Where's Callahan?

News reports last week of the President's visit to California told of their celebrity Governor talking up supply chain effectiveness. Wow - since when was supply chain pushed to the front page? Decidedly one of the most un-sexy business disciplines, supply chain being bandied about in the press is kind of like Marion the Librarian catching the attention of the flashy band leader. Seventy-six trombones indeed!

Of course there was little fuss about his remarks (could be I'm one of the few bloggers so wonky as to think this is exciting stuff...) because the generally received opinion is unchanged. It's all dry, boring stuff, right?. Sprint has a commercial imagining what it would look like if logistics ran the world: frankly it's kind of frightening to see the dragnet tightening around the poor 'Callahan' kid that routes him to detention. Hmm, boring AND scary. What a combination. What business wouldn't put their money down on that? Instead, let's talk about widgets and social networking. They're certainly more catchy, and the barrier to entry is really low. Well ... isn't that the problem? If just anyone can do it, is it worth doing?

Okay - I'm not going to argue that supply chain is important because it's hard, or because it's naturally (and frustratingly) exclusive. It's important because it matters: synchronizing the chain eliminates waste. Waste is destructive -- to wealth, to production, to the environment, to markets. But, it's hard, and (some would argue) boring. Isn't it all about trucking? Spreadsheets? EDI? Yawn. That's so 80s. What would it look like if it weren't outdated?

UK scientists have recently announced their findings (similar to a recent US study) that goods purchased online produce less carbon to deliver to the consumer's home than if the consumer purchased them in-store (the study is “Carbon Auditing the ‘Last Mile’: Modelling the Environmental Impacts of Conventional and Online Non-food Shopping,” J.B. Edwards, A.C. McKinnon and S.L. Cullinane of the Logistics Research Centre at the School of Management and Languages of Heriot-Watt University in Edinburgh, Scotland.) When I first read this, I felt up-ended. Surely centralized distribution (to the consumer) is more efficient! But then I considered - what about the waste inherent in this model? As a retailer, I'm filling up a single truck with lots of stuff and sending it to one store. Consumers drive less than 10 miles from their home to store and back. Most of the length of the trip from the manufacturer to the consumer has been consolidated for all those purchases. But... not all of those goods will be purchased. Some unsold goods will be written off, some will be returned. The consumer hopes that each trip is fruitful and results in a purchase; however if you're buying furniture, how many stores do you visit before you make up your mind? How many times do you re-visit the store where you purchase, in deciding to close the deal or pick up the goods? And, are you taking public transport on all those trips? I don't think so. Alternatively, if you shop for that new home office online, you can visit lots of stores, over and over again, and only use up the energy in your laptop battery (some day, your cell phone battery -- even less). The seller is only shipping what is purchased. No energy is used in warehousing the items in a distribution center.

We really should be thinking about this supply chain model. The challenge has always been how to know more about future customer demand, in very specific terms. Historically, supply chains used the retailer to aggregate market knowledge. Retailers, reasonably limited in their ability to capture and synthesize market knowledge, invest in inventories to offset their imperfect knowledge of future demand. If no one wants to own unsold inventory (and that's the point of supply chain, is it not?), how do you know enough so that you don't have to carry excess stock and still meet customer need with immediacy? I've been thinking about supply chain to a physical retailer, who aggregates data about the customers who are tangible and present in the store -- with whom the retailer engages and learns from using narrative instead of click patterns. If the stores go away, and the retailer only has virtual knowledge of customers, how do we prevent an offsetting increase in inventories to hedge against the lack of knowledge?

Gone shopping

I just finished reading Paco Underhill's Why We Buy: The Science of Shopping. Reading the book has heightened my awareness of what's happening (or more critically, what's not happening) when I'm shopping in stores outside the business I work in. In my role, it's to be expected that I bring an analytical mind when visiting the company's or competitors' stores. Oddly, I haven't thought about using the same critical analysis when shopping in my personal life. Shopping with my daughter recently, I experienced a heightened awareness of the failures of retail.

Perhaps buoyed by the small advances in the financial markets, consumers were out in force that afternoon, and the mall's parking lot was packed. Inside, it seemed like Christmas all over again. Until we walked into department stores, and experienced aisles that were clear and departments that were strangely empty of anyone (store employees included). My daughter needed a wardrobe staple (khaki pants) for a band performance, and I was determined not to support her desire to brand herself by shopping the overpriced and overhyped teen specialty stores. Two hours later, she happily carried our purchases in their teen-branded shopping bags out to the car. What happened?

The department store experience was nothing short of dismal. Staff assistance could only be found at the intermittent customer service kiosks scattered sparsely through the stores. Departments were unshoppable - too many racks, no apparent organization of merchandise, too much assortment and SKU redundancy, no maintenance of style/size presentation. Goods were placed on out of reach racks, with no means to get them down. Fitting rooms were not maintained nor supervised.Although at slightly lower price points than the teen chains, the merchandise had little value, with poor construction of cheap materials. Reacting to the retail downturn, these major retailers have taken decisions in cost-cutting that can only result in more losses, from theft and dissatisfied patrons leaving in frustration.

The experience at the teen stores was just the opposite. The stores were well merchandised and maintained. Assistance was readily available from staff who were the target age of the customer base, and the employees clearly loved wearing the clothes they were selling. The construction values were relatively high; the pants she purchased will probably look good when her legs have outgrown them. Although the style choices were too repetitive for my taste, I understand that's the point for their market: young teens work hard to fit in, and are more fearful of making a wrong fashion choice than making too safe a choice. These stores clearly understand their customer, and deliver on their promise to her. Increasingly, this is not enough, as more disruptive models are gaining market share and raising expectations for more customization, more rapid gratification, and at unbeatable values. But sadly, some of our largest retailers have not even caught up with the last wave, and their tactical moves in today's marketplace may speed their demise.

As retailers survey the future with natural anxiety, they need to think beyond protecting what they have. The world of scarcity only exists in one's projections; there is abundance if you allow yourself to recognize it.

Weighing in

I wrote a few days ago about business leaders' failure to acknowledge their own failed decisions. Today's NY Times op-ed page features an article by William D. Cohen ("A Tsunami of Excuses" ). Here's his lead paragraph:

It's been a year since Bear Stearns collapsed, kicking off Wall Street’s meltdown, and it’s more than time to debunk the myths that many Wall Street executives have perpetrated about what has happened and why. These tall tales — which tend to take the form of how their firms were the “victims” of a “once-in-a-lifetime tsunami” that nothing could have prevented — not only insult our collective intelligence but also do nothing to restore the confidence in the banking system that these executives’ actions helped to destroy.

In the article, Cohen makes the point that banking executives based their poor decisions on maximizing a ratio on which their bonuses were based. Their compensation structure invited them to act in self-interest, and the executives excelled at it. We now are reading about banks that are deciding to give back their government bailout money, because it serves the self-interest of their executives to do so. Apparently their banks either took money they didn't need from the government (that would be you and me), or the banks did need the money but the individuals making these decisions have nothing personally to lose if the banks they manage fail. (Who does lose? That would be you and me, yet again.)

It's sad to see that even a lesson so elementary seems beyond our collective ken. This is an issue that goes beyond the excesses of Wall St. I think it's time we start thinking differently about incentive-based compensation, and question long-held assumptions. The prevailing wisdom is that executives should willingly put part of their annual compensation at risk, only receiving that portion if the company's annual objectives are met. This benefits the company, since if the company has a bad year -- despite hard work and best efforts -- it doesn't have to pay managers their full annual compensation. If results are terrific, the managers receive their full compensation and maybe more. These are facts, at least in businesses that tie compensation and accountability.

Then there are beliefs: that managers will work even harder, smarter, and more effectively to achieve company goals if their own compensation is at risk; that the fear of losing part of his compensation will motivate a manager to change behaviors that are preventing him from achieving results; that achieving metrics on which the bonus is based is necessarily in the best interests of the company. None of these are valid. I've never seen a financial reward change a person's work ethic, the intelligence he brings to work, or his leadership effectiveness. Fear does not motivate people to change; it merely makes them anxious. Putting effort into affecting a single metric generally harms the business -- you move the needle on one metric, but cause problems in other areas. In fact, we've probably all witnessed stunning examples of the harmful effects that well-intentioned plans created, not because the managers were bad people but because the theories underpinning the plan were invalid.

And yet, we know what will enable managers to work more effectively, create better solutions, change poor behaviors, and increase the health and wealth of a business: creating a culture of innovation and development, grounded in accountability and facilitated with lots of feedback and coaching. But these are hard to do. Withholding money is easy. So guess which most businesses choose?

Companies provide quite a bit of structure for hourly employees to achieve the results the company needs. The business employs managers who oversee their work, give them feedback, coach and develop them. If employees make poor choices on priorities or how they achieve their goals, managers redirect them. Less structure should be needed for salaried managers, but essentially nothing is different in kind: everyone up to the CEO needs clear direction, oversight, feedback mechanisms, and continual professional development. Everyone needs to be held accountable. Everyone needs support. It may be boring stuff, but in the end, that's really the way businesses achieve success.

I think it would be worthwhile to re-invent incentive-based compensation. Employing simple measures, a business could eliminate the self-interest that causes people to make poor decisions, and would not put the company's performance at risk. Attending to the more difficult job of managing for performance, a business can secure the financial security and well-being of its employees, and the long-term health of the company.

Connected Yet Unfettered

I'm working on an interesting project now that will enable mobile devices to link our customers with their order fulfillment. I've wanted to do something like this for some time, but inevitably would run up against concerns that customers won't want to play. With US Senators tweeting in the midst of congressional debate (shouldn't they be working??), perhaps the technology has passed into the realm of mass acceptance.

The project is enticing. We haven't been able yet to make a significant leap forward in the customer pick-up experience. Customer orders must be staged in warehouse racks, since the goods are bulky and easily damaged if left laying about. A customer may be picking up a single chair or an entire bedroom, or maybe several rooms' worth of furniture. Retrieving all of the order (or picking it, if the customer has just made the purchase) within a reasonable amount of time (from the customer's perspective -- which is just a couple of minutes) is really tough. As a customer, I really don't care what the warehouse has to do to bring my order to me. Why can't I have it NOW?

We've made incremental improvements over time, which no customer can appreciate. I recently heard from an unhappy customer who had waited 20 minutes on one of our busiest days ever. Think Christmas Eve at a toy store. That kind of busy. I had to check myself from celebrating that the customer had waited only 20 minutes -- last year, it could have been 3 times that. But, still not good enough.

Aside from the process improvements we're making in our Warehouse Management System, we're creating a mobile interface for managing the flow, and communicating via SMS with our customers. People find a wait easier to handle if they know what's happening. So this is like an interactive version of the software installation progress bar: if I know I have to wait another 20 minutes, I can go get a cup of coffee, or throw in another load of laundry; if I know I have only a minute remaining, I can start getting excited about using the new app. It puts me, the customer, in the driver's seat.

What I love about the solution is that it addresses the physical environment of the transaction: not only is the customer mobile (in her car), but the warehouse manager and staff are also mobile. Dock managers may currently walk over to a PC regularly (because the system they're using requires it), but their job is away from the PC, all over the dock and warehouse. If they can stay in touch with their staff, and their customers, while they're in their element, they will be so much more effective. Some day, I hope all managers will have the tools they need to stay connected while in the mix, away from their desks -- not just connected to their Outlook accounts, but really connected, so that they don't have to return to the office or boot up the laptop. In their element: that's where the business lives and where your customers are.

100 Words

Have you noticed lately how often news stories are accompanied by graphs? Since at least September, current events have been reported increasingly with the visual aid of a graph. OK, so maybe the economy being headline news since then has something to do with it: that's a subject that's all about numbers. Part of the trend is no doubt driven by a loss of confidence that words can communicate well enough to the public at large -- hence the ubiquitous YouTube video. A picture's worth a thousand words? Maybe that's discounted now, like everything else.

I'm finding that graphs are being presented to communicate a single concept, often with only a couple data points. Stock markets plunging! Unemployment rising! Lately I've even seen single-value 'graphs.' It's as if the author decided that readers/viewers can't understand the written numbers (regardless how few), so displays them graphically. And readers seem to be calling upon their middle-school math skills in interpreting them: the graph usually shows a title or caption explaining what they are supposed to see, and they dutifully find that message reflected in the graph. If it aids comprehension of a concept, OK. But....

It's troubling to me that our use of graphs is being dumbed down. Graphs are great tools to help organize lots of raw data for analysis. But then, you're supposed to interrogate the data displayed in a graph. Just about any set of data yields many observations -- and sometimes using alternate formats illuminates even more. Unlike the passive experience of reading, which encourages you to feel satisfied that you've understood something, analysis draws you past the initial, obvious relationships. I find it irritating to be told in advance what the graph is going to show me. It's a challenge, don't you think? Where's the relationship that the article isn't talking about... because, like Waldo, it's usually there, if only you had enough real data to interrogate.

The Usual Suspects

I follow several business blogs, and the content over the past couple months has been relentlessly of a piece -- basically, how not to freak out with the economy in free-fall. And the usual suspects are inevitably 'out there' -- banks, stock market, unemployment, consumer confidence, mortgage failures.... I don't see a lot of owning up to failure; we're all victims, it would seem.

Don't get me wrong -- there are a whole lot of people and businesses who have been victimized by fraudulent and rapacious practices that were willfully ignored by those entrusted with oversight. But also, there are specific people and organizations who caused the destruction of wealth and jobs. These would be the perps.

I met a job candidate last week who is managing the liquidation of a big-box chain store where he has worked for some time. During the interview, he explained the best practices he put in place at his store, and talked about the metrics they used to run the business. According to the metrics the company used, it was all good: 2008 was yet another successful year! Perhaps sensing a credibility issue (if the stores were so successful, why is the business winding down?), he mentioned that last year he'd had a hard time accepting that the chain was dying, when the stores were executing every directive and achieving their operational KPIs. He knew that corporate had made some poor decisions in the past couple years that sped the failure along, but his responsibility to the company was to execute these as well as possible. Despite his and other retail managers' best efforts, the company's decisions continued the unraveling. They were decisions of desperation, which probably did hasten the end. I'd hazard a guess that folks at corporate have created narratives starring the 'usual suspects' who preyed upon the business. Hmm.

As a corporate executive, I am mindful daily that my decisions and direction impact the lives and livelihoods of hundreds of employees and their families. Of course, I collaborate with an executive team and collectively we set policy and make decisions on many matters, but I think it's important that I keep clearly in view my own responsibility to those who report to me. It matters what I see and don't see, what problems I address and don't address, what I understand and the limits of my understanding. I urge myself and my employees to seek not just success but also failure, since we learn so much more from our failures than from our successes. I know how hard this is; like anyone, I'd prefer to think of myself as infallible, so I have to remind myself that that's rot. I try to fail a lot when the stakes are low, so that when we ramp up to the higher-stakes game, I'm less likely to cause a failure that will harm. Regardless, once I make a mistake, I have to own it -- publicly and fearlessly. The reactions I receive have taught me a few things: how liberating it is to see a boss admit to mistakes; how much easier it is to learn if you rid yourself of the shame you unconsciously attach to the experience.

Our culture has created a public ritual for those in high places who have been caught in their misdeeds: the televised acknowledgement, hanging one's head in shame, and the inevitable conversion. I guess we're supposed to feel good about that; it's the dramatic catharsis the audience craves so that everyone can move on to the uplifting next act. Yet in the current crisis, theatricality is only increasing the misery since it diverts us from addressing the real issues. As individuals, businesses, a nation and across the globe, we have to learn and we have to change -- fundamentally and substantively.