Meeting the RFID Challenge
December 1 2004 by Chief Executive
In your recent article about radio frequency identification (“RFID Is No Monster,” November), you rightly indicate that the operational benefits of the new technology clearly justify the challenges associated with it.
One critical element you did not address is the explosion of raw data that RFID will generate. While early implementations are focusing on the operational aspects (e.g., tags and receivers), deriving the full value of RFID in the future will require capturing, analyzing and using the data to improve business operations. Making this high volume of data accessible is a challenge most enterprises have not fully considered.
Whenever an information system is used to automate business processes, there comes a realization that it’s the insight gained through analysis of the data that delivers the ultimate return. This is sure to be the case with RFID, and companies and vendors should be thinking now about how they will cost-effectively store and access all the data to come.
To illustrate: A terabyte of data is roughly equivalent to the information contained in 50,000 trees worth of printed material. Wal-Mart could generate 7 million terabytes a day if every item in its inventory were tagged. Using conventional technologies, this kind of volume could quickly overwhelm even the most well-funded data operation.
All of this activity produces virtual warehouses of a special type of business data: information that is written once, stored away and kept sometimes for years before it is needed (if ever). It is generally accepted that up to 80 percent of the data stored in relational databases today is never accessed once written, and technologies like RFID are only going to make this problem worse.
When truly competitive companies master archiving and accessing this imminent tsunami of data, it will benefit all aspects of the organization€¦quot;from the RFID-enabled supply chain line all the way up to the corner office.
Invest In Security
The problem is that many senior executives don’t consider security to be a strategic imperative. As a result, they aren’t willing to absorb the initial cost of doing such business. We all understand that, as compelling an argument as one can make to spend whatever it takes to be safe and secure, the financial realities facing a CEO often undercut it.
Corporations have three options: ignore security risks, a dangerous and shortsighted choice; opt for minimal compliance, although the adage “you get what you pay for” applies here; or, most sensibly, make security a strategic issue€¦quot;an opportunity to create business value and realize a positive return on a security investment.
Make no mistake: Security investments can have real, measurable business benefits. They can be leveraged to drive more efficiency into the supply chain, lowering costs and raising productivity. They can help companies increase revenues by slashing the amount of time their goods aren’t out on the shelves. And they can help preserve and protect a company’s brand, often its most valuable asset.
The New (Casino) Economy
The other big factor you failed to discuss is the explosive growth of global private capital, especially as a percentage of global GDP. This means an ever greater amount of money chasing an ever smaller pool of equities, leading to more of a casino economy and less value-based pricing of equities. It also means more rapid and accentuated shifts between market sectors and regional markets, as indeed is the case. The old-line, efficient, market-economy model will be increasingly challenged.
Fixing Health Care
Constructing a useful scorecard requires the application of quality methodologies that have been shown to drive systemwide quality and value in a variety of nonhealth-care settings by shedding light on key measurements. Lending credence to Professor Porter’s optimistic outlook for rethinking the whole system are certain efforts currently under way to stimulate competition based on quality and value. When these efforts expand beyond small-scale experiments, we will have begun to turn the corner.
Daniel M. Duhan
Your interview with Michael Porter resonates with my experience as the leader of a small medical technology company trying to get the health care system to adopt better alternatives in diagnosis and care.
As Porter argues, the best place for competition is in diagnosing and treating particular diseases, but in the U.S. there’s no competition at that level. There seems to be no way to replace current practices, however outmoded, with new ones that are clearly faster, safer, cheaper and more effective. Due to government regulation and historical practice, the reimbursement system doesn’t make head-to-head cost/ benefit comparisons.
In the case of our company, which provides FDA-approved software for disease diagnosis, monitoring and treatment, hospitals have an incentive to kill a new technology that competes in areas where they’ve invested capital. The U.S. health system is on the cusp of a major quality breakthrough, but only if the system can change to permit it.
M. Weston Chapman
Your recent roundtable on health care solutions (“Battle Over Benefits,” August/ September) was insightful. But it omitted one critical employer strategy that CEOs instinctively use in other parts of their businesses, yet rarely consider for controlling benefit costs: contracting directly with providers to cut out middlemen.
With Blue Cross executives comprising one-third of the roundtable participants, I wouldn’t expect direct contracting as a cost-containment strategy to arise in a published discussion. I’ve worked with Blue Cross over the past 25 years and believe its strategies are vital to thousands of companies and millions of employees. But there are CEOs whose companies could benefit from dealing directly with providers.
A stunning example of this in practice is Perdue Farms. With 21,000 employees in 14 states, Perdue found that commercial managed-care networks did not provide the access, service and savings the company needed in its mostly outlying locations. Perdue contracted directly with nearly 6,000 physicians and 60 hospitals to create a custom provider network for its employees. Together with other initiatives, such as wellness centers, this has kept the company’s health costs flat for the past three years.
Howard “A.J.” Lester