by Adam Hartung | Aug 21, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Lock-in, Openness
Smartphones will outsell PC by 2011 according to Silicon Valley Insider:
Your first reaction might be "interesting chart, so what's the big deal?" That's the way a lot of people react to news about market shifts. Like the shift is important maybe for the suppliers, but what difference should it make to me? That's kind of how a lot of people reacted to PCs when they came along – and those businesses ended up with IT costs that were too high and processes that were too slow.
Market shifts affect us all. As the number of smart phone users keeps doubling, the number of new PC buyers doesn't. You may not care today that there will be more smartphones sold in 2011 – but if you think about it, you should.
- Do you deliver information across the internet? If so, are you formatting content for access on a PC screen – or on a smartphone?
- Are you publishing information for long-format page views like a PC, or short-format small views like a smartphone?
- Are you planning to continue sending people information on email, or will texting be more efficient and practical soon?
- Do your on-line ads present well on a smartphone?
- Do you print things you should send immediately via smartphones? Could you stop printing?
- Do you have a PC in your family room – and will you need to have one there when everything you want to know is available on a smartphone?
- If you can access 90%+ of your information on a smartphone, will you still carry around a laptop?
- Will fax machines become obsolete? What will that do for land-line demand? What does this portend for maintaining land-line service to your home or business?
These are just a few thoughts about how things could change as smartphone sales grow. There will be more. The biggest risk in this chart isn't that the lines meet in 2011 – but that as we get into 2010 smartphone sales keep growing on a log (rather than linear) line and PC sales don't recover anywhere close to the projections shown here. Realizing that forecasts tend to be wrong by more than 25% as often as they are correct within 10%, we can realistically expect that in 2011 smartphone sales might be more than 500MM units, and PC sales might be less than 250MM units – or rougly double!!! When that sort of impact happens, we see sales fall off a cliff of old technology. Do you remember when every admin had a typewriter – then suddenly none did – like in a matter of months.
So, are you preparing for this possibility? If you did, could you gain advantage over your competition? If you were the first to aggressively plan for, and implement, smart phone technology use can you lower your cost? Better connect with customers? Find new customers? React faster to customer needs? Offer new services? Promote new products?
If you wait, what can your competitor do to you? How could she clip your customer relationships? Lower her prices? Expand her offerings? If you wait, how could you find yourself doing poorly?
This will be a big deal for the technology companies. This shift is the kind of thing that could expose the great weaknesses in Microsoft's and Dell's horribly Locked-in Success Formulas. It also could catapult Apple, Google — or maybe an outside player like Motorola (largely given up for dead) into a leadership position. Positions could change very fast if the adoption rate turns more aggressive. Is your investment portfolio prepared?
We see these kind of charts all the time. But do you do anything about it? Market shifts happen. They obsolete old Success Formulas. They put businesses at risk that aren't paying attention. They create new winners out of companies that aggressively pursue the shifts. We often see the shift coming – but Lock-in keeps us from doing anything about it. Perhaps you need to consider Disrupting your status quo and setting up some White Space to see what you can do to improve your position!
by Adam Hartung | Aug 7, 2009 | Defend & Extend, Disruptions, Food and Drink, General, Leadership, Lock-in, Music, Openness, Television
"Pepsi Launches Own Music Label in China" is the BusinessWeek headline. Clearly, the Pepsi staff has some new ideas. Recently Pepsi's Chairperson, Ms. Nooyi, made a trip to China for 10 days. Apparently frustrated, she commented to the Wall Street Journal in July that she didn't see enough Disruptive thinking on the part of her folks in China. She indicated the market was robust, but it was different and would take a different approach. It now sounds like her China leadership got the message.
In addition to launching a music label, Pepsi is producing a "Battle of the Bands" show in China. It's almost like a reformatted page from the aggressive growth years of Starbucks. Instead of just expanding into a new geography (China) with the same old playbook (like the floundering WalMart), Pepsi is figuring out how to be a big success. And that may mean producing television, producing music and making people into stars. China's culture is unlike anything in the U.S. or Europe. So doing new and different things will be critical to success. When you see a business developing its own scenarios about the future, taking actions its competitors (Coke) are too hide-bound to try, acting Disruptively to compete and using White Space projects to test new ideas you simply have to be excited!
On the other hand, "Tide Turns 'Basic" for P&G in Slump" is the Wall Street Journal headline about the latest "new" product at P&G. Please remember, the departing P&G CEO was lauded for creating an innovative culture at P&G. But it appears the legacy is a culture of sustaining innovations intended to do nothing more than Defend & Extend the old P&G brands. Now slumping, P&G needs to identify market shifts more than ever, and create new solutions that help it move with market trends. Instead, the company is rushing into reverse! Management not only seem to be driving the bus looking in the rear-view mirror, but actually driving it that way as well!
Tide has been around a long time. Ostensibly a very good product. For reasons explained in the article, managers at P&G felt the best way to sell more product was to make it less good. Really. They removed some of the chemicals that help you get clothes clean, renamed it "Basic" and launched the product at a lower price. It's not "new and improved." It's not even "better." It's literally less good – but cheaper. Sort of like store brands, or private label – only maybe not as good? Doesn't that sort of obviate the whole notion of branding?
People don't ever like to go backward. We like to grow. To learn and get more out of life. When we find a product that works, why would we want a product that works less well? And the folks at P&G missed this. Only by being insanely internally focused, terribly Locked-in, can you think this is a good idea. Looking inside a person could say "well, we want to jam the shelves with more of our branded product. We want to have the word 'Tide' smeared everywhere we can. We think people so identify with 'Tide' that they'll take a worse product just to get the name brand. We're willing to create a less good product thinking that we will get sales simply because it's cheaper than the stuff people really want to buy." Seem a little mixed up to you?
When you want to grow you figure out new ways to Disrupt the marketplace. You develop new solutions, new entry points, new connections with shifting market trends. You figure out how to be the best at the right price. You don't try to give people less, and tell them they are cheap. And Pepsi clearly gets it. They are willing to expand into music recording and TV production. Stuff P&G did when it was really creative and innovative – after all, that's why we call daytime TV "soaps", because P&G produced them just to sell soap. Now we see Pepsi applying that kind of scenario planning and competitive obsession, along with White Space, to develop new market approaches. Unfortunately we can't say the same for P&G — clearly stuck on trying to cram more stuff with the word "Tide" on it through distribution.
by Adam Hartung | Aug 6, 2009 | Current Affairs, Disruptions, In the Rapids, Innovation, Openness, Web/Tech
Today a colleague emailed me an article on Cisco. He used the Wall Street Journal "send this article" function. The email had his name, the article title, the link to the article and then this:
"The Wall Street Journal Mobile Reader for iPhoneTM
delivers the latest global news, financial events, market insights and
information to keep you ahead of the curve. Get the information you depend on
plus entertainment, culture, and sports coverage when, where, and how you want
it from the most credible source for news and information. Click below to
download the WSJ Mobile Reader for free from the iTunes App Store."
Another indicator of the trend – the shift – that is affecting publishers. And increasingly affects everyone. If you want to be "in the know" you'll be using different technology than ink on paper, or a laptop. And if you want to be competitively advantaged today you are thinking about how you can use this to grow your business:
- ads for the WSJ articles delivered to iPhone?
- developing an app for your technical materials to be read on an ereader like iPhone?
- creating a way for your customers to get updates on ereaders?
- using ereaders to update your salesforce? service force?
What ideas can you think of where this really cheap, real-time technology can help you beat the competition? How can you put ereaders (iPhone, Kindle, Sony, etc.) into your scenarios about the future? What are the leading edge competitors (like Pizza Hut's iPhone app) doing? How can you Disrupt your old business model to start using this lower cost information dissemination technology? How can you Disrupt the market to deliver higher value? What White Space do you have for testing the use of ereaders, learning about their benefits and getting closer to emerging market needs?
by Adam Hartung | Aug 5, 2009 | Current Affairs, Disruptions, eBooks, General, Innovation, Leadership, Openness, Web/Tech
"Sony Unveils Pocket Size Electronic Book Reader" is the Los Angeles Times headline. According to Silican Alley Insider the new Apple tablet is a GREAT book reader. Although Steve Jobs thinks book publishers are incredibly screwed up and he's less optimistic about book sales than he was music sales when he launched iTunes. And Amazon has sold out its Kindle e-readers since they started manufacturing them two years ago.
With all these announcements, you'd think everyone knows about e-readers and the market shift happening in publishing – from books to magazines to newspapers. Even I've blogged about this for months – and the positive impact this has had on book sales as well as Amazon's revenues and profits. But:
(Link to chart and Forrester Discussion here)
Half of all people surveyed in 2Q 2009 still haven't seen or heard about e-readers.
This is important. Imagine it's 1983, and you weren't aware about personal computers and their benefits – even though the IBM PC was Time magazine's "Man of the Year" in 1982. We now know that early adopters of PCs developed new solutions for many problems – from analysis to word processing to advertising development to commercial graphics to in-house publishing to communicating via email — on and on and on. Those who understood this technology early, recognized the shift it demonstrated, had early advantages on competitors. You didn't have to compete in technology, or be a technology officianado, to take advantage of this computing shift for your advantage.
Today, ereaders are another serious market shift that early adopters can leverage. Soon newspapers and magazines will be hard to come by, or so thin (due to printing and distribution cost) that their content will be much less than desired. But ereaders allow you to keep up with journals you've come to trust. And advertisers need to be prepared to follow them onto this platform – to reach people they otherwise would miss.
If you've quit reading books because you don't have the money to spend (at $20+ apiece), desire to carry them, or the time to read them, ereaders allow you to buy and carry 350 or more books at a fraction of previous prices. You even can buy pieces of books (chapters for example) that give you what you want. Think of the shift from long-play albums/CDs to iTunes sales of single songs as an analogy. You can get the benefits of books without many of the reasons you may have quit reading them.
Would you like a repository of information you can call upon for your daily work? With e-readers you can carry an entire library, something you'll not do in paper. Or on your laptop.
Speaking of laptops – this will all be on a laptop you say – so forget ereaders. Do you really think we'll all be carrying these 7 pound monsters around in 5 years? Look at college kids today. How many do almost all their work on a phone? They use the computer only when forced to – for typing papers or building spreadsheets. Laptops are increasingly becoming much more than people want – too big, too heavy, too hot, too power hungry, too short battery life, too complicated, too much software, too many bugs, too many viruses, too expensive. Laptops will soon be like mainframes. Look at the trend. Sales of big screen laptops have cratered as netbooks, with tiny screens, have taken off. People are moving away from laptops to smaller and easier to use products – like ereaders.
Why make your salesforce, or customers, or training techs carry a laptop when an ereader will give them everything they need? They cost less, are easier to keep working, and don't get hindered with personal apps like MS Money that you didn't put on the laptop in the first place but couldn't stop. Given ereader prices, you might be able to consider an ereader disposable in 5 years. Literally, you could give a customer an ereader with all the training, specs, history, design elements, etc. of your product the way we now use a brochure. It literally might be cheaper than a 10 page glossy brochure costs to print and distribute – but with everything they need to design in your product, or operate it, or service it. Imagine an ereader in your car glove box rather than the owner's manual you never use – but the info will be catalogued, searchable, and linked to the internet so it's always current with service information.
Market shifts affect us all. Too often we say "oh that shift is obvious, and I'm surprised the current competitors aren't jumping on that." Then we ignore the shift ourselves. Competitors that make higher rates of return, and prolong those rates of return, observe these market shifts and immediately build them into future scenarios. They think about how to use these shifts to improve their competitive position, and create White Space to test the opportunities – even when they represent Disruptive change. These are Phoenix Principle companies – and the kind you want to be – because they grow more, make more money and have longer lives.
Learn how to spot market shifts and leverge them for your advantage. Don't end up like GM – out of touch and into bankruptcy. Read the new, free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes."
by Adam Hartung | Jul 17, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership
Business leaders too often react to a recession by cutting costs, stopping spending, discontinuing new product launches — and waiting. The theory is that the market is bad, so it's an uphill slog to try doing anything new. Supposedly, a smart leader waits until things improve before spending again.
An example of this thinking is at GM. The retired executive brought back to head marketing, Bob Lutz, supports killing off the Pontiac brand to make GM smaller and leaner. But he realized this week that there was a car in the Pontiac lineup called the G8 which was selling pretty good. Designed in Autralia, this 2 passenger sports car had sales up 56% from last year – something no other GM car could boast. So Lutz said he'd find a way to keep making and selling the car. But now, Lutz has reversed position and in "GM's Lutz Makes another U-Turn" from the Wall Street Journal he says "upon further review and careful study, we simply cannot make a business
case for such a program. Not in today's market, in this economy, and
with fuel regulations what they are and will be." In other words, we can interpret these comments as "we at GM want to save money and try selling the cars we've got – whether you like them or not – rather than move forward with a car you may really want." This kind of thinking is not the way to grow out of a recession.
On the other hand, we have Tesla Motors. The company Mr. Lutz laughed at a few months ago claiming it wasn't a serious car company. Tesla has one car for sale today, a superfast 2 seater sports car that is 100% electric. Today in Marketing Daily we read "Tesla Plugs Dealership into Manhanttan's Chelsea". Tesla is selling 100% of its production, and it is supporting that by opening a new, stylish dealership in Manhattan. While GM is eliminating a hot seller, Tesla continues to promote theirs. While GM closes dealerships, Tesla opens a new one. Tesla is making a car, albeit a low production model, that people want. It is going where the market is shifting. That's how you get out of a recession, you give customers what they want.
I met another great example last week at Morgan Aircraft. You've never heard of this company unless you've been to an air show. While the makers of private aircraft like Cessna and Gulfstream are shutting down production, Morgan has raised millions of dollars while developing a new aircraft slated for market introduction in about 4 years (flying in tests today, still needing FAA approval). But the Morgan isn't a typical plane as you know it – what's called a "fixed wing" aircraft. The Morgan is able to take off vertically, like a helicopter, then fly horizontally like a plane. This dramatically improves the use of a plane by eliminating airport runways, and thus the commuting requirements to/from airports for business flyers. Morgan has identified the early users of their aircraft, which will allow successful introduction as it expands the market for its technology. Morgan brings to market something new, something different, something that gives buyers a reason to buy – better economics and improved ease of use. That's how you raise money and build a business in a recession – by offering something new that creates demand for your product.
Perhaps even Starbucks' new leadership is getting the idea. After months of doing "the wrong stuff" (as reported in this blog), The Seattle Times reports "Starbucks Tests New Name for Stores." Only this is way beyond a name test. The new stores have a different menu, including liquor, a different ambiance, and even different coffee making equipment. This is something new. Will it matter? We don't yet know, because (a) we haven't heard of any Disruptions in Starbucks to make us think this is a really serious initiative that could displace the earlier commitment to "coffee", (b) we don't know how much permission the developers of the new idea have to really do something new – like maybe not sell coffee at all, and (c) we don't know if there are any significant resources committed to the project. So it's too early to know if this is really White Space. But at least it's not another flavor of coffee or repackaging of coffee or more of the same – which was killing Starbucks. If the leadership really starts creating some White Space projects to develop new stores then even the beleagured Starbucks has the opportunity to grow itself out of this recession.
Recessions dramatically bring home market shifts. Those clinging to old Success Formulas are exposed as very weak (like GM) and are targets for failure. Those who reach out to provide solutions to new market demands can not only grow during the recession, but upstage older competitors. They can change market competitiveness to favor themselves, and grow dramatically by overtaking the Locked-in competition. Recessions end when businesses launch new products and services that meet the needs of a shifted market. So if you're waiting on the recession to end – just keep on waiting. When it ends you just might find you are so out of the market you aren't competitive any longer. Instead, get with moving toward the new market needs today so you strengthen your business and become a leader in the near future.
by Adam Hartung | Jul 15, 2009 | Disruptions, In the Rapids, Leadership, Openness
I've had the good fortune recently to meet some companies that are doing an extremely good job of practicing The Phoenix Principle. Although no company story can be told well within the shortness of a blog, some of these stories are so powerful I want share some of the good things I'm seeing. Especially now, when it seems bad news is dominating. That's not true everywhere – and it's worth profiling a few winners (and hoping they'll excuse the brevity of these descriptions.)
Recently I met with Tasty Catering in suburban Chicago. Tasty is by far not the largest caterer in the U.S. (or even Chicago), nor the smallest. Nor is it the oldest, nor youngest. You could easily miss it as "just another company." One of those nearly faceless businesses crowded into the business parks around America. But this company is by no means normal, and as a result
- It's been named "Caterer of the Year" by top food magazines
- It's been The Best Company to Work For in Chicago 3 times
- It's been honored by Winning Workplaces and The Wall Street Journal as a top American business.
- There were a lot of awards, these are just the ones that come to top of mind.
When Tasty Catering created its vision – it's BHAG (in Jim Collins venacular) – nowhere does it say "caterer". Their ambition is to be the best. At whatever the company does. The 50-ish founder told me that his employees were insistent about this, because they did not think Tasty would just be a caterer. There are too many possibilities, according to the internal teams. The people at Tasty want to go wherever the market leads them. Their ambition is to GROW.
Everyone in Tasty is challenged to scan the horizons for new business opportunities. . And create business plans. The CEO encourages his people to work with college professors and get school credit – but if the plans are good Tasty funds them. And the business ideas don't have to be in catering, or even food. Whatever has the opportunity for growth. So Tasty now has a finance company, a "green" gift business, a supplier to large-scale retailers of packaged food, and a trucking company. Again, those are just the ones I remember. And at least one of these was created by employees who are first-generation immigrants with little formal education – employees another company might deride as "kitchen workers" – but with a massive desire to grow the business. At Tasty, everyone is considered capable of seeing a market opportunity that can create profitable revenue, and everyone is encouraged to bring those market-based ideas to the table.
Tasty obsesses about competition. Everyone in the company has internet access. And manager after manager told me stories about using the web to track competitors. Press releases, articles, anything that's on the web – they keep track of what competitors are doing. When they see competitors do something, they want to know why – and if it works. Tasty uses competitors as much as test beds for ideas – what works and doesn't – while simultaneously tracking their activities in traditional areas. They track customer reactions to competitive ideas, and use that to bring out their own ideas. As a result, Tasty finds new customers, finds new products to sell and finds new markets to develop.
The CEO told me that when he started he had a bunch of hot
dog/hamburger joints. But it was an intern who told him he'd be
better off to sell those assets and change into catering. This was an
incredible distruption, to change from a fast food operator to a
caterer, but with the growth of franchise fast food staring him in the face he made the
switch. Now the CEO relishes the Disruptions his staff bring. Wouldn't trucks make great rolling billboards – if painted for that purpose? Time to change the trucks. Wouldn't having a menu that's all healthy, and disposable products that are entirely eco-friendly, snare some accounts? Why not try it? If the kitchen isn't busy 24×7, couldn't we make packaged food for sale as retailer brands? If we need financing for a new business line, can't we fund that from internal cash flow? Why not start an internal finance company? If restaurant and store operators want prepared food, why not start pursuing RFPs and see if we can win some retail business (even though it means we'd have to double our equipment overnight)? Disruptions are so common at Tasty they don't even think aboout them as disruptions – they are the norm.
And as the last paragraph indicated, White Space is everywhere. When an employee has an idea they can turn it into a business plan. The people inside Tasty even help work on it. Then the plan is vetted and reviewed. If it looks good, Tasty will set up a separate company to implement the plan, and make the employee the CEO. Now this person has the permission to go make it happen, and the money to do it. There are goals, and report-backs. And discussions about how to make the business grow. And every project is visible for everyone in the company to see. No "skunk works." Everyone knows what's happening, and looking to see what works. Everyone wants to learn and migrate toward a growing future so the business will succeed and they can succeed with it.
2009 started off with a sledge hammer for catering. The recession caused companies to cancel events, big and small, and quit catering in food. It would have been easy for Tasty to falter – because revenues went down for the very first time. But instead, everyone met and put their heads into finding ways to get back on the growth track. Resources were cut in the tradtiional business. Belt tightening went around the board. But resources were expended in new marketing – viral on-line campaigns for example – to find the customers who still have needs. People put more energy into differentiation programs – like the non-plastic clear wrap and non-plastic disposable utensils – to make the business more appealing to those who still have events. And new business opportunities – like the private label manufacturing – took on new urgency and more resources. As a result, while many caterers have failed and others are in dire straits Tasty has returned to growth – and not just in catering.
Meanwhile, the employees at Tasty are some of the most gratified I've seen. Here in this recession, they still are highly motivated and love their work. Even though they could do other jobs, they stay. They don't expect the CEO to find them work, or promise them a job, or guarantee their income. But they do understand that if they keep growing, working at Tasty is great. They tie their success to the success of the business – which they tie to identifying market opportunities and fulfilling them better than competitors. They work at Tasty because they are connected to the market – and it is empowering. It's not paternalism that keeps them satisfied (far from it, peer reviews assure paternalism is not allowed), it is seeing market results from the innovations they develop and implement.
If you have an event of any kind, go to the Tasty Catering web site and/or give them a call. If you have a need for someone to supply you with muffins, cookies, baked goods or other foodstuffs private label – again, to the web site and/or give them a call. This is one great company. Given a little time, they just might give Sysco Foods (the country's largest supplier of food to restaurants) or another mega-company a run for their money. This company is out to WIN – and all eyes are focused on the market, everyone pays attention to competition, Disruptions are the norm and new White Space is created every few months (regardless of the economy.)
by Adam Hartung | Jun 26, 2009 | Current Affairs, Defend & Extend, Disruptions, In the Swamp, Innovation, Leadership
"Retailers cut back on variety, once the spice of marketing" is the Wall Street Journal.com headline. It seems one of the unintended consequences of this recession will be forced consumer goods innovation!
For years consumer goods companies, and the retailers which push their products, have played a consistent, largely boring, and not too profitable Defend & Extend game. When I was young there was one jar of Kraft Miracle whip on the store shelf. It was one quart. This container was so ubiquitous that it coined the term "mayonnaise jar" – everybody knew what you meant with that term. Now you can find multiple varieties of Miracle Whip (fat free, low fat, etc.), in multiple sizes. This product proliferation passed for innovation for many people. Unfortunately, it has not grown the sales of Miracle Whip faster than growth in the general population.
Do you remember when you'd go to Pizza Hut and they offered "Hawaiian Pizza?" Pizza Hut would concoct some pretty unusual toppings, mixed up in various arrangements, then give them catchy labels. Unfortunately, what passed internally as an exciting new product introduction was recognized by customers as much ado about nothing, and those varieties quietly and quickly left the menu. Like the Miracle Whip example, it expanded the number of choices, but it did not increase the demand for pizza, nor revenues, nor profits.
Expanding varieties is too often seen by marketers as innovation. I remember when Oreos came out with 100 calorie packs, and the CEO said that was an innovation. But did it drive additional Oreo sales? Unfortunately for Nabisco, no. It was plenty easy to count out the number of cookies you want and put in a baggie. Or buy fewer cookies altogether in these new, smaller packages.
These sorts of tricks are the stock-in-trade of Defend & Extend management. Clog up the distribution system with dozens (sometimes hundreds) of varieties of your product. Try to take over lots of shelf space by paying "stocking fees" to the retailer to put all those varieties (package sizes, flavor options, etc.) on his shelf – in effect bribing him to stock the product. But then when a truly new product comes along, something really innovative by a smaller, newer company, the D&E manager uses the stocking fees as a way to make it hard for the new product to even reach the market because the small company can't afford to pay millions of dollars to bump the big guy defending his retail turf. The large number of offerings defends the product's position in retail, while simultaneously extending the product's life to keep sales from declining. But, year after year the cost of creating, launching and placing these new varieties of largely the "same old thing" keeps driving down the net margin. The D&E manager is trying to keep up revenues, but at the expense of profits.
Simultaneously, this kind of behavior keeps the business from launching really new products. The previous CEO at Kraft said in 2006 that the best investment his company could make was advertising Velveeta. His point of view was that protecting Velveeta sales was worth more than launching new products – and at that time the last new product launched by Kraft was 6 years old! Internally, the decision-support system was so geared toward defending the existing business that it made all marginal investments supporting existing brands look highly profitable – while killing the rate of return on new products by discounting potential sales and inflating costs!
This D&E behavior isn't good for any business. Consumer goods or otherwise. And it's interesting to read that now retailers are starting to push back. They are cutting the number of product variations to cut the inventory carrying costs. As I mentioned, if you now have 6 different stock keeping units (SKUs) for Miracle Whip in various sizes, flavors and shapes but no additional sales you more than likely have doubled, tripled or even more the inventory – and simultaneously reduced "turns" – thus making the margin per foot of shelf space, and the inventory ROI, poorer. Even with those "shelf fee" bribes the consumer goods manufacturer paid.
For consumers this is a great thing! Because it frees up shelf space for new products. It frees up buyers to look harder at truly new products, and new suppliers. The retailer has the chance of revitalizing his stores by putting more excitement on the shelves, and giving the consumer something new. This action is a Disruption for the individual retailer – pushing them to compete on products and services, not just having the same old products (in too many varieties) exactly the same as competitors.
This action, happening at WalMart, Walgreens, RiteAid, Kroger and Target according to the article, is an industry Disruption. It impacts the manufacturers like Kraft and P&G by forcing them to bring more truly new products to the market if they want to maintain shelf facings and revenues. It alters the selling proposition for all suppliers, making the "distribution fees" less of an issue and turning those retail buyers back into true merchandisers – rather than just people who review manufacturer supplied planograms before feeding numbers into the automated ordering system. And it changes what the manufacturer's salespeople have to do.
The companies that will do well are those that now implement White Space to take advantage of this Disruption. As you can imagine, it's a huge boon for the smaller, more entrepreneurial companies that may well have long been blocked from the big retailer's stores. It allows them to get creative about pitching their products in an effort to help the retailer compete on product – not just price. And for any existing supplier, they will have to use White Space to get more new products out faster. And get their salesforce to change behavior toward selling new products rather than just defending the old products and facings.
Markets work in amazing ways. Almost never do things happen as one would predict. It's these unintended consequences of markets that makes them so powerful. Not that they are "efficient" so much as they allow for Disruptions and big behavior changes. And that gives the entrepreneurial folks, and the innovators, their opportunities to succeed. For those in consumer goods, right now is a great time to talk to Target, Kohl's, Safeway, et.al. about how they can really change the competition by refocusing on your innovative new products again!
by Adam Hartung | Jun 24, 2009 | Current Affairs, Disruptions, General, Leadership, Openness
"Reborn Chrysler gets a European makeover" is the headline at the Detroit Free Press. Now that Fiat is in charge, can we expect Chrysler to turn around?
There is no doubt Chrysler has been severely Challenged. But that alone did not Disrupt Chrysler – you can be challenged a lot and still not Disrupt Lock-ins. On the other hand, the new CEO appears to have stepped in and made significant changes in the organization structure, as well as the product line-up at Chrysler. We also know that bankruptcy changed the union rules as well as employee compensation and retirement programs. These are Disruptions. That's good news. Disruptions precede real change. No matter the outcome, the level of Disruption ensures the future Chrysler will be different from the old Chrysler. Step one in the right direction.
But, the Fiat leadership under Sergio Marcchione appears to be rapidly installing the Fiat Success Formula at Chrysler. The organization, product, branding and manufacturing decisions appear to be aligned with what Fiat has been doing in Europe. So this makes our analysis a lot trickier. Companies that effectively turn around align with market needs. They meet customer requirements in new, better ways. For Chrysler to now succeed requires that the American market needs are closely enough aligned with what Fiat has been doing to make Chrysler a success.
If this gives you doubts, you're well served. It's not like Fiat has been a household name in America for a long time. Nor have I perceived Fiat was gaining substantial share over its competitors in Europe. Nor do I have awareness of Fiat being noticably successful in emerging auto markets like China, India or Eastern Europe. They aren't doing as badly as Chrysler, but are they winning?
The new management is rolling in like Macarthur's team taking over Japan. They clearly have already made many decisions, and are now focused on execution. What worries me is
- what if the product lineup isn't really what Americans want?
- what if dealers don't make enough margin on the new lineup?
- what if the cost/quality tradeoffs don't fit American needs?
- what if competitors match their product capabilities?
- what if competitors have lower cost?
- what if competitors have measurably better quality?
- what if competitors bring out new innovations, like electric, hybrid or diesel, change the market significantly from what Fiat has to offer?
- what if customers simply have doubts about Fiat quality?
- what if customers like the Charger, Challenger and 300 more than they like the new Fiat products?
I don't have to be right or wrong on many of these questions and it portends problems for the new Chrysler/Fiat. And that's the problem with having such a tight plan when you start a turn-around. What if you get something wrong? How will you know? What will tell you early you need to change your plan fast, and possibly dramatically? Nowhere in the article, nor elsewhere, have I read about White Space projects being created that would produce an entirely new Success Formula. Only how Chrysler is being converted to the Fiat Success Formula.
I want the best for the new owners, employees and vendors of Fiat. I'm really happy to see the level of Disruption. But until we see White Space, more discussion of market testing and experimentation, as well as greater discussion of competitiors, I'd reserve judgement on the company's future.
If you read about White Space at Chrysler/Fiat please let me know. This is a story worth watching closely. Americans have a lot riding on the outcome – good or bad. So if you read about Disruptions or White Space share them with me or here on the blog for everyone.
PS – Don't forget to download my new ebook "The Fall of GM" for additional insight on managing Success Formulas in the auto industry.
PPS – There have been a lot of great comments related to recent blogs. I appreciate the personal notes, but don't hesitate to blog directly on the site. Also, keep up the comments. I don't feel compelled to re-comment on them all. Suffice it to say that the quality is excellent, and comments make the blog all that much more powerful. So please keep up the responses.
by Adam Hartung | Jun 22, 2009 | Current Affairs, Defend & Extend, Disruptions, In the Rapids, In the Swamp, In the Whirlpool, Leadership, Lifecycle, Web/Tech
For years business leaders have sought advice which would allow their organizations to become "evergreen." Evergreen businesses constantly renew themselves, remaining healthy and growing constantly without even appearing to turn dormant. Of course, as I often discuss, most companies never achieve this status. Today investors, employees and vendors of Apple should be very pleased. Apple is showing the signs of becoming evergreen.
For the last few years Apple has done quite well. Resurgent from a near collapse as an also-ran producer of niche computers, Apple became much more as it succeeded with the iPod, iTunes and iPhone. But many analysts, business news pundits and investors wanted all the credit to go to CEO Steve Jobs. It's popular to use the "CEO as hero" thinking, and say Steve Jobs singlehandedly saved Apple. But, as talented as Steve Jobs is, we all know that there are a lot of very talented people at Apple and it was Mr. Jobs willingness to Disrupt the old Success Formula and implement White Space which let that talent come out that really turned around Apple. The question remained, however, whether Disruptions and White Space were embedded, or only happening as long as Mr. Jobs ran the show. And largely due to this question, the stock price tumbled and people grew anxious when he took medical leave (chart here).
This weekend we learned that yes, Mr. Jobs has been very sick. The Wall Street Journal today reported "Jobs had liver transplant". With this confirmation, we know that the company has been run by the COO Tim Cook and not a "shadow" Mr. Jobs. Simultaneously, first report on the Silicon Valley/San Jose Business Journal is "Apple Claims 1M iPhone Sales" last weekend in the launch of its new 3G S mobile phone and operating system. This is a huge number by the measure of any company, exceeded analysts expectations by 33-50%, and equals the last weekend launch of a new model – despite the currently horrible economy. This performance indicates that Apple is building a company that can survive Mr. Jobs.
On the other side of the coin, "Walgreen's profit drops as costs hit income" is the Crain's Chicago Business report. Walgreen's is struggling because it's old Success Formula, which relied very heavily on opening several new stores a week, no longer produces the old rates of return. Changes in financing, coupled with saturation, means that Walgreen's has to change its Success Formula to make money a different way, and that has been tough for them to find. The retail market shifted. Although Walgreen's opened White Space projects the last few years, there have been no Disruptions and thus none of the new ideas "stuck." Growth has slowed, profits have fallen and Walgreen's has gone into a Growth Stall. Now all projects are geared at inventory reduction and cost cutting, as described at Marketwatch.com in "Higher Costs Hurt Walgreen's Profits."
Now the company is saying it wants to take out $1B in costs in 2011. No statement about how to regain growth, just a cost reduction — one of the first, and most critical, signs of Defend & Extend Management doing the wrong things when the company hits the Flats. And now management is saying that costs will be higher in 2009/2010 in order to allow it to cut costs in 2011. If you're asking yourself "say what?" you aren't alone. This is pure financial machination. Raise costs today, declare a lower profit, in order to try padding the opportunity to declare a ferocious improvement in future year(s). This has nothing to do with growth, and never helps a company. To the contrary, it's the second most critical sign of D&E Management doing the wrong thing at the most critical time in the company's history. When in the Flats, instead of Disrupting and using White Space to regain growth these actions push the company into the Swamp of low growth and horrible profit performance.
We now can predict performance at Walgreen's pretty accurately. They will do more of the same, trying to do it better, faster and cheaper. They will have little or no revenue growth. They may sell stores and use that to justify a flat to down revenue line. The use of accounting tricks will help management to "engineer" short-term profit reporting. But the business has slid into a Growth Stall from which it has only a 7% chance of ever again growing consistently at a mere 2%. This is exactly the kind of behavior that got GM into bankruptcy – see "The Fall of GM."
The right stuff seems to be happening at Apple. But keep your eyes open, a new iPhone is primarily Extend behavior – not requiring a Disruption or necessarily even White Space. We need to see Apple exhibit more Disruptions and White Space to make us true believers. On the other hand, it's definitely time to throw in the towel on Walgreen's. Management is resorting to financial machinations to engineer profits, and that's always a bad sign. When management attention is on accounting rather than Disruptions and White Space to grow the future is sure to be grim.
by Adam Hartung | Jun 1, 2009 | Current Affairs, Disruptions, In the Rapids, Leadership, Openness
June 1, 2009 will be remembered for a really long time. As I last blogged, I think the iconic impact of GM as one of the most successful and profitable of all industrial companies makes its bankruptcy more important than almost any other company.
As GM loses its market value, it was forced off the Dow Jones Industrial Average. In "What's behind the Dow changes?" (Marketwatch.com) we can read about how the Wall Street Journal editors selected Cisco to replace GM. I've long been a detractor of GM for its slavik devotion to its outdated Success Formula. For an equally long time I've long been a fan of Cisco and how it keeps its Success Formula evergreen. Cisco reflects the behaviors needed to succeed in an information economy, and its addition to the DJIA is a big improvement in measuring the American economy and its potential for growth.
What I most admire about Cisco is management's requirement to obsolete the company's own products. This one element has proven to be critical to Cisco's ongoing growth – and the company's ability to avoid being another Sun Microsystems. By forcing themselves to obsolete their own products, Cisco doesn't get trapped in "cannibalization" arguments. Management doesn't get trapped into listening to big customers who want Cisco to slow its product introduction cycle. Leaders end up Disrupting the company internally to do new things that will replace outdated revenues. It sounds so simple, yet it's been so incredibly powerful. "Obsolete your own products" is a statement that has helped keep Cisco a long-term winner.
Since even before writing "Create Marketplace Disruption" I've espoused that Cisco is a Phoenix Principle kind of company. One that uses extensive scenario planning to plan for the future, one that obsesses about competitors in order to never have second-place products, willing to Disrupt its product plans and markets to continue growing, and loaded with White Space developing new solutions for new markets. It's a great choice to be on the Dow – which will eventually have to replace all the outdated companies (like Kraft) with companies that rely on information – rather than industrial production – to make money.
