We too often think of competition as “head to head”
Smart competitors avoid direct competition, instead using alternative methods in order to lower cost while appealing directly to market needs
Proctor & Gamble has long dominated advertising for many consumer goods, but the impact, value and payoff of traditional advertising has declined markedly as people have switched to the web
New competitors can utilize internet and social media tools to achieve better brand positioning and targeted marketing at far lower cost than old mass media products
Colgate is in a great position to blow past P&G by investing quickly and taking the lead in internet marketing for its products
Eschew calls for investing in old methods of competition, and instead find new ways to compete that allow you to end-run traditional leaders
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According to a recent Advertising Age article (“To Catch Up Colgate May Ratchet Up Its Ad Spending“) Colgate has done a surprisingly good job of holding onto market share, despite underspending almost all its competitors in advertising. This is no mean feat in consumer products, where advertising dominates the cost structure. But the AdAge folks are predicting that to avoid further declines, and grow, Colgate will have to dramatically up its ad spending. That would be old-fashioned, backward-thinking, short-sighted and a lousy use of resources!
Colgate competes with lots of companies, but across categories its primary competitor is Proctor & Gamble. In toothpaste, P&G’s Crest outspends Colgate by over $25M – or about 35%. In dishsoap Colgate spent nothing on Palmolive in 2010, compared to P&G’s spend of $30M on Dawn. In deodorant/body soap Colgate spent about $9M on Softsoap, Irish Spring and Speedstick while P&G spent 9 times more (over $82M) on Old Spice and Secret. (Side note, Unilever spent $148M on Dove and a whopping $267M when adding in Axe and Degree!) In pet food, Unilever spends $35M dollars more (almost 4x) on Iams than Colgate spent on Hills Science Diet. Altogether, in these categories, P&G spent almost $158M more than Colgate (2.5x more)! As a big believer in traditional advertising, AdAge therefore predicts that Colgate should dramatically increase its annual ad budget – and maintain these higher levels for 5 years in order to overcome its historical “underspending.”
But that would be like deciding to trade punches with Goliath!
Why would Colgate want to do more of what P&G does the most? While advisors try to pit competitors directly against each other, head-to-head “gladiator style” combat leaves the combatants bloody – some dead. That’s a dumb way to compete. Colgate has long spent in other areas, such as supporting dog rescue operations and with product specialists gaining endorsements while eschewing more general advertising. Now, if Colgate wants to take action to grow share, it should pick up a sling (to continue the (Biblical metaphor) in its ongoing battle. And the good news is that Colgate has an entire selection of new, alternative weapons to use today.
Across all its product categories, Colgate can utilize a plethora of new social media marketing tools. At costs far lower than traditional mass advertising, Colgate can build promotional web programs that appeal directly to targeted consumers. Twitter, Facebook, Foursquare, Groupon, YouTube, Google and many other tool providers allow Colgate to spend far, far less than traditional advertising to provide specific brand promotions, product information, purchase incentives (such as coupons) and product variations targeted at various niches.
With these tools Colgate can not only reach directly into buyer laptops and mobile devices, but offer specific information and incentives. Traditional advertising, whether print (newspaper and magazine), radio, television or coupons is a low percentage tool. Seeking response rates (or even recall rates) of just 1 to 5 percent is normal – meaning 90% percent of your spending is, quite literally, just “overhead” cost. But with modern on-line tools it is very common to have response rates of 50% – or even higher! (Depending upon how targeted and accurate, of course!)
Colgate is in a great position!
It has spent much less than competitors, and maintained good brand position. It’s biggest competitors are locked-in to spending vast sums on traditional tools that have low impact and are in declining media. Colgate could now decide to commit itself to using the new, modern tools which are lower cost, and have decidedly more targeted results. In this way, Colgate can get out of the “colliseum” where the gladiators are warring, and throw rocks at them from the stands. Play its own game – to win – while letting those in the pit whack away at each other becoming weaker and weaker trying to use the old, heavy and unsophisticated tools.
Now is a wonderful time to be the “underdog” competitor. “Media” and advertising are in transition. How people obtain information on products and services is moving from traditional advertsing and PR (public relations) focused through mass media to networks with common interests in social media. Instead of delays in obtaining information, based upon publisher programming dates, customers are seeking immediate, and current information, exactly when they need it – on their mobile devices. Those competitors who rapidly adopt these new tools are well positioned to be the new Davids in the battle with old Goliaths. And that includes YOU.
Many companies block employee access to Facebook and other social network applications
But these environments actually improve performance
Social networks like Facebook allow people to be more productive, and are very inexpensive
Facebook’s new email client is an example of how these environments can provide companies better services at lower cost – supplanting existing email, for example
Those who embrace advances early gain an information advantage, as well as a cost advantage
The new Facebook email client is a big deal for business, and should be explored by everyone
A year ago I was on a panel at the Indian Institute of Technology global conference. My fellow panelists were mostly IT heads from major corporations. When it came to Twitter, Linked-in, MySpace and Facebook – the world of social networking – universally they all blocked access. The reasons given were primarily data confidentiality (fear company information would escape) and productivity (fear employees would unproductively apply their time to personal efforts.) They saw no advantages to social network applications, only risk. Most of those companies – from pharmaceuticals to airlines – still deny access.
This follows a long list of things denied employees by large employers on the grounds of confidentiality and productivity
employees don’t need a phone at their desk, who could they need to talk to and what do they need to say at work? They can write letters or memos.
employees don’t need a personal computer. All data should be kept on secured tapes and accessed by productive data center professionals when it makes sense.
employees don’t need a hard disk in their personal computer. We must keep all data away from employees and keep them focused on using applications tied to central data repositories for productivity
employees don’t need laptops. Who knows where they will go, and what employees will do with them. They could let data escape, or spend time on personal letters and spreadsheets.
employees don’t need their own printers. Send all jobs to a central printer location so we can control what is printed for confidentiality and to make sure somebody isn’t printing more than is necessary
employees don’t need their own cell phones. What in the world do they need to say that can’t wait until they are in the office? How will we keep them from wasting time on personal calls?
employees don’t need internet access at work. There’s nothing on the web that is important for their work, and it opens a security hole in our operations. If we give them internet access they’ll waste hours and hours browsing instead of working.
This list could go on for a long time, as I’m sure you can now imagine. Confidentiality and productivity are merely excuses for those who fear new tools. Reality is that all these new products improved productivity dramatically, helping employees get more done faster – and making them smarter on the job as well. Organizations that rapidly adopted these (and other) technologies actually achieved superior performance, and rapidly saw their costs decline as these lower cost solutions gave more productivity at lower prices. In most cases, something formerly proprietary and costly became available from an outside source much, much cheaper that worked a whole lot better. Like how the Post Office displaced private messenger services – even though it did have security risks and made it possible for anyone to send a letter (see what I mean, you can go back in time forever with these examples.)
Today social media is the next “big thing” to improve productivity. Facebook, Twitter and its counterparts offer full multi-media, real time interaction with people you know, and don’t know that well, globally. You can find out about everything remarkably fast, and often quite accurately, at practically no cost. No server need be bought – and you don’t even need a PC. A cheap smartphone or tablet will give you all you want – soon to include conferencing and video chat. And you don’t have to buy any software. And you can connect to everyone – not just the people in your company, or on your server, or even on your network or your network service provider. According to Gartner, at MediaPost.com “Implications of a Facebook email Client” will be noticable by 2012, and universal by 2014!
And that’s why “Facebooks Not email Announcement” (as reported in LiveBlog Twitter style on ReadWriteWeb.com) is important for business. Facebook email is going to be better, faster and cheaper than existing email – especially if you’re still using 2 decades out-of-date products like Lotus Notes! Something Facebook doesn’t even want to call email because of its advancements.
An email client for Facebook goes far beyond the value of a Microsoft Live server (think Hotmail+ if you’re not IT oriented). Even GMail, for all its great features, doesn’t offer everything you get in Facebook, due to how Facebook provides integration into everything else that makes its network wildly productive for those of us who realize we live in networks. You even have an archive, searchability – and the capability of creating multiple virtual private networks for doing all kinds of business activities in different markets! And practically free! Using incredibly cheap devices, in multiple varieties and platforms, that employees might well purchase themselves!
For use by everyone from execs to salespeople, businesses will soon be able to stop buying and handing out laptops. Even PCWorld addressed the opportunity in “Social Networks to Supplant email in Business?” Businesses will soon quit operating server farms for most communications. Even quit supporting networks for things like printing sales documents, or creating document-loaded USB drives to hand out. With everyone on tablets and smartphones, and connected over social networks, in a couple of years “leave behinds” will be unnecessary. Those in sales and purchasing will be able to obtain competitive reviews, and prices, and configurations almost instantaneously by asking people on their network for input and feedback. Email will become slow, and a siloed application less useful than products that sit on the network.
With each advance, new opportunities emerge. Doctors have long been notoriously unwilling to carry laptops, or email patients. From the operating room to test results, finding out from an M.D. what’s going on has been problematic. Now MediaPost tells us in “Doctors Without Social Media Borders” how patient communication is rising dramatically from adoption of social media. It lets the physician, and others in medicine, communicate faster, more productively and cheaper than anything before. And this is just one example of how behavior changes when new capabilities arise. Formerly unmet needs are satisfied, and people shift to where they achieve greatest satisfaction.
Once email was considered the “killer app” that made everyone need a PC – and access to the web. Social media takes email into entirely new orbits. Getting more done, faster, with more people, using more current data, verified by more access points, across multiple media creates competitive advantage. Those who ignore this trend will fall behind. Those who adopt it have the opportunity to beat their competition. Everyone knows that those who know the most, first, and are able to apply it have a big first mover advantage. If you’re not promoting this in your company – if you are in fact blocking it – you’ll soon have no chance of remaining competitive. You’ll just start falling behind – and the gap will widen.
Voters whipsawed from throwing out the Republicans 2 year ago to throwing out Democrats this election
Americans are frustrated by a no-growth economy
Recent government programs have been ineffective at stimulating growth, despite horrific expense
Lost manufacturing/industrial jobs will never return
America needs new government programs designed to create information-era jobs
Education, R&D, Product Development and Innovation investment programs are desperately needed
“It’s the Economy, Stupid” was the driving theme used during Bill Clinton’s winning 1992 Presidential campaign. Following the dramatic changes produced in Tuesday’s American elections, this refrain seems as applicable as ever. Two years ago Americans changed leadership in the Presidency, Congress and the Senate out of disgust with the financial crisis and lousy economy. Now, Congress has shifted back the other direction – and the Senate came close – for ostensibly the same, ongoing reason. What seems pretty clear is that Americans are upset about their economy – and in particular they are worried about jobs and incomes.
So why can’t the politicians seem to get it right? After all, economic improvement allowed Bill Clinton to retain the Presidency in 1996. If smart politicians know that Americans are “voting with their pocketbooks” these days, you’d think they would be doing things to improve the economy and jobs. Wasn’t that what the big big bailouts and government spending programs of the last 4 years were supposed to do?
What we can now see, however, is that programs which worked for FDR, or Ronald Reagan and other politicians in the late 1900s aren’t working these days. Everything from Great Depression Keynesians to Depression retreading Chicago School monatarists to Laffer Curve idealists have offered up and applied programs the last 8 years intended to stimulate growth. But so far, the needle simply hasn’t moved. Recognizing that the economy is sick, looking at the symptoms of weak jobs and high unemployment, could it be that the country’s leaders are trying to apply old medicine when the illness has substantially changed?
What’s missed by so many Americans today – populace and politicians – is that the 2010 economy is nothing like that of the 1940s; and bares little resemblance to the economy as recently as the 1990s. Scan these interesting facts reported by BusinessInsider.com:
A list of products no longer made in America includes Gerber baby food, Levi jeans, Mattel Toys, Dell computers, major league baseballs, dress shirts, vending machines, incandescent light bulbs, televisions, canned sardines, ordinary silverware and dress shirts.
These lost jobs are NEVER coming back. The American economy has fundamentally shifted, and it will never go back to the way it was. Clocks don’t run backward.
In 1910 90% of Americans were working in agriculture. By 1970 that proportion had dropped to 10%. Had American policy in the last century remained fixated on protecting farming jobs the country would have failed. Only by shifting to industrialization (manufacturing) was America able to continue its growth – and create all those new industrial jobs. Now American policy has to shift again if it wants to start creating new jobs. We have to create information-era jobs.
But government programs applied the last 12 years were all retreaded industrial era ideas (implemented by Boomer-era leaders educated in those programs.) They were intended to grow industrial jobs by spurring supply and demand for “things.” Lower interest rates were intended to increase manufacturing investment and generate more supply at lower cost. These jobs were expected to create more service jobs (retailers, schools, plumbers, etc.) supporting the manufacturing worker. But today, supply isn’t coming from America. Nobody is going to build a manufacturing plant in America when gobs of capacity is shuttered and available, and costs are dramatically lower elsewhere with plentiful skill supply. We can keep GM and Chrysler on life support, but there is no way these companies will grow jobs in face of a global competitive onslaught with very good products, new innovations and lower cost. Cheap interest rates make little difference – no matter what the cost to taxpayers.
Other old-school programs focused on increasing demand. TARP, cheap consumer lending, tax cuts, rebates and subsidies were intended to encourage people to buy more stuff. Consumers were expected to take advantage of the increased supply and spend the cash, thus reviving the economy. But today, many people are busy paying down debt or saving for retirement. Further, even when they do spend money the goods simply aren’t made in America. If consumers (including businesses) buy 10 Dell computers or 20 uniform shirts it creates no new American jobs. Spurring demand doesn’t matter when “things” are made elsewhere. In fact, it benefits the offshore economies of China and other manufacturing centers more than the USA!
If this new crop of politicians, and the President, want to keep their jobs in the next election they had better face facts. The American economy has shifted – and it will take very different policies to revive it. New American jobs will not be created by thinking we’ll will make jeans, baby food or baseballs, so applying old approaches and focusing on increasing supply and demand will not work. America is no longer an industrial economy.
The jobs at Dell are engineering, design and managerial. Hiring organizations like Google, Apple, Cisco and Tesla are adding workers to generate, analyze, interpret and gain insight from information. Jobs today are based upon brain work, not brawn. An old American folk song told the story about John Henry’s inability to keep up with the automated stake driving machine – and showed all Americans that the industrial era made conventional, uneducated hand-labor of little value. Now, computers, networks and analytics are making the value of manufacturing work low value. Because we are in an information economy, rather than an industrial one, pursuing growth of industrial jobs today is as misguided as trying to preserve manual labor and farm jobs was in the 1960s and 1970s.
Directionally, American politicians need to implement programs that will create the kind of jobs that are valuable, and likely, in America. Incenting education, to improve the skills necessary to be productive in this economy, is fairly obvious. Instead of cutting education benefits, raise them to remain a world leader in secondary education and produce a highly qualified workforce of knowledge workers. Support universities struggling in the face of dwindling state tax funds. Subsidize masters and PhD candidates who can create new products and lead companies into new directions, and do things to encourage their hiring by American companies.
Investments in R&D and product development are likewise obvious. America’s growth companies are driving innovation; bringing forward world-demanded products like digital music, on-line publications, global networks, real-time feedback on ad links, ways to purify water – and in the future trains, planes and automobiles that need no fossil fuels or drivers (just to throw out a not-unlikely scenario.) For every dollar thrown at GM trying to keep lower-skilled manufacturing jobs alive there would be a 10x gain if those dollars were spent on information era jobs in innovation. America doesn’t need to preserve jobs for high school graduates, it must create jobs for the millions of college grads (and post-graduate degree holders) working today as waiters and grocery cashiers. Providing incentives for angel investing, venture capital and other innovation investment will have a rapid, immediate impact on job creation in everything from IT to biotech, nanotech, remote education and electric cars.
A stalled economy is a horrible thing. Economies, like companies, thrive on growth! Everyone hurts when tax receipts stall, government spending rises and homes go down in value while inflationary fears grow. And Americans keep saying they want politicians to “fix it.” But the “fix” requires thinking about the American economy differently, and realizing that programs designed to preserve/promote the old industrial economy – by saving banks that invest in property, plant and equipment, or manufacturers that have no money for new product development – will NOT get the job done. It’s going to take a different approach to drive economic growth and job creation in America, now that the shift has occurred. And the sooner politicians understand this, the better!
Traditional news formats – such as magazines and newspapers – are faltering
On-line editions of traditional formats are not faring well
Important journalists are transitioning to blogger roles to better provide news consumers what they want
Important journalists from Newsweek and the New York Times have joined HuffingtonPost.com as bloggers
Forbes.com is transitioning from traditional publishing to bloggers in its effort to meet market needs
The new era of journalism will be nothing like the last
In early 2006, before it completed the leveraged buyout (LBO) that added piles of debt onto Tribune Corporation I was talking with several former Chicago Tribune executives who had been placed in senior positions at the acquired Los Angeles Times. Their challenge was figuring out how they would ever improve cash flow enough to justify the huge premium paid for the newspaper. Unfortunately, 90% or more of their energy was focused on cost cutting and outsourcing, with almost none looking at revenue generation.
In the face of a declining subscriber base, intense competitiion from smaller, targeted newspapers in the area, and a lousy ad market I asked both the publisher and the General Manager what they were going to do to drive revenue growth. They, quite literally, had no ideas. There was a fledgling effort, dramatically underfunded for the scale of the country’s largest local newspaper, to post part of the LATimes content on-line. But the entire team was only 30 people, they were restricted to re-treading newspaper content, and mostly they focused on local sports reports (pages which drew the largest number of hits). About a third of the staff were technical folks (IT), and half were sales – leaving very few bodies (or brains) to put energy into making a really world-class news environment worthy of the LATimes.com name. The group head was trying to find internet ad buyers who would pay a premium to be on a well-named but woefully content-weak web-site.
Lacking any plans to drive growth, in old or new markets, it was no surprise that lay-offs and draconian cost cutting continued. Several floors in the famous newspaper building right in downtown Los Angeles, like the Tribune Tower in Chicago, became empty. By 2008 as much of the building was used as a movie set as used by editors or reporters! Eventually Tribune Corp. filed bankruptcy – where it has remained going on 3 years now.
When asked if the newspaper would consider adding bloggers to the on-line journal, the entire management team was horrified. “Bloggers are not journalists,” was the first concern, “so quality would be unacceptable. You cannot expect a major journalistic enterprise to consider blogging to have any correlation with professional journalism.” I asked what they thought about the then-fledgling HuffingtonPost.com, to which they retorted “that is not a legitimate news company. The product is not comparable to our newspaper. It has nothing to do with the business we’re in.” And with that simple attack, the executives promptly dismissed the fledgling, fringe competition.
How things have changed in news publishing. Four years later newspapers are dramatically smaller, in both ad dollars and staff. Many major journals – magazines as well as newspapers – have discontinued print editions as subscriptions have declined. Print formats (physical size) are substantially smaller. While millions of internet news sites attract readers hourly, print readership has only gone down. Major journals, unable to maintain their cash flow, have been acquired at low prices by newcomers hopeful of developing a new business model, and many well known and formerly influential news journalists have been laid off, or moved to on-line environments in order to maintain employment.
Today people want not only sterile reporting, but some insight. “What does this mean? Why do you think this happened? Is this event important, or not, longer term? What am I supposed to do with this information?” People want some analysis, as well as news. And readers want the input NOW – immediately – not at some later time that meets an arbitrary news cycle. Increasingly news consumers want Bill O’Reilly or Keith Olberman (depending upon your point of view) rather than Walter Cronkite – and they’d like that input as soon as possible.
Bloggers provide this insight. They provide not only information, but make some sense of it. They utlize past experience and insight to bring together relevant, if disparate, facts coupled with some ideas as to what it means. Where 4 year ago publishers scoffed at HuffingtonPost.com, nobody is scoffing any longer.
And it’s with great pleasure, and a pretty hefty dose of humility, that I’ve become a blogger at Forbes.com (http://blogs.forbes.com/adamhartung/). Hand it to the publisher and editors at Forbes that they are moving Forbes.com from an on-line magazine to a bi-directional, real-time site for information and insight to the world of business and economic news. Writers aren’t limited to a set schedule, a set word length or even set topics. Readers will now be able to visit Forbes.com 24×7 and acquire up-to-the-minute news and insight on relevant topics.
Forbes.com is transitioning to be much more like HuffingtonPost.com – a change that aligns with the market shift. For readers, employees and advertisers this is a very, very good thing. Because nobody wants the end of journalism – just a transition to the market needs of 2010. I look forward to joining you at Forbes.com blogs, and hearing your comments to my take on business and economic news.
Your view of today will be determined by your future success
Conventional wisdom – often called “best practices” – will lead businesses to cut costs in today’s economy, leading to a vicious cycle of reductions and value destruction. “Best Practice” application does not improve results
Winning companies don’t focus on past behavior, but instead seek out new markets where they can grow – Apple, Google, Virgin, etc.
To paraphrase Charles Dickens (A Tale of Two Cities) are these “the best of times” or “the worst of times?” Few new jobs are being created in the USA, its hard to obtain credit if you’re a borrower, but there’s very little return to saving, the stock market has been sideways for a decade, asset values (in particular real estate) have plummeted while health care costs are skyrocketing. Look in the rear view mirror at the last decade and you could say it is the worst of times.
But the answer doesn’t lie in the rear view mirror – the answer lies in the future. If you succeed in the next 2 years at achieving your goals, you’ll look back and say this was the best of times.
In “Do You Have the Postrecession Blues” at Harvard Business Review blogs the author tells of two shoe salespeople that show up in a remote African village. The first sends back the message “No one here wears shoes, will return shortly.” The second sends the message “No one here wears shoes, send inventory!”
The history of business education has been to teach managers, usually by studying historical case experiences, the “best practices” employed by previous managers. But BPlans.com tells us in an article headlined “The Bad News About Best Practices” that this is a lousy way to make decisions. “..most of the time, they won’t work for you or me. They worked for somebody, some time, in some situation, in the past.”
The New York Times deals with fallacious best practices recommendations in “From Good to Great… to Below Average.” Best selling Freakonomics author Steven Levitt points out that most business authors try to push somebody else’s Success Formula as the road to success. However, the most popular of these are really very inapplicable. Those held up as “the best practice” have most often ended up with quite poor results. So why should someone else follow them? Nine of eleven of Collins’ “great” companies did worse than average!
Best practices has led businesses to cut heads, slash costs, sell assets and in general weaken their businesses the last few years. Most leaders would prefer to believe that they have somehow improved the business by eliminating workers, the skills they bring and the function they perform. But the result is less marketing, sales, R&D, etc. How this ever became “best practice” is now a very good question. What company can you think about that “saved its way to success?” The cost cutters I think about – Sears, Scott Paper, Fannie Mae Candies, etc. – ended up a lot worse for their efforts.
These can be the best of times. Just ask the people at Apple Cisco Systems, Virgin and Google. These businesses are growing as if there’s no recession. Instead of “focusing on their core” business with defend & extend efforts to cut costs, they are entering new markets. They are going to where growth is. Amidst all the cost-cutting, best practice applying grief these are examples of success.
So will you continue to operate as if these are the worst of times, are are you willing to make these the best of times? You can grow if you use scenarios and competitor analysis to find new markets, embrace disruptions to attack Lock-ins that block innovation, and implement White Space teams that learn how to develop new markets for revenue and profit growth.
Postscript – entire Dickens’ quote: It was the best of times, it was the worst of times, it was the age of
wisdom, it was the age of foolishness, it was the epoch of belief, it
was the epoch of incredulity, it was the season of Light, it was the
season of Darkness, it was the spring of hope, it was the winter of
despair, we had everything before us, we had nothing before us, we were
all going direct to heaven, we were all going direct the other way – in
short, the period was so far like the present period, that some of its
noisiest authorities insisted on its being received, for good or for
evil, in the superlative degree of comparison only.
Post-postcript – I am trying a new format for the blog. Please provide your feedback. I’m dropping the bold enhancements, and replacing their intent with an introductory summary. Let me know if you like this better. And thanks to reader Jon Wolf for his specific recommendations for improvement.
Did you ever carve into a tree, then return to look at the carving years later? If you did, you would have seen that the carving is the same distance from the ground. The tree grew from the outside, from its branches, not from the bottom. The roots and trunk feed the growth, which occurs where the tree meets the environment – growing toward the sun for photosynthetic feeding.
Too many organizations, however, try to grow from the bottom rather than from the branches. Instead of looking to the environment for growth, they look inside. Instead of seeing the roots and trunk as sources of water and minerals (resources for growth) the strategists and leaders spend most of their time thinking about how to protect, or even grow, the "core" source of the tree. Far too little time is spent thinking about the environment and how to push resources where greatest growth can occur.
In a recent Harvard Business Review web posting "The Strategic Imperative Not to Hire Anybody" the author points out that many CEOs are now desirous of growth. But their approach is very flawed. They are enamored with all the headcount reductions of the last few years, and want to grow revenues without adding any additional resources. They are impressed that they grew profits by cutting employees, and now want to grow revenues and profits without any new ones. They "saved the core" by pruning branches, and expect the growth to rematerialize easily.
Discussing how these CEOs came to such a surprising position, that they should be able to grow without adding new resources, the author Walter Kiechel points out that most strategy in corporations has little to do with understanding new markets, new needs – new sunlight. Instead, strategists have been trained in how to improve the efficiency of the root system and trunk supply chain. Their focus has been on optimizing what exists, cutting resources, improving efficiency. What passes for strategy today has little to do with finding new sunlight, and competing effectively with other plants to get it. Instead, strategy is almost all internal analysis to improve how the existing tree maximizes its use of the dirt. How the tree will re-bark the old carving, and sustain its old position. Even ignoring other ground plants that are leaching away minerals and moisture, and other rapidly growing trees that are interfering with sunlight – each year coming closer to the original tree and making it impossible to find sun where it used to be plentiful.
Bloomberg-BusinessWeek makes note of this phenomenon discussing the problems at Goldman Sachs in "Goldman Sachs: Failure of Innovation." Author Rick Wartzman points out that within Goldman, and almost all other banks, the very smart MBAs from Harvard, Stanford, Columbia, Wharton and elsewhere really weren't developing products which would help the banks grow. They weren't developing new financing or investing opportunities that would generate economic growth. Instead, an internal focus led them to develop collateralized debt obligations (CDOs) which had only the intent of reducing risk and increasing return for the existing business. These were defensive, protective products intended to Defend & Extend the old products – not create anything new. Goldman wasn't creating economic growth for its clients, or itself, with CDOs. They were implementing classic D&E behavior – trying to protect the trunk.
Growth happens from the branches. On the edge of the business, where it meets the environment. Growth happens when we focus on how to competitively acquire more sunlight, and use that to maximize the value of our resources. An efficient resource delivery system is helpful, but continued optimizing of that system does not create growth. Unless there is a robust method of identifying new markets, and pushing resources toward those, you simply cannot grow. What strategists need to do is spend a lot more time thinking about markets and competitors if they want to create growth – and a lot less time thinking about how to optimize the "core." If the bankers at Goldman, Bank of America, Merrill Lynch, Citibank, etc. had done that we would have a far more robust economy now. And if leaders want to start growing in 2010 and 2011 they need to change the focus of their strategy group – and figure out how to put new resources into growth areas of the environment!
Recently SeekingAlpha.com ran the article "Time for Tivo to say Ta Ta." The author (a professor) took the point of view that Tivo had filled a need, but now there were ample new options – such as on-line downloads – making Tivo obsolete. As a result, the company should fold up its tent and let the employees move on.
I was struck, because the good professor did not seem to think it might be possible for Tivo to change its business model and move into the other growing opportunities while simultaneously maintaining the traditional Tivo set-top business until the market figures out what customers really want. That sort of predicting future markets is dangerous for 2 reasons:
the inherent assumption that Tivo can be in only one market is flawed. There is nothing stopping Tivo from participating in the marketplace robustly with mutliple solution offerings. It can even cannibalize its own "base" revenues if the market shifts into other solutions. Tivo could remain top of the market – regardless of what solution dominates
predicting future markets is a fools game. The good professor may guess some of these futurist positions right, but he's sure to get many wrong. Any business that bets its product development or investments on future predictions is destined to eventually get it wrong – and possibly destroy itself. Good leaders use scenarios to realize there are multiple possibilities, and then participate in several of them in order to be assured of growth.
Fast Company points out in "Avoiding Corporate Death Spirals in a Sea of Change" that all companies hoping to remain long-lived MUST learn to transition with shifting markets. The article parallels this blog in discussing failures at Blockbuster Video, Silicon Graphics, Digital Equipment – and more recently dramatic share declines in Palm. All are attributed to management Lock-in on early wins, then trying to Defend & Extend the early Success Formula too long. Market transitions killed them. The article goes on to point out that Cisco Systems, a company held up as an example of Phoenix Principle Management here, has succeeded and grown principally because it has learned how to adjust to market shifts.
No company needs to give up. But all companies that want to survive HAVE to learn to manage market transitions. There is no other choice. Shift happens.
Did you ever notice how often a large company will introduce a new solution (often a new technology), but then retrench from promoting it? Frequently, the market is developed by an alternate company that captures most of the value. We can see that behavior looking at smartphones.
In 2008, three early leaders were Microsoft, RIM and Palm. But Microsoft chose to invest in Defending & Extending its PC software business – with updates to the operating system in Vista and OS 7. As the market has shifted toward mobile computing, Microsoft has been clobbered. But largely because it remained stuck trying to protect its "core" while the market shifted away. Palm also tried to Defend & Extend its early position with updates, but because it did not follow the pathway to greater usage with new applications it also has seen dramatic share decline.
Meanwhile, RIM has promoted new uses within the corporate world for mobility, and thus grown its market share. And Apple has made a huge impact by bringing forward dozens of new mobile applications, closely followed by Google. What we see is a classic example of the early entrant fading largely because they decided to Defend the old market, rather than investing in the new one. Really too bad for shareholders in Microsoft (losing 20 share points) and Palm (losing 10 share points), while good for shareholders of RIM, Apple and Google.
And in Apple's case we can see that the company continues using White Space to grow revenues by expanding the new marketplace. The iPad is off to a very strong start, with tens of thousands of units ordered last week. But of greater importance is how Apple is promoting the shift to mobile devices from traditional PC devices. At SeekingAlpha.com, in "How the iPad, Slates Will Evolve the Next Two Years," the reporter projects how demand for all laptop products will decline as more capability and functionality is added to mobile devices like smartphones and these new slate products.
Microsoft can keep trying to Defend & Extend PC technology, but it won't be long before their efforts largely won't matter. Don't forget that once Cray computers was a rapidly growing super-computer company. But increasing performance from much alternative products eventually made Cray irrelevant. Same for Silicon Graphics and Sun Microsystems.
Today the market capitalization of Microsoft is about $250B, about 4x sales. Apple's market cap is just over $200B, about 6x sales. Google's market cap is about $180B, about 8x sales. All reflect investor expectations about future growth. The D&E company is simply not expected to grow – and in fact is much more likely to disappoint than the companies growing share in growing markets toward which customers are shifting.
And any company can choose to participate in growth, versus Defend & Extend. While Tribune Corporation is trying to find a way out of bankruptcy, and struggling to figure out how to deal with market shifts away from newspapers, Hearst is taking positive action. The Wall Street Journal reports in "Hearst Jumps Into the Apps Business" how the old-line newspaper company has set up a White Space project, complete with dedicated people and its own funding, to begin developing mobile applications for news!
Even when business leaders see a market shift, far too many choose to Defend & Extend the "core." Unfortunately, that leads to disappointments. Keep in mind Microsoft and its rapid loss of Smartphone share as users move increasingly to mobile devices from PCs. To succeed leaders need to drive their organizations in the direction of market shifts, and growth. Like Apple, Google and even Hearst.
Guy Kawasaki contacted me a couple of weeks ago, asking me to write a short piece for him. I was happy to do so, and he published it at the BusinessInsider.com War Room as "10 Ways to Stay Ahead of the Competition." Fortunately for me, the article was also picked up at IBMOpenForum.com with the alternate title "How to Stay Ahead of the Competition." Full explanations of each bullet are at both locations (although the graphics are outstanding at Business Insider so I prefer it.)
Develop future scenarios
Obsess about competitors
Study fringe competitors
Attack your Lock-ins
Don't ask customers for insight
Avoid Cost Cutting
Do lots of testing
Acquire outside input
Blog followers know that this program has now worked for many companies who want to grow in this recession. The reason it works is because
You focus on the market, not yourself
You avoid Lock-in blindness by avoiding an over-focus on existing products, services and customers
You use outside input, from advisers and competitors to identify market shifts that can really hurt you
You put a competitive edge into everything you do. Competitors kill your returns, not yourself.
You use market feedback rather than internal analysis guide resource allocation
Of course this works. How can it not? When you are obsessed about markets and competitors and you let it direct your flow of money and talent you'll constantly be positioned to do what the market values. You'll have your eyes on the horizon, and not the rear view mirror.
The biggest objection is always my comment about "don't ask customers for insight." So many people have been indoctrinated into "always ask the customer" and "the customer is always right" that they can't imagine not asking customers what you ought to do. Even though the evidence is overwhelming that customer feedback is usually wrong, and more likely destructive than beneficial.
Just remember, IBMs best customers (data center managers) told them the PC was a stupid product, and IBM dropped the product line 6 years after inventing the PC business. DEC's customers kept asking for more bells and whistles on their CAD/CAM systems, then dropped DEC altogether for AutoCad ending the company. GM customers kept asking for bigger, faster more comfortable cars – improvements on previous models – then moved to imports with different designs, better gas mileage and better fit/finish. Circuit City customers asked for more in-store assistance, then took the assistance across the street to buy from cheaper Best Buy stores. The stories are legend of failed companies who delivered what the customer wanted, and ended up out of business.
Enjoy the links, and thanks to Guy for publishing this short piece. Follow these 10 steps and any business can stay ahead of the competition.
Every day it seems someone tells me they "are looking forward to an improved economy." When I ask "Why?" they give me a horrified look like I must be stupid. "Because I want my business to improve" is the most frequent answer. To which I ask "What makes you think an improved economy will help you?"
This recession/depression is the result of several market shifts.What people/businesses want, and how they want it, has changed. They no longer are willing to part for hard earned (and often saved) dollars for the same solutions they once purchased. They want advances in technology, manufacturing processes, communications and all aspects of business to give them different solutions. Until that comes along, they are willing to put money in the bank and simply wait.
Take for example restaurants. Many owners and operators are complaining business was horrid in 2009, and still far from the way it was years ago. And regularly we hear it is due to "the recession. People fear they'll lose their jobs, so they don't eat out as often." Nicely said. Sounds logical. Makes for a convenient excuse for lousy results.
Only it's wrong.
In "Dinner out Declines: Economy Not Sole Factor" MediaPost.com does a great overview of the fact that dining out started declining in 2001, and has steadily been on a downward trend. Across all age groups, eating out is simply less interesting – at least at current prices. When the recession came along, it simply accelerated an existing trend. Increasingly, people were less satisfied with cookie-cutter, similar establishments that had similar food (almost all of which was prepared somewhere else and merely heated and combined in the restaurant) and exorbitant drink prices. For years restaurant prices had outpaced inflation, and simultaneously family changes – along with the growth of better prepared foods at grocers and specialty markets – was enticing people to eat at home.
This is true across almost all industries. A revived economy will not increase demand for land-line phone service. Nor for large V-8 American autos costing $60,000. Nor for newspapers, or magazines – or even books most likely. Or for oversized homes that cost too much to heat and cool. In fact, it was the trend away from these products which caused the recession. People simply had all of these things they wanted, so they stopped buying. Fearful of economic change, they simply accelerated a trend brought on by shifts in technology and underlying ways of doing things. When we once again talk about better economic growth in America it will not drive people to these purchases. Rather, people will be buying different things.
For the recession to go away requires a change in inputs. Providers have to start giving buyers what they want. They have to understand market needs, and give solutions which entice people to part with their money. Waiting for "the economy" will make no difference. Government stimulus can go on forever, but it won't create growth. It can't. Only new products and services that fulfill needs create growth. That will cause spending (demand), which generates the requirement for supply.
There are companies that had a great 2009. Google, Apple and Amazon are popular names. Why? Not just because they are somehow "tech" or "internet" companies. 2009 saw the demise of Sun Microsystems and Silicon Graphics, for example. The difference is these companies are studying the market, looking to the future and introducing new products and services which meet market needs. Because of this, they are growing. They are doing their part to revitalize the economy. Not with stimulus, but with products that excite people to part with their cash.
Those who are waiting on the economy to improve are destined to find a rough road. An improving economy will be full of new competitors with new solutions who did not wait. To be a winner businesses today must be bringing forward new products and services that meet today's needs – not yesterday's. And if we start getting winners then we will climb out of this economic foxhole.