by Adam Hartung | Sep 23, 2010 | Current Affairs, In the Rapids, Leadership, Openness, Travel
Summary:
- Most people misunderstand the way toward building a valuable company
- Richard Branson has developed massive wealth by finding and entering growth markets
- Success comes from developing new solutions that fulfill unmet needs – not maximizing performance of core capabilities
- Virgin is now moving into luxury hotels, a market being ignored by most investors, with new products that fit still unmet needs
Very few people are as wealthy as Richard Branson. But few people can manage like he does.
Branson started out selling records via mail-order in Britain. Over the years he got into retailing, international airlines, domestic airlines, mobile telephony, international lending (amongst other businesses) – and now his company is investing $500milion in hotels and hotel management. According to Bloomberg.com “Branson’s Virgin Group to Invest $500million in Hotels.”
Despite all we hear about how impossible it is to be an entrepreneur in Europe, Sir Branson has done quite well, building a wildly successful, profitable company. Although he didn’t follow conventional wisdom. Instead of “sticking to his core” Sir Branson has built a company that invests in opportunities which are highly profitable – regardless of the industry or market. He doesn’t grow by doing more of the same better, faster or cheaper. Instead, he takes advantage of shifting markets – getting into businesses with opportunities and exiting those that don’t earn high rates of return.
During last decade’s building boom there were a lot of high-end hotels built. Now, with the economy not growing, excess capacity has made it difficult for these to cover the mortgage. Bankers don’t want to refinance – they want out of the buildings. Occupancy has been so low that many traditional name brands, such as Ritz Carlton or Intercontinental, have been forced to abandon properties. As a result, several hotels have closed, and the property offered for sale at a fraction of original construction cost. With most investors shying away from all things real estate, prices have plummeted. Some hotels, nearly new, have sold for the value of underlying land.
And now Virgin enters the market. Although Virgin has no background in real estate or hotel management, it is clear that there is demand for luxury goods and luxury travel — if someone can make it attractive and affordable. By purchasing premier properties at a fraction (literally 10-25% of their initial cost) Virgin will be able to offer hotel guests a superior experience at an attractive price! Management sees an unmet need by high-income, well educated “creative class” customers. By getting into the market Virgin will learn, just as it did in airlines, how to meet customer expectations in a way that allows for highly profitable delivery when meeting a currently unmet need.
While some would say that if the current competitors, steeped in experience and tradition, can’t succeed Virgin should not think it can. But a Virgin executive rightly says “If you look at Virgin’s history, we have come into markets with big powerful players, where customers are generally satisfied but not in love, and we have been able to cut through that.” Well said. Virgin doesn’t do what competitors do – it develops a solution that locks competitors into their position while positioning Virgin to meet the untapped market.
Even though this opportunity is available to everyone, almost no companies are interested in buying these undervalued hotels. “It’s not our business.” “We don’t know how to operate hotels.” “We don’t invest in real estate.” “I’m too busy taking care of my current business to consider something new.” “What if we’re wrong?” These are all things people say to stop themselves from taking action to enter new opportunities with high rates of return. The magic of Virgin is its willingness to overcome Lock-in to its existing business, look for market opportunities, and then (as Nike advertises) Do It!
by Adam Hartung | Sep 22, 2010 | Current Affairs, Defend & Extend, Film, In the Whirlpool, Leadership, Lifecycle, Lock-in, Music, Web/Tech
Summary:
- Video retailer Blockbuster (and competitor Hollywood Video) are now bankrupt
- Video rentals/sales are at an all time high – but via digital downloads not DVDs
- Nokia, once the cell phone industry leader, is in deep trouble and risk of failure
- Yet mobile use (calls, texts, internet access, email) is at an all time high
- These companies are victims of locking-in to old business models, and missing a market shift
- Commitment to defending your old business can cause failure, even when participating in high growth markets, if you don’t anticipate, embrace and participate in market shifts
- Lock-in is deadly. It can cause you to ignore a market shift.
According to YahooNews, “Blockbuster Video to File Chapter 11.” In February, Movie Gallery – the owner of primary in-kind competitor Hollywood Video – filed for bankruptcy. It’s now decided to liquidate.
The cause is market shift. Netflix made it possible to rent DVDs without the cost of a store – as has the kiosk competitor Red Box. But everyone knows that is just a stopgap, because Netflix and Hulu are leading us all toward a future where there is no physical product at all. We’ll download the things we want to watch. The market is shifting from physical items – video cassettes then DVDs – to downloads. And both Blockbuster and Hollywood Video missed the shift.
Blockbuster (or Hollywood) could have gotten into on-line renting, or kiosks, like its competition. It even could have used profits to be an early developer of downloadable movies. Nothing stopped Blockbuster from investing in YouTube. Except it’s commitment to its Success Formula – as a brick-and-mortar retailer that rented or sold physically reproduced entertainment. Lock-in. And for that commitment to its historical Success Formula the investors now will get a great big goose egg – and employees will get to be laid off – and the thousands of landlords will be left in the lurch, unprepared.
As predictable as Blockbuster was, we can be equally sure about the future of former powerhouse Nokia. Details are provided in the BusinessWeek.com article “How Nokia Fell from Grace.” As the cell phone business exploded in the 1990s Nokia was a big winner. Revenues grew fivefold between 1996 and 2001 as people around the globe gobbled up the new devices. Another example of the fact that when you enter a high growth market you don’t have to be good – just in the right market at the right time.
But the cell phone business has become the mobile device business. And Nokia didn’t anticipate, prepare for or participate in the market shift. From market dominance, it has become an also-ran. The article author blames the failure, and decline, on complacent management. Weak explanation. You can be sure the leadership and management at Nokia was doing all it possibly could to Defend & Extend its cell phone business. The problem is that D&E management doesn’t work when customers simply walk away to a new technology. It may take a few years, and government subsidies may extend Nokia’s life even longer, but Nokia has about as much chance of surviving its market shift as Blockbuster did.
When companies stumble management sees the problems. They know results are faltering. But for decades management has been trained to think that the proper response is to “knuckle down, cut costs, defend the current business at all cost.” Yet, there are more movies rented now than ever – and Blockbuster is failing despite enormous market growth. There are more mobile telephony minutes, text messages, remote emails and mobile internet searches than ever in history – yet Nokia is doing remarkably poorly. It’s not a market problem, it’s a problem of Lock-in to a solution that is now outdated. When the old supplier didn’t give the market what it wanted, the customers went elsewhere. And unwillingness to go with them has left these companies in tatters.
These markets are growing, yet the purveyors of old solutions are failing primarily because they stuck to defending their old business too long. They did not embrace the market shift, and cannibalize historical product sales to enter the new, higher growth markets. Because they chose to protect their “core,” they failed. New victims of Lock-in.
by Adam Hartung | Sep 19, 2010 | In the Rapids, Leadership, Openness
Summary:
- Richard Branson has built a wildly successful Virgin company on very unconventional “secrets to success”
- Most business leaders follow management theory than is built on myth
- Virgin has been wildly successful, even over the last decade when many companies have suffered, by being agile and market oriented
- It’s time to throw out traditional management, and its myths, for a different approach.
In my speaking and blogging I regularly comment on what great results have been achieved Virgin under Chairman/CEO Richard Branson. The founder, and the company, both started quite humbly. Even though nobody can easily define exactly what business Virgin is in, it has done very well. So I was pleased to read at BNet.com “Richard Branson: Five Secrets to Business Success“:
- Enjoy what you are doing. Really.
- Create something that stands out
- Create something of which you and your employees are proud
- Be a good leader – which he defines as listen a lot, ask questions, heap the praise. Don’t fire people, help them to be happy
- Be visible. Get out into the market and listen, listen, listen.
I am struck at how this is nothing like the recommendations in most management books. Let’s see what Richard Branson didn’t say:
- Sacrifice. Work hard. Be diligent. Be tough. Cut out anything unnecessary
- Find one thing to be good at and excel – search for excellence
- Know your core competency, and maximize it’s use. Avoid things that aren’t “core”
- Make sure everyone is “on the bus” doing the one thing you want to do. Get rid of anyone else
- EXECUTE! Optimize your business model. Focus on execution
- Cut costs. Run a tight ship. Tighten your belt.
- Focus on results. Run the business by the numbers
- Focus on quality – implement Six Sigma and/or TQM and/or LEAN processes
- Outsource anything you don’t absolutely have to do
- Hire the “right” leaders (or employees)
Business if full of myth. And we now know that many gurus have been recommending actions for years that simply haven’t produce long-term positive results. The companies considered “great” by Jim Collins have fared far more poorly than average. Most of the companies Tom Peters considered “excellent” have not made it to 2010 in good shape – if they even survived! Most of the 10 myths were things that simply sounded good. They appeal to the American way of training. But they haven’t helped those companies which applied these ideas succeed.
Sir Richard Branson has created businesses from selling recordings to bridal shops, international banking, traditional airlines and even a business flying people into outer space. By all the traditional recommendations, he and his company should have failed. It followed none of the recommendations for hiring, firing, focus or execution. Yet he has created billions in personal fortune, billions for investors and given thousand of people very rewarding places to work. By all counts, he and Virgin have been a success.
It’s time to give up our management myths, and learn to compete in today’s rapidly shifting market. It’s now more about listening to the market and managing an agile organization than “focusing on core” or “execution.”
by Adam Hartung | Sep 16, 2010 | Current Affairs, Defend & Extend, Food and Drink, Innovation, Leadership, Lock-in, Openness, Web/Tech
Summary:
- Businesses usually try defending an old solution in the face of an emerging new solution
- Status Quo Police use “cannibalization” concerns to stop the organization from moving to new solutions and new markets
- If you don’t move early, you end up with a dying business – like newspapers – as new competitors take over the customer relationship – like Apple is doing with news subscriptions
- You can adapt to shifting markets, profitably growing
- You must disrupt your lock-ins to the old success formula, including stopping the Status Quo Police from using the cannibalization threat
- You should set up White Space teams early to embrace the new solutions and figure out how to profitably grow in the new market space
When Sony saw MP3 technology emerging it worked hard to defend sales of CDs and CD Players. It didn’t want to see a decline in the pricing, or revenue, for its existing business. As a result, it was really late to MP3 technology, and Apple took the lead. This is the classic “Innovator’s Dilemma” as described by Professor Clayton Christenson of Harvard. Existing market leaders get so hung up on defending and extending the current business, they fear new solutions, until they become obsolete.
In the 1980s Pizza Hut could see the emergence of Domino’s Pizza. But Pizza Hut felt that delivered pizza would cannibalize the eat-in pizza market management sought to dominate. As a result Pizza Hut barely participated in what became a multi-biliion dollar market for Domino’s and other delivery chains.
The Status Quo Police drag out their favorite word to fight any move into new markets. Cannibalization. They say over and over that if the company moves to the new market solution it will cannibalize existing sales – usually at a lower margin. Sure, there may someday be a future time to compete, but today (and this goes on forever) management should keep close to the existing business model, and protect it.
That’s what the newspapers did. All of them could see the internet emerging as a route to disseminate news. They could see Monster.com, Vehix.com, eBay, CraigsList.com and other sites stealing away their classified ad customers. They could see Google not only moving their content to other sites, but placing ads with that content. Yet, all energy was expended trying to maintain very expensive print advertising, for fear that lower priced internet advertising would cannibalize existing revenues.
Now, bankrupt or nearly so, the newspapers are petrified. The San Jose Mercury News headlines “Apple to Announce Subscription Plan for Newspapers.” As months have passed the newspapers have watched subscriptions fall, and not built a viable internet distribution system. So Apple is taking over the subscription role – and will take a cool third of the subscription revenue to link readers to the iPad on-line newspaper. Absolute fear of cannibalization, and strong internal Status Quo Police, kept the newspapers from embracing the emerging solution. Now they will find themselves beholden to the device providers – Apple’s iPad, Amazon’s Kindle, or a Google Android device.
But it doesn’t have to be that way. Netflix built a profitable growth business delivering DVDs to subscribers. Streaming video clearly would cannibalize revenues, because the price is lower than DVDs. But Netflix chose to embrace streaming – to its great betterment! The Wrap headlines “Why Hollywood should be Afraid of Netfilx – Very Afraid.” As reported, Netflix is now growing even FASTER with its streaming video – and at a good margin. The price per item may be lower – but the volume is sooooo much higher!
Had Netflix defended its old model it was at risk of obsolescence by Hulu.com, Google, YouTube or any of several other video providers. It could have tried to slow switching to streaming by working to defend its DVD “core.” But by embracing the market shift Netflix is now in a leading position as a distributor of streaming content. This makes Netfilx a very powerful company when negotiating distribution rights with producers of movie or television content (thus the Hollywood fear.) By embracing the market shift, and the future solution, Netflix is expanding its business opportunity AND growing revenue profitably.
Don’t let fear of cannibalization, pushed by the Status Quo Police, stop your business from moving with market shifts. Such fear will make you like the proverbial deer, stuck on the road, staring at the headlights of an oncoming auto — and eventually dead. Embrace the market shift, Disrupt your Locked-in thoughts (like “we distribute DVDs”) and set up White Space teams to figure out how you can profitably grow in the new market!
by Adam Hartung | Sep 15, 2010 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lifecycle, Web/Tech
Summary:
- There is a lot of value to recognizing early trends, and acting upon them
- That Apple is as popular as Dell for computers among college students is a trend indicator that Dell’s future looks problematic, while Apple’s looks better
- It is hard to maintain long-term value from innovations that defend & extend an historical market – they are easily copied by competitors
- Long term value comes from the ability to innovate new product markets which are hard for competitors to copy
- Dell is a lousy investment, and Apple is a good one, because Dell is near end of life for its innovation (supply chain management) while Apple has a powerful new product/market innovation capability that can continue for several years
I can think of 3 very powerful reasons everyone should look closely at the following chart from Silicon Alley Insider. It is very, very important that Apple is tied with Dell for market share in PCs among college students, and almost 2.5 times the share of HP:
Firstly, it is important to understand that capturing young buyers is very valuable. If you catch a customer at 16, you have 50 to 60 years of lifelong customer value you can try to maintain. Thus, these people are inherently worth more than someone who is 55, and only 10 to 20 years of lifetime value. While we may realize that older people have more discretionary income, many loyalties are developed at a young age. Over the years, the younger buyers will be worth considerably more.
When I was 15 popular cars were from Pontiac (the GT and Firebird) Oldsmobile (Cutlas) Dodge (Charger and Challenger) and Chevy (Camaro.) Thus, my generation tended to stay with those brands a long time. But by the 1990s this had changed dramatically, and younger buyers were driving Toyotas, Hondas and Mazdas. Now, the American car companies are in trouble because a generational shift has happened. Market shares have changed considerably, and Toyota is now #1. Keeping the old buyers was not enough to keep GM and Chrysler healthy.
That for a quarter as many college students want a Mac as want a PC from Dell says a lot about future technology purchases. It portends good things for Apple, and not good things for leading PC suppliers. Young people’s purchase habits indicate a trend that is unlikely to reverse (look at how even the Toyota quality issues have not helped GM catch them this year.) We can expect that Apple is capturing “the hearts and minds” of college students, and that drives not just current, but future sales
Secondly, it is important to note that Dell built its distinction on price – offering a “generic” product with fast delivery and reasonable pricing. Dell had no R&D, it outsourced all product development and focused on assembly and fast supply chain performance. Unfortunately, supply chain and delivery innovation are far easier to copy than new product – and new market – innovation. Competitors have been able to match Dell’s early advantages, while Apple’s are a lot harder to meet – or exceed. Thus, it has not taken long for Dell to lose it’s commanding industry “domination” to a smaller competitor who has something very new to offer that competitors cannot easily match.
Not all innovation is alike. Those that help Defend & Extend an existing business – making PCs fast and cheap – offer a lot less long term value. Every year it gets harder, and costs more, to try to create any sense of improvement – or advantage. D&E innovations are valued by insiders, but not much by the marketplace. Customers see these Dell kind of innovations as more, better, faster and cheaper – and they are easily matched. They don’t create customer loyalty.
However, real product/market innovations – like the improvements in digital music and mobile devices – have a much longer lasting impact on customers and the markets created. Apple is still #1 in digital music downloads after nearly a decade. And they remain #1 in mobile app downloads despite a small share in the total market for cell phones. If you want to generate higher returns for longer periods, you want to innovate new markets – not just make improvements in defending & extending existing market positions.
Thirdly, this should impact your investment decisions. SeekingAlpha.com, reproducing the chart above, headlines “Are 2010 Apple Shares the new 1995 Dell Shares?” The author makes the case that Apple is now deeply mired in the Swamp, with little innovation on the horizon as it is late to every major new growth market. It’s defend & extend behavior is doing nothing for shareholder value. Meanwhile, Apple’s ability to pioneer new markets gives a strong case for future growth in both revenue and profits. As a result, the author says Dell is fully valued (meaning he sees little chance it will rise in value) while he thinks Apple could go up another 70% in the next year!
Too often people invest based upon size of company – thinking big = stability. But now that giants are falling (Circuit City, GM, Lehman Brothers) we know this isn’t true. Others invest based upon dividend yield. But with markets shifting quickly, too often dividends rapidly become unsustainable and are slashed (BP). Some think you should invest where a company has high market share, but this often is meaningless because the market stagnates leading to a revenue stall and quick decline as the entire market drops out from under the share leader (Microsoft in PCs).
Investing has to be based upon a company’s ability to maintain profitable growth into the future. And that now requires an ability to understand market trends and innovate new solutions quickly – and take them to market equally quickly. Only those companies that are agile enough to understand trends and competitors, implementing White Space teams able to lead market disruptions. Throw away those old books about “inherent value” and “undervalued physical assets” as they will do you no good in an era where value is driven by understanding information and the ability to rapidly move with shifting markets.
Oh, and if you feel at all that I obscured the message in this blog, here’s a recap:
- Dell is trying to Defend its old customers, and it’s not capturing new ones. So it’s future is really dicey
- Dell’s supply chain innovations have been copied by competitors, and Dell has little – if any – competitive advantage today. Dell is in a price war.
- Apple is pioneering new markets with new products, and it is capturing new customers. Especially younger ones with a high potential lifetime value
- Apple’s innovations are hard to duplicate, giving it much longer time to profitably grow revenues.
- You should sell any Dell stock you have – it has no chance of going up in value long term. Apple has a lot of opportunity to keep profitably growing and therefore looks like a pretty good investment.
by Adam Hartung | Sep 14, 2010 | Current Affairs, Defend & Extend, Food and Drink, In the Swamp, Leadership, Lifecycle, Lock-in
Summary:
- Success Formulas age, losing their value
- To regain growth, you have to identify with market trends – not reinforce old Lock-ins
- KFC is losing sales due to a market shift, but its response is not linked to market trends
- KFC’s plan to invest heavily in its old icon is Defend & Extend management
- Market to what it takes to regain new customers, and lost customers, not what your current customers (core customers) value
- The Status Quo Police have driven a very bad decision at KFC – more poor results will follow
- You have to market toward future needs, not what worked years ago.
Who’s Colonel Sanders? According to USAToday, in “KFC Tries to Revive Founder Colonel Sanders Prestige” 60% of American’s age 18 to 25 don’t know. For us older Americans, this may seem amazing, because we were raised on advertising that promoted the legend of a cooking Kentucky Colonel who “did chicken right” creating the recipe for what became today’s enormous Kentucky Fried Chicken (KFC) franchise. But it’s been a very, very long time since “the Colonel” left KFC in the 1980s, declaring that the chain, then owned by Heublein, didn’t make chicken so “finger lickin’ good” any longer. Were he alive today, the famed Colonel – who became a caricature of himself before death, would be an astounding 120 years old! Now most people don’t have a clue who’s picture that is in the red logo – if they notice there’s even a picture of someone there.
KFC is the largest chicken franchise, with 15,000 stores. But size has not been any help as the chain has lost its growth. Last quarter’s same-store sales fell 7%. A clear sign a deadly growth stall has started that bodes badly for the future! People have stopped going to KFC outletd. So management needs to do something to bring new customers into the stores – in American and globally. In a remarkable display of defending the Status Quo, leadership’s recommended solution for this problem is to put a heavy marketing blitz into “educating” consumers about the Colonel, and the oompany’s history!
Are we to believe that knowing about some long dead company founder will drive customers’ decisions where to eat lunch or dinner next week? Or next year?
I don’t know why people are eating less KFC, but it’s a sure bet it’s NOT because the Colonel has faded from the limelight. Times have changed dramatically. Everything from the acceptance of fried food, to concerns about chicken raising, to menu variety, to store appearance, and alternative competitive opportunities have had an impact on sales at KFC. What KFC needs is to understand these market trends, recognize where consumers are headed with their prepared food purchases, and position the company to deliver what consumers WANT this year and in the future. If KFC finds the trend – even if it’s not chicken – it can regain its growth. KFC needs to give the market what it wants – and is that a heavy education about a dead icon?
KFC is trying to turn back the clock. It is looking internally, historically, and hoping that by promoting the Colonel it can regain the glorious growth of previous decades. KFC leadership is remaining firmly committed to its old and clearly tiring Success Formula (the one that is producing declining sales and profits.) So it is holding fast to its menu, its preparation methods, its store appearance, its “brand” image and now even its iconic founder that is irrelevant to this current generation and any international consumer!
Does anyone really think reviving the Colonel – a white haired senior
citizen in his heyday -will create double digit growth? Or bring in
those young people between ages 18 and 25? There’s not one shred of
market input which says this is the way to grow KFC. Only a belief that
somehow future success will come from an attempt to replay what worked
when the Success Formula was created over 40 years ago.
In a telling quote from the article “KFC’s trying to paint a new picture — actually asking its core consumers to paint it for them.” The marketers are actually hoping a contest to re-sketch the lost icon will drive people to “reconnect” with the franchise. What’s worse, clearly they are hoping to appeal to the “core” customers – current customers – rather than find out why lost customers left, and what new customers might want to encourage a switch to KFC. They are “focusing on their core” rather than figuring out what the market wants.
Add on top of this that management has admitted it expectsmost (possibly all) future growth to come from international expansion, and you really have to question how focusing marketing on the Colonel makes any sense. Why would people in Europe, South America, India, China or elsewhere have any connection to a character more attuned to America’s civil war than today’s global economy and international high-energy brand images?
This is the kind of decision that is driven by a strong Status Quo Police. Of all the options, from changing the menu and name, to developing a new icon, to creating a new image for the alphabet soup that is KFC (most young people don’t even relate KFC to the original name – and international customers have no connection at all) – all the things that could be based on market trends – leadership went down the road of doing more of the same.
It’s a sure bet we’ll be reading about further declines in KFC over the next year. There will be a big store closing program. Then a quality program to improve customer service and cleanliness. Layoffs will happen. Some kind of lean program to tighten up the supply chain and cut costs. Revenues will probably decline another 15-25%. Exactly what McDonald’s did about 6 years ago when it sold Chipotle’s to “refocus on its core.” Management will talk about how its “core” customers relate well to the Colonel, and they are sure if given time the marketing will return KFC to its old glory.
And the only people who will enjoy this are the Status Quo Police. For the rest of us, it’s watching another great company fall victim to its past, rather than migrate toward a better, high growth future.
Read my Forbes.com column “Fire the Status Quo Police” for more insight to how consumer branded companies hurt long-term viability by maintaining brand status quo rather than migrating with market trends.
by Adam Hartung | Sep 9, 2010 | Defend & Extend, Leadership, Lock-in
Leadership
Fire The Status Quo Police
Adam Hartung, 09.08.10, 06:00 PM EDT
Their power to prevent innovation can devastate your business.
“That’s not how we do things around here.” How often have you heard that? And what does it really mean? It is said to stop someone from doing something new. It is no way to promote innovation, is it?”
That’s the lead paragraph to my latest column on Forbes.com, published yesterday evening. Forbes launched a new editorial page covering Change Management, and gave my column’s link the premier placement!
All companies want to grow. But early in the lifecycle they Lock-in on what works, and then implement Status Quo Police that intentionally do not allow anything to change. Their belief is that if nothing changes, the business will always grow. So conformance to historical norms is more important than results to them. To Status Quo Police results will return when conformance to old norms is returned!
Of course, this completely ignores the marketplace. Market shifts, created by competitors launching new technologies, new pricing models, new delivery models or other new solutions cause the value of old solutions to decline. No matter how well you do what you always did, you can’t achieve historical results. The market has shifted!
To keep any company growing you must know who the Status Quo Police are in your organization. They can be in HR, controlling hiring, promotions and pay. In Finance controlling what projects receive resources. In Marketing, tightly controlling branding, product development or distribution. The Status Quo Police are committed to keeping things tightly controlled, and saving the organization from change that could send the company in the wrong direction! No matter what the marketplace may require.
But it’s not enough to know who the Status Quo Police are, its up to leaders to eliminate them! If you want to have a vibrant, profitably growing organization you have to constantly adjust to market shifts. You have to sense what the market wants, and move to deliver it. You have to be very wary of the Status Quo, and instead be open to making changes in order to grow. To do that, you have to hold those who would be the Status Quo Police in check. Otherwise, you’ll find the obstacles to innovation and growth overwhelming!
Please read the article at Forbes, review it and comment! Let me know what you think!
by Adam Hartung | Sep 7, 2010 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Web/Tech
Summary:
- Not even dominant industry leaders are immune to decline from market shifts
- It’s easy to focus on what made you great, and miss a market shift
- Competitors drive market shifts, not customers – so pay attention to competitors!
- AOL lost industry domination to competitors with new solutions, and now new technologies, even though it executed its Success Formula really well
- You can become obsolete really quickly when fringe competitors introduce new solutions
- Do more competitor analysis
- Keep White Space teams experimenting with emerging solutions and competing in shifting markets
Do you remember when AOL (an acronym, and updated name, for America On-Line) dominated our perception of the internet? Fifteen years ago AOL was one of the leading companies introducing Americans to the wonders of the web. Providing dial-up access (remember that?) AOL offered users its own interface, and a series of apps that helped its customers discover how the world wide web could make their lives easier – and better. At its peak, AOL had over 30 million subscribers! AOL was so commercially strong, and investors were so optimistic, that a merger with powerhouse publisher Time/Warner, which already owned CNN and HBO, was organized so AOL’s young leader, Steve Case, could take the helm and push the company forward into the digital frontier.
Along the way, something went very wrong. In an example of what happened to AOL and its products, as seen below, after pioneering Instant Messaging as an internet application AOL’s AIM user base has declined precipitously – by more than 50% – in the last 3 years:
Source: BusinessInsider.com
Of course, the same thing that once drove AOL growth is now apparent somewhere else. New markets are emerging. Instead of using PCs with instant messaging, most people today text via their mobile device! Texting isn’t just a youthful activity. According to Pew Research, on PewInternet.org in “Cell Phones and American Adults” 72% of American adults now text – up from 65% a year ago. 87% of teens text. And I’m willing to bet a lot of those teens don’t even have an instant messaging account – on any platform. The amount of “instant messaging” has grown dramatically – just not using “instant messaging” software. It’s now happening via mobile device texting.
Where AOL once dominated the landscape for digital communication, it is now becoming almost insignificant. But it wasn’t because AOL didn’t know how to execute its strategy. AOL was an industry leader, with savvy management, and a blue-ribbon Board of Directors. AOL even bought Netscape in its effort to remain the best server and client technology for a proprietary internet platform.
AOL became obsolete because the market shifted – while AOL tried holding on to its initial Success Formula. AOL did not shift as the market shifted, it has remained Locke-in to its early Identity, original Strategy and all those product Tactics that once made it great! AOL didn’t do anything wrong. It just kept doing what it knew how to do, rather than recognizing the impact of competitors and changing markets.
Shortly after AOL emerged as the market leader, competitors sprang up. First they offered dial-up access, often more cheaply. Eventually dial-up was replaced with high-speed internet access from multiple providers. Instead of using a proprietary interface, competitors Netscape and Microsoft brought out their own internet browsers, making it possible for users to surf the web directly and easily. Instead of using an AOL directory to find things, search engines such as Ask Jeeves, Alta Vista and Yahoo! Search came along that would find things across the web for users based upon their query. Email alternatives emerged, such as Hotmail and Yahoo! Mail. Eventually, one piece at a time, all the proprietary packaged products that AOL provided – including instant messaging – was offered by a competitor. And the value of the AOL packaging declined. As competitor products improved, for most users being an AOL subscriber simply had little advantage.
And now entirely new apps are coming along. As the market quickly shifts to mobile data and applications, devices like smartphones and tablets are replacing PCs. And the apps that made internet companies rich and famous are poised for decline – as users shift to the new way of doing things.
Whether the currently popular internet companies will make the next step, or end up like AOL, will be determined by whether they remain stuck on defending & extending their “core” business, or if they can shift with the market. There is no doubt that the amount of “instant messaging” is skyrocketing. It’s just not happening on the PC. Like many tasks, the demand is growing very fast. But it is via a new, and different solution. If the company sees itself as providing a PC type of internet solution, then the company will likely decline. But, alternatively, the leadership could see that demand is exploding and they need to shift – with the market – to the new solution environment to maintain growth.
Whether you are the market leader or not, you know you don’t want to end up like AOL. Once rich with resources, and a commanding market lead, AOL is now irrelevant to the latest market trends – and growth. AOL stuck to what it knew how to do. It has not shifted with changing market requirements – including changes in technology. For your company to succeed it must be (1) aware of competitors and how they are constantly changing the market – especially fringe competitors, and (2) enlisting White Space teams that are participating in the new markets, learning what works and how to migrate to capture the ongoing growth.
Postscript: I want to thank a pair of colleagues for some great mentions over the weekend. Firstly, to FMI Daily for posting to its readership about my blog on The Power of Myth. Secondly, a big thank you to Management Consulting News for referring its newsletter readers to this blog as notable, and my recent posting on the failure of Fast Follower strategy. I encourage readers to follow the links here to these sites and sign up for future information from both!!
by Adam Hartung | Sep 4, 2010 | Books, Defend & Extend, In the Swamp, Leadership, Lock-in, Religion
Summary:
- When we don’t know what works, we create myths to describe what might work
- Much of business theory is little more than myth
- “Good to Great” has been a best seller, but it is not helpful for good management
- To grow business today requires abandoning management myths and aligning with changing market needs
Good to Great by Jim Collins has been a phenomenal business best seller. Almost 10 years old, it has sold millions of copies. It continues to be featured on end caps in book stores. That it has sold so well, and continues selling, is a testament to a much better book by the legendary newsperson Bill Moyers with Joseph Campbell, “The Power of Myth.” (Original PBS 2001 TV show available on DVD, or get the new release this month.)
When we don’t understand something we develop theories as to how it might work. These theories are based upon what we know, our assumptions, and our biases. They could be right, or they might not. Only testing determines the answer. However, sometimes the theory is so powerfully connected to our beliefs that we don’t want to test it – don’t feel the need to test it. And if the theory hangs around long enough, people forget it wasn’t tested. What easily happens is that “logical” theories (based upon assumptions and beliefs) that don’t explain reality become myth. And the myth becomes very comforting. Over time, the myth becomes part of the assumption set – unchallenged, and actually used as a basis for building new theories.
For example, the founder of modern medicine – Galen – didn’t understand the circulatory system. So he thought blood was oxygenated by invisible pores. As time passed it became impossible to challenge, or even test, this theory. Eventually, blood letting was developed as a medical practice because people thought the blood stored in the affected area had gone bad. It was several hundred years before Harvey, through careful testing, proved there were no invisible pores – and instead blood circulated throughout the body. Millions had perished from blood letting because of a myth. Bad theory allowed to go unchallenged and untested. It just sounded so good, so acceptable, that people followed it. Dangerous practice.
Thomas Thurston now gives us great insight to the popular myth developed by Jim Collins in Good to Great. Published by Growth Science International (http//growthsci.com) “Good to Great: Good, But Not Great” Mr. Thurston puts Mr. Collins thesis to the test. Is it a usable framework for predicting performance, and do followers actually achieve superior performance? In other words, does the advice in Good to Great work?
Mr. Thurston’s conclusions, quoted below, are quite clear, and mirror those of academics and lay people who have studied the storied Mr. Collins’ work:
- Even with the copious guidelines set forth by Collins, sorting CEOs into each category proved a highly subjective process. The classification scheme was ambiguous
- Level 5 leadership was difficult to categorize with reliability and consistency
- Our sample [100 well known firms] did not reveal any statistically significant difference in the performance of firms led by Level 5 and Not-Level 5 leaders. Performance in each category was approximately the same.
- Level 5 leadership classifications were, in practice, highly subjective and not predictive of superior firm performance.
- In other words, our results concluded that one can not predict whether a firm will perform good, great or bad based on its having a Level 5 Leader.
We like myth. It helps us explain what we previously could not explain. Like early Greek gods helped people explain the complex world around them. But, when we build our behaviors on myth it becomes extremely dangerous. We depend upon things that don’t work, and it can have serious repercussions. Mr. Collins glorified Circuit City and Fannie Mae in his book – yet now one is gone and the other in disrepute. Meanwhile his list of “great” companies have been proven to perform no better than average since his publication.
In Good to Great Mr. Collins offers a theory for business success that is very appealing. Be focused on your strengths. Get everybody on the bus to doing the same thing. Make sure you know your core, and protect it like a hedgehog protects its home. And make sure all leaders follow a Christ-like approach of humbleness, and leader servitude. It sounds very appealing – in an Horatio Alger sort of way. Work hard, be humble and good things will happen. We want to believe.
But it just doesn’t produce superior performance. There are no theories that have identified “great” leaders. Success has come from all kinds of personalities. And, despite our love for being “passionate” and “focused” on doing something really “great” there is no correlation between long-term success and the ability to understand your core and focus the organization upon it. Thousands of businesses have been focused on their core, yet failed.
What we need is a new theory of management. As the Assistant Managing Editor of the Wall Street Journal, Alan Murray, wrote in “The End of Management,” industrial era management theories about optimization and increased production do not help companies deal with an information era competitiveness fraught with rapid change and keen demands for flexibility.
Increased flexibility and success can be assured. If companies make some critical changes
- Plan for the future, not from the past. Do more scenario planning and less “core” planning
- Obsess about competition – and listen less to customers
- Be disruptive. Don’t focus on optimization and continuous improvement
- Embrace White Space to develop new solutions linked to changing market needs
This does work. Every time.
update links on Thomas Thurston 5/2014:
http://startupreport.com/thomas-thurston-on-innovation-malpractice-and-the-dangers-of-theory-via-startupreport-com/
http://newsle.com/person/thomasthurston/2870934#reloaded
http://thomasthurston.com/
by Adam Hartung | Aug 31, 2010 | Current Affairs, Defend & Extend, In the Whirlpool, Innovation, Leadership, Lock-in, Quotes
Summary:
- The Wall Street Journal is calling for a dramatic shift in how business is managed
- Most corporations are designed for the industrial age, and thus not well suited for today’s competition
- Change is happening more quickly, and organizations must become more agile
- CEOs today are concerned about dealing with rapid, chronic change – and obsolescence
- Resource deployment, from financial to people, must be tied more closely to market needs and not defending historical strengths
A FANTASTIC article in the Wall Street Journal entitled “The End of Management” by Alan Murray, If you have time, I encourage you to click the link and read the entire thing. Below are some insightful quotes from the article I hope you enjoy as much as I did:
- Corporations, whose leaders portray themselves as champions of the free
market, were in fact created to circumvent that market. They were an
answer to the challenge of organizing thousands of people in different
places and with different skills to perform large and complex tasks,
like building automobiles or providing nationwide telephone service.
- the managed corporation—an answer to the central problem of the industrial age.
- Corporations are bureaucracies and managers are bureaucrats. Their
fundamental tendency is toward self-perpetuation… They were designed and tasked, not with
reinforcing market forces, but with supplanting and even resisting the
market.
- it took radio 38 years and television 13 years to reach audiences of 50
million people, while it took the Internet only four years, the iPod
three years and Facebook two years to do the same.
- It’s no surprise that
fewer than 100 of the companies in the S&P 500 stock index were
around when that index started in 1957.
- When I asked members of The Wall Street Journal’s CEO Council… to name the most influential business book they had read,
many cited Clayton Christensen’s “The Innovator’s Dilemma.” That book
documents how market-leading companies have missed game-changing
transformations in industry after industry
- They allocated capital to the innovations that promised the largest
returns. And in the process, they missed disruptive innovations that
opened up new customers and markets for lower-margin, blockbuster
products.
- the ability of human beings on different continents and with vastly
different skills and interests to work together and coordinate complex
tasks has taken quantum leaps. Complicated enterprises, like maintaining
Wikipedia or building a Linux operating system, now can be accomplished
with little or no corporate management structure at all.
- the trends here are big and undeniable. Change is rapidly accelerating.
Transaction costs are rapidly diminishing. And as a result, everything
we learned in the last century about managing large corporations is in
need of a serious rethink. We have both a need [for]… a new science of
management, that can deal with the breakneck realities of 21st century
change.
- The new model will have to be more like the marketplace, and less like
corporations of the past. It will need to be flexible, agile, able to
quickly adjust to market developments, and ruthless in reallocating
resources to new opportunities.
- big companies… failed, not…
because they didn’t see the coming innovations, but because they failed
to adequately invest in those innovations. To avoid this problem, the
people who control large pools of capital need to act more like venture
capitalists, and less like corporate finance departments… make lots of bets, not just a few big ones, and… be willing
to cut their losses.
- have to push power and decision-making down the organization as much as
possible, rather than leave it concentrated at the top. Traditional
bureaucratic structures will have to be replaced with something more
like ad-hoc teams of peers, who come together to tackle individual
projects, and then disband
- New mechanisms will have to be created for harnessing the “wisdom of
crowds.” Feedback loops will need to be built that allow products and
services to constantly evolve in response to new information. Change,
innovation, adaptability, all have to become orders of the day.
Well said. Traditional management best practices were designed for the industrial age. For bringing people together to efficiently build planes, trains and automobiles. This is now the information age. Organizations must be more agile, more flexible, and tightly aligned with market needs – while eschewing focus on “core” capabilities.
Companies must understand Lock-in, and how to manage it. Instead of planning for yesterday to continue, we must develop future scenarios and prepare for different likely outcomes. We have to understand competitors, and how quickly they can move to rob us of sales and profits. We have to be willing to disrupt our patterns of behavior, and our markets, in order to drive for higher value creation. And we must understand that constantly creating and implementing White Space teams that are focused on new opportunities is a key to long-term success.
With an endorsement for change from nothing less than the stodgy Wall Street Journal, perhaps more leaders and managers will begin moving forward, implementing The Phoenix Principle, so they can recapture a growth agenda and rebuild profitability.
