by Adam Hartung | Dec 28, 2009 | Current Affairs, In the Rapids, Innovation, Leadership
I was intrigued when I read on the Harvard Business Review web site “Do we celebrate the wrong CEOs?” The article quickly pointed out that many of the best known CEOs – and often named as most respected – didn’t come close to making the list of the top 100 best performing CEOs. Some of those on Barron’s list of top 30 most respected that did not make the cut as best performing include Immelt of GE, Dimon of JPMorganChase, Palmesano of IBM and Tillerson of ExxonMobil. It did seem striking that often business people admire those who are at the top of organizations, regardless of their performance.
I was delighted when HBR put out the full article “The Best Performing CEOs in the World.” And it is indeed an academic exercise of great value. The authors looked at CEOs who came into their jobs either just before 2000, or during the decade, and the results they obtained for shareholders. There were 1,999 leaders who fit the timeframe. As has held true for a long time in the marketplace, the top 100 accounted for the vast majority of wealth creation – meaning if you were invested with them you captured most of the decade’s return – while the bulk of CEOs added little value and a great chunk created negative returns. (It does beg the question – why do Boards of Directors keep on CEOs who destroy shareholder value – like Barnes of Sara Lee, for example? It would seem something is demonstrably wrong when CEOs remain in their jobs, usually with multi-million dollar compensation packages, when year after year performance is so bad.)
The list of “Top 50 CEOs” is available on the HBR website. This group created 32% average gains every year! They created over $48.2B of value for investors. Comparatively, the bottom 50 had negative 20% annual returns, and lost over $18.3B. As an investor, or employee, it is much, much better to be with the top 5% than to be anywhere else on the list. However, only 5 of the top best performers were on the list of top 50 highest paid — demonstrating again that CEO pay is not really tied to performance (and perhaps at least part of the explanation for why business leaders are less admired now than the previous decade.)
Consistent among the top 50 was the ability to adapt. Especially the top 10. Steve Jobs of Apple was #1, a leader and company I’ve blogged about several times. As readers know, Apple went from a niche producer of PCs to a leader in several markets completely unrelated to PCs under Mr. Jobs leadership. His ability to keep moving his company back into the growth Rapids by rejecting “focus on the core” and instead using White Space to develop new products for growth markets has been a model well worth following. And in which to be invested.
Similarly, the leaders of Cisco, Amazon, eBay and Google have been listed here largely due to their willingness to keep moving into new markets. Cisco was profiled in my book Create Marketplace Disruption for its model of Disruption that keeps the company constantly opening White Space. Amazon went from an obscure promoter of non-inventoried books to the leader in changing how books are sold, to the premier on-line retailer of all kinds of products, to the leader in digitizing books and periodicals with its Kindle launch. eBay has to be given credit for doing much more than creating a garage sale – they are now the leader in independent retailing with eBay stores. And their growth of PayPal is on the vanguard of changing how we spend money – eliminating checks and making digital transactions commonplace. Of course Google has moved from a search engine to a leader in advertising (displacing Yahoo!) as well as offering enterprise software (such as Google Wave), cloud applications to displace the desktop applications, and emerging into the mobile data/telephony marketplace with Android. All of these company leaders were willing to Disrupt their company’s “core” in order to use White Space that kept the company constantly moving into new markets and GROWTH.
We can see the same behavior among other leaders in the top 10 not previously profiled here. Samsung has moved from a second rate radio/TV manufacturer to a leader in multiple electronics marketplaces and the premier company in rapid product development and innovation implementation. Gilead Sciences is a biopharmaceutical company that has returned almost 2,000% to investors – while the leaders of Merck and Pfizer have taken their companies the opposite direction. By taking on market challenges with new approaches Gilead has used flexibility and adaptation to dramatically outperform companies with much greater resources — but an unwillingness to overcome their Lock-ins.
Three names not on the list are worth noting. Jack Welch was a great Disruptor and advocate of White Space (again, profiled in my book). But his work was in the 1990s. His replacement (Mr. Immelt) has fared considerably more poorly – as have investors – as the rate of Disruption and White Space has fallen off a proverbial cliff. Even though much of what made GE great is still in place, the willingness to Defend & Extend, as happened in financial services, has increased under Mr. Immelt to the detriment of investors.
Bill Gates and Warren Buffett are now good friends, and also not on the list. Firstly, they created their investor fortunes in previous decades as well. But in their cases, they remained as leaders who moved into the D&E world. Microsoft has become totally Locked-in to its Gates-era Success Formula, and under Steve Ballmer the company has done nothing for investors, employees — or even customers. And Berkshire Hathaway has spent the last decade providing very little return to shareholders, despite all the great press for Mr. Buffett and his success in previous eras. Each year Mr. Buffett tells investors that what worked for him in previous years doesn’t work any more, and they should not expect previous high rates of return. And he keeps proving himself right. Until both Microsoft and Berkshire Hathaway undertake significant Disruptions and implement considerably more White Space we should not expect much for investors.
This has been a tough decade for far too many investors and employees. As we end the year, the list of television programs bemoaning how badly the decade has gone is long. Show after show laments the poor performance of the stock market, as well as employers. We end the year with official unemployment north of 10%, and unofficial unemployment some say near 20%. But what this HBR report us is that it is possible to have a good decade. We need leaders who are willing to look to the future for their planning (not the past), obsess about competitors to discover market shifts, be willing to Disrupt old Success Formulas by attacking Lock-in, and using White Space to keep the company in the growth Rapids. When businesses overcome old notions of “best practice” that keeps them trying to Defend & Extend then business performs marvelously well. It’s just too bad so few leaders and companies are willing to follow The Phoenix Principle.
by Adam Hartung | Dec 26, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Web/Tech
The business media get really excited about acquisitions. And it is clear that many executives still think acquisitions are a good way to grow – especially when wanting to enter new markets. Even though all the academic research says that acquirers inevitably overpay, and that almost all acquisitions don't really have "synergy." In fact, most acquisitions significantly reduce shareholder value. While this doesn't keep execs from going forward, if we understand why acquisitions go badly better performance can be obtained.
As reported at Financial Times in "The Rise and Fall of MySpace" the problem with acquisitions is very tied to the "owner and acquired" thinking that emerges. NewsCorp wanted to get into social media, so it moved early. And the investment looked brilliant when a quick deal with Google appeared to make payback a year from new ad revenues. MySpace was an early social media winner, and it looked to be potentially transformative for NewsCorp.
Until NewsCorp decided that things were too undisciplined at MySpace. NewsCorp thought, like almost all acquirers, that it was more "disciplined" and "structured" and could apply its "better management" to the growth at MySpace. Of course, all of this is code for pushing the NewsCorp Success Formula onto MySpace. What was acquired as White Space was quickly turned into another NewsCorp division – with the decision-making processes and overhead costs that NewsCorp had. Quickly Behavioral and Structural Lock-ins that were prevalent in NewsCorp were applied to MySpace in management's effort to "improve" the acquisition.
But applying the acquirer's Success Formula to an acquisition soon removes it from White Space. Even though NewsCorp felt sure that it's higher caliber IT staff, big budgets and strong management team would "help" MySpace, it was robbing MySpace of its tight link to a rapidly shifting/evolving marketplace and replacing that with "NewsCorp think." Quickly, competitors started to take advantage of market shifts. Facebook took advantage of the now weighted-down MySpace to rapidly bring on more users, while the additional ads on MySpace simply frustrated formerly happy customers more than willing to trade platforms.
Scott Anthony on the Harvard Business Review blog "MySpace's Disruption, Disrupted" points out how in just 4years MySpace went from market leader to almost irrelevant. MySpace lost its position as market disruptor as it increasingly conformed to demands of NewsCorp. As the NewsCorp Success Formula overwhelmed MySpace it stopped being a market sensing project that could lead NewsCorp forward, and instead became a now money-losing division of a newspaper and TV company. NewsCorp started trying to make MySpace into a traditional media company – rather than MySpace turning NewsCorp into the next Amazon, Apple or Google.
If a company wants to acquire a company for new market entry, that acquisition has to be kept in White Space. It has to be given permission to remain outside the acquirer's Lock-ins and separate from the Success Formula. It has to be allowed to use its resources to develop a new Success Formula toward which the acquirer with migrate – not "brought into the fold."
Unfortunately, acquirers tend to think like previous century conquerers. In Gengis Khan fashion they almost always end up moving to change the acquired. Often in the name of "discipline" or "good management practices." And that's too bad, because the result is a loss of shareholder value as the investment premium is dissipated when the acquisition fails to reach objectives. Acquisitions can be good, but they have to be kept in White Space — like we see Google doing with Facebook!
by Adam Hartung | Dec 22, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Web/Tech
In "The Year in Innovation" BusinessWeek has offered its review of innovation in 2009. And the report is grim. Most companies cut innovation spending – including R&D. Even the pharmaceutical industry, historically tied to long-term investment cycles, cut 69,000 jobs in 2009, up 60% from 2008. Meanwhile, P&G's dust cloth Swiffer was pronounced a major innovation – indicating both how few innovations made it to market in 2009 – and the degree to which BusinessWeek must depend upon P&G for advertising dollars given this selection (I mean really – BusinessWeek ignores Google Wave and Android entirely in the article but feature a Swiffer dust cloth!)
According to BusinessWeek, the big advances in innovation in 2009 apparently were "open innovation" and "trickle up innovation." The first is asking vendors and others outside the company to contribute to innovation. Adoption of open innovation has spurred one thing – less spending on innovation as companies cut budgets, using "open innovation initiatives" as an explanation for how they intend to maintain themselves while spending less. Open innovation has not spurred improved innovation implementation, just justified spending less with no real plans to achieve growth. With open innovation, of course, failures no longer belong to the company because the "open environment" didn't produce anything – hence innovation simply wasn't possible!
Trickle up innovation is asking people in poor countries, like India, how they do things. Then seeing if you can steal an idea or two. There's nothing wrong with turning over every rock when trying to innovate, but using analysis of third world countries, where costs happen to be very low and new innovations few, to drive your innovation program smacks of looking for ways to put a fig leaf on a naked innovation program. Expectations are low, so explanations are more prevalent than results. C.K. Prahalad wrote an entire book on this approach – which is popular with big company leaders who have abandoned innovation and think it clever to steal ideas from the poor. But it's not how Apple became #2 in smart phonesor created iTunes or how Facebook has taken over social networking.
source: Silicon Alley Insider (with Google picking up 2 new carriers in late 2009, this chart will be very different by summer 2010)
None of the trends identified by BusinessWeek reflect behavior of the real innovation winners. Rather, they reflect the big companies who are mired in Defend & Extend management, and making excuses for their terrible performance since 2007. Not once does the article talk about Google, Apple, Cisco – or leading small company innovators like Tasty Catering in Chicago. There are companies winning at innovation, but they are certainly not following the trends (which have produced marginal results – at best) identified in this article.
Because planning processes look at last year when setting goals for next year, lots of companies now plan even lower innovation spending for 2010. And that's how an economy goes into a tailspin. Everyone from bankers to manufacturers to retailers are saying 2009 was weak, and they don't see much improvement for 2010. That can become a self-fulfilling prophecy. 24/7 Wall Street reported in "Immelt Speaks at West Point: Future Leadership Path" that the CEO of GE, Jeff Immelt, is doing less innovation spending and relying more on government/business partnership. And of course GE is realing from over-reliance on financial services and under-investment in new products during his leadership. While Immelt is patching up holes at GE, the company is sinking without new products manning the oars.
Companies don't just need to spend on R&D. Studies of R&D have shown that the bulk of spending is Defend & Extend. Trying to get more out of the technologies embedded in the Success Formula. P&G and GE can spend easily enough. But when it's on short-term "quick hits" they get declining marginal returns and weaker competitiveness.
Companies in 2010 must adopt new approaches. They have to quit planning from the past, and plan for the future. More scenario development and understanding how to change competitive position. And they have to quit being so conforming and promote Disruption. Disruptions are needed to open White Space so new Success Formulas can be developed. In the 2000/01 recession Apple looked to the future, Disrupted its total dedication to the Macintosh and unleashed White Space allowing the company to become a leader in digital music as well as the front runner in smart phones within a decade.
Your business can be a leader; and soon. If you start thinking differently about what you must do, quit putting all your energy into Defend & Extend behavior and invest in White Space, innovation will flourish – and with it your revenues and profits.
by Adam Hartung | Dec 21, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Leadership, Lock-in
Great blog today at MidasNation.com. Rob Slee is a book author and blogger focused on privately held companies. And today he took on "Old White Men" – or OWM – in his blog "Why 60 Year Old White Men are Killing America." Telling the story about how GM management drove the profits out of suppliers while bankrupting the company, he contrasted GM's behavior with the Japanese run firms in America who partnered with suppliers to make a better product customers more highly valued. We know who ended up with the profitable approach.
Similar to Defend & Extend management, Mr. Slee talks about "past as predicate" as he discusses older managers who keep doing what they always did, even though results keep worsening. And how "command and control" hierarchies sucked the value out of the traditional Big 3 automakers. His views about how OWM leaders expect a "return to the norm," creating a recipe for disaster in an ever changing world increasingly producing black swans. His stories are an action call for all leaders to change their behavior.
According to Marketwatch.com today, "GM Hires Microsoft Exec Liddell as CFO." Is this good, or just more OWM? According to BusinessWeek, Mr. Liddell is 50 – which makes him 10 years shy of the minimum 60 Mr. Slee denotes for OWM. More disconcerting was the final paragraph of his bio at Microsoft.com which claims Mr. Liddell "has completed a number of triathlons, including an Ironman and also enjoys rugby, yoga, golf and tennis." Pretty seriously testosterone laden language – and appealing primarily to OWM types. Like his new boss, the retired Southwestern Bell Chairman, now running GM.
Triathlon and rugby often have a way of making people Lock-in on the values of persistence, hard work and sacrifice. Jim Collins is a rather famous triathlete who loves Lock-in. Creativity and innovation are rarely the stuff of winners in those sports. Of course, competing in a global marketplace with fast changing competitors who defy all rules is a far cry from any sport. Sport analogies are usually more harmful than good in today's global marketplace, where adaptability is worth more than repetitive behavior seeking scale.
Mr. Liddell's last boss, Steve Ballmer, is one of the 10 most Locked-in CEOs in corporate America. Not a great mentoring for open-mindedness. And during Mr. Liddell's 4.5 year career at Microsoft the company's big launches were the me-too, and underwhelmingly exciting, Vista and System 7 products. Mr. Liddell didn't seem to push the innovation engine much in Seattle.
From appearances it would seem likely he'll focus on cost reductions pretty hard — something unlikely to make GM a success. GM doesn't need to launch it's own version of Vista. GM doesn't need a tough guy to whack the chicken coop hoping to get more eggs – instead just making the hens all upset. GM needs significant Disruption – attacks on its Success Formula – with a revitalization of new product development and technology application. GM needs an entirely new Success Formula, not just a better Defended and Extended one.
Keep your eyes on Mr. Liddell. Perhaps he'll surprise us. Look for Disruptions and White Space. It doesn't seem to be Mr. Liddell's nature. But watch. Until then, there's no sign yet that GM is taking the right actions to make itself a vital competitor against Hyundai, Kia, Tata Motors, Honda and Toyota.
by Adam Hartung | Dec 15, 2009 | General, In the Swamp, Leadership, Web/Tech
In a tough year like 2009, many business leaders want to jump in a foxhole and focus on survival. The goal becomes maintain, and then try to grow again sometime in the future – when the economy gets better. They cut marketing and sales costs, stop new product development/introduction, and literally plan to do nothing new until "the business" improves. Unfortunately, that sets a business up for failure.
In today's fast moving competitive world, it's impossible to stand still. Your business either grows, or it falls behind. Think about Yahoo!. The company hoped to maintain it's search business at it entered a "turnaround." Unfortunately, the competition isn't willing to give Yahoo! any time at all. Microsoft grabs off 10% of the market with its Bing introduction, and Google just keeps taking share. Take a look at Yahoo's performance:
source: Silicon Alley Insider
Or consider AOL. AOL was the undoubted leader in bringing people to the internet. But over the last decade AOL has tried to maintain its customers without offering any new products. It has saved investment dollars, but lost its relevancy. Now Facebook has more unique visitors than AOL – a clear sign AOL (which recently went public) is well on the way to disappearing:
source: Silicon Alley Insider
Blockbuster was the clear market leader for video/movie rentals. The company even had a college football bowl game named after it! The CEO bought a baseball team, and made it into a World Series winner! Blockbuster was THE store for obtaining entertainment for many years. But the company saved its dimes, tried to defend its market position, and didn't develop new solutions. Now it is being overwhelmed by competitor Netflix:
source: Silicon Alley Insider
Too many business leaders believe in "The Myth of the Flats" (from Create Marketplace Disruption.) They think that you can build a business, and then ride a market position. When business is bad they depend upon living on past brand position. They think they can wait for a better market to come along before they use White Space to introduce new solutions that meet emerging needs. And the competitors, who don't slow down, use market downturns to introduce new solutions and overtake the former market leader.
Smart companies don't rest on their laurels. They don't wait for a better market. They keep using White Space to develop new solutions. And even in a bad overall economy, like 2009, they sell more and make more profits. Just look at Amazon, achieving record market valuation in 2009:
source: Silicon Alley Insider
If you want 2010 to be a great year, it starts with recognizing that you can't stand still. You can't wait for "a better market." You have to create that better market by pushing forward with White Space to introduce new solutions that meet emerging market needs.
by Adam Hartung | Dec 14, 2009 | Current Affairs, In the Rapids, Innovation, Leadership, Web/Tech
"The Google Phone, Unlocked" is a Seeking Alpha article detailing the early release of a Google phone planned for market introduction in 2010. Will this be successful or not? Legitimate question – given the success of Apple's iPhone. And the answer to that really has nothing to do with cell phone technology. It has everything to do with the downloadable applications. The market for phones has shifted to where applications are rapidly becoming more important than the phones themselves.
Which is why "Android to become eWallet" on MediaPost is an important article. Mpayy is offering an app that supersedes both credit cars and debit cards. It's Paypal on steroids. This app allows users who want to buy something to use their phone to instantaneously pay for something. Users can perform an eBay style transaction with immediate payment. And they can do this buying products in the Burger King, or Starbucks, or Target.
Two things are emerging that represent significant market shifts to which all businesses must react. Firstly, mobile devices are much more than phones. They are more than laptops. They allow people to do a lot more things than they previously could, and these activities can be immediate. From reading a CAT scan, to finding the closest pizzeria and downloading a coupon, to paying for a Pepsi at the convenience store. This represents substantially different use of technology. Those who remain Locked-in to old fashioned credit card/debit card technology – or internet transaction technology – will be left behind as users move quickly to mobile phone payment.
And, secondly, those who rapidly incorporate these opportunities will have advantages. If you're making your business more internet friendly you are likely fighting the last war. To be successful in 2012 it will be important you are able to offer real-time transactions buyers can access from their mobile device. People will want to find you, find your discounts, and pay you from the device in their hands. They will want to complete their business seamlessly using their mobile device – without a call, without a browser transaction. Those who make life easy for customers will increasingly win – and making life easy will mean access via the mobile device
It is increasingly ineffective to build future plans based upon completing projects started last year – or the previous year – or a few years ago. Customers don't care about your enterprise system implementation that is X years into implementation. Customers are running fast – really fast – toward using new, low cost and easily usable technology. This is a substantial market shift. And your scenario plans must incorporate these shifts, expect them, and use them to move beyond Locked-in competitors by implementing these shifts fast and effectively. That allows you to Create Marketplace Disruptions which create superior rates of return.
by Adam Hartung | Dec 11, 2009 | Current Affairs, Defend & Extend, Food and Drink, In the Rapids, In the Swamp, Leadership, Television
If you can't sell products, I guess you sell the business to generate revenue. That seems to be the approach employed by Sara Lee's CEO – who has been destroying shareholder value, jobs, vendor profits and customer expectations for several years. Crain's Chicago Business reports "Sara Lee to sell air care business for $469M" to Proctor & Gamble. This is after accepting a binding offer from Unilever to purchase Sara Lee's European body care and detergent businesses. These sales continue Ms. Barnes long string of asset sales, making Sara Lee smaller and smaller. Stuck in the Swamp, Ms. Barnes is trying to avoid the Whirlpool by selling assets – but what will she do when the assets are gone? For how long will investors, and the Board, accept her claim that "these sales make Sara Lee more focused on its core business" when the business keeps shrinking? The corporate share price has declined from $30/share to about $12 (chart here) And shareholders have received none of the money from these sales. Eventually there will be no more Sara Lee.
Look at Motorola, a darling in the early part of this decade – the company CEO, Ed Zander, was named CEO of the year by Marketwatch as he launched RAZR and slashed prices to drive unit volume:
Chart supplied by Silicon Alley Insider
Motorola lost it's growth in mobile handsets, and now is practically irrelevant. Motorola has less than 5% share, about like Apple, but the company is going south – not north. When growth escapes your business it doesn't take long before the value is gone. Since losing it's growth Motorola share values have dropped from over $30 to around $8 (chart here).
And so now we need to worry about GE, while being excited about Comcast. GE got into trouble under new Chairman & CEO Jeffrey Immelt because he kept investing in the finance unit as it went further out the risk curve extending its business. Now that business has crashed, and to raise cash he is divesting assets (not unlike Brenda Barnes at Sara Lee). Mr. Immelt is selling a high growth business, with rising margins, in order to save a terrible business – his finance unit. This is bad for GE's growth prospects and future value (a company I've longed supported – but turning decidedly more negative given this recent action):
Chart supplied by Silicon Alley Insider
Meanwhile, as the acquirer Comcast is making one heck of a deal. It is buying NBC/Universal which is growing at 16.5% compounded rate with rising margins. That is something which suppliers of programming, employees, customers and investors should really enjoy.
Revenue growth is a really big deal. You can't have profit growth without revenue growth. When a CEO starts selling businesses to raise cash, be very concerned. Instead they should use scenario planning, competitive analysis, disruptions and White Space to grow the business. And those same activities prepare an organization to make an acquisition when a good opportunity comes along.
(Note: The President of Comcast, Steven Burke, endorsed Create Marketplace Disruption and that endorsement appears on the jacket cover.)
by Adam Hartung | Dec 8, 2009 | Current Affairs, General, Leadership
In "Uptick Catches Entrepreneurs by Surprise" the Wall Street Journal points out that defensively-minded entrepreneurs are unprepared to undertake hiring or business expansion. Simultaneously, the Washington Post reports "Obama Preparing New Push to Add Jobs". What's clear is that there are incentives to undertake hiring, and with productivity at record highs it appears hiring needs are increasing. Yet, because they were looking in the rear view mirror many small business leaders are not prepared to participate and grow.
In "A Key To A Successful Business Plan" Forbes has just published my latest column, detailing why scenario planning is the first step for any business to overcome inertia and grow successfully. Instead of planning by looking to the past, we need to spend a lot more time looking at the future. Building scenarios that help us figure out where we want to be, successfully, in 2 to 5 years – rather than trying to replay the last inning over and over. Look at how well it worked at Apple the last decade!
"Now is absolutely the best time for your business to succeed. As the
collapse of Dubai World just demonstrated, enormous market changes keep
happening. Laggards and the unwise are failing, and businesses that
position themselves smartly to take advantage of market shifts are
winning big gains. Look at Google. There's never been a better
time to move ahead by developing plans for leading your business to
dramatic growth in revenue and profits." (read more of the article here)
My previous Forbes columns focused on the many current maladies of management. Insufficient innovation caused by Lock-in and obsession with outdated best practices has far too many companies performing far too poorly today. But followers of The Phoenix Principle know that it is possible to break out of this "doom loop" and be successful at growth through innovation implementation. Scenario planning is the first step, and a powerful replacement for traditional planning which wastes far too many cycles trying to review the past.
by Adam Hartung | Dec 6, 2009 | Defend & Extend, In the Swamp, Innovation, Leadership, Web/Tech
My last blog highlighted a new book describing the need for White Space if a business is to implement innovation and grow. But lots of people still have questions about what White Space is, and how to get it working.
Here's the chart from Create Marketplace Disruption (FT Press, available on Amazon.com) that shows how White Space is positioned to move beyond Defend & Extend Management.:
Most companies spend the vast bulk of their energy trying to Defend sales of current products to current customers. After expending 80% of the planning time, and company resource, in that cell, they then will try to see "can we sell other products to our current customers?" Or, "can we sell current products to new customers, such as by moving into a new geography?" As a result, they do almost nothing in White Space.
"Adjacent market" analysis is Extend effort. "Dartboard" approaches which look to grow by moving in concentric circles away from "core" are Extend efforts. These approaches are based on efficiency notions, that the company will get the biggest "bang" by doing very little differently and hoping to grab a big "win" with a small effort added to the Defend behavior. They hope to grow a lot by largely defending their "base" and adding a few, low resource commitment products or customers to the mix.
When you adjust for resources, the planning effort looks like this:
If you want to really grow your business, you have to change the planning effort first. Instead of putting all the resources into multiple rounds of effort about the business you know best, you need to simply do less in this area of planning. Moving from 90% accuracy on the first round to 95% after months of effort is pretty low yield. Instead, business should dramatically reduce the effort on known customers and products – and invest considerably more time developing scenarios about future markets leading them to White Space.
Extend markets almost always are disappointing. While the effort looks simple, that's only a view of "the grass looks greener across the fence." Reality is that competitors exist in those markets, and when the company tries to extend into them with limited resources they run headlong into very stiff competition. The company retreats to Defend the "core" and the Extend opportunities produce very low sales and miss profit projections dramatically. Usually, the leaders start complaining about having taken the venture, feel burned by trying to innovate, and reinforce their desire to focus on maintaining the "base" business.
To get over this, businesses have to start by realizing that entering new businesses takes more planning than the base business – not less. You have to identify the critical Permission needed to allow the White Space team to operate outside the Lock-ins. Be clear about the new approach, and the goals. And identify the resources needed – as well as the source of those resources (people and money.) This doesn't happen automatically, because it isn't part of the existing planning process. It takes a lot of effort to develop market scenarios and plans – then follow-up on the experiences to understand what works and keep evolving toward achieving goals. And that is where the planning effort really needs to focus.
White Space is critical to success. All businesses MUST evolve to new products and new customers. The idea that this can happen with little effort is misguided. Instead of planning the "base" business, success starts by putting more resources into market scenario development, developing insight to know what permissions are needed to succeed and then establishing funding so the White Space project can succeed.
Think about Apple. As long as Apple focused planning on the Macintosh the company moved further toward a small provider to niche PC markets. Only by using market scenarios to understand that growth opportunities were much better in entirely new markets were they able to change resource allocation and move aggressively into the business of iTouch, iPod, iTunes and eventually iPhones. Apple is outperforming almost everyone in this recession – and a lot of that success is due to using scenario planning to identify new market opportunities, rather than spending all the planning resources understanding previously served, traditional markets.
by Adam Hartung | Dec 3, 2009 | Books, Current Affairs, In the Swamp, Innovation, Leadership, Lock-in
Seizing the White Space is a new book being launched by HBS Press (and being pre-sold on Amazon.com.) I'm very glad to read about others who are taking up the message of Create Marketplace Disruption – which first published the critical role of White Space in successfully managing any business (published in 2008 by Financial Times Press and also available on Amazon.com).
The author, Mark Johnson, is Chairman of Innosight, a consulting firm he co-founded with Clayton Christenson who's on the Harvard Business School faculty (and author of The Innovator's Dilemma also on Amazon.com). Innosight primarily focuses on consulting businesses to identify Disruptive innovations. Now the Chairman is starting to realize that implementation is as important as identifying the implementation – and he's linked it to WHITE SPACE. Great!!!
You can read his insights to how IBM and some of his other large clients have used White Space in an Harvard Business Publishinng Blog "Is Your Company Brave Enough For Business Model Innovation?" You'll quickly see that he applies The Disruptive Opportunity Matrix from chapter 10 of Create Marketplace Disruption – which is how companies have been shown to reach new businesses using White Space. It's so gratifying to read somebody else who's applied your research and come to the same conclusions!
I'm looking forward to the book. Readers please let me know what you think of the author's blog post – and the book when it comes out.
Post-script to yesterday's blog about the CEO of GM:
"Cat's Owens, Deere's Lane on short list of CEO candidates" is the AP article appearing on Crain's Chicago Business about the search for a new leader at GM. As I predicted yesterday, recruiters seem to think the ideal candidate for the job needs to be from another big industrial company. And preferably, an auto company "to understand the industry complexities." Not only is there no incentive for these highly paid executives to take a similar job, at a lot less pay, in a government funded organization — but investors shouldn't want it! GM needs change. And more change than trying to make GM into John Deere, or CAT.
John Deere has had weak results for decades. The company has been wedged between other equipment manufacturers so badly that most of its profits now come from yard tractors homeowner's buy from Home Depot. Just because the company is big, and one of the few left making equipment for which there is declining demand, is no reason to want the CEO at a turnaround like GM. Likewise, CAT is under intense competition from Komatsu, Volvo and other manufacturers who are squeezing it from all sides – jeapardizing revenues and profits. Only acquistions have kept CAT growing the last 10 years, and margins have plummeted. That leadership is not what's needed at GM either.
When will somebody speak up for the investors and start a search in the right direction? GM needs leadership that thinks entirely differently. Unwilling to accept old-fashioned industrial notions about how to lead a company. Like I recommended, go somewhere entirely different. Maybe recruit somebody from Dell or HP or Cisco that understands rapid design cycles. Or someone from Wal-Mart or Target that understands how to sell things – cheaply. Or someone from Oracle or Mozilla or Google that understands the value of software – and that the product is a lot more than the iron – so you can capture the right value. It's so disappointing to read how the "recruiting industry" is just as Locked-in as GM.
If one of you readers knows somebody on the GM Board, maybe you should send them this blog (and yesterday's) to see if they can consider searching in the right place for new leadership!
Don't miss the recent ebook, "The Fall of GM" for a
quick read on how easily any company (even the nation's largest employer) can be
easily upset by market shifts. And learn what GM could have done to avoid
bankruptcy – lessons that can help your business grow! http://tinyurl.com/mp5lrm
