by Adam Hartung | Sep 11, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in
Stealing language from FDR, September 11, 2001 is a day that will go down in infamy. Dramatic shifts happened in the world resulting from the horrific attacks on American civilians in New York, Pennsylvania and D.C. . But can we say that most organizations have reacted effectively to those shifts?
Few industries were more affected by the attacks than the airline industry. Shut down for a week, revenues plummeted immediately and were hard to win back from a frightened public. But if ever there was an industry of needing to push the "reset button" on how things worked it was airlines. All the major players (except Southwest) had struggled with profitability, many declaring bankruptcy. Some never emerged (like PanAm, Eastern, Braniff). Mergers had been rampant as companies tried to expand into greater profits – unsuccessfully. Customer satisfaction had been on a straight southeasterly direction, lower and lower, ever since deregulation. Here was a collection of businesses for which nothing was going right, and in dire need of changing their business model.
The shut down and economic downturn provided a tremendous opportunity for the airlines to change their Success Formula. The government allowed unprecedented communication between companies, and unions were ready to make changes, to get the air traffic system working again. A sense of cooperation emerged for finding better solutions, including security. Market shifts which had been happening for a decade were primed for new solutions – perhaps implementing operational methods proven successful at Southwest.
Unfortunately, everybody chose instead to extend Lock-ins to old practices and bring their airline company back on-line with minimal change. Instead of using this opportunity to Disrupt their practices, taking advantage of a dramatic challenge to their business, and use White Space to try new approaches – to a competitor every single airline re-instituted business as usual. To disastrous results. Quickly profits went down further, customer satisfaction dropped further and in short order all the major players (except Southwest) were filing bankruptcies and hoping some sort of merger would somehow change the declining results.
The airlines' problems were not created by the events of 9/11/01. But on that day long-developing market shifts become wildly apparent. The airlines, and other industries like banking, had the opportunity to recognize these market shifts, admit their impact on future results (not good), and begin Disrupting old practices in order to experiment with new solutions that better fit changing market needs. None did. It wasn't long before America was mired in another long and expensive military conflict, and an extended deep recession. For most businesses, things went from bad to worse.
Leaders need to recognize when external events pose the opportunity to Disrupt things as they've been – Disrupt the status quo – and start doing things differently. These prime opportunities don't happen often. Reacting with reassurances, and efforts to get back to the status quo as quickly as possible prove disastrous. This is an emotional reaction, seeking a past sense of stability, but it creates additional complacency worsening the impact of market shifts already jeopardizing the future. Instead, one of the most critical actions leaders can take is to leverage these market challenges into a call for Disruptions and use White Space to implement new solutions which meet market needs.
If only the airlines had done that perhaps they could operate on-time, let customers check luggage without a charge, provide quality meals on long flights and internet access on all flights, and provide a reliable service that customers enjoy. If they had sought to find a better solution, rather than Defending & Extending what they had always done, airline customers would be in a far better shape. And that's a lesson all leaders need to learn from the events of 9/11 – use challenges to move forward, not try reclaiming some antiquated past.
To read how GM ended up bankrupt by refusing to recognize opportunities for changing to meet shifting market needs download the free ebook "The Fall of GM."
by Adam Hartung | Sep 8, 2009 | Current Affairs, Defend & Extend, Food and Drink, General, In the Swamp, Leadership, Lock-in
When they can't figure out how to grow a business, leaders often turn to acquisitions. This despite the fact that every analysis ever done of public companies buying other public companies has shown that such acquisitions are bad for the buyer. Yet, after no new products at Kraft for a decade, and no growth, "Kraft shares fall on Cadbury bid, Higher offer awaited" is the Marketwatch.com headline.
Some analysts praise this kind of acquisition. And that's when we can realize why they are analysts, in love with investment banking and deals, and not running companies. "Kraft is demonstrating its operational and financial strength" is one such claim. Hogwash. After years of cost cutting and no innovation, the Kraft executives are worried they'll get no bonuses if they don't grow the top line. So they want to take a cash hoard from all those layoffs and spend it, overpaying for someone else's business which has been stripped of cost by another CEO. After the acquisition the pressure will be on to cut costs even further, in order to pay for the acquisition, leading to more layoffs. It's no surprise that 2 years after an acquisition they all have less revenue than projected. Instead of 2 + 1 = 3 (the expected revenue) we get 2 + 1 = 2.5 as revenues are lost in the transition. But the buyer will claim revenues are up 25% (.5 = 25% of the original 2 – rather than a 12.5% decrease from what the combined revenues should be.)
With rare exceptions, acquisitions generate no growth. Except in the pocketbooks of investment bankers and their lawyers through deal fees, the golden parachutes given to select top executives of the acquired company, and in bonuses of the acquirer who took advantage of poorly crafted incentive compensation plans. These are actions taken to Defend & Extend an existing Success Formula. The executives want to do "more of the same" hoping additional cost cutting (synergies – remember that word?) will give them profits from these overpriced revenues. There is no innovation, just a hope that somehow they will work harder, faster or better and find some way to lower costs not already found. Kraft investors are smart to vote "no" on this acquisition attempt. It won't do anybody any good.
Simultaneously we read in MediaPost.com, "Del Monte To Hike Marketing Spend 40%." If this were to launch new products and expand the Del Monte business into new opportunities this would be a great investment. Instead we read the money is being spent "to drive sales of Del Monte's core brands and higher-margin businesses." In other words, while advertising is off market-wide Del Monte leadership is attempting to buy additional business – not dissimilarly to the goals at Kraft. By dramatically upping the spend on coupons, shelf displays and advertising Del Monte will increase sales of long-sold products that have shown slower growth the last few years. Del Monte may well drive up short-term revenues, but these will not be sustainable when they cut the marketing spend in a year or two. Nor when new products attract customers away from the over-marketed old products. Lacking new products and new solutions such increased spending does not improve Del Monte's competitiveness.
You'd think after the last 10 years business leaders would have learned that investors are less and less enamored with financial shell games. Buying revenues does not improve the business's long term health. A cash hoard, created by cutting costs to the bone, is not well spent purchasing ads to promote existing products – or in buying another business that is already large and mature. Instead, companies that generate above-average rates of return do so by developing and launching new products and services.
You don't see Google or Apple or RIM making a huge acquisition do you? Or dramatically increasing the marketing budget on old products? Compare those companies to Kraft and you see in stark contrast what generates long-term growth, higher investor returns, jobs and a strong supplier base. Disruptions and White Space lead these companies to new innovations that are generating growth. And that's why even the recession hasn't shut them down.
by Adam Hartung | Sep 3, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership
I never cease to be startled by the optimism of businesspeople. Why would anybody buy a newspaper company these days? Yet, Crain's reports "Sun Times Sale Appears Near." It's believed the buyers are a group of independent investors, no media experience, led by Mesirow Financial Group.
Ever heard the term "smart money?" This is definitely not "smart money." Just like Cerberus was none to clever to spend billions buying Chrysler a couple of years ago. Shortly before it went bankrupt. Too often, those with lots of money to invest become full of hubris. They believe their experience allows them to "fix" any business. This almost always involves cost cutting – such as letting go any sort of R&D, product development, advertising, marketing and often sales. Assets are sold to raise cash and incur one-time write-offs (with tax deductions) and get rid of depreciation charges. These financiers believe they can "fix" any business if they are "tough" enough to cut enough costs, and get the remaining employees "focused" on specific segments with specific products.
Only we're finding out that just doesn't work. This sort of "company flipping" was prevalent in the early 2000s. But it added no value, and it wasn't long before market investors quit playing. The value of these cost-stripped businesses, with no growth potential, dropped like a stone. Without growth, the business just keeps on shrinking.
Tribune Corporation, parent of newspaper Chicago Tribune, has already filed bankruptcy. But it is expected to wipe out bondholders (lots of it the employee pension plan), and come out of bankruptcy. To a market which in which fewer and fewer people read newspapers, and fewer and fewer advertisers are buying ads. There is too much competition today for too few subscribers, and too few advertisers, in newspapers. Sun Times Media has no major on-line presence, nor television stations. So how will these investors make a return on their acquisition investment?
They won't.
It's hard to give up in business. It's hard to believe that there just isn't demand for buggy whips any more. It's hard to believe that the last remaining buggy whip manufacturers are so competitive, unwilling to give up, that they don't make much profit. We are romanced into believing that "if you really want to be a blacksmith, there's a way to make money at it." We want to believe that somehow if we work hard enough, if we're smart enough, we can "fix" any business. But when the market has shifted, and demand drops, the smart leaders know to say "no." They take their investing to where customers and demand are growing so they can make a much better rate of return.
Invest in the Rapids. Not the Swamp. Companies in the Swamp almost always end up in the Whirlpool. It's hard to think Sun Times Media isn't already there – what with their negative cash flow and very small cash hoard. Unless you know exactly how you're going to add growth to a troubled business, it's best to simply walk away.
by Adam Hartung | Sep 2, 2009 | Current Affairs, Defend & Extend, General, In the Rapids, In the Whirlpool, Leadership, Openness
"Huffington Says Her Site Is Close To Making Money" is the video headline at Marketwatch.com. For years this blog has chastised traditional news publishers for trying to Defend & Extend their traditional business, when the market has shifted on-line —- both for readers and advertisers. Of course, the newspaper companies counter this argument by saying that they can't make any money on-line. They have to defend their traditional business – even from web competitors.
When shifts happen it's best to get started experimenting and migrating early. You may hate the political bent of HuffingtonPost.com, but that it's near making money shows that the model can work. Just differently than a newspaper or magazine. Unfortunately, most traditional media have been too busy trying to fend off the web to learn anything. For example, Tribune Corporation has long owned equity stakes in CareerBuilder.com and Cars.com as well as FoodChannel.com. But the company refused to learn from these ventures and migrate toward a different Success Formula.
Now it's too late for these traditional companies. You may think that if HuffingtonPost.com is still not quite profitable there's still time to compete. But reality is that Ms. Huffington's organization has been experimenting and learning and creating this Success Formula for 4 years. That kind of learning you can't pick up overnight. You have to participate in the marketplace, then make what you learn (good and bad) available for everyone to see. Then you have to discuss what you've learned openly so the organization can become knowledgable about what works and migrate toward a new Success Formula in which they have confidence. And that's why most companies react to market switches way too late. They think they can jump in at the last minute. But by then the HuffingtonPost.coms and Marketwatch.coms and MediaPost.coms have already learned how to succeed at this business, developed a subscriber base and created a viable ad sales program.
Take for example "Clunkers Program Boosts Ford, But Not GM, Chrysler" as headlined on Marketwatch.com. Now that the results are in from the government stimulated "clunkers" program, we know that the market has shifted away from GM and Chrysler. Year-over-year, Hyundai sales were up 47%, Honda up 9%, Toyota up 6.4%. Ford scored big with sales up 17%. But GM sales were down over 20%, and Chrysler sales fell 15%. We can see from this data that people were ready to buy cars, given a boost. While the overall market was up, we can see that it has shifted to a new batch of competitors. GM and Chrysler simply weren't prepared to compete – and it's doubtful they ever will be. They've missed the market shift, and now they don't have the R&D, products, distribution, marketing, etc. to remain competitive with companies that are seeing volumes and revenues rise.
Of course, every company has the opportunity to shift with markets – or be crushed by changes. The latest economic reports show that too many American businesses, like GM and Chrysler, are waiting to be crushed. "US productivity rises at fastest pace in nearly 6 years, while labor costs plunge in spring" is the ChicagoTribune.com headline. This is bad news for those thinking an economic upturn will save them.
When an economy grows productivity improvements are good. Imagine you sell 100 items. You have 100 employees. Productivity is 1. A growing economy allows you to sell 105, your employment remains the same, and productivity jumped 5%. Lots of winners – between the employees (more pay or bonus), the customers (possibly lower prices down the road based on rising volume), for investors (more profits) and for suppliers (more volume and less pressure on prices.) Let's say the economy slackens – like 2009. Volume drops to 90. But through cost saving measures employment drops to 86. Productivity just went up almost 5%! But nobody won. And that's what's happening today. Labor rates keep dropping because there's more labor supply than product demand – and if businesses keep cutting costs we'll improve our productivity right up while the economy keeps going down.
Business leaders need to be more like Huffington Post, and less like GM. To improve profits they need to recognize that markets have shifted, and move quickly to develop new Success Formulas which get them growing. Trying to Defend & Extend the old business, like newspaper publishers, simply drives you toward bankruptcy. Instead, it's time to Disrupt the status quo and create some White Space projects to learn what the market wants. It's time to experiment and get the whole company involved in applying the collective brainpower to develop new a new Success Formula which gets you growing, making more money, and improving productivity for real!
by Adam Hartung | Aug 31, 2009 | Current Affairs, General, In the Swamp, Leadership, Openness
Did you know that last night the Japanese turned over their government? For 54 years one party has ruled Japan – a very pro-business, conservative party. Then last night the voters threw out the old guys and in a landslide replaced 3/4 of their elected government officials. The new politicians are considerably left of center by U.S. standards, a dramatic shift. "Calls for Fast Action after Historic Vote" is the Yahoo! News headline.
You may be so tired of American politics that your interest in a Japanese election may be – let's say muted? But this is really a very big deal. Japan is the second largest global economy. A change from the conservative, pro-business leadership to a more free-spending and liberal government is sure to have an impact on businesses everywhere – including the USA. Remember we are Japan's #1 trading partner, they buy (and hold) a substantial portion of U.S. Treasury securities, and Japanese industrialists are often credited with having killed the U.S. steel and auto industries. This is a market shift well worth paying attention to.
Ever since the great Japanese stock market melt-down in the early 1990s the U.S. has been pushing Japan to reflate the economy. But the conservative government was opposed. Thus, deflation kept Japanese from buying many goods. But it now appears that several new stimulus programs will begin in Japan, which would raise the prices of Japanese imports (look out U.S. consumers) while increasing demand for offshore goods.
Historically Japan bought loved U.S. goods, but shunned products from China, Taiwan and Korea – a leftover from their significant invasions and horrible treatment of people in those countries in the early 1900s until the end of WWII (Japanese Emporer Hirohito was about as popular in those countries as Hitler is in the USA.) But new liberalism is likely to lead to more apologies from Japan, and a thawing of relations. Which could lead to more trade with China and Korea – which would only exacerbate the U.S. economic problems. We could see prices go up on imports, but no significant increase in exports!
Think we have a growth problem? Since peaking earlier in this century at 126M people, the Japanese population has actually been shrinking. Most demographic experts believe the population will fall to below 100M by mid-century (that's just 40 years folks!) Activities to stimulate the economy, creating more domestic demand and more domestic production could pull money away from buying U.S. Treasury bonds to fund domestic programs, making the interest rates on Treasuries go up, further dampening the U.S. economy due to debt costs (we running a bit of a deficit – in case you missed the news lately.) Higher Treasury cost means higher corporate debt cost means harder to raise money – and dampers profits. Meanwhile, inflation gets worse as we struggle to refund our debt load.
Japan has no domestic petroleum. If you think our energy supply/demand is out of balance you ain't seen nothin' till you look at Japan. They have to buy almost all their energy. Reflate the economy, increase domestic demand for housing and cars (including dropping all road tolls – which can be $60 or $100 on a Japanese roadway) and you get increased energy demand, driving up prices, and putting more dampening on the U.S. economy as we pay more for oil, gas and electricity imports.
If you don't sell in Japan today, why not? The new government promises to reduce the power of heavy handed bureaucrats (like at MITI) who have blocked expansion for decades. For the first time in our lifetimes, we can anticipate a Japanese economy that will accept significantly more imports. Stimulus money, strong currency and pent-up demand all indicate a much more desirable place to make and sell things than, say, America?
Market shifts happen at lots of levels. And when they happen at the level of an economy, (read more about this in Create Marketplace Disruption) everything higher – like industries, companies, functional resources and work teams – have to shift with it. If you don't, you become like the manufacturers being wiped out by today's global industrial shift. The Japanese economy is on the precipice of a really big shift. Intentionally. If you don't prepare, you could see really bad things happen to your business. On the other hand, if you watch closely, learn from the shift, and take action this just might be one of the biggest opportunities ever to grow your business. So you'd better update your scenarios about the future, rethink Asian competition, Disrupt your patterns to consider new ideas and open some White Space to deal with this. Because it could make a huge difference in just a year or two.
by Adam Hartung | Aug 27, 2009 | Current Affairs, Disruptions, General, Leadership, Lifecycle, Openness, Quotes
Brilliant. A word we rarely use in the USA, the British will hear of a good idea and respond "brilliant." When I saw "Motel 6 Offers Free Rooms to 3 Rock Bands" in USAToday I simply thought "brilliant."
Do you remember the old Motel 6 ads? "We'll keep the Light on For You" was how Tom Bodett, a National Public Service radio announcer from Alaska enticed people. Using a very rural, almost corny approach to undersell the rooms, this tied to 1950ish thoughts about visiting distant relatives. It wasn't a bad ad. And it probably worked really well (I still remember the ads) for years after release in 1986. But that tone doesn't have much appeal to the younger generation. 29 years after being launched, the under 35 crowd doesn't remember this ad – nor did they grow up in a rural America – nor do they know the origins of looking for reliable, clean motels on a cross-country trip during the early days of interstate highways. And they simply don't care. That ad program ran its course, to be polite. Motel 6 might be a good product, but it was slipping away into the oblivion of brands you forget – like Howard Johnson's. Or Ovaltine.
Hand it to management of Motel 6 and parent Accor, they Disrupted the old approach by offering free rooms to rock bands. If you've read my previous posts on the music business you know that musicians end up covering their own cost for travel – and as the USAToday article points out, many band members spend most nights sleeping in the van or on the floor of someone's house. It's definitely not free booze and hooliganism in a 5-star property. So these band members are quite pleased to have someone offer them free rooms – clean, tidy and comfortable.
Now those band members can reach out to their followers via Twitter and Facebook with positive comments and thanks for these rooms. A medium where you can't buy ads, but where reputations can be created and expanded. Not only promoting Motel 6, but promoting to an audience the company wasn't even reaching before. And catching one of the most highly prized, and valued, demographics in the ad business – age 24 to 34. Who knows how long these young folks might remain customers, after they discover the wonders of clean, affordable lodging.
Anybody can do what Motel 6 just did to help re-invigorate your business. It would have been very easy for sleepy Motel 6 brand to have remained where it was, doing what it always did. And continue losing mind-share, as well as profitability. But this move, at an amazingly low cost (literally, advertising in exchange for product, is an incredible deal – and a lot cheaper than those old radio ads), will revive the brand among a new group of customers – and a group that is not well served by the hotel industry. It's hard to find anything in this move that doesn't come off like a big win for everybody!
by Adam Hartung | Aug 25, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
I think it's a lose – lose – lose. "Brett Favre Signs with Vikings" was the ESPN.com headline. I wasn't going to bring this up, but in 2 days I've had 8 requests, so I guess people are more interested in Mr. Favre at the start of this American NFL season than I imagined. The situation is simply dripping with Defend & Extend behavior, and an inability to focus on the future. And it's hard t see how anybody wins.
The first loss goes to the Minnesota Vikings. Every team is built by growing a powerful squad. By hiring "yesterday's hero" the Vikings have admitted they are not looking to the future. The coaches are trying to somehow capture yesterday. Were they concerned the team would repeat last year's Detroit fiasco and lose every game? Because if they weren't why sacrifice the team's future by hiring an on-field leader that everyone knows is unable to play much longer? This isn't a lot different than GM putting Mr. Bob Lutz, at age 77, in charge of marketing. What was a great past does not make for a great future.
The young people in Minneapolis want to see their home-town team be Super Bowl champs in 2010, 2011, 2012, 2013 and onward. With someone age 39 in the job, slower than ever, it is certain that the team is not "building" toward a potential legacy like teams have had in Green Bay and Dallas. Sixteen year old attendees weren't even alive when Mr. Favre started his football career. They want to see people in the jobs who can help their team become a dynasty – and that's not Mr. Favre. Minnesotans, especially young ones, have to question coaches and owners that would hire someone who, at best, is good (impossible to be great) for a year or two. It rings of defeatism, of desperation, to take this action.
Mr. Favre himself loses with this move by denying his own ability to grow. Americans have great respect for sports heroes that prove themselves after playing ball. Look at those who are revered for not only their play, but their after-play prowess
- Troy Aikmen won Super Bowls at Dallas, then never skipped a beat becoming a respected and popular sports announcer
- Roger Staubach won Super Bowls also at Dallas, but worked summers learning real estate then built his own multi-million dollar real estate development empire
- Jack Kemp played football for the Buffalo Bills, then went on to be a successful Congressman and even was a Vice Presidential candidate with Bob Dole
- Bill Bradley played basketball for championship winning New York Knicks, then became a 3 term senator from New Jersey
- Roger Penske was a world winning race car driver, but is even better known today for building the largest auto dealership company in North America, one of the largest truck leasing companies and recently bidding to purchase Saturn from GM.
By returning to football, Mr. Favre demonstrates he is so Locked-in to playing ball that he isn't looking forward for himself. He can't play football forever, so what will he do next? He has enough money to retire, but there's not much personal growth in retirement. Life is about growth, and at age 39 Mr. Favre has a lot of time to grow into new and even more powerful roles. But he can't if he keeps going back and playing football. It's not a good thing that Mr. Favre isn't growing into other roles where he can be a significant contributor.
The third loser is Wrangler jeans, a division of VF Corporation. "Favre Should Add Bang to Wrangler Effort" is the MediaPost.com headline. Mr. Favre recently agreed to be advertising spokesperson for Wrangler, and the initial view is that his return to football will sell more jeans. To whom? Forty-ish men who dream of a sports career? Cast as an outdoorsman, or new businessman, with a proud legacy Mr. Favre has appeal to a wide group of buyers. But as an aged football player he represents all the people who are questioned as "over the hill."
Mr. Favre could be a role model for younger people as a retired football player. But as an active one he has limited appeal to younger people who are more attuned to Phil Rivers or Tony Romo. Young people don't desire to be the oldest quarterback in the NFL. By Mr. Favre playing football, Wrangler de facto gets positioned as the "jeans for old guys." Mr. Favre could have been a powerful young sports hero starting a new career – a much more favorable position for Wrangler.
When we slip into Defend & Extend thinking nobody wins. Success comes from focusing on the future, and taking the actions that will beat your competitors. Reaching into the past does not bode well for anybody looking to beat the competition, because the competition knows all those old moves. Everyone involved would have been better off if Minnesota had Disrupted its plans by bringing in a quarterback with a sizzling chance to be THE NEXT Brett Favre, rather than Mr. Favre himself. And then building a program that would position them as the next dynasty, not one trying to protect its Defend its current season by Extending the career of somone who's already twice retired. And Wrangler should have thought about this in advance, with a clause in Mr. Favre's contract not allowing him to play football any more if he wants to continue representing their brand.
by Adam Hartung | Aug 24, 2009 | Current Affairs, General, In the Rapids, In the Whirlpool, Leadership, Lifecycle, Lock-in, Music, Openness
"Sears Axes Ad Budget As Sales Slide" is the latest Crain's article. Revenues have been falling at Sears ever since Mr. Ed Lampert took control of the venerable Chicago retailer. His initial actions were to cut costs in order to prop up profits. Which worked for about 8 quarters. But then the impact of cost cutting cracked back like a bullwhip, shredding profits. Mr. Lampert reacted by further cutting costs to "bring them in line with sales." And the whirlpool started. Cut costs, revenue falls, cut costs, revenue falls, cut costs…… And now he largely blames the recession for Sears poor performance. As if his Lock-in, and that of the management, to old approaches had nothing to do with the dismal results now at Sears.
There are those who think these actions are smart, to bring costs "in alignment with retail trends" as Morningstar put it. But reality is Sears is now in the Whirlpool of failure. Looking at the lifecycle, they've gone past the point of no return – out of the Swamp of slow growth – and into the last stage - failure. The stores would be closed and sold to other retailers, except there's a dearth of retail buyers out there these days. Thus shareholders are stuck with underperforming real estate, constantly declining revenues and falling cash flow.
Not all retailers are seeing declining revenues. Bloomberg.com reported today "Apple May Be Highest Grossing Fifth Avenue Retailer." While Sears and others are watching sales go down, Apple's retail store revenues rose 2.5% this year – and it's Fifth Avenue store has seen traffic increase 22% this last quarter. In a town where tourists often put an emphasis on shopping, they used to ask locals how to find Bloomingdales or Saks. Now they want to know where to find the Apple store.
Markets shift. When they do, you have to change your Success Formula or your results decline. When customers change their behavior, you have to change as well or your sales and profits go down. But most leaders react to market shifts by trying to do the same thing they've always done, only faster, better and cheaper. Oops. That only leaves you chasing your tail – just like Sears. You keep working harder and harder but results don't improve. Then eventually something happens that throws you into bankruptcy, or an acquisition for your assets, and it's "game over." Meanwhile, all the time you're watching returns shrink shareholders watch value decline, employees grow disgruntled as you whittle away bonuses, benefits, pay and jobs, and vendors grow tired of the impossible negotiations for lower costs while waiting to get paid on strung-out terms. Nobody is having a good time. Just go ask the folks at Sears.
But there are always businesses that catch the market shift and use it to propel their growth. Like Apple. Once a niche and low-profit computer manufacturer, they've turned into a producer of music players, music distributor and mobile phone supplier as well as computer manufacturer. And when everyone would have said that retail is a terrible investment, they've turned into a surprisingly successful retailer as well. Appple keeps throwing itself back into the Rapids of growth, rather than slipping into the Swamp of stagnation and Whirlpool of failure.
Apple keeps going toward the market shifts. Apple's CEO (and increasingly other executives) Disrupts the company's Success Formula, always challenging the company to do new things. And White Space is constantly created where permission is given to operate outside old Lock-ins and resources are provided for the opportunity to grow. Apple could have done a half-hearted job of retailing, trying to act like Best Buy or Nike with its stores and merchandise, or only funding stores in suburban malls instead of tier 1 retail space on the very best (and most expensive) retail avenues.
The next time you're asking yourself "when will this recession end?" think about Sears and Apple. If your business acts like Sears your recession won't be anytime soon. If you keep doing more of the same, cutting costs and hoping to hold on for a recovery, your doing nothing to end the recession and it's unlikely you'll find much improvement in your business. But if you develop scenarios about the future which allow you to attack competitors, using Disruptions to change your approach and the market, then using White Space to develop new solutions you can bring this recession to an end sooner than you think. People in your business will have chances to grow, and so will your revenues and profits.
For more about how we set ourselves up for failure, and how to avoid the traps download the free ebook The Fall of GM: What Went Wrong and How To Avoid Its Mistakes.
by Adam Hartung | Aug 21, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Lock-in, Openness
Smartphones will outsell PC by 2011 according to Silicon Valley Insider:
Your first reaction might be "interesting chart, so what's the big deal?" That's the way a lot of people react to news about market shifts. Like the shift is important maybe for the suppliers, but what difference should it make to me? That's kind of how a lot of people reacted to PCs when they came along – and those businesses ended up with IT costs that were too high and processes that were too slow.
Market shifts affect us all. As the number of smart phone users keeps doubling, the number of new PC buyers doesn't. You may not care today that there will be more smartphones sold in 2011 – but if you think about it, you should.
- Do you deliver information across the internet? If so, are you formatting content for access on a PC screen – or on a smartphone?
- Are you publishing information for long-format page views like a PC, or short-format small views like a smartphone?
- Are you planning to continue sending people information on email, or will texting be more efficient and practical soon?
- Do your on-line ads present well on a smartphone?
- Do you print things you should send immediately via smartphones? Could you stop printing?
- Do you have a PC in your family room – and will you need to have one there when everything you want to know is available on a smartphone?
- If you can access 90%+ of your information on a smartphone, will you still carry around a laptop?
- Will fax machines become obsolete? What will that do for land-line demand? What does this portend for maintaining land-line service to your home or business?
These are just a few thoughts about how things could change as smartphone sales grow. There will be more. The biggest risk in this chart isn't that the lines meet in 2011 – but that as we get into 2010 smartphone sales keep growing on a log (rather than linear) line and PC sales don't recover anywhere close to the projections shown here. Realizing that forecasts tend to be wrong by more than 25% as often as they are correct within 10%, we can realistically expect that in 2011 smartphone sales might be more than 500MM units, and PC sales might be less than 250MM units – or rougly double!!! When that sort of impact happens, we see sales fall off a cliff of old technology. Do you remember when every admin had a typewriter – then suddenly none did – like in a matter of months.
So, are you preparing for this possibility? If you did, could you gain advantage over your competition? If you were the first to aggressively plan for, and implement, smart phone technology use can you lower your cost? Better connect with customers? Find new customers? React faster to customer needs? Offer new services? Promote new products?
If you wait, what can your competitor do to you? How could she clip your customer relationships? Lower her prices? Expand her offerings? If you wait, how could you find yourself doing poorly?
This will be a big deal for the technology companies. This shift is the kind of thing that could expose the great weaknesses in Microsoft's and Dell's horribly Locked-in Success Formulas. It also could catapult Apple, Google — or maybe an outside player like Motorola (largely given up for dead) into a leadership position. Positions could change very fast if the adoption rate turns more aggressive. Is your investment portfolio prepared?
We see these kind of charts all the time. But do you do anything about it? Market shifts happen. They obsolete old Success Formulas. They put businesses at risk that aren't paying attention. They create new winners out of companies that aggressively pursue the shifts. We often see the shift coming – but Lock-in keeps us from doing anything about it. Perhaps you need to consider Disrupting your status quo and setting up some White Space to see what you can do to improve your position!
by Adam Hartung | Aug 20, 2009 | Current Affairs, General, In the Swamp, Innovation, Leadership, Lock-in, Openness
I was struck to learn that most people with a growth plan simply think they will sell more to customers in existing markets. About 2/3 of respondents to a Harvard study.
Chart from Harvard Business School Publishing
But we know that not only you, but your competitors are all hoping to sell more to the existing market! This is the fodder for price wars, and declining returns. When we think we can somehow eke more out of existing customers – even if we think we'll take them a new product – we are ignoring competitors. As a result, we rarely get the growth. The results are pre-ordained, when everyone is trying to do the same thing all you get is a war to Defend your existing business!
The encouraging sign is that about 40% of respondents are considering new markets. And that's a good thing. A GREAT Wall Street Journal article "The New, Faster Face of Innovation" tells us that everyone has the opportunity to apply more innovation today. At length this article explains how today's computer deep, networked world allows for testing of almost everything, almost anywhere, pretty nearly continuously, for very small cost. The biggest obstacle to testing more options, trying more innovation, is the self-imposed limits management puts on the tests!
Now, more than ever, businesses need to be oriented on growth. But that doesn't mean entering gladiator style battles to see who can win, usually coming out the bloodiest, battling in existing markets. Quite to the contrary, now is the perfect time for trying new things to connect with shifted markets. People are looking for new solutions to their problems, and willing to evaluate more options than ever. But management Lock-in to traditional notions about the market – set at an earlier time, under different conditions – will often keep a company from trying new things, entering new markets, testing new solutions. Too often management wants to remain "focused" on its "core offerings" and "core strengths" creating the gladiator-style environment!
Use innovation to test! Leaders need to let lower level managers test new options. The most important thing leaders can do today is give PERMISSION to the organization to create new options, and the RESOURCES (now smaller commitments than ever) for testing those options. These become White Space projects where we can forget the conditions which initially created the old Success Formula and find out what works NOW. Those companies that are willing to Disrupt Locked-in notions about how markets should behave will use these market tests to create the most desirable solutions in the future. And these companies will come out the winners.
Just think like these folks:
- Amazon retailer creating the Kindle e-reader
- Apple computer creating iTunes and the iPod
- Google search engine creating AdWords for on-line advertising placement
- Singer Sewing Machines becoming a defense contractor
- Royal Dutch Shell Petroleum building wind farms
[And, like I wrote in my latest Forbes article, this will work for health care as well
http://tinyurl.com/pkupxv]
