Wednesday, July 12, 2006

Reframing the Conversation on Management

Remarks by William A. Eaton
Assistant Secretary of State for Administration

Good morning, everyone. I want to talk to you today about reframing the conversation on management in the State Department. Let me start out with some bad news. And that is, Secretary Powell is going to be leaving us. Maybe not right away, but he's going to be leaving in 2005, or 2009, or some time. And the question that brings to mind is, how do we sustain the sorts of management improvements that we've seen over the last several years once Secretary Powell leaves?

As a culture, we tend to look for knights in shining armor to come in and save us from ourselves. We look at the Secretary of State, and we hope that the Secretary of State is going to do great things, because we can't do it ourselves. We have to change that mindset. There's only one Secretary of State, and there are thousands of us with a vested interest in making sure the State Department works well.

In the past, we've abdicated a lot of our responsibility for good management in the department. We've thrown up our hands. We've resorted to cynicism and pessimism that nothing will ever change in the State Department. And that's how we've gotten ourselves, I think, into the mess that we've had over the years. That's what generated a lot of the reports -- you know, the OPAP report and so forth. It seems like everyone was critical of the State Department in its management. And the problem is not so much Congress, it's not OMB -- the problem is us.
And so, I wanted to talk a bit about how do we sustain this sort of improvement over the years -- how do we change the conversation on management in the State Department? I've got a number of points I wanted to raise.

A Focus on Quality Not Cost
First is, I think that we as an organization need to focus not so much on cost as on quality. We in the past have always said we don't have any money, so we've got to cut services. And that puts us in a downward spiral.

It’s easy to cut costs. All you do is just stop doing things. It's harder to improve the quality of services. We have an obligation to our employees to have good services. If we are always focusing on cutting costs, we're naysayers saying, "You can't do this, you can't do that."
How do you, then, change the conversation from the cost to quality? One of the solutions, I think, is listening to our employees. What's important to them, listening to how we can change the quality of our services -- support services.

I'm not sure if any you have read the book by Michael Abrashoff, a retired Naval commander, who inherited one of the worst ships in the Navy. He’s written a book about it called, "It's Your Ship." From all indications, it was a terrible ship. Bad morale, they were losing money, they couldn't recruit people to serve on the ship because everybody knew that the ship was a terribly run ship.

And so, when he took command, he started listening to the sailors that worked on the ship. What were their ideas for improving the ship? One of the sailors said, "Captain, do you realize that we wouldn’t need to paint the ship so often if we used stainless steel nuts and bolts on the ship?"

It seemed like a fairly simple question. What had happened was, over the years, the Navy had replaced all of the bolts on the ship with iron bolts. Well, the funny thing about iron bolts is, when they come into contact with salt water, they rust. And so, every two years, the members of the crew of this ship would have to re-paint the ship. Something every sailor hated to do. It cost a lot of money, wasted a lot of time, and was a drain on morale.
So, what Abrashoff did was to systematically replace all of the iron bolts on the ship with stainless steel bolts. That meant less re-painting and higher morale because he eliminated one of the things that all the sailors hated to do. By doing so, he also cut costs for the ship by 25 percent almost overnight. By listening to his people, he got a very simple solution to the problem. Rather than focusing on costs -- (iron bolts are a lot cheaper), he focused on quality.
I'm sure you can find a lot of analogies in the State Department, where we’ve put iron bolts into place because they're cheap. And we end up causing our employees a lot more work and a lot more heartache. And so, I think when we focus on quality, we need you to think about those things where we can make investments for the future, and thereby improve quality of service, improve morale by just doing the smart thing.

So look for those penny-wise, pound foolish aspect of your operations that we need to change to improve the quality of our service and the morale of our post.

Innovation Not the Status Quo
The second thing we need to focus on is innovation, and not on status quo. We're a risk averse organization. Many resist change at all costs. From my perspective, it's an absolute necessity for us to change. The world is passing us by, and we were still up until last week, using outdated versions of Wang computers.

But we're an organization that hangs onto old technology. The rest of society of the 21st century uses PDAs, and we still can't use them. We ignore the fact that technology's advancing, giving us tools so we can do our jobs better, but we rationalize why we can't use them. Will Rogers has a great quote. He said something to the effect that "Even if you're on the right track, if you're standing still, you’re going to get run over."

If we want to be a state-of-the-art, world-class diplomatic organization, we need to keep up with what's going on in the world. But often, our people swing between two extremes. Some of us see our jobs as keeping the trains running on time, when, in fact, the question should be do we need trains? And you've got the other extreme, where you've got people who are what I call "bungie bosses," who bungie jump into a job, and change everything around just for change’s sake. I'm sure you all have worked for people like that.

There was a great cartoon in "State Magazine" a couple of years ago. It was a series of cartoon shots of JOs coming in and rearranging the furniture in the office, and eventually in the end, the furniture was back where it originally started. In an organization like ours with 260 locations around the world, and thousands of people, it doesn't take much for bureaucracy to creep in and strangle initiative and innovation.

Ideas, then, start to get lost in this maze of official channels and communications and requirements. And what happens after that is that employees start to lose faith in their ability to make a difference, so they stop trying. And they start thinking, "Well, I can't do anything, or somebody else is going to take care of this. I'm not going to worry about it." And that's how you start this downward spiral in terms of management of an organization. That's where you lose your edge in terms of being a world-class organization.

But, where does real innovation come from? There seems to be this unspoken assumption that innovation has to come from the top. We say that we wouldn't have had innovation in the State Department unless Secretary Powell told us we could be innovative. We all seem to think that somebody else is going to come up with the good ideas. And I think that's crazy.
One of the first things I did when I went into this job, was to create what I called the "Center for Administrative Innovation." When I first launched that center, people laughed, because they said that was an oxymoron. "Administrative" and "innovation" in the same phrase didn’t compute. But what it did was, it communicated to everyone in my organization that innovation was important. Not only were we open to new ideas, but we were expecting new ideas.
I told people in my bureau that if they weren't making mistakes, they probably weren't trying hard enough. So I wanted them to try new things, to be out on the edge, looking for new ways of doing business. By sending that signal to the bureau, what happened was, it unleashed this wealth of creativity within the bureau.

A lot of employees, for example, who had been in their job for 30 years or so and were used to doing their job a certain way, suddenly felt liberated. That maybe we don't have to do things the way we used to. The boss likes innovation, so let me try to think of new ways of doing business. And so, many of the initiatives that have come out of the A Bureau came from people in the bureau who just had good ideas and then the initiative to take those new ideas and turn them into reality.

3M is one of the most admired corporations in the United States, and they require that every employee devote 15 percent of his or her time on coming up with new ideas. If you look at the sorts of innovative things that have come out from 3M, it's because the organization has set a tone, and a mandate, for its people to look for new ways of doing business. If people see that management places importance on innovation, creativity and initiative, the organization will respond.

The Army is also an interesting initiative. They have a process in place where every major and minor command designates at least one person in the organization whose job it is to look at everything that's happening in the command, and look for new ways of doing business. And they reward the people for coming up with those new ideas.
You may say that at your embassies and consulates, your people are so busy that you don't have time to devote to innovation and creativity and initiative. And I would say that if you don't do that, then who's going to do it? You just need to give people encouragement. You need to let them know that you're going to provide a safety net for them if they try something new. They need to know that you're going to protect them, and that their career isn't going to come to a crashing halt if they try something and it doesn't work. You want them to try new things.
I hope you've noticed that in the A Bureau, we're doing a lot of pilot projects, and almost exclusively overseas. And we're doing that consciously as a strategy, because in any large organization, any new idea is going to be attacked by the thousands of antibodies that are going to come out of the woodwork and try to kill those good ideas. We'll have meetings out the wazoo, we'll have decision memoranda and so forth, and ultimately postpone doing anything new.
But in embassies, you have a lot more leeway to try new things. And so we've been giving seed money to folks that have good ideas. The goal is, that if it works, we're going to advertise the hell out of it so that then it spreads from post to post, and it's like a tsunami that overwhelms the naysayers back in Washington. And Washington, then, capitulates to this overwhelming pressure from the field.

Standards versus Ad Hoc
Speaking of new ways of doing business, another thing we have to focus on in terms of changing the conversation on management is to become less of an ad hoc organization, and more of an organization that's based on standards -- standard operating procedures. We celebrate the fact that we run successful organizations in over a hundred countries around the world. And we celebrate the fact that every embassy and every consulate is radically different from every other embassy and consulate.

Anytime somebody talks about standard procedures, they say "Well, how could you possibly run an embassy in Tokyo the same way you run an embassy in Brussels?" I think we all know that's a canard, but we find comfort in saying that the unique ways we run our embassies overseas are a necessity when, in fact, they aren't. About 80 percent of what we do in an embassy is the same everywhere in the world. And about 20 percent of what we do in embassies varies from post to post, because of the local culture and traditions and so forth.
But we've got that equation backwards. Now what does that mean? It means that every place you go, you have to learn all the new systems, you have to learn all the new procedures. There's a long ramp-up time. And then you also get stuck in this endless loop where new people coming into the post say "Well, at my last post......"

How many of you all have heard that? Well, I would contend that rather than being a series of very good bed-and-breakfasts, we need to be more like Marriott. And the reason I say that is, Marriott has hotels in every major city in the world. And a Marriott in Tokyo has a uniquely Japanese flair. You know you're in Tokyo, it's reflected the atmosphere and business practices in the Tokyo Marriott, but it's a Marriott. One of the things you get when you get to a Marriott, is you get consistency, and predictability. You know what you're going to get when you go into a Marriott.

Even down to the point where you know that there’s going to be shampoo, conditioner, and various lotions in your bathroom. There is a Marriott way of doing business because they've got lots of standard operating procedures -- SOPs -- that govern how they do their work. But when I first heard about this, I thought, "Oh, boy. That makes me kind of uncomfortable." Because one of the things Marriott touts is their 66 or so steps for cleaning a room in 30 minutes. I was thinking if we got down to that level of detail in running our embassies, I would just drown -- I'd slit my wrist if I knew I had to follow these 66 steps.
But the beauty of Marriott's system is that a maid walking into a room knows how to get the room cleaned in 30 minutes -- so there's efficiency -- but also knows what the end result is. That maid has visualization of what the room is supposed to look like when he or she leaves. And you don't leave the room until it looks just like that.

And if the maid walks in a room that a bunch of pigs had stayed in -- there's flooding, the carpet's torn up, there's stuff on the wall-- the maid knows that he or she is authorized to call in the electrician, the plumbers, and painters to fix up the room. Because the maid has a vision of what it's supposed to look like in the end and is empowered to do whatever it takes to accomplish it.
So, Marriott's success is in its systems. If you get the systems down cold, then everything else becomes that much easier.

Just think about this. If you give a hundred people the same task, and don't give them any instructions on how to carry it out, you're probably going to get a hundred different ways of doing that job. And if you multiply that by thousands, as we do, you end up having chaos, where everyone's doing things differently.

Common issues become crises, because then you have to figure out, well, okay, how do I handle the situation? What you need to do is have systems that let you know how to do the common things. And then gives you the ability to use your creativity for those uncommon things that come up every day.

We can't predict what's going to happen in our countries. Today, it might be peaceful -- look at Haiti -- and then tomorrow, you could have unrest. And we've got to be able to adapt to that. But if you've got the common systems down cold, then those issues become routine. And then you can focus your creativity on those things that come up that are unexpected. And that's what we do well.

But, we can't let mindless conformity and the thoughtless setting of standards get confused. Marriott's goal is to provide their services free of hassle to their customers. And consistency of service gives comfort and confidence to their customers.
One of the things we've done, in terms of trying to establish some of those norms -- the standard operating procedures -- is, we've launched ISO 9000. We've got five posts now that are pilot posts -- London, Brussels, Warsaw, Vienna and Cairo -- where they've launched this ISO 9000 process, which basically establishes and documents operating procedures. Take a look at how you do business, and establish SOPs. And then part of establishing SOPs is you have to have a process for continuous improvement. Okay, you know what you're doing, now how can you make it better?

And there's an outside team that comes in -- there are actually hostile auditors that come in and take a look at your operations, and give you a thumbs-up or thumbs-down whether you're at peak efficiency in your organization. I'm happy to say that four of the five posts that are pilots have been ISO 9000 certified. Cairo started late, and we're hoping that they're going to get ISO 9000 certification shortly.

Now, when I talk to the private sector and say we've got four posts that are ISO 9000 certified -- their eyes light up. They think, "Wow, that's pretty neat." But what I see is a possibility to give us standard procedures for the most common services that we provide at our posts.
We had a conference in Brussels in October, where we brought together these five pilot posts. I started the conference by saying, "My goal with ISO 9000 is to establish worldwide SOPs for our management operations. Standard operating procedures for support services overseas." And the folks from those embassies went crazy. "Oh, no. You can't standardize. Everything in Brussels is so much different from Cairo. There's no way we can standardize."
Well, when they started looking at the SOPs that they'd drawn up independently, they started saying, "You know, we really do do things fairly similarly." And they'd look at London's SOPs for housings, for example, and say "Huh. That's a good idea. We'll look at doing that at our post."
And what London found out, for example, was that when they examined critically their procedures, they realized they had about 50 forms that they used for various aspects of their housing program.

That's torture for the customers. That's torture for employees. 50 forms! And a lot of them asked for the same sorts of information. When they put them side-by-side, they realized that we could get these down to about five forms. So, then they reduced the number of forms that folks at the embassy had to fill out to five. Then they started asking an even better question -- "Why do we have forms?" And that's what I think is the beauty of ISO 9000. It helps us identify some of those inefficiencies in our organization.

They also had three FSNs who were all doing one aspect of the maintenance program in London. These three FSNs sat side by side for 30 years, and they each levied different requirements on their customers for services. Just imagine the torture for the folks in the embassy. They go in one day, and ask for a service from Susie. And Susie'd say, "Oh, but you need to fill out this other form and bring it back to me."

So, you go home and fill out those forms. You go back the next day, and Susie's on vacation. So you go to Tom. And Tom says, "I don't need those forms. I need these other forms." And gives you three new forms to complete. So then you go back and fill out those forms. You come back the next day, and both Sue and Tom are in a meeting, and you've got Harry, who has totally different requirements for you.

FSNs who had worked together for 30 years didn't realize that they had different requirements and different procedures for doing the same job. And then when they started quizzing each other about why they included this or that step -- you know, it was because some FSO 20 years ago had done something wrong, and they wanted to make sure that no one ever did that again. So they added another step, and another requirement for the customers. I think the ISO 9000 brings those sorts of things to light so that you can streamline your operation. And you start to develop a culture within your embassy of continuous improvement.

Metrics not Anecdotes
Another thing some of you may have heard me talk about a lot is, that to continue to improve the management in the State Department -- we have to rely on metrics and not anecdotes. We're always going to be on the losing end if we rely on anecdotes. For every anecdote of good service, I can give you an anecdote of bad service. And anecdotes don't do a thing for us on the Hill.

What we need to do is to have some concrete metrics to show that we're managing the taxpayer dollars efficiently, and that we're providing quality service to our employees. And that's the way you control the conversation on management: you have real facts, rather than anecdotes.
Think of Toyota, for example. Part of Toyota's success is their reliance on metrics. If you look on their factory floors, they've got charts that identify the productivity of each employee on the factory floor. And so, every employee knows how they are racking and stacking compared to every other employee. That public scrutiny forces them to continually improve their productivity. They don't want to be the one who’s always the worst, who's not producing as many widgets, or whatever, as the person next to them. And also, then, Toyota uses those metrics in terms of benefits and rewards for their employees.

And think of Weight Watchers. One of the reasons Weight Watchers is so successful, is because you disclose what your weight is and what your goals are. I want to lose 20 pounds. Everyone in your Weight Watchers group watches to make sure that you lose those 20 pounds. There's a lot of peer pressure to lose -- those 20 pounds. Metrics work.

What we need to think about in the State Department is the use of metrics to be able to compare the effectiveness of embassies and consulates. Right now, we say that we can't possibly compare the work in Tokyo with the work in Buenos Aires. Well, I think you can. And we need to start doing that. We need to have some commonly understood metrics so we can evaluate whether a post is working well or not.

If Buenos Aires is processing with peak efficiency, and they've got the metrics to prove it, if I were in a nearby post, and didn't have metrics as good as Buenos Aires, I'd be asking myself why aren't we performing as well as Buenos Aires? Or, is there some way that we can get Buenos Aires to do our processing for us?

And those are the sorts of things we need to be looking for -- areas of excellence. We need to have report cards for people so we can have some targets to use to focus on continuous improvement.

I started this exercise in the A Bureau. I figured that if I was going to be pushing this with our management officers around the world, I needed to try it at home first. And so, I started talking about performance metrics with the folks in the A Bureau, and there was lots of polite nodding of heads. And I realized very quickly that some didn't understand what I was talking about.
They were nodding because they thought that's what I wanted, but they didn't know -- whoa, what is he talking about? And so, I started meeting with each of the office directors in the A Bureau individually, because I wanted to sit down and give them individualized attention to explain what I meant by metrics. And what the things we should be measuring are? How do we know whether we're doing a good job?

And I told them that I wanted them to come into the meeting with a chart. I wanted them to identify the services they provide, who the customers of those services were, how they knew whether they were doing a good job in those services, what the barriers to doing a good job in those services were, and what their action plan was for overcoming those barriers.
Well, I had a variety of reactions from the office directors, as I probably mentioned. Some came in with charts and graphs, and lots of metrics, and they were happy to brag about the sorts of metrics that they had, and they could demonstrate through facts how they had been steadily improving over the years.

The other extreme was, one of our office directors came in with a huff and said, "I don't know why I'm doing this. I don't provide any services." And I said, "Well, that's interesting, because we're a service bureau. And if you're not providing services, I think I've found a way we can cut some costs."

Well, that got the director’s attention. "Ohhhhh, well, I do provide services, but I really don't have any customers." And I said, "Well, I think we're back at square one. If you're providing services for which there are no customers, we probably don't need those services. So we should cut your office." And then the director started taking it seriously. Because I was serious. If we don't need your services, we'll get rid of them. We'll use the resources some place else in the bureau."

Customer-Driven versus Management Imposed
We have wonderful people who work very hard and who tell the field with great fanfare, Look at this wonderful new service we're providing to you." And the field collectively replies, "We don't need it." Or "We can't use that service, because the way you're providing it doesn't meet our needs."
Everybody says, "That's a Washington-driven system, and it doesn't help the posts much." We need to get away from being management-imposed, in terms of services, to being customer-driven.

One of the things I've done over the past couple of years is reach out to the private sector -- those industries that are involved in shared services, doing similar things to what our management officers do overseas. And also reaching out to some of our municipalities in the United States. Because running an embassy or running a consulate overseas is a lot like running a city. You've got your police force, you've got your school system, you've got your housing authority, you've got your transportation department. You know, it's very much like a city.
So I talked to the International City Manager's Association, and asked them, "What is the best-managed city in the United States?" Do any of you know? Phoenix, Arizona is the best-managed city in the United States. And it's gotten the award three years running. And so, I took a group of us from the A Bureau to Phoenix, to find out what makes them so good. What is it about Phoenix that sets them head and shoulders above every other municipality in the United States?

The thing that struck me about Phoenix was that they have a leadership that fosters innovation. They give people a lot of authority, but they are also aggressively focused on what the citizens want. They do a lot of focus groups with the community, finding out not only what services the city values, but also how the community wants those services delivered.
We need to focus on what our customers want. What do our employees want, and how do they want those services delivered, rather than us imposing those services on folks. Some posts have done this -- created this focus by establishing what they call, "customer advocate" in their posts.
And what these people, generally someone in the GSO section, do is keep an eye on, and keep an ear open, to what the customers are talking about. What do they like, what don't they like? They also help the management section in your post stay focused on what's really important, rather than drifting off into things that really add very little value to their customers.
Your ICASS council should be a customer focus group. They should be used as a council that will tell you what's going well at post. And are there things that you're doing that you shouldn't be doing? Are there things that you aren't doing that you should be doing? And help you set priorities at your post.

Manager of Doers versus Doers
In the management cone, for example, you might have someone who's a very successful GSO. And that person becomes the management counselor in a post, and still wants to be GSO -- wants to run the work order process, wants to get involved in all the things that are happening in GSO. Well, somebody else has that job. You don't need two GSOs. The job has changed, and your job now is to be management counselor.

You have the same thing with DCMs. You've got some DCMs, for example, that might have been a political counselor at his or her previous post, and really liked it, and was really good at it. And this DCM still wants to be the political counselor. Well, then, who's being DCM? And so, what we need to focus on, and I'm talking to this group as managers in your organizations, is to be managers of doers, and not the doers.

And as long as we're trying to be the mechanics, as long as the management counselors are trying to be the GSO, as long as the DCMs are trying to be the econ counselor, or the management counselor -- then something's not getting done. Our job, I think, is motivation, training, making sure that the people in our organizations have the tools and the skills they need to be successful in their jobs.

We need to manage their performance, and set expectations for our staffs. Don't surprise them at the last minute. Give them clear-cut goals of where you're heading, and what you're expecting of them, and what you're expecting of their organizations. And then step back and let them do their jobs. One of the things that I've always found very frustrating is having a boss who wants to tell me how to do everything.

I quit the Foreign Service and for a while I worked with the Young President's Organization. The organization had been a member-run organization where members ran the organization and could hire or fire people at will. So, every day you'd come into the office and wonder whether you had a pink slip on your desk.

One of the things I did when I took over as the executive director was that I said I have to be the one who decides on hiring and firing. You tell me what the goals are, and it's my job to accomplish those goals. If I don't accomplish those goals, you fire me. You don't fire the people who work for me.

And that's the sort of thing that I think we as managers need to think about. We shouldn't be doing the jobs of the people we supervise. We should be giving them the encouragement and the vision so that they know what the targets are.

Long Term versus Short Term
One of the first things I did when I came to the A Bureau was to set up four major goals for the bureau. Everyone in the bureau knows what those goals are, and they know that their work needs to be contributing to those four goals, or we're going to stop doing whatever it is they’re doing.

People know what they need to accomplish. They know what their roles are in accomplishing that mission. That's our job, as managers in our organizations, to set that clear vision for the future. Those strategic goals. We need to be the ones who are looking over the hill. What are the opportunities that are down the pike in the next five years, the next ten years.
One of the things that I hear frequently is, folks say that they don't have time for things like strategic long-term planning, or innovation, or performance management. And my retort to that is, if you aren't doing it, who is? We focus on what we can accomplish in our short tour of duty, whether it's two years, three years, or four years. If it can't be accomplished during that time frame, well then, that's somebody else's problem.

And that's part of the problem in the State Department, because if you look at the budget cycle, we need to be thinking five years hence, and determining what we want to accomplish. If you aren't doing that, then you're always going to be behind the curve. You're always going to be stretching your resources to accomplish things that you're suddenly thinking of, rather than thinking ahead, planning.

We excel as an organization in fighting fires. Of course, it gets our adrenaline flowing. It pulls people together, they bond -- we eat it up. Crises can be very seductive. And like we say, we're very good at handling crises. But crises are inherently short term. How many times have you heard people say things like "Don't bother me with that. I've got a crisis now." Well, fire departments around the world have found through experience that simply fighting fires is ultimately self-defeating. There's always more combustible material than there are fire fighters.
So, what we need to do is focus on fire prevention rather than fighting fires in our organization. And that means stopping the fires before they start. And that's really the only effective long-term solution we have if we really want to make this organization a 21st century model for the rest of the world.

So what is fire prevention for management officers, and for DCMs? Part of this, like I say, is focusing on leadership. Focusing on those long-term goals. Making sure that people understand the vision of where we're heading as an organization. Making sure we use metrics to improve the system. All those things that I was talking about. I think that's our role in fire prevention.

Mentoring versus Individualistic
At the end of the day, our future is our people, and that's part of the long-term vision we need to have as an organization. We as an organization value the individual, and we don't necessarily value the organization. And I think we need to think about the organization more than we have in the past.
Some of you may have heard of the wire brushing that Deputy Secretary Armitage gave to a group of DCMs several months ago. The message was not just a message to DCMs. The message was to all of us who are leaders in our organization. What had happened was, at one of my receptions for the newly minted JO management officers, the officers had just come away from an off-site with DCMs at The Woods. What was going to be this bonding experience where you have senior people mentoring the junior people had turned into an unmitigated disaster. The JOs were telling me that they were horrified. The DCMs were very pessimistic and cynical about the future. And one DCM even said something like, "Yeah, sure, you're enthusiastic now, but we'll beat that out of you."

I was really disturbed by this. I thought, you know, these are leaders in our organization. We're sending them out to our posts to lead our embassies. And are they going to infect their embassies with some sort of negativism? You know, that's how we've gotten the sort of problems we've got nowadays. So I said something to Grant Green, and I was ranting and raving with him. And then he called Armitage, and Armitage then called in the DCMs.
And the message that Armitage gave to the DCMs -- and as I say, this wasn't just a message for the DCMs, is that you've now been chosen for leadership roles in the department. You've lost your ability to complain as a recreational activity. You have to be part of the solution. And if you don't feel as if you can be part of the solution, we've chosen the wrong person for the job.
And that's something else another JO said to me at one point. He said that he was impressed during the A-100 class, that there was a steady stream of senior people that came to talk to A-100 classes, all really impressive people. And they very eloquently stood in front of them and outlined the problems in the State Department. And then they walked away.
He said that coming from the private sector, he was horrified that we have a culture where it's perfectly acceptable for senior people in the Department of State to identify the problem, and not feel that they have any responsibility for fixing the problem. And that really is sad. That's a sad commentary on the State Department.

And so, what we need to do as leaders -- we need to embrace what Secretary Armitage said, and that is that we have an obligation as leaders in the organization to do something about our problems. That's our role. And that's what our employees are expecting of us. And if we aren't delivering on that -- if we don't feel we're up to fixing whatever the problems are in our organization, then we need to move on. We need to let other people take our places so that they can fix the organization.

I spend a lot of time on the junior officers who are coming into the State Department. Particularly our management folks. One of the things that I've found frustrating over the years is that we in the management cone aggressively and almost exclusively recruited political science majors to be management officers in the State Department. And we're surprised that they're not interested in management, and may not be very good at it.
And we've also historically pushed people into the management cone, and what happens then is, you've got people that are doing things they don't enjoy. They aren't providing the services very well. What that does is, it infects the management of the State Department. It also clouds the image of the management cone. And so what I've been pushing is that we need to specifically target people out there who are interested in foreign policy, and in foreign affairs, who also have an interest in management. I work for the State Department because I love foreign policy. I have a degree in international relations. But what surprised me when I came in was how much I loved management. I love being a manager and running large, complex, multi-cultural organizations overseas, and working in a foreign policy environment -- I just find it exhilarating. And when I came to this job, I asked, ‘Why aren’t we aggressively recruiting MBA grads? Why aren’t we going to schools of public administration and recruiting those folks? Why aren’t we going to municipalities and hiring some of the executives from city governments in the United States? Why aren’t we raiding Fortune 500 companies?’
And when I first started talking about this, people thought I was crazy. They said you will never get MBA grads to come into the State Department because they are all in it for the big bucks. Well, I found out, that's not true.

Most people don't think about the huge and complex infrastructure that's required around the world in very diverse environments. We send Foreign Service officers to places where the Army wouldn't send people in less than battalion strength. And we've got people out there in very primitive conditions sometimes, running what have to be first world organizations. From the very first tour, we give our management cone officers tremendous responsibilities.
My first management job in the Foreign Service, in Moscow, I supervised about 150 people, and had a budget of half a million dollars. I was fresh off the boat. And I was running an organization like that. You compare that with the sorts of responsibilities the private sector gives their newbies and there's no comparison.

So, when I talk to MBA grads, suddenly the light goes on. They think "Really! We didn't realize you had those sorts of opportunities in the State Department."
As a matter of fact, next month I'm going to be addressing a conference in Miami for the Shared Service Organization, a group of Fortune 500 companies that comes together twice a year. They've asked me to give the keynote address. This will be the second time I've done it. When I do it, I talk about our recruitment efforts in the State Department for management folks. And what I tell them at the end is, "We're trying to recruit people just like you."
What's really funny is, after I finish talking, there's a queue of people afterwards who want to talk about careers in the Foreign Service. So what I'm convinced of is that we need to do a better job of marketing ourselves to those target-rich environments, where we can find people who are interested in foreign affairs, interested in foreign policy, but are also interested in management. And I'm convinced that we can recruit them.

As a matter of fact, in this last round of Foreign Service exams, we had more people than ever before in the history of the State Department, a greater percentage of people, who were applying for management jobs.

We just got a grant from the Chapman Cox Foundation to offer the opportunity for short-term details for management officers to go work for Fortune 500 companies for a couple of months. To go work in the shared services branch of Honeywell or IBM or Disney or Kraft Foods or something like that so we can see what the private sector does in terms of delivering the sorts of services we provide.

I would love to get some management professionals from the Department to work in Phoenix for a couple of months to see why are they the best-managed city in the United States. What makes them the best-managed city and what can we learn, as another government entity, that we could implement in the State Department?

And what I am hoping is that this will create a series of acolytes and disciples of change who could then come back to the Department and fuel this culture of innovation. But I also want management folks who have been overseas to be in Phoenix, talking about careers in the State Department in management. And I bet we would steal some people. Or to Honeywell. I think if you are sitting in Morristown, New Jersey and you are sitting next to somebody who is serving in Budapest, they would say, "Whoa, I could be in Morristown or I could be in Budapest."
We have got a tremendous opportunity to sell ourselves better. But we all need to take a personal responsibility for doing that.

Maximizing Role versus Minimizing Role
When I talk to the new management team folks who come into the State Department, we've got people who were Navy commanders. We've got senior vice presidents from corporations who are coming into the State Department as junior officers. We’ve got management consultants who are now new management officers at State. We've got teachers. We've got lawyers. We've got people who have a tremendous amount of experience and expertise that we can use. And we need to be making good use of their talents at our posts.

They are part of our management talent pool even if they’re now serving as first-tour consular officers. You need somebody for the housing board? Get one of the management cone folks in there. Got a special project? Maybe a management JO would be interested in the challenge. We need to give them a better range of management opportunities early in their careers.
And then find opportunities for them to do some of our work for us. Give them a lot of extra stuff and beef up their resume and their EER. But also it helps us get our jobs done better.
Rich Armitage, when he was talking to the EAP chiefs of mission a couple months ago, gave them a challenge, which I will reiterate to you because I think it was an appropriate challenge for all of us. He said, "Take the responsibilities we give you and add 20 percent."
And that's what we all need to do. If we want to change the conversation on management, we need to have a bigger vision of what "management" encompasses in our embassies. What is GSO? What could a GSO’s responsibilities be? What are the responsibilities we give you? And then take even more responsibility. Have a big picture, a big vision of what you can be as a GSO, not what your predecessor was or what you are, but what you can be.

Gandhi once said, "We must be the change we seek in the world." And if we have a vision of where we want management to head in the Department, we need to mirror that management. We need to be that change. We need to embody the change that we want in the State Department.
Assistant Secretary of State for Administration William A. Eaton has given this speech at several regional conferences for Management cone Foreign Service employees in 2004.

Wednesday, April 12, 2006

If your upcoming business careers were a movie plot, it would resemble the movie "Speed".

“Speed Saves: Living on the Edge is America’s Edge”
Prepared Remarks of Mitchell E. Daniels, Jr.Oscar C. Schmidt Memorial Lecture
Rose-Hulman Institute of Technology
May 16, 2003

Thanks for your hospitality. In a country that insists on producing more than one lawyer for every two engineers, this is an inspiring place to be, and audience to meet. I hope one day that ratio will move in favor of engineering; until it does, study hard. There's a lot riding on you.
Here in Indiana, as we'll demonstrate again ten days from now, we love things that go fast. Maybe some of you will be designing and building cars for a living soon; as a sucker for Corvettes, I hope a couple of you go to work on them.

But in America, fast is about more than hot cars. It's the essence of our national success. It's our edge on the rest of the world. And it's an edge, and an attitude, we have to constantly guard against losing.

Starting 58 days ago, the world was witness to -- to use properly a word that's getting worn out -- an awesome display of the achievement of which a free people is capable. The United States military swept away its enemies and its critics in less time than it takes to get a passport. Combining scientific supremacy with tactics based on mobility, quickness, and individual decision making, American units rocketed 350 miles to victory. Germany's conquest of France in 1940, which earned the label "lightning war," took twice that long.
Skeptics alleged that planning had been inadequate; that too few troops and too little equipment had been brought into position; that the campaign was moving too quickly to maintain supply lines, protect our soldiers from surprise attacks, or preclude a host of other risks, real or imagined.

On Day 2 of action in Iraq, an attack on a critical objective labeled Safwan Hill was cancelled at headquarters because a sandstorm grounded the helicopters. The Marines on the scene, being Marines, took the outpost anyway, surprising both the Iraqis and their own headquarters. The colonel in charge said "This isn't chess...It's like run and adjust on the fly."
Gen. Douglas MacArthur once remarked that the history of defeat in warfare can be summed up in one phrase: "Too late." In Operation Iraqi Freedom, lateness was not a problem. One missile arrived through the window of a Presidential hideaway 44 minutes after the first intelligence report placing top Iraqis at the scene. I'm sure American justice arrived way too early in the eyes of the mass murderer who once ruled that country.

The same qualities that "shocked and awed" the world in Iraq have produced a different kind of national success. Despite a series of blows that would have crippled any other economy on earth, the American free enterprise system, through speed, agility, flexibility, and a high tolerance for risk and occasional failure, has remained the strongest anywhere.

At the moment, U.S. economic growth is too slow. The President and Congress are working on measures that might contribute to its acceleration. But short-term difficulty cannot blind us to the unique resilience of a national business system that has withstood an incredible string of shocks and continued to expand and excel.

Think back over the last three years. About this time in 2000, a huge speculative stock market bubble popped, leading to a plummet of trillions of dollars in equity value. As 2001 began, the new President inherited a recession. Just as that contraction was ending, a terrible terrorist attack cost 3000 lives, over $100 billion taxpayer dollars to repair damage and launch a war on terror, and hundreds of billions more in damage to the business of airlines, tourism, and other industries.

Shortly thereafter, corporate wrongdoing shook investor confidence further. Next, the runup to the disarming of Iraq raised oil prices and created a lengthy period of uncertainty, the worst enemy of business boldness. And yet, through it all, the U.S. economy absorbed all these shocks and soldiered ahead.

The rest of the developed world, though largely free from these blows, has struggled even more than the U.S. Europe is muddling along with growth rates far below and unemployment far above U.S. levels. Japan, once touted to Americans as an irresistible competitor from whom we should take lessons, remains mired in a 12-year slump. Whatever our difficulties, we would not trade places with any other economy in the world. There is something that separates our system from our competitors. That something, I believe, is the faster clock speed at which Americans tend to operate. Our willingness to live closer to the edge is the American edge.
We all know the hazards of moving too fast in life. "Haste makes waste" and "measure twice, cut once" are lessons we all learned early (and usually the hard way!) And many of us took Driver's Ed under a sign that read "Speed Kills."

But not always. When it comes to creating wealth, speed saves. It saves time, and time is money, and money is jobs, prosperity, and national success. It is the fast feet of American businesses, innovators, and investors that gives us a vital edge on the rest of the economic world. Disciplined by the world's most demanding consumers and most open, competitive, free-for-all markets, our businesses know that to lose a step is to lose a sale.

Sure, when you drive fast, you're going to bend a fender now and then. Some competitors will hit the wall. But that only leaves a more open track and a better-marked path for the rest of the field.

If your upcoming business careers were a movie plot, it would resemble the movie "Speed." As you recall, in that film a criminal has rigged a bus so that it will be destroyed if it ever slows down. That is pretty much the situation confronting today's actors in a wired, global economy. We're winning and leading the world forward because of our natural lead foot, which helps us drive to the next breakthrough, the latest wacky idea, the "New, New Thing," a minute or two before others do. The mistake we have to avoid is letting the bus slow down.

In almost every way, American enterprise moves more quickly than its international counterparts. While the European Union busies itself writing layer upon layer of rules, Americans are starting 600,000 new businesses every year. It seems an American can conceive, finance, launch a business, and fail or succeed in less time than it takes a European to get a license to operate. Like the Marines at Safwan Hill, Americans fix problems as they arise; Europeans often seem bent on preventing any chance of trouble arising in the first place.
At Mothers Work, a maker of maternity apparel, the motto is "Give the lady what she wants when she wants it." They live up to it, and they'd better. The 3 million women who are pregnant on any given day are changing sizes -- and preferences -- on a daily basis, and if you've spent any time around one, are usually very clear about the latter. So Mothers Work keeps designers working around the clock, and ships new stock to each of its 726 outlets every night; what is sold today is replaced tomorrow.

Everyone knows the Dell story, where orders for new PCs come in every 20 seconds. But did you know that, 7 times out of 8, the custom order you place this afternoon will be built and shipped tonight? That's barely time to say, "Dude, you're gettin' a Dell." The assembly lines that work these miracles only have enough parts on hand for the next two hours' production.
And then there's that fabulous only-in-America success story we know as Wal-Mart. Sam Walton didn't leave his foot speed behind when his football days were over. Tired of the delays and the no-value markups of too many middlemen, he began driving his own station wagon from Arkansas to Tennessee and bringing back dresses, socks, toothbrushes, whatever his customers wanted, faster and cheaper than his competitors. He saw no reason why people in small towns should have to wait around and then pay more for the newest goods than their big-city cousins.

Today, Wal-Mart's success is still built on speed. At a Wal-Mart distribution center, millions of items never touch the warehouse floor. They come off a truck at one end and onto a truck at the other end without ever leaving a series of intersecting conveyor belts.

In my business days at Eli Lilly, we worked out a new resupply process that cut our delivery times to Wal-Mart from over a week to a few hours. The working capital savings to them was enough to build and outfit a new Wal-Mart store every year. I always thought they should name one of them after me, but of course at that company progress like Lilly helped them make happens every single day.

Our greatest economists have always reminded us that the "dismal science" ultimately is more about human behavior than dry statistics or impersonal forces. Lord Keynes wrote of the intangibles necessary to capitalist progress, saying, "Our decisions to do something positive...can only be taken as the result of animal spirits, a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities." An American personality biased to action and speed, that prizes the calculated risk, the improvisation, that trusts the platoon leader to deal with the problem when he encounters it, has the kind of "animal spirits" that produce business success in today's world marketplace.

Americans have worried almost from the founding that our national character and special spirit would erode away. In one of the most influential scholarly papers ever written in our country, Frederick Jackson Turner in 1893 attributed much of America's success to the frontier and to the pioneering, risk-taking, reach-for-the-stars attributes it attracted and cultivated in several generations of us. As Turner summed it up, "Since the days...of Columbus...America has been another name for opportunity.....unless this training has no effect upon a people, the American energy will continually demand a wider field for its exercise."
Turner pondered whether the closing of the West might lead to a decline in the energy of his countrymen. He hoped not, and if he were still with us, I think he would be relieved. We may have long since run out of totally open land to explore, but the frontier never closes, not even in the physical sense.

Through nanotechnology, you are now exploring spaces incomprehensibly small to people like me, let alone a man of Turner's day. Unimaginable discoveries await there, to say nothing of the oceans, outer space, and the human body itself, and I'm betting it is Americans who will usually find them first. The same alacrity which our predecessors brought to the Oklahoma land rush or the California gold strike still sets us apart. Where speed, daring, and a willingness to cast off convention matter -- and that is almost everywhere -- it tends to be Americans who are a step ahead.

This is not an argument for ignoring risks, only for remembering that there is also great risk when the bus slows down. We must be careful never to impose a school zone speed limit on our entire national economy in pursuit of the illusion of perfect safety.
The example of our European friends -- it's a little hard to say "allies" just now -- is a cautionary one. Even as their people struggle with double-digit unemployment and stagnant incomes, they continue to shackle themselves with "safeguards" that make them no safer, "protections" against individual failure that only produce greater overall failure.
France now limits the work week to 35 hours, supposedly to protect jobs. Our company found that, with a high percentage of employees on forced leave on any given day, it took weeks to arrange necessary meetings and make big decisions.
Most of the EU imposes incredible costs and restrictions on companies seeking to shift operations or lay off workers. The result is that far fewer workers get hired in the first place, and it takes forever to make the simplest change to raise efficiency or seize a new customer opportunity.
And what American pioneer would understand the European rejection of the breakthrough discoveries of biotechnology, one of today's true frontiers?

We in the U.S. are not immune to the fear of speed. And of course we do need limits. But it's critical that we keep our speed bumps in the right places, and the right height. Especially after a serious accident, there is a human tendency to set up "School Zone" signs even on the interstate.
For example, we learned the hard way that we must take new steps to defend our homeland against fanatical terrorists. But the steps must be careful, analytical ones: if we overshoot, and slow down movement through our ports and borders too much, or deter businesspeople too often from flying to see that marginal customer or product opportunity, we could pay a price in lost jobs and commerce beyond any gains in security.

The same events that gave birth to homeland defense prompted direct taxpayer aid to the nation's airlines. In that emergency, some help was fair and rational. But this spring brought a second transfer of billions from taxpayers to these same companies. A pattern of bailouts of this or any troubled industry risks slowing the necessary process of getting costs down to levels customers are willing to pay. When the Pony Express got into money trouble, it didn't occur to our pioneer ancestors to pass the hat to help the company avoid change.

Another kind of problem recently led us to toughen our laws governing corporate responsibility. As in the case of homeland security, this is right and necessary. But as we devise and establish new rules of the corporate road, it will be important not to set the radar guns too low. Small company owners tell me they have abandoned any thought of going public due to the many new risks and new costs. One thriving Hoosier firm calculates that, to comply with the new laws during and after an Initial Public Offering, they would have to add expenses equal to the entire payroll of their senior management team, while subjecting themselves to personal liability for errors. No thanks, they decided; suspecting a speed trap, they have hit the brakes.
So this is the assignment for the next generation of business, and engineering, leadership. Stay quick. When the odds look good and your common sense tells you to, act on 70 or 80 per cent of the data you'd ideally like to have. Chances are, you'll cross the line while the other guy is waiting for the last piece of information to arrive.

Don't throttle back in fear of spinning out. Recognize that ours is a land of second, and third, and multiple chances. Thomas Edison ran 2000 unsuccessful experiments before his filament produced sustained illumination. When a reporter asked him how he dealt with all that failure, Edison said "I never failed. I invented the light bulb in a 2000-step process." America loves winners, but we love losers even more, when they get back on the track and into the race.

Let the record note that, in keeping with this unsolicited advice I'm doling out, I am finishing in eighteen minutes vs. my assigned twenty. So I can claim to have given you a two-minute head start on the field, as your turn to drive our economy comes.
When it does, remember that speed saves. Put your foot down and leave it there. Adopt a pioneer mentality. Don't let anything dampen your "animal spirits." And never, never let the bus slow down.

Your Business Is Only As Strong As Your Supply Chain

April 19, 2005 -- Kurt Kuehn, senior vice president, worldwide sales and marketing, spoke to attendees of the JDA Focus 2005 Conference in Orlando, FL. Kuehn examined the changing business model of satisfying customers through operating agile and responsive supply chains.

Today is an interesting day in history that fits in nicely with my discussion. April 19 is the feast day of St. Expeditus -- the patron saint of business executives.

Yes, it’s true -- there is a patron saint for business executives.

St. Expeditus’ aid is invoked to prevent procrastination.

If ever this patron saint’s help is needed, it is for those companies who have delayed integrating a synchronized supply chain strategy with their business strategy.
Let me tell you why procrastination in creating this synergy is unacceptable.
Retailers and consumer goods producers are operating in a complex world, where change is the order of the day.

Old business models, processes and strategies are being re-examined. A lot of the old rules no longer apply. New dynamics and challenges bombard us every day.
Major issues are top of mind for C-level executives in the retail industry.
They’re concerned with globalization and the China equation, supplier relationships, multi-channel marketing, technology tools, and risk management, just to name a few.
We’re operating in a world where companies are just as likely to have customers, partners, suppliers and employees in Bangalore and Beijing as in Baltimore and Boston.
Fashion lifecycles, product lifecycles and customer lifecycles move nearly as fast as those digital ones and zeroes passing through trillions of miles of fiber optic threads.
Your business is only as strong as your supply chain.

The JDA Focus agenda for this conference reflects many of these concerns. Discussions on technology applications, process improvements, the customer experience, merchandising and replenishment -- all of these are essential to keep commerce moving forward and attaining supply chain excellence.

I want to talk about enhancing the retail supply chain through synchronized commerce, focusing on three areas: retail supply chain trends; synchronization of the retail supply chain; and how UPS fits into the picture.

The latest data shows same-store sales grew 4.1 percent in March, according to the International Council of Shopping Centers.
Discount chains and drugstores did particularly well, while specialty apparel experienced only modest growth. Department stores fell by one percent.
Cold weather and higher gas prices influenced consumer spending habits, with lower-income households feeling the pressure more than higher-income households. So far, the growing economy is offsetting the gasoline price rise, muting its effect on retail sales.
That’s the short-term news; but what has been happening over the long run?
There are three major supply chain trends happening in the retail sector that are affecting players on all sides.
First, retailers are leveraging the supply chain in their business strategy.
Second, retailers are moving to more direct sourcing, taking direct importation versus through an intermediary.
Third, retailers are applying upstream pressure on producers to customize the supply chain process.
Forward-thinking retailers are competing on operational efficiency, not just on products and pricing.
They’re integrating their supply chain strategy with their business strategy, and looking holistically across the process for improvements. They’ve made this linkage “job one.”
It’s no wonder Wal-Mart has been called “a supply chain with retail outlets.”
Process improvement is the name of the game, and efficiency is the foundation for success.
We’re seeing an increasing number of retailers forgoing the traditional distribution model and engaging in direct sourcing of goods.
For example, a retailer that used to have goods sent to a stateside distribution center for kitting before distribution to stores now instructs his Chinese manufacturer to perform the kitting overseas for direct shipment to the store.
U.S. policy changes are also impacting the sourcing relationship. One needs to look no further than the most recent report on Chinese textile imports for proof. In the first quarter of 2005, U.S. imports of textile and apparel products from China rose more than 63 percent from a year ago.

In some categories -- like cotton trousers and cotton knit shirts -- the increases were as high as 2,000 percent.
These increases would happen anyway, but they are also being fueled by the direct sourcing trend.
This move to direct sourcing is noticeable with larger retailers who can leverage scale. It is also beginning to show up in smaller retail companies as the cost advantages have become too large to ignore.
By going direct -- versus using a U.S.-based distributor -- more money can go straight to the bottom line.
That’s not to say it’s an easy road. Direct sourcing also creates its own set of challenges.
Direct sourcing means retailers have to be more sophisticated in planning and managing product flows from the point of production.
On one hand, you’re now in the product specification business, directly working with your sources to ensure goods meet your design criteria.
Direct sourcing also means you’re increasing the complexity of your supply chain, which impacts the amount of time spent on this process. That could slow you down as you move away from your core competencies.
Retailers are also driving change in the supply chain due to pressures put on them by their customers. This is resulting in greater pressure applied back upstream to producers.
A major consumer goods producer dealing with two completely different supply chain requirements provides a good example of what is happening.
On one hand, the producer is sending pallet loads to a major discount chain. On the other hand, the producer is required to provide store-specific, aisle-specific, pre-labeled, tote-bin size shipments to a drugstore chain.
Talk about a challenge. It’s clear that deeper collaboration is required to ensure supply chain efficiencies are realized.
In effect, we’re seeing a shift as retailers move from being masters of demand to masters of supply.
Retailers know demand, but they’re not just placing orders with producers.
Today, they’re partnering upstream, actively managing suppliers and other players in the front end of the supply chain.
Today, retailers are basically operating under three models.
The first is the traditional B2B model, where producers fill up large truckloads for retailers. This method moves pallets quickly and directly from producer to store.
Home Depot practices this approach, where suppliers ship directly to their stores.
A variation is the Wal-Mart model, where goods are shipped to distribution centers and then broken down for individual store delivery.
A second model in the B2B channel involves adding value to the shipment process.
We’re seeing increased upstream channel pressure from retailers as they tailor the supply chain to meet their customers’ needs.
For example, Wal-Mart may request that specific goods are bundled on skids, destined for shipment to specific store numbers.
Cross-docking is also gaining momentum, and for some retailers may approach 50 percent of volumes.
At UPS, we know of two office supply companies who are taking radically different approaches to cross-docking. One cross-docks 20 percent of its goods, and the other cross-docks 80 percent -- opting to bypass distribution centers almost altogether.
This strategy dramatically lowers handling costs and can help reduce inventories and improve performance. However, it requires significant redefinition of business processes and reconfiguration of distribution centers to accommodate flows.
Third, there is the B2C model.
Now that the dust has settled on the “dot.bomb” era, we’re seeing a reinvigorated approach to this direct channel.
One big box chain, for example, has seen 30 percent year-over-year growth in its online channel.
Many companies are looking to multi-channel marketing, and they’re looking for consistency in the customer experience across all channels.
For instance, a company like Best Buy wants the web experience to equal the brick-and-mortar experience -- with interchangeable transactions and seamless purchases and returns.
At UPS, we spend a lot of time working with the retail industry on distribution, supply chain and customer-service issues
Considering that post-sales customer service is crucial to maintaining a competitive edge in the intense battle for home-based shoppers, UPS has taken the lead in this area with a new initiative.
Two weeks ago UPS announced it is the first carrier to accept return ground packages at its 40,000 drop boxes. Our authorized return service improves efficiencies for retailers and convenience for their customers.
In addition to being a distribution and supply chain partner, UPS is now a fellow retailer -- thanks to our acquisition of Mail Boxes Etc.® a couple of years ago.
Today, our 3,800 The UPS Store® locations in the U.S. and 1,500 Mail Boxes, Etc.® locations around the world give us a significant retail presence and a strategic platform to better serve you and your customers in the future.
The UPS Store® is part of a retail strategy guided by many of the same forces driving your business including e-commerce and consumer pull, growing ranks of entrepreneurs, home offices, and mobile corporate workers -- and increasingly, global supply chains.
The stores are an important link in our overall vision of synchronizing global commerce.
Synchronized commerce is about coordinating the movement of goods, information and funds up and down your supply chains -- so that you can better optimize your demand and supply cycles.
It’s also a way to help forge stronger connections with your suppliers, extend your reach, get to market faster, differentiate your service offerings, serve your customers better, and of course, operate your businesses more efficiently.
We think synchronized commerce is more than just a supply chain play. It’s also about synchronizing every aspect of the order management cycle with the customer in mind.
It helps speed cycles so that customers can get popular items sooner and you can get paid quicker.

It’s about helping businesses break down internal and external silos and turning all those customer touch points into moments of truth and platforms for increased relationships.
I was encouraged to see many of these issues highlighted in the International Mass Retailer Association’s Logistics Study. Forty-two percent said that collaborative relationship and market differentiation strategies were the biggest business challenges. Nearly 40 percent mentioned that the greatest challenge was creating a more customer-focused supply chain.
These same areas were also cited on the supplier side -- which speaks volumes about the need for greater collaboration across the US$1 trillion mass retail industry.
It’s been 21 years now since Booz Allen Hamilton coined the term “supply chain management” and industry leaders first started recognizing it as a holistic business process.
Certainly, significant gains have been made over the years. Across all industries, there has been a 34 percent reduction in inventory to sales, resulting in a nearly US$5 trillion savings in inventory costs.
In just the last five years alone, there has been a 10 percent improvement in order-to-cash cycle times.
There have been productivity gains from IT investments, industry and market deregulation, improved visibility, and greater Just-in-Time and collaboration practices.
The surface has just been scratched -- even in the retail industry which has long been on the vanguard of the supply chain movement. Challenges such as information accuracy, inventory management consistency and application of strategic supply chain strategies, still remain.
My second discussion point is the imperative for synchronized supply chains.
I would like to suggest that a synchronized retail supply chain must not only be a central part of your business strategy, it must also be the foundation for achieving your business plan goals.
This alignment should extend across your enterprise and throughout your network -- from strategy and operations to suppliers and customers.
Your business plan should mirror your supply chain plan and vice versa, because supply chain strategy is crucial to achieving corporate strategic objectives.
Operational alignment is crucial due to the many hand-offs from the loading dock to the store shelf. This requires an ability to globally integrate processes, from supplier management to returns. Alignment results in a reduction in shrinkage and improved cost control.
Supplier management is critical to eliminate the bullwhip effect -- those peaks and valleys where supply is mismatched with demand. Alignment enables you to effectively balance demand and supply.
Alignment affects how you position your product for service excellence with your customers.
Given this complex world of change and supply chain shifts, retailers’ ability to adapt is critical. The differentiating factor is management of the supply chain.
At UPS, we believe retailers should focus on the fundamentals of their business, such as buying, marketing and the customer experience, because they know their customers best.
Our role is to help manage the supply chain to provide for greater competitive advantage.
Certainly, cost is a huge factor in supply chain management. But there’s more to supply chain strategy than managing direct costs. There are also indirect costs to consider and that’s where supply chain professionals can really make their impact felt.
It’s what’s known as attacking the “soft three dollars.”
Let’s say you produce a bottle of water for one dollar and sell it for four dollars. There’s not a whole lot more you can do to reduce the direct costs of producing the product -- perhaps a nickel here or there.
By attacking the other 75 percent of the cost of getting a product from producer to consumer -- those soft three dollars -- you can drive real savings in your organization. That means focusing on the indirect supply chain costs that include transportation, in-store delivery, duties, shrinkage and insurance overhead.
By managing those indirect costs, retailers can avoid lost sales due to lack of inventory and markdowns due to excessive inventory.

I’d like to highlight five areas that are critical to your business plan objectives, and show you how synchronized commerce can help drive real results by attacking those “soft three dollars.”
These five strategic imperatives, of course, are not limited to the retail industry. These are universal challenges:
- improving financial metrics;
- driving growth through new geographies, new channels, and new business conditions;
- differentiating yourselves in a world of increased parity;
- enhancing customer service; and
- increasing productivity.

Let’s start with improving financial metrics -- shrinking order-to-cash cycles, reducing inventory costs and freeing up working capital.
Inventory costs, of course, are not just sitting on the warehouse shelf. They are also going down the highway, sitting on the dock, or clogged up in customs lines.
Pushing costs back to suppliers through stringent performance requirements and levying compliance fines is not always the answer. You pay eventually.
One example of an innovative cash-flow solution from the retail product supplier and distribution side is evident with a company in Montreal, Malis-Henderson, that makes bridal veils and headpieces and sells them to bridal shops across Canada and the U.S.
This has been a success story, with the exception of one significant problem: C.O.D. payments from U.S. customers typically take 30 days to land back in the company’s hands.
Malis-Henderson found a solution to its problem: It involves a combination of customs clearance, warehousing, fulfillment, distribution and C.O.D. direct payments -- all bundled into one solution.
First, Malis-Henderson ships its goods from Montreal to a customs-clearance warehouse facility in New York.
By consolidating shipments, the warehouse is able to clear customs faster and expedite the movement of those goods into the U.S.
Once the veils and headpieces reach the bridal shops, C.O.D. checks are given directly to a delivery driver who uploads the transaction into a wireless electronic notebook that is connected directly to the delivery company’s financial services unit.
Funds are then transferred directly into Malis-Henderson’s bank account.
The result: A 30-day cash cycle that is flattened to about three days. Managers have more time to focus on the business, and customers are more comfortable giving a check to Malis-Henderson than a third-party broker. Malis-Henderson gets the holistic financial and shipping visibility it needs to run a growing multinational business successfully.
Goods, information and funds -- synchronized for better results.

The second business plan imperative is finding new growth opportunities through new geographies, channels and market conditions.
We’re seeing from our own experience in talking to customers that as the economy continues to turn for the better, more and more attention is shifting from survival mode to growth mode.
One area of dynamic growth is in the B2C channel, where we’re seeing some innovative approaches to mass retailing. For example, two discount big box retailers are taking quite different approaches to reach customers.
One retailer has learned that the more products it offers on its website, the greater the growth in the channel. By adding a broader array of SKUs than is offered in its brick-and-mortar stores, the company has managed to grow its online business by 30 percent.
Another retailer is leveraging its physical and virtual presence to grow the business. This retailer has discovered that nearly 40 percent of customers who used the company’s “ship to store” online option had never set foot in one of the stores before.
These online shoppers don’t go to the store to pick up their virtual purchase and then leave. Instead, they also spend time in the store and rack up additional purchases. So the online business is contributing to the brick-and-mortar business.
Two different approaches with similar results -- finding new growth opportunities through new channel approaches.

The third strategic imperative is competitive differentiation.
The question for a lot of us today is how do we distinguish ourselves when everyone else is carrying the same products?
For the retail industry, there are few issues more important than competitive differentiation.
We no longer compete solely on the strength of our products or the strength of our service.
Industry experts claim that companies no longer compete. Rather, their supply chains do.
Look, for instance, at what Nikon is doing to partner with retailers to differentiate their offerings. For its new lines of digital cameras, Nikon turned to a logistics provider to kit and configure their cameras according to individual retailers’ in-store requirements.
In some instances this meant kitting cameras with batteries and cases. In other instances it meant working with individual retailers to put their brands on packaging and adding free memory cards for special promotional periods, giving the retailer a unique offering for each customer.
The same third-party helped Nikon significantly shorten its supply chain from Asia to the U.S. and Latin America. Speed to market is enhanced, as well as their visibility up and down the supply chain, which helps reduce backorders and sales that could go to competitors -- all critical factors in the super-heated competitive world of digital cameras. The fourth strategic imperative is enhancing customer service. In the retail industry, the in-store experience is certainly the main moment of truth.
Much of that experience, however, is shaped at the front-end of the supply chain.

Customer service is both inside the store and beyond. Some of the most common bad experiences, like out-of-stock merchandise, painful returns, warranty services and long customer service lines -- are all supply chain issues.
We know when customers walk, they talk. They’ll tell eight friends about a satisfying experience and 20 about a negative one.
Here’s an example of service that benefits the customer, the retailer and the product manufacturer.
Deer Stags operates a global supply chain that stretches from Brazil to India and China to produce a broad range of comfortable, stylish shoes.
At the same time, it must also comply with very specific shipping, labeling and quality control requirements for 3,000 domestic retail outlets.
This challenge was made even more daunting because Deer Stags was using different vendors for each part of the supply chain process.
Deer Stags turned to a single provider to handle freight forwarding, brokerage and distribution.
This provider also handles the critical quality control check, which is done on 10 percent of the shipment. When that is complete, the emphasis turns to vendor compliance then to retailer requirements.
The provider also manages reverse logistics as merchandise moves back through the supply chain.
The end result is enhanced customer service, happy retailers, happy consumers, and a happy Deer Stags.
To top it off, the company was named Vendor of the Year by JCPenney, Mervyn’s and Bob’s Stores. At JCPenney, Deer Stags is one of the top-rated suppliers in terms of fill-in rate and on-time shipping and distribution.

The final strategic imperative is improving the quality and productivity of our businesses through focus.
The complexity of today’s world is making more and more companies realize that they can’t afford to go it alone anymore. Instead, they know they’re more likely to succeed if they focus on their core competencies and partner in areas where they need expertise.
One company that realized it couldn’t go it alone anymore is National Semiconductor. The company manufactures four billion chips each year in plants throughout Southeast Asia. National Semiconductor also tried to manage the intricacies of sorting, storing, and distributing those chips to 3,800 customers around the world.
National Semiconductor realized, however, that its core competencies were in two areas: world-class design and manufacturing.
Managing complex warehousing, distribution and inventory flow systems would be better outsourced.
That’s what the company did. As a result, a global distribution center in Singapore was designed and operated specifically for National Semiconductor. Each worker has access to a computer terminal, a hand-held wireless computer, and a wearable barcode scanner so that information about each chip can be transmitted seamlessly and securely through the building.
This completely removes the need for paperwork as all the processes and transactions are documented electronically.
The facility design also streamlines shipment handling by reducing the distance workers must travel within the warehouse to complete an order.
The result is that orders which used to take weeks to fulfill are now completed within one or two days through air shipments to all points around the globe.
In the process, National Semiconductor has taken 20 percent of costs out of its supply chain while greatly enhancing its productivity and customer service.

We’ve discussed the state of the retail supply chain, and the strategic benefits of supply chain synchronization.

Now I’d like to spend a few minutes to tell you how UPS is positioned to better serve the retail industry.

The retail and consumer goods industries are important to UPS, and we’ve invested in a great deal of resources to address your specific needs.
We want you to take a closer look at UPS because we’re much more than a small package delivery company. We’re moving from services to solutions -- to create greater economic value for customers.

Supply chain management is not the core competency for most companies, and that’s where a company like UPS enters the picture. Let me share with you a few specific offerings that we’re seeing interest in because they drive economic value for customers.
The Trade Direct suite of services is symbolic of what UPS is trying to accomplish as an organization.

Trade Direct is a complete, integrated, multi-modal solution to move products across oceans and borders more efficiently and reach customers and retail stores more quickly and easily than ever before.

From ocean to air and ground, the suite offers businesses a warehouse in motion -- seamlessly handling shipments every step of the way from factory to consumers.
With Trade Direct Ocean, for example, retailers have a choice of pre-assigning goods to ship directly to retail stores, or they can use the vessel as a moving warehouse to keep goods flowing through the supply chain.
This process saves time and skips intermediary stops at regional distribution centers, shaving up to 20 days from the traditional process. Customers benefit from increased efficiency, improved resource allocation, reduced time to market, enhanced shipment visibility, and improved control.

We also recognize that doing business with suppliers in other countries not only opens up possibilities, it also creates challenges. Managing vendors and orders can be a daunting task when you factor in varying languages, cultures, time zones and distance.
UPS Supplier Management enables successful international commerce by bridging these challenges to create a seamless supply chain. It oversees a company’s supplier by following the purchase order through production, delivery and payment.
Features include vendor compliance and order management, global information management, global distribution management, regulatory compliance management and transportation management -- all to manage international suppliers with more accountability and better control, regardless of time or distance between parties.
In the milestone-driven retail industry, speed is critical. But speed is useless without access to reliable information.
The goal is to remove uncertainty from the supply chain and to gain proactive visibility of inbound flows with notification of changes and updates.
Information feeds this process and as uncertainty is reduced through the use of visibility tools, predictability is increased.
Advance information reduces cycle times by enabling problem solving and providing opportunities for more dynamic flows. The result is better flow management with more precise quantities that match true customer demand.
UPS has created a technology platform to support visibility.
We are supporting inbound and outbound movements through our small package operations and also giving a broader view across the supply chain.
With Flex Global View, customers have a “window” into UPS supply chain solutions operating systems: They can monitor the warehouse, orders, transportation, and inventory.
Users get an integrated view of their supply chain via a web-based information system. Specific views and analytical reports enable one to see -- in near real-time -- events in transit in the warehouse, on docks and airports, at customs, at supplier’s premises, and at customer locations.
UPS also provides visibility services to its small package customers through Quantum View. This portfolio gives customers automatic, proactive status information about UPS small package shipments.

Proactive notification allows UPS customers, and their customers, to identify potential problems and act before they become big problems.
One of the most powerful features of Quantum View is the ability to plan and manage inbound flows in a way you haven’t been able to do before. This satisfies a critical need for retailers.
Quantum View also speeds cash flow because the finance department can trigger invoices based on prompt delivery notification. It can also be used to assess charge-backs to internal departments.

Whether you’re in retail, consumer goods production or related industries, it’s clearly a brave new world out there.
It’s a world that calls on us to practice what we do best.
It’s a world that requires focus, and partnership, and trust.
It’s also a world of immense opportunity -- for all of us.

At UPS, we look forward to this future, and look forward to our continued partnership with the retail industry.