Economic risk planning- a pathway to creative thinking

As I drive through my city, I see that almost all of our economic development eggs have been placed in one basket. This basket- healthcare, and particularly one firm- is historically considered safe. But what would happen if, suddenly, the market upended? Do our local officials understand enough about the market built around the one gargantuan firm dominating our area to plan adequately? Do they have a plan for what would happen if the healthcare regulatory environment changed and the market nationally was freed up? Would the dominant firm be unaffected, and would our job and tax picture stay the same?

Admittedly, a crippling blow to this industry, and this firm, is a low-probability risk. But low-probability is not no-probability, and it’s hard to watch a city once again throw its entire weight in a single industry, if not a single entity, like we did with our now nearly-nonexistent rail industry. We’ve got to learn from our past, and at the very least we need to start entertaining a discussion on economic risk planning.

Economic risk planning, or evaluating localized economic networks for their potential weak zones and areas where they could lose jobs, tax revenue, or whatever metric a city values in its development, is often overlooked, likely because it can be absolutely terrifying. Across rural America, especially, where resources are thin and opportunities often thinner, it is easy to overlook or avoid. Nobody wants to paint a bleak picture, even when that picture has to be painted before positive growth can be kickstarted.

This reality is especially unfortunate because economic risk planning is just as valuable and meaningful, and should be just as obvious, as risk planning in cybersecurity, disaster relief, and supplier management across the commercial and government world. It has its apparent benefits- being ready for actual disaster, for one- and ‘hidden’ wins, such as opening opportunities for useful thought exercise and creative thinking.

It may be scary to plan through the scope of economic disaster, but starting the discussions around ‘what-ifs’ are almost always guaranteed to be incredibly productive. Not only will a city be better prepared when and if disaster does strike, they’ll certainly find linkages, nuances, and facts about their own area they never would have learned otherwise. What could we do with a newfound depth of knowledge about our areas?

Plan against our economic risks, for one. But the possibilities are nearly endless.

 

 

 

Local economies are a lot like businesses

At the end of the day, a local economy is a lot like a business. The goal of a local government is to provide a set of services while bringing in more money than they expend. Too often, we don’t think of things in the least abstract way- money in must equal or exceed money out.

For local governments, tax dollars are the obvious key ‘market’ to target. It makes sense, then, to undertake efforts to increase those tax dollars in way that don’t saturate or exhaust that market. It also makes sense to nail that basic need before trying to overextend and do too much, creating a deficit.

Rural governments leading rural economies often focus on things like quality of life, arts, culture, and tourism, which are frequently ill-defined and, in the final analysis, low-impact overall. This happens while the basic tax-collecting infrastructure is neglected, and businesses are left twisting in the winds of unsure regulatory environments or convoluted processes to engage local officials.

This can be relieved to an extent by opening the lines of communication between government and businesses, especially the small businesses that- when taken as a collective- make up an overwhelming majority of employment and an incredible potential source for tax revenue.

Think of the small business boom potential in rural cities if only an area’s small businesses were truly aided in growing and their needs were almost all met within an area. Imagine a city that develops the positive feedback loop of a diverse, self-sustaining cluster.  Imagine the potential for all the things we aim for now- quality of life, nature trails and greenways, culture, arts, tourism- built organically, strengthened on a bedrock of a strong employment, good wages, and robust business environment.

It’s vital for local governments to understand their ecosystems- their markets. They can, like a business itself, build a reliable market and a continuing stream of income. It just takes boiling things down to the lowest level of abstraction: money in must equal or exceed money out.

Think Globally. Act Locally.

This post originally appeared on the DC Velocity blog at https://blogs.dcvelocity.com/public_sector_logistics/2019/02/think-globally-act-locally.html

Davos, officially known as the World Economic Forum, just wrapped up.

The annual meeting is an event where a couple of thousand people getting together and try to solve the world’s problems.  Quoting directly from the legal charter, The World Economic Forum “is an independent organization committed to improving the state of the world.”  These people are not timid in their ambitions.

This year, their report is over a hundred pages long.  According to the report, the five most likely risks are: 

  • extreme weather conditions

  • failure of climate-change mitigation and adaptation

  • natural disasters

  • data fraud or theft

  • cyber-attacks.

The top five in terms of impact are:

  • weapons of mass destruction

  • failure of climate-change mitigation and adaptation

  • extreme weather events

  • water crises

  • natural disasters.

Together these items are a good list.  There is a very important point worth noting: only two of the ten are cyber threats.  Go poke around on the web, search for Supply Chain Risk, and odds are the references will lead to articles on cyber threats.  There is a disconnect in our discourse.

Logisticians need to figure out how to mitigate Supply Chain Risk in operations, not just cyber.  Our challenge is at the micro economic operational level.  The one of the world point of view belongs to Davos.  We can consider how to mitigate the impact of extreme weather, the implications of climate change on logistics, disaster response protocols, water, and natural disasters.  Every one of these operational risks cascades down to the tactical level.

Supply Chain Risk Management is about managing and mitigating these risks across the spectrum.  Supply Chain Risk Management is bigger than cyber.  Supply Chain Risk Management belongs to the operators, not the technical staff.

A Holistic View of Supply Chain Risk

This post originally appeared on the DC Velocity blog at https://blogs.dcvelocity.com/public_sector_logistics/2018/06/a-holistic-view-of-supply-chain-risk.html

Allianz – an international insurance firm headquartered in Europe – publishes an annual “Risk Barometer.” 

According to the report, globally, “Business interruption ranks as the most important global risk for the sixth year in a row (42% of responses), due to its tremendous effect on revenues.”

Drilling down into the Americas specifically, in 2018, the top 10 risks identified in the Americas region are:

  1. Cyber Incidents

  2. Business Interruption

  3. Natural Catastrophes

  4. Market Developments

  5. Fire and Explosion

  6. Changes in Legislation and Regulation

  7. Loss of Reputation and Brand Value

  8. New Technologies

  9. Climate Change and Weather Volatility

  10. Talent Shortage

It’s a good list, and Supply Chain Risk Management weaves through all of it.  Logisticians ship, receive, and store things all over the world, so supply chain leaders have to worry about taking a hit in any one of these dimensions.  At the moment, we’re all riding the uncertainty on the domestic regulatory dimension, while chatter about a trade war looms on the horizon. 

The immediate tends to occupy our attention.  That’s natural. The academics call it selection bias.  We focus on what’s in front of us, and have a tougher time thinking about what might be around the corner.

But hurricane season has officially started, unemployment is under 4% so key positions go unfilled, block chain is disrupting traditional business networks, volcanos are being disagreeable in Hawaii, and the FBI is telling us to reboot our servers because of some insidious Russian virus.  And that’s just off the top of my head.  Take a moment and make a list of the “significant” supply chain management risks for your business.

Take a look at your operation through this holistic lens.  Where are your vulnerabilities?  What are your countermeasures?  Do you have a plan?  Are you even capable of executing the plans you have?

Be honest about it, be a little bit intimidated, and then get to work.


The Personal Touch

In a world of AI, social media, complex marketing, complicated algorithms, etc. etc. etc. we often forget that it’s still humans connecting with us at the other end. We always hear about the need to turn back to a more Spartan way of life, and many of us dismiss it offhand as old-fashioned. But there is a nugget of practical value within that advice.

If you don’t buy the often-quacky bits about improving your mental well-being by putting down the cell phone, at least examine the potential for actual economic impact that’s nestled in there. Anecdotally, my biggest wins have come through chance, face-to-face encounters. In my wife’s small business, game-changing wholesale leads have come through little ‘a-ha!’ moments between herself and her network of friends over drinks.

Here at SCV, we strive to create those moments with our clients, our partners, and our network. We’ve modernized our digital game, but we still push each other to dive into our human network on at least a weekly basis. The great majority of our many success stories have roots in an initial in-person connection.  

Person-to-person interaction is foundational to us; it permeates through all of our projects, because we know the most meaningful success comes when we’re able to look our peers in the eye. How many other companies can really claim that?

Blockchains for Blockheads. I think I finally get it, Part II.

This post originally appeared on the DC Velocity blog. See the original post at https://blogs.dcvelocity.com/public_sector_logistics/2017/11/blockchains-for-blockheads-i-think-i-finally-get-it-part-ii.html

This is the second installment of a series on Blockchain. See last week’s post, or click here to read Part I, a primer in Blockchain.

Remember the Clipper Chip?  In the early 90’s, the NSA made a valiant attempt to insert a back door into private email communication so the government could monitor internet traffic.  The effort began in 1993, and by 1995 the effort was over.

George Santayan said, “Those who cannot remember the past are condemned to repeat it.”  Keep an eye on Blockchain.  When the government realizes what is happening, we may see something like the Clipper Chip initiative all over again.

Over the past several decades, supply chains have evolved from hierarchical organizations with top down command and control to become the continuously evolving amorphous network reaching around the world.

It’s not your grandma’s physical network.  Today, logistics networks are about horizontal cross-functional integration.  That network includes B2B as well as B2C. 

If you order a product over the internet you may just get a box that was packed in China and wholesaled by a US operation, never touched by American hands.  Or, you may get a product including subassemblies sourced from Latin America, Europe, and Asia, assembled somewhere in the United States.

But the associated transactional environment remains stuck in the past.  Blockchain is going to change that.  In fact, it’s already impacting information exchange and transactional execution in the financial world.

I’m a box kicker at heart, so I don’t do well with abstract statements.  What does Blockchain mean to me?  In simple terms, Blockchain is an evolution from a system based on information intermediaries to a system based on protocols.”

Think about a purchase where you use a credit card.  There is a buyer, a seller, and an intermediary, the credit card company.  Everything flows through the credit card company, who is in effect the channel master for the financial pieces.  They are a broker sitting in the middle, in disintermediating the buyer and the seller.

The credit card company is an information overseer providing validation of the financial transaction.  For this service – undoubtedly valuable – the credit card company takes a few percentage points off the top. 

The costs add up, fast.  Letters of credit.  Reference checks.  Escrow.  You get the picture.  If I owned a credit card company, or a bank, I’d be worried.  Blockchain is a disruptive threat to their core business.

Widen the scope, and you see this sort of similar complexity all over logistics.  In our world, we don’t simply do pairwise transactions.  We are involved in multinational trading networks that evolve over time. 

What if we apply Blockchain innovation – now proven and being widely adopted in the financial world - to logistics information exchanges in general?

We may be on the cusp of a revolution in logistics information exchange.  Does the government understand the change that’s already happening?  Is Blockchain going to trigger an attempt at new regulation, a new incarnation of the Clipper Chip?  

Blockchains for Blockheads. I think I finally get it.

This post originally appeared on the DC Velocity blog. See the original post at https://blogs.dcvelocity.com/public_sector_logistics/2017/11/blockchains-for-blockheads-i-think-i-finally-get-it.html

I think I finally understand blockchains. Blockchains are a concept that is creeping into the logistics literature. Pay attention; we might be looking at a fundamental shift in how business gets done.

I own a house. It is an interesting house, built three hundred years ago. Yup, the house is older than the United States. It was built in 1718 and is listed in the National Historic Register.

I’ve actually gone to the Registry of Deeds to read the file. It begins with a land grant from the king and that deed is in the file. The original homestead was huge, covering a big chunk of this side of town.

Obviously, I don’t live on an estate of hundreds of acres in suburban Boston. Instead, while I do live in the original house, the residence sits on about a ten thousand square foot plot that is all that remains of the original land grant. The rest of the estate has been peeled away over the years.

Starting from the bottom of the pile of documents at the Registry of Deeds, I can start with the deed from 1718. Stepping through transactional record, on paper, I can walk forward across the chain of actions. I can see every action that connects back through the pile to the original land grant, or block, all the way forward to the current deed on the top of the pile. The piece of paper at the top of the pile is my home.

What blockchain could do is take the paper in the file and make it digital and distributed. Once any transaction is encrypted and shared, there is no need for a central repository at the Registry of Deeds.  Copies of the chain could be shared virtually with all of the participants in the chain. 

Integrity is maintained by links among the copies of the transactions embedded in the chain residing with each participant: If any of the records get out of synch, the distributed technology flags the discrepancy.

Integrity is maintained by encryption: Anybody not involved in the transaction doesn’t have the key.

Integrity is maintained by an architecture that is inherently opaque: People can’t peer inside the transaction and understand what is happening, so hackers attempting crack a pile of encrypted records can’t find the on ramp to a successful hack.

Think of blockchains as information stored in stealth packets; you know that something is out there somewhere but you can’t see it so you can’t hack it.

I think I feel the world shifting. The financial community is leading the pack with block chain, and the supply chain is sure to follow. But we have a clash of the Titans coming. Should the government have the right and the power to read your transactions? Or do individuals have a right to transactional privacy? This is going to get interesting.


Diagnose first, operate later.

As I’m watching some recent local development news unfold, I’m once again led to asking the question ‘is there really a benefit here?’

In many rural cities across the country, the basic principle of economics- that scarcity exists- is painfully apparent. We, in these areas, have to use our limited resources wisely.

And yet often we see big expenditures on big projects with little understanding of anything beyond the first-degree impacts, if that. Without doing a thorough checkup, how can we treat unfavorable conditions with any effectiveness? How can we know what’s really going on and what really needs to be fixed? How can we get the best bang for our limited bucks?

These situations are like a doctor treating a sinus headache with brain surgery- there’s no basic need, there’s very high risk, and there’s very little chance of fixing the problem. And in this case, the doctor could have asked some very simple questions to find out surgery wasn’t necessary.

So are we undertaking big, newsworthy projects to make ourselves stand out through impressive activity, or are we truly trying to make things better?

We ought to be doing a little diagnosing first.

Helping millions starts with helping one.

“We have, in short, somehow become convinced that we need to tackle the whole problem, all at once. But the truth is that we don’t. We only need to find the stickiness."

- Malcom Gladwell

It’s an old adage- we have to eat the elephant one bite at a time. But we so often forget it, and we so often aim for huge goals without understanding how to get there.

The best way to solve big problems- unemployment in rural America, destroyed markets in central Asia, global poverty- is to find the right leverage points and surgically attack them one by one. Those sticky points will snowball into huge success.

The problem is, telling folks just that doesn’t often get them excited. We always search for the revolutionary, the most broadly impactful, the easiest to champion and snag headlines, and end up repackaging classic principals with new words, laundering away the original principal all along the way.

Every one of these ‘new’ and ‘revolutionary’ ideas has a root in something known, something foundational in human history. Lean startup, the ‘tipping point’, or whatever idea we find novel- they all start at the same principal; small, mobile, targeted efforts are the ones that drive even the most broad and widespread successes.

Next time you get a little down, like I often do, remember that the best and most impactful efforts all started at one leverage point. The goal is to find that point- helping millions starts with helping one.

Why do we have to be so complex, after all?

“Simplicity is another reason for some theories to be preferred over others…more complex theories may be preferred to simpler theories when those complex theories meet emotional or other criteria.”

- Thomas Sowell

As intellectuals, economic developers, and professionals, we believe that positive change can only be created by the radical or the complex.

While pursuing the sexy solution we often put on blinders to a return to the foundational.  Could it be possible that the foundational is foundational for a reason? Do we always need to be so creative?

Turning back to the simple just may help more people than we know. It may also lead us to question whether our pursuit of the haughty is for others or just for ourselves. At the very least, getting simple is certainly worth considering.