by Adam Hartung | Jan 5, 2009 | Current Affairs, Defend & Extend, Disruptions, General, In the Swamp, Leadership
The New York Times Company is in a heap of trouble (see chart here). Long the #1 daily newspaper in the USA, advertising revenues fell 21% versus a year ago in November – a feat similar to its revenue decline in December, 2007. NYT is in a growth stall – and shows no signs of making a turnaround. The decline in ad revenue and subscriptions is horrific. The company has recently slashed its dividend 74%, and is taking out a $225million loan against the value of its headquarters location raising cash to keep its newspaper operations going. The company is running television ads in most major markets – like Chicago and LA – to seek out new subscribers. And now the newspaper is placing ads on its page 1 – an act that is a big deal to people in the newspaper business. (Read about New York Times front page ads here.)
So by taking these actions, is the New York Times Company preparing itself for change? After all, the problem with newspapers is that increasingly people want their news via the internet – not a paper. So even though the management at "the Times" is distressed over the actions they have taken, investors should be asking if these actions are likely to turn around the company. Value fell 67% in 2008 – and is down practically 90% for the last 5 years.
Long term successful companies Disrupt their Lock-ins – those behaviors, decision-making practices and policies that keep the company doing what it always did. As businesses grow, developing their Success Formulas, they figure out ways to Lock-in that Success Formula so it repeats. While the market is growing, and the Success Formula is meeting customer needs, these Lock-ins help the business focus on execution and grow with the market. Lock-ins are great, helping people do more, better, faster.
That is, until markets shift. When external markets shift – because of new technology, new services, new competitors or other factors – the Success Formula loses its advantage. The solution to market shifts isn't to continue optimizing the Success Formula. Returns are declining because the Success Formula is becoming obsolete. The solution is to migrate the business to a new Success Formula which supports market needs and regain growth. And that migration happens after the old Success Formula is Disrupted – through attacks on the Lock-ins – demonstrating to everyone that the company is serious about advancing to meet new market needs.
Unfortunately, far too many companies claim they are Disrupting – and preparing for the future – when in fact they are merely disturbing the Success Formula. Layoffs, financial adjustments, asset sales and outsourcing may be painful, but they don't attack the old Lock-ins nor alter the Success Formula. People are often dramatically disturbed by the changes, but the Success Formula is unaffected. When this happens, the business keeps deteriorating despite the actions.
And that's what's happening at the New York Times Company. Leadership has not taken the actions necessary to demonstrate to customers, employees, vendors or investors that they have to change. They have not Disrupted. To be a world leading news organization now requires deep expertise and success on the internet – yet NYT is in no way a major player on the web. And they have shown no signs of investing there in a major turnaround effort. NYT has not Disrupted its operations to set the stage for new White Space where a powerful new Success Formula can be developed (similar to the major programs like MySpace.com at News Corp., for example). To the contrary, the actions taken by the New York Times Company are directed at trying to preserve an outdated past. Advertising on page 1 is almost unimportant to the vast majority of readers – and completely unimportant to internet news mavens. It's not even newsworthy.
Like Tribune Corporation (owner of The Chicago Tribune and the Los Angeles Times as well as other papers), New York Times Company is focused on the wrong things. And as a result, is just as likely to end up in bankruptcy. Even Tribune management invested in Careers.com, Cars.com and Food Network along the way – each of which show demonstrably more promise for growth than any of the newspaper companies. But because management won't Disrupt – won't attack old Lock-ins – these companies keep hoping for a return to the days when newspapers were central to life. And that isn't going to happen. The world has moved onward. So, like Tribune, New York Times will eventually run out of resources and find itself in bankruptcy as well.
Unwillingness to Disrupt is a key indicator of a company likely to fail. Over time, all markets change. New competitors create new products that serve customers differently. Old Success Formulas see their returns evaporate as customers move to the new market solutions. And these companies end up, like Polaroid, being companies with a great past – but no future.
by Adam Hartung | Dec 29, 2008 | Current Affairs, Disruptions, General, Innovation, Leadership, Lifecycle, Openness
2008 was quite a year. Many businesses came out far worse than they dreamed possible when the year started. The Wilshire 5000 (one of the broadest measures of U.S. equity values) declined 40% – losing some $7trillion dollars of value. More than 1.2million jobs disappeared in the USA. Foreclosures and bankruptcies are at record levels. Although we'd like to think this has been a very recent phenomenon, bankruptcies and business failures took a dramatic turn upward in 2000 (to what were then record levels) and remained at rates far above any historical norms for the decade. Not only small, but very large companies (those with assets greater than $1B) have been failing at rates exceeding 10x the failures of almost all decades in the 1900s. 2008 was more the climax of a trend than really something totally new.
So, what should you do about it? One option would be to cut costs and try to "survive the downturn." Unfortunately, that approach is very likely to doom the business. Firstly, the recovered economy won't look like the previous economy. Macro shifts in competitiveness and required capabilities to succeed have been happening since the 1990s, so the recovery will not benefit those who did well (and certainly not those who were mediocre performers) in previous times. Second, more innovative competitors who are better aligned with current markets will steal sales, customers and share while you retrench. Innovation doesn't stop during weak economies, and retrenching companies fall further behind while in survival mode to those who embrace the shifts and alter their Success Formulas. Just look at previous recessionary cost cutters like Xerox, DEC and Montgomery Wards.
With companies like Circuit City, Bed Bath & Beyond, The Bombay Company and Sharper Image failing while WalMart sales increased 3% in November, it might be tempting to say that now is the time simply to grow by doing more of what you've previously done. Or by focusing on ways to cut costs. But that would ignore the underlying trends that caused these companies to fail – and WalMart to stagnate with wickedly weak performance the entire last decade. While the credit crisis pushed the failures over the brink, their troubles were tied to broader themes in consumer demand and retail expectations. These companies were doing poorly long before the credit crisis emerged. And customers didn't flock to WalMart. 3% growth isn't what would be called spectacular. When WalMart looks good only because it isn't failing, it tells us that the future opportunity isn't to be like WalMart (which is the retail leader in low cost operations) – but instead to lead customers in new trends. Customers don't want all retailers to be like WalMart (which happened to be in the right place when this once in a lifetime crisis happened). They want innovation which will attract them.
Darwin himself said, "It is not the strongest that survive, nor the smartest…It is the most adaptable."
Increased use of digitization opened the floodgates to greater globalization. The search for "low cost" went global seeking the cheapest labor and lowest currency values. But it has also opened doors for more innovation. Companies in the U.S., Europe, India and China all have the opportunity to bring forward innovation in new products and new services to delivery value. The search for lower cost does not create growth, merrely lower cost. Innovation leads to real growth. Those companies which will emerge much stronger will be those who identify opportunities for real growth in these changed markets – by looking internally and externally for innovation.
If you find it hard to get excited about Delta, which is now the largest airline since merging with Northwest, don't feel bad. Just because higher fuel prices pushed some airlines over the brink, and left others (like United) badly crippled doesn't mean Delta is going to be a leader. Lower fuel prices short term, combined with decreased capacity due to failures, may increase short-term airline profits, but does not mean customers are any happier flying now than before. To the contrary, now that customers have to pay for their own soft drinks and sandwiches (at incredibly expensive prices, by the way), pay extra fees for checking bags, have to take connecting flights more often with longer travel times and greater risks of delays, and deal with unhappy airline employees who are working for less pay, benefits and pension means customer satisfaction is at an all-time low. It's not likely that Delta will lead people back onto flights. Instead, customers are looking for a supplier that will use innovation to provide a better experience and value — possibly Virgin America?
If we all go into 2009 with plans only to cut costs and "wait it out" then 2009 will not be a good year. What are we waiting out? How can we expect things to "get better"? But if we use 2009 to identify innovation which can better meet customer needs, we have every reason to be optimistic. Now, more than ever, it is time to Disrupt our Lock-ins to old behaviors. We don't need "more of the same, but cheaper". We need to be aware of the limits in our existing Success Formulas by Disrupting. And we need to explore White Space where innovations can be tested. White Space will create new Success Formulas which will create growth – and that could make 2009 into a great year for those companies focused on the future and willing to adapt to this latest market shift.
by Adam Hartung | Dec 1, 2008 | Disruptions, General, In the Rapids, Innovation, Leadership
You don't have to agree with Rupert Murdoch's politics to recognize his business savvy (in fact, ignore them if you want to understand his business acumen). A new book is coming out today on his life, and according to reviews and interviews with the author, it continues to reinforce how Mr. Murdoch followed The Phoenix Principle for building News Corp. into a major, industry leading, corporation. (read about the book here)
Don't forget that News Corp. began as a small Australian newspaper company. As large as Australia is physically, it is sparsely populated. While you may recognize an Australian accent, I bet you struggle to name an Australian corporation. It's relatively small population, abundant natural resources and remote geography (don't forget, it's an island continent) means it is easy for Australia to be missed on the global business landscape. But it is from these humble roots that Rupert Murdoch saw great opportunities for growth if he first moved into newspapers around the globe - eventually becoming what is now America's largest media empire.
Not only does Mr. Murdoch plan for the future, rather than fixating ont he past, but that Mr. Murdoch obsesses about competitors is made clear in his biography. His fixation on CNN helped move Fox News from a fledgling idea to the #1 rated news channel. He fixated on CNBC when deciding to recently launch Fox Business Network. Obsessing about competitors, especially when in a different field, is a trademark of Phoenix Princicple companies that make long-term higher rates of return. They let competitors lead them into new businesses – where they learn and grow.
Mr. Murdoch is certainly Disruptive, and his biographer describes him as "the least corporate person I've ever met in corporate life." And this sort of willingness to Disrupt is what made it possible for News Corp. to win the bidding for MySpace.com. News Corp. is not just a newspaper company – it has vast interests in fim, broadcast television, cable television, direct broadcast satellite, magazines, inserts, books and the internet. Such widespread White Space keeps News Corp. out front of its competitors. (See News Corp holdings and business interests here.)
Contrast this with Ted Turner's empire, for example. Like Rupert Murdoch, Mr. Turner started with a company that was almost exclusively a billboard enterprise – and almost exclusively in the south. Yet, he was able to see that the future of broadcast media was much stronger than billboards, leading him to move forward with projects in radio, broadcast TV and eventually cable television. Launching CNN as the world's first global news network put his company in the forefront of the media industry.
But, eventually Mr. Turner sold his company to another television, film and magazine company – Time/Warner. Rather than continuing to branch out with White Space onto the internet, Mr. Turner agreed to a "grand play" by merging with AOL. Instead of White Space where Turner could learn to expand and grow, with multiple investments in the new media environment, Turner/Time/Warner became trapped in a very costly, and over-committed, situation with AOL. Too early in the lifecycle, and with insufficient learning opportunities, this became a grand disaster leaving Time/Warner a far weakened competitor – and making it possible for Google to emerge as the leading American on-line media company.
I don't ask that you like Rupert Murdoch. Nor that you like News Corporation. Nor that you agree with the heavy political overtones of Mr. Murdoch and those on his executive team. In fact, feel free to disagree with their politics vehemently. But if you look at their business results you see an organization that followed The Phoenix Principle to great success. And, as the media business keeps changing, we will see many competitors disappear – especially those too closely aligned with print and broadcast news. But I would not expect News Corporation to be one of those struggling to survive. Its practices have positioned the company well to continue growing, despite dramatic industry dynamism. And that's what being a Phoenix Principle company is all about.
by Adam Hartung | Nov 20, 2008 | Current Affairs, Defend & Extend, Disruptions, General, In the Swamp, Leadership, Lock-in
The auto execs have not made their case in Washington D.C. Speaker Nancy Pelosi is saying Congress has not yet seen a plan in which they can invest taxpayer money. Almost half of Americans don't think a bailout should be undertaken (read article here).
For those of us who've been around a while, reflections on the last time an auto company asked for help are inevitable. It was 29 years ago, from September into December of 1979, that Lee Iacocca (former Ford executive) and the UAW asked Congress to provide $1.5billion in loan guarantees (not a loan – not cash – just a government guarantee) in order to save Chrysler from bankruptcy. The economy was bad, but nothing like the banking crisis we're in now, and a recalcitrant Congress was not happy. Nonetheless, they prevailed and Democrat Jimmy Carter signed guarantee approval in January, 1978. (Read about the Chrysler loan guarantee here.)
By all accounts then, and certainly later, Lee Iacocca was nothing like Rick Waggoner (GM CEO) or Alan Mulally (Ford CEO). Iacocca had been fired from Ford because he told management they were going the wrong direction. He was a person willing to dissent, to Disrupt, and he'd shown it at Ford before ever coming to Chrysler. Additionally, as a new leader at Chrysler, he was willing to demonstrate changes were afoot by proposing from the beginning to place the head of the UAW on the Chrysler Board of Directors. After decades of labor wrangling, this was a significantly Disruptive act never before considered – and showed a leader willing to do things very differently. Mr. Iacocca even promised to take no salary his first year – he'd only get paid if his plan worked allowing him to earn a bonus according to predefined metrics. (Imagine that – an executive with real skin in the game.)
Iacocca was never a fellow to do what was "easy" or "natural". A feisty fellow with Italian roots, he spoke his mind. When Ford was making boring cars, and considered the Edsel "every man's car" (the Edsel was an enormous failure), Mr. Iacocca conceived of the Mustang — a car that was small, sporty and affordable. Something otherwise not on the American market scene. That car, more than anything else, saved Ford in the 1960s. Even today, Ford is hanging its future and much of its brand image on the 45 year old Mustang.
When he got to Chrysler, Iacocca kept that focus on the future. At a time when automakers were struggling to figure out a profitable way to develop cars that fit American needs he brought out the mini-van – a practical vehicle never before seen. As the economy improved he felt a convertible would be a good idea. He asked his head of engineering how long it would take to make a convertible for him to test – and the exec told Mr. Iacocca 3 years. CEO Iacocca told his engineer he didn't understand – Iacocca wanted him to pull a car off the line, take a saw and cut the top off. That should take about 4 hours. The action was taken, and Mr. Iacocca took the topless sedan for a ride around the block. In less than an hour he was convinced bringing back convertibles would be a huge boost to Chrysler profits.
Mr. Iacocca didn't look to his customers for ideas, he looked at future needs and competitors. Mr. Iacocca studied the cars, and manufacturing processes, from Europe and Japan. By obsessing on everything they did he found ways to make better cars that were more desirable and less costly. At a time when the Japanese Yen was a screaming buy compared to the dollar he changed processes to permenantly lower car costs – not relying on layoffs or more traditional cost cutting – making his company much more competitive than Ford or GM.
Mr. Iacocca never was slow to Disrupt those around him, or the market. As discussed, he was ready to launch new car concepts quickly, and go to the union with changes in work rules and compensation schemes. He created White Space everywhere from car design to manufacturing process groups to union discussions in order to find ways to make his company competitive with offshore players – and the most preferred of the American auto companies.
Ledership makes a difference. Congress has asked Messrs. Waggoner and Mulally to sell off the private jets, cut executive pay and produce a plan that shows the future will not be like the past. And that's fair. But it's not at all clear these leaders are of the Iacocca (or Jobs) way of thinking. If they keep trying to preserve what used to be normal, things aren't likely break their way from those in charge of giving a bailout. Mr. Iacocca is now retired, and far removed from the demands and dilemmas of the current auto manufacturers. But there are other managers out there – other leaders with the ability to focus on the future, obsess about competitors, Disrupt and implement White Space to turn around these troubled companies. I sure hope someone puts them in the right place to persuade Congress fast – before a couple million people lose their jobs and this recession turns into a Depression!
by Adam Hartung | Nov 15, 2008 | Defend & Extend, Disruptions, General, In the Whirlpool, Innovation, Leadership, Lock-in, Openness
On Tuesday, New York Times columnist Thomas Friedman (author of The World is Flat) chided the auto companies for their lack of innovation and desire for government assistance (read article here). Setting off a firestorm of comments across the web, he not only recommended replacing the Board of Directors and executives at GM (as I have blogged), but went so far as to recommend asking Steve Jobs to take over GM leadership as an act of national service.
The other side of this argument was made by columnist John Dvorak on Marketwatch (read article here). Mr. Dvorak says this is a foolish idea, because the auto industry is so integrated and unique that only someone within the auto industry could hope to run an auto company. He recommends searching within the bowels of the auto companies for some overlooked wonderkind who is able to turn around the organization while maintaining the existing business model. He goes on to say that the only reason Steve Jobs has been successful is due to the unique features of the tech industry, implying no tech manager could hope to run a company as complex as GM.
Mr. Dvorak suffers from the sort of traditional management thinking that has gotten GM (Ford, Chrysler, Citibank, Washington Mutual, Sears, General Growth Properties, Sun Microsystems, etc.) into big trouble. As he lists off the "unique features" of the industry, and discusses "the manufacturing, inventory, subassemblies, delivery and other systems that are in place…too delicately balanced and complicated for a newbie to deal with" he describes Lock-in. Mr. Dvorak views what's been done in the name of Defend & Extend Management as good – and therefore necessary to keep. Thus, any turnaround would require doing more of what's been done – hoping somehow doing it better, faster and cheaper can make the company successful again. But he completely ignores the fact, which he actually makes in his article, that there are a lot of other auto companies competing with GM, Ford and Chrysler — and they are better at running these complexities than GM, because they are able to make autos that customers purchase at a higher profit. Mr. Dvorak ignores the obvious fact that it is very likely the structural and behavioral Lock-ins which he thinks impossible for a new leader to manage that are causing the horrible results in the U.S. auto companies. He ignores the notion that it is the very heart of the GM Success Formula that is competitively outdated, and thus causing these horrible results.
Successful turnarounds are rarely accomplished by people who are part of the industry. Because those in the companies are Locked-in to the Success Formula which is producing the poor results. Existing leders and mangers accept those Lock-ins, and that old Success Formula, thus trying marginal changes – or more of the same but with less resource. What really works is when a new leader implements significant Disruptions that cause people to approach the work with a very different frame of mind, and then implement White Space projects (usually several, and with lots of resources and visibility) which allow the company to develop a very different Success Formula to which the company can migrate. Example – consumer products leader Lou Gerstner's turnaround of tech giant IBM.
While Steve Jobs likely could make a significant difference in GM, I don't think it has to be Steve Jobs. We so love our heros we start thinking only they can make a difference. What GM needs is new leadership that works like Steve Jobs. Leadership that (a) focuses on future needs rather than current problems (b) obsesses about competition rather than thinking all solutions lie within the company (c) is not only willing to be Disruptive – but enjoys creating Disruptions to the Lock-ins which overwhelm the Status Quo Police and (d) set up White Space projects where leaders are given permission to do things very differently, and the resources to achieve significant goals.
It can happen in the auto industry. About 25 years ago much maligned Chairman Roger Smith took cost savings from closing outdated plants in places like Flint, Michigan (the reason for Michael Moore's first docu-story Roger and Me) and invested them in a start-up company called Saturn. Saturn was White Space where the leaders were not forced to follow old G.M. Success Formula tactics – like keeping the same union contracts, or using the same components, or using the same dealers, or using the same customer pricing mechanisms. Saturn came on the scene with great fanfare. With only 3 vehicles in their initial line-up, the company's brand became "Apple-like" with its near-cult status. People loved the smaller cars, the focus on safety and consistency, the no-negotiating price method and the low-pressure dealerships. This was a great example of White Space that produced a very significant change in customer opinions about American cars - and car companies – and in just a few years.
Unfortunately, Roger Smith retired and over the years GM's management has dismantled what made Saturn great. Rather than migrate GM in the direction of what made Saturn a winner, they slowly pulled Saturn into the old Success Formula of GM, killing its advantages. Away went all the uniqueness of Saturn as it was turned into just another division GM. Similarly, the acquisition of Hummer from American General offered an opportunity for GM to move in unique directions – but quickly Hummer became just another division which focused on a narrow product range and eliminated much of its uniqueness homogenizing the brand into something far less desirable. GM spent billions on developing an electric car, more than a decade before the hybrids were launched by Toyota and Honda. But management's Lock-in to preset ideas about what that car needed to do caused them to kill the project — and go so far as to sue test customers to retrieve the electric autos they LOVED.
GM desperately needs leaders willing to Disrupt. And willing to implement White Space to develop a new Success Formula. Leaders willing to let the company migrate toward new ways of operating – who believe it is essential. People like Steve Jobs. People the auto companies weeded out long ago when forcing those who move up to slavishly accept the failing Success Formula and focus on Defending & Extending it – despite the declining results. It will take people from outside GM, Ford and Chrysler to turn them around. It can be done.
by Adam Hartung | Nov 5, 2008 | Disruptions, Leadership
Now that Senator Obama is the U.S. President-elect, everyone has recommendations for what he needs to do (read sample on Marketwatch here). What we know from the campaign is that as President he has promised change. Listening to him speak, you could imagine a lot of change.
Do you recall any Presidential campaign where the candidate didn't promise change? It has certainly been a common call during the modern era. Yet, election after election we hear the repeated refrain about how "those in Washington" are bad, and the candidate will provide change. As the decades have passed, it appears that "Washington" (whatever that means) has been more resilient than the candidates have been change agents. In some ways this is similar to outside CEOs that join organizations promising change, yet they get chewed up by the machinations of their new employer and find themselves without a job when the Board decides it must replace them. Few "change" CEOs actually pull it off – and one would think changing a company is easier than changing the U.S. government. So does that mean we should not expect change from an Obama presidency?
The federal government is pretty well Locked-in. Not only does it have the behavioral Lock-ins of a large bureaucracy, but it creates laws when designing its structure and decision-making processes. It is substantially harder to change the software used in a federal agency than it is in a corporation, for example. Or even a supplier. The rules, the laws, create Lock-ins which keep the government operating pretty consistently – despite who's in the Presidency or Congress. For any President to make a change, that person has to find a way to Disrupt selected Lock-ins and open up some White Space to do new things. That is possible, and we've seen some Presidents use the tools very effectively.
For example, John Kennedy shocked everyone by undertaking an enormous Disruption when blockading Cuba (read about blockade here). People clearly saw this was a change in "business as usual." Then he threatened to nationalize the steel industry if the executives didn't make concessions to striking union workers – a threat previously almost carried out by President Truman. These actions were deliberate in their intent to change how people thought about the decision-making of his administration. He wanted people to thinking differently about what could be done during his presidency. Then, to develop new technology solutions via innovation he created the "man on the moon" project. He exploited NASA's extra-ordinarily wide charter (wide permission – read here) to spend money on new technologies — which just happened to have quite a few applications in defense.
More recently, Ronald Reagan entered the presidency promising significant change. But he took on the job in a very weak economy with incredibly high interest rates. Spending on "entitlement" programs (like welfare and social security) were skyrocketing with inflation, while "real" program expenditures like defense and roads were declining. President Reagan needed a Disruption, and he found one when he fired the striking air traffic controllers. No one ever believed he would fire them all. But he did. And he did not waiver. No one who had any doubts things were going to be different after that action. (Read about the PATCO firings here.)
President Reagan didn't try to "fix" what he perceived as a broken system of unions holding up employers for better benefits and cost of living pay hikes – he simply fired all the controllers and made it clear unions would have far less voice. He intended to fight them. This dramatic event opened the door for people to start thinking about new solutions – ones that had never been tried. And in short order President Reagan pushed through the largest personal tax cut in the history of the country. He took the entire Office of Management and Budget into White Space by forcing them to explore whether the "Laffer Curve" (read about Laffer Curve theory here) would work and whether tax receipts could increase due to a better economy under lower taxes.
For Mr. Obama to provide significant change in his presidency he must find and implement a Disruption. He must identify a Lock-in (lower defense spending was Kennedy's, and the power of union's was Reagan's) and attack it. He must not waiver in his commitment to the Disruption in order to establish that there is another way to get things done. And then he must create White Space in which he can explore new solutions.
Disruptions and White Space are much tougher to create in the federal government than they are a corporation. The President must weave between complex laws – and even tightrope whether proposed actions are legal. Sometimes taking actions that are at risk of failing a potential review. And White Space is hard to find because who wants to give the new President permission and resources to experiment? But that is what Mr. Obama must do if he really is hoping to "change how things get done in Washington."
by Adam Hartung | Oct 31, 2008 | Disruptions, General, Leadership
Even in the midst of the recent financial crisis, you probably also noticed that the price of oil has dropped. In fact, it's had a record-setting drop (read article here). It was just in July that oil peaked at $147/barrel. Now it's trading around $60-70/barrel. I'm sure you've noticed the benefit if you're a U.S. driver, as the gasoline pump price has dropped from over $4/gallon to under $3/gallon.
A lot of people simply breathed a sigh of relief. "Well, that's one problem I can now forget about" an executive recently said to me. I was disappointed to hear him say that. Because how does he know oil won't go back up to $150? Or drop to $25? Regardless, doesn't it have implications on how competitors in your business behave? On who wins and who loses? Things certainly haven't "returned to normal." The signs are all around us that there have been substantial changes in how companies manufacture, procure IT services and finance their business. Just because the price of oil went from $25 to $150 to $65 dollars doesn't mean things are "back to normal."
Scenario planning is really important to developing competitive strategy. Most people spend a lot of energy to achieve high precision understanding their historical sales, customers, technology comparisons, price comparisons and share. But they put very little energy on creating potential scenarios about the future. When they do look forward, the tendency is to seek the same sort of precision. As a result, too few scenarios are developed and they end up being based on data people feel are "highly predictable." The scenarios that are important are the ones where unlikely events and outcomes occur. They create opportunities for changes in competitive position.
Scenario planning should start with "big themes." Once you explore that theme, however, the objective is not to develop your "best guess." Instead, the objective is to cast a wide net and explore, in detail, what the world will look like given that scenario. How would thing change given the expectation? How will that help, or hurt your ocmpetitiveness. Who will be the big winner? The big loser? Create a robust description of that scenario – what are the implications – not the likelihood of it happening.
Over the last year the price of energy was one such big theme which interested a lot of people. But most people only explored one scenario – what if oil prices went to $200 or $250? Interesting, but not sufficient. Yes, that scenario is well worth investigating in great detail. But, it's also important to investigate other options – like oil at $150, or $100 or $65 or $35. All of those have different implications. What's important in scenario planning is to investigate them all. To understand how each would impact competition and individual competitors. So your SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis can be done for the future – not just for today.
The other value from scenarios is identifying and understanding the triggers. By exploring the scenarios you start to understand what would make each of the outcomes more likely. Not so you can develop a probability distribution – which will lead you to the "average" or "most likely" outcome – and thus the least likely to make any difference and therefore the least interesting. You don't want to use scenarios to become a forecaster – because odds are you won't be very good at it. You want to recognize the implications of these scenarios, and then figure out how you can use that scenario to improve your competitive position. To upend competitors who did not do the scenario planning and thus aren't prepared. Then you can start tracking key variables, key metrics, in order to recognize when you need to prepare for one of the various outcomes. And if you've done a good job with your scenarios, be the competitor best prepared to take advantage of the changed circumstance to improve your position.
The only way you can be prepared is to have considered the scenarios, and developed some plans should that scenario happen. To be a long-term winner it's not enough just to be good in the current environment, you have to be prepared to succeed no matter what the environment. By developing scenarios, you can be prepared to take advantage of market shifts – and if your competitor isn't, you can gain market share and improve your returns.
We all are subject to letting current events drive our views of the future. Then we try to "stand back" and look at a long term trend and develop some sort of "average" point of view. But neither of these really help when markets shift. What's needed is a set of scenarios – such as oil at $25 or 50 or $100 or $150 or $250 or $300. Understanding how you can grow sales and profits in each makes you prepared, and greatly improves your long-term chances of growth. It's the only way to prepare for market shifts, and worth a lot more during turbulent changes, like we're seeing now, than the deepest analysis of what you've done the last year, 3 years or 5 years.
by Adam Hartung | Oct 27, 2008 | Disruptions, General, Quotes
You never know when interviewed exactly what the writer is looking for, what the article is, or how your comments will be used. But I was delighted to be interviewed by the acclaimed weekly newspaper Investor's Business Daily a couple of weeks ago. (The article can be found on Yahoo! business here.)
"Get Through It With Grit – by Sonja Carberry
Pust the envelope. Adam Hartung, author of "Create Marketplace Disruption," points out that winning companies aren't afraid to shake things up, especially during a downcycle. He said Cisco — instead of aiming to sell more products — has the "Disruptive" goal of making its offerings obsolete by creating new solutions. "This kind of approach keeps you from riding the tail (of a trend) too long."
Tap rabble-rousers. Hartung cited Apple's CEO as a prime example. "Steve Jobs is a very dsruptive kind of guy," Hartung said. So much so, Apple and Jobs parted ways in 1985. When Jobs was coaxed back to Apple 15 years later, he championed such out-there ideas as the now-mainstream iPod."
What's great in this article is some information from the Managing Director of one of the world's top management consulting companies, Bain & Company. Steve Ellis divulged from a recent Bain study that 24% more firms rose from the bottom to the top of their industries during the 2001 receission than the following sunnier economic period.
What great support for the fact that when markets shift the opportunity is created for changing competitive position. Those companies that build detailed future scenarios, obsess about competitors, Disrupt their internal Lock-ins and implement White Space can come out big winners during market shifts. So if you're a leader, now's a good time to be more Steve Jobs like and not fear Disruption. It's time to push your company to the top by taking advantage of competitor Lock-ins!!
by Adam Hartung | Oct 21, 2008 | Disruptions, In the Rapids, Leadership, Openness
Yesterday I talked about how Lock-in to an old Success Formula kept Sun Microsystems from undertaking Disruptions in the 1990s that would have helped the company keep from floundering. One could get the point that with this weak economy, the die has been cast and there’s little we can do. "Oh Contrare little one".
Let’s look at Apple (see chart here) – the company Sun passed up to focus on its core server business in the 1990s. Today Apple announced profits are up 26% this year – despite the soft economy (read article here). We all know about the iPod, iTunes, iTouch and now iPhone. Apple has demonstrated that it is willing to bring out new products in new markets without regard for "market conditions", and as a result drive new revenues and profits. It would be easy to delay new investments and new launches in this economy to drive up profits, but the company CEO maintains commitment to internal Disruptions and ongoing White Space to drive growth – especially while competitors are retrenching.
Another recent example is Coach (see chart here) the maker of high-end luggage, leather goods and fashion accesories. Most high-end goods are seeing sales plummet. But Coach used its scenarios about the future to invest in its 103 factory outlets and many discount outlets. Instead of running to the high end and doing more of the same, while cutting costs, Coach has put new products into the market and offered new discount programs – in addition to its growth of outlets beyond the traditional Coach stores (read article about Coach here.)
Any company can take action at any time to grow. All it takes are plans based on future scenarios, rather than based on just doing "more of the same." Being obsessive about competitors allows for launching new products before anyone else, and gaining share. And using Disruptions to create White Space for successful new business development. This can happen at any time – not just when times are good. In fact, when times are bad (like now) it can be the very best time to focus on growth. When competitors are trying to retrench it creates the opportunity to change how customers view you, and grow. This might well be the best time ever to not only Disrupt your own thinking – but Disrupt competitors by changing your Success Formula and doing what’s not expected!
by Adam Hartung | Sep 24, 2008 | Disruptions, General, In the Rapids, Leadership, Lifecycle, Openness
Yesterday, amidst all the brouhaha over the dissolving of America’s financial system, Google (see chart here) launched a new phone (read article here.) This would have surely been the #1 front-page news, except – again – the Congressional effort to deal with a trillion dollar investment decision in bad loans. So, is this a big deal that was given short shrift, or is it an announcement we can ignore?
There is debate about whether the Google phone is a game changer or not. And that debate cannot be resolved by phone gurus. Quite simply, mobile phones are no longer simply phones. All the new products are built with new operating systems which let them operate various applications making them quasi-personal computers with mobile telephony capability. There are now several players in the game, and to assess the likely winner’s you would be best served to read Geoffrey Moore’s book The Gorilla Game in which he chronicles the requirements for success when launching technology products. So, does this mean we should reserve opinion about the importance of this launch until more is observed about sales and market share generation?
Hardly. I’ve blogged a fair bit about Google lately – and it’s been positive – and once again I think you should be impressed with this launch. It shows Google getting into yet another growing market, and with yet another new technology. Once again Google has chosen not to sit on its laurels in search or ad placement and invest big money in White Space with permission to do what’s necessary to succeed. One thing Google has a lot of right now is money – and instead of hoarding it the company is creating and maintaining White Space which can keep Google in the growth Rapids. I doubt that everything Google does will make money, and I doubt all its products will succeed. But the fact that Google is investing its ample cash in projects inside growing markets which can sustain the growth is the best move the company could take now.
Also, it’s impressive that Google made its launch knowing that it wouldn’t get the top headline. This shows an organization more intent on White Space than headlines. Instead of creating a "splash" about itself the company put out a new product, using new technology, that operates on a new network, with new functionality – and did it during a very uncertain time for most investors and the economy. Obviously, Google is looking forward and sees it must get into the market now and compete to learn how it will succeed. While many other companies which are less cash rich are forced to pull back their horns, or with management that prefers to be conservative because of shifting markets, Google is keeping its eyes squarely on the future and sees that getting in now, during a period of great uncertainty, only increases its odds of success. When markets shift it most benefits the new entrant willing to create marketplace disruptions – and that’s what we see Google doing now.
We all were impressed with how IBM practically monopolized the mainframe computer business. We were impressed with how Wang dominated word processing. And how Digital Equipment dominated engineering mini-computers. We were impressed that Microsoft took total domination of the desktop market, Dell created domination in selling and distributing PCs, and Sun Microsystems garnered huge share in Unix servers. But each of these got into trouble when markets shifted and they weren’t part of the market shift. As they tried to "milk" their market position and disparage upstart competitors, they fell into Defending & Extending their outdated Success Formulas – until they either (a) had a big, dramatic turnaround, or (b) went out of business, or (c) saw their growth slow and their value plummet. What’s impressive is that Google is showing us the willingness to Disrupt what made them great and enter dispirate new markets with new solutions using White Space to develop new Success Formulas around those markets. With this behavior, they are much more likely to demonstrate long-term value creation than the companies listed above.
And for customers who recognize the value in new technology, as well as employees looking for ways to grow, and vendors ready to support the effort, as well as investors, this is a very good sign.
