The US Export Opportunity

Declining value of the US dollar as calculated by the US Federal Reserve Bank in their Index of Major Currencies, 5-Feb-08, 15-year trend

I recently asked a panel of experts in the food and beverage industries to rank a set of five topics by level of importance in their 2008 strategic plans. Among 6 respondents these were their rankings in order of importance:

1. Supply chain development
2. Product innovation
3. Outsourcing
4. International trade channel development
5. Safety and compliance

Results indicate continuing emphasis on the competitive necessity of reducing input costs by buying abroad (items 1 and 3), but also strong emphasis on innovation.

This analyst sees opportunity in international trade channel development (4) for U.S.-based multi-nationals in light of weakness in the U.S. dollar and the trade imbalances that are sustaining that weakness. U.S. businesses have gained price competitiveness, as the value of the US dollar has fallen more than 10% in the past year against major currencies and 33% since 9/11/01 (see chart above).

U.S. sales channels overseas have not developed nearly as fully as have our supply channels, despite the fact that U.S. made products are generally valued for their quality and safety. In part this results from draconian government policies in China, now our largest trading partner, which prevent Chinese consumers from fully participating in the value they create. This imbalance has become so extreme and prolonged that some analysts are predicting that it will cause substantial unrest within the next couple of years.

Nonetheless, in China, India, Brazil and other rapidly developing countries the fast-growing middle classes represent important potential markets for U.S. goods. Manufacturers are advised to invest in opening trade channels to these consumers and take advantage of excess ocean container capacity flowing into these markets.

See "Midwest Manufacturers Fight to Stay Competitive in Global Marketplace", On Line NewsHour, 29-Nov-07

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Kellogg's Reformulation

The sweet heart of the corn, 1900


When a publicly traded company undertakes a strategy in the public interest at the risk of slowing its growth in the short term, we ought to take notice. Kellogg's decision to curtail advertising to children for products that do not meet specific nutritional guidelines is a bold redirection of some of its largest and most profitable portfolios.

In June, 2007 Kellogg announced that by the end of 2008 it would stop advertising to children under twelve those cereals and snacks that do not meet specific nutrient guidelines. Those guidelines require that a single serving not:

1. Exceed 200 calories
2. Contain any trans fats
3. Exceed 2 grams of saturated fat
4. Exceed 230 grams of sodium (except frozen Eggo waffles)
5. Exceed 12 grams of sugar, not counting sugar from fruit, dairy or vegetables

The announcement is specific in its definition of advertising media, encompassing television, radio, internet and print. Kellogg further stipulated that it would not:

• Use licensed characters, (such as Shrek or other Disney characters) on the front panels of products marketed to preteens
• Sponsor product placements in media directed at preteen or use branded toys connected to products that do not meet the guidelines. However, Tony the Tiger, Snap, Crackle, Pop, Toucan Sam and other characters that are owned by Kellogg Company may continue to be used in identifying Kellogg products.

Kellogg fully understands the importance of preteen advertising; this announcement is about its intent to be a leader in providing nutritious products. Implicitly Kellogg is committing its resources to invest in reformulating some of its best-selling and most profitable products. For, while most cereals fall within the calorie and fat guidelines, many exceed the sodium and sugar limits.

Many may not realize that Kellogg's commitment to nutrition is as old as the Kellogg Company itself. W.K. Kellogg founded the modern company in 1906 to market a product that had its roots in a formulation developed by his brother, John Harvey Kellogg, the director of the Battle Creek Sanitarium. In 1930 W.K. Kellogg's trust established the W.K. Kellogg Foundation, an $8 billion charitable organization that has made major contributions in support of nutrition and healthy living worldwide. The Foundation is the single largest stockholder of Kellogg Company, holding 24% of the company's stock.

In announcing its intention to curtail advertising of certain products to children, Kellogg Company is resolving a longstanding internal conflict between its goals to promote health and shareholder value.

See the announcement of the expansion of the W.K. Kellogg Institute for Food and Nutrition Research made 12-December-2007 (click here)

For a humorous, fictionalized account of the early days of "Cereal City", when Battle Creek, Michigan was the center of a grain-based health food craze, see The Road to Wellville, by T.C. Boyle (Viking, 1993) and the movie by the same title, directed by Alan Parker, 1994.

See: "A case study of sodium reduction in breakfast cereals and the impact of the Pick the Tick food information program in Australia," by Peter Williams, Anne McMahon and Rebecca Boustead in Health Promotion International (2003) click here

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Using Parametric Modeling to Design Retail Space

This video from YouTube illustrates the power of parametric design modeling for both consumer products and stores. The architect set out to design desktop accessories, then modeled their entire display environment for the flagship Alessi store in New York City.

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See The design behind the NYC flagship Alessi store

The Service-Oriented Enterprise: A Parable

Mona Shaw found just the tool to register her complaint about service, or lack thereof, at Comcast's Manassas office. (By Richard A. Lipski -- The Washington Post)


When customer service is critical to an organization's mission and sustainability, it ought to be managed as a commercial function, reporting to sales, marketing or the CEO. If organized as a cost center reporting to operations it is likely to starve and fail.

The case of Mona Shaw, as detailed in the Washington Post (Taking a Whack against Comcast) illustrates how a seemingly law-abiding citizen turned to vigilante justice at her local Comcast office to get the attention of a company whose practices echo Lily Tomlin's Ernestine: "We're the phone company. We don't care. We don't have to."

Ms. Shaw, 75, had put her trust in the local cable utility to provide her household with television, telephone and internet services. Her experience--missed appointments, unresponsive bureaucracy, incomplete installation, inaccurate and incomplete documentation and general inattentiveness--appears not to be unusual if one can believe the posts to website ComcastMustDie.com. After a series of attempts to get her service installed, Mrs. Shaw made a special trip to her local Comcast office to talk to a supervisor. Following a two-hour wait she was told that the supervisor had gone for the day. When she returned with a hammer a few days later and started smashing office equipment, she got the attention of Comcast, the local police and the national media.

Our own experience with Comcast revealed a number of structural issues, systems inadequacies, unfortunate policies and inappropriate behaviors that ought to trouble the company's stockholders. In brief, somehow the cable line to our home had been cut. Over a two-week period Comcast sent three technicians out to the house to examine our television sets before they sent anyone out who could reconnect the outside line. Oddly, none of the technicians seemed to have any of the details of the previous visits. In fact, neither of the first two techs turned in paperwork, and by Comcasts rules, which apparently are more hard-wired than the network, a lineman can not be dispatched until a home service tech notes that one is required. Customer service reps and their supervisors were empowered to do nothing more than offer apologies and a few free channels for a few months. Not surprisingly, getting a credit to the bill for the two weeks without service required another call to the accounting department.

However one feels about Mrs. Shaw's approach, my own experience with the company's record-keeping leads me to question Comcast's comment on the Shaw incident:

"Truly a unique and inappropriate situation," says Beth Bacha, a vice president for Comcast. She says company policy forbids disclosure of clients' records, but did say their files note that the service record wasn't exactly what Shaw has indicated. Besides, "nothing justifies this sort of dangerous behavior."

Comcast stockholders (stock ticker CMCSA) must be concerned that the company's local monopolies over wired television service are being threatened by AT&T's new IPTV offerings, which will provide digital television service to subscribers over the DSL network. It will be interesting to see how well AT&T can integrate its expanded offerings and service performance at the household level.

National Public Radio's Madeleine Brand interviewed Ms. Shaw. (Click hear to listen.) "Woman Hammers Comcast -- Over and Over"

See also Comcast's more detailed comments on their service in a letter by Comcast Senior Vice President of Customer Service, Rick Germano to Ad Age on December 17, 2007 (requires reqistration). That letter is reprinted by Bob Garfield in his December 12, 2007 post, Mea Culpa.

See The Essential Guide to Telecommunications by Annabelle Z. Dodd (Prentice Hall, 2005) for an overview of emerging and competing technologies in telecommunications

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Best Practices in Architecture

Cover of Eero Saarinen, by Jayne Merkel

If architectural design is an apt metaphor for enterprise architecture, then perhaps the approaches of leading building architects also apply to enterprise design. In her authoritative review of the work of 20th century genius Eero Saarinen, architectural critic Jayne Merkel describes his studio's method:

1. Definition of the "functional program" with considerable research
2. "Expression of the program" in the concept
3. Selection of appropriate "structure"
4. "Design"

The client was involved in each phase, participating in the research to define and prioritize requirements, reviewing architectural concepts for resolving their specific conflicts and approving structural approaches, materials and budgets prior to beginning detailed design.

His were unusual, ambitious, challenging buildings. The variety in the work, the "style for the job" philosophy, as it was called, was really the result of the way he worked and the fact he believed architectural form should derive from function in the broadest possible sense.

He was singularly collaborative in his approach, using the resources of his clients, among them "the technical innovators of his period (General Motors, MIT, IBM, Bell Labs)" to automate design, adapt new materials, and refine his craft.

Eero could meet each client on his own terms. He respected his clients and what they wanted to do (something that many architects with their own objectives fail to do) because, though he believed architecture should aspire to be art, he saw it as one grounded in use.

Consultants, as enterprise architects, are well advised to adopt not only his approach but his collaborative style to designing business structures, processes, systems and offerings.

1. Today's design teams can deploy wiki technology to engage all the client's resources in developing a thorough, shared, context-rich understanding of requirements, objectives and alternative solution concepts.
   
2. Rapid visualization techniques and virtual meetings allow broad and early participation of users, influencers and decision-makers throughout the design process.
   
3. Collaborative content management systems can capture design elements in secure vaults and maintain version control as reviewers make modifications or add detail.
4. With appropriate controls, the key constituencies throughout the enterprise, including suppliers, can access relevant information and contribute to designs as they develop.
   

See Eero Saarinen by Jayne Merkel, (Phaidon Press, London, 2005), pp. 230-3
See also our previous post, Mastering Innovation Management, which contrasts the styles of Eero Saarinen and Frank Lloyd Wright

See our approach to Retail Lifecycle Management™ (RLM) for a discussion of the application of PLM techniques to managing the process of store design and its related information. Click on the RLM topic in the Index of Content on This Site on the sidebar to the right of this blog.

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The Smart Kitchen

A vintage fast food kitchen


The kitchen of a quick service restaurant is the operator's most valuable asset, typically representing an investment of $400,000-$1,000,000. If poorly designed or maintained, this factory behind the service counter can put a wrench in the works of a restaurant's profitability, by wasting energy or food ingredients, inhibiting efficient use of labor or failing to reach expected yields of healthy, attractive product. By applying the kinds of monitoring and control technologies that have become standard in regulating the efficiency of other factories, restaurant operators can boost profitability substantially.

McDonald's, which operates or influences the design of some 31,000 kitchens around the world, has announced plans to move in this direction, selecting Echelon Corp., a San Jose, Calif.-based networking company, to layer its system on McDonald's sites, networking the controls on kitchen appliances and environmental systems, including such items as grills, fryers, coolers, icemakers, and HVAC (heating, ventilation and air conditioning) systems to create "smart kitchen" environments.

Equipment can be scheduled to enter energy-saving standby levels when no use is detected, thus saving energy and appliance wear and tear...Other features monitor usage by product type to determine optimum filtering periods based on what's cooked, thus extending oil life, and monitor appliance performance, alerting the operator to contact a service technician if equipment is outside its ideal operating characteristics. (See "NRN" below)

By centrally monitoring the data collected from these store environments, the operator of a chain of restaurants can identify emerging maintenance requirements, fine-tune preventive maintenance schedules and detect opportunities for adjusting operating procedures or restaurant designs. The impacts of overnight power outages on refrigerator temperatures, for example, can be determined system-wide, preventing potential calamity.

The franchising model complicates decisions to invest in such technologies, since investments made in the technology by corporate staff may not be embraced by the independent operators that must ultimately share data to take full advantage of the capability. As recently as 2005, indicating the corporation's reticence about taking on the Big Brother role, McDonald's CEO Jim Skinner said, "If you are looking for a command center with one push button that operates our restaurants in every corner of the world, you won't find it.” Big Mac's Makeover

Now, with food safety, energy efficiency and green design moving to the forefront of every operator's agenda, such ventures into system-wide collaboration are becoming more acceptable.

Notes:
"NRN" FindArticles - Self-aware equipment: smart kitchen in reach Nation's Restaurant News, Oct 8, 2007

“Big Mac’s Makeover: McDonald’s Turned Around”, The Economist, Oct. 14, 2004


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