Architecting the Retail Enterprise

Architects Stephen Kieran (left) and James Timberlake (right)


In their path breaking work, Refabricating Architecture: How Manufacturing Methodologies are Poised to Transform Building Construction, Stephen Kieran and James Timberlake argue that the architect of a complex structure must reassert the role of conceptual leader of designers, builders, product engineers and materials scientists. Too often, they argue, architects are relegated to the role of designer, as commercial builder/contractors have taken the lead in bringing cookie-cutter structures from design to completion. The cost of this abnegation of control to project engineers has been a failure to innovate and acceptance of a false choice between usefulness and artistry.

Similarly, our Retail Lifecycle Management model requires that the developer of the retail enterprise define and guide the physical design of store formats that connect the firm's commercial vision with its marketing message, operations capabilities and target customers. We see Store Development, the management of investment in retail structures across time and geography, as the purview of general management, an integrative function drawing as much on the disciplines of economics, organizational development and information management, supply chain strategy and contract law as on architecture, design and construction.

Since publishing our newsletter on Restaurant Lifecycle Management, we have tested these concepts with leaders in chain restaurant, architecture, software and design firms. Surprisingly few restaurant chains can answer a simple question: "Who is responsible for managing investments in restaurant design, construction and remodeling." Generally management admits to being frustrated by an inability to influence store design, while architects complain that management is unwilling to fund investment in the innovative technology that would help them become more integral to the business. Having long ago decided to leave design to the experts, management complains that its design process seems mismanaged.

Bridging this management chasm requires not an architectural solution, but an organizational one. Retailers are advised to establish store development organizations with full responsibility for managing their investments in store design, site development, construction, and equipment. Just as the Operations Group is responsible for managing store profit and loss, so should a Store Development Group control the substantial budgets for design, construction and remodeling. At the same time, retailers should go about reclaiming the intellectual properties tied up in their designs, CAD drawings and layouts that have been scattered among their many contractors, agencies and franchisees.

There are a couple of hopeful signs. One fast-growing restaurant chain where the store development function is managed by an attorney stipulates in its franchisee agreement that contractors of franchisees work from corporate prototype designs and then submit "as built" designs to corporate upon completion. At another equally fast-growing chain, a staff designer lists Refabricating Architecture on his on-line list of recommended reading.

For related posts see Retail Lifecycle Management.

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An Explanation of the Health Care Bill

Senators Chris Dodd (D-CT, left) and Mike Enzi (R-WY, right)

The system of U.S. Health Care is now so thoroughly inefficient and inadequate that virtually no serious participant in the debate argues that reform is unnecessary. Partisans disagree about the desirable extent of government involvement in the outcome, but all agree (though not always explicitly) that government involvement is necessary. After all, according to the Congressional Budget Office, government currently regulates the medical insurance, health care and pharmaceutical industries and funds some 60% of health care costs through the Medicare and Medicaid programs, other programs that insure veterans, government employees and retirees, tax subsidies for health care insurance, and subsidies for various health care initiatives.

Many in the U.S. receive exceptional health care and few are denied emergency care, even if they are not able to pay for it. However, with U.S. collective expenditures on health care now amounting to more than 16% of Gross Domestic Product we should expect better performance, including:

• More universally available access to services that promote health and prevent disease
• More efficient allocation and selection of medical services
• Greatly reduced cost of administering and financing medical services

Comprehensive health care reform must address three key areas:

• How is care allocated and provided?
• How and to what extent is health care subsidized?
• How is insurance provided and regulated?

Title I of the bill now in committee in the U.S. Senate, the Affordable Health Choices Act (Bill), provides one solution. Its major provisions would:

• Forbid private insurers from denying coverage based on a patient’s medical history
• Eliminate annual and lifetime limits on insurance coverage
• Require employers with 25 or more employees to provide subsidized insurance to those employers (or face a tax penalty)
  
• Subsidize insurance to low-income individuals
• Require individuals to obtain medical insurance (or pay a government penalty)
• Establish state-level "Health Benefit Gateways" to assist individuals and employers in selecting appropriate insurance policies
  
• Establish a government-run health insurance organization to compete with private insurance companies
• Establish a national voluntary insurance program for purchasing community living assistance services and support (by incorporation of the CLASS Act)
  

As the Bill moves through the Health, Education, Labor and Pensions (HELP) Committee and onto the floor of the Senate, it is likely to be amended. Some will challenge the limits and taxes it imposes on employers and insurance companies and others will be disappointed by the way in which its various subsidies are distributed and funded. However, in its current form the Bill is estimated to extend coverage to an additional 20 million uninsured Americans without fundamentally restructuring the insurance, pharmaceutical and health care provider industries.

Nonetheless, the Bill would alter the functional nature and competitive environment of the medical insurance industry. State-run Gateways would be able to appoint either public or private "navigators" who would essentially act as insurance brokers. Also, by simultaneously eliminating discrimination against individuals with preexisting conditions, eliminating plan limits on annual and lifetime payouts, and limiting the degree to which insurance premiums can be based on age, the Bill is intended to redirect underwriters away from the task of evaluating the risk posed by applicants and toward the task of evaluating the costs and benefits of procedures. In combination these provisions would directly address a major, under-reported, and increasingly troublesome segment of the under-insured, that is middle-aged individuals who are privately employed or out of work and whose previous medical history includes any number of risk factors (however well managed). Among the list of risk factors are treatment for chronic disease, skeletal injury or disease, depression or other mental illness or disorder. Ironically and perversely, the current system penalizes those who have sought medical attention and are taking preventative measures, while favoring those who have avoided medical care. With unemployment growing and hitting middle-aged workers especially hard, the number of people unable to find affordable health insurance of any kind is expected to grow alarmingly unless today's underwriting policies and their underlying causes are corrected.

Title I of the Bill is focused on extending access to health care to more Americans. As such it does little to address issues with the dominant fee-for-service nature of the U.S. health care system. The primary charge leveled against the fee-for-service approach is that it rewards providers for gaming the billing system, but not necessarily for getting efficient outcomes or encouraging wellness. By favoring certain treatments, specialties and procedures, this incentive system keeps various forms of government in the position of determining what kinds of care are administered. The incentives baked into the system encourage doctors to specialize and encourage specialists and health care facilities to recommend courses of treatment that play to their strengths, even when more efficient modes of care might be available elsewhere. An excellent treatment of the fee-for-service issue can be found in the CBO's letter to the Senate Budget Committee of 16-Jun-09.

Paul Krugman puts the public cost of Title I in the range of $1.0-$1.3 trillion over a 10-year period, including the cost of subsidizing insurance for the poor (a topic not addressed in the current form of the Bill). The President has floated at least two vehicles for funding the bill: (a) eliminating the subsidy paid to private Medicare insurers through the Medicare Advantage program; and (b) eliminating the deductibility of insurance premiums under the corporate income tax. At the same time, the Administration is bargaining with health care providers and pharmaceutical companies to hold down the cost of care.

Those interested in learning more about this topic can find the Bill and the Congressional testimony that shaped it on the Senate website at http://help.senate.gov/. See especially the testimony before the Senate Committee on Health, Education, Labor and Pensions of Karen Pollitz, Research Professor, Georgetown University Health Policy Institute, and that of Janet Stokes Trautwein, Executive Vice President and CEO, National Association of Health Underwriters. A partial estimate of the cost of Title I to taxpayers (which excludes the cost of the subsidy to the poor) can be found on the Blog of the Congressional Budget Office at http://cboblog.cbo.gov/?p=315.

See also Health Care Reform Takes Shape.

A collection of posts about the US Economy is maintained here.

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Shotgun Economics: The Merrill Lynch Deal

The Frontline story on Bank of America's acquisition of Merrill Lynch was indeed a fascinating look behind the scenes at one of the more controversial government interventions into the banking system. You can view the program in its entirety below.



A collection of posts about the US Economy is maintained here.

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May I Have a Scone with my Coffee?

Fresh Pastry at Panera Bread


How much information passes among how many people when a restaurant chain rolls out a new capability? If the chain is well organized and the change is not too great, such a campaign may well be handled through normal channels by a series of announcements and emails and follow up calls.

Suppose, however, the change involves the roll out of a new store technology. For example, a coffee chain that has always brought ready-made muffins in through the back door may decide to bake muffins right in the store. Suddenly, a host of questions have to be answered:

• Which of our stores are properly licensed to prepare food on premises? (Some coffee shops are not allowed to smear cream cheese on a bagel.)
• Should the muffins be made from scratch or par-baked in advance and finished within hours of serving?
• What equipment would be required to store and bake the muffins?
• How should the restaurant be reconfigured to accommodate the new equipment?
• Would new construction or wiring or HVAC capabilities be required?
• Would logistics systems need to be modified as the proportion of fresh and frozen product flowing into the restaurant changed?
• How many stores could be retrofitted for the new capability within 3 months? Within 6 months? What would that cost?
• How should the roll out be staged? How should it be announced?
  

It is the kind of daunting challenge that might cause one coffee chain to "stick to the knitting" and concentrate on the beverage trade, while another, equally aware of the costs, might seize the opportunity to take a strategic leap ahead of the competition.

Of course, the chain with the best processes and systems for managing information about its stores' facilities, capabilities and capacities would find it easier to opt for change, while its competitors would be left to make excuses. And, over the not so very long run, the chains that decide to actively manage information about the lifecycle of their stores will eclipse the competition.

Fresh pastry or fresh attitude?


See our newsletter on Restaurant Lifecycle Management here.

See also Brand, Menu and Store Design and Chain Restaurant Development.

To learn more about our work in consulting, please see our Profile, download a brochure about our Practice, or check out our Case Studies.

Contact JP Farrell & Associates, Inc.

Prof. Courant on the Stimulus Package

Paul N. Courant, Economist


It was a pleasant surprise to find my erstwhile thesis adviser, Professor Paul Courant, blogging on matters related to economics, libraries and electronic publishing among other things (see Au Courant).

HIs post on the Stimulus Package, a masterpiece of clarity, begins:

Suppose that there were a major fire, and that in order to put out the fire you would need, say, a trillion gallons of water. Can you imagine a city council that would say, “oh no, we can only afford 734 billion gallons of water, so let’s leave out about a quarter of the neighborhoods. It’s the right thing to do because we won’t go into debt, and future residents will be better off for having had a quarter of the city burn down.”?

Or, for a better analogy, suppose that your ship is sinking, through a hole that is 10 feet in diameter. How about saving on repair costs but inserting a plug that covers only 75 percent of the leak? Sound like a good plan? Not so much.

The reason that we need fiscal stiumus is that monetary policy is impotent to provide sufficient stimulus (not generally true, but true now, and essentially no one disagrees with this view).

A collection of posts about the US Economy is maintained here.

To learn more about our work in consulting, please see our Profile, download a brochure about our Practice, or check out our Case Studies.

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Innovation Thrust Upon Us

Maestro David Robertson on kazoo - Photos by Konrad Fiedler for The New York Times

Sometimes innovation, like greatness, is thrust upon us. As last Friday's rains washed over LaGuardia, the St. Louis Symphony Orchestra kept time through a series of ground delays at Detroit Metro. Months of preparation had gone into the annual trip to Carnegie Hall and hours of flight delays were threatening that evening's off-beat program, which was to pair Mozart's "A Musical Joke" with H K Gruber's "Frankenstein!!", with Gruber himself singing the lead. In Chicago Gruber was having travel problems of his own, word of which had already spread to staffs in New York, St. Louis, and Detroit.

By the time the SLSO's plane hit the tarmac in New York at 6:08 p.m., rehearsal had already been canceled, Gruber had been written out of the program and members of the orchestra had been granted dispensation to appear on stage in street clothes. Then, in the kind of brash and brilliant move we have come to expect from him, Maestro Robertson handed the baton to his assistant, Ward Stare, and took on Gruber's solo role himself. It is a showman's role, not a singer's, and Robertson (who had voiced a part in The Music Man earlier this season) was more than up to the task. As reported by Anthony Tommasini in The New York Times:

You do not need a proper singing voice to perform the part, but you do have to be uninhibited. Mr. Robertson's performance was a tour de force in uninhibition.

When necessity called, Robertson, Stare and the entire orchestra and staff rose to the occasion. Though physically separated, the team communicated throughout the day, developing a strategy (Robertson, already in New York, began rehearsing that afternoon), and adjusting the plan continuously. Orchestral musicians, masters of going with the flow, had shrugged off a day of travel delays, tight quarters, and nervous updates by the time the baton struck the first note. And the audience shared an experience that no recording could capture.

How do you get to Carnegie Hall? Practice.

See the account of events by Eddie Silva on the excellent SLSO blog here. For a previous article on innovation and the orchestra (same time, last year), see The Surprise of the New.

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