Big Data meets HR meets Call Center Management

We have already written in the past about the use of data analytics to best route customers to agents based on demographics and other characteristics.  The NY Times has an interesting article on the use of data analytics to improve retention and employee-employer relationships (“Big Data, Trying to Build Better Workers“)

The article discusses the broader appeal of these ideas, but focuses on applications to call centers. Why call centers? In contact centers, customer service agents, that are hourly workers handle a steady stream of calls under challenging conditions, yet their communication skills and learning capabilities play a crucial role in determining both the employee’s tenure and performance. The article discusses a new startup, Evolv, which helps firms find better-matched employees by using predictive analytics.

Transcom, a global operator of customer-service call centers, conducted a pilot project in the second half of 2012, using Evolv’s data analysis technology. To look for a trait like honesty, candidates might be asked how comfortable they are working on a personal computer and whether they know simple keyboard shortcuts for a cut-and-paste task. If they answer yes, the applicants will later be asked to perform that task.

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Apple versus Samsung: Is Design or Business Model the sustainable advantage? What does that mean for Outsourcing?

Apple, the world’s highest valued company, and its relationship, both competitive and cooperative, with Samsung provide a wonderful setting to discuss some fundamental questions that relate to strategy and operations:

FIRST: Which one is the more sustainable provider of Apple’s competitive advantage: design or the business model?

• Daring Fireball’s John Gruber wrote three beautiful paragraphs to argue his view on what he termed “The New Apple Advantage“:

So let’s be lazy for a second here, and attribute all of Apple’s success over the past 15 years to two men: Steve Jobs and Tim Cook. We’ll give Jobs the credit for the adjectives beautiful, elegant, innovative, and fun. We’ll give Cook the credit for the adjectives affordable, reliable, available, and profitable. Jobs designs them, Cook makes them and sells them.

It’s the Jobs side of the equation that Apple’s rivals — phone, tablet, laptop, whatever — are able to copy. Thus the patents and the lawsuits. Design is copyable. But the Cook side of things — Apple’s economy of scale advantage — cannot be copied by any company with a complex product lineup. How could Dell, for example, possibly copy Apple’s operations when they currently classify “Design & Performance” and “Thin & Powerful” as separate laptop categories?

This realization sort of snuck up on me. I’ve always been interested in Apple’s products because of their superior design; the business side of the company was never of as much interest. But at this point, it seems clear to me that however superior Apple’s design is, it’s their business and operations strength — the Cook side of the equation — that is furthest ahead of their competition, and the more sustainable advantage. It cannot be copied without going through the same sort of decade-long process that Apple went through.

• James Allworth, co-author of How Will You Measure Your Life?, adds an important dynamic component to the argument by applying Clay Christensen’s theory to this question:

The design part of Apple’s equation is to their ability to redefine new industries as they did with the iPhone. Whether they go after the TV market next, or something else, it’s this integrated design component that will be crucial to their initial success. But compared to the business side of Apple, design actually generates much less sustained strategic advantage in any one product category, once performance in that category becomes “good enough”. The tech industry has always revolved around copying. Once folks work out how it’s done, everyone piles on. And at that point, it becomes much less about design than it does about how you operate your business.

• In summary: the answer to whether design or the operating model is the more sustainable competitive advantage is the typical MBA response to a tough question: “it depends.”  The rather sophisticated reasoning involves the fact that products and services over time improve and then become “good enough” and the dimension of competition shifts. Notice that I did not say that design is a commodity and fully copyable (my personal favorite question: why can’t Lexus designs have the timeless sophistication and elegance as Mercedes?); rather, another dimension overtakes it in importance.

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Is Sony dying? Some operations and strategy thoughts…

A great article titled “The Ghosts of Sony” and authored by Jake Adelstein and Nathalie-Kyoko Stucky, came to me via a tweet by my good colleague Robert Swinney.  (That’s one of the reasons I love Twitter!) It surely is worth a read as it prodded a few thoughts:

• History repeats itself: In our Operations Strategy class, we teach two cases that prominently feature Japanese companies both in the same scenario: they attack the incumbent (a Swiss and an American company, respectively) “from below” and gradually move up the food chain.  This follows the typical innovation dynamics that Clay Christensen has promulgated.  After Sony did the same, it became the incumbent and is now under attack by South Korean Samsung Electronic Co.
• Are management professionals good CEOs of tech companies?  We need to see more than a few data-points but Sculley didn’t perform well at Apple either, nor did this work at Sony:

Former Sony executives and current employees blame the fall of the firm on the loss of brainpower and good employees during the reign of Nobuyuki Idei, from 1999 to 2005. Idei was the first Sony CEO to rise up entirely from a management background and in the “Who-killed Sony?” genre of books and articles; he is regularly the prime suspect.

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So am I a chump for buying an iPad with a lot of storage?

Many smartphones and tablets come in a limited set of variants. Take the iPad. It comes in two colors and can be had with or without a cellular data capability (itself available from two different providers). And there is the issue of storage. (I keep wanting to say “disk space” but that doesn’t quite describe the technology correctly.)

Apple offers the iPad with three different levels of storage — 16GB, 32GB, and 64GB — and picking the right amount is one of the harder choices for tablet buyers. Now the tech columnist of Slate argues that most people are being taken for a ride when they consider buying more than the minimum storage capacity (Storage Suckers, Jul 12).

 Ever since the days of the iPod, Apple has boosted its bottom line through upgrades. The company offers the entry-level versions of its devices at a price that seems reasonable to many people. This entry-level price functions as a marketing come-on—a way to get you in the store. Once you’re there, your eye wanders to the next level. Is 16GB really enough space on my beautiful new iPad—won’t I feel cramped on a year or two? Shouldn’t I spring for more? It’s only $100 … .

That’s exactly what Apple wants you think. Once you decide to move beyond the entry-level iPad, the company’s profits soar. According to iSuppli, it costs Apple about $316 to make the low-end 16GB iPad, which the company sells for $499—a margin of about 37 percent, not including non-manufacturing costs. Doubling the storage space to 32GB costs Apple $17 more, but it charges you $599 for that model, boosting its margin to 45 percent. On the high-end Wi-Fi model, which offers you 64GB of space for $699, Apple’s non-manufacturing profit margin shoots up to 48 percent. But that’s not all! If you get an iPad with 4G cellular connectivity, you’re really in for it. The very top-end iPad, a 64GB model with 4G, will set you back $829 for a device that costs Apple $408 to make—a margin of 51 percent, or twice what Apple makes on the cheapest iPad. There may be other popular products that carry such a breathtaking markup, but I bet most of them are monitored by the DEA.

These enormous profit margins prompt two questions. First, why do tech companies charge so much for just a few dollars of extra stuff? Second, are they ripping you off? The answers are pretty simple: They gouge you because they can. And of course you’re getting ripped off! Try to remember this when you find yourself giving in to upgrade temptation. These days, for most people, upgrading to get extra space is usually overkill.

So I have one of those iPad with gobs of storage. Does that make me a sucker?

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How fast does Apple turn over its inventory?

We have posted in the past about Apple’s impressive operational expertise  (see here) but now there is a report that puts are hard number to that. Business Insider reports that Apple’s turns are frankly absurd (Wow! Apple Turns Over Its Entire Inventory Once Every 5 *Days*, May 31, see also here)

Apple turns over its inventory once every five days. …

The only company on Gartner’s list of 25 companies that turns over its product faster is McDonald’s, which is not exactly in the electronics business. Dell and Samsung rank two and three in Apple’s category, turning over their inventory roughly once every 10 and 21 days respectively.

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Competitive Benchmarking by Twinning: Do as the Belgians Do

How could I pass on blogging about the Wall Street Journal reporting on May 21 that 100 U.S. engineers and managers were flown across the Atlantic and told: “Do as the Belgians do!”?

The article, titled “Indiana Steel Mill Revived With Lessons From Abroad ,“ is part of their series on how globalization can improve local organizations and may be one reason why American manufacturing is growing again.  “Some steel mills are destroyed by globalization, others reborn.

Left for dead a decade ago, this 50-year-old facility on the shores of Lake Michigan has been rejuvenated thanks to an unusual experiment by its owner, Luxembourg-based ArcelorMittal.

In 2008, Burns Harbor was “twinned” with a hypermodern mill in Gent, Belgium. Over 100 U.S. engineers and managers, who were flown across the Atlantic, were told: Do as the Belgians do.

Burns Harbor now enjoys record output. Its furnaces, where steel is made out of iron ore, coal and limestone, are run with software developed in Belgium. Robots are in. Pencils are out. Workers are learning to make the same amount of steel with nearly half the people it employed three decades ago. Productivity is nearing Belgian levels.

Burns Harbor, according to the WSJ, is a case in point of the “upsides of globalization: … it puts pressure on U.S. factories to become more efficient to keep up with global competition, making it possible for them to survive.”  There are a few observations to be made:

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Digital inkjet printing on textiles and electronics

Each year we design new ‘kits’ (uniforms) for my cycling team and have them manufactured.  During that quest, I’ve started to put premiums not only on quality but also on minimum order size and response time.  The typical leadtime for custom pro-level cycling wear is about 8 weeks and several manufacturers have minimum order sizes of 10 units (which is not helpful to get replacement kits after the inevitable crash).

Like many other industries, the textile industry has been digitizing to allow smaller batch sizes and faster turn-around-times.  Digital inkjet printing became the norm for small batch sizes.  Sublimation still the higher quality but for larger batches.  Apparently, the technology has now sufficiently advanced to bring the same flexibility to higher volumes (and hence lower cost per unit).

According to industry expert Debra Cobb, high speed developments now have led to new printing capabilities:

At ITMA in September 2011, the array of inkjet printing developments generated strong interest amongst attendees. While high-volume printing is generally considered to be better than 200 m2/hr, new printers have moved way beyond this benchmark.

Stork Prints highlighted their new Sphene 24 digital printer, which is said to realize speeds up to 555 m2/hr on virtually any fabric; including tricky substrates such as polyamide/elastane swimwear knits. Durst Phototechnik AG launched its Kappa 180 inkjet printer, said to reach speeds of over 600 m2/hr with a resolution of 1056 dpi x 600 dpi.

Xennia Technology’s Osiris high speed digital printing system, also introduced at ITMA, is said to be one of the fastest inkjet printing systems in the world. It is capable of printing up to 2880 m2/hr, with up to 8 colours; its speed gives mass market fashion printers a competitive edge by allowing them to react quickly to new fashion trends.

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Inconvenient Truth about Foxconn: Should Apple care about how its supplier operates??

A few days ago, Henry Blodget wrote :

We love our iPhones and iPads.

We love the prices of our iPhones and iPads.

We love the super-high profit margins of Apple, Inc., the maker of our iPhones and iPads.

And that’s why it’s disconcerting to remember that the low prices of our iPhones and iPads–and the super-high profit margins of Apple–are only possible because our iPhones and iPads are made with labor practices that would be illegal in the United States.

The article summarizes a recent episode of NPR’s This American Life which did a special on Apple’s manufacturing.  Foxconn, one of the companies that builds iPhones and iPads (and products for many other electronics companies), has a factory in Shenzhen that employs 430,000 people. Apparently, an estimated 5% of them are kids (12 to 14 years) old; the standard shift is 12 hours and can extend to 14 – 16 hours; while the reporter is in Shenzhen, a Foxcon worker dies after working a 34-hour shift; the hands of workers who are using the neuro-toxin Hexane (which evaporates faster than other cleaners) to clean iPhone screens are shaking uncontrollably; etc.  All this for a wage of less than $1 an hour.

Henry concludes:

The bottom line is that iPhones and iPads cost what they do because they are built using labor practices that would be illegal in this country–because people in this country consider those practices grossly unfair.

That’s not a value judgment. It’s a fact.

So, next time you pick up your iPhone or iPad, ask yourself how you feel about that.

A good question indeed and you should ask how you feel. (Interestingly, respondents to this story span the entire spectrum.)  But let me ask whether Apple should care about this?  The answer is an emphatic “but off course.” Anyone familiar with “non-market strategies” knows that even a small fraction of the population can provide sufficient activism to bring a company to its senses.  (If you are not familiar, read “Reputation Rules” by my colleauge Daniel Diermeier.)  The momentum is already building: this weekend Forbes asked whether this is Apple’s Nike moment? Of course we hold big, successful companies to a higher standard; tall trees catch much wind.

So what will Apple do?  Well, it seems it already mounted campaigns–recently it disclosed for the first time its list of suppliers (without any addresses we should add–they still don’t want to make it easy, but it’s a first step). More interestingly, however, is the question how they will deal with the Foxcon issue: even Apple may not (nor want to) be in a position to control a company that runs a factory with 430,000 people.  Indeed, in a follow-up blog my colleague Marty will write about another key reason (besides cost) that Foxcon is so attractive: fast response at massive scale.

But this is not the first time Foxcon suicides are in the news (see May 2010 article) and Foxcon isn’t know for respect of its employees (recently the CEO called its employees “animals“). So Apple likely has been working on addressing this for a while.  Could the amazing $8 billion in announced capital investment at suppliers (see this earlier blog entry) include automation to reduce the human stress and risk factor? It surely would be in line with Apple’s strategic quest for high quality (i.e., consistency, low tolerances, etc.) while retaining high scale.  However, it would imply a faster-than-expected transition in China from low-level assembly by hand to higher job requirement for much fewer people.  Starts sounding like our job quandary?

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The genius behind the Apple Store

Apple’s adventures in retailing have largely been successful. The Wall Street Journal had a recent story that provides some eye-popping numbers on just how well they Jobians have done at the mall (Secrets From Apple’s Genius Bar: Full Loyalty, No Negativity, Jun 15).

More people now visit Apple’s 326 stores in a single quarter than the 60 million who visited Walt Disney Co.’s four biggest theme parks last year, according to data from Apple and the Themed Entertainment Association. Apple’s annual retail sales per square foot have soared to $4,406—excluding online sales, according to investment bank Needham & Co. Add in online sales, which include iTunes, and the number jumps to $5,914. That’s far higher than the sales per square foot and online sales of jeweler Tiffany & Co. ($3,070), luxury retailer Coach Inc. ($1,776), and electronics retailer Best Buy Co. ($880), according to estimates.

So what is the secret sauce behind Apple’s success? According to the Journal, it’s largely about employing training.

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iPad2: Product Rationing and Allocation Schemes

For my first blog, I’d like to share a personal experience and link it to some questions of interest to the Operations Room, which has blossomed under the nourishing care of my colleagues Professors Allon and Lariviere.  (Thank you, Gad and Marty!)

On March 2, 2011, Apple announced the “iPad2: Thinner. Lighter. Faster. FaceTime. Smart Covers. 10-hour Battery. Coming March 11. Starting at $499.”

Marketing works: On March 5, 2011, my brother and sister agreed that an iPad2 would be a great Mother’s Day gift.  My mom lives in Belgium and uses her old laptop mainly for email, browsing, playing bridge, and skyping me, Shannon and our four kids in Chicago.  We agreed that the 16GB wifi model would be more than sufficient. I was to buy one and carry it on my April 28 flight to Belgium (en route for Germany for my annual teaching in our executive MBA program at our partner school WHU).

That was the plan and … I put it on the backburner “for later” but never entered it as a task on my Outlook.  So I forgot about it until suddenly on April 11 I realized there were only 17 days to go.  I hadn’t anticipated the product would still be in short supply one month after introduction. 

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