by Adam Hartung | May 27, 2009 | Current Affairs, Defend & Extend, Disruptions, General, Leadership, Lock-in, Openness, Quotes
"The Need for Failure" is a recent Forbes article on why it is bad – really bad – to prop up failing institutions. The author is an esteemed economics professor at NYU. He says "too big to fail is dangerous. It suggests there is an insurance policy that says, no matter how risky your behavior, we will make sure you stay in business." Rightly said, only it creates a conundrum. Large organizations are not known for taking risky actions. Large organizations are known primarily for lethargic decision-making which weeds out all forms of risk – right down to how people dress and what they can say in the office. When you think of a big bank, like Bank of America or Citibank, you don't think of risk. You think just the opposite. Of risk aversion so great they cannot do anything new or different.
What I'd add to the good professor's article is recognition that large organizations stumble into risk they don't recognize, by trying to do more of the same when that behavior becomes risky due to market changes. My dad said that 100 years ago when my grandfather was first given pills by a doctor he decided to take the whole bottle at once. His logic was "if one pill will help me, I might as well take the whole lot and get better fast." Clearly, an example where doing more of the same was not a good idea. Then there was the boy who loved jumping off the railroad bridge into the river. He did it all the time, year after year. Then one month there was a draught, the river level fell while he was busy at school, and when he next jumped off the bridge he broke his leg. He did what he always did, but the environmental change suddenly made his previous behavior very risky.
Big corporations behave this way. They build Lock-ins around everything they do. They use hierarchy, cultural norm enforcement, sacred cows, rigid decision-making systems, narrow strategy processes, consistency in hiring practices, inflexible IT systems, knowledge silos and dependence on large investments to make sure the organization cannot flex. The intent of these Lock-ins is to make sure that historical decisions are replicated, to make sure past behaviors are repeated again and again with the expectation that those behaviors will consistently produce the same returns.
But when the market shifts these Lock-ins create risk that is unseen. Bankers had built systems for generating their own loans, and acquiring loans from others, that were designed to keep growing. They designed various derivative products as their own form of insurance on their assets. But what they did not recognize was that pushing forward in highly unregulated product markets, as the quality of debtors declined, created unexpected risk. In other words, doing more of the same did not reduce risk – it increased the risk! Because the company is designed to undertake these behaviors, there is no one who can recognize that the risk is growing. There is no one who challenges whether doing more of the same is risky – only those who would challenge making a change by saying change is risky!
Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and AIG all created a much higher risk than they ever anticipated. And they never saw it. Because they were doing what they always did – and expecting the results would take care of themselves. They were measuring their own behaviors, not the behavior of the market. And thus they missed recognizing that the market had moved – and thus doing more of the same was inherently risky.
(The same is true of GM, for example. GM kept doing what it always did, refusing to see the risk it incurred by ignoring market shifts brought on by changing customer behaviors, rising energy costs and offshore competitors.)
That's why big company CEOs feel OK about asking for a bail-out. To them, they did not fail. They did not take risk. They did what they had always done – and something went wrong "out there". Something went wrong "in the market". Not in their company. They need protection from the marketplace.
Of course, this is just the opposite of what free markets are all about. Free markets are intended to allow changes to develop, forcing competitors to adapt to market shifts or fail. But those who run (or ran) our big banks, and many of our big industrial companies, haven't see it that way. They believe their size means they are the market – so they want regulators to change the market back. Back to where they can make money again.
So how is this to to be avoided? It starts by having leaders who can recognize market shifts, and recognize the need for change. In an companion Forbes article "Jamie Dimon's Straight Talk Has A Good Ring" the author takes time to review J.P. Morgan Chase's Chairman's letter to shareholders regarding 2008. In the letter, surprisingly for a big organization, the JPMC Chairman points out market shifts, and then points out that his organization made mistakes by not reacting fast enough – for example by changing practices on acquiring mortgages from independent brokers. He goes no to point out that several changes have happened, and will continue happening, at JPMC to deal with market shifts. And he even comments on future scenarios which he hopes will help protect investors from the hidden risk of companies that take actions based on history.
Mr. Dimon's actions demonstrate a willingness to implement The Phoenix Principle. For those who don't know him, Mr. Dimon has long been one of the more controversial figures in banking. He is well known for exhibiting highly Disruptive behavior, yet he has found his way up the corporate ranks of the traditional banking industry. Now he is not being shy about Disrupting his own bank – JPMC.
- His discussion of future scenarios clearly points to expected changes in the market, from competitor shifts, economic shifts and regulatory shifts which his bank must address.
- He sees competitors changing, and the need for JPMC to compete differently with different sorts of institutions under different regulations. Mr. Dimon clearly has his eyes on competitors, and he intends for JPMC to grow as a result of the market shift, not merely "hang on."
- He is espousing Disruptions for his company, the industry and the regulatory environment. By going public with his views, excoriating insurance regulators as well as unregulated hedge funds, he intends for his employees and investors to think hard about what caused past problems and how important it is to change.
- He keeps trying new and different things to improve growth and performance at the company. It's not merely "more of the same, but hopefully cheaper." He is proposing new approaches for lending as well as investing – and for significant changes in regulations now that banking is global.
Very few leaders recognize the risk from doing more of the same. Leaders often feel it is conservative to not change course. But, when markets shift, not changing course introduces dramatic risk. People just don't perceive it. Because they are looking at the past, not at the future. They are measuring risk based upon what they know – what they've failed to take into account. And the only way to overcome this problem is to spend a lot more time on market scenarios, competitor analysis and using Disruptions to keep the organization vital and connected with the market using White Space projects.
by Adam Hartung | May 8, 2009 | Current Affairs, Defend & Extend, Disruptions, Food and Drink, General, Innovation, Leadership, Lock-in, Openness, Television, Web/Tech, Weblogs
Where the people go, advertisers will follow. Why pay for an ad at the end of a never traveled dead-end street? The purpose of advertising is to reach people with your message. And now "Forrester: Interactive Marketing to grow 11% to $25.6 Billion in 2009" reports MediaPost.com. When print advertising is dropping (direct mail down 40%, newspaper down 35% and magazines down 28%), the on-line market is growing and expected to reach over $50billion by 2014. Search ads is the biggest, with over half the market, but social media is expected to grow the fastest at over 34%/year.
Such a market shift indicates that those who buy ads need to be very savvy about what works. Like I said, you don't want to be the fool who jumps into billboards, only to get placed on the one at the end of a dead-end road. Success means Disrupting your assumptions about advertising, and learning what work by entering White Space with tests and measurements.
In "Mobile Marketing Won't Work Here" Bret Berhoft explains why GenY simply won't tolerate intrusive ads – especially on their mobile devices. Social media are different conduits, with different users and different behaviors. Where older folks (and our parents) were content to be interrupted by ads – such as on TV – the avid users of new media aren't. And they've been known to create counter-movements attacking advertisers that don't adhere to their on-line behavior requirements.
What won't work is trying to do what Sears has done. Instead of learning how people use social media, and how you can connect with them to meet their needs, "Sears to Launch Social Networking Sites" we learn. Where everybody is using Facebook, MySpace, Twitter, Linked-in, etc., Sears decided to open two new sites called MySears.com and MyKmart.com. They hope people will go to these sites, register, and tell stories about their experiences in both retail chains. Then Sears intends to flow through good comments to Sears.com and KMart.com sites.
The horribly Locked-in Sears management keeps trying to Defend & Extend its outdated model. As people have left Sears and KMart in droves for competitors, they aren't looking for a site to "connect" with other people who are Sears centric. People use social networks to learn, grow, exchange ideas, keep up with trends. They don't register for a site because their parents used to shop there.
Sears has missed the basics of Disrupting its old Success Formula, so it keeps trying to apply it in ways that don't work. It keeps doing what it always did, only trying to do it in new places. These sites aren't White Space projects trying to participate in the social networks that are growing (like everything from illness questions to home how-tos). Rather, they are still trying to take the position that Sears is at the center of the world, and people want to be part of Sears.
Exactly how advertisers will capture the attention of participants still isn't clear. Some ideas have gone "viral" producing mega-returns for minimal investments. Other ideas have flopped despite big spending. The market is shifting, and variables keep changing (Marketers Search for Social Media Metric.) But for those who Disrupt their old Lock-ins, those who attack their assumptions, they can use White Space to learn what does work.
"Pizza Hut 'Twintern' to Guide Twitter Presence" is a great example of creating White Space to study social media advertising by participating. The new position will interact with Twitter users, and be a leader in how to interact with Facebook and other sites – even the notorious YouTube! where user content can include the very bizarre. By participating where the customers are, these leaders can develop insights to how you can consistently advertise effectively. Already Sony and Dell have demonstrated they can achieve high recall (Word of Mouth goes Far Beyond Social Media) beyond Social Media with their on-line efforts. These participants, who Disrupt their assumptions and bring in others to work in White Space will be the winners because they aren't trying to Defend & Extend the old Success Formula. They are trying to create a new one to which they can migrate the old business.
by Adam Hartung | Apr 24, 2009 | Disruptions, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Everybody should have White Space projects. More than one. Because you never know if which project will work out, and which might not. Nobody has a crystal ball. To create growth you have to not only open White Space, but you have to know when to get out — by closing or selling.
Today GE announced "Safran to buy 81% stake in GE Homeland Protection" according to Marketwatch, effectively taking GE out of the airport security business. According to Securityinfowatch.com the sale will give the French company complimentary technology for its markets around the globe, as well as GE's U.S. sales force and market access. Thus it was willing to pay-up for the business unit. For GE, the sale gets the company out of a business heading in a different direction than originally planned.
Many people thought that airport security technology would be rampant in U.S. airports following the changes after September, 2001. And GE was one of several companies that developed scenarios justifying investment in new products to innovate new solutions and take them to market. Scenarios for big spending on airport security seemed sensible. But, a few years later, reality is that nobody wants to pay for the new techology. The airlines are broke and have no money to pay for better customer satisfaction during check-in, where they can blame the TSA for unhappiness. The cities that own the airports have no money to pay for more equipment to upgrade the systems. Most have their hands out for federal dollars due to tax shortfalls. And customers refuse to pay higher ticket taxes to cover the security investments. What looked like a great market turned out to be a slow-grower with extensive downward pricing pressure. So far the market has concluded it will just let people wait in line.
So, hand it to GE. They sold the business. By GE standards the $580million received for the sale isn't a lot of money. But it shows that when you have White Space projects, you have to manage them for results, not just let them run. To now make this business worthwhile in the massive corporation, GE would need to make big acquisitions. But the growth wasn't really there to make the market all that interesting. Because GE was participating in the market, they learned what was happening and could see that the desired scenario wasn't the actual scenario. So GE needed to dial-back its investments. When the airport security business failed to take off, it made more sense to sell it than keep investing in product development for a market growing slower than expected. Rather than simply let the business string along and see declining returns, GE sold the business to someone who has a different scenario for the future – willing to pay for GE's R&D investments. Before the business looked bad to everyone, GE sold its interest at a good price so it had the money to invest in something else. When the shift went a different direction than GE planned, GE got out. That's smart.
You can't expect to read all market shifts completely accurately. Rarely does everything quickly work out all right, or all wrong. So you have to develop your scenarios, and invest based upon what's most likely to happen. You need several options. Then, track the market versus your scenarios. If things don't go the way you thought they might, you have to be willing to stop. If you're smart, you can get out without losing your investment – possibly even make some money – especially if you're first to escape.
Back in the early days of mainframe computers the 3 big players were IBM, GE and RCA. Behomoths that used the products as well as saw the market growing. But GE quickly realized that in mainframes, IBM's share allowed them to manipulate pricing so that GE and RCA would never make much money – and never gain much share. So the head of GE's computer business called up RCA and offered to sell RCA the business. He offered to let RCA "synergize" the combination so it could "compete stronger" against IBM. RCA took him up on the deal. GE made a big profit on the sale. The head of the computer business got tagged for his savvy move, and soon was made Chairman and CEO. And RCA ended up losing a fortune before learning IBM had the market sewn up and RCA couldn't make any money – eventually getting out via a shut down. That write-off spelled the beginning of the end for RCA.
White Space is really important. But it's not a playground for madcap innovators to do whatever they want. White Space should be based on scenarios. And the business should report results based upon the scenario expectations. If the White Space project can't meet expected results, you have to be just as willing to get out as you were to get in. You have to compete ferociously, to win, but don't be ego-involved and foolish like RCA was in mainframes. Be committed, but be smart. If you don't get the results you planned on, understand why. Keep your eyes on the market. Get in, work hard, and be prepared to possibly get out.
by Adam Hartung | Apr 15, 2009 | Books, Current Affairs, Disruptions, General, Leadership, Web/Tech
I was delighted recently to find a weekly blog named www.IsSurvivor.com. Bob Lewis writes in a clear and frank tone about what he often sees as not working correctly – especially in the world of information management. I would recommend this blog to everyone because his advice applies to all aspects of business – not just IT.
And I was delighted to recently read his book "Keep the Joint Running: A Manifesto for 21Century Information Technology." Despite the book's tagline, this is a book for everyone in business – not just IT people. As the author reminds readers over and again, IT is a really important, and integrated, part of the modern business. You can't consider it a stand-alone silo or you'll have really big problems. And I find myself thinking the same is true for all functions. The book is a great read as well. Not pompous (although the author has a mountain of experience to draw upon), very matter-of-fact, and incisive when cutting into multiple myths that detract from performance of functional groups as well as the corporation overall.
One thing all readers should love is the book's focus on getting work out the door. Mr. Lewis points out, with great examples, that if you aren't competent you can't be strategic. I was reminded of so many people I've worked with over the years who lacked prodigiously in competence yet seemed to maintain their positions by taking "the strategic view." Far too often we see in consulting firms the partner that's good at relationships, but couldn't actually do the work if his life depended upon it. In the end, when those without competency are in charge, problems happen. A simple rule – like the many Mr. Lewis gives us – that we so often ignore.
Business, and IT even moreso, are very new fields of academia. Unlike math, English, botany or geology, we've been studying business only a short time. Yet, the die-hard followers of early theories are surprising. Given the lack of any labs to test these theories, and the very visible number of failures these theories incur, the willingness to turn an idea into dogma (in incredibly short time) and then remain tied to that dogma should intrigue all investors and business leaders. Mr. Lewis shows himself a great Disruptor as he wastes no time taking an axe to many dogmas, exposing them as myths, as he works his way through the sea of bad approaches he finds functional heads utilizing. Best practices, process optimization, workforce optimization, applying metrics regardless of experience or ties to goals, development methodologies and documentation practices are just a few of the dogma he successfully analyzes, finds wanting, and discards in favor of better approaches that don't find enough use. (Read the book to get the magic answers.)
I spent my own time in IT working for vendor companies, as a CIO, and for several years as a partner in the giant IT services firm Computer Sciences Corporation. Item by item I found Mr. Lewis spot-on with his assessment of most IT firms, and IT practitioners. Not that folks can't get it right – but that for the most part their assumptions about what would work are so misguided that they have no hope of success. Only by rethinking the approach can the business do better. Which, after all, is the goal of all functional groups – to improve the sales and profits of the company.
But like I said earlier, I recommend Mr. Lewis's blog, and his book, for every CEO, executive, manager or front-line employee who works with IT – so that means everyone. His ideas will help improve the performance of any organization and its functions – not just IT. And for IT folks it offers a world of insight to why things in the past were often so hard, and how they can be much better going forward. You'll gain good insight for doing better planning, using Disruptions effectively instead of following outdated practices that simply don't work, and finding White Space where you can rapidly improve the success of your organization. His recommendations make sense, and you'll find them incredibly practical for improving performance today
by Adam Hartung | Apr 14, 2009 | Books, Current Affairs, Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
Last week I blogged about how Segway and GM were taking all the wrong steps in launching the PUMA. Today let me explain why Amazon is the mirror image – doing the launch of Kindle correctly. Kindle is the new "electronic book" from Amazon which allows people to download whole books, or parts of books, onto a very small, light and thin device where they can read the material, notate it and even convert it to audio. Even Marketwatch.com is bullish in its overview of the product "Amazon's Kindle, e-books are future of reading."
Firstly, Amazon recognized it had a Disruptive innovation and didn't pretend this was a small variation on printed material. Perhaps "over the top" a bit with the PR, Mr. Bezos called Kindle the biggest revolution in reading since Gutenberg invented the printing press. This bold claim causes people to realize that Kindle is something very different than anything prior. Which it is. Kindle is not like reading on a PC, nor is it like reading a book, nor is it like reading a magazine or newspaper (should you download those). It's different, and it requires buyers change their habits. By highlighting the uniqueness of the product Amazon doesn't undersell the fact that users really do have to change to enjoy the product.
Secondly, the product isn't being run through some high volume distribution that will struggle with the uniqueness and potentially low initial volumes. Amazon isn't trying to sell the product today at Best Buy or Wal-Mart, which would demand instant volume in the millions supported by huge ad spending. Something which would not only be expensive, but probably would not meet those retail expectations. Instead, Amazon is selling the product itself and closely monitoring volumes.
Thirdly, Amazon isn't pushing Kindle as a product for everybody. At least not yet. Amazon isn't offering Kindle for $20, losing a huge amount of money, and saying everyone needs one – which would likely lead to many people buying a Kindle, deciding its not for them, and then throwing it away to wait a very long time before a repurchase – with lots of negative comments. Instead, Amazon prices Kindle at $359 and targets the product at early users who will really benefit. Like the heavy volume book reader. This allows Amazon to build a base of initial users who will use the product and provide feedback to Amazon about how to modify the product to make it even more valuable. Amazon can cycle through the learning experience with users to adapt and develop the product for a future mass market.
Fourthly, the Kindle doesn't come with 30 options to test. It has just a few. This allows Amazon to learn what works. And add functionality in a way that tests the product. Amazon can add features, but it can also drop them.
Will Kindle be the next MP3 device. Probably. How long will it take? Probably not as long as people think. Because Amazon is introducing this innovation correctly. Publishers, authors, book readers and other application users are all learning together. And while traditional paper publishers (from books to newspapers) are waiting to see, Amazon is preparing its new products to "jump the curve" on these old publishers. It's not hard to imagine in 3 or 4 years how authors might go straight to Amazon with their writing, for publication as a Kindle-only product. This would be incredibly cheap, and open the market for many more authors (books or periodicals) than have access today. Since the cost of reading drops precipitiously (due to no paper) the pricing of these new books and periodicals may well be a few dollars, or even less than a dollar. Thus exploding the market for books the way the internet has exploded the market for short-form blog writers.
Even in a recession, people look for new solutions. But capturing those new customers takes careful understanding of how to reach them. You can't act like Segway and dump a strange new product onto users with mass distribution and a PR highlight reel. You have to recognize that Disruptive innovations take better planning. You have to find early customers who will enter White Space with you to test new products, and provide feedback so you both can learn. You have to be honest about your Disruptive approach, and use it to figure out what the big value is – not guess. And you have to be willing to take a few months (or years) to get it right before declaring your readiness for mass market techniques.
Amazon did this when it launched on-line book selling. It didn't sell all books initially, it mostly sold things not on retailers shelves. It didn't sell to everyone, just those looking for certain books. And it learned what people wanted, as well as how to supply, on its journey to Disrupt book retailling – later about all retailing – and build itself in to the model for on-line mass retail. Following that same approach is serving Amazon well, and portends very good things for Kindle's success.
by Adam Hartung | Mar 31, 2009 | Current Affairs, Defend & Extend, Disruptions, In the Whirlpool, Leadership, Quotes
Readers of this blog know I've been very pessimistic about the future of GM for well over 2 years. And I've long extolled the need to change top management. I'm passing along some quotes from Professor Rosabeth Moss Kanter at the Harvard Business School in "Why Rick Wagoner Had to Go" at Harvard Business School publishing's web site.
"It was only a matter of time before GM's Rick Wagoner would have to go, and the board with him. I am surprised he lasted this long, a fact that also shows weakness on the board side…. In this tough economic environmnet, if you wait too long to envision and implement transformational changes you are out of the game. That holds for every industry under attack because of obsolete business models, including newspapers and big pharma…. New leaders at the top can bring a novel perspective, unburdened by the need to justify strategies of the past, and not stuck in a narrow way of thinking…. Companies finding themselves in a downward spiral need fresh views, not just redoubled efforts to do the same thing while waiting for the recession to end….. Now is the time for every company to do what GM failed to do fast enough and imaginatively enough: rethink everything. What…. takes you into the future, and what is just legacy, continued out of sentiment?"
Thanks Professor Kantor, I agree completely. GM was stuck Defending & Extending its old Success Formula, and as a result performance deteriorated to the point of failure. And it's not just GM. As the good professor points out, media companies that remain tied to newspapes have the same problem. Today the Sun Times Group, publisher of the Chicago Sun Times declared bankruptcy ("Sun Times Files for Bankruptcy" Marketwatch.com). There is no longer a major newspaper in Chicago that is not bankrupt. And this blog has covered how big pharma has stayed too long at the trough of old inventions, missing the move to biologics.
Things are bad. "All 50 states in recession for first time since the 1970s" is one of two Marketwatch.com headlines, "Global Economy to Shrink in 2009, World Bank Says." The downturn is expected to be 1.7% globally, a disaster for small and emerging economies. This is killing global trade (down 6.1%) and whipsawing countries like Russia – moving from growth last year of over 6% to a decline this year of over 4%! This is the stuff that has led to revolutions!
The only way out of this situation is for organizations to listen to the good professor, and not try to do more of the same. Markets have shifted – permanently. Management actions that are designed to weather short-term downturns, mostly by cost-cutting and conserving resources, don't work when markets shift. Instead, businesses have to develop new Success Formulas that get them out of the Whirlpool's spiral and into the Rapids of Growth. To do this requires planning based upon future senarios, not what worked before. Obsessing about competitors globally to develop new solutions. Not fearing, but rather embracing Disruptions that allow for trying new things in White Space where you have permission and resources to really develop new solutions. These 4 steps can turn around any organization – if you don't wait too long.
by Adam Hartung | Mar 29, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Openness, Web/Tech
"Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones." So says Steve Lohr in " How Crisis shapes the Corporate Model" in The New York Times Saturday.
For years, many people thought of management as being all about execution. How to build plants, make things, sell those things and finance the operations of building and making stuff. In fact, whole books were written on execution, with the basis that strategy was pretty much unimportant. If you could execute well, what's the need for strategy?
But the last year has shown everyone that the world is a dynamic place. GM missed many changes, and now is barely alive. Despite a focus on execution, the CEO Rick Wagoner has been forced to step down by the administration if GM is to get more bailout money (see "GM's Wagoner Will Step Down" WSJ.com March 29) When you get behind, a "re-invention gap" emerges where the competition keeps going with the market further and further into the future, while you are left behind struggling to sell, grow and make money as you focus on execution. The longer you keep focusing on execution, the bigger the gap gets. Depending on size and competition, eventually you end up completely out of step with the market and unable to compete. Like GM.
The pressure to change with market needs is high everywhere, from banks to manufacturers to newspapers. From General Electric to Sara Lee to Sun Microsystems to The Tribune Corporation, companies that can't adapt to changes have seen their valuation hammered. And the companies we like today are those demonstrating they can adapt to market needs – like Google, Apple, RIM and Virgin. These companies are today investing in launching new products, investing in growth, rather than just trying to cut cost and execute on old business practices while waiting for the return of "better times."
Globalization is now hitting everyone. No industry, and no player in any industry, can ignore the impact of global competition in the way they compete. Today, we can wire together businesses from various service providers, with precious little investment, and reach customers quite profitably while maintaining enormous flexibility. Just ask Nike if you want to know how to "do it."
Focus, hard work, diligence – these have been the mantra for many business leaders. It makes us feel good to think that if we work hard, if we keep our eye on execution, we can succeed. But as readers of this blog have known for 4 years, those admirable qualities do not correlate to success (as academics and journalists have been pointing out when arguing with Jim Collins and his spurrious mathematical exercises). To be successful requires adaptability. You have to constantly scan the horizon for market shifts and emerging competitors that are ready to disrupt markets. And be ready to change everything you do, not just part of it, if you want to compete in the markets as they shift.
The companies, and executives, that will fail as a result of these tumultuous times has not been determined. You can keep from being one of the downtrodden if your focus remains on identifying future market needs and adapting to new competitors through White Space where you can develop new solutions. It's very possible to succeed going forward, if you're adaptive. Or you can end up like Mr. Wagoner and the management team at GM.
PS – The New York Times Company had better start reading its own material and undergo same radical adaptation of its own, or it may not survive to be a media player very soon. To steal from an old saying, it's about time that cobbler started checking his own family's shoes.
by Adam Hartung | Mar 25, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Web/Tech
Forbes Magazine reviewed the new car from Tata Motors in "Nano Lives Up To The Hype." Although we've known Tata Motors was designing and preparing this low-end car for a couple of years, most people were ignoring it. But now it's here, and according to Forbes the $2,000 car exceeds expectations. It's not a golf cart on wheels, it's "a proper car." And it's about to go on sale in India.
So the world's largest car company, General Motors, is on the edge of bankruptcy – only able to stay out via the largesse of loans from the U.S. government. Their sales are down 40%. And at the same time, from far away in a country well known for poor roads, emerges a new competitor ready to sell cars at 1/5 the price of any car sold in America – or the rest of the western world. Do you suppose the executives at GM or staying awake worrying about the Nano, or do you think they are ignoring this car altogether while trying to figure out how to sell more Chevy's?
Admittedly, the Nano comes from the fringe of competition. People don't think of manufacturing when they think of India, they think of IT. And they sure don't think of cars. Powered rickshaws maybe. And the car itself weighs only about 1,350 pounds – half what any other car weighs. It's really designed for performance up to about 40 miles per hour, and it's not a great performer on the way to reaching the top speed of 65. Although loaded with interior room, it has no back access – not even a fuel hatch. It would be very easy to ignore. It's easy to say this may be the next Yugo. But, this one seems a lot more like the original Honda Civic in 1973. Bare bones vehicle from a foreign country that's cheap, but otherwise "not up to American standards?" Or is it a bare bones car from a new competitor with a strong desire to learn, improve and eat into the share of current competitors?
Any car executive who's smart is paying a lot of attention to the Nano. Firstly, it demonstrates making a car at an unheard of price. For much of the world, this offers people their first chance at an automobile of any kind. So it brings in new users who would otherwise be left out. It's price, alone, shows that in a global economy, auto production is headed toward lower prices due to lower world-wide cost. If this vehicle is satisfactory to westerners, or can be made satisfactory over the next few years, it may never again be possible to pay American labor rates for producing automobiles. For basic transportation, American labor may be too expensive.
Additionally, the Nano went from idea to car in about 3 years. No 5 or 6 year cycle, like American car companies desire. Tata has demonstrated it can design and manufacture a car in about half the time of the existing auto companies. So the cycle time is shortened even more. And that this car can be profitable at volumes a fraction of the American production runs shows that markets need not be enormous – and old notions about tooling and other fixed costs of production may be things of the past.
Nano demonstrates why we HAVE to obsess about competitors. Including "fringe" competitors. Because these new competitors are figuring out how to do things differently. They are shooting for future markets, not past markets (like India, China, eastern Europe, South America, Africa). They are developing new Success Formulas that have different requirements, possibly obsoleting the old Success Formulas. It's so easy if you're selling books to say "no one will buy books on the web" when you see the early interface and business model for Amazon – rather than think where this new competitor will be in a couple of years. If you're selling land-line phone service it's easy to deride the quality of early cell phones, and project they will never move beyond niche users. But smart competitors know that when a new product is introduced by a fringe competitor, it's best to pay really, really close attention. You may need to be more like that competitor than you realize in a great big hurry.
by Adam Hartung | Mar 10, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Lock-in
Those of you who follow my blog should have noticed a new look and feel today! If you receive this missive in your email box via an RSS feed, I encourage you to stop by www.ThePhoenixPrinciple.com to see the new look.
As most of you know, I'm quite serious about helping organizations realize that they all can rejuvenate. It's a mission I started in 2004, and devoted my life to in 2007 when I started writing Create Marketplace Disruption. And now, in the midst of this terrible recession, it is clearer than ever that we need to realize that different phases of the lifecycle take different management approaches. And for most companies today, old fashioned notions of "focus" and "hard work" simply won't pull them out of this recession and toward better returns.
So I've rededicated myself to this mission. And part of that rededication is hiring some professional help with this website! Thanks to Public Words for the new design – and this is just a small part of what they will be doing to help me over the next year to increase the awareness of this mission and expand the base of people who want to help their organizations recharge, reignite and regrow! I'm also spending more time public speaking to companies, leadership teams, industry events and multi-company conferences about what we need to do so we can get back to growing! (If you know of groups, please let them know how The Phoenix Principle and Adam Hartung can help them get growing again.)
So, let me know what you think of the new look and feel! Your comments can help the site be more productive for us all. If you want things added, speak up! I read all comments, whether here or emailed my way, and my new team will consider them all. In addition to the look and feel, please offer your ideas for how I can drive more links, and attract more readers to our mission. Some of you offered great ideas recently (special kudo to reader Bob Morris for his insightful recommendations) about how to better use tags, technoroti tags and trackbacks. Please keep telling me places I need to link, and other things which can help grow readership. Your help in spreading the word is greatly appreciated.
Also, if you haven't noticed I'm not twittering. So you all are invited to reach out to me on Twitter – there's even a link to twitter me on the blog now! I'll be getting my facebook page up soon as well.
I read a fascinating report published today you can dowload from Bank of America claiming that this recession actually began in 2000 – and we're somewhere between 60% and 70% of the way through. Real estate could decline another 15%, and the big equity averages may drop another 20-40%! Whether that's true, or maybe we're closer to "the bottom", for most of our organizations to be prosperous again will take a different approach to management. One that overcomes Lock-in to outdated Success Formulas (often created in a previous industrial era) by obsessing about competitors to learn about market trends, never fearing disruption – internal or in the marketplace – and utilizing White Space to test new business ideas which can create better, higher return Success Formulas that fit newly evolved markets.
"Hiring Plans or Firing Plans" is the headline on Marketwatch.com. Previously, the lowest number achieved for "net hiring plans" was in 1982 when a net 1% of firms were planning to hire. But in the entire 47 years of the Manpower hiring survey (since 1962) never was the index a negative – where more firms plan to lay off than hire!!! That was until now, with the index at -1%. Just one year ago the number was +17%! (Find the complete Manpower Employment Outlook Survey at this link to their site.) More of the same "ain't going to cut it". Instead of looking for reasons to lay off workers, we have to realize that there are a lot of reasons to hire more! If we follow the right management principles – The Phoenix Principle – we can get going again! If we encourage Disruption and keep White Space alive we can continue to grow!
A past client of mine recently discovered a way to introduce a new line of products with 80% less development cost. But the new product is being delayed because the CEO feels he must lay off workers and slow down product launches – due to what he's reading about the economy. The CEO is afraid that a new product launch, which would cement the company's #1 position ahead of competitors gnawing at their position the last 4 years, would be a tough sell to the Board of Directors. The CEO is clearly focusing on the wrong thing – because his Board would be happier with growing sales and profits, and a reinforced #1 market position, than anything else! Especially now! But this company is almost afraid to grow, locked in fear of what to do next. Instead of reallocating resources to growth projects, and jettisoning "sacred cow" products that are low-profit and declining in sales volume, management prefers to follow today's popular wisdom of cutting costs, cutting new product introductions, even cutting revenues by sticking with historical products nobody is buying - so that's what they will do!!!
So, please be a part of this journey. Participate, don't just be a spectator. Provide your feedback and comments. And share the word! Nothing is more valuable than debate. Great ideas are developed in the marketplace, not in someone's head! Pass along the message, and get others involved.
This blog can now be reached directly via:
by Adam Hartung | Jan 16, 2009 | Current Affairs, Defend & Extend, Disruptions, General, Leadership, Lock-in, Web/Tech
Sprint's prepaid mobile unit, Boost Mobile, announced today a new pricing plan. Customers can get nationwide unlimited calling, text and web access – with no roaming charges. The company President said "This plan is designed to be disruptive." (read article here)
That's a poor choice of words. All this new plan does is lower price. And the predominant reaction is that this may spur a deepening price war. There's nothing new being offered. Just a lower price. Offering more at a lower price isn't disruptive. It might challenge competitors to match that price, and hurt profits, but it isn't disruptive. It doesn't offer a new technology curve that can provide better service at lower pricing long term, it's just another step along a price discount curve.
This change might be very good for consumers. But it's not as good as a really Disruptive action. For example, cell phones were disruptive because they offered a service never before available – mobile telephoning – and offered an entirely new cost curve. In the beginning they were more expensive, so limited only to those who really needed the service. But as time went along and volume increased it became possible for wireless telephony to eclipse old fashioned land-line service. In many emerging countries wireless is the phone service – just as it is for many younger people who have no land line service in their homes relying entirely on mobile phones.
If the CEO at Sprint Mobile wants to be Disruptive he has to come up with a new solution that creates the opportunity for entirely new users who are under- or even unserved. Perhaps telephony that is free because it's linked to a simple radio. Or perhaps a telephone that can translate languages for international use. Or perhaps a phone that can scan documents and send as emails in popular applications like MSWord. Or maybe phones that offer free netmeeting services with document transport and manipulation operating simultaneously with voice service. Or these might just be new features down the road for existing phones – and not even disruptive themselves.
Disruptive innovations are not just price discounts or changes in pricing structures. They bring in new customers and offer the opportunity for dramatically lower pricing because of a different technology or solution format. And they require White Space to develop new customers that can effectively use the new technology and prove its value.
Therefore, we can expect competitors to quickly match the new pricing offered at Boost Mobile. And profits to be curbed.
