Archive for May, 2014

Realignment and Echoes of the Past

May 22nd

The idea that the Internet has transformed business and created a global economy is an assertion that is   often repeated in the media today.  Yet there is little consideration given to the implications of the global supply chains for national futures.

The echoes of the cold war could be heard this week as China and Russia announced their gas deal.  Russian economic stress has been a theme that has appeared with increasing frequency in recent months .

And then the gas deal – with its apparent economic benefits for Russia and its obvious geopolitical implications for everyone – was announced.  Interestingly the announcement followed a military review, not always necessary in signing a trade deal.

China.Russia deal

What was hard to miss as the Chinese and Russian leaders reviewed the troops (picture from the Washington Post)  was the fact that the previous time this week that China had been front page news had come only a few days earlier when the US Attorney General, for the first time, threw down the gauntlet on Chinese industrial spying by indicting 5 hackers who were demonstrably focused on stealing US trade secrets. (Picture from the New York Times) The indictment went to some length to distinguish the crimes of the Chinese Army from the practices of the National Security Agency.  And perhaps the media coverage of the indictments were in fact exploring one of the most newsworthy aspects of the matter.

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Were the two connected?  Even if they went unnoticed in the minds of the Chinese leadership, its difficult to miss the point that it was the mini-war along the Chinese Russian Border in 1970 that led Ntixon and Kissinger to the sequence of events that resulted in Nixon’s “China Card”.

The world today is obviously far more complicated.  But another question raised by the indictments of the Chinese hackers was whether there might be a need for some rethinking of the global supply chains that have grown in the aftermath of the Internet.  Today its customary for retailers in the heartland of the US to receive just in time delivery of their inventory by means of FedEx, UPS and other shipments to the US.  The connections are intimate.  They come from the massive shift of US productive capacity to China and other Asian locations.

The economics of off shoring obviously did not include a calculation of the risk of disruption.  There has been a 25 year bargain based on assumptions involving peace and prosperity. The events of the week may offer some new perspectives on those underlying assumptions.

 

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Amazon Changes the Game

May 20th

So what are the implications of Amazon’s moves to deliver their own products?

First, lets be clear.  This is not about delivery alone.  Second, Amazon is dead serious.

In January 2014 Amazon filed a patent application illustrated by this graphic.

 

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With this illustration Amazon describers a world of forward positioned warehouses and rapid fulfillment of eCommerce orders.

For those who don’t shop on the Amazon site, the company has long ago earned the title of The Everything Store as described in the recent book by Brad Stone.  You can buy everything there – from books and music to televisions to lawn furniture.

Some of these goods are more likely to be purchased if the consumer can get them the same day or the next day.   And for the retailer, the knowledge of who who will want which product when they can get it immediately is more valuable than the return from the sale itself.

What’s more, the market is not limited to the impulse end of the online eCommerce market that you can see today.   When you can fulfill products overnight, the scale of the marketplace expands to the Consumer Package Goods market – a multi trillion dollar marketplace.

Walmart knows this and they are experimenting with delivery themselves.  Soon every retailer in the Consumer Package Goods market is going to be confronted with the reality of the change that Amazon has anticipated.

The picture above anticipates another point as well – for those competitors who can reshape themselves as collaborators in a radically changing market, there may be new opportunities that have not been factored into the conventional forecasts.  No one should miss, for example, the fact that the U.S. Postal Service’s Sunday delivery volume from Amazon is exploding.  Where will Amazon deliver its own products and where will it rely on competitor-collaborators?

The answer to the question of where will the future of delivery be? will depend on a larger picture than one that is limited to the supply chain.  The future is going to be defined by seeing the whole board.

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Authentic Agility

May 8th

Major-league baseball ran into trouble in the beginning of the 2014 season with something that was called the “transfer rule.” The story offers some important lessons for philosophers and technologists at the same time.  In anticipating the future and predicting the way in which technology will shape our markets, there is one critical gut check that needs to be made. An assessment of the human interface needs to be featured prominently on the evaluation checklist.

The story really begins in the 2010 baseball season when a pitcher named Armando Gallaraga from the Detroit Tigers came within one out of a perfect game.  As the videotape would later show, he pitched a perfect game against Cleveland on that June night in Detroit.

There were no hits and no one was allowed to get to first base through the first 26 Cleveland outs. But in the top of the ninth inning, an umpire at first base named Jim Joyce, as he later admitted, blew a call and declared that the runner was safe when in fact he had been thrown out by a throw from first baseman Miguel Cabrera to the pitcher, Gallaraga, as he covered first.

In a day of technology in which key moments in football games often turn on critical replay decisions, this seemed to be the last straw. There needed to be a replay camera in American baseball as well or so the thinking went.  It took the powers who run baseball another couple of years.  But things had been set in motion.

As of this winter a replay rule was created for baseball. Until this point, the judgment of the umpire has been final and even legendary in deciding the fate of baseball games for 150 years.

Perhaps there should’ve been a warning here about what was going to happen. But the replay rule was passed nonetheless and the 2014 season began with replay cameras.

What happens now is that when the play takes place and a team feels that it has been wronged, the manager is allowed to go out and question the call. The umpires consider the protest and they may ask for a replay decision to be made by someone in a control room in New York.

In practice, the replay rule has led to some annoyingly long delays as sometimes the decision takes three or four minutes of waiting. At least in football, the camera trains it’s picture on the replay official who is looking at the replay camera and agonizing over how to make the call. Baseball’s anonymous remote judge in New York seems particularly arbitrary. But this wasn’t the end of it.

There was also a need, major-league baseball believed, to clarify a few fine points of the game so that it would be possible to make clear-cut decisions. The entry of a third-party, the anonymous replay official, seemed to force a greater need for precision, or so it was thought.

And so, the transfer rule was modified. This is when a player catches the ball and transfers it from his glove to his throwing hand in order to make a play. To make it clear, the officials believed, the transfer rule should require a player to catch the ball and to make a clean transfer. If the ball was dropped, then the initial play was ruled an error and not an out.

What this led to were some amazing plays where a player might catch a ball run three strides seem to make a transfer and then drop the ball only to be told that not only was his team to suffer the consequences of the dropped ball but the initial play was no longer an out either.

Needless to say, the precision of clarifying the transfer rule created a whole new set of problems. After two or three weeks the officials have given up on transfer rule purity and gone back to the old way.  The game reverted the old method of relying on judgment calls, at least for transfers. There is still a replay camera but it no longer dominates the way it did when the game was trying for perfect clarity.  Somehow when someone truly great is playing, the speed, precision and finesse are all combined.

I think this compromise is more in the spirit of baseball and perhaps the replays will go as well.  During this controversy, I have been reminded many times of an experience that I had in the late 90s when I was invited to go to St. Louis to make a speech to a postal audience and to join the Chief Operating Officer of the USPS who was going to dedicate a stamp at Busch Stadium where the St. Louis Cardinals played baseball. At the Postal Service it became known that I was a huge baseball fan. In fact, I had been a lapsed baseball fan until friends introduced me to the Baltimore Orioles in Cal Ripken’s day and I found something that I had lost as a kid growing up.

Baseball was a great common denominator for the USPS. There were many times that people said to me “oh yeah I remember you, you’re the Orioles guy”.

Someone thought of me and did me the favor of inviting me go to St. Louis to the dedication. We gathered in the St. Louis Cardinals locker room before the ceremony when we would go out onto the field.  I stood around with several others who were going to go onto the field and we talked baseball. One man in particular was an especially nice guy, a gentle retired Cardinal who eventually was introduced to me as Ozzie Smith. I realized that I was talking to one of the five greatest shortstops of all time[i].

Screen Shot 2014-05-06 at 4.35.05 PMWhat do you say to Ozzie Smith? I realized that we were going to get a huge big round of applause when we went out to the field and it was going to have nothing to do with any of the postal guys or even other celebrities who were with us.  Instead it was going to be for this modest man.

I asked Ozzie whether there was anything that I should’ve known about making a double play or something equally lame. He modestly demurred and didn’t embarrass me by making fun of my dumb question but instead told me something about it being in the flow.

I later read the famous statement of Honus Wagner (another great Shortstop) that’s on the wall of the baseball Hall of Fame that “it don’t take much to be a ballplayer, if you are a ballplayer”.

Ozzie Smith was such a ballplayer and the memory of his manner seemed an appropriate conclusion to considering baseball’s attempt at precision with the transfer rule. Ozzie probably wouldn’t have needed to have the transfer rule clarified or to have umpires make “proximity calls” giving him the benefit of the doubt. He was that good. But his finesse was also not something, I think, that could easily be judged by the replay official in a remote studio in New York.  There are moments when humans and events interact in a manner that cannot be made more precise with technology and it’s an important factor to consider in judging the trajectory of future events.  There will be cases where forecasts aren’t as useful as just being in the flow.

 



[i] Cal Ripken of course, Ozzie Smith, Derek Jeter, Ernie Banks and Honus Wagner would be my five nominees.

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Valence

May 3rd

One of the most important elements of the new dynamic is being created by activists constituencies. There will be the need for future leaders to recognize and to anticipate this force. No surprise, many will say. There has been a need to recognize multiple stakeholder constituencies in the past. After all, there are functional specialties within the typical firm to manage customer experience, shareholder issues, labor relations, supplier management and so forth.

Valence

These functional specialties will only become more sophisticated as stakeholders become more active. But what makes this process of communications important to the stakeholders is that the stake are getting bigger. As markets change more rapidly and corporations and others are forced to adapt and to transform, it’s going to be clear to the stakeholders that they will want to have a greater voice in strategic decisions.   Likewise, the traditional business functional leaders who have historically managed stakeholder interests that the activists need to be better connected to the strategic thinking of the organization.

Unfortunately, what will make the communication process more complex will be the fact that the agenda of the individual groups will change as the organization moves through the stages of transformation. When it is clear that a change may be coming, but that it’s not likely to come soon, employees and customers can anticipate the ominous future but like residents living on a floodplain they will not necessarily act to protect themselves.

As the necessity for action comes, the stakeholders will divide between those who understand the future and want to shape it and those who have different strategies. Many don’t want to hear about negative trends they they view as self-fulfilling prophecies.  Others may recognize the direction of the future but do not want to lose the protections that the traditional enterprise has provided. Agendas change from anticipation to engagement to avoidance depending upon the way in which the activists may shape there actions to deal with the necessity of change.

An example makes the issue clearer.  Stakeholders who believe that they don’t have a choice, who will be punished by the negative consequences of decline want to protect themselves.  Those who have a choice will calculate that to eir interests and move to alternative products and services.  It’s important to understand the stakeholders and their voices.

In simple terms, the up slope and that downslope required different muscles.  Those on the rise have different priorities from those who are descending.  The curve acquires valence as it reaches the inflection point and turns downward.