Warren Buffet’s right-hand man, Charlie Munger, famously once said, “Show me the incentive, and I’ll show you the outcome.”
When it comes to business transformation, hope is not a strategy. Change always requires clear communication of vision and expectations coupled with the motivation needed to permanently alter behaviors. People rarely change the way they do things unless they have good reason to do so. When presented with anything new, people naturally ask the question, “What’s in it for me?”, also known as, WIIFM.
Bringing transparency to supply chains is no different. It takes effort to gather, organize, connect, and share supply chain operational data to create increased visibility, traceability, and transparency. (My visibility is based on your transparency, and visa-versa).
Big organizations may be able to use their economic power to mandate that suppliers embrace new business practices, install sensors, connect systems of record, share data, and so forth. But most suppliers, particularly those who operate on razor thin margins, will expect some kind of support or incentive before they sign up fully to new transparency programs. As Munger would say, they must be shown the incentive to deliver the desired outcome.
The effort to bring transparency to supply chains is not a new one. In the last decade, many such efforts have been made. Most have yielded only limited success because they relied on what I would call the “Field of Dreams” strategy, namely that if you build it, they will come. If you haven’t seen the 1999 Kevin Costner baseball movie, it still holds up by the way.
To deliver meaningful change, upstream suppliers, all the way to miners and growers, must find it advantageous to gather and share information that exposes the details of their operations. This is especially true for shady operators that want to keep their environmental impact, labor practices, and other unsavory aspects of their businesses hidden from view. These suppliers must perceive strong self-interest and clear benefit to abandon old practices and make the investment to gather and share data that proves they have shifted to ethical, sustainable, and responsible operations. WIIFM always applies.
The Provenance Chain™ Network is built around a system of requirements, claims, evidence, and incentives. Up and down the supply chain, buyers set requirements for sellers, and in return sellers respond to those requirements with claims, backed by evidence. This evidence can be in the form of documents–inspection reports, certifications, and audits—or it can be sensor data from scanners, cameras, environmental sensors, RFID, and other data sources.
If they so choose, buyers can reward sellers when they provide this evidence, using a system we call the Provenomics™ ecosystem—proof, rewarded economically. Motivation can be offered in the form of a premium paid on a purchase order. For example, a supplier might be offered a 2% bonus if they provide evidence of compliance against safety and age-appropriate labor requirements in the form of monthly certified inspection reports and a live video feed of production lines. Discounts can also be extracted for non-compliance or for falling short on requirements. So, a supplier might be asked to accept an order with a 15% penalty attached to it if they fail to deliver product on-time and supply digital evidence that it was shipped in cold-chain conditions.
Change doesn’t just happen. Expectations must be clearly communicated, and discretionary effort must be incentivized and rewarded. Without a powerful incentives capability—incentives to join a transparency network, to invest in data collection equipment, to change business practices so workers gather the data needed to record important business events, to update practices to conform with buyer requirements—the transparency demanded by consumers, mandated by regulators, and desired by brand managers, will remain elusive. Perhaps more importantly, some parts of the supply chains that serve us will continue to operate in ways that are not consistent with human values.
To make the world more transparent, we must always remember….WIIFM. It’s as simple as that.