by Adam Hartung | Feb 11, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
One striking characteristic of Defend & Extend Management is that leadership, and often everyone else, becomes very willing to expect everything to work out eventually. Regardless of the signals. D&E leaders tend to be just like the characters in the 1913 novel by Eleanor Porter (read more about Pollyanna here) – always optimistic and always rewarded for their optimism.
Last Sunday the Chicago Tribune published an article about the major companies in Chicago that have either failed, or done poorly, in the last decade (read article here). The list of problems was pretty dramatic – Motorola, Sears, Sara Lee, Ameritech (gone, now SBC), First Chicago (gone, now JPMorganChase), Amoco (gone, now BP), Tribune (almost gone – in a highly leverage buyout), Quaker Oats (gone). Not to mention that Chicago real estate barely participated in the great real estate run-up the last 7 years – largely because netting job losses versus job gains the employment base hasn’t grown! No, Chicago isn’t finding real estate falling like Las Vegas, but it never came close to going up like Las Vegas (or Miami, or Walnut Creek, or Phoenix) either.
Yet, those interviewed in the article were completely "Pollyanneish" (how does a noun become an adverb?) A former Chicago executive virtually admitted there was little innovation in Chicago – and qualified himself by saying that Chicago innovation was more "adaptation." Ugh, let’s get real folks. In other markets people are creating breakthroughs and that is drawing the most talented people – and that is driving up real estate values. Meanwhile, Chicago accepted an out-of-town carpetbagger in Ed Lampert who destroyed Sears. And Motorola, once a national leader in innovation has seen its invention of cell phones lost to other competitors as the company now considers exiting the business!
I’m a midwestern guy, and I LOVE Chicago. To me, its a great place to live and work. But that’s what people say in Detroit, Cleveland, St. Louis and Tulsa also. Who cares? If you can’t create new businesses, and new jobs, and revenue growth it doesn’t matter. Let’s face it, Chicago spent nearly 10 days without breaking above freezing in one stretch this January, and Chicago just spent the first few days of February under snow and another 0 degree frigid blast. No one moves to Chicago for the weather! Or the theater. Or the symphony. Or the political influence.
GROWTH is all that matters. People love Paris, London and Rome. But only the wealthy idle look to move there. Today, property values for business and homes in Mumbai (formerly Bombay), Chenai (fomerly Madras) and Bangalore exceed Chicago. Go to these cities and you see employment growing 20% per year! People want to be in these places. Yes, the weather is hot. Often humid. And the roads are aweful. But that is where the action is. People there are defining the new future – the new global economy. Is that happening in Chicago?
Chicago has a great past. But who cares? If Chicago can’t compete on the world stage with Shanghai, Hyderabad and Buenas Aries for investment and growth it doesn’t matter. Chicago can quickly become the next large, boring, cold city. Not even Al Capone could slow Chicago when it had the stockyards, the steelmills and the reputation as "the city that works." But if Chicago doesn’t wake up and start making itself a leader we risk becoming just another big city on a nice fresh water lake. And the midwestern youth will fly to the east coast, west coast, China, South America, or India to find opportunity for riches.
by Adam Hartung | Feb 5, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle
On Friday Microsoft (see chart here) announced an offer to buy Yahoo! (see chart here) – [read articles on acquisition offer at Chicago Tribune here and Marketwatch here]. The world’s largest software company admitted it fears Google, and to play catch-up in on-line ad revenue it has decided to buy Yahoo! Because of its huge cash hoard, if Microsoft wants Yahoo! it will get it. And Yahoo! will add revenue to Microsoft. So Microsoft will exchange cash for new revenue, and ostensibly growth. Is this a good thing?
Microsoft almost missed the internet market entirely. Wedded to its desktop software sales, Microsoft was not an early participant in the internet. Then, Bill Gates realized that "owning" the desktop was not enough as users become interconnected. Quick as a whip he reached out to Spyglass, one of the commercial applications of the Mosaic web browser from the National Supercomputing Center in Illinois, and got a license for what became Internet Explorer. Whew! Microsoft avoided being swept by upcomer Netscape and stayed in the personal computer game.
But, Microsoft customers and investors should be worried. It wasn’t Disruption and White Space that led to Microsoft’s decision to launch IE. And now, a decade and a half later, Microsoft again has not used Disruptions and White Space to develop its next market move. Instead, it is hoping an acquisition can save the company from missing the next big move in the Information Economy. Twice Microsoft has reached into its cash horde to save itself – and this time it has made the move much, much later than it did the first time. Google is far out in front, and what Microsoft brings to Yahoo! is unclear. Google is #1 in search engine use (far ahead of Microsoft), and it dominates the ad placement business – more than twice the size of Yahoo! Microsoft may bring cash to Yahoo!, but it is unclear cash is enough to take a front runner position.
Microsoft figured out how to be the most effective competitor for small computer operating systems and personal computer applications. And the company prospered from sprouting White Space teams that figured out how to lead the personal computer movement. But since the internet came along, Microsoft has struggled. Microsoft is Locked-in to its monolithic views the PC world, and with each technology wave the company demonstrates it is unable to foresee a market leading future. The decision to buy Yahoo! is a Defend & Extend move taken to keep from falling farther behind – not the result of an internal Disruption and White Space intended to yield a new Success Formula for Microsoft. It is unlikely that Yahoo! will prosper more greatly under Microsoft ownership. Rather, it is likely that like most Microsoft acquisitions Yahoo! will struggle under the weight of Microsoft Lock-ins which slow growth and retard improved returns.
Microsoft was an incredible pioneer that in competition with Apple Computer changed the face of modern computing. But where Apple has moved on to music downloading, music players and even mobile phones Microsoft keeps trying to capture past glory. In the information economy, this approach has proven a disaster to everyone that has tried applying it. Soon not only will Microsoft be worrying about Linux sales, but how to catch the powerhouse Google with a tired, second position subsidiary Yahoo! This does not bode well for anyone relying on Microsoft long term.
by Adam Hartung | Feb 3, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
Welcome back to my BLOG! I had to take a few weeks away to finalize the book with my publisher (Wharton Press/Prentice Hall) and am now looking forward to its release in May or June! Of course a lot has happened since I last blogged, and I’m looking forward to jumping in with comments on how current businesses can dramatically improve results by applying The Phoenix Principle. Let your friends and colleagues know the blog is back —– and encourage everyone to comment!
After all the positive things I said about Motorola (see chart here) over the last 3 years, it is befitting that my return posting be about this company that is newly belueaguered. Last Friday Motorola executives gave investors, and employees, the impression they intended to break up the company (see article here) – and jettison the cell phone business which Motorola invented! On the face of it, this action appears to indicate Motorola’s executives are ready to through in the towel on reviving Motorola as one of America’s leading technology companies.
When Ed Zander joined Motorola he embarked on a remarkable start. He stopped Defend & Extend practices implemented by the Galvins, focused on finding competitor weaknesses, Disrupted long-held Lock-ins and opened several White Space projects. And there was rapid improvement in ALL Motorola divisions. What went wrong?
The Siren’s song of quick returns from Defend & Extend Management lured even the maverick CEO Ed Zander onto the rocks of disaster. Instead of keeping the focus entirely on the future, Mr. Zander allowed himself, and his company, to start planning from the past. As quickly as July, 2006 – a mere 2 years after starting Motorola’s remarkable transformation – when asked how he intended to keep up company growth he responded with "More Razrs" (see article here). He was willing to rely on extending past success, rather than discovering new solutions that would maintain growth. And this small turn, this willingness to think he could milk a company cow, undid Motorola. It turned out that as he spoke these words, sales of Razr handset phones were peaking and the handset business was entering a precipitous profit slide.
Of course, competitors learned from Motorola, and copied the company. Similar products came to market, and Motorola found itself slashing prices to maintain sales. The company continued to attack competitors, Lock-ins and open White Space in the rest of its businesses (see article here). And those businesses are continuing to do quite well, as revenues and share are rising along with profitability. By focusing on the future, and how to be stronger in set-top boxes, wireless networks and infrastructure products through new products and new ways to compete, those businesses have applied The Phoenix Principle to great success. But these successes weren’t enough to overcome the disaster wrought by the Defend & Extend decision in cellular handsets.
The lure of D&E Management is strong. Executives would like to believe they can live on past successes. They would like to avoid scenario planning, competitor paranoia, the tension of Disrupting Lock-ins and managing White Space. But in today’s global internet economy, they can’t. Competitors can acquire resources too fast, and overcome competitive hurdles too easily. There really is no rest for the weary, and to any executive willing to listen to the Siren’s song of cut costs (Motorola started laying off thousands in 2007 – after Disruptions had created success and leadership began thinking about how to D&E that success) they need to pay close attention to what happened to Ed Zander and his team at Motorola. D&E may sound good, but it doesn’t produce revenue and profit growth that will make a company successful.
by Adam Hartung | Dec 9, 2007 | Defend & Extend, General, In the Rapids, Innovation, Leadership, Lifecycle, Lock-in
I’ve had a lot of discussion this week about Motorola. Readers of this blog know I’ve been a big fan of Motorola, yet here we are today with the company’s value barely higher than it was 4 years ago (see chart here) – and the savior CEO is being replaced.
A Chicago analyst put Motorola’s situation well when he headlined "Big Expectations, Harsh Realities Plague Motorola" (see article here.) The Phoenix Priniciple is all about growth. When growth breaks out, you can’t stockpile it to use some future date. You have to keep growing. Motorola Disrupted 4 years ago, and a slew of White Space projects led to rapid growth. One of those projects was a breakout phone called RAZR – but that was just one. Motorola bought Good, Symbol and brought out several new products in DVRs and 2-way mobile radios. But this wasn’t enough (read full article here.)
Never forget Motorola once was the #1 microprocessor manufacturer – as the brains behind the early Macintosh. Motorola also launched Iridium. Not only was Motorola a huge leader in cell phones, but the company designed and deployed a satellite-based system intended to potentially augment or replace cell phones. Motorola uses White Space. But, unfortunately, when things start working the company also has a penchant to start Defending & Extending that success. Motorola’s Lock-in to infrastructure products meant the company didn’t give up on Iridium early enough. And Motorola Locked-in on analog phones, which they led, moving to digital phones way too late.
Trying to Defend & Extend what works has once again gotten Motorola into trouble. RAZR was a great product. But by focusing on growing share through RAZR, innovation declined. Instead of keeping Disruptions happening, and new White Space projects flourishing, Motorola overly focused (once again, unfortunately) on extending what worked (notice past tense) rather than maintaining innovation and keeping its eyes on the long-term future. Now other mobile handsets are more innovative, and the other markets where Motorola invested are growing – but not fast enough to keep over-all company growth rates out of the Stall Zone.
Motorola’s new CEO needs to do exactly what the company did 4 years ago (see article on new CEO here). Disrupt and open White Space. Motorola is full of innovations – across all its businesses. It needs leadership to Disrupt Lock-ins to hierarchy and sacred cows so that innovation can rapidly come to market. If Motorola instills Disruptions and Lock-in it can repeat past breakout success and return to above average growth. If it returns to The Phoenix Principle, and eschews D&E Management, its future looks very rosy indeed. But the threat of failure looms large if management avoids Disruptions and doesn’t invest in White Space – needed now more than ever at Motorola.
by Adam Hartung | Nov 30, 2007 | Defend & Extend, General, In the Rapids, In the Swamp, Leadership, Lifecycle, Lock-in
Motorola’s on the bubble. Today we learned the CEO is being replaced (read article here).
It’s easy to forget how bad things were at Motorola (see chart here) when Ed Zander took the helm. The company had been laying off thousands, and most analysts were calling for more reductions. Many people wondered if Motorola would survive. But Ed Zander didn’t cut a lot of jobs, instead he opened up a lot of White Space. He altered where Motorola invested, and made many acquisitions in businesses keeping Motorola at the cutting edge of digital television, wireless data and wireless communications. Ed Zander made a lot of Disruptions at Motorola, and he encouraged thinking to move the company forward – rather than trying to find past glory. Some people forget that he was CEO of the Year in the business press 2005.
But he didn’t do enough, fast enough, to leverage fast wins in mobile phones. His White Space project with Apple, for example, didn’t move fast enough or hard enough to be a leader, and ROKR is barely known while iPhone is gadget-of-the-year. Enterprise data applications from Symbol still aren’t even identified with Motorola, despite being a Lotus Notes sort of application. Even though all the Comcast Digital Video Recorders come from Motorola, too many people only know the name TiVo. Lots of great White Space – but not enough results fast enough, as profits from RAZR evaporated.
No rest for the weary is never more true than in growth companies. It’s not important what you did last year, only what you’re doing now. Despite Disruptions and White Space, there weren’t enough results.
Now the press is talking about how the new CEO is from the telephone business – as if going back to previous markets will save Motorola. Do analysts want to go back to thousands of lay-offs and cost reductions? Or should the company go forward, continuing its path into new markets, new applications, new growth opportunities?
When RAZR profits fell, Carl Icahn came calling. This grim reaper investor doesn’t care about Motorola’s long-term health. He wants to suck cash out for himself. If pulling the cash kills the company’s long-term prospects he doesn’t care. He just wants a short-term payoff. And he got Mr. Zander to blink (or maybe Motorola’s Board). New programs slowed, new rollouts slowed, market share efforts stopped as the organization turned to old approaches. Faith in Disruptions and White Space evaporated as Defend & Extend practices returned. And Mr. Zander’s demise became predictable.
Mr. Zander turned around Motorola, lest we not forget. But what will happen next? If the company forgets how it unleashed innovation and returned to growth, things could get a lot worse before getting better. Our biggest regret has to be that Mr. Zander didn’t do a better job of keeping his Board and investors aligned with his programs – and of not pushing his White Space teams to produce more results more quickly. We can hope the new CEO will return to Disruptions and White Space rather than Defend & Extend practices which will push Motorola back to where it was before Ed Zander arrived. Going back to the past may sound comforting, but success is all about the future.
by Adam Hartung | Nov 16, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle
Five newspaper giants are banding together to sell internet ads (see article here). Now that’s creating some White Space to help their businesses grow. Good luck to Tribune, Gannett, Hearst, Media News Group and Cox.
Readers of this blog know I’ve been brutal on Tribune,, in particular for staying Locked-in on newspapers and focusing management on short-term metrics while implementing a leveraged buyout by a real estate developer. That effort looks like a Defend & Extend action trying to salvage a troubled ship called "the newspaper", and shows little hope of success. After all, journalism is about "news", not "paper", and efforts to salvage the oversized document thrown on my doorstep daily can’t be viewed optimistically. When readership is declining as people go elsewhere for news and entertainment, and advertiser spending is dropping at more than 10%/year, it’s not hard to predict the future.
But this new venture is White Space for these companies. Their individual web sites focused on displaying news. Interesting for readers, but what’s the business proposition? These companies have been so Locked-in to old paper-based business practices they didn’t know how to make money from their web sites. But this venture is focusing on the business side of journalism – the ads. And marrying advertisers with the content created and distributed by the journalists. Focusing on the business aspects, and in the extremely high growth internet ad market (just look at Google and Yahoo! to recognize the growth in internet ad sales), this venture has the opportunity to create a new Success Formula these companies can use to turn around their companies – and save their journalistic heritage.
My only disappointment is I see no Disruption to existing Lock-ins. It appears this venture is totally outside the traditional organizations. The risk is that this venture learns how to sell ads, but the 5 investors don’t Disrupt themselves in order to migrate away from old ways and toward the new market. If they don’t migrate, this venture may succeed but the traditional companies most likely won’t. So the White Space is good, but these companies need to go further to Disrupt their existing Lock-ins and create opportunities for rapid adaptation to the marketplace this joint venture develops.
Nonetheless, we have to be encouraged by this venture. Instead of just giving up the market to upstart Google they are finally starting to compete. Let’s hope the venture is given permission to ignore its investors’ old Lock-ins and do whatever the market requires for success — and let’s hope the investors fund this sufficiently so it can grow and succeed. This offers real hope for some very tired Success Formulas in traditional newspapers.
by Adam Hartung | Nov 7, 2007 | Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in
Today GM (see chart here) announced one of the biggest losses in corporate history. Believe it or not, GM announced a third quarter loss of $68.85 per share – double the value of the stock (read article here).
Surely you aren’t surprised. GM has sworn to its Lock-in. The company has refused to set up White Space. Leadership keeps saying it can somehow improve it’s broken Success Formula and thusly turn the company around. They’ve sold assets, including most of GMAC, to raise cash for keeping the broken Success Formula breathing – barely.
But GM has been failing for more than 20 years. Why would anyone think that changing its handling of employee health care costs would improve its competitiveness (a recent much-ballyhooed management action)? Let’s wake up and realize that GM has been going out of business for a very long time, it’s just now that people are seeing the real risk. We’d like to believe in the Myth of Perpetuity – that large companies will simply go on forever. But that’s not true. Montgomery Wards, Polaroid and Wang are just a few examples of companies that were large and once profitable but that disappeared.
When management refuses to accept that it’s Success Formula is failing it dooms the organization. If management refuses to create White Space, and use that White Space to develop new Success Formulas and migrate the organization, it assures failure. EDS, Hughes and Saturn were all projects that had the opportunity to define a new, successful GM. But GM dismantled these projects and sold assets to keep the old Success Formula on life support.
As investors, employees and suppliers if we are surprised it’s our own fault. Size is meaningless in today’s information economy. Companies can fail very fast when customers can move to new solutions with the click of a button. GM may not declare bankruptcy in the next 2 years. But if it does….. will you be surprised?
by Adam Hartung | Oct 23, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
The greatest euphemism in business is "mature." Frequently executives and analysts will describe low growth as "maturing", as if this is OK. Just today CBSMarketwatch (read article here) reported an analyst from Fifth Third Bank said WalMart (chart here) is a mature business — and then goes on to say this is a good thing! Incredibly, he thinks slower growth will lead WalMart to paying more in dividends and buy back more shares raising the stock price as it stops investing in stores.
That’s what we used to call "milking" the business. And we now know that simply doesn’t work. The thinking used to be that the cash flow was sound, due to market domination, so the cash could be paid out. But just look at WalMart. It’s having to spend plenty of money just trying to stay in place as competitors (Target, Kohl’s, JCPenney and others) keep stealing customers and revenues. Last week WalMart cut prices on 15,000 items, which will cost billions of gross margin dollars, in an effort to get customers back into stores for Christmas shopping. And because WalMart growth has slowed dramatically (sales in same stores are up only .8% compared to a year ago – less than inflation) the company is desperate to invest in things like Japanese grocery stores seeking something that will grow. So the money is still flowing out of WalMart in plenty of big ways, without going into the pockets of shareholders. Or employee pockets as they still work without benefits or overtime pay, and sometimes even over breaks – as we learned in a Pennsylvania lawsuit.
Businesses are not genetic material. They have no biological requirement to "mature." And businesses can’t afford to "mature." They have to constantly grow. Without growth, they quickly will be consumed by competitors. If we say WalMart is "mature", that is a very, very bad thing. I agree wtih the UBS analyst who said that WalMart needs a turnaround. But that won’t happen any time soon at Locked-in WalMart. For investors, employees, vendors and customers, the word "mature" is more devastating in business that it even is in life.
by Adam Hartung | Oct 22, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
So readers of this blog know I am no fan of Wal-Mart. The company has yielded no benefits to its investors, employees or major suppliers for almost a dedace (see equity chart here.) Management loves being Locked-in to the outdated Success Formula, even though it does not produce satisfactory growth.
So, given that the last 4 years Wal-Mart has failed to meet expectations for its Christmas season sales you would think it was about time they came up with a new approach, wouldn’t you? And what did they do? According to USAToday (see article here) the company decided to whack prices down on 15,000 additional items. Let’s see, last year they cut prices on 6,000 items and revenue did not meet expectation. So this year the obvious this is to do………….. more of the same, of course. What didn’t work will surely work if the company simply does more of it – right????????? Does this in any way remind you of doctors that believed in blood-letting?
Wal-Mart is so stuck in the Swamp it can’t even think of doing anything new. More of the same is not a strategy. When the tactics become too easy to predict the company becomes too easy for competitors to attack (and make my blog writing too easy.) More of the same is a death sentence when the growth slows. With lower prices Wal-Mart’s revenues and profits will suffer more, not improve. And it’s unlikely this will even benefit consumers very much, since most of them have already said they prefer to shop at Target, Kohl’s, JC Penney and other retailers with better selection and better ambiance.
by Adam Hartung | Sep 7, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
Kraft, the venerable American producer of cheese and other branded foodstuffs, has performed terribly for several years (see chart here.) It’s operating margin is lowest in its peer group, its revenue growth has been nonexistent, and it has sold off valuable, and growing, brands – like Altoids – to fund its outdated Success Formula by Defending such old brands as Velveeta. This last year Kraft was fully spun away from previous owner Altria (the old Phillip Morris), and a new CEO was put in place. But so far, investors and employees have nothing beneficial to show from these changes.
On Tuesday the CEO said she intended to improve the performance at Kraft by setting higher goals, and tying compensation to those goals (read article here). Her plans include incentive compensation ties to profits, cash flow and revenue growth. And she intends to link how much is paid to Kraft’s ad agency to the growth in brand sales. All of this may sound good, but it is unlikely to make any difference.
Any reader of this blog could decide to set a goal of improving their income by 50% this year. And readers could promise that spending on hobbies would be directly linked to growing income. But, would that make any difference? If you go to your boss and tell him your plan he’s likely to say "that’s interesting", but will that help you reach your income goal? Of course not. Changing the goal is not enough. What’s critical is Disrupting the Lock-ins so that it’s possible to find a new Success Formula leading to that goal. For example, to achieve a 50% revenue increase might well require getting additional education – which would likely mean killing the Lock-in to watching weekend football or enjoying evenings out with a spouse. Or it might mean changing employers and careers, which could entail killing the Lock-in to a short commute, or to the corner office acquired over time, or even to the company 401K or pension plan. Those Lock-ins stand in the way of Disrupting yourself, and that’s what really stands in the way of achieving higher goals.
CEO Rosenfield at Kraft has not created any Disruptions. Nor has she set up any White Space. Quite to the contrary, she is proposing to cut headcount – a typical business disturbance that increases Lock-in by reducing resources. She has complained about rising costs of the grains and other raw materials going into Kraft products, but has done nothing to create White Space which would address this issue – thus leaving declining margins at the ongoing mercy of those outside Kraft. She keeps trying to incrementally improve the Kraft Success Formula, which is obviously woefully out of date and thus producing insufficient returns.
Setting new goals and linking compensation to goals is a nice thing to do. But it is meaningless unless Disruptions are implemented that create White Space where new Success Formulas can be created that will result in achieving higher goals. Tweaking the model by cutting heads, and blaming outside cost factors, only serves to keep the Success Formula Locked-in. Unfortunately for investors and employees, Kraft’s new goals will make no difference unless the CEO starts attacking the Lock-ins that are keeping Kraft results below average.
