shelf

From the positive impact of ego to tales of the credit crunch, Business Management reviews the best of this quarter’s business book releases. egonomics

What Makes Ego Our Greatest Asset (Or Most Expensive Liability),

by David Marcum and Steven Smith Backed by five years of research, David Marcum and Steven Smith’s egonomics informs readers that the key to great leadership is understanding exactly what ego is – and what it should not be. With the aid of real-life examples and persuasive writing, egonomics argues that while most people believe ego is negative, it is actually a healthy, necessary element to management effectiveness and business leadership.

BM SAYS: An insightful and engaging read on a topic rarely reviewed in business books. Emphasizing the positive impact of ego and how to leverage it into a valuable resource, this book is a well-researched read on a truly interesting subject.

More Sex is Safer Sex

The Unconventional Wisdom of Economics, by Steven E. Landsburg In More Sex is Safer Sex, Professor Landsburg offers readers a series of stimulating discussions that all flow from one unsettling fact: combining the rational decisions of each of us often produces an irrational result for all of us. Avoiding causal sex can actually encourage the spread of diseases. To solve population pressures we need more people. In his entertaining narrative, Landsburg guides us through these shocking notions via the light of compelling logic and evidence.

BM SAYS: An entertaining read, with surprises on every virtually every page. Th is book will make you think about your decisions in unforgettable ways and spark debate over much of that we all take for granted.

How I Caused the Credit Crunch

An Insider’s Story of the Financial Meltdown, by Tetsuya Ishikawa

How I Caused the Credit Crunch is inspired from Tetsuya Ishikawa’s seven years at the forefront of the credit markets. A vivid, personal and realistic account of the banking world, this book tells the story of how a novice to the mysteries of hedge funds, subprime mortgages and CDO, fi xed complex deals worth millions in the exclusive bars, brothels and trading floors of London, New York, Frankfurt and Tokyo- and contributed to the bursting of the fi nancial bubble.

BM SAYS: A true expose of the human failings behind the credit crisis, this book deft ly explains the intricacies of the arcane fi nancial instruments that are now grimly associated with the credit crunch.

A fascinating read.

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Your World. Covered

MENA Edition

US Edition

Europe Edition

From the people you hire to the products you sell, if you’re in business, we’ve got it covered...

Business Management What business processes work? What are the proven, successful strategies for taking advantage of domestic and international markets? Business Management is about real, daily management challenges. It is a targeted blend of leadership and learning for key decision makers in government and private enterprise.

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Find out more: www.busmanagement.com

Infrastructure

NextGen Power & Energy

Infrastructure provides insight on how developers can achieve critical objectives by integrating leading-edge solutions across their operations – helping them to make informed decisions about technology and operations solutions for all of their areas of responsibility.

A poll of 4000 utility executives posed the simple question: what keeps you up at night? The answers were costs, new technologies, ageing infrastructure, congested transmission and distribution, viable renewables and inadequate generation capacity.

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NextGen P&E covers them all.

Available for: US Find out more: www.nextgenpe.com

Next Generation Pharmaceutical Approximately 50% of new drug development fails in the late stages of phase 3 – while the cost of getting a drug to market continues to rise.

NGP is written by pharmaceutical experts from the discovery, technology, business, outsourcing, and manufacturing sectors. It is committed to providing information for every step of the pharmaceutical development path.

Available for: US, Europe

Oil & Gas Collaboration between Government and multinationals to ensure the energy supply is developing on two fronts.

O&G is the definitive publication for stakeholders and service companies to read about the regional projects, technologies and strategies affecting their group.

Available for: US, MENA, Russia Find out more: www.ngoilgas.com

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36 hours in Seattle Find out how to make the most of your downtime in the Emerald City.

SLEEP Hotel 1000 is fully stocked One of Seattle’s big down town with the latest technology, luxury hotels, the Grand Hyatt, with at-screen TVs is located near the switched to show Convention Center ASpotTail famous works of and other major atSalmonGuideis art, virtualtractions within reality golf the business core. forafulldayofsalt games loaded Although a technowaterangling with replicas of 50 logically sophisticated courses from around hotel, thoughts have been the world, and heat spared for relaxation with many sensors telling managers which rooms overlooking Puget Sound and rooms are occupied. the Cascade and Olympic Mountains.

$350

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INTHE BACK AWAY ON BUSINESS EAT The Seattle Lunch 2.0 is an absolute must for those looking to network. With free food and drinks the event offers the chance to find out about local companies and technologies as well as share ideas with others, expanding your network in the Seattle tech community.

Anyone can sign up, but be quick, seating is always limited.

Alternatively, the Metropolitan Grill, or ‘The Met’ as it’s known to the locals, is primarily a business venue, situated within the heart of the financial district. A Seattle favorite for years, this traditional steakhouse specializes in prime beef and perfecting classic dishes such as filet mignon. Reservations are recommended.

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IN THE KNOW >>> > DESPITE being overlooked in place of San Francisco, Seattle is just as rich in tech culture – Amazon was founded here and Adobe and Microsoft hold offices here.

> EVERY October Seattle hosts Brick Con, a convention for masters in Lego model making.

> THINGAMAJIGGR is an annual blowout that features lectures by tech artists such as Knitting 2.0, as well as a DJ lineup.

TIME OFF Seattle is surrounded by mountains, lakes, streams and evergreens, which means that outdoor activities abound, from a Spot Tail Salmon Guide – $350 for a full day of salt water angling – to inline skating with Greg’s Green Lake Cycle company, and 65 ski runs available east of Seattle at Hya, Alpental, Snoqualmie and Ski Acres. That said, there are plenty of things to do inside if you hit the city during the famous September to April rainy season, with hundreds of bars, restaurants and cultural arts to be seen.

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The road to understanding John Amaechi, former NBA star turned management consultant, explains why analytics rather than anecdotes provide the best way to a greater understanding of your business.

My background is in psychology, dealing with dysfunctional relationships, and I think this helps. There are a whole bunch of newer factors in terms of workplace dynamics, leadership and motivation that you don’t get to be involved in unless you’re listening to people who are on the cutting edge of research.

The downturn means that businesses will be more critical about the people they bring on board to help them. I am frustrated constantly by the idea that I am competing in an industry with people who work on the basis of anecdote and not research. It’s no longer enough for management consultancies to come in and just recommend pay rises or bonuses, because most companies have freezes on them.

In the current climate, companies have freezes everywhere.

No promotions, no pay raises, nothing. So what we have to do is help them understand their people better in order to know the different ways that they can be individually rewarded. It takes more effort from a management perspective, but the benefit is that you’ve got a way to reward your people to make them feel valued, to make them want to stay.

A former Cleveland Cavalier and NBA hall-of-famer, John Amaechi is a psychologist, New York Times best-selling author and social entrepreneur working in both the US and Europe. His work is mostly in industrial/organizational settings with medium to large institutions – business, educational and philanthropic – to help them maximize their human capital.

Looking at what it is that the company stands for is important. I find it fascinating that management consultants can come into a business and immediately start marching towards some prescribed point in the future without first trying to gain an understanding of where and what the organization is about, and whether it even has the will to move forward.

Just because you have great people working in a nice space doesn’t give you a quality business culture. You’ve got to work to cultivate that and create it. You have to pay more attention to your staff in terms of knowing a bit more about them. Understanding the personalities of key individuals will help you know how to engage them as advocates within your workplace who will help disseminate your messages.

Rather than simply going in and telling managers the contemporary way to manage, we allow people to understand more clearly the picture of who

their workforce are, whether the individuals are congruent with the goals that they’re setting, whether they have any kind of overarching vision for what they’re trying to achieve. We think this is a far more scientific and less anecdotal way of operating.

We want to help people reinterpret the whole point of diversity within the workplace. It is not a separate stream, something that you do to tick a box or fulfil a requirement, but instead is something that can reap real tangible performance benefits by providing greater access to the uniqueness that you have within your workplace. n

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