www.busmanagement.com • Q4 2010
THE FUTURE OF TV Why the internet is set to transform the home entertainment landscape – and your living room
Ready for take-off Will the United/Continental merger fly? Cover Final.indd 1
Delivering results With Domino’s CEO Patrick Doyle
Open innovation Embracing the wisdom of the crowd 05/11/2010 15:04
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FROM THE EDITOR
Content is king Internet-connected television is inevitable. But how will it reshape the industry?
t’s another cold and rainy winter’s night in and I’m bored. My ﬁrst port of call is the TV – but despite the multitude of channels available to me through my set-top box, nothing appeals from the scheduled program guide. Next, I check out the videoon-demand service offered by my cable provider – but the interface is so slow and clunky that I lose patience long before I ﬁnd what I’m looking for. Finally, I boot up my MacBook, quickly log on to Hulu and in just a matter of seconds I’m watching the latest episode of my favorite show – albeit on a 15-inch screen rather than the 50-inch high deﬁnition home cinema system I paid all that money for last year. If only there was an easier way, I lament to thenow-sound-asleep Mrs T. And at long last, it appears that there is. The living room landscape is changing once more. In what promises to be the biggest shake-up in home entertainment since the arrival of the VCR in the 1980s, TV and internet technologies are converging to create what has been dubbed ‘the million channel universe’ and revolutionize the way we consume content. Welcome to connected TV. According to a recent survey of the habits of 1000 American consumers by market research ﬁrm Morpace, only 52 percent of total viewing is of live TV programming. Nearly one-half of all viewing uses alternative and time shifted sources; viewing DVDs is the largest share at 14 percent, followed by DVR at 12 percent and on-demand at six percent. Online programming makes up nine percent of total content viewed. Both hardware manufacturers and software ﬁrms are responding to this step-change in viewing habits. Big names like Apple, Google and Sony all announced new internet-connected TV offerings over the summer,
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while newer entrants such as Boxee, Roku and others are also making a play for a share of this increasingly lucrative market. The opportunities for third-party application developers and content management ﬁrms are also signiﬁcant as the TV market starts to mimic that of the booming smartphone sector, while marketers, content producers and network providers can all expect to beneﬁ t from the surging interest in the next wave of TV. Indeed, content will be more important than ever: great programming and advertising will do better than before, while poor content will do worse. Managing – and more importantly, monetizing – this brave new world will be critical going forward. New revenue streams and opportunities for growth are out there, ready to be tapped; the potential for innovation is huge. Of course, no one can predict what the future of television will be; but what is certain is that it will form a huge part in the future of the internet, how we consume media, how we communicate with friends, how we play games and how we shop. Video will be inextricably linked to the future of the internet, and consumption between PCs, mobile devices and TVs will merge. And hopefully, I’ll ﬁnally be able to enjoy those rainy nights at home in front of the TV.
“TV is out of the box and off the wall; it will remain at the center of our lives and you will be able to watch what you want, where you want” – Justin Rattner, CTO, Intel pg 66
“The iPhone came along and people were wowed by what the user experience on a phone could look like. I think the same is going to happen to TV” – Avner Ronan, CEO, Boxee pg 74
Ben Thompson Managing Editor
Delivering results Domino’s CEO and former marketing executive Patrick Doyle opens up about how he transformed the Pizza giant through a risky rebranding strategy that revitalized the brand’s image
Will United’s merger ﬂy?
TV is dead, long live TV With technology giants Apple and Google breaking onto the TV scene, Business Management takes a look at the future of home entertaining
Ben Thompson asks the question many have been wondering since the aviation giants announced plans to merge earlier this year: how can two different business cultures come together to create the world’s greatest airline?
Out in the open In tough times, businesses are looking for the next big thing. Lucy Douglas takes a look at the businesses utilizing the innovative wisdom of the masses
The Empire strikes back
Retrofitting a 20th century icon for 21st century needs is a huge challenge. Business Management takes a look inside the Empire State Building to see how New York’s most famous high-rise is going green
Sectional Features 54 Recipe for success McCain Foods’ CIO Roman Coba speaks to Business Management about how technology can provide the secret ingredient to the recipe for a successful global business
60 Is the ofﬁce really necessary? In the era of smartphones and tablets, are we seeing the death of the workplace?
74 Taking on the new TV giants Is there a place for smaller, innovative companies in the TV revolution? Boxee’s Chief Executive Officer Avner Ronan certainly thinks so
76 Delivering on the personalization promise Why web content management is finally looking to live up to its potential
90 It’s all in the teamwork Business Mangement speaks to Guardian Life Insurance CTO Richard Scott
92 Cloud bursting The promise of cloud computing offers tremendous benefits and but also comes with hazardous pitfalls and challenges. So why should your business make the migration?
102 To bundle, or not to bundle? For an increasing number of firms, it’s no longer a case of whether to outsource in the first place, but how best to do it
104 The search for value Outsourcers are set to feel the squeeze as CIOs go hunting for value
108 Cutting costs and going green Can a managed print services approach help companies beat the recession blues by going green – and saving money at the same time?
116 Business goes green
GOLD S P O N S O R
Why a growing number of companies are putting sustainability at the heart of their business models
Ask the Expert 94 96 100 126
Eelco van Beek Jitscale Jay Bauer STI Systems Inc. Joseph Belsanti WinMagic Inc. Rob McKernan Tyrer APC by Schneider Electric
Industry Insight 50 Dr. Luis Garcia-Guzman University of Michigan 78 Robert Carroll SDL Tridion 106 Valerie Belli Canon Business Solutions
Insight 16 The Brief Why the number of directors being tapped for the CEO role has more than doubled in the past year
32 Electric Avenue Business Management takes a look at the first affordable electric vehicle
130 134 136 138 140 142
Grand designs A look at the offices of tomorrow Lessons in leadership Learning from the Ryder Cup Travel 36 hours in Los Angeles Gadgets Your guide to the must-have business toys On the shelf A review of the year’s top business reads Agenda Your guide to the quarter’s events not to miss
52 Reaping the beneﬁts How insurance marketing firm Benefit Architects doubled capacity using Clarizen’s work management solution. By Avinoam Nowogrodski
58 Artiﬁcial intelligence Philip Newcomb explains how to accelerate enterprise transformation with architecture-driven modernization
80 How it all ‘Ads’ up Why ad stacking and dynamic ad rotation are having a big impact on online advertising campaigns. By Rick Hogan
114 Managing output Xerox’s James Joyce outlines the key elements of a successful managed print services strategy.
16 05/11/2010 17:27
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up to the plate
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THE BRIEF 18
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The number of directors being tapped for the CEO role has more than doubled in the past year. Why?
he past year has seen a signiﬁcant jump in the number of Fortune 1000 directors becoming CEOs of the companies on whose board they serve: nine directors stepped in as permanent CEOs from the period of July 1 2009 to the present, compared to only four directors tapped as chief during the year prior. Three additional directors have been named interim CEO this year, bringing the total number of directors-turned-CEO for the past year to 12. Why has this happened? “As companies experience a period of serious disruption, many boards looking to replace the CEO are increasingly turning to one of their own,” says John Wood, Vice Chairman and Global Managing Partner of Heidrick & Struggles’ Chief Executive Ofﬁcer and Board practice. “Boards are being confronted with market-driven disruptions and are showing a willingness to make a change if a lower risk solution is readily available.” Key to selecting a director as the new CEO, says Wood, is the board’s belief that the person has the right skills, is available and can commit to the role. Boards also have faith that the new CEO understands their views on what needs to change. “Grappling with pressure from all sides – business downturn, regulatory crackdown and shareholder dissatisfaction – boards are ﬁnding that a current director brings valuable assets to the CEO job,” says Wood. So what are boards looking for in their CEOs today that a board member can offer? Number one, says Wood, is the ability to step in quickly. “At companies that do not have an adequate and immediate succession plan in place, a change in leadership may require a lengthy search,” he explains. “Alternatively, boards may feel they cannot afford to wait for an internal candidate with no CEO experience to get up to speed. By tapping a board member for the job – who is often a former CEO him or herself – boards are able to move very quickly and achieve immediate results.” Familiarity with the company is also a bonus. An obvious attraction in choosing a current director is his or her familiarity with the company, its business and its culture. This also helps accelerate the transition time from old to new CEO, while alignment with the ideals of theboard also ensures a smooth transition. “In picking one of their own, boards are far more likely to have someone in place who is already aligned with their thinking – the disconnect between the CEO and board is minimized,” says Wood. “Having a director who is ready to step in may even accelerate the board’s decision to change the CEO.”
Finally, there is the risk reduction aspect: choosing a current director as CEO is a highly pragmatic decision by the board, a practical solution to an atypical set of circumstances. “Directors are a known quantity, and often appear to be a less risky option than an external candidate or even the internal CEOs-in-waiting,” indicates Wood. It’s a trend that is certainly beginning to affect director recruitment, according to Heidrick & Struggles research. “We are often ﬁnding, in our director recruiting assignments, that boards are considering putting a candidate in the CEO succession path, and when evaluating new board candidates, the one who could be a potential successor can absolutely tip the balance,” says Wood. “No board wants to recruit a director who’s angling for the CEO job, but some nominating committees are, in a quiet way, building the ability to step up as CEO into their selection criteria.” In fact, boards often ﬁnd that the director they want to step into the CEO position is more than willing, says Wood. “In many cases, the director is a retired CEO himself, and now has the time to do the job. Many are eager to get back into the game and return to the top seat.” Wood believes it’s also appealing to potential candidates to know that they already have the support of the board. Getting board buy-in is a major hurdle that many prospective CEOs feel they must overcome before they take the job – but in such situations, this problem is not really an issue. “Their fellow directors are people they have spent years with, discussing and debating issues,” he says. “Directors-turned-CEOs have an understanding of the personalities on the board and the key inﬂuencers, and know they are going into a job that will be easier to handle because of this.” It’s not all plain sailing, however. Alongside these advantages is another level of pressure for the new CEOs – to not let their fellow board members down. “Given that they will have been working together as directors for some time, and presumably have been in alignment, there is a heightened expectation about performance and delivering what the board wants,” says Wood. So will this become the best way for companies to ﬁnd their next CEO? Wood certainly believes tapping a fellow director to be CEO is part of a broader trend in boards becoming more engaged in the CEO succession process. Many have internalized this as a key responsibility, and are seeing the idea of turning to one of their own as the most practical solution – a good arrow in their quiver of CEO succession options. “Some may wonder whether going inside the board is cronyism, but it’s really not,” he argues. “Having management and the board agree on strategy is vital to an organization’s ability to move rapidly and with certainty in difﬁcult times, and the board pick is an effective, strategic way to achieve this. It is, in many ways, a good risk management tool for the board.”
However, while the ongoing disruptive business environment will give some legs to this trend, the fact is that there is no substitution for having a healthy pipeline of leadership talent within the organization. “This option cannot replace a good internal succession plan,” concludes Wood. “Best practice still demands that companies create a leadership plan that develops talent and a solid ‘bench’ of successor candidates.”
Directors-turnedCEOs Who made the switch in 2009-2010? CEO: Daniel Akerson Company: General Motors Tenure as Director: 1.1 years CEO: Fred Chang Company: Newegg
Tenure as Director: 9.6 years CEO: Alan Bennett Company: H&R Block Tenure as Director: 1.8 years CEO: Douglas Tough Company: IFF Tenure as Director: 1.4 years CEO: William McCracken Company: CA Technologies Tenure as Director: 5 years McCracken CEO: Michael Carpenter Company: Ally Financial (GMAC) Tenure as Director: 0.5 years CEO: J. Raymond Elliott Company: Boston Scientiﬁc Tenure as Director: 1.9 years CEO: Jay Johnson Company: General Dynamics Tenure as Director: 6.2 years
CEO: Patti Hart Company: IGT Tenure as Director: 2.8 years CEO: David Dyer Company: Chico’s FAS Tenure as Director: 1.8 years Source: Heidrick & Struggles’ Global CEO and Board Practice
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GOLD RUSH nless you’ve been living under a rock for the past three months (is that in poor taste? – Ed), you cannot fail to have been struck by the plight of the Chilean miners. The story of their underground ordeal and subsequent rescue has proven to be one of the most heartwarming news events of 2010 – and, according to recent news reports, at least one company has turned the disaster into a marketing triumph. Eyewear manufacturer Oakley Inc. was one of the biggest winners of the epic 24-hour coverage of the rescue, thanks largely to its decision to supply the emerging miners with free sunglasses to help their eyes readjust to daylight after over two months living in almost total darkness. Retailing at $180 each, 35 pairs were donated to the effort for a total cost of $6300. And according to research done for CNBC by Front Row Analytics, a sponsorship evaluation ﬁrm, it could prove to be a lucrative piece of philanthropy: the move is projected to be worth $41 million in advertising time, as the images of the miners emerging from their subterranean torment aired on practically every channel worldwide. Front Row broke the exposure down by country. Oakley will get the most exposure in China where it is predicted to be worth $11.7 million, $6.4 million in the United States, $898,000 in the United
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AMBUSH MARKETING DUTCH MASTERS It began as a run-of-themill Group E encounter between Holland and Denmark at this year’s soccer World Cup. But less than 24 hours later, the chatter was all about ambush marketing. Soon after kick-off cameras fell on 36 young ladies in the crowd sporting skimpy orange minidresses associated with Dutch brewer Bavaria – thus stealing the limelight from ofﬁcial sponsor Budweiser. Security swooped and ejected the alleged models from the stadium, but the heavy-handed approach merely created more publicity.
Kingdom and $703,000 in Chile. Eric Smallwood, VP of Project Management for Front Row, told CNBC that the company took into account the live coverage, the recaps and a rough estimate of the audience watching around the world – along with the fact that the company gets more exposure at night, when there are more people watching and the Oakley ‘O’ comes out more clearly. “It’s a goodwill gesture that will turn into mass amounts of exposure for Oakley in a positive manner,” he said. Oakley’s best exposure so far has been from “Super” Mario Sepulveda Espina, the second miner to come out whose ﬁred up attitude has been replayed over and over again across the world’s news networks. The subject became a hot topic on Twitter. One user (@highlow) asked “Oakley is using the Chilean mine rescue as a marketing opportunity: poor taste or philanthropic move?” while another (@idaspeeda) called it “the product placement of the year”.
SHIP AHOY In 2007, Sony held a lavish launch party for its Playstation 3 console in Paris. VIPs, the media and gamers were all in attendance beneath the capital’s iconic Eiffel Tower. However, Microsoft, makers of the rival Xbox 360, decided to gatecrash the party by sailing an enormous barge up the Seine with ‘Xbox 360 Loves You’ painted on the side. The stunt went viral in a matter of hours; Microsoft certainly got the most bang for its buck. GOING FOR GOLD At the 1992 Barcelona Olympics, Nike icon Michael Jordan accepted the gold medal for basketball – covering up the logo of ofﬁcial sponsor Reebok in the process. And in Atlanta four years later, rather than pay the $50 million for ofﬁcial sponsorship, Nike plastered the city in billboards, handed out swoosh banners to wave at the competitions and erected an enormous Nike center overlooking the stadium. The tactics devastated the IOC’s credibility and sparked more assertive antiambushing strategies.
Midterm Elections 2010
Meg Whitman, CA After spending a whopping $140 million of her own fortune on her campaign, the former eBay CEO failed to convince the people of California that she had what it took to revive the state’s ﬂailing economy as Governor. The position went to Jerry Brown.
Rand Paul, KY Causing Democrats and Republicans alike to raise their eyebrows somewhat, the Tea Party enjoyed a number of victories over the course of election night, the ﬁrst being Rand Paul claiming the Senate seat in Kentucky. Paul hailed his victory as a vote against the “madness” of the Obama administration.
John Boehner, OH The new leader of the House of Representatives was emotional about the victory of his party on the evening, but has already found his feet in his role and is pledging to overturn the Democrat’s major initiatives of the last two years.
he question on everyone’s lips of course is: “What now?” Two years into an administration that began so optimistically, Obama suffered the worst Democratic midterm election defeat in over 70 years, and is losing support across the country. So what will happen to the great changes he made that got him into ofﬁce in the ﬁrst place?
Healthcare reform While the President has conceded he is prepared to compromise with the Republican party on a number of policies, he has been clear that healthcare reform is not one of them. And with the Senate still under the Democrat’s control both Obama and Senate Majority Leader Harry Reid are ﬁrm that the Republicans will not be able to push anything more than minor changes to the healthcare bill. However, the undeterred Republican leaders have a renewed a pledge to bring down Obamacare.
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31 Infotech 451 Group Aardman Animations Ltd Accenture Afﬁliated Computer Services Air Baltic American Airlines Ames Scullin O’Haire Anthology Marketing Group APC by Schneider Electric Apple Application Security Ascend Beneﬁt Architects Blackberry Bloomberg Boxee Cadbury Canon Business Solutions Cisco Clarizen Click Software Clinton Climate Initiative Coca-Cola Continental Airlines CRT Capital Group Delta Airlines D-Link Domino’s Pizza Dreamworks Animation SKG EquaTerra Ernst & Young Everest Research Institute Facebook Firefox Flurry Ford Frost & Sullivan Fujitsu Services Gartner, Inc. General Electric Google Guardian Life Insurance Company of America Hasbro Hotmail IBM IDC IDEO Installfree Inc. Intel Jitscale Johnson Controls Jones Lang LaSalle Kohl’s KPMG Lee Technologies Malkin Holdings McCain Nationwide Insurance Netﬂix netSpray Nike Nokia Oakley, Inc. Object Management Group Ogilvy & Mather Parks Associates Pepsi Photizo Group Porsche Design Studio Proctor & Gamble Pyxis Williams Raytheon Reuters RingCube Technologies Rocky Mountain Institute Roku Schneider Electric SDL Tridion STI Systems Inc. Thales Air Systems The Principal Financial Group The Software Revolution, Inc. (TSRI) T-Mobile USA Trapeze Networks United Airlines University of Michigan Urban Outﬁtters US Air Force US Airways US Army WinMagic Inc. Wolff Olins Xerox Yahoo YouTube31
105 92 130 102 114 42 42 66 66 126 66, 74,82 99 42 52 54 130 74 36 106, 107, IBC 66 6, 52, 53 63 118 36 42 42 42 74 36 130 102 42 102 74 82 66 82 89 42 108 82 66, 74, 130 90 130 92 102 102, 108 82 57 66, 100 94, 95 118 118 116 42 15, 16 118 54 108 74 80 130 82 130 58 130 66 82 111 82 82 65 58 108 73 118 74 123, 125, 126, 127 78, 79 96, 97 58 108 11, 58, 59 130 61 42 13, 50, 51 130 58 42 58 100, 101 66 9, 113, 114, OBC 92 74
ovember 2nd saw the midterm elections, which welcomed the Republicans back into power in the House of Representatives. Following two years of major policy reforms from the Obama administration, the country is once again looking to the right to pull it out of deﬁcit and to rekindle the job markets. But who shone on election night and who failed at the ballot box?
COMPANY INDEX Q4 2010
WHAT DO I
know? With Saatchi & Saatchi CEO Kevin Roberts.
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WHAT DO I KNOW?
s beﬁts one of the most successful marketing executives of the modern age, Kevin Roberts, CEO of global advertising giant Saatchi & Saatchi, is a big believer in the grand gesture. “Theater is something that I think people respond to,” he says. “If you’re going to make an impact you have to entertain them and inspire them.” He should know: as CEO of Pepsi Cola Canada, Roberts once famously machine-gunned a Coke
Machine at a black-tie dinner event attended by Canadian premier Brian Mulroney as a publicity stunt, and took a fully grown lion into an analyst presentation when COO of Lion Nathan in order to “get name recognition” for the newly merged company. “You have to give people a great experience,” he says with a grin. “You can’t take them for granted. People like to go to the theater, they like mysteries. After that lion stunt, we got a lot of photographs and exposure the next day that we wouldn’t normally have got just because of a crazy piece of theater.” Chief executive at Saatchi & Saatchi since 1997, Roberts has led the ﬁrm to unprecedented ﬁnancial success – primarily through a focus on balancing creativity and innovation with organizational needs. The key, he explains, is inspiring people. “You can’t lead the creative people that work here because you can’t get eagles to ﬂy in formation. You have to inspire them and motivate them. The old-fashioned model of followers and leaders won’t work here because creative people are driven by the moment, by the mood, by the impulse. They’re intuitive people. So it’s really about inspiring them to be the best they can be.” It’s a policy that puts the emphasis squarely on self-empowerment – something reﬂected by the ﬁrm’s notoriously brief HR directive. “Our people policy is one sentence. It says, ‘Use your best judgment at all times.’ That’s our HR manual.” Indeed, such an approach informs Roberts’ whole business outlook. “This idea that you have three stakeholders in business – your customers, your shareholders and your people – is nonsense,” he continues. “You have your people. If you inspire your people to be the best they can be, they sell more product. If they sell better, customers are happy. And if your customers are happy, they buy more and your shareholders are happy. It starts and ends with inspiring people.” And he’s not just talking about Saatchi & Saatchi employees. His overriding mission is to promote what he calls ‘lovemarks’ – the next generation of brands that inspire complete devotion in their followers. “Most brands now have parity, right? I mean most beers taste good. Most dandruff shampoos get rid of dandruff. Any MP3 player will work. But are you going to buy any of those other brands or are you going to buy an iPod?” Your decision, he explains, comes back down to our inherent love of theater. “Lovemarks are built on sensuality and they’re full of mystery. They all have stories to them. The whole Apple thing is just a story. What’s the story of Samsung or the story of Phillips? You don’t care. But the story of Steve Jobs and Apple has great drama. It’s a soap opera. You couldn’t write it. And you’re emotionally connected to that lovemark.” Ultimately, it’s about forming binding ties between brands and consumers – so that even when your relationship hits a rocky patch, they will still come back to you. “Love’s the deepest emotion of all,” concludes Roberts. “But you have to earn love every day. You can’t just sit on it.”
Top 10 emerging financial centers
The city recently unveiled a plan to become “one of the two leading ﬁnancial clusters in North America and one of the top ﬁve to seven global centers.” In regional terms, Toronto is already a player: it’s the third largest North American ﬁnancial services center after New York and Chicago, based on direct employment, as well as the fastestgrowing. It’s also the hub for Canada’s banks, security ﬁrms, insurers and mutual funds.
Luxembourg is growing as a ﬁnancial center because of its Swiss-like secrecy rules. There’s plenty to ﬁnd attractive: it claims to be the second largest investment fund centre in the world after the United States, the premier captive reinsurance market in the European Union and the premier private banking center in the Eurozone. It’s also the second-largest mutual fund market after the US.
Paulo 3 Sao As Brazil emerges as Latin America’s leading economy, investors are increasingly looking to Sao Paulo. Brazil’s bank-
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ing sector is relatively underdeveloped and security remains a concern in Sao Paulo, but there’s much on the upside: the country has exhibited stability across its banking system through the current crisis, and a high degree of IPO activity means it is strong in non-banking ﬁnancial services, too.
4 Zurich As British regulators continue to go after bonuses, bankers are ﬂeeing to Switzerland. Long a ﬁnancial center known for equity and foreign exchange markets, Zurich does well in international rankings, with traditional strengths in asset management and private banking sectors. However, Switzerland’s competitiveness has been impacted somewhat by the continuing difﬁculties experienced by major Swiss banks.
5 Shanghai In April 2009, the Chinese government declared it wanted to make Shanghai an international ﬁnancial center by 2020. And when the Chinese government declares something, it usually makes it happen. Adding to the surge is China’s
continued economic growth and potential ﬁnancial reforms, like index-tracking ETF funds, foreign companies listing on local exchanges, and ﬁnancial and commodity futures.
6 Hong Kong
Hong Kong has long been an Asian ﬁnancial hub because of its gateway role to China and banking-friendly special administrative status. Hit by the ﬁnancial crisis, it still had the most IPO proceeds in the world last year, plus strong hedge fund and M&A activity. It has a deeper pool of ﬁnancial services than Shanghai, with insurance, law, accounting and other professional service ﬁrms already well established.
7 Singapore Singapore’s developed and efﬁcient banking sector make it an important player on the global stage. An October 2009 Bloomberg Global Poll found that the tiny country had topped New York as investors’ preferred place for doing business, second only to London. Still, Singapore’s playing catch-up to Hong Kong: the special Chinese region has more hedge fund, IPO and M&A activity.
is reeling from the ﬁnancial crisis and faces crushing government debt. But Japan’s ﬁnancial sector is healthy, the country’s banks are sizeable and efﬁcient and similar strengths are seen across non-banking ﬁnancial services such as IPO and M&A activities and insurance. It’s still an important regional hub.
Unusually, Johannesburg is poised to be the ﬁnancial hub of a whole continent – a region that represents more than 900 million consumers and is one of the world’s fastest growing markets. The South African city has the most developed business infrastructure south of the Sahara, and South Africa generally gets strong marks for its ﬁnancial sophistication.
8 Tokyo Tokyo remains a critical Asian ﬁnancial center despite doubts about Japan’s economy, which
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In 2009 Dubai was forced to take a $10 billion bailout from Abu Dhabi and remains in serious ﬁnancial trouble. Still, it is the regional headquarters for ﬁnancial powerhouses like Goldman Sachs, Citi and JPMorgan Chase, and the Dubai International Financial Center offers perks including 100 percent foreign ownership, zero percent tax on income and proﬁt, no restriction on foreign exchange and the freedom to repatriate capital and proﬁts without restrictions.
NEWS IN BRIEF
SEX STILL SELLS
The web’s simplest sex-based domain name, sex.com, has been sold for a reported $13 million. The site address was put up for auction in July after its owner went bust, and sold on Wednesday October 27th when a Californian bankruptcy court met to decide on the deal. New owner Clover Holdings, based in the Caribbean, has not yet revealed what it plans to do with the name – although I think we can probably guess. So what other domain names fetch that kind of money? According to some, current top dollar-grabber is internet.com, which was reportedly bought by a company called QuinStreet for a cool $18 million back in 2009. QuinStreet is also said to have forked over $16 million for insure.com that same year. However, as the ﬁrst cannot be veriﬁed and the second includes the associated website business, neither makes it on to the list of top 10 domain name deals. Indeed, the priciest domains may never be known. Many big sales are not made public, and these may account for the largest share of the domain-name market.
Most expensive domain names SEX.COM (2010)
P&L This quarter’s winners and losers AMERICA’S BIG BANKS published a mixed bag of third-quarter results. Bank of America reported a loss of $7.3 billion as it booked an accounting charge on new consumer-banking regulations. Without the charge it earned $3.1 billion. Morgan Stanley’s headline proﬁt fell by 67 percent compared with a year earlier and at Goldman Sachs net income was down by 40 percent, to $1.9 billion. Citigroup turned a proﬁt of $2.2 billion and said it hoped to reinstate shareholder dividends by 2012 as it emerges from government oversight. Wells Fargo reported a net proﬁt of $3.3 billion.
TECHNOLOGY FIRMS showed strong growth. Californiabased software manufacturer Adobe Systems reported a year-on-year jump of 69 percent on proﬁts of $230.1 million, owing to strong performances by each of its major businesses. AT&T posted a surge in earnings of $12.34 billion based on growth in its wireless business and sales of integrated devices. And Hewlett-Packard, the world’s largest PC maker, shrugged off controversy surrounding the ouster of its CEO to post proﬁts of $1.77 billion, a gain of six percent.
IN THE RETAIL SECTOR, online giant Amazon posted sales of $7.56 billion for July through September, up 39 percent from last year, with proﬁts of $231 million. McDonald’s posted better-than-expected results with earnings of $1.29 per share (ﬁve cents better than the analyst estimate), due to stronger global sales and new menu items. On the other side of the ledger, Supermarket chain Safeway Inc. posted an almost ﬁve percent fall in quarterly proﬁts as the company fought increased competition in the country’s grocery sector.
US MANUFACTURERS experienced ﬂuctuating fortunes. Chicago-based Boeing Co. reported a net Q3 proﬁt of $837 million compared with a loss of $1.564 billion dollars one year earlier. Harley-Davidson reported a $37.3 million increase in income despite decreased sales over the third quarter of 2010, while Eaton Corp.’s increase in core sales saw it post third quarter net income of $268 million. The biggest winner was Caterpillar, which reported proﬁts of $792 million, up 96 percent over the same period in 2009. Key to growth was continuing economic growth in the developing world, along with improved sales in developed countries following last year’s depressed economy.
SHOPPING.DE (2008) $2.8M
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News in brief THE APPOINTMENT OF TODD COMBS as an investment manager at Berkshire Hathaway led to speculation that he would be part of the team running the company when Warren Buffett eventually retires as chairman and chief executive. The low-proﬁle Mr Combs runs a hedge fund in Connecticut; he will now be in charge of a large chunk of Berkshire’s portfolio. The 80-year-old Mr Buffett said Mr Combs was a “100% ﬁt” with Berkshire, which is known for its longterm approach to investing. LIMEWIRE WAS FORCED TO SHUT DOWN after a judge
given the go-ahead for what will be the world’s largest solarenergy project. Backed by German company Solar Millennium AG and built on public lands near Blythe, California, the 1000-megawatt venture will eventually produce enough output from four solar-thermal plants to power between 300,000 and 750,000 homes.
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2 CALIFORNIA INSTITUTE OF TECHNOLOGY
3 MASSACHUSETTS INSTITUTE OF TECHNOLOGY
GENERAL MOTORS HAS FINALIZED TERMS for a stock offering of about $13 billion to repay a controversial taxpayerfunded bailout and reduce the Treasury to a minority shareholder. GM’s ﬁling with the US Securities and Exchange Commission is the ﬁnal step before it begins marketing what is expected to be one of the largest-ever IPOs. Investors are expected to span the globe and include sovereign wealth funds.
1 HARVARD UNIVERSITY
NEWS IN BRIEF
issued a permanent injunction against the popular ﬁle-sharing website for copyright infringement. America’s recording industry began its lawsuit against the site four years ago; damages will be determined in January. LimeWire’s owner is soon to start a new service that makes legal downloads possible.
AMERICA’S DEPARTMENT OF THE INTERIOR has
US universities dominate an international league table of the best education institutions, accounting for 72 of the world’s 200 best universities. The Times Higher Education magazine’s table, based on a number of criteria including teaching, research and staff and student mix, has Harvard top.
4 STANFORD UNIVERSITY 5 PRINCETON UNIVERSITY 6=UNIVERSITY OF CAMBRIDGE
CHAIRMAN OF BRITISH AIRWAYS, Martin Broughton, lambasted some of the security measures at airports imposed by America in response to terrorist threats, describing certain checks, such as the requirement to remove shoes, as “completely redundant”. He also questioned the necessity of having to take a small computer out of its bag, and said airport authorities were still unsure about whether to classify the iPad as a laptop.
6=UNIVERSITY OF OXFORD 8 UNIVERSITY OF CALIFORNIA, BERKELEY 9 IMPERIAL COLLEGE LONDON 10 YALE UNIVERSITY
The CFO: more than just ﬁnance Why the CFO role is increasingly seen as a career destination in its own right, not just a staging post to the role of CEO.
new report by Ernst & Young, The DNA of the CFO, challenges the assumption that all chief ﬁnancial ofﬁcers are aspiring chief executive ofﬁcers and instead ﬁnds that the majority see their role as a vocation of its own. Of 669 CFOs interviewed by the Economist Intelligence Unit for Ernst & Young, 73 percent saw their role as a career destination of its own with just 10 percent aspiring to be the CEO. The study also highlights a broadening of the CFO role beyond ﬁnance fundamentals, with the potential to inﬂuence corporate strategy and drive business change to such an extent that most enjoy a high level of career satisfaction. Almost two-thirds of respondents said they now act as the face of their company on all ﬁnancial matters and performance, with a similar number agreeing that since the ﬁnancial crisis, the CFO’s key priority is to increase ﬁnancial trust in their business.
Financial crisis elevates role Over 60 percent of CFOs have seen their standing within the organization elevated in the past three years. In part this is due to CFOs aligning the ﬁnance function closer to the business but also because the ﬁnancial crisis has resulted in an unprecedented demand for the unique perspective and discipline of senior ﬁnance professionals to guide the business. The report also highlights a shift in the perception of the ﬁnance function from outmoded “business prevention units” to an enabling partner to the business. For many CFOs, the acid test is the extent to which business managers consult them for advice on key aspects of strategy. Just over half of those CFOs surveyed agree that this now takes place routinely. CFOs are also ﬁnding that they are taking on more operational responsibilities, mainly in the IT and property functions, which is natural given their ﬁnancial discipline and management strengths. However, Les Clifford, Chairman
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of the Ernst & Young CFO Program, warns that for some CFOs, this dual responsibility creates a potential conﬂict of interest. “There is deﬁnitely a delicate balance to strike between being the objective, independent voice of the business and assuming a broader responsibility for operations,” he explains. “CFOs have a duty to maintain this independence and objectivity, and sometimes the need for growth and performance in their operation role can test this to the limit.”
Strategy co-pilot The report updates the now clichéd story of the CFO’s migration from ‘scorekeeper’ to ‘strategic advisor’, by seeking to clarify exactly what strategic contribution means for the CFO: 35 percent of the CFOs questioned believe they make an active contribution to developing and deﬁning the overall strategy for their company. But the majority of respondents say their contribution focuses on providing insight and analysis to support the CEO and ensuring that business decisions across the business are grounded in sound ﬁnancial criteria. “CFOs see their role as going beyond being an ‘information provider’ or ‘aggregator-presenter’,” says Clifford. “Their commercial understanding and analytical skills mean that this element of their role is a vital part of understanding how different decisions will lead to certain outcomes.” But while CFOs are reveling in their newly elevated role, they are also coming up against the challenge of carefully balancing the development of company strategy with the renewed focus on fundamentals brought about by the ﬁnancial crisis. CFOs identiﬁed cost management, risk management and cash ﬂow as their top three business priorities in the wake of the ﬁnancial crisis. For almost four in 10 CFOs, this means they are not spending as much time on strategy as they would like. In addition, CFOs are under greater pressure to be the public face of their company but recognize the need for investment in building stronger connections with a number of their key external stakeholders. Less than half of respondents say that their relationship with investors is good or excellent, while just 21 percent say the same for their relationships with governments and 25 percent for their relationships with the media. Asked where they needed to enhance their skills and knowledge, respondents pointed to communication and inﬂuencing as the most important area for improvement.
THE RIGHT THING AD.indd 1
Falling From Grace: Big CEO Downfalls The defamation of Hewlett Packard CEO Mark Hurd continues to make the news, following his ousting from the company in August, but Hurd isnâ€™t alone in the Hall of Fame of slanderous CEOs.
James McDermott Keefe, Bruyette and Woods
During the late 1990s, James McDermott was involved with adult-film actress Marilyn Star. He revealed to her details of an upcoming merger. She passed this information on to her other lover Anthony Pomponio who was able to make over $80,000 in the stock market. Star was arrested after she fled to Vancouver and in 2000 McDermott had to pay a $230,000 fine and serve a short sentence in jail.
In 2002 it was revealed that WorldCom had made the largest accounting fraud in history, with $11 billion in accounting misstatements. Ebbers had also taken a reported $366 million in personal loans from the company. WorldCom's stock plummeted while Ebbers was found guilty of nine felonies and sentenced to 25 years in prison.
Bernie Ebbers WorldCom
Harry Stonecipher Boeing
In 2004, Martha Stewart was sent to jail after having been found guilty of conspiracy, obstruction and lying to federal investigators about insider-trading deals. She served five months in a minimum-security prison in West Virginia.
Martha Stewart Martha Stewart, Living Omnimedia
Frank Dunn Nortel
Reyes resigned in 2005 after irregularities in stock-option grants were discovered. He was sentenced to 21 months in prison and fined $15 million for fraud in 2008.
Greg Reyes Brocade
Only 18 months after coming out of retirement to take over, Stonecipher resigned after it was revealed that he was having an affair with a female executive. This came shortly after Boeing's former CEO was fired due to reported affairs with employees and a contracting scandal.
Kenneth Lay Enron
In 2001, the US Securities and Exchange Commission opened an investigation into Enron's accounting books, due to ambiguity in their annual financial statements. Within a year Enron's stock plummeted, and shareholders lost $11 billion. In 2006 Lay was convicted of fraud and conspiracy. He died of a heart attack while waiting for sentencing.
John Browne BP
Chung Mong Koo Hyundai
In 2007, Browne voluntarily stepped down after it was revealed that he had lied to a court about his four-year relationship with boyfriend Jeff Chevalier. Browne had lied under oath stating that they had met while jogging when in fact they met through a male-escort agency.
Mark Hurd HP
Sources: Wired Magazine - Techâ€™s Most Notorious CEO Scandals | Time Magazine - Top 10 CEO Scandals Graphic created for Meet the Boss TV | www.meettheboss.tv Graphic by T Farrant | Twitter @fallenblossom
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DOING THE RIGHT THING Why it has never been more important for executives to be seen as ethical exemplars.
Frank Dunn was fired in 2004 for his part in an accounting scandal. He was reportedly conducting management fraud to meet targets, fabricate profits and pay out bonuses. He was charged with falsifying financial results and deceiving members, shareholders and creditors of Nortel.
Hurd was fired from HP this August after he falsified expense reports in order to conceal a relationship he was having with a female contractor. Jodie Fisher sent the company a letter claiming she had been sexually harassed by Hurd, and although the board concluded that this was false, inaccurate expense reports had been made and $20,000 in expenses had been claimed.
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In 2007, Chung Mong Koo was found guilty of fraud and embezzlement, having put $100 million of company money into a fund reportedly to bribe officials. He was given three years in prison, however in 2008 he received a pardon from the South Korean President.
uring challenging economic times, the relationship between employees and employers is often tested. Frequently, executives are forced to make decisions that broadly affect their workforces and alter what matters in the workplace. Today’s business environment is no exception. According to the Deloitte LLP Ethics & Workplace Survey 2010, the recession has diminished two important forms of business currency – trust and ethics. Nearly half (48 percent) of employed Americans who plan to look for a new job when the economy is more stable cite a loss of trust in their employer as a result of how business and operational decisions were handled over the last two years as a reason for leaving; around 46 percent of them say a lack of transparent leadership communication will drive them to seek new employment opportunities. Executives also believe that trust (65 percent) and transparency (48 percent) will be leading $13M factors in voluntary turnover in the coming months. Sharon Allen, Chairman of Deloitte LLP. Interestingly, the survey shows “By establishing a values-based culture, a disconnect between employees organizations can cultivate the trust and employers around the issues of necessary to reduce turnover and mititrust and ethics in the workplace. gate unethical behavior.” Executives claim to be considering As we look toward the postthe impact of their business decirecession era, the survey suggests that sions on the ethical behavior of the business leaders have not lost sight of workforce during the economic one of the most important employee downturn; however, 31 percent of retention tools in corporate America employees say that their colleagues today: career-life ﬁt. The study found are more likely to behave unethithat while 59 percent of employees cally at work in this environment. feel more is being demanded of them “Regardless of the economic because of today’s climate, 72 percent environment, business leaders say their employers continue to support should be mindful of the signiﬁcant their needs to integrate work and life. impact that trust in the workplace While it appears that executives are and transparent communication doing a good job of supporting talent, can have on talent management the potential for increased employee and retention strategies,” says turnover still exists. With this in mind, business leaders should plan to increase “By establishing a their efforts and work to reinforce the values-based culture, importance of trust, transparency and professional ethics. This can be done organizations can by clearly communicating marketplace cultivate the trust challenges and conditions to the worknecessary to reduce force and level setting expectations. turnover and mitigate Additionally, it is important for leadership to foster values-based cultures by unethical behavior” truly setting the tone at the top.
CORPORATE PHILANTHROPY Corporate proďŹ ts might be on the rebound, but most big businesses say it will be some time before they can give as much cash to charities as they did before the recession, according to a survey of the nationâ€™s largest companies by the Chronicle of Philanthropy and USA TODAY. In total, 54% of businesses gave less cash, 30% gave more, and 16% gave roughly the same. But donations of cash and products increased by nearly 5% last year as companies sought to compensate for the decline in cash by offering other types of assistance.
Is it possible to create a multi-national organization in a matter of days with only one pair of hands?
Top 10 Charitable Donors (2009 donations)
Walmart: $288.0m AT&T Corp.: $239.9m
Johnson & Johnson: $126.9m
Bank of America: $209.1m Wells Fargo: $202.0m Exxon Mobil: $187.1m
Chevron: $145.3m General Electric: $138.7m Target: $133.9m Microsoft: $113.0m (Source: USA Today)
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According to Sebastien Eckersley-Maslin, founder of Sebastien International, it is. Business Management speaks to the exciting new entrepreneur about his latest challenge.
So Sebastien, tell BM what you’re doing right now. Basically I’m in the middle of a round-the-world trip to become the world’s smallest multi-national. It’s a bit of a challenge. I’m also going do it in record time – two weeks. That’s the end objective. I’m no stranger to challenges. I’ve done a few of these business challenges in the past. One was a startup in seven days for under $500.00, a business which is still going today. This is all just basically a way of inspiring other people and pushing the boundaries of what can be achieved by really just demonstrating that someone doesn’t have to be big to be big. Tell us a bit more about Sebastien International. Sebastian International is the global organization. It’s just a name. It’s a branding exercise. The real business itself is called One for One, and it’s basically an organization where for every product that you purchase through us, we donate a like product to someone of need. It’s just a really good way of increasing social conscience in consumers. I found through a lot of research that charities are fantastic and do a lot of good in the world, but people sometimes get a little disenfranchised about the whole charity concept. They can’t really see exactly what their donations actually do because charities work on a much larger scale. What One for One does is it gives people a direct understanding of exactly what their contribution is doing. So, for example, with a bottled water product, you buy a bottled water through One for One and we donate clean drinking water to a child in South Africa for a month. It’s a very clear understanding of exactly what their purchases have done. So talk us through the business model. Firstly, the One for One organization will promote other businesses in this space that currently do this, and there are others out there that already use this concept. We’ve got them on board already. Secondly, what we really want to show with One for One is that businesses can still have a charitable aspect and be proﬁtable at the same time, and we’re going to show that by having our own product line. So that’s really where the actual business sense is. So the One for One group is more of the marketing and PR aspect to the organization. We’ll make our revenue in business in the actual One for One product line. So why philanthropy? Well for two reasons. One, I was heavily involved in the Club Kidpreneur Program in
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Australia, which is a not-for-proﬁt organization that teaches our primary school children basic leadership skills. I helped write the curriculum for that. I felt really good about doing that and I wanted to continue down that path. Secondly, because this challenge is over a very short amount of time I needed a product or an idea that people would jump on and support. One for One is something people will get really excited about because they can see that you’re doing good in the world. It seemed like a really natural ﬁt for this opportunity to go around the world and make a global organization, and also change the way people think and perceive products and consumerism. Biggest challenges? There have been a few challenges, some of which we’ve managed to overcome on the way. The biggest challenge is time. I’m doing this in a very short amount of time, but things are going well and the support that the virtual ofﬁce group, Serv Corp that we work with, just made it so much easier because I can delegate. The other real challenge is that large organizations have long lead times. They’ll only meet businesses who want to sell them something in certain time periods and if you’re not in that one-week period they won’t even talk to you. So it’s a bit of a challenge to get around that. Calling lots of personal favors, using LinkedIn to identify the exact individual I want to talk to and leveraging my network is my way around that. So what’s the long term plan for Sebastien International? The product lines that we are establishing for the One for One are going to go on for years and years to come. We’re not looking at taking over the major players in this space, but we are interested in making a lot of noise and really encouraging businesses and individuals who are in that space to be able to say, “hey look, just because you’re our company, doesn’t mean you can’t have a charitable aspect to your business.” The long-term view to Sebastien International is to continue using the networks that I’m building on this tour to launch other product lines and other businesses. One for One isn’t the ﬁrst and it’s deﬁnitely not going to be the last business that I start. Sebastian International is the branding name that I’m going to use to continue growing my existing businesses and future ones that I start in the international space.
Electric cars face something of an image problem. Forget the admirable environmental beneﬁts, the concern for most people has traditionally been the sluggish acceleration, disappointing top speeds and the nagging fear that you’ll be left stranded on the hard shoulder when the battery fails – probably, given the limited range of previous EVs, after just a few miles. And then of course there’s the cost; going green certainly doesn’t come cheap. Automaker Nissan says these are outdated misconceptions that couldn’t be further from the truth – and is backing its new Leaf midsize compact, the world’s ﬁrst mass-produced electric car, to prove its point. The Leaf boasts a 100-mile range off a single eight-hour charge (a fast charge takes less than 30 minutes and replenishes the battery to 80 percent of its capacity), a top speed of 90mph and it’s pretty zippy when you pull away at the trafﬁc lights thanks to impressive torque. “It’s our job to change preconceptions,” says Andy Palmer, Nissan SVP and the man charged with overseeing the company’s global EV development program. “I can guarantee that if people drive the Leaf many of those preconceptions will disappear – the car is capable of over 90mph so you can deﬁnitely lose your licence.” Performance and cornering is also sharp, he explains. “In terms of being fun to drive, it’s extraordinary – the handling is amazing.” Apart from performance, the Leaf’s pièce de résistance has to be its running costs, which Palmer says are 1/10th that of a petrol-powered car. And at just $32,780 (before incentives), it could be one of the cheapest highway-capable electric vehicles on the road in coming years. And it’ll need to be competitive, given that making the switch to EVs in the ﬁrst place currently requires a radical shift in mindset on the consumer’s part. Aware of this, Nissan’s sales team guides customers through a ‘decision tree’ based on their driving habits to ascertain whether or not an EV is right for them, and in addition the ﬁrm has launched a marketing campaign designed around emphasizing the car’s eco-credentials – a viral TV advertisement, for instance, shows a polar bear making the arduous trek south down from the North Pole across challenging terrain, before arriving in suburbia and discovering a motorist alongside his Leaf; the bear gives the startled man a tender hug to say ‘thanks’. Indeed, Palmer hopes that growing consumer awareness of such green issues will drive the uptake of EVs, and expects that by sometime between 2015 and 2020, around 10 percent of the ﬁrm’s customers will be suited to the EV range. “I don’t think 10 percent as a projection is an unrealistic number as there will be a proliferation in EVs; even in 2010 there are already a number of ‘hand-raisers’,” he says. And by being the ﬁrst to launch a mass-production EV, Nissan believes its vehicles can account for the lion’s share of that 10 percent.
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Electric Avenue Automaker Nissan is hoping to steal a march on its rivals with the Leaf, the world’s first affordable electric car. But will its zero emissions and wallet-friendly running costs be enough to tempt motorists? Experts also believe it’s a market that is ripe for expansion. In the US alone, the world’s biggest car market, analyst ﬁrm Frost & Sullivan is forecasting that next year just one to three percent of vehicle sales – 400,000 to 500,000 – will be electric, rising to between ﬁve and seven percent in 2020 and 10 percent by 2025. “With the advent of lithium-ion battery technology and innovative ﬁnancial models, the automotive industry is all set to witness a revolutionary business case,” says Frost & Sullivan’s Automotive & Transportation Group Team Leader, Anjan Hemanth Kumar. “Original equipment manufacturers have little choice but to join in the drive to address the energy crisis issue.” Most promising of all, Nissan’s not the only one banking on growth in the sector: a raft of manufacturers are looking to tip the balance of power with new EV models set to hit car showrooms in the next 12 months or so, including the much-anticipated Chevy Volt, Mitsubishi’s diminutive i-MiEV and Tesla’s sporty Roadster 2.5. Meanwhile, Nissan itself has another three EVs in development that could follow years; they tend to be on an evolutionhot on the wheels of the Leaf, ary basis, little steps of improvement, and if electric cars do capture but when you look back over time, the public imagination then the change is dramatic. I think EV is the prospects for subsequent one of those periods in time where vehicles looks promising. you make a dramatic jump forward “When you ask customers in the technology that you might call in Europe, the US and Japan, a new dawn.” And although prising around eight or nine percent motorists, especially in the US, away are already saying that their from their love affair with petroleum next car will be an electric vehicles won’t be achieved overnight, one,” says Palmer. Palmer sums up the EV beneﬁts For him, the emergence of neatly: “For me, its about the driving EV is just another step on the being fun; you’re saving money and technology process ladder. “The knowing that you’re doing something automotive industry has made for the planet. I would say that’s interdramatic changes over the esting for consumers.”
Nissan Leaf: the pros and cons + Running costs are 1/10th the price of petrol-powered vehicles
+ Makes ﬁlling station forecourts a thing of the past
+ No greenhouse gases at the tailpipe
– Needs to be plugged into the mains and charged for up to eight hours
– 100-mile range won’t suit long distance commuters
– Charging station infrastructure could be lacking
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Big Intervierw Dominos.indd 36
THE BIG INTERVIEW | 37
When former marketer Patrick Doyle took control at Pizza powerhouse Domino’s earlier this year, he brought with him a new recipe for success. His secret sauce: re-engaging with customers through a complete product overhaul. Ambitious? Sure. Crazy? Maybe. Successful? The proof of the pizza, they say, is in the eating. By Ben Thompson and Jonathan Spragg
izza means big business in the United States. Worth upwards of $30 billion a year, the pizza industry feeds a hunger for Italian food that sees Americans eat approximately 100 acres of pizza each day (or put another way, about 350 slices per second). In fact, the statistics surrounding pizza consumption in the US are simply mind-blowing: around 69,000 pizzerias across the United States produce three billion pizzas every year, while 93 percent of the population admits to eating pizza at least once a month. Clearly Americans just can’t get enough of Naples’ best-loved export – which probably goes a long way to explaining why companies like Domino’s have been so successful over the years. The second-largest pizza provider in the US, Domino’s currently has nearly 9000 corporate and franchised stores in 60 international markets and all 50 US states, with 145,000 employees and annual revenues of $1.425 billion. Domino’s delivers in excess of 400 million pizzas a year (that’s more than one million each day) while its drivers cover nine million miles each week in the US alone – the equivalent of 19 trips to the moon and back each week. But despite Domino’s dominance over the past half-a-century (the fi rm is currently celebrating its 50th anniversary), recent years have seen the company struggle in one key area: customer perception. Flashback two years and Domino’s had a serious problem with its image. Criticisms were coming in thick and fast: “Domino’s tastes like cardboard”, wrote one disgruntled customer on Twitter; “Mass produced, boring and bland,” argued another. Worse still, in a 2009 survey of consumer taste preferences among national chains by Brand Keys, Domino’s placed last. Domino’s didn’t take the issue lying down; in fact, it took one of the bravest (or craziest, or dumbest, depending on who you read) decisions in the history of fast food retail: it agreed. For one thing, it was clear that it would not be enough to start serving a new product in the hope that customers would take notice and change their minds about the brand. Instead, the company announced the development of a totally new recipe that would reinvent the brand “from the dough up”, and began a self-flogging ad campaign in which consumers were fi lmed criticizing the pizza’s quality and chefs were shown developing the new product.
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THE BIG INTERVIEW
Patrick Doyle on work-life balance, the power of communication and exceeding expectations. ou’ve obviously been incredibly busy since becoming CEO. I suppose it’s the $64,000 question: how do you achieve work-life balance? You know, it certainly can be a challenge. But I think what happens is you get into a role like this and you prioritize things quickly. It becomes about family and the job, and you try to cut out a lot of the other things that take up time. So I think I’m spending as much time with my family as I ever have. It’s the other things that get put to one side – for instance, my miserable golf game is getting more miserable, but you know what? I’ll get back to that with time, when I feel like we’ve got everything going the direction that it needs to be going. Having said that, I still try to exercise regularly, I’ll still get in a week of vacation this summer, and I think it’s important that people recharge and take that bit of time. But I love what I do. I love being the CEO of this company, I get energized by it. This is my hobby. I enjoy doing this more than I do going out and playing a round of golf or playing tennis or anything else that I can do. So, you know, it’s not a sacriﬁce to spend a lot of hours on this.
What would you say is the most important thing you’ve learned over the past six months? Oh boy. I think the results that we’ve had have even exceeded our expectations. But what I would say is that the power of direct communication is extraordinary, the way consumers have reacted
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to it is extraordinary, and I think we can draw lessons from that as to how we communicate with our franchisees, with our team members, with our family and friends. It’s been a powerful thing to watch how people have responded to that. Do you think that marketing and leadership are now coming closer together than ever before? Absolutely. You’re always thinking about how the other party is going to react to what you’re doing and what you’re saying to them. And whether it’s marketing, whether it’s sales, whether it’s public relations and communications, that process of effectively communicating – either one-on-one, with a large group in a room, or via the media – is critical. What’s next for Domino’s? What does the next 50 years hold for the company? Well, we’re 50 years in yet still less than 10 percent of the world can order a pizza for delivery tonight. So we’ve still got a long way to go. In my lifetime we’re not going to have to worry about the business getting too mature; even when we’re as large and successful as we are, I can look at the billions of people that don’t have access to Domino’s today and say there’s opportunity out there. There’s a lot of growth and we’re excited about the opportunity to continue to build on that. For the full interview, please visit MeetTheBoss.tv, Business Management’s sister channel.
THE BIG INTERVIEW | 39
“There are so many companies out there trying to spin things; they make this slight change to a product and announce to the world that it’s revolutionary. But consumers filter that out”
145,000 DOMINO’S TOTAL EMPLOYESS
“We went out and showed our employees and customers the harshest criticisms and immediately got everybody’s attention,” explains CEO Patrick Doyle. “We knew there was no way we were going back to where we had come.” The $75 million campaign became known as The Pizza Turnaround, with Domino’s taking to YouTube, admitting mistakes, recognizing the need for change and kicking off one of the edgiest marketing moves in recent years. And leading the charge has been the fi rm’s charismatic new chief executive.
Gutsy decision Since taking the helm in March, Doyle – who previously held senior leadership positions in the fi rm’s marketing, branding, US and International operations – has been the figurehead for the revamp, but in his role as President he was also heavily involved in the decision-making process behind the change. It all started, he says, with a marketing epiphany. “We launched a campaign in early 2008 in the US called ‘You Got 30’ that took us back to our heritage and re-emphasized our reputation for fast delivery. And do you know what? Consumers yawned,” he explains. “They said, ‘We already know that you’re fast and that you deliver, and that’s great,’ but it didn’t change anyone’s mind about us. It was at that point that we were forced to look at consumer perceptions of us in the market.” Doing so, however, meant facing up to some uncomfortable truths. “Inside the US there was always this perception issue around the quality of our pizza,” he continues. “And while we always thought it was good – at least as good as anybody else’s out there – the consumer didn’t give us credit for it. So we knew that was the big hill and we needed to climb it. We just got in a room and said, ‘We need to address this’. The question was whether we could
do something dramatic enough in terms of improving the pizza to get people to take another look.” The reality of making such a huge change to its core brand was not lost on Doyle or his team. Critics and analysts alike were quick to point to the examples of soft drinks giant Coke and chocolate-maker Cadbury, two huge brands on either side of the Atlantic, both of which were forced into embarrassing – and costly – climb-downs when customers rejected their supposedly ‘new and improved’ recipes. The message from history was clear: consumers might like things that are new; but at the same time, they don’t necessarily like change. It was an issue that Doyle, with his marketing background, decided to address head on. “How do you get people convinced that you need to make that kind of a change? That’s the real challenge,” he says. “First we started talking to our chefs in the kitchen who were going to work on it, many of whom had invested a big portion of their career into the products and the pizza that we were selling before. Then we needed to go out and talk to our franchisees – independent business owners who had staked their livelihoods on the values of our brand. And then fi nally we had to work out how to communicate to the world that we were making a real change.” He believes that what really captured people’s attention with the campaign was the honesty of it: the fact that it addressed customer concerns in a frank and open way. “There are so many companies out there trying to spin things; they make this slight change to a product and announce to the world that it’s revolutionary. But consumers fi lter that out,” he says. “Consumers are smart, they know when companies are doing that to them. So instead we went out and showed them the criticism that we’d received from consumers, and immediately got everybody’s attention. People said, ‘My god, something is atte very different at this company; they’re coming out and they’re saying it and recognizing it.’ We got their attention; it was honest and transparent, and it gave us the opportunity to then show ent people what we’d done. And we were credible peo the then when we told them about it.”
Outside the box O Of course, the main difference between w what both Coke and Cadbury did and the approach taken by Domino’s is that whereas ap th the fi rst two had the option of falling back o on the tried and tested if the new recipes ffailed, the pizza chain had no such safety n net. If you’re going to trash talk your old p products, you can’t very well return to them iif the new products bomb. “We burned the bridge,” admits Doyle. “There was no going back. There were people out there that were drawing comparisons to New Coke from the 1980s, but the difference was that fi rst of all they were beloved for the taste, and secondly, we committed ourselves more. They
Big Intervierw Dominos.indd 39
THE BIG INTERVIEW
hours to training in a two-week period. And overseeing it all was the company’s CEO-elect. “I had a series of meetings just before that, in November, where we went out and showed everybody the new pizza, talked to them about the approach and why it was so important, and laid out the plan for how we were going to roll it out,” says Doyle. “By the time we got to December, my role was about communication and making sure that people understood it, and just trying to rally the troops and get them excited about the opportunity that was in front of them.” It’s a role he still performs today. “I am constantly in the stores, talking to the managers, talking to the drivers, interacting with consumers,” he insists. “I’m constantly getting feedback from our stores. And I think that’s critical.”
$1.425 BILLION DOMINO’S ANNUAL REVENUES
still had Classic Coke out at the same time as they had New Coke; they never went out and said the old one was bad.” Domino’s, on the other hand, did exactly that. Its marketing campaign trashed the old pizzas, acknowledged customer complaints and openly described its former range of products as tasting like cardboard. “Plan B was probably that the next CEO would figure out how to fi x it,” says Doyle with a wry smile. “But seriously, there was no Plan B. There couldn’t be. By going out with this strategy and saying, ‘We get that there is a problem with our old pizza,’ there was no way we could go back to the old formulation. So we were absolutely committed that we were going to go forward.” In fact, he feels that the lack of an escape route ultimately proved to be the key driver in the campaign’s huge success. “The wonderful thing about being that committed is that everybody figures out how to do it right fi rst time,” he says. “Our stores knew that they had to make this new pizza perfect, every time. They knew they were getting an opportunity to change peoples’ minds about Domino’s Pizza, and one of the things I’m most proud of as I look back is that our franchisees and stores did a terrific job of executing against this. If they had delivered bad pizzas, or delivered them in an hour, or otherwise damaged the relationship with people who were giving us one more chance, there was no opportunity to ever go back to them again and repair that relationship.” Preparing for such a change was a massive undertaking for both management and staff and involved significant planning. After the initial decision was taken to overhaul the brand in 2008, the company spent 18 months testing dozens of cheeses, 15 sauces and 50 crust-seasoning blends before deciding on the winning recipe. In early December 2009, three weeks before launch, the new ingredients were shipped into stores, while at the same time, Doyle’s team went out to stores and retrained every pizza maker in the company – as well as restaurant staff, managers, and everyone else – on the new products. Between the company and its franchisees, Domino’s committed over 200,000 man-
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It’s been almost a year since Domino’s launched its new pizzas, and by and large – against all the odds and contrary to traditional marketing thinking – the move has been viewed as a huge success. Last month, the fi rm announced strong results for the third quarter with domestic same-store sales rising 11.7 percent versus the same period
Pizza by the numbers
EVERY HOUR IN THE US... 1,260,000 SLICES OF PIZZA ARE EATEN
= 1000 PIZZAS
THAT’S THE EQUIVALENT OF 36,500 ACRES, OR 23,079 SOCCER PITCHES A YEAR
17% OF ALL RESTAURANTS IN THE US ARE PIZZERIAS
10% OF ALL FOODSERVICE SALES ARE PIZZA
93% OF AMERICANS EAT AT LEAST 1 PIZZA A MONTH
PIZZA IS A $30 BILLION PER YEAR INDUSTRY SOURCE: PIZZAWARE.COM GRAPHIC FOR MEET THE BOSS TV | WWW.MEETTHEBOSS.TV
THE BIG INTERVIEW | 41
Turnaround lessons LESSON 1
“We knew we needed to deal with perceptions around the taste and quality of the pizza. We knew it wasn’t going to be easy. But we also knew that if we got it right, the upside would be fantastic”
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last year year, while robust sales volumes also drove positive results in the company’s domestic supply chain business. Meanwhile the international division continued its strong performance, with same store sales growth of seven percent in the third quarter, marking the 67th consecutive quarter of positive same store sales growth for the overseas part of the business. Doyle is in no doubt that recent wins can be put down to sustained positive consumer response to Domino’s improved pizza and the effectiveness of its advertising campaign. “We’re pleased that people love our reformulated pizza, the value of our offer and our honest and straight-forward communication of our brand values,” he says. “We’re a new Domino’s. Th is quarter has proven that our strategy is working, resulting in higher sales, operating income and cash flows. Despite these tough economic times, we continue to outperform the majority of the restaurant industry due to our energized domestic business and our powerful international division.” The lesson for a lot of companies, he believes, is to face your fears. “I think most companies know what their big issue is; they know the hill that they’ve chosen not to take in the past, but it’s there – the management knows it, and the vast majority of the people in the company know it too,” he says. “We were just blessed with a team that fi nally decided, ‘You know what, it’s time to take that hill’. We knew we needed to deal with perceptions around the taste and quality of the pizza. We knew it wasn’t going to be easy. But we also knew that if we got it right, the upside would be fantastic for the business. And we did, and it was.” ■
Be honest with your customers No one likes being lied to. They don’t like being ignored, either. At the heart of Domino’s effort was a simple acknowledgment that it had ignored customer concerns about product quality. The ﬁrm took an open, honest approach to past failings and outlined what it was doing to remedy them – and customers responded in a positive manner. It sure beats more marketing spin, anyway.
LESSON 2 Use social media to boost credibility There are always going to be people who don’t support your product or your organization. Conversely there are people who will back you to the hilt. But how do you sway the undecided? Domino’s included a live Twitter search stream on their website as a way to help convince people on the fence about trying the new pizza. Are all of the Tweets positive? No, but they are all credible.
LESSON 3 Be fearless in your approach Domino’s claimed there was no Plan B – and by trashing its old products, it certainly closed the door on a return to business-as-usual. By committing wholeheartedly to the new recipe, the ﬁrm was able to ensure complete buy-in from stores, staff and franchisees – all stakeholders in the ﬁrm’s continued success. Faultless execution was achieved through a major education and training program. Not for the fainthearted.
Will United’s merger ﬂy? The recent completion of the merger between United and Continental to form what is now the world’s biggest airline presents a number of signiﬁcant management challenges – not least in terms of integrating two vastly different cultures and operating environments, argues Ben Thompson.
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or an industry that’s suffered from more than its share of nasty external shocks in recent years, domestic airlines are currently benefiting from a pleasant surprise or two. First, there was the return to relatively stable fuel pricing after years of volatility. Then there was the return of business travel after a cost-cutting couple of years. And most recently, of course, there was the return to profitability. US Airways posted the highest third-quarter profit in its history, and both Delta and American Airlines also returned to profitability. Meanwhile, Michael Derchin, Principal at CRT Capital Group, expects profits of $3.9 billion this year and $6.7 billion in 2011 – not bad for an industry that’s experienced seven unprofitable years in the past decade and is in the middle of what’s generally being hailed as a modest overall economic recovery. It’s been a welcome upturn for the beleaguered industry. And what’s more, October saw the creation of a new market leader, as Chicago-based United Airlines merged with Houston-headquartered Continental to create the world’s largest carrier. When the integration process is fi nally completed late next year, the new United will serve 378 airports with hubs in 10 cities, 5811 daily departures and an estimated 144 million passengers a year. The merger is also expected to bolster the new airline’s international presence, with United strong in Asia and Continental a market leader in Micronesia and Latin America. After the merger, the company will have 148 international destinations in 59 countries. “With great people, an unparalleled global network, the best new aircraft order book among US network carriers and a commitment to superior products and services, United is well positioned for a bright future,” new CEO Jeff Smisek told reporters on signing the deal last month. However, while industry experts see the merger as having plenty of attractive synergies, senior management faces a number of key integration challenges if the fi rm is to hold onto its newly minted crown as industry number one.
A perfect match? A 15-year veteran of the airline business, Smisek only took on the CEO role at Continental in January. Charged with bringing the airline back to profitability after it lost upwards of $1 billion following the September 11, 2001 terrorist attacks, he now faces what is potentially an even bigger challenge as boss of the new United: integrating two major airlines, each with its own IT systems, labor culture and operating issues. The fact that he is doing so in a tough economic climate where margins are tight makes it even harder; but nonetheless, the consensus amongst industry watchers is that the new fi rm has found the right man for the job. “If you are an airline geek, it doesn’t get any better than this: bringing these two carriers together,” says Smisek. “They are the perfect marriage, the perfect fit. I think we’re creating a tremendous carrier here.”
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Hired in March 1995 as general counsel and senior vice president, Smisek has overseen corporate communications, labor relations, government affairs and many other executive functions during his time at Continental. It gives him valuable insight into the multiple challenges the new firm will face as it looks to forge a united company from two disparate cultures. “He understands Continental’s culture and the airline business,” says former CEO Larry Kellner, who along with Smisek formed a key part of the Gordon Bethune-led management team that is widely credited with turning Continental into a profitable and service-oriented airline in the 1990s. And in at least one respect, Smisek has firmer foundations from which to build than when he fi rst joined Continental: his new project is starting out from a much sounder fi nancial footing. In line with its peers, United posted a $387 million profit last quarter compared to the $57 million loss reported during the same period last year, with both revenue and yield seeing substantial double-digit increases; Continental, meanwhile, posted a $354 million profit against the $18 million loss reported last year, with a similar growth in sales. Compared to this time last year, the two companies are in rude health. “Th is is an industry that has faced a fairly tough ride over the last few years,” explains Andy Golub, Head of Risk Advisory in the New York office of aviation consultancy firm Ascend. “There’s been a lot of chatter about overcapacity in the US industry, and there’s been a fundamental shift in the balance of growth between the legacy airlines and the low-cost carriers. In addition, there have been a lot of curveballs that have been thrown at the sector, from high fuel costs to scale-backs in business traveler profi les. But overall, the industry’s in better shape right now than it has been for some years.” What’s more, Golub believes he sees enough synergies to suggest that the merger can be a success. “What you have is two complementary profi les, with relatively benign overlap on a lot of their networks; I see a lot of synergies,” he explains. “You have United’s core road warrior/business traveler customer base connected with Continental’s new fleet and internationally competitive brand identity, and I think that’s really where you’re going to see a lot of the focus in terms of recasting the brand.” The merger works from a geographical perspective, too. United has a strong West Coast structure and a massive hub in Chicago that controls central routes, while Continental has built up what Golub calls “a terrific presence” in Newark, which serves connections eastwards into Europe and south to Latin America. “They are going to have a really broad, integrated network under one carrier’s colors that can compete with Delta in serving a wide range of business and leisure travelers,” he says. “They have limited overlap and a lot of potential synergies.”
Integration challenges Nonetheless, just because the synergies are there it doesn’t follow that the merger will automatically be a success. According to Ernst & Young’s Capital Confidence
CEO PERSPECTIVE As the world’s biggest airline begins its journey towards ﬂying under a single banner, what does the next 12-18 months hold? Jeff Smisek, CEO of the new United Continental, outlines his vision for integration.
e are starting on our journey to become the world’s leading airline. We’ll have the best co-workers in the business, the world’s most comprehensive network, a young, fuel efﬁcient and ﬂexible ﬂeet, the best new aircraft order book among US network airlines and the world’s leading frequent ﬂyer program. It’s going to take us a while to integrate the two carriers and we expect that integration to take between 12-18 months. Meanwhile, each airline will continue to operate separately under our holding company, United Continental Holdings, Inc. We expect it’ll take us at least a year to obtain a single operating certiﬁcate from the FAA that will permit us to operate as one airline, and my goal is to have joint collective bargaining agreements with all our unionized work groups complete by the time we get our single operating certiﬁcate. Going forward, our customers and our employees will see positive changes as we work to integrate our policies and programs, but for the near future it’s business as usual. So customers can expect to interact with us as they always have. Customer miles and frequent ﬂyer program status are safe. Customers will begin to see a more uniﬁed product in the spring of 2011, when our customer service and marketing activities are more integrated, promoting a more seamless product. Behind the scenes my co-workers are working hard on what will be the world’s leading airline. We’re surrounding ourselves with people who have a passion for the airline business and giving them the tools they need to succeed. I am very focused on making sure that we promote a culture at the new United of working together, open, honest and direct communication, treating co-workers and our customers with dignity and respect and providing clean, safe and reliable air transportation. We are in a service business. It’s the people who get the job done and make all the difference in your travel experience. We understand that and are committed to making the new United your airline of choice and a place where our co-workers enjoy coming to work every day. We’re also committed to achieving sustained, meaningful proﬁtability. We remain conﬁdent that we can deliver on our previously announced net synergies of $1-1.2 billion per year by 2013. Of that, we expect between $800-900 million of that to be revenue-driven from both increasing the mix of higher yield travelers on board our airplanes, and also better allocating the ﬂeet across the network; and between $200-300 million in annual cost savings and those are principally driven from technology savings as we bring the two companies together, and some headcount reductions as well. We have been moving quickly but thoughtfully on our integration planning, and I’m pleased with the progress we’ve made. We have a lot of hard work ahead as we begin to implement our integration plan, but our co-workers are enthusiastic about the opportunities this merger will bring to them. This is a highly complementary merger with very little overlap. So the effects on the frontline employees will be minimal and to the extent that there are effects, we’ll do our best to mitigate them with retirements and voluntary programs and normal attrition. We’re being very careful and thoughtful in the process because it’s important to me that we treat all of our co-workers with dignity and respect, and that people who want to move forward in the combined carrier be given an opportunity to do so.
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Barometer, a global survey of 800 senior executives from around the world conducted in March 2010, 57 percent of businesses state they are likely to acquire other companies in the next 12 months, almost double the figure six months previously. Significantly, post-deal integration is considered critical with 77 percent citing potential synergy identification and realization in transactions as a high priority. Th is may in part be a recognition of past mistakes – almost one-third of respondents stated that the last transaction they completed did not meet expectations or was not actively monitored in terms of value achieved. “The deal process is evolving,” argues Pip McCrostie, Global Vice-Chair of Transaction Advisory Services at Ernst & Young. Discipline is needed around integration processes and greater transparency is required from sellers around the future earnings potential of the target. We see investors increasingly focused on understanding the value they need to achieve post-transaction.” The airline industry is no exception. Tero Taskila is the Chief Commercial Officer at Air Baltic, and has a wealth of knowledge and experience in commercial and strategic management within the aviation industry. He believes that there are four things to consider during any merger: people, tools, data and processes. “Mergers are tricky,” he says. “In most cases, the culture is the most difficult thing to change and that is normally the key to managing such mergers. Systems and data issues can be overcome with time and money, but integrating people and cultures takes significant management skill.” The reason, he says, is that most people don’t like change. “The question for every individual is ‘how does this affect me?’ because everyone knows that the reason for any merger is to reach economies of scale on the cost and revenue side – which often means reducing staff.” And with a number of different unions in play, all with separate mandates and goals, effectively managing those expectations and needs will require diplomacy, strength of will and clarity of purpose. “The key is going to be integrating both the fleets and the unions,” agrees Golub. It’s an issue the new company is only too aware of. Cindy Szadokierski, VP of Operations Planning for United, says that 30 teams have been working on different aspects of the merger since June, and that seamless customer policies and procedures – particularly on frequent-fl ier programs – and the merging of the two corporate cultures is high on the priority list. “If anything keeps me up at night about the merger, it’s learning the culture,” she says, adding that she expects United will learn more from Continental’s way of doing things as Continental has a better reputation for customer service than United. “The one thing we’re hearing is that we want to serve our customers well.” The Houston-based firm, explains Golub, has done a great job in engaging with all its stakeholders, and he believes that reinforcing this element of the culture at the new company will be vital to the success of the integration process. “The fact that it has really strong engagement with its client community, the investor community and the fi nancial community has done wonders for Continental,”
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he says. “They’ve been able to tap the capital markets very successfully and very consistently over the past few years as a result of that, and transferring some of that cultural way of working to the new entity will be critical.” In this respect, United would do well to follow the example of Delta in its merger with Northwest a few years back. “That’s going to be an important part of the management of the merger: how they engage with the investor community and the banks as they build together these brands,” continues Golub. “Delta has done a very successful job with that, in terms of working with both the Northwest investors and the Delta investors together, and United is going to need to do the same thing.” “From my perspective, the big challenge will be maintaining the customer experience throughout the integration,” adds Sunil Harji, Director at KPMG. “The airline industry is one where bad news travels a whole lot faster than good news, and with the advent of blogs, internet forums and the like, any kind of unpleasant customer experience is quickly amplified. As a result, what you do in a merger situation will be instrumental in how many customers will want to stay loyal to you going forward.”
Avoiding turbulence A similar integration challenge exists on the tools side, given that both companies will have developed inhouse systems that are customized for the individual airline itself. “Companies often fi nd it difficult to integrate new companies or processes into these customized solu-
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tions; the same applies for processes,” says Taskila. “Until optimized tools and processes for the merged company are in place, whose should be considered as the de facto standard?” Graeme Wright, head of Merger, Integration and Separation Services for Fujitsu, agrees. He feels that market pressures, regulatory reform and strategic opportunities are all driving M&A activity as well as business separation – and that fi rms must keep a tight grip on merging IT systems in order to successfully navigate a chart through the integration process. “Businesses undergoing a merger, integration or separation want to realize the business benefits, but wrestle with tough IT-related challenges,” he says. “The combination of diverse visions, objectives and priorities simply amplifies the challenges, but if done right the business benefits achieved through a successful IT merger or separation will hit both the bottom line as well as going some way to helping with the cultural challenges facing the parties involved.” Wright believes the main challenges in merger and separation deals revolve around IT being hidden from the business units responsible for making M&A decisions, as well as too much focus being placed on the politics of which systems should be kept in a merger situation, with ‘horse trading’ playing too much of a role in favor of objective assessment. Harji agrees, and feels that improving the chances of success means changing the mindset. IT must be brought to the table from day one and not relegated to the status
Continental Airlines CEO Jeff Smisek and UAL CEO Glenn Tilton announce merger of airlines in New York
INTEGRATION FOCUS | 47
THE NEW UNITED NEW COMPANY NAME: United Continental Holdings NEW STOCK SYMBOL: UAL (NYSE) AIRLINE NAME: United Airlines CEO: Jeffery Smisek, previously CEO of Continental Airlines HEADQUARTERS: Chicago COMBINED OPERATIONS: 144 million passengers, 371 destinations in 59 countries HUBS: Newark, Houston, Chicago, Denver, Washington Dulles, San Francisco, Los Angeles, Cleveland, Tokyo, Guam GLOBAL ALLIANCE: Star SHARE OF US CAPACITY: 21% SHAREHOLDER OWNERSHIP: United 55%, Continental 45% WHAT’S NEXT: Customer Day One, when consumers will begin seeing changes in signs, websites, uniforms, advertising and policies, is planned for spring 2011. Acquisition of a single operating certiﬁcate from the Federal Aviation Administration and the target date for new contracts covering all unionized work groups is expected to happen in 2012.
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of post-merger hangover, he says. “The CIO must play a part in the due diligence stage as the one player who understands the scale of the technological challenge; he or she needs to buy into the synergy case and be central in building and costing the integration plan,” he explains. “The deal might look great on the balance sheet but a nightmare when you take into consideration the necessary integration costs; an effective IT due diligence is a vital stage in gauging these costs and fi nding out whether the sums really do add up.” Part of involving the CIO early in the process, he says, is to ensure that technological solutions can be understood and are brought to the table at the deal-making stage. In situations such as this, the devil is in the details. “If you’re doing your synergy planning and your integration planning at such a high level that you’re not actually looking at the specifics, then you’re going to run into trouble be-
cause those plans will not be deliverable,” says Harji. “It will take you longer to do what you think you’re going to do.” As such, he suggests that United – and other companies involved in similar integration projects – take four key steps when tackling a merger situation. The first is to know what your starting point is, because unless you have a very strong understanding of your baseline you are doomed to failure. “You’re trying to hit a moving target and you will not get that synergy,” he says. The next point is to be realistic about what can and can’t be done. “There is always a cost associated with delivering synergies, and what we typically fi nd is that synergies are overestimated and the cost of delivering those synergies is underestimated. So you’ve absolutely got to be robust in your calculations and in your assumptions.” The third step is to manage the integration process in waves – and address the low-risk, easy-to-implement, high-reward initiatives in phase one.
CAN IT HOLD THE SECRET TO A SUCCESSFUL MERGER? Sunil Harji, Director at KPMG Performance and Technology, says technology is increasingly important in the pre and post-merger process, and that IT can make the difference between M&A success and failure.
he nascent economic recovery has set tongues wagging about the prospects of new life returning to the M&A industry. Forecasters predict an upturn in activity towards the end of the year, driven by a spate of new IPOs, exits by PE ﬁrms and recession-battered market consolidation. Financial services and telecommunications are particular areas to watch this year. A resurgent M&A scene brings the challenges of post-merger integration back to the fore. While in the past success has rested on the ability to integrate people and processes, the biggest M&A stumbling block for 2010 and beyond will be integrating technology. Trying to reconcile legacy systems across merging companies can be compared quite aptly to a second marriage with problem children from both sides. Both parties have entrenched systems (some more user-friendly than others) as well as values and methodologies that they cling on to as bastions of their uniqueness and worth. In both cases, success isn’t determined by signing a contract, but by how well the parties have got to know each other’s peculiarities before the big day, and their commitment to the partnership. Many M&A transactions in the boom years destroyed value, typically through a mix of overpayment and an inability to extract value or deliver synergy beneﬁts post-deal. Often, that’s because IT is seen as an aside to the real deal-making rather than a necessary element of success. A signiﬁcant proportion of what a business does is
underpinned by technology. From interacting with customers and clients, placing orders with suppliers, managing the manufacturing process, supplying business services and managing a workforce – pretty much everything is technology dependent. Merging companies need to be able to understand the key processes and supporting technology – this needs to be protected and changing this is not part of the low-hanging fruit. ‘We will move to a common ERP platform’ is the type of statement we hear a lot without the necessary understanding of exactly what that means, the complexity involved, the impact on the business and the sheer amount of change management required. In our experience, underestimate this type of exercise and you are well on your way to ‘Overpay and Underdeliver’. Due diligence, the process by which any prospective buyer seeks to gain a better understanding of the target business, is a necessary but often painful stage in the M&A process. Here, the need for speed, the desire to win and the fear of disclosing business critical information come into direct conﬂict. No company enters the M&A process consciously wanting to lose, but many management teams disadvantage themselves by failing to realise that technology can be either one of the biggest enablers or a signiﬁcant hindrance. Technology has become central to the success and competitive advantage of many large companies, but while its perceived importance in the M&A process has improved there is still some way to go. Synergies are much easier to estimate than they are to deliver.
Th is builds some momentum into the integration, allows the team to ‘bank’ some of the synergies and provides an understanding of how the new organization might look. His fi nal recommendation is that firms implement proper governance procedures to ensure a smooth transition. “It’s about program management hygiene, ensuring good governance and just doing stuff at the right level of granularity so that you understand the beast that you’re about to take on.”
Clear skies ahead? By merging Continental with United, the hope is that the larger airline will make money and sustain that profitability in an industry plagued by fi nancial problems. And while it won’t be easy, creating harmony is vitally important because the true benefits of the union will come not from slashing costs but from generating new sales, attracting new customers and connecting cities. “Airlines need to consolidate because there is still too much capacity in the market,” says Taskila. “Some airlines are forced to seek economies of scale to compete with new entrants and keep their market share; smaller airlines, meanwhile, are forced to rethink their networks and products in order to maintain their niche.” And while elements of both scenarios apply in this case, a merger such as the one between United and Continental, he argues, is also based around creating a synergistic network – which ultimately allows for a greater command of the market and significant potential for future expansion. “Eliminating overlaps in products will allow the new company to operate more with less, while commanding a bigger market share enables better control of the market, leading to better revenue opportunities.” Golub agrees, and thinks that the emergence of the new United alongside previous number one Delta could lead to future consolidation amongst rival carriers. “I think we will see these two very large companies flexing their muscles over the next few years to control their markets and expand into emerging opportunities,” he says. “And that, in turn, will put pressure on American Airlines and others, too.
Lead United-continental merger new.indd 48
You’re going to have a much different and significantly less fragmented US market, and I think America for one is going to have to be very scrappy over the next few years.” In one way, October’s completion of the merger between two of America’s largest airline carriers marked the end of months of tough negotiation for the two executive teams involved; in another sense, however, much of the hard work is only just beginning. According to experts, unless management can get workers to buy into the new United, the goodwill and excitement engendered by the $3 billion tie-up could be overwhelmed by rancor and labor strife – particularly given that the massive team-building mission will have to be done against the crushing pressure of combining networks and information systems, and the threat of tumult as the carrier negotiates contracts with all its employee groups. In response, Smisek plans to bring Continental’s business approach and people-fi rst culture to United, as well as a cadre of senior executives who are veterans of the 1995 turnaround. He takes pride in low staff turnover and smooth succession planning (Kellner took over from Bethune when he retired in 2004; Smisek succeeded Kellner at the start of this year) and, according to those who know him, will actively seek out dissenting voices in order to get a balanced viewpoint. It’s also unlikely he’ll have much time for the grudges that lent a corrosive edge to United’s employee relations over the last 25 years. “There’s an old saying that we use here a lot: there’s no rearview mirror on the fl ight deck,” he said in a recent interview with the Chicago Tribune. “Because it doesn’t matter what’s behind you. If you’re going 540 miles per hour, who the hell cares what’s back there, right? So you need to look forward. There’s nothing we can do about our past or United’s past. But we can work together to create a tremendous future.” In Smisek, the new company appears to have the right man at the controls. “United will be well-served with him as their head,” concludes airline analyst Darryl Jenkins, who has known the new United chief for 12 years. “He’ll be the most capable CEO the company’s had in 20 years.” ■
“Unless management can get workers to buy into the new United, the goodwill and excitement engendered by the $3 billion tie-up could be overwhelmed by rancor and labor strife”
Increasing sales and customer satisfaction Applying Lean Six Sigma techniques to increase sales is gaining momentum in an ever more competitive and globalized environment, says Luis Garcia-Guzman.
ean and Six Sigma originally focused on manufacturing, but the economic benefits of using these techniques in areas such as sales and marketing now equal – and in some cases exceed – manufacturing gains. Lean Six Sigma techniques can increase sales by improving customer satisfaction and facilitating better understanding of the voice of the customer (VOC). For instance, one of our students recently completed a Lean Six Sigma Black Belt project for a service company. The data came from a VOC survey the client sent to 1500 of its active customers, and based on analysis of the results, company management began to deploy an intensive program to improve the capability of their inside and outside sales force. Initially, the company was struggling with stagnant sales. The needs assessment was followed by a blind survey of the four top executives in the company that included questions rating the quality and frequency of calls by phone representatives and price competitiveness. With the exception of the questions relating to price, the results of the analysis showed that the focus should be on training and improving sales personnel. Th is result from the VOC survey accurately matched the general perception of the management team that it was necessary to increase customer satisfaction to achieve sales growth. In another case study dealing with customer satisfaction, Lean and Six Sigma were applied at an auto dealership to improve the weekly new vehicle ordering process. Initially, the dealership ordered new vehicles based on a pre-established pattern. Now, however, the dealership analyzes its sales and customer feedback to adapt its product offering to customer requirements and improve its own performance; because of this success, the dealership is also applying Lean and Six Sigma in its service departments. In fact, the success of Lean and Six Sigma at the auto dealership was one of about 42 Lean and Six Sigma projects implemented in a regional network of dealerships to improve the sales and service Customer Satisfaction Index (CSI). Th is effort involved the creation and training of an interdisciplinary team of 10 members over a period of 18 months. At the end of the 18 months, 86 percent of dealers participating in CSI sales projects and 76 percent of dealers participating in CSI service projects had improved their ranking. In the most successful project, a dealership that ranked near the bottom for CSI in sales and that ranked last in the network in terms of service
University Michigan.indd 50
jumped to number one in sales and eighth in service. And although individual dealerships had varying degrees of success, the many positive results clearly demonstrated the potential of applying Lean and Six Sigma continuous improvement tools and methods to drive change and improve performance in CSI. In addition, the project showed the importance of developing employees with a combination of strong change management and data analysis skills. We believe that this approach may be applied successfully to many other functional areas such as sales management, inventory and replacement parts. A common mistake of companies adopting continuous improvement efforts is to stop developing their skills before fully realizing the benefits. Th is results in implementations where companies fail to sustain improvements. While the allocation of resources is always scarce, the need for effective problem solvers never diminishes and should be a priority in any business environment. The University of Michigan has provided Lean and Six Sigma training and certification for more than a decade. More than 10,000 students have been certified through our programs. For more case studies and information, visit: http://interpro.engin. umich.edu/
Dr. Luis Garcia-Guzman is an Assistant Research Professor in the Department of Industrial and Operations Engineering at the University of Michigan, Ann Arbor. He holds a Six Sigma Master Black Belt certiﬁcation and is an instructor for courses in Quality Engineering, Simulation and Lean Six Sigma.
Reaping the beneﬁts How insurance marketing ﬁrm Beneﬁt Architects doubled capacity using Clarizen’s work management solution. By Avinoam Nowogrodski
enefit Architects is an insurance marketing company that provides voluntary benefit programs to large employer groups, labor unions and associations. It has 23 years of experience in selecting the right combination of cost-effective voluntary benefits for groups ranging in size from 100 to over 250,000 employees. However, the job of enrolling thousands of employees at several different worksites can be complex, with as many as 100-150 interrelated tasks spanning several months to up to a year. In this business, projects must be completed with 100 percent accuracy both in terms of the order of tasks and the timing of each task’s completion. With a staff of three dedicated internal employees and a team of external enrollment specialists, Benefit Architects was able to process 12-15 enrollments a year using a combination of tools including Excel, MS Outlook and a database tracking program. Even with this small number of enrollments, about 10 percent of the tasks within an enrollment would fall through the cracks, making the business model unsustainable and growth impossible. Mark Robbins, President of Benefit Architects, realized that in order to become a real force within the market it was necessary to get a handle on the tasks and process that had become unruly. Robbins investigated on-site project management solutions such as MS Project but because of the distributed nature of his business and workforce, using a web-based solution made the most sense. Also, being an SMB business owner, Robbins was not interested in investing in the IT infrastructure and maintenance staff needed to install and maintain an on-site solution. Benefit Architects evaluated several different project management solutions, but found Clarizen to be the most flexible and cost-effective solution for its business requirements. Another critical factor in selecting a platform was employee adoption. Robbins’ workforce was web-savvy and mobile due to the nature of the enrollment business, so he was looking for a solution that would be easy to implement and easy to use in a distributed environment. He selected Clarizen and within no time his team was up and running using the platform. Running projects with as many tasks, sub-tasks and interdependencies as his team was working with, the team was constantly dealing with complaints about what was not getting done and spent much of their time fi xing mistakes. His team was desperate for a solution that would help them improve their day-today work environment and provide dramatically better customer service.
Clarizen’s ED.indd 52
Avinoam Nowogrodski is a serial entrepreneur with over 20 years of experience in founding and managing software companies. As Co-Founder and CEO, Nowogrodski brings insight and expertise to Clarizen’s vision of bringing work management to every business.
Using Clarizen, Benefit Architects has built a standard set of project templates that include all the tasks, sub-tasks, interdependencies and deliverables within a standard project. The team starts building a project once they know the enrollment date and Clarizen works backwards (and forward) from that date to create the schedule with milestones, triggers for deliverables and tasks that are set on the dependencies built within the templates. “Our business process has changed dramatically since we adopted Clarizen,” says Robbins. “We now have the capacity to handle twice as many enrollments as we were doing before Clarizen, and now those enrollments are completed with 100 percent accuracy. With Clarizen, we are simply more efficient at allocating resources. Now, we do it right the fi rst time. “If we find a weakness or a flaw in our internal processes, we can now immediately fi x the problem for the next project,” he continues. “With Clarizen my Disability team manager has complete visibility into all the projects going on in the company, all the resources and all the timelines – giving her the ability to spot and deal with any redflags before they even happen. Th is kind of transparency is priceless.” Benefit Architects is now easily handling over 30 enrollments a year with the same internal and external staffing they had when they were handling half of that load. ■
54 | CIO STORIES
RY OF A BRIEF HISTOSA McCAIN U
McCain Foods Ltd begins production in Florenceville, Canada, in 1956
Roman Cobs ed.indd 54
In the mid-1960s McCain enters the US market, following success in the UK
McCain acquires two French fry production plants in Maine in the 1970s
During the 1980s, McCain acquires a plant in Othello, WA, and announces a $35 million expansion
CIO STORIES | 55
Found on dinner tables everywhere, McCain has become one of the world’s best-loved food companies. But operations across the globe present a sizeable portion of challenges for the 50 year-old food production company. Business Management speaks to CIO Roman Coba to ﬁnd out how technology can smooth over the bumps in a global organization.
few years back, a television commercial nizations around the world, and none of them would talk in the UK was receiving considerable to each other,” laughs Coba. “So we had to put a program attention. Two young girls are at the together that would drive one global IT organization with table eating dinner – an innocuone global mandate, one global strategy. We brought all ous and typically British children’s the teams together fi rst, dropped the barriers and we built meal – when the older girl turns to the strategy.” her younger sister and asks which she He reveals that prior to his arrival at McCain, the prefers, Daddy or chips? After much deliberation, the girl firm’s IT operations had been segregated from the rest of chooses the French fries over her father. the organization, and many other sectors of the firm had While the advertising message from McCain may little understanding of the role IT played. “The key was have been a little strong, the sentiment about the to sit with the business owners and sell them on our popularity of the brand is undeniable. McCain’s strategy because the business was never exposed McCain products can be found in freezers in 130 counto it,” Coba explains. “We sat in front of them, operates in tries worldwide; the company produces over and I told them, ‘Here is where we are. Here a million pounds of potato products every are all our issues. Here are our fi nancials.’ hour and a third of all the frozen French fries I just took them through the whole thing. countries produced in the world, and is the second largThen we said, ‘Here is how we plan to fi x it.’ worldwide est privately owned company in Canada. We shared with them the whole plan. Such a far-reaching global presence is “It was eye opening for some of them beundoubtedly impressive, but operating out of 55 cause they had never even seen where the spend production facilities – in 12 countries, over six continents, goes. They just knew that they were throwing out $40, $50, with 20,000 employees, into 130 markets – presents its fair $60, $70 million a year, and never really understood where share of challenges, not least from an IT standpoint. And it was spent. So we set a baseline, and then we sold them indeed, when Roman Coba, McCain’s unassuming and on the plan.” Of course, there was some scepticism, and likeable CIO, took charge of the firm’s IT operations two Coba spent the fi rst year of his tenure travelling around and half years ago, he found the technology affairs in disthe globe, meeting each of McCain’s numerous regional array. “They were a very inward focusing IT organization,” business teams, both to listen to their main concerns and Coba explains. “They had no credibility with the business. needs from a technology point of view and to explain his Their approach to IT was ram and jam; there were no new global technology strategy. partnerships. Their approach to technology was fi nd the “I also spent that year working with our internal IT cheapest, and just put it in because it looks like we’re drivorganizations,” he adds, “but it was hard to change habits. ing value. There was no long-term IT strategy.” It was a matter of breaking down barriers, identifying the Coba had a daunting task on his hands: to restrucglobal projects. We’d build global work teams, and global ture McCain’s entire global IT operation, right from its work streams. We put everybody on them, and we started very foundation. His first project was to develop a solid, creating that whole global or team atmosphere. Once five-year IT strategy that could be applied to the entire we went through the business and gained credibility, we organization around the world. “We had seven IT orgathen started showing the value of some of our plans. For
In 1997 McCain takes over the Ore Ida Food Service frozen foods ﬁrm at a cost of $500 million
Roman Cobs ed.indd 55
The ﬁrm then plans to invest $70.8 million into wide scale expansion of US operations
In 2001, McCain acquires Anchor Food Products Inc., a leading frozen food producer
Today, headquartered in Lisle, Il, McCain USA employs 4300 people nationwide, and serves customers that rank among the most recognized brands in the world
56 | CIO STORIES
example, what did year one give us? What’s year two going to look like? We started showing them the value, then we started getting the credibility.” The next step in Coba’s task was to add value to the company’s IT operations. Now that a comprehensive framework had been established, Coba had to implement systems and programs that were both cost and time effective across the organization. “We exposed [the business] to some of the enabling technologies that other global companies were starting to implement that were innovative in nature. They all had a dollar return on them, and they all had business value around processes, workforce optimization and things like that. We fi rst sold the idea and the concept of the technology; then we brought the vendor in and did a show and tell, and allowed them to play. A lot of CEOs don’t care, don’t want to care, but they actually loved it.” Now two years into his five-year plan, Coba explains that his department is working on implementing a utilitybased computing model across the organization, and the global integration of enabling technologies is about six months from completion. Then comes the process of revisiting each area of the business to look at how they’re utilizing the technology and identify any further opportunities to increase the value of the IT operations. “At the same time we’re actually at the beginning of a business transformation project,” he adds. “Working on enterprise resource planning (ERP), new processes, global processes, things like that. We’ve got our hands full.”
Spice of life Coba’s restructuring of the IT operations has by no means been an easy task, but McCain being a food product company, operating globally presents another set of challenges. “You get seven flavors of everything,” he explains. “Our people want seven flavors of everything, so we have to deal with that challenge. That’s all around asking the why. Why is it different? Why do you need it different? Can’t you just approach it this way? “The next challenge is that being a food manufacturer, margins are low and brand identity is high. It’s all around driving cost effectiveness and enablers back into the business. So our challenge as IT professionals is that we should be looking at how we change the business – how do we drive more value back into the business based on what we want to do?” Indeed, Coba’s industry has a history of frugality, closely monitoring outgoings, and he highlights that a return on investment and proven efficiency increase in business processes are essential when introducing new technologies. “One thing you have to watch out for is the need to educate the business on what the baseline is,” he says. “I need X amount of money every year for five years just to keep the lights on. That won’t change. Then everything else I do is incremental value.” Still, despite the difficulties posed by being a global organization, Coba explains that he maintains a level of standardization in order to successfully manage his diverse
Roman Cobs ed.indd 56
workforce. “They could be different standards depending on the part of the world,” he explains, “because technology could be different in another part. An example is we’re standardizing on a mobile platform today. So, we decide today we’re going to go with Blackberry, and now all of our workforce has a Blackberry. But when you get to China and Japan, that’s not the prevalent device. The prevalent device might be an Android type of device. So, we’re flexible enough to look at it region by region, but we want a standard for the region. We want operating principles, procedures and policies in place, and we want to be able to know where it is, who’s got it, how they’re using it and keep it locked within the framework of what we as a business want to allow and not allow.” Once the devices and tools have been implemented into the workforce, the challenge then becomes looking at how the devices can be used to really empower the mobile workforce, rather than just facilitating their ability to move outside the office. “We’re looking at tablet type devices,” reveals Coba. “I’ll say tablet devices, which could be tablet computers, iPads, the new Black Pad, whatever Google’s going to come out with and so on. But it’s more looking at how we can use the tool to drive customer adoption. So do we need presentations, a dashboard? Do I need the volumes at my fi ngertips? We want to use it as a device to sell, not just as a device to communicate and collaborate.” Indeed, highlighting the enabling capabilities of technology to his organization is the key for Coba, who feels that ultimately his job is about explaining IT in plain terms. “I think the most important part of my role is showing the value of technology and investment in technology to the business leaders so that they can actually prove some of the money that we’re asking for to move things forward.” ■
“I think the most important part of my role is showing the value of technology and investment in technology to the business leaders” Roman Coba
McCain produces one third of the world’s frozen French fries
Artiﬁcial intelligence Philip Newcomb explains how to accelerate enterprise transformation with architecture-driven modernization.
rtificial intelligence (AI) is a quest for computers to equal or exceed human performance on complex intellectual tasks. An example of success in AI research is chess programs capable of routinely defeating grandmasters; conversely, efforts for automated human language understanding have been less successful. Programming languages, unlike human languages, are a perfect target for automated comprehension and translation. In fact, there has been great success in computers understanding and translating the grammar and syntax of the legacy soft ware languages from the last century. The desire to modernize legacy soft ware systems emerged quickly in the 1990s, but manual rewrites and early automated processes were ill prepared for the task. Recently, however, soft ware engineers have leveraged AI research with great success toward automating such transformation processes. Today, modern computers can understand and translate legacy soft ware applications with levels of proficiency and accuracy vastly exceeding human performance. Th is technology is revolutionizing the way banking, insurance, healthcare, military and government enterprises modernize their legacy IT infrastructures. The US Air Force’s Knowledge Based Soft ware Assistant (KBSA) program began AI research in the early 1980s. Th is program became a technology incubator for applying AI technologies. In 1988, the KBSA program commenced transferring these technologies to industry. Boeing, Lockheed and Anderson Consulting were among those developing AI derivative technologies for industry. Established in 1995, The Soft ware Revolution, Inc. (TSRI) leverages nearly 32 years of continuous AI research and development into language theory, formal methods and soft ware engineering. As one might expect from its roots in AI, TSRI’s robust soft ware re-engineering toolset, JANUS Studio, continues adding to
its repository of knowledge. The Washington State-based company can now provide legacy IT system modernization services at near 100 percent levels of automation. A far cry from the automated efforts of the 1990s, TSRI’s customers currently benefit from high levels of automation with improved code quality, custom design metrics, economy of scale and schedule compression. TSRI is a Platform Member of the Object Management Group (OMG) and a leading contributor to the Architecture Driven Modernization Task Force (ADM TF). Indeed, the company’s services and JANUS Studio adhere to, and in some cases have helped defi ne, these standards. The following list of brief case studies represents five recent TSRI IT modernization projects. • European Air Traffic Management System (EATMS), Th ales Air Systems: Th is realtime system manages over 10 million passenger fl ights annually. Th ales engaged TSRI to transform EATMS’s 1.7 million lines of legacy Ada into Java. The result was a perfect functional replica of EATMS in its new language. TSRI’s 100 percent automation eliminated the risk of errors inherent in a manual rewrite. EATMS will commence operation in significant airports across Europe and Asia at the end of 2011. • Patriot Missile, Fire Platoon Simulation & Battalion Simulation Support Systems, Raytheon: TSRI’s JANUS Studio modernized four different Patriot systems including Patriot Japan. These modernizations included the transformation of nearly 200,000 source lines of Fortran code to C++, re-factoring and documentation. • Major Healthcare Insurance Company: Th is system consisted of 187,000 source lines of PowerBuilder and 50,000 lines of COBOL. In modernizing this system TSRI provided transformation, re-factoring and supported
system integration. Th is project was completed in 15 months. • Major US Bank: Th is legacy application contained over 3.2 million source lines of FORTRAN and 164,729 lines of DCL. TSRI generated a Transformation Blueprint to assist in the systems design architecture, performed the code documentation and provided engineering support. • Advanced Field Artillery Tactical Data System (AFATDS), Stanley and Associates (Now CGI): The US Army’s legacy AFATDS consisted of over 5.1 million source lines of legacy ADA-83. TSRI employed JANUS Studio to transform this system into Java in only 10 months. On August 31, 2010, TSRI delivered the modern system to Stanley. Every information system modernization project presents a unique set of challenges and lessons learned. Many of these are captured in the recently published book by William Ulrich and Philip Newcomb, Information System Transformation: Architecture Driven Modernization Case Studies, Morgan-Kauff man, 2010. Th is book contains in-depth case studies of several TSRI modernization projects. For more information visit www.tsri.com
Philip Newcomb, founder and CEO of The Software Revolution, Inc. (TSRI), is an internationally recognized expert in the application of artiﬁcial intelligence and formal methods to software engineering. He led a team of software engineers to develop TSRI’s acclaimed architecture-driven modernization services and JANUS Studio toolset.
Is the ofﬁce really necessary? According to a global study by Cisco, 60 percent of workers believe being in the ofﬁce is no longer needed to be productive. Is this the death of the workplace as we know it? asks Ben Thompson.
he times, sang Bob Dylan, they are a-changin’. And while Dylan may argue that his words were addressing much greater societal concerns, there’s no denying that both businesses and individuals currently face one of the greatest periods of socio-economic reorganization in a generation as the how and the where of our working lives shifts to a new model: that of the dispersed workforce. Signs of the shift are everywhere. Demand to work anywhere, anytime is stronger than ever before, while the rise of mobile solutions has meant that an increasing number of employees expect IT to allow access to corporate information with any device – personal or company-issued – and thus further enable remote working. Consumer hardware such as smartphones, tablets and netbooks have become common currency within the enterprise, while communication tools such as Skype and social media channels like Facebook and LinkedIn have rapidly advanced the cause of the mobile worker. Indeed, just last month, Cisco announced the results of an international workplace study that discovered three out of every five workers around the world feel they do not need to be in the office anymore to be productive. In fact, their desire to be mobile and flexible in accessing corporate
MOBILITY ED P60,62,64.indd 60
“The desire among employees to be more mobile and flexible in their work lifestyles is extremely strong throughout the world – as strong as salary”
information is so strong that the same percentage of workers would choose jobs that were lower paid but had leniency in accessing information outside of the office over higher salaried jobs that lacked flexibility. The report provides real-life insight into how the expectations, demands and behavior of the global workforce are influencing the way information is accessed, as well as how business communications are changing. “It is clear from the research fi ndings that the desire among employees to be more mobile and flexible in their work lifestyles is extremely strong throughout the world – as strong as salary,” says Marie Hattar, Vice President of Borderless Networks at Cisco. “It is also evident that organizations need to embrace a borderless IT infrastructure to capture competitive advantage and increase employee satisfaction.”
Sign of the times The study, which involved surveys of 2600 workers and IT professionals in 13 different countries, revealed that three of every five employees believed it was unnecessary to be in the office to be productive. Th is was especially the case in Asia and Latin America. More than nine out of 10 employees in India (93 percent) said they did not need to be in the office to be productive, and it was a sentiment preva-
lent in China (81 percent) and Brazil (76 percent) as well. Indeed, two out of every three employees surveyed expect IT to allow them to use any device – personal or company-issued – to access corporate networks, applications, and information anywhere at anytime, and they expect the types of devices to continue diversifying. In the future, employees expect their choice of network-connected endpoints to broaden to non-traditional work devices like televisions and navigation screens in cars. For employees who can access corporate networks, applications and information outside of the office, about half of the respondents (45 percent) admitted working between two to three extra hours a day, and a quarter were putting in four hours or more. However, extra hours do not translate to always-on, on-demand employees. They simply want the flexibility to manage their work-life balance throughout their waking hours. Employees also feel strongly that having the flexibility to work anywhere would dictate their company loyalty, choice of jobs and morale. For example, two out of every three employees worldwide said they would rather take a job with less pay and more flexibility in device usage, access to social media and mobility than a higher-paying job without such flexibility. Somewhat surprisingly, this percentage remained high even in countries such as Spain (78 percent) that have experienced significant economic woes over the past couple of years. Dave Evans, Futurist and Chief Technologist for Cisco’s Internet Business Solutions Group, feels that the fi ndings reflect the fact that remote and mobile workforces are now considered business-as-usual for most firms. “Employee mobility is a fact of life, and the business advantages are clear across many industries,” he says. “While this report does identify real challenges for businesses, it also spotlights an opportunity for IT to enhance its relationship with employees and its role as an adviser and educator.”
Meeting employee needs However, not everyone is rushing to embrace the mobile revolution. Indeed, there must be some doubt as to whether businesses can meet employee needs in regards to flexible working, given that almost half of the IT respondents in the Cisco survey said they are not prepared – from either a policy or technology standpoint – to support a more borderless, mobile workforce. Not surprisingly, security is the top concern. And although many of the IT respondents felt security, budget and staff expertise were the biggest barriers to enabling a more distributed workforce, employees often felt that the IT department itself was the main obstacle. Th is perception among employees was extremely prevalent in India, where more than half (58 percent) felt IT was the barrier to a more flexible work style. “The companies that figure out how to unleash user know-how and consumer technologies while managing the risks will win this high stakes game,” suggests RSA Chief Operating Officer Tom Heiser. “Th is is the moment for information security teams to step up and be the most valuable players."
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Should companies allow remote worker access? Christopher Burgess is a senior security advisor to the chief security ofﬁcer of Cisco.
ow many times have you been approached by your employees asking for permission to work from home instead of coming into the ofﬁce? Your immediate reaction probably includes head nodding, quickly followed by questions surrounding the resourcing that is required to make this desire a reality. My experience has shown that highly visible and transparent discussions lead to greater understanding, engagement, and ultimately buy-in with the ultimate decision – to allow or not. In addition, these discussions lead the individual employee to the appropriate expectation of services; if remote worker capability will be enabled, the individual will be well-positioned to understand the need to comply with a bevy of new processes and procedures. Rarely do individual users understand the resourcing nuances that are required of an IT department to protect company assets; the employee’s perspective is often times based on the experiences of others or personal experiences external to the company. Universally, and I count myself in the universe, they know what they want and they wanted it yesterday. Implementation of the remote worker solution may require the use of a laptop or smartphone, or both. In order to appropriately explore and resource correctly, the IT department must know and understand not only what type of devices are touching their networks, but also where and how these devices are engaging the networks. The technological data transfer solutions and attendant infrastructure for use with company email, intra-organization collaboration, external interaction, and various third-party applications that keep the business running, all have to be evaluated separately and as conﬁgured. For the transmission equation, virtual private network interconnectivity ensures data is appropriately secured when in motion. With the realization that devices do sometimes go missing, due to either theft or carelessness, an encryption capability should be in place to protect the data on the device as well as any storage media. IT departments might make the assumption that employees understand the security threats of working remotely, whereas employees might think the IT departments just don’t get it. Both are half-right, employees absolutely have the ability to understand. IT and Information Security (Infosec) departments must ask themselves, “Have we made the investment in education and awareness with respect to security concerns?” If not, then no assumption should be made that the employee is well-read with respect to how to operate securely in a remote work environment. The employee who is educated and aware of the security issues unique to remote working environments is the ﬁrst and last line of defense protecting the company’s interests. The value of security and awareness programs, speciﬁc to the remote worker environment, can absolutely serve as the instrument which quiets the cacophony of complainants making the assumption that those charged with implementing and protecting the infrastructure just don’t get it.
Do you feel you need to be physically in the office to work efficiently?
YES Data derived from 2600 interviews with workers and I.T. professionals in 13 countries.
Less than 40
The rise of the mobile worker
40-50 More than 50
As the results of the Cisco survey show, a growing number of mobile employees feel the ofﬁce is irrelevant to their ability to work efﬁciently.
Recent employee behavior indicates that education and corporate policies – not least around the areas of security and risk management – are equally as important as the technology itself. According to the Cisco survey, one in five employees globally said they have noticed strangers looking at their computer screens in public, while an additional 19 percent admitted that they never think to check their surroundings. Even worse, 17 percent of employees admitted leaving devices unattended in public, while almost three out of every five employees globally admitted that they have allowed non-employees to use their corporate devices unsupervised. Certainly, as workforces become more distributed the potential for data loss increases. A staggering one in four IT respondents said a quarter of the devices issued to employees in the past 12 months have already been lost or stolen. And as workforces become increasingly mobile, security and risk management concerns inevitably grow. The fi ndings indicate the real need for better corporate policies, end-user education and stronger, trusted relationships between employees and IT departments. How well IT brokers these relationships will impact a company’s growth, productivity, competitive advantage, as well as its risk management.
“Work is not a place anymore. It’s a lifestyle, and the IT profession’s role is only going to get more strategic as it tries to help businesses stay agile and increase productivity”
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“Simply put, this report serves as a call-to-action for IT organizations,” says Evans. “Work is not a place anymore. It’s a lifestyle, and the IT profession’s role is only going to get more strategic as it tries to help businesses stay agile and increase productivity.” One fi rm embracing mobility is Gaurdian Life Insurance. “We have an initiative called ‘any device anywhere’, in which the concept is that we can enable our business and our IT folks to be able to do their work wherever they choose to be using whatever device they are most comfortable with,” says Richard Scott, the company’s CTO. “Essentially, we’re changing the paradigm around having to have a thick client device for everything. Of course, there are still going to be cases where we need those, but we’re starting to move towards virtualization of the desktop to change the way people use the office, and also so we can have more mobile users, greater flexibility, better disaster recovery, alternative worksite strategies and business continuation. It really is about ultimate flexibility for people to get the work done where and when they need to.” Indeed, Scott’s fi rm is one of a growing legion of companies facing up to a new business paradigm – that of the office-less worker. And how businesses respond to that paradigm will be key to their success over the long-term.
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As an entertainment hub, television has dominated the living room for the last 60 years – but over the past decade, its traditional place at the heart of the home has come under threat from new, web-based distribution models. Can it compete? Welcome to the million-channel universe. By BEN THOMPSON
t’s a familiar scene: college roommates gathered round a screen to watch the latest hit TV show or movie rental. With bowls of popcorn close to hand and the couch arranged just so for maximum viewing comfort, it’s the perfect picture of convivial, domestic content consumption. But where it differs from previous such scenes – even from as recently as five years ago – is that the screen in question is just as likely to be a laptop, tablet or smartphone as it is a TV set. As Gil Scott Heron once prophetically predicted, the revolution will not – necessarily – be televised. Certainly, the way in which we consume media has changed dramatically in the last few years; the advent of always-on broadband connectivity and a proliferation of new devices capable of storing, playing and streaming an increasingly varied array of entertainment has led to changing consumer expectations around where, how and when we watch our favorite shows, movies and other video. More importantly for the TV industry, it’s also led to a fundamental questioning about the direction in which media delivery and consumption is headed. Such soul-searching has been driven in large part by what has happened in the smartphone market. Recent statistics show the audience for apps is mushrooming at an exponential rate, and the daily audience for apps that run on Apple’s iOS operating system alone – those available for the iPhone, iPod Touch and iPad – has now surpassed 19
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million users, each of whom spend an average of 22 minutes per day using these apps. That means the audience for such iOS devices is now bigger than NBC’s Sunday Night Football and is just shy of the audience for ABC’s Dancing with the Stars. Only four million daily viewers separate the iOS audience from that of the nation’s No. 1-ranked TV show, Fox’s American Idol, according to data collected by analytics fi rm Flurry. Factor in Android apps as well, and that audience expands even further. No wonder TV fi rms and hardware makers are spooked. Apps and the ability to view content over the internet offer new alternatives for consumers who feel constricted by traditional program guides and channel schedules. The answer, according to the experts, is internet connected TV. And while it’s clearly a market that tech firms and content providers are keen to capture, thus far at least the approaches being taken by the different players have been as varied as the content they hope to push.
Clash of the titans If you can gauge the potential in any given technology development by the size of the interested parties, then connected TV is set to be huge – pitting, as it does, the two biggest names in tech against each other. Indeed, despite the fact that consumers are going to have a huge number of options between Roku, Boxee, Xbox, Sony, Panasonic, Fujitsu, and others – all of which offer some level of con-
“For many observers the battle for share of the connected TV market comes down to a straight shoot out between those old rivals, Apple and Google”
Apple’s iOS apps attract over 19 million users each day
The audience for iOS apps is now bigger than that for NBC’s Sunday Night Football
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nectivity – for many observers the battle for share of the connected TV market comes down to a straight shoot out between those old rivals, Apple and Google. Indeed, it seems as though the Apple versus Android battle has gone beyond the world of cellphones and entered the arena of internet television. “They’re defi nitely direct competitors, but they’re also very different offerings,” says Michael Bologna, Director of Emerging Communications for New York-based media specialists GroupM. “Apple TV is a device; Google TV is an ecosystem.” It’s a key distinction. Apple is trying to complement the gadgets that are already in your living room and hooked up to your TV. It’s an add-on, there to provide a few extra streaming features in addition to your cable box and videogame console. It doesn’t have an app store, it doesn’t have games and it doesn’t have a web browser. It’s slick but not complex. It’s all about trying to ease people into the idea of using an internet device in their living room. It’s pointedly not a computer. Google, on the other hand, wants to turn your TV into just that. “It is no secret that Apple wants to be in control of your media consumption,” says Mary Fastenau, Principal at Honolulu-based Anthology Marketing Group. “Apple TV provides a hub of sorts for your iTunes music, movies, TV shows, photos and podcasts, as well as YouTube videos and other internet favorites on your TV. Because it is not tied to a subscription, there isn’t much technical support required. And AirPlay will allow you to stream content from your iPhone, iPad and iPod touch to the Apple TV without needing to purchase it again. It will allow all of your screens to really be connected.” Jacob Cohen, Senior Strategist at global brand consultancy Wolff Olins, agrees. “Apple TV is really simple; it’s easy,” he says. “You plug this box into your TV, turn it on, and then you start watching the shows that you want to watch when you want to watch them. It’s fast and it’s easy to use, and Apple is banking on that being what people want from a TV experience, rather than anything more complicated.” In contrast, Google is taking the concept of connected TV a step further and bringing a more internet-like experience into the television set itself. “It has a line on its website that says, ‘The last screen has been liberated’, and it’s a reflection of the company’s approach: encouraging developers to build apps for different devices,” says Fastenau. But why would Google want to get into television in the first place? “Because Google can now be the single data source for your media consumption habits,” she continues. “With data comes the ability to offer a customized message. Sony has obviously bought into the concept with the introduction of Sony Internet TV powered by Google, so has Logitech, and more will follow. The response to the new products depends on the reviewer, but there is an acknowledgement that the concept of combining all into one screen is the future.” What the Google approach offers that Apple’s does not is a browser that allows consumers to access the web. “Google TV really takes it to a whole other level,” says Bologna. “It has multiple applications just like you see on
Adoption challenges PRICE: Hardware providers will need to price their offerings right if consumers are to buy-in to the beneﬁts of connected TV. Parks Associates reports that 2.5 million broadband households in the US and Canada are ready to purchase an internet-connected TV if priced at a $100 premium over regular TVs. And as the cost of home broadband could also rise if connected TV catches on, ISPs will need to manage cost expectations, too. NETWORK: 66 percent of adult Americans use a high-speed internet connection at home, according to a recent survey by PEW Internet – meaning that one-third of the population will experience problems with network (and thus streaming) quality. Experience is everything – no one wants latency or slow speeds when watching their favorite show. What is more, the spread of broadband in the US has slowed over the past year. CONTENT: Providers will need to be able to offer sufﬁciently broad content to appeal to the widest range of consumers; without the content providers onboard, the utility of connected TV devices is ultimately reduced to very little. The latest reports are not promising, suggesting the big content providers (think Hulu, NBC, ABC, etc.) will all block the Google TV web browser from displaying their content.
CONNECTED TV What it means for ADVERTISERS The continued adoption of connected TV and similar technologies that allow people to take control of their entertainment and education choices provides greater options for marketers to be able to focus content on very selective targets. It will allow advertisers to be laser-focused on delivering messages to the right market at the right time; in an ideal world, advertisers would have so much data on consumers that they could customize content that would seem more like consumer education than a buy-now message. However, marketers and advertisers will need to understand that this overabundance of information means there will be no hiding place for bad products or services. Consumers will be less likely to be ‘sold’ something and more likely to do their independent research and stick with products that really work. It also has the potential to limit marketers and advertisers because some consumers will never leave their cocoons to experience new ideas.
What it means for CONTENT PROVIDERS Content providers have been slow to adapt their services to the fast-paced nature of the 21st century. Users are clamoring for the next big thing, whether it be content anywhere or a reasonable à la carte channel option, and while providers have a great opportunity to re-invent their image, so far they have done little to embrace connected TV.
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However, users will soon come to expect a seamless experience – regardless of whether it’s on a 3.5, 15 or 50-inch screen – so content providers must embrace the coming changes to their operating model. TV channels have a lot more competition than they did six years ago, but experts believe that connected TV offers the opportunity to get content out faster and, more importantly, monetize it better. It also gives them the chance to extend the lifespan of products via new distribution channels.
What it means for TECH FIRMS Thanks to the recession, consumer technology ﬁrms have had a tough couple of years; building internet services into more devices could be the shot-in-the-arm such ﬁrms need to help them move more units. In fact, the push by TV-makers to introduce internet-connected models could even turn manufacturers into gatekeepers for content, striking deals with certain internet sites and passing on others; they’ll also determine the placement for such services on the sets themselves. This development can beneﬁt content creators and consumers, because internet-enabled TVs now represent a new distribution source for programs. App developers also look set to beneﬁt, although such companies need to think about content and interaction on a bigger scale. People expect high-quality content on larger screens, so brands need to get working on visuals and content to make their TV app worth downloading and enjoyable to watch in large format.
“The approaches of both Apple and Google are geared to providing a more seamless viewing experience for consumers”
a standard smartphone. It offers the ability to search, sort and navigate not just content coming from the internet, but stored content, DVR content, more linear content too.”
Changing channels The statistics around changing viewing habits are certainly compelling. By 2015 more than 12 billion devices will be capable of connecting to 500 billion hours of TV and video content, according to chip giant Intel. And while this presents challenges to technology fi rms, cable fi rms, content providers and advertisers alike, it also provides significant opportunities for greater personalization of the viewing experience. Indeed, Justin Rattner, the firm’s Chief Technology Officer, believes the advent of connected TV means television will be more personal, social, ubiquitous and informative. “TV is out of the box and off the wall,” he says. “It will remain at the center of our lives and you will be able to watch what you want, where you want.” He feels the continuing success of TV is due in large part to the growing number of ways to consume content – and today that includes everything from the traditional box in the corner of the living room to smartphones, laptops, netbooks, desktops and mobile internet devices. “We are talking about more than one TV-capable device for every man and woman on the planet,” he says. “People are going to feel connected to the screen in ways they haven’t in the past.” In this way, the approaches of both Apple and Google are geared to providing a more seamless viewing experience for consumers. But which will prove the more popular over the long-term? “Could I have predicted the outcome of betamax versus VHS? We have seen so many format wars that I can’t actually predict what will happen,” says Fastenau. “I think it will come down to accessibility for both consumers and the
tech world. I think the successful format will be the one that will allow tech firms the most ability to innovate. If we use the mobile apps explosion as a reference point, it seems that the format that provides the greatest access to developers has an edge because it will more easily provide a platform for the ongoing innovation we crave as consumers.” In this sense, Fastenau is concerned that the controlling, dictatorial nature of the Apple vision could prove limiting in the long-term – particularly in a market that is billed as being all about personalization and freedom of choice. “As consumers, we have believed in Apple and been willing to attach our personal brand to the Apple image,” she says. “However, I do worry that consumers will one day wake up and want to dictate their media consumption habits without feeling tied to one brand.” In the same way, however, the Google approach also has its limitations, as Fergal Kelly, VP of Media at interactive TV consultancy fi rm Ioko, is quick to point out. “I think any type of application you create for a television living room environment that lasts for more than a couple of minutes is going to be a bit of a disaster,” he explains. “People want to get to content quickly; they don’t necessarily want to watch someone else hogging the TV while they surf the web. Anything that takes more than five minutes, almost like an ATM machine, is going to make the rest of the consumers in that household pretty irate.”
Embracing the wave of change So what will it take for consumers to embrace the coming change? Cohen believes the big problem right now is content and accessibility for both Google and Apple. “They’ve got a lot of hype right now, but there are still quite a few networks that aren’t involved in Apple TV, and there
What about 3D TV? In contrast to the connected TV market, uptake of 3D TVs among consumers has been limited by high prices and lack of content. US research ﬁrm DisplaySearch expects that 3.2 million 3D TVs will be shipped in 2010, with growth to over 90 million in 2014. Based on this forecast, 3D will grow from 2% of all ﬂat panel TVs shipped in 2010 to 41% in 2014. “While TV manufacturers have bold plans and a lot of new products, consumers remain cautious,” says Paul Gray, Director of TV Electronics Research. “Consumers have been told that 3D TV is the future, but there still remains a huge price jump and little 3D content to watch.”
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is only a limited number of products that are involved with Google TV,” he explains. “However, I think over the next 12-18 months, you’ll see more networks jumping into Apple TV because they’re clearly going to see an opportunity for making money in a new way. As for Google, you’re probably going to see more hardware partners sign up. That’ll probably change things a lot for people just because it’ll make it easier for them to get to the content they want to watch.” Fastenau feels the impact on consumers depends largely on the timeframe. “If we look at media adoption, it doesn’t appear to be following the ‘I have to have it today’ pattern,” she says. “The underlying trend we see is that consumers want to be in control of their own media consumption and connected TV allows them that luxury. The big question is when will the general public hit the tipping point of being willing to pay the additional fees that will give them that freedom of consumption.” She also feels that inertia remains the biggest hurdle to widespread adoption. “We want our content providers to be all things to all people. We want the content to have high production values, but cost almost nothing to create. Most consumers want it to be a superior product, but don’t want to pay extra or be bothered with any advertising to support the product.” She cites the example of DVRs as a
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By 2015 more than 12 billion devices will be capable of connecting to 500 billion hours of TV
case in point. In January 2006, only 1.2 percent of homes had DVR – but by July 2010, that number had jumped to 37.3 percent. “Adoption increased because cable companies started to include it in their boxes and as part of the subscription,” she says, “and I think the situation will be similar for interactive TV. The adoption rates will increase once it is bundled into your current TV or internet package.” In addition, the next few years will see a host of new entrants come into play as the market expands, which will also help drive adoption rates. “We hear a lot about Google and Apple, but Sony has had interactive connected functionality in their television sets for three years now,” says Bologna. “So has LG, so has Panasonic. Both the Bluray DVD player and the Sony PlayStation have had connectivity for several years, so has the Nintendo Wii. TIVO has been connected for several years. Companies like Boxee and Roku have also come to market over the past 18 months. So we’re hearing a lot about Apple and Google because those are the guys with big PR budgets, but they are certainly not the only players in this space.”
A bright future The outlook for connected TV sets is bright. Research from Dallas-based analyst fi rm Parks Associates suggests
APPLE versus GOOGLE Over 50 million connected TVs will be sold worldwide this year
By 2014 this ﬁgure will rise to 130 million, or 60% of total sales
By Cary Songy, Interactive Director for Ames Scullin O’Haire
pple wants your TV to be a closed system, highly controlled by Apple; Google wants your TV to be a reﬂection of the open system of the web. I’m not so sure that one is better than the other. If consumers want personalized experiences, shouldn’t the consumer determine which system works best for him or her at that moment? Google TV will work with a consumer’s cable box, allowing search not only of the web, but also of all the shows available on cable television. That’s a clear advantage for Google. But Apple is introducing a rental model for shows and movies, which is appealing because you won’t need space to store all that content. You just rent them when you want to watch them. And then there’s the ease-of-use for all things Apple. Consumers do love that. Which will be more successful: Apple TV, Google TV or another format? In an era where technology and technological strategies change by the day, it is too early to predict any clear winners in this interactive TV battle. Our challenge, as advertisers, is to understand the consumer’s lifestyle and engage with messages that are personalized and appropriate for the consumer. The Apple model allows us to tap into the alreadyestablished millions of iTunes users. The Google model naturally ﬁts our TV guide ‘searching’ habits. Which will win? Maybe I want both. Maybe neither.
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that over 30 million connected TVs will be sold worldwide this year – equivalent to 18 percent of total TV sales – and that by 2014 this figure will rise to 130 million, or 60 percent of total sales. And although only 0.7 percent of the 90 million TV households in the US have so far cancelled their pay-TV subscriptions in favor of relying on receiving services over broadband, the trend is clearly growing. Kurt Scherf, VP and Principal Analyst for Parks Associates, believes that nine percent of US pay-TV consumers have a strong inclination to cancel their subscriptions in the next 12 months. What is more, he says, 10 million households in the US will be linking PCs to TVs to watch web video at the end of the year. “Many households are working with devices they already have to get the connected TV experience, which shows strong future demand for connected TVs, webenabled Blu-ray players and networked digital media players such as Apple TV and Roku,” he says. Over threequarters of US households with PC-to-TV connections and one-third of Xbox 360 owners are using these connections to stream online video. These households, as they extend online video and other web experiences to the TV screen, are laying the foundation for future behaviors with connected CE and entertainment services, says Scherf. “Connectivity is becoming standard in consumer electronics products,” he says. “Manufacturers and service providers should examine these consumer behaviors closely, so they can match their current and future connected offerings with actual demand without pricing themselves out of the market.” “Consumers are becoming more accustomed to personalized experiences in many aspects of their lives, not just in consuming media,” agrees Cary Songy, Interactive Director for Atlanta, Georgia-based advertising agency Ames Scullin O’Haire. “A more interactive experience with television is simply a natural evolution that is part of the greater experience of personalization happening everywhere on the internet.” And in terms of the looming battle royale between Google and Apple, Cohen for one feels we’re still very much in the early stages of seeing what each has to offer. “They’re trying to figure out what is the best case for their users, and I think you’ll see them both clarifying their position in the next few years,” he says. “Once they do that, both will probably grow in a big way, and you’ll start seeing them converging and competing with each other much more fiercely.” The fusion of the web with the largest screen in the home is often called the Holy Grail for both the consumer and media owner – because the content and advertising options are endless. Is the age of TV over? No. It’s just entering a new phase of its ever-upwards trajectory. “My feeling on it is that in less than 10 years time, all televisions will have an internet connection on them,” concludes Kelly. “And I don’t think that’s a particularly bold statement. It’ll be cheap enough to do so, so it’ll happen.”
INSIDE THE INDUSTRY
TAKING ON THE NEW TV GIANTS
Is there a place for smaller, innovative companies in the TV revolution? Boxee’s Chief Executive Ofﬁcer Avner Ronan certainly thinks so.
tarted three-and-a-half years ago by five friends, Boxee promises to be a new ‘social’ media center, according to CEO and founder Avner Ronan. By integrating users’ personal and internet media so they can listen to music and view movies, television shows and photos from their hard drives, television sets, as well as from websites like Netflix, MLB.TV, Comedy Central, Pandora, Last.fm and flickr – all via their computer or high-definition televisions – Ronan hopes Boxee will provide a realistic alternative to the Google and Apple platforms by emphasizing the social nature of TV content consumption. “With the internet coming into the living room, everything is going to change – people are going to have many more sources of content, more options and greater ability to interact with content,” says Ronan. “As such there needs to be a new platform that enables users to access whatever they want, whenever and wherever they want it. The program guide becomes less relevant in that type of environment.” Boxee is certainly proving a hit with consumers: by the start of 2010, the company had already attracted 800,000 users, an eyebrow-raising jump from the 110,000 alpha testers it had just one year previously. And as the company prepares to launch its first Boxee-powered hardware device, D-Link’s eye-catching Boxee Box, Ronan discusses where he sees the TV market headed – and what it means for the major players. In an interview last year, you said: “We’re software guys, and we personally have no interest in making a box ourselves.” You’re launching the Boxee Box this month. What changed? Avner Ronan. We are a soft ware and internet company. We’re still not a hardware maker. We’re trying to get our soft ware to run on as many devices as possible, and the first device that comes out running our soft ware is the Boxee Box by D-Link. Wherever there’s a platform that’s open enough
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and with enough horsepower to enable to us to run Boxee’s application, we’ll be interested. Our view is that there is a whole generation of consumers growing up. The internet is their main source of video, and for those users Boxee or something similar is going to be what they’re using in their living room in order to access content. It’s not the traditional cable or satellite universe that we grew up with. It’s certainly a fast-moving, competitive space. What do you think Boxee can bring to the market that other devices can’t? AR. With Apple, there’s a major difference in philosophy: we believe that people want to be able to watch whatever they want on their TV, whether it’s on the web or it’s on their computer. But Apple is taking an approach that is much more closed; they’re saying, ‘Well, you’re going to get iTunes and Netfl ix and YouTube, but that’s about it.’ We think that the universe of video is much more diversified than that, and so is the world of many consumers. They watch some stuff on Facebook, some from Major League Baseball and the NBA, other content from somebody’s blog or The New York Times – it’s endless. People are watching video everywhere these days, and we think that a lot of
INSIDE THE INDUSTRY
those video experiences are relevant on the TV screen. So we think a major difference from Apple is that theirs is a closed platform and ours is open. When it comes to the Boxee experience versus the Google experience, the difference there is less about closed or open, as Google is also offering an open platform – it’s more about the core user experience. Google is putting search front and center, whereas we are putting your social network out in front. We think that the discovery of video is going to be a big challenge for consumers, and that search, while it’s important, is probably not the main way for people to discover videos to watch. We think seeing what your friends are recommending and what they’re watching and what’s currently trending among your social peers is a more relevant discovery experience. The TV is a social device, and we think browsing is a personal activity in most cases. We don’t think people want to browse on their TV in the same way that they browse on computers or tablets or mobile phones. So even though there is a convergence between web and TV, you think there will still be a certain degree of separation? AR. Yeah, the TV is going to remain mostly video-centric. I think music and photos are going to play their parts as well; people love listening to music in their living room, and watching a slideshow of your friends or your family while you’re listening to music is a great experience. But when it comes to checking your email or looking through stock quotes on a busy website, I don’t think that TV is the ideal experience for that type of content. I think that’s better served on your mobile device or tablet or laptop. What will the advent of internet-driven TV mean for consumers? AR. I think there’s going to be two types of consumers. The first type will be those people for whom the internet is the only way they get video. If you’ve just finished college and you’re watching all your stuff on Netflix and Hulu and YouTube and Vimeo and so on, getting cable TV is probably not high on your priority list; as long as you have broadband, you’re sorted. But I think for them something like Boxee is going to make the TV screen relevant again. They’re what we call ‘input one’ consumers, because that platform will be the main way they access content on their TV screen. The second type of consumer is someone that has cable but is not willing to let go of that because certain content is available only on cable or satellite; they would use Boxee as an ‘input two’ type device, and switch to it whenever they want to watch a movie from Netflix or a show that is on Hulu, or want to see what their friends are recommending in terms of videos. Other than that they’ll still consume lots of cable content through the cable box. What do you think will drive user adoption of such solutions? AR. I think what’s going to happen is that the TV is going to have its ‘iPhone’ moment. People are going to come into
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your house and they’re going to see you running a Google TV or an Apple TV or a Boxee and they’ll be wowed by that experience. Because what people have today with their settop boxes and TVs is a pretty crappy experience in terms of soft ware, like Windows 3.1. What happened with mobile phones was that the iPhone came along and people were wowed by what the user experience on a phone could look like. I think the same is going to happen to TV. Is there a challenge for the makers of video and other types of content? AR. I think the knee-jerk reaction is that the internet coming through the TV screen is a threat to their fundamental economics, but I personally think that such fear is not justified. As people transition more to the internet as their main source of content, I don’t think you’ll see them consuming less or willing to pay less for content; it’s just that they’ll be consuming it differently and they’ll be paying for it differently than they do today. I don’t think overall spend is going to change much. If anything, you could argue that it will increase, as opportunities for new models of user-engagement and new ways for providers to promote their content in ways that are more effective open up. Those that embrace it will see great benefits – great content will do much better than it does today and poor content will do much worse, so it’s going to be good for consumers in that sense.
“Looking forward 10 years from now, you will probably see several platforms that are trying to offer the users some sort of differentiated offering”
It’s becoming clear that the future of TV is IP. So where do you see the industry in 10 year’s time and how will Boxee ﬁt into that picture? AR. The next decade is going to be amazing in terms of how much change is going to happen. I hope that 10 years from now Boxee will still be an independent company, and that we’ll be one of the few platforms that are leading the charge in terms of that user experience on TV. I think Apple is going to do well and is going to grab market share for sure, and there is potential for Google to do very well in this space too. My hope is that Boxee would be close to those two. Apple seems to be going down one road and you and Google are going down a slightly different one. Do you think we’ll see much convergence in the approaches being taken? AR. I think there is going to be a convergence and you’ll see a lot more similarity in the approaches. Right now different companies are trying different things but at the end of the day, each one of us is probably going to see the stuff that works in the other guy’s model and try to bring it to his own offering. Having said that, there’s always going to be an opportunity to differentiate, and I think that the internet that lends itself very well to innovation – not necessarily just from Boxee and Apple and Google, but also from other players, including incumbents, that can build on top of those platforms. Looking forward 10 years from now, you will probably see several platforms that are trying to offer the users some sort of differentiated offering, and different users based on different preferences are going to gravitate to one versus the other.
Delivering on the
personalization Why web content management is ﬁnally looking to live up to its potential.
wo years ago, the boffi ns at Google made a startlingly discovery: that there were over one trillion unique URLs on the web. Understandably, fi nding, indexing and linking all those pages is a major challenge for the search giant, and in response Google downloads the web continuously, collecting updated page information and re-processing the entire web-link graph (similar to a map made up of one trillion intersections) several times per day. It’s the computational equivalent of fully exploring every intersection of every road in America – albeit a map about 50,000 times as big as the US, with 50,000 times as many roads and intersections – and doing it multiple times in each 24-hour period. Of course, the challenge for web content managers is somewhat different; after all, most fi rms will typically only deal with a tiny fraction of those one trillion pages. But nonetheless, as the web continues to become a central hub for interacting with your target audience, developing a coherent and consistent approach to content remains a key issue for fi rms everywhere. Traditional web content management (WCM) solutions have been constrained by their siloed nature. But with companies increasingly beginning to recognize the benefits of WCM technologies built specifically to empower marketers to take ownership and accountability for website
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promise By Ben Thompson
engagement, there is a growing realization that web content can have significant strategic value if integrated into wider marketing, branding and customer engagement efforts. As a web content management strategist, analyst and consultant with research fi rm The Gilbane Group – as well as President of content management community CM Pros – Scott Liewehr knows a thing or two about where the market is headed. And he feels content management is fi nally about to start delivering on its initial promise. “When web content management first became a hot topic 10 years ago, fi rms were looking to it for a couple of things,” he explains. “First and foremost, they were looking for efficiency. They wanted to manage the content for numerous websites through one system, re-use content easily, and put the power of managing that content in the hands of nontechnical users so that marketers or business folks could edit that content through a simple interface. That was relatively straightforward. But secondly, they wanted to be able to deliver personalized experiences on the web, delivering content to individuals based on who they are and what the company knows about them. And this second piece was much harder to get right.”
2010 was the ﬁrst time in
23 years Pepsi did not air the Super Bowl ad, focusing on online presence instead
Technology developments But whereas Liewehr feels that the technology wasn’t ready to deliver personalization 10 years ago, he claims
CONTENT MANAGEMANT | 77
“Using your content management system as the single repository for customer information can further help with enhancing the customer experience”
the situation is very different today. “The tide has turned,” he says. “Vendors and their technologies have matured, and they’re now at a stage where they can provide a more personalized experienced. Web experience management is the phrase of the moment in the vendor community, and it is all about engaging consumers, being in their context and in their environment – being as close to them as possible.” Of course, one of the challenges presented by this approach is dealing with the sheer number of different channels, contexts and environments out there. And this is where the degree of personalization offered by the convergence of online marketing platforms and web content management systems is really helping. Previously, explains Liewehr, there was a sense that the right hand didn’t really know what the left hand was doing when it came to online marketing efforts; email blasts were impersonal and uncoordinated, a one-size-fits-all approach that lumped all customers into the same bracket. Today’s solutions, however, offer a very different model. “With web content management systems today, we now have the ability to know so much more about a person than they’ve been traditionally willing to tell us,” says Liewehr. “Either explicitly (because they downloaded something and gave us their information) or implicitly (via their on-site behavior), we are able to get much closer to the customer and tailor our messages to them accordingly. And so that convergence allows the kind of crosschannel consistency that wasn’t there before.” Using your content management system as the single repository for customer information can further help with enhancing the customer experience. Liewehr believes too many fi rms have one source for their email blasts, one gathered from their online advertising hits, and such an approach just leads to inconsistencies and poor customer engagement. “If you have one repository where you have a customer profi le, and you continuously feed that rather than keeping the information in different silos according to the channel, then you can establish that consistency, which in turn will help with user experience.” It’s an issue that has become especially pertinent given the recent explosion in the use of social networking sites. For one thing, social media provides a whole new basket of channels to manage; for another, it allows customers to share their experiences of your brand in ways that have never been possible before. “Social media is the elephant in the room, for sure,” says Liewehr. “But the companies that are winning today are those that are embracing social media and figuring out how to turn it to their advantage, rather than just ignoring it or viewing it solely as a challenge.”
Marketing messages He believes content management can help companies capitalize on the potential for social media in a number of ways. The first is as a customer listening tool. “It’s more information about your consumers, especially about your consumers’ perception of your brand,” he says. “If people
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are tweeting about you on Twitter, or if they’re writing messages on a Facebook page about you, there are certainly content management technologies that can help aggregate and analyze that information for you. So having your fi ngers on the pulse of the social media channel is certainly useful and something that content management systems can help you with to a certain degree.” However, the greatest potential lies in using content management systems as a vehicle for driving your message to the various social media sites and seeing those as additional channels. “We’ve always talked about engagement with consumers on our websites, but social media provides much more true engagement because, obviously, there are actual conversations that are taking place,” says Liewehr. “The challenge to marketers and to content management systems is to figure out how to harvest all that information, measure it and make use of it effectively.” He cites the example of big brands that are stopping their traditional marketing campaigns – where they create separate marketing sites for each campaign and retain overall control over them – and instead moving marketing activities to their Facebook pages. For example, 2010 was the fi rst time in 23 years that Pepsi did not air an advertisement during the Super Bowl, preferring instead to focus energy and money on its online presence where the brand believes a younger and more accessible demographic is spending the bulk of its time. The Pepsi Refresh Project featured social-networking campaigns that leveraged the participate-and-vote-online model that many brands have used in the past to encourage consumers to engage with their products; Pepsi offered to donate more than $1 million in February alone to social causes and community projects nominated and selected in a vote by fans. It was a brave move, but industry watchers believe it has already paid dividends. According to a recent survey by Nielsen, Pepsi accounted for more than 21 percent of the media coverage and online buzz around this year’s Super Bowl advertising – about 10 times as much as big rival Coca-Cola – while an added bonus was the fact that while Pepsi spent $33 million on Super Bowl advertising in 2009, the Refresh Project cost just $20 million. For Liewehr, it’s an example of what is possible – although he cautions against rushing in blindly. “The upside is they can attract fans and engage in actual conversations; the downside is that they have much less control,” he explains. “The analytics that marketers like to depend on – click-through numbers, drop-off points, conversion rates – go out the window when you’re dealing with other channels that you don’t have control over, such as Facebook. We have to create other metrics by which to judge the value of these campaigns, whether it be number of fans, positive responses, etc. I don’t think it has been addressed very well yet, but there’s certainly a role there for content management systems. You’re seeing a few really embrace the social media channel and talk about pushing messages out and receiving messages in, and I think that’s really positive.” ■
Enabling success through pervasive engagement management A change of monumental signiﬁcance is happening right now in the world of online marketing. Social technologies have driven an immense transformational shift and are altering the way that businesses engage and interact with their customers. By Robert Carroll
new technology platform is emerging that redefines customer engagement management, a platform that fully leverages multiple channels to involve customers in a completely interactive exchange – anytime and anywhere. Companies that succeed will leverage this platform in order to fully engage their prospects and obtain real-time knowledge and understanding through a continuous current of constant, relevant dialogue across smart phones, tablets, laptops, public kiosks – any communication vehicle you can imagine. In the initial stages of online marketing, consumers are often simply handed information over directly. They entered the data themselves, set permissions, perhaps changed things around and personalized their own preferences based on personal interests. Th ink ‘My Yahoo’. Over time, online marketing has become much more interactive. When prospects make purchases, marketing groups obtain a few data points that directly impact the goods that consumers are offered. Today’s systems primarily involve monitoring buying behavior, obtaining data points, and making a push on that limited data. But, in the evolution of online marketing, these systems are limited in scope and don’t have the industrial strength capacities to help businesses meet tomorrow’s possibilities. Enter the brave new world of pervasive engagement management. This solution is all encompassing – a twoway interaction that is facilitated and managed through sophisticated and industrial-strength targeting, profi ling and personalization. Those three components provide the foundation for a solution that brings customer engagement to an entirely new level. Just what does this new global engagement solution look like? Advanced technology systems will segment consumers before they even visit a website, serving up the best possible content – promotions, advertisements and links – specifically targeted toward that particular customer. No assumptions are made. Analysis is conducted across multiple data points to generate the most accurate profi le possible. Real-time segmentation of potential customers will also give businesses the ability to instantaneously rate prospects against multiple potential products. Online customers will expect the company to know their product likes and dislikes, and businesses will be able to determine whether visitors are new or returning customers and what offers and products are attractive to them.
Through heightened personalization, companies can more accurately identify what is relevant to a prospect, leading to greater levels of customer satisfaction, increasing average order values, as well as customer brand loyalty. By listening to prospects in unprecedented ways, businesses can engage and begin a meaningful interaction, more accurately assessing and meeting the consumer’s needs. By looking at past purchases, other sites visited and utilizing advanced analytics, the system puts all of the combined data into context and makes a prediction on the prospect based on the particular profi le. This ability enables companies to more accurately pinpoint a prospect’s exact needs and facilitate an ongoing customer relationship. Using an industrial-strength customer engagement platform, for example, a worldwide retailer with revenues of more than $19 billion was able to design and customize a system with more than 400 navigational fi lters and management rules, allowing them to optimize ad campaigns and affi liate feed programs. The result was enhanced customer engagement across multiple networks – expanding beyond landing pages to provide ubiquitous engagement integrated throughout the entire site, giving the ability to offer the right product at just the right moment. With this type of industrial system in place, the retailer achieved a growth rate of 29 percent in 2009 – a year when most retailers struggled. The companies that will dominate in the future are the companies that will be able to leverage two-way interaction and customer engagement to its fullest capacity – through advanced targeting, profi ling and personalization. For those that do, the results will be transformational. ■
Robert Carroll (rcarroll@sdl. com) is CMO of SDL’s Web Content Management Solutions Division in North America. SDL delivers highly targeted, global customer engagements based on language, location, and proﬁling and personalization. For more information, please visit www.sdl.com.
80 | NEXT BIG THING
How it all ‘Ads’ up Why ad stacking and dynamic ad rotation are having a big impact on online marketing and advertising campaigns. this space to increase their online visibility and generate two-way conversations.
A new approach to marketing
he internet and social media networks have taken the world by storm in recent years. Estimates indicate more than 1.1 billion people worldwide use social networks to connect with friends and/or coworkers, do niche networking, and market their products or services. And with more than 70 percent of internet content dominated by blogs, forums and social media sites, more people are spending over half of their time on these sites when on the internet. This drives the need for more exciting tools and technologies to join in on the conversation. To reinforce this trend, this year Pepsi chose to cancel its 23-year tradition of Super Bowl TV commercials, deciding instead to invest the money in social media campaigns. Social media is quickly becoming an effective and cost efficient communication tool in the online branding and marketing space. Many small, medium and enterprise-level companies are searching for unique ways to use
Social Ad Marketing is a netSpray-branded marketing and advertising strategy that utilizes patent-pending dynamic ad ‘widget’ technology. Acting as traveling billboards, these ad widgets can be distributed all over the internet and social sites, increasing the effectiveness of online marketing campaigns. The ad widgets initiate the conversation by driving more web traffic and lead generation to the advertiser’s content, and resulting in higher online conversion rates. Similar to the look and feel of typical banner ads, netSpray’s widgets are custom-designed ‘ads’ that can be easily copied and pasted in many online locations including social sites, websites, blogs and marketplaces to communicate a message and drive a target audience to specific content. These ad widgets are considered ‘intelligent’ because they possess more capability than just a simple URL re-direct. netSpray’s patent-pending technology permits widgets to be modified across all locations on the internet at the click of a button. Other intelligent features include an on-widget countdown clock and real-time product inventory counter for time and inventory-controlled marketing campaigns. netSpray’s patent-pending technology also allows the scheduling of pre-determined and automatic rotation of widgets through a feature called ‘ad-rotation stacking’. When blending the distribution of these ad widgets into a social media marketing campaign, online marketing and advertising strategies become more robust. Anyone wanting to either market a product or service, promote an event or brand themselves, will unleash the power of the internet.
Rick Hogan, netSpray’s CEO and President, has more than 30 years’ experience in startups and global information technology management. His résumé includes senior positions with Brocade Communications, Dell Computer and Electronic Data Systems/Hewlett Packard and as co-founder of InSource Partners Corporation.
Advanced social media marketing Industry research indicates that campaigns utilizing social media versus any other form of marketing attract more views, generate more interest and can increase revenue. Why? netSpray’s belief is because of the incredible opportunities to saturate your clearly defined brand message to your target audiences with so much frequency. That is why it is critical to utilize multiple social media tools in any successful marketing campaign. Another tool in the social media marketing toolbox is netSpray’s Spotlight Portfolios. A Spotlight Portfolio is a single online web page to communicate and brand clients’ messages to their target audiences. When integrated with netSpray’s intelligent ad widgets distributed across the internet, the widgets direct more traffic to the Spotlight Portfolio.
NEXT BIG THING
Different from a website or other online profi le, Spotlight Portfolios are customized for your specific personal, product, or corporate personality. The menu of personalized tools to add to this single online page is broad – text, video, audio, photography, calendar, contact, hyperlinks and, of course, intelligent ad widgets. For instance, job seekers can effectively differentiate themselves by utilizing social ad marketing as part of their branding efforts via Spotlight Portfolios. The sports, entertainment, fashion, hospitality, travel, B2B and B2C businesses and other industries have also demonstrated success with these progressive social media tools. Many individuals and organizations have realized success utilizing netSpray’s Spotlight Portfolios and intelligent ad widgets in their social media campaigns. In 2010 The US Jaycees increased their annual conference attendance by more than 300 percent using netSpray’s tools, while their pre-registration for 2011 increased by 3000 percent! netSpray’s Social Media marketing tools are helping to change the face of The US Jaycees. “Our new brand development and implementation, membership growth programs, and event promotions have a new level of success thanks to netSpray’s intelligent ad widgets and integrated social media marketing campaigns,” says The US Jaycees’ 90th President, Jeff Lank. CBS Sports’ In the Pits Racing Radio used netSpray to livestream the kick off of NASCAR’s Sprint Cup Media Day from the Hard Rock Cafe in New York. The event was pre-launched through netSpray’s social technology services to promote live interviews with 12 of the top drivers at that time. “netSpray has uniquely facilitated the racing industry through PMM and CBS Sport’s ‘In The Pits Racing Radio’,” says Larry O’Donohue, CEO of Performance Motorsports Marketing and In The Pits Racing Radio. “The company’s Spotlight Portfolios, combined with exclusive intelligent widget technology, deliver measurable return on investment and cut our clients’ marketing spend. They offer truly unique, state-of-the-art technology solutions at an affordable price.” Former Downhill Skiing Olympic Gold Medalist Diann Roffe, now Consolidated Graphics’ Director of Business Development, is another to have benefited from netSpray’s approach. “Working with netSpray was the fi rst step in outgrowing my linear thoughts on digital marketing,” she explains. “My Spotlight Portfolio created a fresh look and stronger presence across digital media channels, while netSpray’s dynamic ad technology smothers local digital advertising with its ‘intelligence’ and ability to blanket the internet.” Meanwhile, other organizations that have garnered similar success include Performance Motorsports Marketing, Riley’s Toys Foundation, The Texas Board of Education via ‘Get There Texas’, Green Integrated Services, Duramed’s LPGA Turkey Hill Classic and Golf Fusion. Social media is here to stay. Combining netSpray’s Social Ad Marketing with social media marketing represents a new approach to market and promote individuals and businesses, grow brand awareness and leverage state-ofthe-art social media tools and techniques.
Widget works Social Ad Marketing is a great ﬁt across most markets. Patent-pending and unique features of the netSpray intelligent ad widget include:
Dynamic widget modiﬁcation across all internet locations with one click
Automated widget rotations via ad-stacking eliminates manual effort
Real-time visible inventory counters eliminate over-selling
Real-time visible countdown clocks eliminate missed campaign deadlines
Viral-like ‘copy and paste’ capabilities allow anyone to place a widget almost anywhere on the internet
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OUT IN THE OPEN Whether it’s game-changing technologies, revolutionary marketing strategies or the latest must-have product, companies are always looking for the next big thing. But where is the innovation coming from? And can businesses today effectively utilize the wisdom of the crowd? By Lucy Douglas
Scenario one A global soft drinks company decided to pull its multimillion dollar advertising slot in one of the most watched sporting events in the country. Though the sponsorship deal had been held for 23 years by the company, it withdrew funding and instead turned a $20 million budget towards a philanthropic, social media inspired marketing strategy. In January the company launched an online network where users – from individuals to large-scale organizations – could post ideas for a community-based or charitable project and the budget required for the venture. Over the course of a month users of the network can vote for the project that they would most like to see through. The project with the most votes by the prescribed deadline is awarded the budget required in order to bring the project into being. To date the network has received more votes than those cast in the last Presidential election.
Scenario two One of the country’s leading utility providers has decided to place a significant investment in an ongoing project to increase the amount of environmental initiatives and green-focused research. The project has up to this year cost the company some $5 billion in
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research and development expenses and generated returns of around $70 billion. The company announced plans to push $10 billion into the project over the next five years, in order to develop technologies such as compact fluorescent lighting, smart appliances, battery technology and wind turbine manufacturing. As part of the initiative the company outlined a challenge for businesses, entrepreneurs or individuals to take up as they saw fit, to create breakthrough ideas for a cleaner and more energy efficient power grid and to increase the adoption of smart grid technology. Ideas and strategies selected by a panel of judges are then offered the opportunity to develop a commercially viable service or product with partners from the company, benefiting from investments, an evaluation of the business strategy with experienced corporate teams, and partnership opportunities with the company to scale the business and a develop a go-to-market strategy.
Scenario three An international consumer products company opened its innovation process up to its customers with an internet portal, on which it lists the new products that it is looking to develop, to add to its expanding portfolio. Users can submit a solution to any number of the product briefs, or alternatively can submit an idea for a new marketing strategy or design or packaging, that may benefit the company long-term. Once an idea is submitted to the company, a representative assigned to the relevant area will review it, paying particular focus to the technological aspect of the proposal. If the idea is suitable, the company then looks to collaborate with the innovator to bring the product or marketing idea into the business. Payments for innovations are determined for each individual situation, but have been claimed to be in the range of $10,000 to $100,000. So far this portal has generated more than 1000 collaborations between the company and external innovators. The same company uses a separate internet portal to generate innovative proposals for new business models that would take a small scale business and scale it to serve the mass market. Services or products that serve an emerging consumer market can seek to partner with the company, in order to generate over $100 million in sales. These two initiatives have helped this company to remain in Businessweek’s top 25 Most Innovative Companies for the last four years.
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The Pepsi Refresh Project received more votes than the last Presidential Election
hough taken from three very different fi rms, each offering three very different services, the above scenarios all have one thing in common: the use of open innovation. In a recent TED lecture entitled ‘Where good ideas come from’, Steven Johnson, author of the book of the same name, explains that while we may like to think that innovations occur in one single moment of enlightenment, in reality ideas are more likely “cobbled together from whatever parts happen to be nearby; we take ideas from other people, from people we learn from, from people we run into in the [proverbial] coffee shop and we stitch them together and create something new. This is where innovation comes from.” Johnson’s theory that “chance favors the connected mind”, while undoubtedly insightful, is based on the simplest corporate logic: that two heads are better than one. And indeed, there’s few who would dispute that theory. With more executives placing development of new product, service or strategy as the number one priority for a company looking to regain its competitive advantage in the wake of the fi nancial downturn, maximizing the chances of creativity is paramount. “If you have an innovation budget
or a Chief Innovation Officer,” explains Judy Estrin, author of the book Closing the Innovation Gap and CEO of JLABS, “such that people in the company think that’s where the innovation is done, then it works against innovation, because innovation needs to be throughout the culture of the entire company for it to thrive.” According to Businessweek’s fi ndings for the 2010 50 Most Innovative Companies in the spring, the preceding 12 months had seen a “resurgence of innovation”, a fact attributable to the economic recovery. “Scarcity breeds innovation,” says Tom Hulme, Design Director with global design company IDEO and pioneer of the firm’s open innovation network, OpenIDEO. “The reason entrepreneurs are effective is they’re forced to learn quickly and bootstrap their businesses; ironicall,y larger companies are being forced to do that at the moment as well.” Indeed, whether experiencing tough times or not, evolving the business can only be a positive step, and as Stein suggests, opening the opportunity up to as many people as possible can only improve the environment for innovation to flourish. “You get more opportunities when you combine internal and external resources,” highlights Stefan Lindegaard, author and serial blogger on innovation in business. “Open innovation gives you more diversity, more opportunity and a faster speed to market.” So why has it taken until now for the open innovation envelope to arrive at the table? First, as with so many industry buzz words, the term has a certain ambiguity that makes executives recoil. Once a term used for the act of outsourcing the development of a particular project, open innovation in the internet powered generation is much more complex. “I’m enjoying watching it evolve as an emergent idea,” Hulme says. “Whereas in the past I think open innovation was categorized by ideas coming from the outside, I’m more excited now about applying open strategies to all aspects of the innovation process.”
OpenIDEO Th is theory has been the basis for the OpenIDEO network, an internet-based forum on which people can post their ideas to solve selected challenges. Hulme explains that the project was born out of experience rience in the innovation process highlighting the need for a more diverse range of minds in order to have the best possible sible outcome. “I was inspired by what happened in the last st Industrial Revolution,” he says. “There was a real spike ke in innovation as a result of people coming together in cities ties like never before, so involving diverse people in conversations ersations – and logic would tell me that technology, the internet, would give us an opportunity to have a similar spike in innovation, but for whatever reason I don’t thinkk it’s been realized as much as it might. So we decided to start art looking at how we might design a platform to enable creative eative people to come together to solve complex problems.” The set-up of the network is straightraightforward; challenges are posted, usually ually sponsored by an external organization on (at the moment a featured challenge ge
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The world’s #1 innovator…
n engineer of a major technology company stopped at a bar in California on his way home from work one night, to celebrate his birthday. After a few drinks he decided it was time to move on, unfortunately leaving behind him a prototype of an upcoming model of his company’s iconic cell phone. The device was picked up by an unsuspecting patron, who dutifully attempted to return it to the company; however he had little success as the customer services representatives he spoke to thought his claim so unlikely that they disregarded it. After some weeks the device was picked up by a popular technology blog, at a cost of some $5000, which published a video and a post unveiling the new product. Unsurprisingly, the news was rife across social media outlets and fast became the blog’s most read story since it began. And for Apple, the world’s most innovative company and notoriously over-protective of its intellectual property, it’s unlikely to be forgotten in a hurry. Producing some of the most original, exciting and popular products on the market, the technology giant is not short on innovation. But it all takes place behind closed doors. The primary reason that this incident drew so much attention is that the unveiling of an Apple product is almost as signiﬁcant as the product itself. With such audacious taglines as “This changes everything. Again.” or “A magical revolutionary product at an unbelievable price”, the desirability of Apple’s products stems largely from the mystery in which they are shrouded until they are revealed to the world. “Apple is renowned for being closed,” says Tom Hulme. “I think that’s naïve. There are certain aspects of their business model that are very open. They chose to be open to allow people to develop apps for their platform, for the iPhone, iPad and the iPod. That’s open behaviour. They decide to solicit new applications from their creative community.” Indeed, the development of apps is proving big business for the 2010 entrepreneur. Over four billion downloads had been recorded from the Apple Store alone as of July of this year, generating an average of 70 percent of the sale price for the developer. Through Apple’s App Store, developers have made more than $3 billion in revenues, and an estimated 43,200 developers work on apps for the Apple system today. But beyond application development just how much does the technology giant support innovations from outside the boundaries of the business? Well, Apple does have an ‘Unsolicited Idea Submission Policy’, for anyone hoping to plant the seed se of inspiration with the world’s most innovative innovativ company. The policy clearly states that Apple does not accept or consider unsolicited ide ideas on any aspect of the external individuals or parties. business from externa Just in case an idea is submitted in spite of this claim, Apple has a list of conditions of any products or marketing submission, should an strategies happen to seem s similar to any ideas submitted. These conditions cond include giving up all of the idea to Apple intellectual property rights rig without any compens compensation, that Apple may redistribute tthe submitted idea in any and that Apple is way it chooses ch under no obligation to keep any subm submission conﬁdential.
is to improve the way that kids in America eat, sponsored by British chef Jamie Oliver), and the connected members of the network can post inspirations for solving the problem, strategies for implementing the inspiration into the real world, and evaluating the ideas that have arisen from the opportunity. As well as benefiting the organizations setting the challenge and OpenIDEO itself, the network allows users to improve their profi les with their participation. “Those parts of the process are the different ways that people can contribute,” explains Hulme, “and they become part of what we call your design quotient, so we built a system that automatically feeds back to you your performance on the site, based on the quantity and also the quality of your inspiration, so that you get recognition.”
Procter & Gamble’s Connect + Develop initiative has generated 1000 business innovations for the company
Not invented here The OpenIDEO network is undoubtedly effective as a source for generating innovation for the philanthropic project. Hulme explains that his firm made the conscious decision to only host challenges for social good, first because “everyone’s motivations when they participate in challenges for social good are much clearer.” The second reason he says, is that it enables users of the network to enjoy the openness
of the platform. “To give you an example, if we are coming up with solutions for a school in India, we’re absolutely happy if schools in Africa look at the site and steal the ideas. That’s a great result for us because it increases impact.” Indeed, this open innovation model is ideal for this sector; it works for IDEO and it’s working very well for Pepsi (see Scenario One). And it works well for businesses looking to expand on their social responsibility initiatives, such as General Electric (see Scenario Two). But in the world of corporate consumerism, it does not address the most pressing concern of many executives looking to expand their innovation strategy: intellectual property. However, according to Hulme the principles of open innovation can easily be applied to the corporate world. “It’s easy for people to think in a binary way,” he explains. “People think, ‘We have to have everything open or everything closed.’ But actually the truth, and the most successful corporate positioning, lies in between on that spectrum.” The fear of opening the doors on the research and development team for the whole world to see remains the biggest obstacle to utilizing the wisdom of the crowd. But for Hulme,
The closed innovator? Even organizations who hide their intellectual property until it is ready to be released value the innovation input of each member of the organization, as MD of Porsche Design Studio Roland Heiler explains. In your capacity at Porsche Design Studio, what do you feel is the most effective path to innovation? Roland Heiler. Innovation is done by people and can only be executed successfully if the culture within a company not only allows for it but asks for it to happen. One of the 10 commandments describing our Design Philosophy is “Innovation”. Whether you call them experts or creative people, every one of our designers is curious, well informed about the latest technologies and trends and all of them are trained to think out of the box. Do you use third party contributors to innovate with, or do you innovate only from within the design team at Porsche? Why do you follow this strategy? RH. It is probably more a necessity than a strategy, but in almost every project we work closely with engineers and strategists of our partners who again are experts in their own ﬁeld and can convey their in-depth knowledge to us. Our strength is to connect the dots in a new and different way. This way we have been practicing certain aspects of open innovation for a long time.
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Lindegaard and other advocates of open innovation practice, it is no longer as simple as choosing one path or another. “Open innovation should be viewed as a mindset or a philosophy rather than a toolbox,” says Lindegaard. “The internal work must still be highly appreciated, but if a fi rm has a ‘not invented here’ culture then they need to break it down.” He goes on to explain that the cocktail of external and internal innovation resources can often make the process a complex one. “But,” he says, “if you can handle this complexity then the broader number of opportunities – which should also lead to better opportunities – outweighs the way we used to innovate.” Indeed, the thought that a new product or technology idea comes from outside the company leads many executives to believe that they would risk losing their competitive advantage. According to Hulme, however, this is no longer the case. “There’s an interesting idea that if you open up the process and give people visibility to it, superficially, people think that you actually lower the barrier to someone copying your idea. In this day and age this matters less and less, and the simple reason is that it’s a legacy approach to think that that we don’t know what diff erent
businesses are bringing out in terms of their product stream or strategy. Everything can be copied incredibly quickly now. The value of businesses is in creating clever systems, and so opening up parts of the innovation process so that people have visibility to strategies is actually a good thing, although it’s painful for many people.” Still, as liberal as business ethics may have become, that ‘not invented here culture’ remains a pressing issue. According to Mitchell Baker of Firefox, it stems from a fear of the competition. “The not invented here syndrome is very important,” she says. “There’s a fi rst reaction of being excited by something new and interesting, and maybe you’re scared about it competitively as well, but at least you recognize when something’s exciting.” For fi rms that are not prepared to, or simply are unable to, take the risk of compromising their intellectual property, the argument against taking a crowd-based innovation strategy is solid. Would the iPad have been as desirable if it had been designed by a computer science student and submitted on an internet network for new ideas?
What are the main challenges presented by innovating openly? RH. It depends on your product. In some cases sharing project content by crowd-sourcing means higher innovation speed but it can also mean disclosing content with a competitive edge. In the current climate there has been a lot of pressure on ROI and measuring value in a tangible way. What are your most valuable metrics as an innovation expert? RH. The most convincing argument is a positive experience. If a paradigm shift through design in a certain product category leads to 10 times the expected sales at a considerably higher price, this is very convincing. However, innovation remains a battle with every new project and predicting its commercial success before a product goes into the market is always a gamble. Obviously the Porsche Design brand is very established and therefore there must be a lot of pressure to ensure that new products are congruent with the brand signature and what Porsche Design stands for. With this in mind, how do you manage innovation for new products?
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“Open innovation should be viewed as a mindset or a philosophy rather than a toolbox” Sefen Lindegaard
RH. The answer lies in our people and their dedication to the Porsche Design philosophy and the desire to innovate. Coming up with new solutions is part of how they understand their job. According to Businessweek there has been a “resurgence of innovation” in the last 12 – 18 months. Would you say this is true for your organization? RH. For Porsche Design, I cannot think of the necessity to revive the process of innovation because for us it was always alive. As far as the general trend is concerned, I can only speculate that the urge to innovate is driven by the desire to come out of a crisis situation as the world economy was facing in 2008 and 2009. We are working on very exciting products with international partners and customers. But our innovation process is not that open, to give it all away just yet. However, one should be curious about what we will be presenting within the next few months.
Maybe not, but that is one extreme. Procter & Gamble on the other hand has made a strong name for itself as an innovation powerhouse through the use of its Connect + Develop portal (see Scenario Th ree). Ford’s consumer community is offered the opportunity to post ideas and respond to discussions on the various features of Ford cars. Nokia is collaborating with research specialists at leading institutions to develop its forthcoming portfolio. I could continue.
“You get more opportunities when you combine internal and external resources. Open innovation gives you more diversity, more opportunity and a faster speed to market” Sefen Lindegaard “I think some people would say they look at open innovation to reduce costs but I don’t agree with that argument,” says Hulme. “I just think it’s a different approach, and I think it should actually be taken on merit versus the alternatives.” To highlight an example, Hulme cites the opportunity cost of open innovation, pointing out that in the current fi nancial climate cash has significantly less value that it did before the downturn, when assets left untouched could earn real interest. “It doesn’t exist now. The alternative uses of cash are less exciting. Also, the cost of making noise in the marketplace has gone down dramatically. Companies for the first time are able to celebrate their new products and services in a way they wouldn’t have been able to afford in the past.”
General Electric’s Ecomagination initiative has generated returns of $70 billion
innovation capacity at Firefox. “You don’t have the tools that you have with employees,” she says. “You don’t have salary, you don’t have health benefits, you don’t have a whole bunch of other things and so they need to believe in what’s happening and to feel a sense of ownership. There’s nothing worse than for people to think that they have a say in what happens and then learn they don’t.” In fact, whether operating in the corporate or nonprofit sector, fully engaging the workforce and consumers with the open innovation strategy is ultimately the most effective way to innovate. “We are moving from innovation that is based on transactions to innovation that is based on relationships,” says Lindegaard. “As this happens, it is important to note that trust is established fi rst and foremost between people and then perhaps between organizations. The key to acquire trust is to deliver on your promises. If you say you will do something, do it and if you say you will create specific results, do it. Open innovation is a paradigm shift and it will be how companies innovate in the future.” ■ Interviews with Judy Estrin and Mitchell Baker were carried out by Business Management’s sister channel, Meet the Boss TV.
The engaged innovator The greatest benefit of open innovation is also the greatest challenge to overcome in order to utilize it effectively. Including as many diverse opinions as possible in the conversation logically will lead to the best results, but in order for this to happen the workforce needs to be on board with the open innovation strategy. According to Lindegaard, organizations and corporations need to educate the workforce on the need for open innovation, beginning at the executive level. “[We should] make the organization buy into open innovation,” he explains, “and make them understand how they can contribute in the short, mid and long-term.” Indeed, the success of the Pepsi Refresh project, General Electric’s Ecomagination and Hulme’s own OpenIDEO is attributable to their success in engaging the consumers with the projects through the philanthropic model. Mitchell Baker explains that her organization utilizes the time of volunteers in an
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90 | TECHNOLOGY FOCUS
It’s all in the teamwork Being the CTO of a national organization working with thousands of employees and constantly evolving technology is no mean feat. Richard Scott of Guardian Life Insurance tells Lucy Douglas how he stays on top of the challenge.
n case you didn’t get the memo, the world of IT is in the midst of a transformation. Again. A constantly evolving sphere of clouds, virtualized data centers and revolutionary devices, today’s technology landscape is rife with challenges for the IT executive, and while the likes of Google, Microsoft and other major players in the techno sector are paving the way for the future of the industry, keeping abreast of that innovation in a business that uses technology but does not produce it is no mean feat. So how can corporations worth millions of dollars, and with a staff base in the thousands, manage the constantly evolving technology across the whole organization? “That’s a great challenge,” says Richard Scott, CTO at Guardian Life Insurance Company of America. For Guard-
TECHNOLOGY FOCUS | 91
ian, an insurance firm with around 5400 members of staff, Clouds ahead technology is a key enabler of the business strategy. “We’re With regard to the technologies that are currently not unlike a lot of companies where we have individual revolutionizing the business world, Scott speaks candidly. lines of business that all have their own driving forces,” “I personally don’t like the term ‘the cloud’,” he reveals. says Scott, adding that the key to implementing innovation “It means too many things to different people. I like to and development is socialization, ensuring that there is a look at the cloud as a utility. We look at where the cloud constant conversation between the various departments of is taking us, and it’s becoming a commodity; so if I need the organization to develop the best strategy for the whole to run a business process, I’ll simply reach out and run business. “We’ve got to be out there,” he says. “We’ve got it on the cheapest commodity-based computer platform to be talking to the lines of the business – the tier business I can fi nd out there, or if I need storage for the business people, the application side – and then look for the greater here. I’m going to fi nd the least expensive storage option good. That’s not always possible. You can’t always have a available to me.” solution that meets everybody’s needs, but to what extent Like his approach to innovation, Scott sees little to be that we can, that’s what we focus on.” gained from just adopting a new cloud-based system for Still, in order for innovative new technologies to be im- the sake of doing so. “I envisage that within the next 12 plemented throughout the business, they have to be present to 18 months we’ll probably dip our toe into the world of in the first place. “For us it’s about unleashing and enabling development,” he says, underlining his fi rm’s caution to people to innovate,” explains Scott. “We encourage people take on a new technology infrastructure that might comto go out to different vendors to look at the trends in the promise sensitive company information. “I couldn’t take, industry. We will support them in internal trials, but we for instance, some of the customer data we deal with and have the strong governance process that requires any new put that in the cloud today,” he says. “It’s just not mature technology to go through a series of vetting steps before it enough.” can be made live or get into an area that it might impact He highlights also the concern many technology our compliance or regulatory reporting executives share: will external soft ware requirement. It’s really just allowing people “I couldn’t take, providers have the fi rm’s best interests to do it rather than trying to say, ‘A group “If we pick a vendor to host our for instance, some atstuffheart? of three or four people are the R & D team.’ , are they going to have the right maof the customer That doesn’t work very well.” turity, the right service levels, the ability The pendulum can swing both ways data we deal with to pay the same amount of attention as though, and while Scott actively encourages we do to our own environments today?” and put that in an innovative culture, there comes a point asks Scott. “Are we going to get the same where the best interests of the business get the cloud today” or better or a guaranteed level of service?” overlooked. Scott explains that only once an Still, Scott is optimistic that these are idea has reached maturity can it be considered for imple- just kinks that will work themselves out with time. “As the mentation across the organization. It is at that stage, he technology evolves and security techniques become tried explains, that the collaborative internal culture comes into and tested and the comfort level raises itself, these conplay. “That’s when we bring in different departments to look cerns will go away. I don’t think that there’s anything that at this as a group,” he explains. “We have representatives will stop this, but it is a concern today.” from all different areas that come together and say, ‘Is this a He remains realistic that a move to the cloud is an technology that can benefit Guardian as a whole?’ ultimate inevitability for businesses’ IT infrastructure, This seems to be a recurring concern for Scott in his and explains that despite his reservations, his department capacity as CTO. Taking what he describes himself as a are looking towards it as the next generation of technol“horizontal view of all of IT”, he is firm to ensure that new ogy platform. “We’ll try to get some of our IT folks to technologies are beneficial to the greater interests of the begin to make provisions for environments in one or two whole firm, and he highlights that Guardian operates a gov- cloud providers so we can begin to free up our own infraernance process to ensure the right technologies are emerg- structure for production use, and have this more dynamic ing into the business. “It’s not one person saying, ‘You can’t infrastructure in the cloud for development. It’ll probably do that,’ and putting the hammer down,” he explains. “We’re go from development to test to user acceptance testing and having a representative group from business, from technol- one day to production. ogy, security, infrastructure, all these different areas saying, “I still can’t forecast when that production date is. ‘Is that really in the best interest of Guardian?’ There’s some neat technologies that are being introduced And in the two years since this process has been oper- today that will allow us to do some of this work interating, Scott explains that Guardian is reaping the rewards. nally before we push it out, and then seamlessly move the “Just knowing that the process is in place has caused people workload into the cloud without a lot of modifications. to rethink trying to introduce just anything though. Ideas Our focus is going to be on investing in and preparing are very well-vetted before they get to that level, and they ourselves for that eventual date. It’s going to happen. We tend to go straight through because they are well-defi ned, need to do what we can to prepare ourselves to make that well thought through and clearly address a business need.” transition as seamless and painless as possible.”
NEXT GEN COMPUTING
BUSTING The promise of cloud computing offers tremendous beneﬁts but also comes with hazardous pitfalls and challenges. So why should your business make the migration?
Cloud Article.indd 92
or most CIOs, cloud computing promises to deliver agility and flexibility while also helping to cut costs and environmental impact. But with so much hype surrounding what EMC Chairman Joe Tucci – interviewed in the last issue of Business Management – dubbed “the next wave of IT change”, understanding what the cloud is and how it could work for your company is a challenging task. There are just so many parameters to work within, so many strategies to follow, and so many questions to ask. But with data storage capacity needs seeing rapid exponential growth, they are questions that need to be asked – and many firms are fi nding the answers to their liking, with an increasing number of companies falling over themselves to align their business with a suitable cloud strategy. “Companies are looking at the cloud as something that can manage their increased workloads,” says William Fellows, Principal Analyst for The 451 Group. “I guess many businesses see the cloud as the next great white hope.” Using the public cloud as a means of measuring the potential costs and scalabilities of an organization’s internal IT is, believes Fellows, a smart move. Public clouds have already begun to replace internal IT infrastructures in many enterprises, so it would be foolish for a company to not at least investigate how cloud-based services could benefit their business in a wider space.
However, while it is the public cloud environments offered by the likes of Google and Amazon that have captured the public’s imagination, much of corporate America is taking a different tack. For most large enterprises, the majority of their IT spend is still going on premise equipment rather than third-party services – Fellows puts the proportions at about 75/25 percent in most industries – and with a majority of data remaining in-house, the concept of the private cloud is gaining momentum. “Most organizations have virtualized some or all of their data, but the prevailing thought process is that if they had some of the other features of the public cloud at their disposal they could enjoy greater benefits,” explains Fellows. “Progressive companies are looking to emulate, replicate or imitate what the public cloud delivers; they are looking at their IT infrastructure and assessing what the total cost and ROI is for hosting and running their own workloads.” The private cloud is seen as a potentially cost-efficient implementation that many businesses can no longer afford to ignore. “Is it more cost-effective to host and store data internally than on a public cloud?” asks Fellows. “Th is is something that a lot of companies are looking into: whether they are better off investing in their own ‘best execution venues’, purchasing hosting capabilities that are suitable for their business in terms of price, performance and capacity.”
NEXT GEN COMPUTING
Companies unsure of exactly where to start as they take their first tentative steps into the world of cloud computing should, says Fellows, follow a couple of practical steps in order to first assess their requirements. “The first step I would advise is for companies to simply create a service catalogue in order to at least understand what services are available to end-users in their organization. The next step is to look at the cost of provisioning and deploying to those end-users. Just this action of finding out cost allocation is proving an enormous driver because end-users are discovering the range of services that are available to them, and figuring out the specific cost to their business.” All this points to the adoption of the hybrid cloud, which is a managed cloud computing environment where some services are managed in-house, and other services are provided externally. The hybrid cloud, when implemented correctly, enables businesses to enjoy the best of both worlds: the security and control of internal IT mainframes, and the flexible scalability and cost-effectiveness of the public cloud. “With the hybrid cloud there are a number of combinations that can be applied,” says Fellows. “There will be vertically integrated clouds of IT systems in B2B chains where partners and customers will be able to access elements and process their supplies and data on the cloud. But it is going to take longer for the horizontally federated cloud to come into wider usage because the interoperability of different cloud providers is still problematic at the moment. It’s not impossible to move workloads between different clouds, but the industry needs to go through a maturation period before we arrive at that stage.” The ability to easily and safely transfer data across different cloud providers will mark a watershed moment for a number of companies who still harbor reservations about cloud computing. Fellows believes we are about three years away from achieving complete interoperability, and what is currently lacking is the technology to make it happen. For one thing, security concerns abound in the world of cloud computing. Companies fret over access to the data, control of their data and loss of their data. “We have found that there is a pretty consistent level of concern regarding the issues of trust, control and security amongst end-users,” says Fellows. “However, it is important to distinguish between security and trust. IT security – the security of your actual systems – is obviously a concern, but more important are the regulatory and compliance requirements. These issues are quite distinct and separate, but rolled up and bundled together. The major concern for a great number of companies is overall control and trust. And within that there are data management concerns, auditing, interoperability and so on.” Fellows’ research has identified a number of inhibitors to adoption of the cloud, with control and trust forming what he calls the first set of inhibitors, and cultural concerns the second set. “Often, reluctance to embrace cloud computing has little to do with technology,” says Fellows. “Snagging points revolve around issues of internal resistance to change. Whenever the issue of power, trust and control come up, there are a whole bunch of organizational factors that have
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Building flexible IT resources Mark Settle, CIO at BMC Software, believes the cloud is providing businesses with a great opportunity to get their strategic approach to IT funding in order. “Cloud computing offers to reduce capital expenditure and management burden, but it also reignites the knotty issues of IT chargebacks – an approach to IT funding that, due to its complexity, was in the past somewhat of a recurring nightmare for CFOs and CIOs.” Settle explains that IT budgets can be assigned by business unit, project or overall annual requirements. But cloud computing, as a centralized IT resource charged on a usage-based billing model, blurs traditional budgetary lines, reviving the concept of the IT function charging its costs back to individual departments. “In the past, chargebacks have been difﬁcult to implement, as calculating the full cost of service delivery is an extremely complex process due to the range of variables associated with it,” says Settle. “With cloud computing, organizations can build ﬂexible IT resourcing into their operational expenditure for managing cheaper, sustained and predictable business workloads. “At the same time, they can access extra resource on-the-ﬂy, when a business unit needs it, to get a new project up and running quickly for example, without having to factor in the extra hardware, power, maintenance and labor costs usually associated with new IT capital expenditure,” he adds. It is essential, therefore, for any CIO considering a move to the cloud to work hand-in-hand with the CFO to agree standard procedures for procuring, accessing and monitoring cloud resources and service levels to ensure each business unit pays for the IT they need and use, says Settle. “This is also why those IT departments with well-developed business service management (BSM) software deployments that allow them to align IT resource with business demand will already have a head start in the cloud, whether it is public, private or hybrid in its nature.”
to mature or change in order for new practices to be accommodated, new working environments to be embraced and new technologies to be implemented. The cloud brings all three of these inhibitors to change to the very door of the executive decision-makers, so hesitation is understandable.” Overcoming these inhibitors is a challenge that the cloud computing industry must focus on if it is to promote an atmosphere of wider acceptance. Nonetheless, greater adoption of cloud computing will happen regardless, believes Fellows, as more and more companies begin to trust their instincts and take advantage of the wealth of services out there. “Wider use of cloud computing is happening by default because there are people in big organizations who are already using cloud computing to some degree, whether they know it or not,” he says. “More pertinently, what we have found is that cost reduction is one of the main drivers to adoption of cloud computing; sorting out that bottom line.”
ASK THE EXPERT
Is the cloud business ready? By running their infrastructure in the cloud, can companies rely on cloud computing to ensure business continuity? By Eelco van Beek
orming an opinion about cloud computing can be difficult since so much has been written on this subject – and many of the articles are diametrically opposed. The usability and technical advantages of cloud computing described in those articles are not always crystal clear, and often raise more questions than answers. As such, organizations need help in guiding them through the fog that has been created by this diversity of opinions. Traditionally, hardware investments are based on expected peaks in workload. This means that a sizable part of your available server capacity is rarely used, except during peak hours. A major advantage of using cloud computing for your infrastructure is flexibility. You no longer need to invest in systems and building a platform based on an estimated potential load or usage. By using cloud computing, you can configure the size of your platform based on its effective usage. Scaling can be done vertically (computational capacity will expand) and horizontally (where new instances are added to the infrastructure dynamically). A few providers, like Jitscale, even offer the possibility to scale a web platform using a cloud of multiple cloud vendors. In Jitscale’s case, the strategy for using – and how to use – different cloud vendors is based on business logic in the Jitscale Management Layer. When, for example, a very high uptime is required, Jitscale will use many different clouds from different vendors to create the highest level of redundancy. It could also be that due to the nature of a platform, some clouds will need to be excluded because of legal restrictions. This is the case for some European financial institutes having to comply with EU-regulations with regards to safeguarding personal data. For companies that service international customers through websites, there is also the possibility of using a content delivery network (CDN). Using a CDN, content can be pushed – using specific geographic algorithms – to select clouds near the end-user to ensure a low latency connection, resulting in the best end-user experience. Another advantage of using cloud computing is its financial model. Cloud computing not only incorporates sharing of the same physical infrastructure, but also sharing of the costs. The cloud vendor will invest in hardware, data centers, uplinks and, in some cases, even licenses. Because of economies-of-scale, the rates for computer-power, data traffic and storage are kept extremely low compared to traditional infrastructures. Platform costs will be billed based on effectively used capacity, which therefore makes pay-per-success possible. Your costs will only increase when the usage of your infrastructure increases and the costs will
go down instantly when the usage decreases. Recent studies show that one of the most-used arguments not to migrate an infrastructure to the cloud is security; cloud computing is based on a shared infrastructure. Some cloud vendors are secretive about their security policies and there is a lack of standardization. This is no longer the case, since some cloud providers are starting to implement ISO/IEC 27001, an information security management system standard that intends to bring information security under explicit management control. ISO/IEC 27001 requires that management systematically examine the organization’s security risks, taking account of the threats, vulnerabilities and impact. Furthermore, management has to design and implement a coherent and comprehensive set of information security controls and/or other forms of risk aversion to address those risks that are considered unacceptable. Lastly, they need to adopt an overarching management process to ensure that the information security controls continue to meet the organization’s information security needs on an ongoing basis. In summary, we can conclude that cloud computing has definitely matured over the last few years and is able to offer companies many advantages compared to conventional infrastructures, ranging from performance increases and potential cost savings to increasing user experience. ISO certification makes security arguments obsolete and stresses the fact that cloud computing is business-ready, today.
Eelco van Beek is CEO of Jitscale, a company providing fully managed, secure, on demand, global, auto-scaling, virtualized and shared IT infrastructure-asa-service. Jitscale has ofﬁces in the US and The Netherlands.
ASK THE EXPERT
CRM on the cloud Software-as-a-service (SaaS) cloud computing is the latest technology being advanced for implementing CRM solutions. Is this just another techno-fad or is there really something to it? Jay Bauer provides some positive answers.
ost CRM systems today, particularly those used by large organizations, are implemented on large in-house servers that sit behind the corporate firewall. Access is enabled via secure LANs (local area networks). Remote applications are linked to the system using a synchronized methodology or Citrix. Traditional client/server CRM systems have been used for a long time. They are very stable. However, the nature of these systems requires that remote copies of the database be resident on the users’ laptops or be accessed by secure Citrix connections. If the remote copies are lost, stolen or compromised, this data may be compromised or fall into the wrong hands. In recent years the client/server model has given way to web-based CRM implementations. These systems are accessed over the intranet or extranet, which replace the traditional LAN or Citrix access methodology. The data is accessed only while it is being used, so hundreds of copies of the database are no longer circulating outside the fi rewall on laptops. However, the web-based implementations still rely on large amounts of server infrastructure, which must be purchased and maintained behind the firewall. So they are still quite expensive to own and operate. With the latest deployment option, SaaS cloud-based CRM, the entire implementation is out on the web, and protected by advanced security systems. Th is approach has substantial advantages over its predecessors, the fi rst of which is accessibility. Users can log into the CRM system from any location with internet access. Cloudbased CRM implementations lower costs in several ways. Hardware and much of the soft ware requirements are standardized and this infrastructure is provided at a reasonable cost by the SaaS provider. What’s more, since there is no hardware or soft ware to maintain behind the fi rewall, the CRM budget item for IT support is drastically reduced. You can also develop and launch your CRM system a lot faster from the cloud. With either the client/server or the web-based approaches to CRM, you normally need to build separate environments for development, testing, production and disaster recovery before you can focus on your real objective – robust CRM that improves both customer satisfaction and sales force efficiency. With cloudbased implementations you can skip all the preliminaries
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Jay Bauer is President/Senior Process Consultant of STI Systems, Inc., a ﬁrm specializing in CRM and business process optimization. Bauer has 25 years of experience in sales and marketing management with such companies as CSC, Boeing Computer Services and Motorola, and has been the senior process consultant on more than 300 projects.
and get to the heart of the matter – implementing a CRM system that maps seamlessly into your business process. With all of these advantages, why wouldn’t an organization adopt a cloud-based CRM implementation strategy? Because some institutions have made executive-level policy decisions that all proprietary and sensitive customer data must remain behind the firewall. These currently fi rm policies are likely to change as ‘the cloud’ develops a longer historical record for impregnable security. Many other organizations are confident that the cloud is very secure because it passes all major banking and fi nancial testing procedures. They have moved beyond the question of ‘if?’ and on to the important question of ‘which?’ If you represent one of these institutions, you need to carefully evaluate the offerings of the various SaaS cloud CRM service providers to make sure that in addition to a favorable cost structure they provide the openness and flexibility that will allow you to customize your CRM to fit your exact requirements. ■
SUMMIT ROUND UP
CIO Watch… Business Management went to the bi-annual CIO US summit in Miami to ﬁnd out what was featuring on the agendas of the country’s CIOs today.
iami, September 20th, and it’s 90 degrees outside. Luckily I am sitting in an air-conditioned room at the Fairmont Turnberry Isle, for the closed-door panel session of the CIO US Summit, fi nding out what challenges the country’s top CIOs are facing in this time of economic, political and technological volatility. Th roughout the session, executives from such global fi rms as Volkswagen Group, McCain, Citigroup, DHL Express, Bank of America, Thompson Reuters, Pfi zer and The Weather Channel, revealed their biggest concerns for the coming 12 months. Unsurprisingly, the increasing use of social media was a hot topic for some. Brian Ackerman, CIO at Adecco Group, spoke about how his organization has been able to effectively utilize popular social media platforms in order to gain insight into how customers search for jobs. “We were struck by the process by which somebody goes to find a job,” he tells me when I catch up with him later in the summit. “They tell all their friends, they look in their own networks, they ask for help; they take somebody out for dinner when they find them a job interview. That behavior is not atypical to what you find in some of the social media activities that are going on today. So, we’re struck by that and we’re trying to figure out how best to proceed. One of the biggest challenges we’ve found is to do this in such a way that it’s a help to our Adecco colleagues, our recruiters, our sales folks in the field, and not a diversion. At the end of the day, we have to have more feet on the street helping people to find jobs,
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“The cloud is like anything else; it’s not really a silver bullet. It has some advantages, but then at the same time, it has disadvantages”
not have our social media or electronic means competing with the more traditional channels.” Mobile enterprise and smart devices were also popular discussion points, as the iPad and similar devices have had a chance to let the word of mouth spread and are becoming more prevalent in the market. But it was the imminent arrival cloud computing that stole the show in Miami, not least because of the caliber of vendors present, all offering innovative solutions to the likely problems a move to the cloud will throw up. Many have been tentative in their approach to a cloud-based technology infrastructure. Atul Jain, SVP of Technology Infrastructure at Citigroup, explains that his organization uses an internal cloud model. “We are providing an internal cloud to all of our businesses within Citigroup,” he says, “and that’s why I use this word of shared services, so let’s take an example of storage. If somebody needs storage, you join Citigroup and you’re sitting somewhere in some city, you’ll have your desktop, laptop, and then you’ll need storage for that. And that storage, we’ll provide out of a data center. To you, it is transparent where it’s coming from. That’s an example, but really you can take that example to any level.” Indeed, as Jain outlines, organizations are starting to open up their infrastructure to a cloud-based model. However, there are still a number of issues that make executives nervous to dip their toes in the waters of cloud computing, security being the biggest. “I roll my eyes because privacy and security are huge issues,” Buddy Gillespie tells me. Indeed, as the CTO of WellSpan Health, ensuring the complete confidentiality of patient records is the paramount concern. “You really need to investigate it before you jump into it. I mean the cloud is like anything else; it’s not really a silver bullet. It has some advantages, but then at the same time, it has disadvantages. It’s probably not for everybody, but I agree that, in 15 years’ time, there’s going to be a huge amount of cloud usage across healthcare.” John Parkinson, SVP for Global IT at AXIS Capital, is able to remain more pragmatic about the situation. “There are issues about how you manage the keys that you use to encrypt and decrypt things,” he says. “If you just use the cloud as a repository and you don’t want to give anybody else access to what’s there, that’s relatively easy to do. But if you want to go publish something and protect it and let your customers consume it from the cloud, now you’ve got more of a challenge, because now you’ve got to give them an unlock key to the stuff that you locked when you put it out there. The thing that we learned doing this is that everything we run, we run in a virtual machine. So a virtual machine in the cloud is a fi le as far as the cloud’s environment is concerned. So now you have to encrypt your virtual images of your computers as well.” As the three days played out it became clear that the cloud was not only the main concern for all those present, but that it is likely to remain so for a number of years to come. The next CIO summit will be held at the Boulder’s Resort in Scottsdale, AZ, April 12th-14th 2011.
ASK THE EXPERT
Asking all the right questions to protect yourself What questions does an organization ask when a laptop is lost or stolen? More than you want to answer, so back-up and encrypt, says Joseph Belsanti. not be required to disclose a potentially embarrassing data loss. Is there any way to ﬁnd out where that laptop is now? In some cases, organizations want to know if they can track the location of the missing laptop in question. They do so, not necessarily to recover the laptop, but to determine if there are any other measures that they need to take into consideration to further protect themselves. For example, did a recently fired employee take a laptop home, holding it to ransom for severance? Did the contract worker that was in last month take a notebook? Did an employee steal it? Each one of these above conditions may provoke a different set of responses and measures that an organization may want to execute in order to protect itself legally and the data that may be exposed.
eing told that one of your employees just lost their laptop can instantaneously wake you up to the reality that your data is not safe, and you just may have been compromised. Thoughts revolve around the data that resided on that drive, and whether a current backup exists – or indeed any backup at all. Next, concerns arise relating to what might happen if there is unauthorized access to the data and if it were to be used for wrongful purposes. The immediate questions asked are: Whose laptop has gone missing? And what data did they possess? Secondly, questions surrounding the restoration of the data through a backup are discussed in order to get the employee’s productivity backup to a desired level. Now the adventure begins. Was the laptop encrypted? Does disclosure of the loss of data need to occur and what would the repercussions be to the enterprise? Upon the loss of a notebook, a typical organization asks the following questions. How did the notebook go missing, and is there anything we can do to stop it from happening again?
Organizations now start to analyze their security practices and processes. They try to determine if they need to buy any soft ware or hardware to protect their data – such as encryption – and they look at reviewing their existing security measures. If the organization subscribes to ISO 27000 standards, they now turn to ISO 27001, which formally defi nes the mandatory requirements for the overall management and control framework regarding an organization’s security risks. They will also review their ISO 27002 standards, in relation to ISO 27001, to establish a code of practice and guidelines in protecting sensitive data within their enterprise. Was the notebook encrypted? Given the amount of attention that privacy and security regulations around the world have brought to data breaches, the above question is probably one of the first questions to be asked. The reason for this question begins with the exemption clauses under most data breach notification conditions existing within privacy and security regulations. In most cases if you encrypt the media upon which the data resides in adherence to exemption clauses, then you will
What else can be done to the laptop now that it is not in our possession? Intel’s Anti Theft Technology now enables some encryption ISV vendors to issue a poison pill to a laptop that has been identified as lost or stolen. Th is poison pill can be issued to a laptop whether or not it is connected to the internet/LAN and performs two primary functions. It disables the platform and performs an encryption data disable. The first function was intended as a theft deterrent mechanism. The second function further protects the sensitive data on the laptop. In this case, access to an encrypted laptop would be denied even if the individual were in possession of the correct credentials – password, smartcard, USB token, etc. With new security technologies including Intel’s Anti-Theft Technology and self encrypting drives (SEDs), it is only a matter of time before the ubiquitous protection of data through encryption becomes normal practice – just like backing up data. Joseph Belsanti is the Vice President of Marketing at WinMagic Inc., a leading global provider of full-disk encryption solutions protecting data on laptops, USB thumb drives, and CD/DVDs. In addition to data security solutions, he has been marketing and selling in the ﬁelds of IP Address Management (IPAM), and E-services (CRM, E-procurement, Web Services and E-business).
To bundle, or not to bundle? For an increasing number of ﬁrms, it’s no longer a case of whether to outsource in the ﬁrst place, but how best to do it. By Ben Thompson
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eez, I hate paraphrasing Shakespeare: it just seems like such a lazy option. But there are times when no one but the venerable bard will do – and addressing the thorny issue of outsourcing is just one such occasion when you simply must roll him out. Of course, there was a time not so long ago when a phalanx of jaded technology hacks would be shoehorning bastardizations of Bill’s eternal question into article headlines addressing whether firms should outsource at all. But things have moved on, and with the majority of companies now seeing outsourcing of one sort or another as businessas-usual, it’s time to consider whether a new approach to looking outside the organization for services is needed. According to the Everest Research Institute, companies that outsource an initial system or business function will outsource at least one more within two years. Essentially, that means executives will have a decision in front of them: to proceed with the same supplier or look elsewhere. Thankfully, a new breed of outsourcing solution is emerging to help take the pain out of such decisions: bundled outsourcing. Bundled outsourcing is an innovative approach to outsourcing that consolidates multiple functions with a single
service provider. It helps redefine back-office operations, long-term business outcome of the contract. The result: in reducing cost and increasing strategic flexibility while simmany instances ITO and BPO are merging into one seamless plifying multiple back-office functions, and its proponents enterprise-wide solution. “In terms of outsourcing demand argue that in the current economic climate bundled outwe are seeing evidence of a growing trend towards bundled sourcing can play a key role in helping companies to hone outsourcing where clients see the advantage of outsourcing their competitive edge and achieve higher performance. multiple processes, applications and/or infrastructure to a “Most customers – at least from the US perspective single provider,” says Stephen Roehelder, Chief Operating – want some type of bundling,” says David Tapper, Vice Officer at Accenture. “This bundling has led to an increase President for IDC’s Outsourcing Services research team. in the number of sole-source deals in our pipeline.” “There’s more bundling going on because customers don’t Even so, bundling is not necessarily for everyone. Client want to have to deal with lots and lots of service providers. organizations that are given to multi-sourcing arrangeThey want to consolidate contracts. They want to consolidate ments, for instance, often have concerns over increased risks suppliers. They bundle more because they get scale out of it, from bundling, due to overdependence on a few suppliers. they get cost efficiencies out of it, and they get access to more Tapper highlights a couple of areas for companies to conresources across more capabilities.” sider when looking at a bundled outsourcing approach. The And while such bundles have typically comprised either first is contract lock-in. “One concern is that the more you related business processes – such as HR with payroll, or bundle with one supplier, the more you will be tied in with procurement with finance and accounting – or a collection that provider. Will they have pricing power? That’s a big conof different IT services, an increasing number of companies sideration.” Quality of service is another area for concern. “If are discovering that it pays to throw IT and BPO into the you bundle a lot of services together, the concern is that the same mix. Bundling the IT function and supplier may not be able to provide you with select business processes to a single pro- “As companies the quality of service across all those areas vider enables an organization to accelerate and do it effectively. Can they execute on all its drive to focus on core competencies and seek greater these service lines at a consistent quality?” processes that add value to its products. And synergies and The final issue related to this, he says, what’s more, the cost benefits are attractive: is governance. “Governance is a challenge. try to jumpaccording to research from New York global When your governance covers a lot of sourcing advisory firm EquaTerra, some start growth business units, a lot of decision-makers, it businesses are reaping savings in the neigh- coming out of can be tough. Unless you have a very good borhood of 30 percent more than they could governance process, it will be very tough the recession, achieve through separate ITO and BPO to execute on the quality of service and projects. While companies haven’t generally the relationship service-level agreements.” sought to implement too many IT and BPO between IT One additional point: the bundling functions at the same time, results show that question is set to be further complicated by and BPO is when they do, bundling can add efficiencies the emergence of cloud computing as a serstrengthening” and economies. vice delivery model over the next few years. The 2008 Global Services 100 survey For outsourcers, cloud computing creates found that demand for these services is an unprecedented opportunity to reshape rising. According to the survey, 54 percent per cent of how services get delivered. For clients, it opens up a new respondents said that they saw customers seeking more era characterized by the arrival of new players that are bundled IT and BPO services than in the past. As companies eager to build relationships and showcase their capabiliseek greater synergies and try to jump-start growth coming ties. The trend will be for more providers to bundle BPO out of the recession, the relationship between IT and BPO solutions in an IT cloud, so that eventually – and it will is strengthening and becoming increasingly vital. “The link take a few years – IT infrastructure is no different from between technology and BPO is becoming more important the enterprise than network infrastructure has become. If now,” says Anoop Sagoo, a senior executive with Accenture. nothing else, the dramatically lower costs on offer from “Indeed, it is critical to many third-generation outsourcing cloud providers will push customers to question charges strategies designed to reap the benefits from improving by traditional sourcing providers, and the cloud will be inefficient processes and functions.” Sagoo believes that by used as a lever in negotiations. taking a leading role in integrating IT outsourcing and BPO, Tapper, for one, feels that this will be the real gamethe CIO can achieve a degree of business and IT alignment changer in terms of the outsourcing industry, rather than that would have been out of reach not long ago. bundling as we know it now. “I don’t think you’ll see total If the mega-suppliers such as Accenture and IBM consolidation of BPO with ITO,” predicts Tapper. “But have their way, IT and BP outsourcing will increasingly be I do think over the longer term, you’ll see a shift to difbundled, meaning all the departments from IT to HR will ferent outsourcing delivery models. The cloud is going deal with the same vendor. And with the bundled or conto restructure the whole industry, bar none. The ‘how’ is solidated model, CIOs need to be front and center in regard getting changed. And when it does change, it’s going to to everything from contract negotiation to determining the be very disruptive to the service provider community.”
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ITO on the rise On the back of a revival in the outsourcing of IT services, growth in the global outsourcing industry stood at 20 percent in the quarter ended September, compared with the same quarter last year. This is in contrast to the preceding quarter, when growth was led by BPO services. According to the latest report by global management consulting ﬁrm Everest Group, the second-quarter experienced an 89 percent increase in the annual contact value (ACV) of IT services, and a 50 percent decline in the ACV of BPO deals compared to the same quarter this time last year. “The reason behind the growth in ITO is the increase in discretionary spending by companies,” says Amneet Singh, Vice President at Everest Group. “This kind of spending automatically inﬂuences investment in application development and system integration. There was slowness in the discretionary spending in the ﬁrst half of the year, but this pick up is expected to continue for the next two quarters and the whole of FY 2011.” The overall value in deals increased from $2.3 billion to $3.4 billion on a year-on-year basis. IT services saw a three percent growth in ACV compared to Q2, whereas the contract value of back ofﬁce functions declined on a marginal basis.
The search for value Outsourcers are set to feel the squeeze as CIOs go hunting for value, says KPMG.
utsourcing vendors can expect to come under increased pressure from their clients after research released recently signaled the intent of chief information officers worldwide to squeeze more value from their outsourcing arrangements. According to the report, From Cost to Value, published by KPMG International, the renewed outsourcing focus is symptomatic of CIOs’ wish to place the topic of getting value from their IT as their top priority. The report suggests that the new post credit crisis CIO agenda is dominated by securing value for money, but that it also wants to focus on using IT to help transform the business in terms of innovation and productivity. Outsourcing appears to have fallen some way from the top of the CIO agenda in its own
“Successful IT value creation needs to integrate and align the organization’s technology, people and processes” Bryan Cruickshank
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right, suggesting that outsourcing is now just part of ‘business as usual’ to a typical CIO. However, over two-thirds of the 450 CIOs surveyed for this report indicated that they now expect to pay far more attention to the price-quality ratio they currently experience. Even more expect to be bringing increased pressure to bear on their sourcing providers. The report makes clear that this is just one aspect of the move towards a value-driven agenda. Over 80 percent of the survey respondents feel that getting value from their IT must be their top priority. Cost optimization trailed in a distant second (58 percent of respondents), ahead of portfolio management (51 percent) – although it could be argued that both of these could be seen as sub-sets of the overall theme of extracting value from IT investments. “Whenever you hear of organizations wanting to focus on value, it’s tempting to immediately think of cost cutting,” says Bryan Cruickshank, a partner with KPMG Advisory. “However, our survey suggests a dual focus amongst today’s CIOs. Understandably, they are pursuing value by reviewing outsourcing arrangements and retaining a firm focus on cost optimization, for example. At the same time though, they are demonstrating their willingness to move the CIO role from its typically operational home into something more transformational. With that in mind, the days when IT was seen merely as a way of improving efficiency seem behind us. These days, CIOs expect IT to contribute directly to realizing the business strategy and to have a central role in management.” The transformational shift is evidenced by the fact that 65 percent of respondents felt that IT could assist in enabling and driving business innovation while a similar number felt it could assist with increased productivity. Over half also saw IT’s potential for enabling competitive advantage and improving external customer satisfaction. “These are not the responses of CIOs who still see IT’s predominant role as an operational cost center,” suggests Cruickshank. “Accordingly, the survey shows that the bulk of CIOs expect to be judged by how they create business rather than by how they control costs.”
Not all CIOs are making this move from an operational mindset to a transformational mindset at the same pace, however. The KPMG research suggests that CIOs in the fi nancial sector see themselves as remaining heavily involved in operational matters, with a focus on risk and compliance issues – something which may in part be attributable to a credit crisis hangover. By contrast, their counterparts in the manufacturing sectors claim to be focusing more on ways to innovate and transform their business with the help of IT. Not that this means that fi nancial sector CIOs do not have transformational ambitions or that other CIOs have consigned their risk and compliance requirements to the past. Rather, it simply suggests that both groups have differing priorities at this point in time. In fact, argues Cruickshank, striking a balance between operational and transformational priorities is all part of a new reality whereby risk and compliance objectives are fused with commercial and business objectives. In turn, this is leading to a fundamental change in the way in which businesses approach the twin challenges of innovation and transformation within their organization. If there is one area in which all CIOs are seemingly in agreement it is around the issue of people. Recognizing that IT value is not just about technology, almost 90 percent of respondents cited people as the most important component of the value equation. Applications and processes ranked second and third with 75 and 69 percent respectively, well ahead of hardware with just 21 percent. As Cruickshank explains, this high response rate may be driven by the knowledge of what can happen with the wrong people in place. “Successful IT value creation needs to integrate and align the organization’s technology, people and processes,” he says. “One of the major potential pitfalls is the inability of many organizations to fi nd suitably skilled people to take this forward. Often, precious time to create value is lost as organizations embark on ambitious projects with the wrong people at the helm. CEOs and CIOs need to ensure that sufficient importance is attached to this aspect during project initiation.” ■
The next generation of managed print services Wake up to the serious solutions that will impact your business and your bottom line, says Valerie Belli.
he idea of managing output to reduce operational costs is not a new concept. While managed print services (MPS) is a newer term, this concept is a mature service offering that was introduced over a decade ago. Today, most MPS programs claim to save customers between 10-30 percent by reducing total print devices. But what happens when you look beyond the immediate cost savings and consider a long-term vision? What can a next generation strategic output services program deliver? To start with, far greater returns than the simple immediate reduction in invoiced print costs. It is a long-term transformation plan and partnership with a vendor that manages beyond the device that will allow you to achieve real cost savings, business process improvement, and environmental benefits. Still not sure? Here are some questions to consider. First, can you see beyond your print hardware to the critical document workflows that support your business? The historic MPS program places emphasis on supporting images on paper across the enterprise. This type of program focuses on reducing device counts, but not necessarily volumes. While this offers an opportunity for savings, the vision is limited. The more valuable, next generation, strategic output services program not only focuses on reduced devices, but also on reduced total output, your document workflow, and how this workflow ties into critical back office systems. This new program allows you to think about the workflows that are important to your business and guides you toward optimization based upon industry best practices. The next thing to consider is whether you receive pointed, custom reporting that reveals strategic insights regarding your output environment and measures against industry best practices. The historic MPS program offers web-based tools that allow an organization to manually pull down reports that provide basic data on fleet volumes and service level activity. The information is valuable but the process to thoroughly analyze and build an effective solution is a time-consuming one. The next generation of programs is more strategic in its approach and therefore understands enterprise business goals and develops custom reports that reveal output activity pertinent to both the MPS contract and the long-term goals of the program. Analysts at the services provider will interpret and advise within the reports. This allows you to remain in the driver’s seat, while letting your industry-expert navigate you through your output services strategy. Finally, once you have achieved initial savings through MPS, what is your long-term vision for transforming your
print environment? The historic MPS program presents organizations immediate but limited cost saving opportunities based upon a one-time change or installation. The initial hard-cost savings are immediate but short-sighted. Far from a one-time project, the process of optimizing workflows must remain ongoing; processes must be in place to continually review changing core business requirements against your strategic output strategy. The more valuable next generation strategic output services program focuses on the long-term endgame, working with you to develop a three to five-year vision that offers long-term hard and soft cost savings, business process improvement and environmental benefits that are concrete and measurable. It’s time to look ahead and make decisions that will have a real impact on future processes and costs. It’s time to look beyond a one-time change to the opportunity for future gains. It’s time to look to your provider to deliver a bold new solution that goes way beyond a technology and offers the vision to develop a strategic output services program. And that bold next step is about great workflow design, about people who can execute both onsite and offsite, and about the application of the right software and technology to make it work in your environment. Real savings and improvements are possible. But this opportunity isn’t about the easiest or cheapest solution. To get where you want to go, you need to take this seriously and be willing to make the right change up front. Because a bad decision, a poorly executed plan or the wrong program will set you back three to five years. This new approach has generated proven success. www.solutions.canon. com.bsd
Valerie Belli has helped companies realize greater efﬁciencies for over 30 years. As Vice President of Canon Business Solutions’ Business Services Division, she oversees compliance, strategic development, operational and sales activities.
costs and going green Can a managed print services approach help companies beat the recession blues by going green â€“ and saving money at the same time?
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e’ve all done it: sent something to the printer multiple times because we’ve hit ‘print’, got distracted then hit ‘print’ again without thinking. It doesn’t matter, does it? After all, it’s only a single sheet and hey! I chucked the spare copy straight into the recycle bin anyway. If anything, I’m actually being green. And it doesn’t cost very much in the grand scheme of things, right? Wrong. Such a casual attitude to print resources might seem like a joke, but unfortunately it’s all too prevalent in offices around the country. With the downturn prompting most fi rms to take a long, hard look at their fi nances, cost-cutting has been very much on the executive agenda in the last few years. But while most organisations are aware of precisely how much they shell out on staff, rent and rates, and phone and electricity bills – and are able to reduce their spending accordingly – very few know how much they pay out on printing. It is, for many, the black hole of corporate expenditure. But in recent years, a new model has emerged to help fi rms tackle this thorniest of administrative issues: so-called managed print services (MPS) that promise to reduce the burden of excessive print costs and at the same time help with greening the enterprise. “Managed print services is a game-changing trend that will have a significant impact on the hardcopy market well into the future,” says Michael Orasin, IDC’s Research Manager for Hardcopy Soft ware and Services. “The growth of print services will continue to escalate as companies of all sizes comprehend the savings that can be realized under such programs and vendors compete to gain share.” Gartner senior analyst Tosh Prabhakar agrees. “Businesses should consider adopting strategic and deployment alternatives such as managed print services, smart multifunction printer (MFP) and fleet document systems to help better control costs,” he says.
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Photizo Group found that the average cost of a hardcopy ﬂeet for a ﬁrm with 750 employees is over $700,000 per year. The ﬂeet will use over 33,000kWh of electricity and generate over 80 tons of CO2 emissions (equivalent to the total CO2 output for 16 cars for an entire year).
Cost control Indeed, it is cost-control that is proving the big draw for those fi rms that have already taken the managed print plunge. When The Principal Financial Group decided to centralize responsibility for PC print services, Jan Blessum, the assistant director of IT who became the service owner for PC print, realized it was time to make some significant changes. Without a centralized approach, it was impossible for the Des Moines, Iowa-headquartered company to get a true picture of its costs and printer use. “We had way too many small workgroup and personal printers, an extremely high printer-to-employee ratio, and service from our vendor was far below the standard we wanted,” Blessum explains. As a result, The Principal set out to identify and implement a comprehensive approach, and chose a managed print services solution to help it meet its needs. It started with a detailed usage assessment, combined with a plan to consolidate and optimize devices. Employees from each of the company’s business units were surveyed and consulted about their printer, copier and fax machine use, then Blessum, her team and the solution provider designed a plan to replace many of the older devices with MFPs that combine all those capabilities in a single, higher-speed device. “The printer consolidation was a culture shift ,” she explains. “Employees had become accustomed to a personal printer just for them. We explained that we were switching to shared MFPs that would provide greater capability and higher speeds.” Now employees have adjusted to the objective of streamlined print management through the use of higher capability MFPs nearby as a shared device, typically located within 30 feet of the employees they serve. “We found that everybody leverages the new devices and features they have now – things like scan-to-email, faxing and the greater power they have at the desktop,” Blessum says. Just three years into the contract, the company has already achieved real improvements: its printer-toemployee ratio was trimmed nearly in half, cost savings of some $1.3 million from printer optimization were realized, and paper- and energy-saving measures were implemented to provide both environmental and savings benefits. Meanwhile, the printer footprint itself was reduced by 38 percent. “Print service traditionally was not considered a critical service before, but that has changed,” says Blessum. “The MFPs are being used to help people automate their business processes, and they count on them heavily. We now have a comprehensive understanding of our cost of printing with MFPs across the enterprise, and we’ve taken significant steps to actively manage that cost.”
Simplifying IT But it is not just costs that MPS can help reduce; other companies are using it to help cut complexity in their operations. In common with other large, well-established enterprises, news and information powerhouse Reuters had gradually accumulated a large, mixed fleet of print-
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Analyst View “We are witnessing three fundamental shifts in how MPS is perceived by the market,” says Suchitra Narayan, Research Manager for IDC’s IT Services Research. “Firstly, MPS is entering the boardroom via managed services and is gaining the CXO’s attention. Secondly, it is no longer about services that you buy bundled with hardware; it is hardware that comes bundled as a services offering. Thirdly, with the shift to a services economy, there will also be an increased focus on channel-based MPS delivery. Channels will have to undergo a restructuring to ensure they build-out services capabilities and not just deliver and manage ‘boxes’. MPS continues to be driven by a need for organizations to re-focus their core competencies and outsource print-related services and solutions. The key to the success of MPS lies in its ability to act as a cost management solution and provide a predictable operational expenditure (OPEX) model for the end-user in an unpredictable market. “The cloud creates a perfect platform for the OPEX delivery model,” says Narayan. “MPS on the cloud will be a hassle-free solution for organizations, with a pay-per-use business model that delivers real-time analytics on print. It’s not just about ﬂuff in the cloud. It’s about dotting the i’s and crossing the t’s. The keys to success for such a model lie in ensuring that clear service level agreements are in place, there is a clear plan to reduce the business continuity risk and there is commitment from the vendor on delivery capabilities.”
ers, copiers, faxes and multifunction devices – most of which had been acquired by departments and individual workgroups on an as-needed basis, without following any clearly defi ned strategy. For IT Sourcing Manager Nigel Smith, this was an area ripe for overhaul. “We had accumulated a whole mismatch of equipment – different makes, different models, some of it owned, some of it leased and all of it spread throughout multiple offices at multiple sites,” he explains. “We didn’t have, and probably couldn’t have had, a properly effective central support strategy in place. Machines could take a long time to repair.” And support and maintenance were by no means the only issues. A steady fall in the cost of printer hardware – especially inkjets – had led to them becoming commodity items within reach of even the most modest office budgets. Th is resulted in a proliferation of low-cost and, in many cases, under-utilized devices with relatively high page costs. Conscious of the scale of the challenge, Smith turned to Xerox for help.
Only 10% of ofﬁce document hard costs can be attributed to document device and supply/service costs; the other 90% is IT infrastructure, IT support, procurement, vendor administration, scanning labor, storage labor, retrieval labor and distribution labor.
Again, the process began with a thorough assessment of the workforce, the equipment and how it was being used in order to establish a baseline from which to measure improvement. The results were stark: Xerox discovered that Reuters had accumulated a fleet of 1046 printers, copiers and multifunction devices, comprised of 242 different models from 27 suppliers. The research also revealed that the company was producing 16.5 million ‘impressions’ per year, equating to around 420 pages per head, per month. “The numbers were actually lower than I expected – better than the industry average for organizations of a similar size,” said Nigel. “But, still, it was clear that we were looking at an opportunity to make significant changes for the better.” In response, the managed print services solution the firm deployed encompassed the entire document output in order to provide Reuters a greater degree of insight into, and control over, its print environment. Inefficient, expensive devices were removed and an optimized fleet of appropriately located, best-for-purpose machines – which included existing equipment, where practicable – was created. An on-site helpdesk was introduced, and a specialist team was appointed to take care of service provision and the procurement of all consumables, paper and printers. A print room, to take care of large and specialized jobs, was also established. As well as the obvious gains in user satisfaction and productivity, the new managed service has delivered significant and substantial savings. Xerox has helped Reuters to reduce the total cost of ownership by as much as 19.2 percent per annum, which equates to $1.45 million over the life of the five-year contract. “We’re in good shape. Everything works, availability is at an all time high and everything is taken care of for us. What’s more, we have a clear understanding of exactly what we’re spending and saving and where,”sws says Smith.
ing and taking the time to review their document settings before printing. “My team did a study into historical print usages and found that 2.4 percent of all the print jobs are printed twice due to mistakes made the fi rst time printing,” he explains. “That does not include the page reduction of a job that a print preview can detect. If associates take the time to select the correct features the fi rst time and verify the print job looks good, the savings will add up.” In order to engage the workforce in the need to think more about print usage, Feathers suggests converting your managed print solutions into a green initiative, with the reduction of waste, CO2 emissions and energy reduction as your selling points. “Employees may care more about the environmental impact of their printing than the cost to your organization,” he says. “Environmental aspects have a broader appeal and an emotional likeability that may engage associates in a different way.” Develop documents that outline green printing tips and get that in front of your staff, says Feathers. “Get people thinking about how changes they make to their printing habits may have a positive influence on the environment, and applaud those already doing their part to make it happen.” Indeed, the continued popularity of print in the workplace highlights that fact despite the age of digital communication, the use of paper in the office environment is not set to disappear any time soon as it remains a versatile and powerful reference medium. Nevertheless there is tremendous scope to reduce print related waste, and adopting a managed print service is certainly a step in the right direction.
A cultural shift According to recent research from leading managed print industry analyst firm Photizo Group, the MPS market in general is experiencing astounding growth, having gone from $9.5 billion globally in 2006 to $20.3 billion in 2009. By 2013, the market will be $59.7 billion in revenues, which accounts for over 50 percent of the total distributed imaging business market. “Companies of all sizes can benefit from the tremendous MPS opportunity,” says Ed Crowley, CEO and Senior Partner of the Photizo Group. Certainly, technology is playing a huge role in driving the market forward. But, as indicated at the start of this article, without end-user awareness the future of MPS will be dire. “Focusing on optimizing the environment, ensuring best-in-class equipment and reducing the overall service disruptions can only take a business so far; without a well-informed and accountable associate population it may be a significant challenge to realize the full potential of MPS,” says Josh Feathers, Office Technology Engineer at Nationwide Insurance. He believes companies can realize significant savings by getting associates into the habit of carefully consider-
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Managed Print Services Xerox’s James Joyce outlines the key elements of a successful managed print services strategy.
What is managed print services (MPS)? James Joyce. Xerox spent decades defining what most businesses consider MPS today – we introduced the concept of managed output services, and as the program matured and gained greater acceptance it was re-named MPS. I prefer to refrain from an actual definition because a well-executed MPS strategy is in the mind of the customer – it’s one that drives value in several clearly defined and measurable areas based on the client’s key business objectives. For some, the main goal is cost savings. For others, it’s to secure paper and electronic documents, or move them more efficiently throughout the organization. And increasingly, there’s tremendous emphasis on using MPS to achieve environmental sustainability goals. It’s really all about creating a more effective and efficient printing environment via better document management. Recognizing the need for clients to redefine and expand MPS to include all elements of an organization’s print infrastructure, last year Xerox launched Enterprise Print Services, the first MPS offering to extend from the networked office to the in-house print center to the virtual worker. When defining MPS, customers should consider whether they are buying MPS or a business strategy for the corporation? How do end-users beneﬁt from implementing an MPS strategy?
JJ. Ultimately end-users enjoy the time they get back in their day thanks to the improved print infrastructure – availability of devices, improved work process and increased productivity. In fact, Xerox recently completed two Lean Six Sigma studies with Fortune 100 companies, measuring productivity pre- and post-MPS implementation, and found the average user is picking up 250 minutes per year from MPS alone. But change of any kind is hard to swallow in an organization, and end-user acceptance of an MPS strategy is critical to the success of the project. End-users need to understand and feel good about best practices. Xerox works with clients to take a strategic approach toward change management, focusing on how best to support the staff during the transition and moving forward in order to minimize disruptions. What should companies look for in an MPS provider? JJ. A well-executed MPS program can slash costs by up to 30 percent, increase productivity and improve environmental sustainability – but not all vendors have the ability to deliver on all three. Decision-makers should evaluate the following when selecting a supplier. Does the supplier monitor all devices, and proactively solve problems to avoid unnecessary downtime and keep employees productive? Will they help employees adapt to the new
“A well-executed MPS program can slash costs by up to 30 percent, increase productivity and improve environmental sustainability – but not all vendors have the ability to deliver on all three”
technology and work processes with change management programs? Is there a formal reporting process to show business objectives (cost, environmental sustainability, security and risk compliance) are being met? Do they support equipment from other vendors so clients don’t have to replace existing devices with the supplier’s brand? Is the offering limited to printers within corporate offices, or can it be extended to include in-house print center and virtual/home worker requirements? Is there a single point of contact and a consistent approach to MPS for businesses that span different geographies? Will they collaborate to understand the business and provide innovative ways for employees to work more effectively – beyond simply managing print? And can the MPS supplier provide quality references that demonstrate measurable and sustainable results? How is MPS gaining momentum? JJ. The economic climate raised the profi le for print/ document output as the last unmanaged frontier when it comes to optimizing IT infrastructure. It’s creating a tremendous market opportunity for vendors but it’s important for clients to understand that success in MPS comes from effective execution, not upfront promises. Companies with future plans for MPS should check references and portfolios carefully, and look for guaranteed, validated and clearly measured results. Xerox seems to be participating in the MPS space through a variety of strategies – from managing ofﬁce printer and copier ﬂeets to running centralized print rooms, and from serving customers directly to serving them through reseller partners. Can you explain this strategy? JJ. These and other MPS activities are part of Xerox’s overarching strategy to provide a holistic MPS continuum covering a customer’s entire print environment while matching the appropriate sales and delivery infrastructure with customer/deal economics in each market segment. To us, office print and centralized print are not different markets or strategies but rather different print environments to be managed. The core concept behind our Enterprise Print Services offer is to help our customers get more out of their entire print infrastructure, not just print in the office. In order to capitalize on the full MPS opportunity, Xerox’s strategy is to participate in all market segments from large global enterprises to small and mediumsized businesses (SMB). Based on the different needs of these customers, we engage them with two different approaches. The size of the customers/deal in the enterprise segment justify a direct sales and delivery model, while the SMB markets benefit from indirect delivery of MPS from our global network of channel partners. Th is is consistent with our direct versus channel model on the equipment side of the Xerox business. That said, we do leverage common core capabilities and strategy elements across the Xerox MPS continuum.
What are the challenges around an MPS implementation and how does Xerox help clients overcome these problems? JJ. By adding Enterprise Print Services to our marketleading portfolio, Xerox continues to address two of the traditional barriers to more advanced deployment of MPS (business process optimization and enhancement). The fi rst is the fragmented manner in which most large corporations purchase. For example, office print services are typically managed by real estate or procurement, while the IT organization often owns production print. Therefore, selling a comprehensive MPS offering requires close relationships with a corporation’s senior management to build the required coalition to close a deal and implement it. Few vendors possess such relationships. The second barrier to adoption is the customer’s willingness/ability to change business processes to take full advantage of optimization. Xerox has invested heavily in change management, delivering programs with the right formula for existing employee work habits, daily volume and organizational readiness, to help customers empower their workforce to embrace productivity and operational changes. And generally speaking, while MPS continues to be part of a client’s strategy to save money, companies want more. Our clients are eager to innovate and give their employees new ways to work efficiently – to win new business, to get products to market, to get invoices processed, and to communicate more effectively with customers. A properly implemented MPS strategy does that and more by creating a digital platform that integrates with their overall IT strategy.
As Xerox Senior Vice President, Jim Joyce is responsible for the global strategy, offering development, and operational execution for Xerox Enterprise Print Services. Joyce has over 28 years experience in information technology, serving in national and international roles. He joined Xerox in the late 1990s.
Now that you have announced Enterprise Print Services, which incorporates mobile workers and centralized print environments, can you tell us what’s next for Xerox’s MPS offerings? JJ. EPS promises to take MPS to the next level as a great match for companies who are looking ahead, focused on driving revenue now, and when the economy brightens. However, we’re not stopping at EPS. The next frontier for Xerox is to leverage our technology base to drive broader business process improvements for our customers. Xerox recently acquired Afﬁliated Computer Services (ACS). How has this changed Xerox’s services business? JJ. As a result of the ACS acquisition, Xerox’s services business has nearly tripled to $10 billion and clients now experience the benefits of document, business process and information technology outsourcing services all under one roof. Xerox is now a single provider for enterprises and governments to do the three things that matter most: reduce costs, improve processes and manage information more efficiently – on a global scale. Our combined companies focus on the information needs of the business process – the data, documents and transactional touch points, not solely the soft ware applications or IT infrastructures that other companies address.
green Business goes
Why a growing number of companies are putting sustainability at the heart of their business models.
rom building office facilities out of recycled materials to installing low-flow water faucets and investing in solar power, an increasing number of firms are embracing the green ethos in their daily operations – and not just out of a desire to save the planet. Many are realizing significant financial benefits, and claim that going green will eventually become the only feasible route as energy costs skyrocket and regulators – both federal and local – take a hard look at businesses’ environmental efforts. Wisconsin-headquartered retailer Kohl’s Department Stores is just one high-profile firm to jump on the carbon neutral bandwagon, having announced its intention to achieve net zero greenhouse gas emissions as part of its participation in the Environmental Protection Agency’s Climate Leader program. EPA Climate Leaders comprises a group of companies committed to reducing their impact on the environment by analyzing and reporting aggressive GHG reduction goals; Kohl’s, for instance, wants to achieve net zero status by the end of 2010. That goal accounts for emissions at all Kohl’s facilities, including stores, distribution centers and corporate offices, as well as emissions resulting from business travel. Kohl’s currently operates 1089 stores in 49 states, and if it is achieved, the company says it will be equivalent to removing more than 130,842 vehicles from the road for a year or offsetting the annual emissions from electricity used by more than 99,084 homes. “We recognize the importance of encouraging environmentally smart energy practices, and we aim to set a positive example in how we operate our buildings and run our business,” explains Ken Bonning, Kohl’s Executive Vice President of Store Planning and Logistics. Initiatives central to Kohl’s achievement of its net zero GHG goal include a continuation of five environmental strategies: maximizing energy efficiency, minimizing waste, improving new building design, reducing emissions and encouraging environmental values. In addition, the company is committed to using green power and renewable energy. Kohl’s ranks as the number one retailer on EPA’s list of Green Power Purchasers, and in 2009 purchased 851 million kilowatt-hours in renewable energy credits – enough to meet 71 percent of the company’s purchased
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electricity use. It plans to reach 100 percent green power by the end of this year. And not content with just purchasing green power, the company is also producing its own. It currently has solar panels at select stores and distribution centers in California, Wisconsin, Connecticut, New Jersey, Maryland, Oregon and Colorado, and last month reached a milestone in its solar program by activating solar panels at its 100th solar location in Mays Landing, New Jersey, and announcing plans to expand the solar program into Pennsylvania. Kohl’s began construction of its solar arrays on the rooftops of seven Pennsylvania stores in August, which is expected to be completed by March 2011. The eight locations combined are expected to generate more than 2.3 megawatts of power annually. On average, the 1400 panels per location will supply nearly half of each store’s energy, preventing the emissions of more than nine million pounds of carbon dioxide over 20 years. “Solar is an integral component of our environmental efforts and contributes toward our goal of being carbon neutral by the end of this year,” says Bonning. The use of central energy management systems has also significantly reduced emissions at Kohl’s facilities. Since 2008, all Kohl’s locations have been operated by a system that controls most interior and exterior lighting, as well as heating and cooling systems. In the first year alone, the company reduced its greenhouse gas emissions by 12 percent – even while adding more than one million square feet of retail space through new and existing store expansion. And the initiative has also had an additional benefit: that of generating considerable cost savings. Kohl’s estimates that energy management programs have helped prevent nearly $50 million in electricity costs, and over the past four years have improved the company’s energy efficiency by more than 20 percent, primarily in stores. Indeed, energy efficiency initiatives such as replacing 75-watt incandescent bulbs with 24-watt metal halide bulbs, implementing building automation systems and better controlling variable speed fans on commercial rooftop HVAC units have all helped the retailer achieve ENERGY STAR ratings for 500 of its stores – the latest being its Menomonee
“We aim to set a positive example in how we operate our buildings and run our business” Ken Bonning, EVP, Kohl’s
Falls location in Wisconsin, announced in July. Commercial buildings that earn the ENERGY STAR label rate in the top 25 percent of facilities in the nation for energy efficiency and performance, use an average of 35 percent less energy than typical buildings and release 35 percent less carbon dioxide. “Reaching the milestone of our 500th ENERGY STAR store is exciting for our company and our associates. We are building on our commitment to drive energy efficiency companywide as we continue to near our goal of being carbon neutral,” says Bonning. In addition, he explains that as of spring 2011, all newly constructed stores will pursue Designed to Earn the ENERGY STAR designation, which is awarded for building designs with an estimated energy performance that meets ENERGY STAR criteria. Designed to Earn the ENERGY STAR-designated buildings will be eligible for the ENERGY STAR after maintaining superior performance – rating 75 percent or better on a scale of 100 – for one year in operation. Five Kohl’s stores in 2010 have already received the designation. “Energy management is an ongoing effort, and the ‘Designed to Earn’ designation for newly constructed stores will help us continue to achieve the high environmental standards we have in place for our facilities,” says Bonning. “Our 100 solar locations, commitment to build 73 LEED-certified locations and 500 ENERGY STAR stores demonstrate our ongoing commitment to sustainability with meaningful results.” And as technologies improve to help retailers build ecofriendly stores and products, many will find it’s going to be economically inefficient not to be green.
Global Green Leaders Carbon management is becoming a strategic business priority and competitive driver for the largest global companies, despite the lack of global agreement on climate change, according to the ﬁndings of the 2010 Global 500 report and leadership index released recently by the Carbon Disclosure Project (CDP) last month. Amidst global regulatory uncertainty, nine out of 10 companies surveyed identiﬁed signiﬁcant commercial opportunity arising from climate change, with nearly half (48 percent) of Global 500 companies now embedding climate change initiatives into the overall business strategy and across the organization. Meanwhile, over 85 percent of companies report having board or senior executive level responsibility for climate change. However, despite the signiﬁcant increase of boardroom and executive-level engagement – and 65 percent of Global 500 respondents implementing emissions reduction targets – still only 19 percent of the Global 500 companies are showing signiﬁcant
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emissions reductions. This highlights the disparity between incorporating climate change strategy across the business and actually seeing concrete cuts in emissions for many businesses. The top ﬁve Global 500 leaders for 2010 were Siemens, Deutsche Post, BASF, Bayer and Samsung Electronics. These companies are in the new Carbon Performance Leadership Index (CPLI) and scored highest (95 or above out of 100) in the Carbon Disclosure Leadership Index (CDLI). Interestingly, the top ﬁve contains no American companies, and North America lags Europe signiﬁcantly in disclosure and performance: 21 percent of European respondents are in the CPLI, compared to just six percent of North American respondents. The global report shows two main areas of focus for action: the energy efﬁciency of operations, likely encouraged by cost savings potential; and the development of innovative products and services that enable customers to cut their emissions. “Fuelled by opportunities to reduce energy costs, secure energy supply, protect the business from climate change risk and reputational damage, generate revenue and remain competitive, carbon management continues to rise as a strategic priority for many businesses,” says Paul Dickinson, Executive Chairman of CDP. “Companies globally are seizing commercial carbon opportunities, often acting ahead of any policy requirements. More companies than ever before are reporting through CDP and measuring and reporting their emissions which is the ﬁrst building block in working towards a low-carbon economy.”
RetroďŹ tting a 20th century icon for 21st century needs is a huge challenge. Business Management takes a look inside the Empire State Building to see how New Yorkâ€™s most famous high-rise is going green.
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n fi lm, itâ€™s been scaled by a giant ape, vaporized by invading aliens and, most terrifying of all, witnessed a romantic clinch between Meg Ryan and Tom Hanks; in reality, it was the tallest structure in the world for over 40 years and is an unmistakable feature of New York Cityâ€™s skyline. The Empire State Building is a true American icon: completed in 1931, it is still the third tallest building in the US and the 15th tallest in the world, a continuing reminder of the nationâ€™s towering ambition and ingenuity. Nonetheless, building construction has moved on significantly in the last 80 years or so. A new generation of skyscrapers is springing up in cities across the globe, employing cutting-edge techniques and technologies to make them more ecologically friendly and sustainable than their predecessors. But as befits a building of its loft y status, the ESB is strongly resisting the slide into obsolescence. The former king of the 20th century is currently cementing its po-
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sition in the 21st with a massive $13.2 million retrofit program that will cut energy consumption by 38 percent and reaffi rm its position as one of New York City’s prime pieces of real estate. A groundbreaking collaboration between the building’s owner Malkin Holdings, the Rocky Mountain Institute, Jones Lang LaSalle, the Clinton Climate Initiative and Johnson Controls is transforming the venerable property from the inside out. In short, one of the world’s most recognizable buildings is now becoming one of its most efficient. For Tony Malkin, President of Malkin Holdings, the decision to pursue energy efficiency was a natural consequence of a major initiative called the Empire State Rebuilding Program. “We were spending a tremendous amount of money on the building in any event; there was going to be no alternative to that,” he says from his office in New York. “So we thought, why not design our renovation and upgrade program with energy efficiency in mind? Our payback period is very short. The lasting competitive advantage that we create for our tenants and the way we compete in the marketplace is very real. Ultimately, it was a question of not, ‘Why should we?’ but ‘Why should we not?’ and we could come up with no reason not to.” In this age of increased eco-consciousness, it is not that unusual for building owners to want to make their properties more efficient. What sets the ESB refit apart is the manner in which it was approached. Rather than looking at the project as a one-off job, it was viewed from the outset as an opportunity to create predictable and repeatable processes that can be applied time and again. “The entire idea behind our work was that it should be replicable,” Malkin continues. “If we did it only at the Empire State Building, it would be a failure. The significant commitment of the team members came from the conclusion that if we set up something which was open-source, free and easily repeated it could really have an impact.” That this project was undertaken on a property like the Empire State Building is also significant. “When we originally started work with the Clinton Climate Initiative on this, I had suggested that we work with another building we were renovating called 1333 Broadway,” Malkin explains. “However the CCI were very insistent on working with the Empire State Building, in spite of its vast complexity of systems and operations. They felt that if we did it at the Empire State Building, we’d get the attention of the world.”
Unique challenge The bigger the challenge, the bigger the potential rewards. However, a retrofit on this scale with so many different aspects was unprecedented. Getting it right would require some specialized expertise. “We had an interesting role because in essence the owner needed support to help rethink the design ideas in order to emphasize the energy efficiency of the delivered product,” says Robert Hutchinson, Program Director for Research and Consulting at the Rocky Mountain Institute. “We focused on a long list of energy-relevant pieces of the project and
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“THE CCI WERE VERY INSISTENT ON WORKING WITH THE EMPIRE STATE BUILDING, IN SPITE OF ITS VAST COMPLEXITY OF SYSTEMS AND OPERATIONS” ended up working with the project team to reframe what was done and what wasn’t done, actually adding a bunch of things that were not in the original list.” This list originally ran to hundreds of items, many of which had zero impact on energy efficiency. These were swiftly discarded, with the remaining options being closely examined in order to decide which ones to keep and which to drop. The key consideration was how each element would interact with others in the precise environment in which they were being deployed. “We call it integrated design,” Hutchinson explains. “Of course not everything affects everything else, but you have to get a pretty decent handle on how things work within the context of a particular building, taking into account things like the weather and the usage. So we ended up with eight out of all those hundreds of options that had a net positive effect – meaning that if you didn’t do one of those eight it would make the other seven less valuable.” Th is holistic approach led to a process that could be accurately quantified on both an environmental and economic level. “We have the ability to model the expenditure required for any variety of aspects of the program and to model the payback alone and in combination,” says Malkin. “The biggest thing that we’re doing compared to what other people have done historically is that we are approaching it from a quantitative rather than a qualitative perspective. We’ve established a system that allows economic modeling, so we’ve been able to show the return on investment.” In practice, this means that those behind the renovation can confidently predict annual savings of $4.4 million, paying back the retrofit costs in full in less than four years. Environmental and sustainability concerns aside, it’s this kind of data that is likely to be the clincher for many building owners considering sustainability retrofits. “Every company of any size and value recognizes the importance of minimizing their carbon footprint, minimizing their cost,” Malkin confi rms. “It’s not just a carbon thing. It’s also the fact that they’re looking for maximum return on their investments and minimizing their costs of occupancy in general. The neat thing about what we’re doing is that it’s not really built around carbon, it’s built around saving energy and therefore money. The carbon comes along for free. Th is is not an additional expense, it’s an investment, where once you conclude your payback, it’s perennial savings. It’s money in your pocket.” The retrofit has also resulted in some indirect benefits. Before the work, the building was, in Hutchinson’s words, “a perfectly nice building but arguably not the one
BREAK IT UP The component parts of the Empire State Building reﬁt Radiative Barriers Insulation behind more than 6500 radiators keeps heat inside the building, almost half of which was being lost prior to renovation. Annual savings: 480 tons CO2 $190K
Remanufactured Windows Existing windows are re-engineered on site. Thin ﬁlm and gas are inserted between the panes cutting down on heat loss and gains. Annual savings: 1150 tons CO2 $410K
Lighting And Power Outlets Maximizing daylight, installing more efﬁcient lights and controls and providing load energy use monitors on power outlets signiﬁcantly reduces energy needs. Annual savings: 2060 tons CO2 $941K
Air Handling Units Replacing more than 300 air handling units with a smaller number of new, more efﬁcient units. Annual savings: 1520 tons CO2 $703K
Chiller Plant Retroﬁt Replacing components on existing chiller plants, making them more efﬁcient and controllable. Annual savings: 1430 tons CO2 $676K
Demand Control Ventilation Uses measured CO2 concentration to determine the appropriate amount of air to bring into the building. Annual savings: 300 tons CO2 $117K
Direct Digital Controls Upgrading existing building controls and installing new ones helps to optimize HVAC system operation and provide more detailed sub-metering of energy use. Annual savings: 1900 tons CO2 $741K
Tenant Energy Management Engages tenants in the building’s sustainability efforts to realize energy savings over the next several years. Annual savings: 743 tons CO2 $387K
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that top door fi rms wanted to be in”. The upgrade has made it much more attractive to high-profi le fi rms keen to be associated with such a forward-looking project, resulting in the potential for the owners to receive higher rents as tenants change over. “We’re never going to claim that an energy oriented intervention alone will do that for a building,” cautions Hutchinson, “but if we consider that most of the buildings we have now are going to be around for a long time, this sort of sustainability repositioning is immensely valuable for the real estate world to learn how to do because it makes all the difference.”
Good for tenants Tenants in retrofitted buildings have not been left out of the benefit equation, as Malkin points out. “What typically happens when a building is built is you take a look at all the systems and make sure they are properly commissioned, that they’re running correctly, that all the air distribution is balanced, that sort of thing. It’s a bit like roasting a turkey, you set it and forget it. But uses change, and motors don’t function the same way over time, and things fall out of balance. “With the ESB project, the entire network is tied together: every fan has a variable-frequency drive. Every motor has a variable-frequency drive; every radiator is
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tied in to a digital control; so it’s all linked to one master control system. Th is means that whenever one of those units malfunctions, it’s immediately picked up by the system, which gives you actual, real-time, 24/7 commissioning. You’re not in a position of having to recommission your building manually every year because it’s done automatically.” Tenants, particularly the larger ones, are increasingly recognizing that their three biggest expenses are salary, rent and utilities. And the cost of utilities is one of the biggest variables, because the cost of energy varies so much, so a system that gives them more control is a major plus. The ESB project contains a suite of tenant measures to be taken in steps, and Malkin says there is a general agreement with tenants that if the owners can show them that
“YOU CAN PUT SENSORS IN AND WIRELESS COMMUNICATION FROM THAT SENSOR AT A FRACTION OF THE COST THAT IT USED TO REQUIRE” any energy efficiency investments they can make as they’re building out their spaces will give them a five-year payback or less, they will put that work into their build-outs. “Almost every single tenant is taking us up on that,” Malkin says proudly. “We’ve done some very major installations that way. We’re reducing our energy consumption per square foot, including air conditioning, to down around three-watt range. We have tenants fully installed, where their electric, including lights, air conditioning and computers, are all around the three-watt-per-square-foot range, which is shocking because the typical industry standard when concluding a lease is to demand six to eight watts.” There are wider implications than just savings – or increased earnings – for building owners and for tenants. Concerns about America’s ability to keep the lights on have grown increasingly prominent in recent years. A growing population demands the power to fuel its 21st century lifestyle. Without new sources of energy, capacity will struggle to match this demand, resulting in more expensive, less reliable supplies. Building new power generation facilities is a slow and costly business, and doesn’t really address the issue of carbon emissions. By viewing energy efficiency almost as a power source in its own right, the rewards can be tremendous. “The math goes like this,” Malkin explains. “In New York City, 80 percent of the energy used is consumed by buildings. The Mayor’s Office of Long-Term Planning has determined that 20 percent of the buildings in New York City consume 80 percent of that 80 percent. In other words, 64 percent of all energy consumed in New York City is consumed by 20 percent of the buildings. Our energy savings, in watts and BTUs, come to approximately 40 percent. Therefore, if you were to have the 20 percent of the buildings that consume 64 percent of the energy deploy our system, you would reduce total energy consumption in New York City by 25 percent.” Put another way, an energy saving of that size would be the equivalent of dropping a carbon-free alternative generation facility into the heart of New York, a facility capable of providing a quarter of the city’s energy needs. It creates huge additional capacity without the need for new power stations or transmission lines, freeing up resources that can in turn enable quicker economic growth.
Knowledge needed Given the obvious benefits for both businesses and the environment, why aren’t these kinds of retrofits happening
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everywhere? In part it is due to a lack of knowledge and expertise in the market. “There’s still a fairly significant element of learning by doing,” says Hutchinson. “You have those projects where you have to mix the newbies in with folks that have done it a few times so that they learn and can go off and do it themselves. You have to feed the pipeline that way. “The US government has made some, very serious commitments in terms of building efficiency, so they’re a very obvious market for people to try these new skills. Our friends in Washington tell us that a lot of people are coming to them and saying they can do these kinds of projects, but on the other hand it’s still pretty hard to fi nd a building they’ve actually done this way. There are a lot of people hoping to practice these techniques and frankly we’re all for it. The guys in Washington call up and say, ‘These people are sounding like they’re as good as you are.’ We say, ‘Great. That’s the point.’” Another potential roadblock can be the sheer logistics of getting the work done. Th is becomes particularly clear when Malkin describes the ESB window re-fit. “No one has ever done anything like it before,” he underlines. “We have set up a facility in the building, and we’re taking the windows, splitting them apart, installing a Mylar sheet in the middle with a spacer, resealing them, and fi lling them with krypton-argon gas. We’re reusing 96 percent of the glass and the window frames. “We are taking every single one of the building’s 6514 windows and taking them from an R2 rating to an R8 rating. That will cost $4.5 million. To get the equivalent benefits would have cost something more in the range of $3300 a window if we did them new. They’re being done in the building, not transported off-site, with 96 percent reuse – so my point is that this is all about the economic argument. And hopefully it will result in a lot of people mimicking it, because it is about the replicability.” The good news for would-be ‘replicators’ is that technology is developing at lightning speed, and as the technology gets more sophisticated, doing large-scale retrofits on older buildings can only get easier. “Control systems are getting better and the proprietary systems that have been place for years are starting to develop cracks, which means that things become much cheaper,” says Hutchinson. “You can put sensors in and wireless communication from that sensor at a fraction of the cost that it used to require.” He points out that lighting technology has developed significantly, along with the understanding of the conditions required for human comfort and appropriate lighting levels. Computers and high-tech equipment, which are a major source of energy use in office buildings, are also much more efficient then they were five years ago, capable of giving the same performance at one-third of the energy use of previous models. Indeed, if things go to plan, the Empire State Building’s celluloid fame could soon be eclipsed by its renown as a leader in environmental conversions. Which can only be a good thing for building owners, tenants and the environment as a whole.
ASK THE EXPERT
Non-stop business Rob McKernan looks at how to reduce total cost of ownership for data center infrastructures.
t’s difficult to envisage any business that could function effectively without IT in this day and age. In fact, anecdotal evidence suggests that even when businesses are failing or unprofitable, they continue to invest in information technology. In recent years this increasing dependency has been fuelled by great leaps forward in technology and a buyers’ market. Today, most would agree that the best place to house new generations of compact and powerful IT servers is in dedicated computer rooms and data centers. Irrespective of whether you choose to build your own facilities, outsource your IT infrastructure or elect to have your IT supplied as a service, a key objective will be to ensure continuity of services. Until recently, IT availability has been pursued at almost any cost, with highly resilient infrastructure designs the order of the day to ensure power and cooling for IT irrespective of the mains power supply condition. But escalating energy costs coupled with concerns about the environmental impact of increasing numbers of data centers has stimulated action from the Environmental Protection Agency in the form of Energy Star Data Center Efficiency Initiatives. As a result, the consultants responsible for data center design and build and the manufacturers that supply the equipment to power and cool these facilities have started to give primacy to the need to ensure energy efficiency. Th is has led to a number of changes in the uninterruptible power supply (UPS), the piece of equipment that protects IT equipment against the loss of the mains supply. In the first instance, designers have sought to more closely size the UPS more exactly to the load being protected. Over-sizing of the UPS not only has consequences for capital costs, but also drives up operating expenses such as energy and service costs. The introduction of scalable data center physical infrastructure is therefore a key enabling technology for reduced total cost of ownership. By taking a building block approach to UPS protection, modular architecture enables additional power modules and battery cabinets to be deployed as a ‘pay-as-you-grow’ solution for growing IT estates. The system can be scaled back too: virtualization enables organizations to reduce the number of physical servers it requires to run many of the applications required for day-to-day activities. Scaling down physical infrastructure also affords the opportunity to maximize potential
energy savings and therefore reduce cost and environmental impact. At the same time, modularity brings benefits by enabling service parts to be kept onsite and by reducing the complexity of maintenance. Mean time-to-repair (MTTR) together with mean time-between-failure (MTBF) are the measures of availability. By making important components such as power modules user-replaceable, time-to-repair can be decreased thereby improving the availability of the power protection plant. A major cause of UPS failures is as a result of service visits and simplifying maintenance routines plays an important part in reducing this hazard. The data center sector is in the process of adopting the power usage effectiveness (PUE) metric as a gauge of electrical efficiency. The measure is based on the proportion of facility energy that is used to power the IT equipment hosted in the data center. Ensuring that electrical infrastructure is scaled according to IT requirements is key to achieving lowered PUE, evidence of a well-managed data center. The introduction of UPS that are both high efficiency and that achieve high levels of efficiency at low IT load conditions can be an aid to improving PUE by increasing the amount of energy available for powering IT. High efficiency UPS can also provide some overhead for growth without the user being penalized through heavy operating costs. UPS vendors are taking a technological approach to solve the problems caused by the proliferation of technology. Current generation UPS provide a range of topologies to ensure availability and while the static UPS remains the staple for modern data center designs, the benefits of modularity, scalability and serviceability are helping ensure the fitness of the facilities that are at the heart of today’s IT services.
Rob McKernan is President of the Americas at APC by Schneider Electric. McKernan is responsible for ensuring the Americas region remains focused on its customers and its partners by developing customer oriented processes, driving the delivery of innovative, energy efﬁcient solutions in the data center, and developing successful relationships.
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EVENTS T-Mobile’s !Creation Center
Grand designs Baths full of foam blocks, fireman’s poles, fairground horses: welcome to the workspace of the future. By Rebecca Goozee
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For most of us, ofﬁce space is drab, uninspiring and – nine times out of 10 – pretty beige. For a lucky few, there is another way. An increasing number of ﬁrms are embracing a range of new, creative approaches to workplace design – with fascinating results.
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As with so many other things, Google is, of course, at the forefront of providing a thoroughly fun environment. Although productivity and innovation are the order of the day, there is also room for repurposed ski gondolas and standalone yurts, endless swimming pools and baths full of foam blocks, as well as time-saving solutions like scooters, slides and ﬁre poles. But the Mountain View-based technology giant isn’t the only company getting in on the act. Organizations around the world are jumping on the alternative workspace bandwagon. In Portland, Oregon, for example, the Nike headquarters is set on 192 acres of lush greenery that includes 17 buildings of just over two million square feet, two Olympic-standard sports centers, a six-acre lake and natural wetlands. Nike’s college-style campus was deliberately designed to provide an informal, open community feel. Likewise, the Oakley headquarters in Foothill Ranch, California, has fully embraced the brand’s bold personality. Perched on a hill, the sunglasses manufacturer is housed in what looks like a post-apocalyptic bunker from an alien planet. The towering fortress is complete with a torpedo, tank and B52 bomber ejection seats. While the place isn’t for everyone, it certainly works as a high-tech, creative location for superior experimentation and supreme manufacturing.
Procter & Gamble Essential kit for Clay Street A. Open shelves display see-through bins full of supplies B. An abundance of Post-Its, tape, modeling clay, colorful pens and other essential creation kit C. Furniture cast on wheels provides ﬂexibility for each group D. Curtains act as partitions allowing teams to change their ‘set’ as necessary E. A planet gong aurually punctuates gatherings and sets tone for sessions F. Rugs are used to create visual boundaries for meeting areas
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Urban Outﬁtters, Bloomberg, T-Mobile USA, DreamWorks Animation, Hasbro: all are getting in on the act as ofﬁce design becomes increasingly recognized as a vital element of a successful, productive and enjoyable working environment. And rightly so. Workspace can have a tremendous impact on employees and is critical in ensuring success in today’s business world. Increased competition, globalization and the economic climate are all driving changes in the way work is managed and completed. It is becoming more complex, more collaborative and certainly more time-pressured and technologically intensive. And in line with this, the workspace is seeing more demands placed upon it; we are looking to the work environment to foster culture and to positively affect employees. Indeed, there is logic in the changing nature of work leading to a stimulating work environment, and as such the work environment is a fundamentally social place that can nurture togetherness and build a brand. This, in turn, can attract, retain and engage the best employees. And bingo: there’s your answer to why ofﬁce space has become such an important business strategy. Kursty Groves, who was working as an innovation consultant when she took a sabbatical and began trawling the most creative ofﬁce spaces in the world, agrees. “I’d be working with clients and helping improve their internal processes, their skills, their tool kits around creativity and innovation, and they’d get so inspired – before heading back to these dull, uninspiring ofﬁces. I thought, ‘this is happening time and time again, and yet there must be some companies out there doing a really great job at using space to sustain and inspire people’.” On the back of this epiphany, Groves began compiling a list of the most creative spaces before going to visit them. She asked herself two questions: are they innovative in their ﬁeld, and do they use their environment to help them express their company values or help them get more innovative products to market? “If the answer was yes, then I paid a visit.” And it’s not all about beanbags and massages. Groves explains that one of the best things she saw was at DreamWorks Animation, where the company used landscaping in between buildings to slow people down. “People would get really caught up in their own world and just wanted to get quickly from one place to another. But a meandering path made people take a breath of fresh air and slow down. It was the Art Director for How To Train Your Dragon that said, ‘It’s in those moments when you slow down that actually the problems you’ve been banging your head against a brick wall about start to ﬂoat to the surface. These moments can be really powerful.’” Groves claims that anything designed into the daily paths that people tread to make them stop, slow down and think is incredibly powerful. Indeed, using spaces to ensure people connect with each other on a level outside of formal meetings is a great way to share thoughts and ideas on-the-ﬂy and allow for much more positive and productive interactions. Groves
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describes how Aardman, the Academy-award winning animation studio based in Bristol, UK, has created spaces that allow people to do just that. “Just by having extra wide staircases they encourage people to actually stop and have a chat. And better still, they also designed little booths as junctions between stairways and walkways so that if you bump into somebody and the conversation grows, you can sit down and continue your conversation. It’s a really clever way of getting people to connect in a much more informal way.” Over in China, Ogilvy and Mather has long had an enviable reputation for its workspaces, with the ﬁrm’s Beijing ofﬁce awarded Ofﬁce of the Year by Media magazine in 2006. Last year the company went about revitalizing its image in southern China with its Guangzhou ofﬁce project, which aimed to grow and nurture creativity in its employees in the region. Shenan Chuang, CEO of Ogilvy and Mather Greater China, was largely credited with the ofﬁce’s success. With the core business all about sharing ideas and creativity, Chuang believed it was important to express commitment to innovation through a creative, yet professional ofﬁce space. With this in mind the company designed the ofﬁce with a “Carnival of Ideas” theme. Bright gold features predominantly within the vibrant color scheme and the design incorporates a variety of textures like velvet, wood and marble. “We installed merry-go-round style wooden horses, colorful ﬂuorescent lights and lots of mirrors,” says Chuang. “Even the meeting rooms are themed. We wanted the space to be efﬁcient, so there are surprises through the ofﬁce like lounge areas where you don’t expect them – complete with fun chairs that rock back and forth – or a sitting area that can be converted into a movie theater. These features bring a bit of whimsy and delight to the day-to-day activities of the ofﬁce.” Chuang goes on to explain that with people spending so many hours a day in the ofﬁce she wants it to be as comfortable as possible, with large open spaces ﬁlled with light and places to relax. “One of my proudest achievements at Ogilvy is establishing a dedicated art gallery space,” she says. “Located in the reception area of our Beijing ofﬁce is the O Gallery. The idea is to display the works of young and emerging Chinese artists, who don’t have a gallery to support them. Putting art to the fore helps project a funky and modern image to clients and also helps us to attract talent.” Tracy Brower, consultant to furniture design company Herman Miller, believes that work environments can certainly help drive certain behaviors, such as learning, collaboration and creativity. “It’s really about making a destination that can inspire and motivate, ensuring culture and promoting the brand,” she says before going on to explain the beneﬁts of ofﬁce design itself. “The physical environment sends important cues to employees, and the degree of openness in the environment can send messages about the degree to which collaboration is an expected behavior, or the amount of personalization
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Google is at the forefront of providing a thoroughly fun environment
Ogilvy and Mather’s Beijing ofﬁce was awarded Ofﬁce of the Year by Media magazine
that is available to people regarding what’s valued in the organization. Even the location of leadership can send a message, says Brower. “Are leaders co-located with their teams or are they separate? The amenities can send messages about the degree to which people are valued and what kinds of things are reinforced in the culture. Even the amount of windows or daylight can speak volumes about the importance of sustainability and the connection to the environment.” Pamela Meyer, author of From Workplace to Playspace, sees a direct link between the environment and a sense of engagement, productivity and participation. She believes that it sends a message of alignment throughout the company. “A big reason organizations can experience a drop in morale is when they see people saying one thing, but doing another. And that disconnect starts to just shut people down. But it also literally provides more space for collaboration, for unexpected connection, for reﬂection and stimulation. So when the workplace design, as well as the interpersonal approach, the culture and the climate of the organization support this kind of engagement, we really see a signiﬁcant difference in the organization day to day.” Meyer believes that “playspace”, is key to a thriving and sustainable, high-engagement workplace. She says that while many, if not of all, of us are socialized to understand that work and play are incompatible – that we should ﬁnd work hard and stressful and associate play with fun and freedom – it is imperative the we unlearn this association. “What I’ve seen in my own research is that organizations that are thriving have transcended this work/play dualism and so
their workforces are simultaneously productive and energizing,” she says. “They’re focused and fun, they’re innovative and also proﬁtable. I write about play space as space for the play of new ideas and possibilities, something that organizations are paying a lot of lip service to, but aren’t necessarily doing.” She feels that the biggest challenge is creating a balance between creativity and constraint, and claims that her work is centered on helping people understand where they can play. “People tend to use constraints as excuses to avoid being more creative or playful. In fact, we need to understand what those barriers are and then we can always ﬁnd some place to play within that and create more freedom. There is then a possibility for new things to emerge, which makes a signiﬁcant difference to the level of engagement people experience in the workplace.” So if the workplace environment can be used as an extra management tool to help sustain and inspire the workforce, what are the key things to consider before designing a new workspace for employees? First, advises Brower, look at the organization’s vision for the future. Second, the company’s strategy and business goals should always play a role in the physical environment, so ensure this is the case. Third, look at the mix of individual, team and organizational needs and balance those. “Give thought to the culture today, the culture you want and how you move from one to the other, using the physical work environment as a lever to get there,” says Brower. With new generations calling the shots in the workspace alongside some interesting trends in
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The Lego Group All white, devoid of any color, the Innovation Room is a blank canvas for stimulus and ideas A. Lightweight tables and chairs B. Flipcharts on wheels C. Low-level casual seating D. Semi-translucent partician screens suspended from the celing track
technology, there is no doubt that the working environment can and will adapt to its users. Groves predicts that as the number of people working from home rises along with people working on the move, employees will be looking to a sense of place and space with an in-built structure and other people around them. “I guess there will be gravity towards a place,” she concludes. “When it comes to organizations who have a brand or provide a service or product there will always be the need for a physical place for people to work together. It might be that simply the type of work people do when they’re together might change. Collaborative work will take place in the traditional ofﬁce space, whereas people can retreat to smaller and more secluded places to carry out more mundane tasks.” While it ultimately depends on the make-up of the functions that people have as to where they are going to work and the space they are looking to do that in, there will certainly be some interesting spaces emerging in the next decade. In the meantime, keep your eyes peeled for those beanbags.
Learning from the Ryder Cup LEADERSHIP
Leading sales expert Andy Preston explains the lessons that we all can take from Europe’s victory against the USA in this year’s Ryder Cup.
SALES LESSON NUMBER 1: Up your game
After watching Europe’s victory against the USA in the Ryder Cup last month, I was aware of how many ‘sales lessons’ could be gained from the result. Here are the biggest ones, and how they relate to your sales and those of your team…
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There’s a big lessons here for salespeople and managers alike. Before his foursomes game against Tiger Woods and Steve Stricker, Lee Westwood was quoted as saying that when you’re up against the No 1 in the world, you need to up your game. And that’s a huge lesson for sales. When you’re going for a big deal, when you’re up against strong competition, when you know you’re not going to have it all your own way, you need to up your ‘sales game’. That means you have to be better at planning, preparation and research into the client. Better at questioning. Better at uncovering their true needs. Better at drawing out their objections and concerns – and handling them. And of course, better at gaining commitment and closing the deal. And you can trust Lee Westwood to know what it takes: he’s beaten Tiger Woods in six of their last seven matches together.
SALES LESSON NUMBER 2: Get other people involved
SALES LESSON NUMBER 4: Get inspired
This is not just a lesson from this year’s Ryder Cup, but from the last one as well. Last time around in the US, European Captain Nick Faldo tried to do it with a small support team, taking most of the pressure on his own shoulders. This time around, however, European Captain Colin Montgomerie had a number of vice captains, and seemed to be appointing more vice captains by the day as ex-players kept turning up – at one stage it looked as though Europe were going to have a vice captain for every match out on the course! Montgomerie was clever. He surrounded his team (many of whom were rookies) with experienced professionals, people who knew what it took to win tense, close-run Ryder Cup matches (as they had done it themselves). People who could motivate and inspire his players on his behalf. The lesson here for sales is that you don’t have to do everything on your own. You’ll have people around you – other salespeople, your sales manager, other colleagues – who can help and give ideas on deals you’re currently working on. Or perhaps you’ve even got a sales coach or mentor that can help inspire you. Sales can be a lonely and difﬁcult occupation when things aren’t going well – so that can often be the best time to ask for help from those around you.
Inspiration is a much undervalued part of sales. Inspiration can be the thing that makes the difference between a salesperson winning or losing a deal. It can be the difference between a company being invited in to tender or not. And it can be the difference between you and your team hitting their targets or not. Yet often inspiration is taken for granted or overlooked – both by salespeople themselves and by their managers. When it’s not there however, it’s noticeable by its absence – in the tonality, body language and sales ﬁgures of the salespeople involved. There’s no better example of the difference inspiration can make than Ian Poulter at this year’s Ryder Cup. A lot of people would say that Ian is a good golfer, but he’s never really gone on to fulﬁll his potential. Yet it’s obvious to everyone watching that Poulter is inspired by the Ryder Cup. The effect that has is that he feels more conﬁdent, more determined and resolves to play to his ultimate best – all of which are great attributes for sales, wouldn’t you say? For the record, Poulter has now won seven of his last nine Ryder Cup matches, and every single one of his singles matches; just think what a difference inspiration could make to you and your sales team.
SALES LESSON NUMBER 3: The ‘little things’ count In golf, like in sales, the little things can count for a lot. In a close game where Europe won 14.5 to the USA’s 13.5, every hole that was ‘saved’, every birdie and every close hole that was won, all counted. You could even go back to individual matches – in particular the Molinaris against Cink and Kucher. Francesco Molinari hadn’t made a putt all day (missing some very ‘makeable’ ones), yet when it mattered on the 18th green, he made the one that counted, securing half a point for Europe when they looked like losing that match for most of the round. That half-point instead of a loss meant that Europe won the trophy, rather than the USA retaining it. You can point at plenty of ‘little things’ that made the difference in the Ryder Cup – just like you can point to plenty of little things that make the difference in sales. Often, it’s the little things that the salesperson does (or doesn’t do) that make the difference. Sometimes it can even be simple things like arriving on time for an appointment, sending information when you promised, preparing useful items for a meeting, or doing some research on the prospect. There are plenty of things that some salespeople dismiss as unimportant. Make sure you don’t make that same mistake.
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SALES LESSON NUMBER 5: Deal with the pressure Pressure is part of sales, just like it’s part of golf – or any professional sport for that matter. The individual’s reaction to pressure, however, is often what makes the difference. So how do you and your team react when the pressure is on? When you’re invited in to present to a board of directors up against ﬁve other companies, how do you feel? When you’re going in for your second meeting with the prospect and you know they’re going to base their decision on your meeting, will this meeting really be the best it can be? If this is going to be the biggest deal your company has ever won, does that make you more nervous, or anxious to make sure you win it (rather than lose it)? When Europe’s Graeme McDowell faced up to a 15-foot putt on the 16th green, he’d just lost the 15th hole and knew that the team, the fans and most of Europe was counting on him to win – for if he lost or drew, the USA would retain the Ryder Cup after a magniﬁcent ﬁghtback. No small amount of pressure there then! Yet McDowell was calm enough to hole that 15-foot putt under tremendous pressure, and when the USA’s Hunter Mahan ﬂuffed a short chip on the 17th, he conceded and Europe won. Would you and your team be able to handle pressure like that and still come out smiling?
TIME: PST (UTC-8) | POPULATION: 3.8 MILLION (CITY) | AREA: 498 SQUARE MILES | ELEVATION: 77 YARDS
36 hours in... Los Angeles
LA-HQ firms AECOM Capital Group CB Richard Ellis DeviantArt Dunn & Crutcher Fox Sports Net Guess? Health Net Northrop Grumman Occidental Petroleum Paramount Pictures Premier America Sunkist Growers Tutor Perini
In the know
The second largest city in the US after New York, Los Angeles, often called by its initials or nickname of the City of Angels, is a world center for business, international trade, entertainment, culture, media and technology. Sprawling along the paciﬁc coast of Southern California, its coastline stretches 122 kilometers from Malibu to Long Beach. Los Angeles is also the largest manufacturing center in the western US and the contiguous ports of LA and Long Beach together comprise the ﬁfth busiest port in the world. LA is often billed as the Creative Capital of the World, due to the fact that one in every six of its residents works in a creative industry. And according to the USC Stevens Institute for Innovation, “There are more artists, writers, ﬁlmmakers, actors, dancers and musicians living and working in Los Angeles than any other city at any time in the history of civilization.”
Ca’Brea is a charming restaurant known for Italian food that looks as good as it tastes. The starters, bread, risottos and pasta dishes such as homemade agnolotti stuffed with veal and prosciutto in a mushroom sauce, are particularly recommended. A great spot, with lots of wonderful-looking carved wood, polished granite, high ceilings and sand-blasted glass. Popular with young lawyers and ﬁlm industry people, the restaurant gets very crowded in the evening, so reservations are essential. Housed in a remarkable building, commissioned in 1928 by Charlie Chaplin, Campanile is composed of elegant dining rooms and an atrium courtyard, central to the sky-lit room. The menu is modern Mediterranean with robust ﬂavors, such as beet with pomegranate and cod with eggplant puree. A superb place to do business or relax with attentive, yet unhurried service and delicious food. Saddle Peak Lodge is a real hunting lodge, high in the hills above Malibu, a fantastic place to escape the madness of LA. Think real wood, ﬁreplaces and no cell phone reception, with plenty of game on the menu along with seafood.
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Time off If you like to work out in your down time then the best place to head is Runyon Canyon Park. The 134-acre park’s main drag snakes along the canyon ﬂoor, gradually ascending to the scenic point called Cloud’s Rest. Fitness buffs can choose to proceed downward via a steep dirt ﬁre trail while the rest of us can retrace the path for a gradual, paved return to the bottom. You have to head to the beach during your stay, and like everything else in LA, there’s one to suit everyone: Zuma beach in Malibu is typical with hot moms and surfer dudes; Venice beach is great for people-watching, and Manhattan beach is the home of beach volleyball and a great place for a walk. If you are into shopping, Third Street Promenade is an outdoor mall just three blocks from the beach, and just as good is The Grove in the Fairfax District. The Grove’s trolley travels the one block between the mall and the amazing Farmer’s Market where every single booth sells delicious food.
LA is the second largest city in the US LA was founded on September 4, 1781, by Spanish governor Felipe de Neve LA has hosted the 1932 and 1984 Summer Olympics LA enjoys a subtropical climate, with an average of 35 days of precipitation annually
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LA offers a mix of live bands, cabaret, jazz, rock and blues as well as being home to some of the most vibrant comedy clubs in the US. Sunset Boulevard still boasts some of the most famous clubs, but other good spots are Santa Monica, Hollywood and West Hollywood, Pine Avenue in Long Beach and Pasadena’s Old Town. Some of the ﬁnest views of LA are found at Skybar, an open-air, ivy-covered pavilion perched between the pool and Outdoor Living Room at the Mondrian Hotel in West Hollywood.
The Beverly Hills Hotel is pure old-style Hollywood glamor. Behind the famous façade lies the star-studded haven, and following a $100 million restoration a few years back, the hotel’s grand lobby and impeccably landscaped grounds retain their over-the-top glory, while lavish guest rooms boast every luxury. Petit Ermitage is a quaint boutique hotel located right in the center of West Hollywood with fantastic views and great rooms. Nestled on a quiet street, eclectic European antiques grace every space in the hotel and details include customcrafted mattresses, 618 thread count, water works ﬁxtures, in-suite ﬁreplaces with handcrafted mantels and hand-woven Turkish carpets. While it’s budget friendly, the Petit Ermitage is deﬁnitely not a budget experience.
Technology for today’s executive Windows Phone 7 Windows Phone 7 is Microsoft’s latest attempt to gain precedence in the lucrative smartphone market. Its sleek look and vivid, engaging interface mean it’s deﬁnitely in the running for the top spot.
The start screen has ‘live tiles’ letting users see real-time content directly. This way, you can create a tile of a friend and view their latest pictures or posts. There’s a tile for your own picture as well, making the WP7 that much fancier. There is no portable hot spot functionality or free satellite navigation, but the contacts information is intergrated with social networks like no other handset. All in all, Microsofts new offering is chic, intuitive and clever, and deserves its place in the smartphone market.
Logitech K750 Logit Logitech’s latest groundbreaking offering is the world’s ﬁrst solar-powered wireless keyboard. The device holds an internal power cell with twin solar panels that can last for up to three months without solar exposure.
The portable K750 charges with natural or indoor lights and is granted a 15 year degradation-free lifespan in energy consumption. The keyboard is a meagre 7.5mm thick and has concave, incured keys for comfort, so you can look good while saving the planet.
ASUS Wireless Mouse Look, no buttons! Although digital mice are nothing new, ASUS have produced a contemporary design with their new 2.4GHz WX-DL and have joined the touch revolution. This spaceship-like device boasts of touch sensitive controls and an impressive 1200dpi laser to ensure accuracy. The mouse also has media controls on its surface, such as play, pause etc to enhance usability. The attractive design is arguably similar to other offerings, such as Apple’s ‘pucks’, but ASUS have gone a step further and offered it in metallic silver. The WX-DL is compatible with windows systems from 2000 to Windows 7 and has a reliable wireless connectivity.
Viewsonic ViewPad 10 Although it is hard to imagine a device taking the iPad’s tablet top spot, Viewsonic are giving it a good go. The new ViewPad 10 stands out from its counterparts thanks mainly to its dual operating systems (Windows 7 and Android) that enables users to pick and choose which one they want to use. The ViewPad 10 will also have a 1.66GHz Intel Atom processor, 16GB of storage (with microSD card slot ot for more storage), 1GB of RAM, 1024 x 600 pixel resolution display and the Home Premium version of Windows 7. The older sibling of the smaller, more phone-like ViewPad 7, the ViewPad 10 looks like so many other gadgets on the market at the moment in terms of design. However, the aluminum back and matt black front do give the 275 x 170mm pad a quality feel. Viewsonic envisage the tablet being used for business purposes, as shown in the inclusion of Windows 7, and suggest the 1.3MP webcam to be employed as a video conferencing tool.
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MTB AD_B2B_Create outlines_14june 08/09/2010 10:00 Page 1
On the shelf
The Big Short
By Martin Lewis
Another account of the recession, but this time in Lewis’s signature accessible and informal style. The book follows a selection of ‘characters’, various ﬁgures who hold positions in the ﬁnancial services industry, and answers the much asked questions about who knew what was happening behind the closed doors of the country’s big banks, mortgage brokers and such. It also closely examines the silent crash in the bond and real estate derivatives market that was playing out in the build up to the major downfall of fall 2008. Shortlisted for the 2010 Financial Times and Goldman Sachs Business Book of the Year Award.
Fault Lines By Raghuram G. Rajan Winner of the 2010 Financial Times and Goldman Sachs Business Book of the Year Award, Rajan’s book has been a great success, offering a stimulating account of the recent ﬁnancial crisis. Rajan pointedly marks the societal behaviours, such as income inequality and universal desire for home ownership, as well as the environment in the ﬁnancial market out of which the economic downturn bred. His is not only a comprehensive account of the recession, but also provides an informative and original lesson as to why it happened when it did. His use of case studies intersperse the book nicely to keep the reader engaged and make the content accessible to most readerships. Rajan also demonstrates a solid understanding of the global economy, though remains primarily focused on American ﬁnance. BM says: One of the most comprehensive accounts of the recent ﬁnanical downturn to come onto the market and an exciting insight into how the recession took hold outside the US.
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BM says: Fans of Short’s work will welcome his return to the style that brought him into the spotlight in the 1980s. Not as thorough an account of the downturn as Rajan’s book, but for those who like their non-ﬁction with a side of sensationalism, this is the book for you.
The Art of Choosing By Sheen Iyengar Ever wondered why you choose a Coke over Pepsi, an Android Phone over an iPhone, a Mars bar over a Snickers? Well Iyengar attempts to bring you the answer, while at the same time raising questions about how much control we really have over what we choose, and how in a mass consumer driven society of the West, too much choice can have a negative effect. Being the daughter of two Sheikhs, Iyengar also offers an insightful perspective regarding the cultural differences that surround choice. Shortlisted for the 2010 Financial Times and Goldman Sachs Business Book of the Year Award. BM says: While it is arguably slightly dissatisying in answering the questions about why we chose certain things over other, this book is pleasantly surprising in its ability to deal with the complexities of cutural differences.
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Coming up… Harry Potter 7
Nov. 19 Nov. 21
After its worldwide premiere on November 11 in London, Harry Potter & The Deathly Hallows: Part 1 is released nationwide. The Warner Bros. franchise has already grossed over $5.4 billion in worldwide ticket sales to date, and with the concluding ﬁlm in the series due for release next summer is set to become the highest grossing movie franchise of all time (only the Star Wars movies gross higher when adjusted for inﬂation).
America Recycles Day Millions of Americans have pledged to increase their recycling habits at home and at work over the 13-year history of America Recycles Day, a nationally-recognized initiative dedicated to encouraging people to recycle more at home, at work and on the go. Last year featured 750 registered organizations conducting 2375 events that involved 7700 participating groups. Will you join them this year?
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NASCAR Sprint Cup Series Finale
The Ford 400 at Homestead-Miami Speedway is the ﬁnal race of the NASCAR Sprint Cup season; for the drivers involved, the whole season comes down to this one critical race. One of the most viewed professional sports in terms of television ratings in the United States, last year NASCAR fans generated $3 billion in annual licensed product sales. And with many marketers considering NASCAR fans the most brand-loyal of all sports, it’s no wonder Fortune 500 companies sponsor NASCAR more than any other motor sport.
National Finals Rodeo
New Year’s Eve in New Orleans As in years past, New Orleans puts its own twist on New York City’s ball drop: a spotlit giant gumbo pot drops from the Jax Brewery at midnight, prompting a nightlong bar crawl in the historic French Quarter. Bourbon Street grabs the headlines but New Orleans locals head to Frenchmen Street when they want to party; it has a more bohemian quality, and is famed for bars and cafes ﬁlled with great musicians and bands. Expect dancing in the street, impromptu brass bands, lots of drinking, and more than a few eccentric costumes.
Organized by the Professional Rodeo Cowboys Association, the National Finals Rodeo, held at the Thomas & Mack Center at the University of Nevada in Las Vegas, is the grand ﬁnale of the modern professional rodeo circuit. It has been held in Las Vegas since 1984. Known as the Super Bowl of Rodeo, this 10-day event puts the talents of the nation’s top 15 money-winners to the test and they compete for championship titles.
Sundance Film Festival
With awards season heating up, the cool crowd heads to Utah’s Park City for Robert Redford’s annual homage to independent cinema. The largest independent movie festival in the United States – and considered to be one of the most important ﬁlm festivals in the world – the event has changed over the decades from a low-proﬁle venue for small-budget, independent creators from outside the Hollywood system to a media extravaganza for celebrity actors, paparazzi and partygoers.
Aspen and winter go together like egg and nog, and it’s a marriage made in alpine heaven during Winterskol, the city’s annual winter festival. The locals describe it as ‘a toast to winter’ – their way of saying you are in for four days of fun, both on and off the slopes. Dating back to the early 1950s, the event has grown into a major entertainment and culinary festival. The schedule is packed with activities from a parade to a Soupskol competition, music, ﬁreworks and a spectacular torchlight descent of Aspen Mountain. Pack your skis, party gear and prepare for a fun weekend.
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Edgar Renteria hits a three-run homer against Texas Rangers to clinch a World Series victory for the San Francisco Giants, and earn himself the title of World Series Most Valuable Player. The Colombian shortstop received a congratulatory call from both the Colombian and Venezuelan Presidents. The win was the ﬁrst World Series victory for the side since it moved to San Francisco in 1958, and the city’s residents reacted with wild and at times violent celebrations. Many hope the win will revitalize interest in the Bay area and transform it back into a popular West Cost tourism destination.
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