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Thinking outside the supply chain

Thinking outside the supply chain

Improvement in supply chain identification may only be the tip of the RFID iceberg - billions of dollars in the form of new business opportunities may lie beneath the waterline.

Wal-Mart and other large retailers have been a major driving force behind radio frequency identification (RFID) adoption, causing it to be viewed merely as a more effective alternative to bar codes where it saves billions through reduced labor costs, out-of-stock expenses, theft, warehouse management costs and inventory levels. However, improvement in supply chain identification may only be the tip of the RFID iceberg--billions of dollars in the form of new business opportunities may lie beneath the waterline. For example, the Advanced Research Projects Agency Network (ARPANET), the predecessor of Internet, was conceived with a modest goal of improving communication between computers. Who could have guessed back in the 1960s that ARPANET would lay the foundation for today's US$140 billion e-commerce industry?

Similar to the way ARPANET laid that foundation a half-century ago, Auto-ID Labs and EPCglobal, two research organizations, are currently developing standards that can lay the foundation for a network that significantly extends the boundaries of today's Internet. With RFID, not only computers, but virtually any object--be it a human, animal, electronic device or lifeless object--can become a node of a global network. This "Internet of Things" may offer lucrative opportunities to those who can look beyond today's mainstream application of RFID--supply chain identification.

Current Examples of Innovative RFID Applications

While probably no one knows what exactly RFID may offer in the future, certain patterns of innovation adoption tend to remain fairly consistent. One of these patterns is that revolutionary applications of technologies are not likely to originate from companies like Wal-Mart. According to Clayton Christensen's theory of innovation, large, well-established companies tend to adopt innovations in a way consistent with their existing resources, processes and values. This holds true in Wal-Mart's case; it adopted RFID consistent with its discount retailer model: RFID is used to reduce costs associated with existing supply chain inefficiencies. It is smaller, emerging companies that tend to use technology in an innovative way, hoping to create new markets for themselves. Today, there are already examples of smaller companies creating innovative RFID applications outside of supply chain identification:

-- Seattle's cafes and retail stores use RFID technology for marketing products and services At the core of this new marketing advertisement system are the so-called "activation fields" (areas covered by the field of an RFID reader) and active RFID tags that are carried by customers. Whenever a customer enters an activation field, loudspeakers broadcast a commercial message. The system can also display a video message on a monitor with commercial information for cafes or local retailers. One of the primary target audiences for this new system are visually and hearing-impaired individuals.

--Computerworld

-- Exploratorium, a science museum in San Francisco, uses an RFID-based system called eXport for enhancing visitor experience. At the entrance to the museum, each customer receives an RFID tag in the form of a necklace. When a customer interacts with a particular exhibition stand (sprays water onto a refrigerated glass to form and explore ice crystals, for example), the customer's RFID tag triggers digital cameras that take pictures of the customer and the ice crystals that he or she has created. These pictures are uploaded to a customized website together with the related text information. The website can be viewed by the customer in his or her spare time.

--ACM Portal

-- Negone, a Madrid-based developer of interactive games, opened a game named "La Fuga" (The Breakout) at the premises of a former bank in Madrid. The game simulates experiences of an inmate escaping a high-security prison. Each person wishing to participate in this game is supplied with a personal digital assistant (PDA) and an RFID tag. RFID readers are placed in doorways and other areas in the former bank's premises. The game system is able to identify gamers and enhance their gaming experience: By detecting users' RFID tags, the system can display questions on the gamer's PDA and also open doors for them.

--RFID Journal

These cases provide neither a recipe for creating new RFID applications nor a road map to the future of RFID. What they do provide is evidence that it is possible to use RFID in areas outside of the supply chain.

Creating Innovative RFID Applications

If RFID does offer lucrative business opportunities outside of the supply chain, an important question becomes: How does one go about creating new RFID-based business models? There is no straight answer to this question. After all, many innovations are a result of serendipity. But an innovation can also be a result of directed intellectual pursuit, as was the case with many of Thomas Edison's inventions.

Given the latter possibility, two starting points for thinking about new RFID applications can be proposed: an "object-oriented approach" and a "visionary approach." The object-oriented approach is a "bottom-up" approach--it starts from the basic capabilities offered by RFID technology and attempts to determine how it can be used to create a new RFID application. The core capability of RFID is the ability to automatically and wirelessly identify an object together with its properties. The visionary approach is a "top-down" approach--it starts by assuming that RFID technology has reached its peak in terms of breadth of adoption and technical capabilities, and it then tries to determine what business models might be possible given this development scenario.

Object-Oriented Approach

The object-oriented approach uses the object-oriented programming paradigm to organize thinking toward new RFID applications. The approach requires looking at an object--a human, animal or physical item--in terms of its properties and methods. Properties, in this case, are characteristics of an object that are relevant for a particular transaction. A method is what an object "can do"--that is, the transactions it may participate in: for example, an object-oriented approach to the "smart office," using Ms. Smith as the object.

This type of analysis proceeds as follows. First, select an object. Then think about properties that the object may have. Next, determine how RFID can help to extract and use these properties either to enhance a transaction that the object participates in or to create a new transaction. New value propositions can be built either by improving existing transactions or creating new ones.

Ms. Smith has a property of location--she can be either in or out of her office. If Ms. Smith has a unique RFID tag, then this property can be automatically identified by an RFID reader installed in her office. If the tag is in the reader's range, it means she is in the office; if not, she stepped out. This property can be used to enhance (automate) a number of transactions in which she participates. As Ms. Smith approaches her office, the RFID system can automatically unlock the door, turn on the lights in the office, unlock her computer and log her in to the network. As she leaves the office, the system can automatically log her out of the network, lock the computer, turn off the lights and lock the door. The location property can trigger a number of other responses from the "smart office," such as downloading e-mail, playing voice mail or starting the coffee machine (if it's morning) when she enters her "smart office."

Starting With a Vision

Another way to invent new RFID applications is to start with a vision. Microsoft, for example, was largely founded on the vision of a computer on every desk and in every home. This vision allowed Microsoft to profit in the PC software market--an area where companies like IBM initially saw no opportunity.

In the case of RFID, one can begin by imagining a world where each individual, animal and physical object has an RFID tag. Imagine a ubiquitous wireless network that can identify the location and retrieve properties of every physical, animal or human object. With this vision in mind, answer the following questions:

-- What new forms of knowledge can this data produce?

-- What improvements to existing business models can be made by using this knowledge?

-- Which new business models can be created with this newly available knowledge?

If the "Internet of Things" becomes a reality, then you will be able to retrieve information about consumer items you see in your daily life and use it to purchase items on the spot. For example, Mr. Jones sees a tie on one of his coworkers when riding down in the elevator. Since the tie has an embedded RFID tag with a unique identification number, he can use his cell phone with an RFID reader to pull information about the tie from an online database and place his order right in the elevator. Sound crazy? Well, not for Accenture. The "Real-World Showroom" prototype developed by Accenture Technology Labs may help to make "anywhere, anytime" shopping a reality.

Here's another example of going from a vision to a concrete RFID application. Imagine every car as a node of a global, pervasive network. Then, a city government could identify and track movement of cars through its freeway system. This information can be used to impose road improvement taxes on vehicle owners proportional to their actual usage of the freeway system. Similarly, an advertising agency may use this information to position billboards along the freeway. Opportunities are endless if this vision becomes a reality.

The Future of RFID

Predicting the future in the rapidly evolving technology domain is an unrewarding task. Historical analogies do not always work--the fact that the ARPANET evolved into the Internet we know today is not a guarantee that RFID will follow a similar path. However, it won't hurt to adopt a more forward-looking perspective on RFID. In the long run, RFID can turn out to be a disruptive innovation, capable of destroying existing competencies and creating new markets. Failure to embrace the new challenges and opportunities may threaten the existence of a company, just like the failure to embrace the telephone led to the decline of Western Union. Successful adoption of a disruptive innovation, on the other hand, may transform a company into a new AT&T or Microsoft.

Vlad Krotov is a PhD candidate at the Bauer College of Business, University of Houston. He conducts research on IT strategy, innovation and ubiquitous computing.

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