A New Start

FT: Meet the world’s biggest chocolate maker

  Meet the world’s biggest chocolate maker

By Haig Simonian

Published: July 18 2007 19:42 | Last updated: July 18 2007 19:42

The packaging promises pleasure, the contents suggest satisfaction, but how many consumers spare a thought for the raw materials in their favourite chocolate?

Key facts

• Sales (2005/06): SFr4.3bn
• Net profit: SFr183m
• Employees: 8,500

Whether a branded bar from a multinational or a gourmet praline made by a specialist, the chances are the raw material will have come from one source: Barry Callebaut, the world’s biggest chocolate maker.

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About 8,500 Barry Callebaut employees toil worldwide, buying cocoa beans, converting them into chocolate and selling the results. Depending on the customer, the end product can be anything from cocoa powder in packets, liquid chocolate in tankers or dainty little bars sold to individual chocolatiers.

Together, sales to such clients mean the Zurich-based company should churn out more than 1.2m tonnes of chocolate and related cocoa products this year – with Barry Callebaut involved in a good one-in-four of the chocolates we eat.

The only unifying factor is that next to no one outside the business has ever heard of Barry Callebaut, in spite of a surging share price and the fact that the company has generated revenues of nearly SFr3.3bn ($2.7bn) in the first nine months of the current business year,

“We are by far the world’s biggest chocolate maker, but not so well-known”, admits Patrick De Maeseneire, chief executive. “Most of our customers are wholesalers and prefer to put their names on our product.”

Clients range from confectionery companies, such as Nestlé, Hershey and Cadbury Schweppes, to foods groups like Kraft, Kellogg and Unilever. Although such multinationals dominate sales, the company also caters to thousands of hotels, restaurants and confectionery shops.

Attempts to break away from the business-to-business model and to win more consumer recognition have not always gone to plan.

In March 2002, Barry Callebaut bought Stollwerck, a leading German chocolate company, known for its Sarotti brand.

Instead of enhancing Jacques and Alprose, Barry Callebaut’s two existing consumer brands, the initiative turned sour, with disappointing sales, exacerbated by Germany’s recession, factory closures, job losses and big restructuring provisions.

But Mr De Maeseneire, who joined the company later, defends the decision:. “You shouldn’t say it was a good or bad idea. The market changed.”

He says buying Sarotti deepened the group’s knowledge of the retail market, easing expansion into producing “own label” products for retailers.

Perhaps the biggest lesson from Stollwerck was to reaffirm Barry Callebaut’s focus upon core business.

That awareness was propitious. Many of Barry Callebaut’s biggest customers are reassessing their chocolate needs and show increasing willingness to buy more from outside, whether liquid chocolate or even finished products.

The process reflects changes. Squeezed by rising raw materials prices and ever-stronger retailers, big food groups struggle to contain costs, and turn to outsourcing.

Greater outsourcing can be a sensible response – especially if a specialist such as Barry Callebaut is cheaper and more flexible than in house manufacturing. Such decisions look even more appealing when ageing factories need modernisation or renewal – allowing manufacturers to avoid capital expenditure.

In recent months, Barry Callebaut has signed breakthrough deals with Nestlé, Hershey and Cadbury Schweppes in what Mr De Maeseneire calls an accelerating trend. Hershey, for example, only started outsourcing chocolate supplies two years ago.

In other cases, Barry Callebaut is finding that some established customers want to deepen the relationship further. Nestlé, for example, has not only outsourced more chocolate supplies, but has agreed that Barry Callebaut should take over an entire factory in Dijon, including responsibility for manufacturing the group’s distinctive Lion bar.

“The process has really started. Our customers will concentrate increasingly on marketing, selling and distribution, and less on the rest of the value chain”, Mr De Maeseneire says.

He concedes that rival suppliers, from giants such as Cargill and ADM to smaller local chocolate makers, want to break in. But he is confident Barry Callebaut’s unmatched vertical integration provides an edge.

“Being on the ground in the chocolate producing countries gives us much better quality control. The fact that we then go up the entire value chain can also help us in terms of costs and innovation. And we have unmatched geographic spread.”

Mr De Maeseneire recognises outsourcing has its limits. No big group will source more than 40-50 per cent from an outsider, he concedes. Yet, that leaves room for Barry Callebaut to grow. Just don’t expect to see its name on the packet.

Copyright The Financial Times Limited 2007

FT: Learn to read Thai, get an education

Learn to read Thai, get an education

By Amy Kazmin in Bangkok

Published: July 17 2007 17:55 | Last updated: July 17 2007 17:55

In the dilapidated former canteen of Thailand’s Wat Si Sutharam School, about 20 Burmese children – aged five to 15 – sit on benches, carefully copying the first letter of the Thai alphabet in lined notebooks. Among them is 10-year-old Sai Htaw, a boy from Burma’s ethnic Mon minority, whose mother, San Aye, a worker in the coastal province of Samut Sakorn’s vast seafood-processing factory, hovers nearby.

Sai Htaw has a Thai name (Amporn) and speaks Thai with ease. But he neither reads nor writes it. During what should have been the early years of his education he was barred from Thai schools because he lacked a birth certificate, something issued only to Thai citizens.....

=> (see attached)

FT: Why the Americans and Brits do not save for a rainy day

Why the Americans and Brits do not save for a rainy day

By John Kay

Published: July 17 2007 03:00 | Last updated: July 17 2007 03:00

The inveterate spending habits of rich American households are financed by the thrift of poor Chinese peasants. The explanation of this paradox has several elements, but the contribution of financial market deregulation is a paradox in itself. The more highly developed a country's retail financial services, the less that country saves.

The US, followed by the UK, has the most sophisticated range of products available to savers and investors in the Group of Eight rich countries. The large continental European economies - France, Germany and Italy - follow some way behind, and Japan and Russia come after that. That ranking is also the ranking of national savings rates, with the US and the UK at the bottom and Japan and Russia at the top.

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Only the worthy Canadians - who benefit from American financial expertise and products but retain the thrift and caution appropriate to their chilly climate - are an exception to the general rule. These rankings - particularly the low savings rates of Britain and the US - are long- established and firmly entrenched.

Liberal financial markets give wider opportunities to save and to borrow, but they expand opportunities to borrow even more than they expand opportunities to save. Britain and the US have the most competitive mortgage markets,and have also been pioneers in equity release schemes that enable people to spend the capital gains accrued in their homes. These countries were also the first to adopt credit cards, and they still make the most use of them.

Italy, by contrast, has relatively less lending for house purchases than any other developed country, even though it has a high rate of owner occupation: well-meaning but inept regulation has inhibited the evolution of both the mortgage market and the rental market.

The common myth is that young Italian men remain at home because they cannot tear themselves away from Mamma's cooking. A more likely explanation is that they can find nowhere else to live. Italian law protects consumers by making it almost impossible to repossess a house, which achieves the intended effect in an unintended way by making it difficult to obtain a mortgage in the first place. When Mamma and son are not savouring the bolognese, they are both busily saving to find the substantial deposit needed for his house purchase.

Social habits and economic institutions are mutually reinforcing. German banks are conservative lenders, and German households suspicious of debt. This creates a frame of mind that justifies the old joke that banks will lend only to someone who doesn't need the money. And these banks are right to behave that way, because anyone who does need the money has stepped outside established cultural norms.

A wider and more attractive range of investment opportunities does not necessarily lead to more saving. If saving were a commodity like any other, better returns and wider choice would make saving more appealing.

But saving is not an intrinsic good; it is a means to future consumption. If you can expect - or are led to believe you can expect - indefinite double-digit returns from your stocks, you need put aside correspondingly less to achieve any particular goal. And savings have a precautionary purpose - what an older generation used to describe as providing for a rainy day. But the more options you have when a rainy day arrives, the less you need precautionary saving. The credit card and access to the equity in your home are always available.

None of this means that financial market deregulation is a bad thing. But I used to believe that the justification for an active financial system was that it made it easier to garner the funds needed to build schools and factories, shops and offices.

Yet active financial systems don't build more schools and factories, shops and offices. They are associated with higher shares of consumption and lower shares of investment in national income. The role of a developed financial system is to enable us to buy a Wii as soon as it appears in the shops and spend our retirement cruising the Caribbean.

Copyright The Financial Times Limited 2007

FT: Why leaders need to take out the trash

Why leaders need to take out the trash

By Stefan Stern

Published: July 17 2007 03:00 | Last updated: July 17 2007 03:00

Let us now give praise to the officials at City Hall in Albuquerque, New Mexico, who in many ways are the inspiration behind this entertaining new book.

A few years ago managers of refuse collection in Albuquerque were facing a knotty problem. The garbage trucks were taking too long to complete their rounds, creating a huge overtime bill.

But those officials were not stupid. They knew all about the power of incentives to motivate employees. Emboldened by this knowledge, they hit upon a brilliant plan. They would pay the drivers only for an eight-hour shift, regardless of how long it took the crews to get around town. Thus inspired, the drivers would get a move on and finish their rounds in plenty of time.

You can probably finish this story for yourself. The teams started skimping on collections. Irritated citizens called up to complain, demanding that an extra refuse truck be sent out to pick up their rubbish. This caused costs to rise further.

Worse, speeding refuse truck drivers, trying to get round their route in only eight hours, caused road accidents, pushing up insurance claims. The so-called "incentive" to improve had turned out to be a catastrophe.

It is this sort of management disaster that Jeffrey Pfeffer, a professor at Stanford University's graduate school of business, has enjoyed analysing for readers of Business 2.0 magazine in recent years. This book is an extended and revised selection of these articles.

In 28 succinct chapters, Pfeffer provides a kind of alternative MBA in how not to run a business. While this may not be a book you would want to sit down and read from cover to cover - we can only take so much reality - its thematically grouped chapters would serve as a useful crib whenever you are faced with apparently insoluble management dilemmas.

Pfeffer talks a lot of sense. He is sceptical about so-called Customer Relationship Management software. "Before you can manage a customer relationship, you first need to build or create that relationship," he writes. "And customer relationships are not really built by fancy data mining and statistical analysis packages that track people's behaviour, nor by the now-ubiquitous automated phone systems that basically just irritate people . . . Relationships and their quality are determined by what happens to customers when they actually make contact with organisations."

US firms are cutting benefits, even when most of Fortune magazine's "best places to work" offer benefits that are more generous than standard for their industry or for the economy as a whole. "It seems ironic that companies are cutting one of the ways that they have traditionally attempted to achieve an advantage in attracting employees, just at the moment that the competition for labour is about to increase."

Our author would like to see more honesty from business leaders. "When leaders admit that they don't know everything, that they too make mistakes, and that they are completely comfortable with talking about those mistakes and telling the truth about what is going right and what is going wrong, they set an example that others are likely to follow," he says. And he salutes Anne Mulcahy, chief executive of Xerox, who, on taking up the job, told Wall Street that the company's business model was flawed.

Where else could Pfefferian common sense be introduced? Perhaps in the area of budgets. The familiar problem here is executives who rig the system. "Senior executives have every incentive to set targets they can meet or, even better, exceed, while their boards typically try to set more ambitious goals," Pfeffer writes. "This process essentially rewards forecasting ability - can we predict what we are going to be able to achieve - and the ability to negotiate with one's bosses."

And so we end where we began - with dodgy incentives. We should provide recognition and share success, the professor tells us, "but you certainly don't want to make the incentives so large that they begin to drive and distort behaviour".

The next time a half-baked performance related pay scheme is suggested as the answer to your company's problems, don't forget to share the story of the Albuquerque refuse truck drivers.

Copyright The Financial Times Limited 2007

FT: The hidden beauty of numbers

“I want to show you that I am a serious professor,” he says near the end of one of his presentations, “which is why I have put some bullet points on a PowerPoint slide.”

The hidden beauty of numbers

By Simon Briscoe

Published: July 16 2007 17:06 | Last updated: July 16 2007 17:06

Hans Rosling wants to help people make sense of the world by “unveiling the beauty of statistics”. One of a few bright lights in the world of number crunchers, the professor of health at Sweden’s Karolinska Institute thinks figures should be “out there, understandable, free and searchable”.

To help him put an end to lifeless spreadsheets and dull PowerPoint presentations, Prof Rosling has created Trendalyzer, a software programme that uses eye-catching graphics and animation to display data.

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Swedish health academic, Hans Rosling, is on a mission to add pizzazz to official statistics with eye-catching graphics

His application, which he sold to Google in March for an undisclosed amount, holds out the promise of changing public perceptions of official statistics, and it offers companies a potentially powerful weapon in the war for sales.

Prof Rosling’s dissatisfaction with traditional ways of presenting data is echoed by others. Enrico Giovannini, the chief statistician at the Organisation of Economic Co-operation and Development, is horrified by research showing many people have “no idea” about inflation or unemployment rates in their country, even though most say they want to know more.

He believes that inventive ways of presenting data can make citizens more knowledgeable, citing the weather map as the perfect example of something that is widely understood, even if only meteorologists can grasp the millions of underlying numbers.

Technology can help. IBM’s “Many Eyes” project, a recently launched data display website, allows users to load, visualise and discuss numbers – ranging from economic indicators to sport or even literature statistics. It has also added social networking tools.

California-based Swivel is another site that lets people share and display data in a similar way. Users can load data, merge it with other figures and present it in chart form at the click of a button. The service is free if the data remain in the public domain but Swivel will shortly release a “professional” version for companies that want to keep data private.

The appeal of Rosling’s software – which can be seen in presentations on his foundation’s website, www.gapminder.org – is its dynamic element. Users can play around with different variables, highlighting them in colour, chopping and changing between years, switching from countries to continents, and watching them shift over time.

In one Gapminder presentation, the traditional points on the compass are replaced with “healthy”, “sick”, “rich” and “poor”. All the world’s countries are plotted with Norway and Iceland in the top right quadrant and Somalia and Liberia among those in the bottom left. Cuba is in the top left and Equatorial Guinea in the bottom right. Press play, and the countries – represented as coloured bubbles – expand, contract and shift on the screen as the years pass.

Brian Mulloy, chief executive of Swivel, says such presentation tools could have many applications for small and medium-sized businesses. For instance, a head of sales might want to add some pizzazz to revenue updates for a far-flung team, or a company’s analyst might want to plot turnover against the weather or some other unusual variable.

Prof Rosling began developing the software as a way of helping his students. After some years working in Africa, where he discovered konzo, an epidemic paralytic disease, and was a co-founder of the Swedish arm of Médecins Sans Frontières, he took a teaching job at the Karolinska Institute. It is thanks to his students’ outdated view of the world, he says, that he strayed into the world of statistics and their presentation.

He relished the discovery – “where there is ignorance I can teach” – but says he worries about how many heads around the world “are full of preconceived ideas”. On the premise that “the world can never be understood without numbers – or with only numbers”, he set about constructing a programme that could help people and business make sense of the world.

The link between data and people ought to be simple, he says, passing from source, through interpreters and researchers, then the media and finally to citizens. However, statistics often appear “boring, difficult, expensive and generally not fun to look at”.

He draws an analogy with music: most people would find the written notes dull but love them when they are played. He says he wants to “play the statistics” and is adamant that “he has the eye of the user” in mind all the time.

There is no doubting the impact of his work among statisticians, which is partly down to his engaging lecture style. Paul Cheung, head of statistics at the United Nations, says that his “bubble graphs and horse-racing jokes” have “pushed and cajoled statistical offices around the world to reach for a higher standard of data dissemination”.

Prof Rosling is a consummate performer but has a simple message. In the same way that “you don’t have to pay to walk up a street”, he says, information and understanding about our world should be free and widely accessible. “Statistics should be the intellectual sidewalks”.

Google should be able to deliver that. The search engine group describes the software as “a genuinely innovative way of showing complex data in a way that people can easily understand” and reflects that its mission is “to organise the world’s information – including public data – to make it universally accessible”.

Prof Rosling claims to have a strong following among heads of state, who love to compare their country’s performance with a neighbour’s, and among the web-based young. He also says companies are “extremely interested” and expects corporate applications to follow rapidly – arguing that businesses, already very analytical in their approach, need little persuasion of the appeal of a fact-based view of the world.

He warns, however, that the inefficient use of data could hold back progress. In contrast, the problem with public-sector data is that national agencies are reluctant to allow access.

Presentation styles in the corporate world of the management consultant are ready for a shake-up, he says, and mocks anodyne executive presentations using PowerPoint and given from behind lecterns. “I want to show you that I am a serious professor,” he says near the end of one of his presentations, “which is why I have put some bullet points on a PowerPoint slide.”

One regular conference speaker says: “Speaking after Rosling is worse than the session after lunch in a hot auditorium – he’s a tough act to follow”.

Copyright The Financial Times Limited 2007

FT: Time for some clarity about ambiguity

It seems to me that successful organisations do all they can to drive out complexity and ambiguity. They keep things simple, or as simple as they can be. Even though the supermarket chain Tesco now has more than 350,000 employees worldwide, there are still only six layers of management between Sir Terry Leahy, chief executive, and the person on the check-out. And while the company’s shelf-stackers may not be able to draw you a nice little map of the twin forces of individual and institutional complexity, as described in the McKinsey article, they will probably be able to tell you that their prime concern is to listen to their customers and give them what they want.

At a breakfast seminar in London last week run by CHA, the communications consultancy, a roomful of senior managers agreed that while it was all very well having leaders who were “comfortable with ambiguity”, lower down the organisation you often found over-stretched middle managers and beneath them a confused and bewildered workforce. Leaders need to offer an easily understandable view of the world and describe their employees’ place in that world in clear and simple terms.

==

Time for some clarity about ambiguity

By Stefan Stern

Published: July 16 2007 16:58 | Last updated: July 16 2007 16:58

Do you mind if I make a rather embarrassing confession? I am not comfortable with ambiguity. This must explain why so few headhunters – well, none, actually – have been on to me in recent weeks about any of the senior positions that currently need filling. Clearly, my mono-tasking mindset leaves me unambiguously disqualified for a seat at the top table.

But if I had a pound for every time a consultant or headhunter had told me in the past year that organisations need leaders who are “comfortable with ambiguity”, well, I would not have to worry about cranking up my salary to executive-level proportions.

What does everybody mean when they talk about “ambiguity” in this way? I suppose it is just the latest attempt to try and describe the fast-changing, globalising world. Last year the business community’s cliché of preference seemed to be “visibility”, as in the phrase, “We lack visibility going forward”. This was thought to be a less scary way of saying, “We haven’t got a clue what’s going on right now, and as for a few months down the road, forget it”.

Managers face ambiguity all the time: as they enter new markets, as they work with diverse colleagues, customers and suppliers, as they grapple with new legislation and as they track economic and geopolitical trends. Exactly how “comfortable” anyone could or should ever be when faced with this combination of circumstances is debatable.

Even the meaning of ambiguity itself can be, you guessed it, ambiguous. In 1930 the poet and literary critic William Empson published his Seven Types of Ambiguity, an exploration of the richness of language and its potential to convey and obscure meaning.

Empson is perhaps our best guide to the subject. As he explains: “Ambiguity . . . can mean an indecision as to what you mean, an intention to mean several things, a probability that one or other or both of two things has been meant, and the fact that a statement has several meanings.” I trust this clears it all up for you.

“Ambiguity” can also be seen as a different way of referring to that other fashionable concept in business: complexity. In the 1990s it became trendy to talk about organisations as “complex adaptive systems”. The idea was based on the belief that companies formed a kind of living ecosystem and, as in nature, adaptation offered the route to survival. We needed to lose our hang-ups about control and trying to achieve “linear” results, and instead embrace the crazy, chaotic world of “non-linearity”.

Having once spent some time myself working for an organisation that believed it had embraced complexity, I have to say that results there were mixed. We certainly created more than our fair share of chaos. But our performance was ultimately pretty linear – and not necessarily in the direction that you would have hoped.

Can the clever people at McKinsey help us out with this one? Three of their consultants have just published a paper called “Cracking the complexity code” in the latest edition of the firm’s quarterly journal. In it the authors try to make the case for complexity. It can bring competitive advantage, they claim. “Companies that understand this concept will create more value than their rivals, become more resilient and make it harder for others to replicate what they are doing.”

And what do you need to do to produce this happy outcome? Make sure that “flexibility and adaptive qualities are embedded throughout the organisation”, and see to it that you have “highly capable people in most roles”. That shouldn’t be too difficult, then.

It seems to me that successful organisations do all they can to drive out complexity and ambiguity. They keep things simple, or as simple as they can be. Even though the supermarket chain Tesco now has more than 350,000 employees worldwide, there are still only six layers of management between Sir Terry Leahy, chief executive, and the person on the check-out. And while the company’s shelf-stackers may not be able to draw you a nice little map of the twin forces of individual and institutional complexity, as described in the McKinsey article, they will probably be able to tell you that their prime concern is to listen to their customers and give them what they want.

At a breakfast seminar in London last week run by CHA, the communications consultancy, a roomful of senior managers agreed that while it was all very well having leaders who were “comfortable with ambiguity”, lower down the organisation you often found over-stretched middle managers and beneath them a confused and bewildered workforce. Leaders need to offer an easily understandable view of the world and describe their employees’ place in that world in clear and simple terms.

I shall struggle on, uncomfortably, through the dark forests of ambiguity. But at least I am in good company. Last week Richard Baker, the chief executive of Alliance Boots, resigned as he did not want to remain chief executive reporting to an “executive chairman”.

Looks like he had a problem with ambiguity that no amount of over-the-counter pharmaceutical products could ever have solved.

[email protected]

Copyright The Financial Times Limited 2007

FT: Standard-bearer for academe

Standard-bearer for academe

By Della Bradshaw

Published: July 15 2007 14:44 | Last updated: July 15 2007 14:44

As Patrick Harker quits his job as dean of the Wharton school at the University of Pennsylvania he will be remembered most readily as the academics’ dean, a standard-bearer for academic tradition. That is ironic for a man who was one of the youngest deans ever in a top US business school and has pushed back many boundaries in business education. But his reputation has been earned for two good reasons.

First, he believed education at a top business school was about tackling difficult problems and working hard – not necessarily about having a good time. It was a view that resonated well with many in his profession. Second, he took a well-publicised stand against business school rankings.

On the latter, Prof Harker, 48, who becomes president of the University of Delaware this month, laughs that many people saw his decision as madness. But his views found favour with other US deans looking for a champion against the deluge of media assessment of business education.

Prof Harker believes the campaign he pursued with Harvard had some success. “We changed the rhetoric,” he concludes. But while applauding the moves by the two top schools, few others chose to emulate them.

Indeed, a frustrated Prof Harker points out that in the run-up to this year’s US News and World Report MBA rankings, which rely heavily on recommendations from deans themselves, he still got piles of promotional material from the very business schools supporting his stance. “What a waste of trees!”

His views on rankings relate as much to the prominence they are awarded by business schools as to the rankings themselves. “Their [the business schools’] worth is defined by what magazines say about them,” Prof Harker says. “They don’t do the hard work and say: ‘This is what we stand for; this is the kind of student that will succeed here.’” He believes rankings often lead managers to limit their choice of a school to one ranked in, say, the top 10 of a media listing.

On the academic side of running a business school, Prof Harker fought to maintain standards when many schools were bowing to pressure from MBA students and there was an increasing commoditisation of the degree. “As an institution we do them [students] a disservice and recruiters a disservice if we don’t push them,” he says.

All this came when business schools were questioning whether the MBA taught students what they really needed to know. “You always have to be a little bit paranoid and you have to question yourself: are we producing the kind of people the world wants?” At Wharton, he says, “the answer seems to be ‘Yes’ ”.

Prof Harker is unrepentant about his stand on academic standards. “Educating students and creating ideas – it’s not a very complicated business.” So it is not surprising he is sceptical about business schools that create programmes just to make money.

How to maintain academic standards yet sell the Wharton brand more widely – “engaging with the world in an effective way”, as he puts it – was one of the greatest challenges facing Prof Harker.

Lowering standards to develop mass-market products was not an option, he says. Alumni would not allow Wharton to offer “cheap” degrees, while faculty would not allow the school to reduce the quality of students. “If faculty believed students were not high quality, there would not be enough money to bribe them with,” he quips.

But for Prof Harker as dean, money was one of the big issues, and he lists fundraising as one of his big successes: in eight years he has raised close to $500m. The big achievement, he says, was to engage with alumni and increase the number of small gifts.

Increasing the money in the pot has meant he has achieved his second goal of increasing faculty size: he has added 20 members. This has enabled the school to set up a group concentrating on legal issues and ethics – the only top-drawer business school to have done this.

This also enabled him to open a second campus in San Francisco, but growth there has been slow. “The most valuable thing you manage is faculty time,” he says.

As a result, discussions among faculty earlier this year concluded the time was not right for Wharton to open a campus outside the US. Still, Prof Harker believes this will happen within the next decade.

Meanwhile, the school is reaching out to clients outside its local geo­graphy through its [email protected] family of online research publications – the service has close to 1m subscribers – and through executive education.

Wharton already does $70m of business a year in executive education and has offices in China and India. Just how to evaluate the new Asian economies will be one of the biggest jobs for his successor, Tom Robertson, believes Prof Harker. “How do you actively engage with China and India? You can’t do it by flying people in. If you’re going to be a player you have to be there on the ground.”

He sees Insead, which has a second campus in Singapore, as a potential model for Wharton: the two schools have had an alliance since March 2001. But, he says, it all comes down to the inclusion of the faculty, and the reason they are not all earning mega-bucks on Wall Street is because of the lifestyle they enjoy as academics.

As for Prof Harker, he, too, is keen on teaching. Next spring, as president of the University of Delaware, he will teach a class in service management – the first class he has taught in eight years. And when one group of freshmen enrol on their degree programme this autumn they will be in for a surprise. Their mentor will be none other than the president.

So what will he bring to the table as president? “What I have learnt about myself over the past eight years is how entrepreneurial I am,” he says. And that, he concludes, he learnt from the faculty at Wharton.

http://www.wharton.upenn.edu/

http://www.udel.edu/

Copyright The Financial Times Limited 2007

FT: Users are transforming innovation

Users are transforming innovation

Eric von Hippel and Michael Schrage

Published: July 10 2007 17:38 | Last updated: July 10 2007 17:38

Pincered between the US’s established technical prowess and Asia’s growing dynamism, the European Union has declared innovation a policy priority. Entrepreneurship is encouraged as never before. The roles of research and development and higher education are stressed.

Unfortunately, these important initiatives undervalue perhaps the most important transformation now redefining the world’s innovation economy. Ingenious leading-edge users – not everyday consumers or profit-focused producers – are becoming the economic engines that drive innovation. In sectors as diverse as software,  biotechnology, medical instrumentation, telecommunications and sports equipment, users are spurring growth.

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Academic researchers are rapidly converging on the notion that the most effective form of user-centred innovation involves design collaborations among many, widely distributed contributors via the internet. Technology dissolves once-meaningful distinctions between “innovators” and “customers”. Policymakers must take note.

The rise of open source software as a business phenomenon rivalling SAP, Microsoft and IBM, for example, offers policymakers at the national, regional and global level a superb model and challenge. Intellectual property agreements based on compulsory licensing and code-sharing have fostered vibrant global communities that openly reveal and share their innovations. Sophisticated software users with a need for better solutions – not proprietary software developers –­ have been the dominant innovators here. These users have crafted intellectual property rules, informal networks and peer review mechanisms that transcend borders.

Their success has prompted a fundamental rethink of digital business models. Proprietary software incumbents have been forced to respond and adapt. Competition from open source has made them more innovative and responsive to customers.

Is this success an aberrant one-off, or does open source represent the tip of a user-driven innovation iceberg that will further shatter policy assumptions? Europe led the world in promoting user-driven innovation infrastructures. When Tim Berners-Lee spun off the world wide web network software collaboratively developed at Europe’s Cern particle physics laboratory to support the world’s high-energy physics community, he proffered digital designs that made users into digital developers. The rise of the internet has been a tale of user-driven innovation. This shift towards digital design and prototyping tools is rapidly being extended to all fields, from sports equipment design to the design of complex biological molecules.

Courageous entrepreneurs and brilliant engineering polymaths are hardly irrelevant or minor players in this environment. But policymakers seeking to encourage sustainable innovation environments simply cannot afford to ignore users. The opportunity to transform innovation requires policymakers to take them seriously.

Denmark has been the first nation to turn this into policy. In 2005, the Danish government established “strengthening user-centred innovation” as a national priority. Sweden’s tradition of “participatory design” has positioned several of its industries to take good advantage of this phenomenon. Britain’s National Endowment for Science, Technology and the Arts has begun funding policy research in user-driven innovation. These early efforts are important and more will follow.

The policy point here should not be to invite new subsidies for innovative users. The issue is “empowerment” not subsidy. Policymakers need the intellectual honesty and common sense to examine where existing innovation policies subsidise more traditional and more proprietary approaches at the expense of user-driven innovation. Policies discriminating against users undermine an economy’s ability to innovate and grow.

Certainly, national governments and the European Union could use their procurement power and standards-setting influence to ensure that in healthcare, digital technologies, public education and energy networks, user-driven innovation infrastructures are granted parity with proprietary vendors. Patent-holders should not be allowed to smuggle protected property into a common space and later claim damages when that property is innocently used. The right to modify products that have been purchased must also be clarified; open standards must be supported.

Neither “open source” nor “user-centred” means free. Manufacturers fighting rearguard actions against user-created content should look instead to the new business models being developed by companies such as Google. There is great wealth to be grown from proffering platforms for user-developed innovation. Semiconductor production companies, for example, have long profited by offering user-friendly toolkits to enable users to design their own high-quality circuits. General Electric – realising that users are the real developers of new medical MRI functionality – profits by opening up its MRI equipment to selected users. It even supplies specialist engineers to assist user-innovators, with the expectation of benefiting from preferred access to developed innovations.

Europe has an extraordinarily well- educated population all-too-frequently frustrated by institutional strictures and intellectual property constraints that make innovation more difficult than it needs to be. Rather than over-rely upon the past century’s innovation mechanisms of venture capital, targeted subsidies and national champions, policymakers should treat this global trend as an innovative opportunity. The rise of user-driven innovation is about the democratisation of innovation – an act of economic empowerment. Boosting economic empowerment is a powerful way of boosting growth. Policies that facilitate greater diversity and democracy of growth are good politics and good economics.

Eric von Hippel is T Wilson professor of management and Michael Schrage is a researcher at the MIT Sloan School of Management

Copyright The Financial Times Limited 2007

FT: FT REPORT - DIGITAL BUSINESS: Risk-taking on the road to faster delivery

FT REPORT - DIGITAL BUSINESS: Risk-taking on the road to faster delivery

By Sarah Murray, Financial Times
Published: Jul 11, 2007

Every night at FedEx's Memphis hub, workers gather in teams to conduct the flex and stretch exercises required before anyone starts handling anything. The packages they will be shifting are heading for the airport on flights and in trucks from across the US. The smell of cardboard mixes with the heady aroma of jet fuel as everyone gears up for the night's big lift.

However, behind the trucks and vans, the yard mules and dollies, the fleet of almost 700 aircraft and the mass of conveyor belts (300 miles of them at the Memphis hub alone) are sophisticated IT systems. For it is technology that underpins FedEx's business, helping the company shift an average of 6.5m packages around the world every day.

"Go on FedEx.com - you'll see FedEx Ground, FedEx Express, FedEx Freight and it's a wonderful experience," says Fred Smith, FedEx's founder and chairman. "But there are all kinds of little hamsters running around to keep it going."

These "little hamsters", as Mr Smith refers to the company's IT systems, are what get customers' packages to their destination on time and in good shape, and allows their progress to be tracked online.

Information technology was not at the forefront of Mr Smith's mind when he developed his idea for a business based on the overnight delivery by air of high-value shipments such as electronics, pharmaceuticals and luxury goods using a hub-and-spoke system.

A graduate of Yale University, Mr Smith served as an officer in the US Marine Corps from 1966 to 1970. Just a year later, he founded what was then called Federal Express and on April 17 1973, the company launched its first night of continuous operations. With 14 Dassault Falcon jets and 389 employees, Federal Express delivered 186 packages overnight to 25 cities in the US.

However, it soon became clear to the Mississippi-born entrepreneur that technology would become a critical part of the business. "We were substituting this type of fast-cycle transportation for investment in inventory, and it became immediately apparent that, when you did that, you had to do it correctly every time.

"The fact that you got bigger and bigger was irrelevant to the customers," he says. "So we got very focused on technology as the only way to discretely manage every shipment in the enterprise."

This, says Mr Smith, was his first epiphany, and by the late 1970s and early 1980s, FedEx was investing heavily in IT and had established a development centre in Colorado Springs to attract talented employees to that side of the business.

It also acquired the IT division of a Memphis company that was being broken up, a deal that brought with it Jim Barksdale (the executive who would eventually head Netscape) as chief information officer. After several years in the position, Mr Barksdale became FedEx's chief operating officer.

Crucially, at FedEx, the CIO was not part of the finance department - as so many "computer divisions" were at the time - but was established as a senior position reporting to the chief executive.

In addition to placing IT so prominently in the corporate hierarchy, a good deal of what Mr Smith calls "evangelism" was needed to establish technology at the heart of the business. "It wasn't understood how profound this requirement for information in terms of managing logistics would become," he says.

By the late 1970s, Mr Smith had established his often-quoted principle that "the information about the package is as important as the package itself", and through the 1980s, the IT innovations came thick and fast, with the introduction of an automated shipping system, barcode labelling, radio transmission systems and hand-held barcode scanners.

The second moment of truth was the recognition that customers needed to track their inventory whether at rest or in motion. In the early days, this information was delivered to customers using proprietary software on PCs supplied by FedEx. "But in 1994 the internet came on the scene and you had the potential to let people interface with you, not through proprietary networks or hardware and software we supplied," says Mr Smith. "But from a screen anywhere."

The migration of package-tracking information to the web was one of two big and risky decisions made early on in the company's development. The other had been the switch from using the ACP (airline control programme) applications developed for airline reservations systems to IMS, an inventory management system that was far more flexible. "IMS was not nearly as robust and hardened - so that was a very difficult call in those days," says Mr Smith.

As FedEx was developing, so was the concept of just-in-time delivery. Instead of amassing inventory, companies were starting to produce goods only when the orders arrived. This, says Mr Smith, "went hand in glove" with the evolution of FedEx's services, which met the demand for extremely fast transportation and the ability to track items on their journey.

"When we began to deploy the track-and-trace system, that changed the entire logistics world," he says. "I knew it would change the game when you could keep up with a million items as discretely as you could keep up with a single item, and then migrate the visibility of that information to the customer it was quite a project. But we definitely understood that it could change the landscape."

Today, technology is critical to, and visible in, every corner of the company's operations. At the Global Operations Control centre in Memphis, a large screen displays the position of every aircraft in the sky. At the customers' end, handheld scanners capture the information about their packages through its barcode and allow them to be tracked along their journey. Behind the scenes, technology determines the most efficient route for each shipment, while IMS applications track millions of packages on the move.

So it comes as no surprise to find that FedEx still invests about $1.5bn a year in its IT. Researchers at its FedEx Institute for Technology investigate everything from nanotechnology to artificial intelligence, while staff at FedEx Labs, located in EmergeMemphis, a business and IT incubator, keep the pipeline of technology innovations flowing.

Mr Smith believes that the rapid increase in available processing power will continue to transform the organisation - and not just for FedEx but also for its customers. He cites new services available over the web such as FedEx Trade Manager, which allows customers to download customs forms, estimate duties and find regulatory information relating to shipments.

"With these vast databases and the ability to cut across the various information systems, you as a small customer in a small city in the US can have literally the market of the world available to you," he says.

"The development of these kinds of services over the web completely changes the way businesses operate - it opens up the world to small companies."

As a result, technology is not only the key to running Mr Smith's business, but through web-based services allows his customers to manage their businesses more effectively - in the process binding their operations more closely to FedEx. "It's the centrepiece of the whole fast cycle logistics revolution that's taken place over the past 25 years," he says.

Sarah Murray is author of "Moveable Feasts: The Incredible Journeys of the Things We Eat", Aurum Press (UK), St Martins Press (US, November 2007).

FT: Book cover - Lolita

Lolita

Review by Jackie Wullschlager

Published: July 13 2007 09:07 | Last updated: July 13 2007 09:07

Lolita

by Vladimir Nabokov

Cover by Balthus

Penguin 1995

Through my twenties, I treasured Lolita in the classic Penguin edition, with its famous cover shot from Stanley Kubrick’s 1962 movie showing lollipop-licking Sue Lyons as teen sexpot, her heart-shaped scarlet sunglasses matching her lipstick. But I reread what the tagline called “the greatest novel of rapture in modern fiction” so often that the paperback fell apart, so when Penguin updated the edition in 1995, I bought the new version. That ditched pop-art insouciance in favour of a fin-de-siecle, awkward, nervy vulnerability with a cover image of daring, poignant appropriateness: Balthus’ 1938 “Girl and Cat”.

Balthus made a career depicting clumsy pre-pubescent girls, including the violent and disturbing “The Guitar Lesson”, which showed a teacher abusing a pupil and had scandalised Paris in 1934. When he painted “Girl and Cat”, both he and Nabokov, who was experimenting with The Enchanter, a novella he regarded as the “germ” of Lolita, were living in Paris. Both came from east European/Russian aristocratic families, and both were creating works that expressed the edgy, ill at ease, amoral milieu of the late 1930s. This is, of course, the corrupting old Europe which Humbert represents as he rapes his way across young America.

Balthus’ gauche charming subject, reclining on a chair with one foot raised to reveal her knickers, taunts the viewer with exactly the mix of innocence, casualness and provocation with which Lolita torments Humbert Humbert. Warm light flows over the child’s legs and thighs, making them the centre of the painting; just beneath her is the pussy-cat - we can’t miss the titillating symbolism, though the book design allows us to see only the animal’s sharp ears and claws. But it is enough: as the girl gazes beyond us, half-aware that we are watching her, we are implicated and pulled into the most intoxicatingly erotic yet high-moral novel of the 20th century.

Copyright The Financial Times Limited 2007